[Congressional Record Volume 151, Number 43 (Wednesday, April 13, 2005)]
[Senate]
[Pages S3604-S3605]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
INTERNAL REVENUE CODE OF 1986 AMENDED TO PROVIDE FOR PROPER TAX
TREATMENT OF CERTAIN DISASTER MITIGATION PAYMENTS
Mr. SESSIONS. Mr. President, I ask unanimous consent that the Finance
Committee be discharged from further consideration of H.R. 1134 and
that the Senate proceed to its consideration.
The PRESIDING OFFICER. Without objection, it is so ordered. The clerk
will report the bill by title.
The assistant journal clerk read as follows:
A bill (H.R. 1134) to amend the Internal Revenue Code of
1986 to provide for the proper tax treatment of certain
disaster mitigation payments.
There being no objection, the Senate proceeded to consider the bill.
Mr. BAUCUS. Mr. President, today, we will pass legislation in the
Senate that provides tax relief to all Americans receiving disaster
mitigation grants from the Federal Emergency Management Agency, FEMA. I
am pleased that my good friend, Senator Grassley, and I, along with my
colleagues, Senators Landrieu, Bond, Feinstein, Lott, Martinez, Nelson,
and Vitter could work together to add a necessary and important
amendment to H.R. 1134, which exempts disaster mitigation payments from
taxation.
For 15 years, FEMA has awarded natural disaster mitigation grants
that assist citizens, businesses and communities to take steps to
prevent or mitigate damages from future natural disasters. The grants
go towards elevating buildings in floodplains, flood proofing, seismic
reinforcement, acquisitions or relocations, wind protections for roofs
and strengthening of window protections. These grants provide a long-
term benefit to society by reducing future loss of life and increasing
public safety. In addition to these life-saving benefits, mitigation
grants also provide a net cost benefit to society. FEMA conducts a
cost-benefit analysis prior to awarding a grant that ensures the cost
of funding a project is less than the damages expected to occur in the
event of a disaster. FEMA estimates that for every dollar spent on
mitigation, an average of eight dollars is saved in the long run.
Let me take a minute to explain the history of the tax issue at hand.
Prior to June of last year, recipients of FEMA mitigation grants
generally excluded them from income. The tax code states clearly that
post-disaster grants were not taxable. But the tax code doesn't
specifically describe the tax treatment of mitigation grants. FEMA
assumed mitigation grants were treated the same as post-disaster relief
grants. However, on June 28, 2004, the Internal Revenue Service issued
a legal memorandum stating these mitigation grants were taxable as
income. That means that someone who took advantage of mitigation
opportunities to prevent future losses would face a significant tax
liability. The average mitigation grant is $83,000. That means the
average tax on a grant is tens of thousands of dollars. That isn't
fair. It was never intended that taxes be collected under these
mitigation programs, but under the legal memorandum issued by the
Internal Revenue Service thousands of taxpayers may have to file
amended tax returns and pay additional tax. Moreover, the Federal
Government changed the rules and never made the recipients aware of the
potential tax consequences.
I compliment the House for taking up this issue and passing
legislation that helps taxpayers who receive mitigation grants after
the date of enactment. However, there is a flaw in the House bill. The
bill clearly provides tax relief to ``amounts received after the date
of enactment.'' What about taxpayers who received mitigation grants in
2004 or 2003 and before? The chairman of the Finance Committee and I
have added an amendment that provides absolute certainty for all
taxpayers who received grants in past years. Some have argued that the
Department of the Treasury can provide tax relief for those who
received grants prior to the date of enactment by using the intent
gleaned from floor statements and letters from Members of Congress. Let
me be clear, Congress writes laws and the clearest intent is in the
letter of the law. If our intent is to provide tax relief for those who
received grants before the date of enactment, we should write it into
the law. And that is what the amendment my good friend Senator Grassley
and I have offered.
Before I finish, I want to thank Senators Landrieu, Nelson and
Feinstein for their tireless work. I can tell you firsthand there was a
significant amount of pressure to pass this bill as it was sent from
the House. We all wanted to pass this bill as quickly as possible, but
we also wanted to be sure we got it right the first time. This bill
does that.
I sincerely hope the House will do the right thing and pass this bill
with the Senate amendment before the tax filing deadline on Friday.
Ms. LANDRIEU. Mr. President, last year the Internal Revenue Service
hit my State like a Category 4 hurricane when it determined that
disaster mitigation benefits from the Federal Emergency Management
Agency are taxable. We get hurricane warnings when a storm is coming,
we can track their paths as they come out of the Carribean and into the
Gulf of Mexico. We didn't get any kind of ``tax warning'' from the IRS,
but the financial toll on many of my constituents was devastating.
Let me explain what happened. In June of last year, the IRS chief
counsel issued an advice letter that determined that FEMA disaster
mitigation benefits were taxable as a matter of law. This ruling
applied to a variety mitigation grant programs, covering a wide range
of natural disasters. The main disasters that concern us in Louisiana
are hurricanes and flooding. They are as much a part of life as
crawfish boils and Mardi Gras. The key to our peace of mind is the
National Flood Insurance program administered by FEMA. In Louisiana,
377,000 property owners participate in the National Flood Insurance
program. It is a real Godsend to the people of my state.
[[Page S3605]]
The National Flood Insurance program also provides funding for
property owners to flood-proof their homes through the flood mitigation
grant program. FEMA distributes these grant funds to the States which
then pass them along to local communities. The local communities select
properties for mitigation and contract for the mitigation services.
Communities use these funds to put homes on stilts, improve drainage on
property, and to acquire flood proofing materials. These mitigation
grants encourage property owners to take responsible steps to lessen
the potential for loss of life and property damage due to future
flooding. The grants also have the added benefit of saving money in the
long term for the flood insurance program.
But the IRS has turned this valuable disaster preparedness and
prevention program into a financial disaster for responsible property
owners by making these payments taxable. This tax is unfair,
unexpected, and an unfortunate policy decision--unfair and unexpected
because no one told my constituents that they would be taxed for
accepting FEMA disaster mitigation assistance. The local officials in
their parish were just as surprised. This tax is unfortunate policy
because in the long term, the IRS will undercut the effectiveness of
using mitigation as a means of decreasing future costs to the flood
insurance program. It will force people to take risks that they will
not be hit by a disaster.
I was pleased that the House of Representatives passed a bill, H.R.
1134, to correct this problem. It says that going forward, disaster
mitigation benefits are not taxable. But this legislation is not
retroactive. It offers no relief to people who are facing a huge tax
bill this Friday, April 15, for mitigation funding received in 2004 or
earlier years. Virtually every constituent who has written or called my
office about this issue received their grant in 2004. This bill will do
nothing for them.
I understand that the sponsors of H.R. 1134 and its Senate version S.
586 claim that once it has been passed, the Department of the Treasury
will issue some sort of notice to IRS field personnel essentially
making the effect of this bill retroactive. Treasury officials,
however, cannot cite a legal justification for issuing such a notice.
They claim that they can rely on the floor statements of the chairs and
ranking members of the House Ways and Means Committee and the Senate
Finance Committee as a basis for issuing the notice.
Mr. President, we cannot legislate on a wink and a nod. The right way
to make this relief retroactive is to pass the Baucus-Grassley
amendment to H.R. 1134 and send it back to the House. This amendment
will extend the tax relief in this bill to all recipients of FEMA
disaster mitigation assistance past, present, and future. I am proud to
be a cosponsor of the amendment. I thank the chairman and ranking
member of the Finance Committee for their leadership in bringing this
matter to the floor.
April 15th is 2 days away. I urge the other body to take up and pass
H.R. 1134 as amended by the Senate, and send it to the President for
his signature. This bill will bring peace of mind to thousands of
responsible property owners who face an unfair tax burden. We should
not allow April 15th to pass without giving these people relief.
Mr. SESSIONS. Mr. President, there is a substitute amendment at the
desk. I ask that the amendment be considered and agreed to; the motion
to reconsider be laid upon the table; the bill, as amended, be read a
third time, passed, and the motion to reconsider be laid upon the
table; that any statements relating thereto be printed in the Record,
without intervening action or debate.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment (No. 411) was agreed to, as follows:
Strike all after the enacting clause and insert the
following:
SEC. __. PROPER TAX TREATMENT OF CERTAIN DISASTER MITIGATION
PAYMENTS.
(a) Qualified Disaster Mitigation Payments Excluded From
Gross Income.--
(1) In general.--Section 139 of the Internal Revenue Code
of 1986 (relating to disaster relief payments) is amended by
adding at the end the following new subsections:
``(g) Qualified Disaster Mitigation Payments.--
``(1) In general.--Gross income shall not include any
amount received as a qualified disaster mitigation payment.
``(2) Qualified disaster mitigation payment defined.--For
purposes of this section, the term `qualified disaster
mitigation payment' means any amount which is paid pursuant
to the Robert T. Stafford Disaster Relief and Emergency
Assistance Act (as in effect on the date of the enactment of
this subsection) or the National Flood Insurance Act (as in
effect on such date) to or for the benefit of the owner of
any property for hazard mitigation with respect to such
property. Such term shall not include any amount received for
the sale or disposition of any property.
``(3) No increase in basis.--Notwithstanding any other
provision of this subtitle, no increase in the basis or
adjusted basis of any property shall result from any amount
excluded under this subsection with respect to such property.
``(h) Denial of Double Benefit.--Notwithstanding any other
provision of this subtitle, no deduction or credit shall be
allowed (to the person for whose benefit a qualified disaster
relief payment or qualified disaster mitigation payment is
made) for, or by reason of, any expenditure to the extent of
the amount excluded under this section with respect to such
expenditure.''.
(2) Conforming amendments.--
(A) Subsection (d) of section 139 of such Code is amended
by striking ``a qualified disaster relief payment'' and
inserting ``qualified disaster relief payments and qualified
disaster mitigation payments''.
(B) Subsection (e) of section 139 of such Code is amended
by striking ``and (f)'' and inserting ``, (f), and (g)''.
(b) Certain Dispositions of Property Under Hazard
Mitigation Programs Treated as Involuntary Conversions.--
Section 1033 of such Code (relating to involuntary
conversions) is amended by redesignating subsection (k) as
subsection (l) and by inserting after subsection (j) the
following new subsection:
``(k) Sales or Exchanges Under Certain Hazard Mitigation
Programs.--For purposes of this subtitle, if property is sold
or otherwise transferred to the Federal Government, a State
or local government, or an Indian tribal government to
implement hazard mitigation under the Robert T. Stafford
Disaster Relief and Emergency Assistance Act (as in effect on
the date of the enactment of this subsection) or the National
Flood Insurance Act (as in effect on such date), such sale or
transfer shall be treated as an involuntary conversion to
which this section applies.''.
(c) Effective Date.--
(1) Qualified disaster mitigation payments.--The amendments
made by subsection (a) shall apply to amounts received
before, on, or after the date of the enactment of this Act.
(2) Dispositions of property under hazard mitigation
programs.--The amendments made by subsection (b) shall apply
to sales or other dispositions before, on, or after the date
of the enactment of this Act.
The bill (H.R. 1134), as amended, was read the third time and passed.
____________________