[Congressional Record Volume 152, Number 135 (Friday, December 8, 2006)]
[Senate]
[Pages S11747-S11748]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Ms. LANDRIEU:
  S. 4119. A bill to clarify the tax treatment of certain payments made 
to homeowners by the Louisiana Recovery Authority and the Mississippi 
Development Authority; to the Committee on Finance.
  Ms. LANDRIEU. Mr. President, the Internal Revenue Service had another 
big surprise for citizens in my State of Louisiana and in Mississippi 
who are trying to rebuild after Katrina: a tax surprise.
  The problem is simple. Louisiana and Mississippi have both 
established programs to help families rebuild their homes and their 
lives after Katrina and Rita. Congress appropriated the money for these 
initiatives--more than $10 billion in all and we are very grateful for 
the assistance. The Louisiana program, which we call the Road Home, is 
administered by the Louisiana Recovery Authority, LRA. The program is 
now starting to get going. Under the Road Home, up to $150,000 in 
grants are available to people to rebuild or repair their homes. There 
is also funding available for rental properties. Grants can also be 
used to buy out homes. The Louisianians who were displaced by the 
storms want to go home and the Road Home program will get them there.
  But the IRS is putting a pothole in the middle of the Road Home by 
making some of these payments taxable. The way this tax surprise works 
is by requiring that any hurricane victim who claimed a casualty loss 
deduction for damage to their home on their tax return for 2005 will 
have to reduce that loss by the amount of any payment from the LRA. So 
if they had their taxes reduced in one year and received a Road Home 
grant the next year, they have to essentially eliminate any benefit of 
the earlier casualty loss deduction. Their taxes will go up.
  Now I realize that under normal circumstances, when a person's home 
bums down, the roof caves in, or they are a victim of theft, they can 
take a casualty loss deduction, provided it meets certain requirements. 
The loss must exceed ten percent of the taxpayers adjusted gross 
income, and a per loss floor of $100. In some circumstances, taxpayers 
are permitted to include a current-year casualty loss on an amended 
prior year return.
  Immediately after Katrina, we enacted the Katrina Emergency Tax 
Relief Act, KETRA, that suspended the ten percent floor for casualty 
losses incurred in the Hurricane Katrina disaster area, including those 
claimed on amended returns. The purpose of the change in KETRA was 
simple: we wanted to put money in the hands of Katrina victims as 
quickly as possible. We essentially encouraged taxpayers to

[[Page S11748]]

take this loss, even by amending a past return. The IRS would then 
provide them with a refund.
  Hurricane victims needed that money. They had to find a place to 
live, often at higher rents. Many of them had lost their jobs and 
needed this money to see them through until they started working again. 
They used the money to begin the rebuilding of their lives. These 
people didn't take this money and invest it in the stock market or put 
it in a trust fund somewhere. They spent it because they had to. 
Congress encouraged people to take the deduction by changing the law. 
Now the IRS wants to take it back.
  I fully understand the policy behind all of this. Casualty loss 
deductions are reduced by the amount of any insurance or other recovery 
they make on the loss. In fact, at the time the taxpayer makes the 
deduction he or she is supposed to reduce the amount of the loss by any 
insurance recovery they reasonably expect to receive. If you receive a 
larger payment than you expected at a future time, you must claim it on 
your income tax return when you receive it.
  The problem is that this policy will seriously hamper our recovery by 
discouraging people from staying in Louisiana. If you took a casualty 
loss and you receive a $150,000 Road Home payment to rebuild your 
house, you will have a tax consequence. But if you took the casualty 
loss and sold your house to the LRA for the $150,000 payment, it is 
treated like a home sale and there is no tax. This policy creates a 
disincentive to recovery. This tax policy will encourage people to take 
the road out of town and not to return to the gulf coast. On top of 
this, if a person did not claim the casualty loss, but receives a 
grant, the grant is tax free.
  Mr. President, Congress has done a tremendous job passing legislation 
to encourage investment and the rebuilding of the gulf coast. We should 
not put road blocks in the way of the Road Home. Today, I am 
introducing legislation to eliminate this road block to our recovery. I 
realize that we are at the end of the session and that there will not 
be enough time to pass this legislation before we adjourn. I will 
pursue this in the next Congress when we return in January. I encourage 
my colleagues to support this bill.
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