[Federal Register Volume 74, Number 238 (Monday, December 14, 2009)]
[Rules and Regulations]
[Pages 66048-66051]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-29635]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9474]
RIN 1545-BF14


Reduction in Taxable Income for Housing Hurricane Katrina 
Displaced Individuals

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

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SUMMARY: This document contains final regulations relating to the 
reduction in taxable income under section 302 of the Katrina Emergency 
Tax Relief Act of 2005. The final regulations also reflect legislation 
under section 702 of the Heartland Disaster Tax Relief Act of 2008. The 
final regulations affect taxpayers who provide housing in their 
principal residences to individuals displaced by certain major 
disasters.
    Effective Date: These regulations are effective on December 14, 
2009.
    Applicability Date: For date of applicability, see Sec.  1.9300-
1(h).

FOR FURTHER INFORMATION CONTACT: Shareen S. Pflanz, 202-622-4920 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

    This document contains final regulations that replace the temporary 
regulations in 26 CFR Part 1 relating to the reduction in taxable 
income for housing provided to displaced individuals under section 302 
of the Katrina Emergency Tax Relief Act of 2005 (Pub. L. 109-73, 119 
Stat. 2016) (KETRA). This document also applies these rules to 
individuals displaced in a Midwestern disaster area, as defined in 
section 702 of the Heartland Disaster Tax Relief Act of 2008 (Title VII 
of Division C of Pub. L. 110-343, 122 Stat. 3912) (HDTRA).
    On December 12, 2006, temporary regulations (TD 9301) were 
published in the Federal Register (71 FR 74467). A notice of proposed 
rulemaking (REG-152043-05) cross-referencing the temporary regulations 
was also published in the Federal Register (71 FR 74482). No public 
hearing was requested or held. No written comments responding to the 
notice of proposed rulemaking were received. The proposed regulations 
are adopted as amended by this Treasury decision to implement section 
702 of HDTRA.

[[Page 66049]]

    Section 702 of HDTRA, enacted on October 3, 2008, applies section 
302 of KETRA to the Midwestern disaster area. The Midwestern disaster 
area is the area for which the President declared (after May 19, 2008, 
and before August 1, 2008) a major disaster under the Robert T. 
Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5170) 
(Stafford Act). The disaster occurred by reason of severe storms, 
tornados, or flooding in the states of Arkansas, Illinois, Indiana, 
Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, and Wisconsin. 
The applicable disaster date for each state in the Midwestern disaster 
area is the date of the severe storm, tornado, or flooding giving rise 
to the Presidential declaration for that state. See Federal Register 
notices for each state at http://www.FEMA.gov. The reduction in taxable 
income for providing housing to a displaced individual in a Midwestern 
disaster area applies to taxable years beginning in 2008 or 2009.
    Accordingly, the final regulations expand the scope of the 
temporary regulations to include taxpayers who provide housing in their 
principal residences to Midwestern disaster displaced individuals. The 
final regulations expand the definitions under Sec.  1.9300-1T(e) of 
the temporary regulations relating to Hurricane Katrina to include the 
Midwestern disaster area.
    The final regulations also clarify that the limitations on the 
reduction in taxable income apply separately to the Hurricane Katrina 
disaster area and the Midwestern disaster area. Thus, for example, a 
taxpayer may reduce taxable income by up to $2,000 for providing 
housing to Midwestern disaster displaced individuals even though the 
taxpayer reduced taxable income for providing housing to one or more 
Hurricane Katrina displaced individuals.
    The temporary regulations provided that the maximum dollar 
limitation for a married individual who files a separate income tax 
return is $1,000. The final regulations provide that the maximum dollar 
limitation is $2,000 for married taxpayers filing jointly or 
separately. Married taxpayers filing separate income tax returns may 
allocate the $2,000 between the returns.
    The final regulations authorize the Commissioner to apply these 
rules in additional guidance of general applicability, see Sec.  
601.601(d)(2) of the Internal Revenue Practice Regulations, if Congress 
extends relief under section 302 of KETRA to other disaster areas in 
the future.

Effective/Applicability Date

    These regulations apply to taxable years ending after December 11, 
2006. Taxpayers who, after filing their tax returns for 2006 or 2008 as 
married filing separately, want to apply the rule allowing them to 
allocate the $2,000 maximum limitation between them, may do so by 
filing amended returns if the period of limitations on credit or refund 
under section 6511 has not expired.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations and, because the 
regulations do not impose a collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. Pursuant to section 7805(f) of the Internal Revenue Code, the 
notice of proposed rulemaking that preceded these final regulations was 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business.

Drafting Information

    The principal author of these regulations is Shareen S. Pflanz of 
the Office of the Associate Chief Counsel (Income Tax and Accounting). 
However, other personnel from the IRS and the Treasury Department 
participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by removing 
the entry for Sec.  1.9300-1T to read in part as follows:

    Authority:  26 U.S.C. 7805 * * *


0
Par. 2. Section 1.9300-1 is added to read as follows:


Sec.  1.9300-1  Reduction in taxable income for housing displaced 
individuals.

    (a) In general. For a taxable year beginning in the applicable 
taxable year (as defined in paragraph (f)(1) of this section), a 
taxpayer who is a natural person may reduce taxable income by $500 for 
each displaced individual (as defined in paragraph (f)(2) of this 
section) to whom the taxpayer provides housing free of charge in, or on 
the site of, the taxpayer's principal residence for a period of at 
least 60 consecutive days. A taxpayer may claim the reduction in 
taxable income for any applicable taxable year in which a consecutive 
60-day period ends. A taxpayer may not claim the reduction in taxable 
income unless the taxpayer includes the taxpayer identification number 
of the displaced individual on the taxpayer's income tax return.
    (b) Provision of housing--(1) Principal residence. For purposes of 
this section, the term principal residence has the same meaning as in 
section 121 and the associated regulations. See Sec.  1.121-1(b)(1) and 
(b)(2).
    (2) Legal interest required. A taxpayer is treated as providing 
housing for purposes of this section only if the taxpayer is an owner 
or lessee (including a co-owner or co-lessee) of the principal 
residence.
    (3) Compensation for providing housing. No reduction in taxable 
income is allowed under this section to a taxpayer who receives rent or 
any reimbursement or compensation (whether in cash, services, or 
property) from any source for providing housing to the displaced 
individual. For this purpose, lodging, utilities, and other similar 
items are treated as housing, but telephone calls, food, clothing, 
transportation, and other similar items are not treated as housing.
    (c) Limitations--(1) Dollar limitation--(i) In general. The 
reduction in taxable income under paragraph (a) of this section may not 
exceed the maximum dollar limitation, and must be reduced by the total 
amount of all reductions under this section for all prior taxable years 
(except as provided in paragraph (c)(5) of this section). The maximum 
dollar limitation is--
    (A) $2,000 in the case of an unmarried individual; or
    (B) $2,000 in the case of a husband and wife, whether the husband 
and wife file a joint income tax return or separate income tax returns; 
married taxpayers filing separate income tax returns may allocate this 
amount in $500 increments between their respective returns, provided 
that each spouse is otherwise eligible to claim that reduction in 
taxable income.
    (ii) Married individuals with separate principal residences. The 
limitation in paragraph (c)(1)(i)(B) of this section applies whether or 
not the married individuals occupy the same principal

[[Page 66050]]

residence. A person is treated as married for purposes of this section 
if the individual is treated as married under section 7703.
    (2) Spouse or dependent of the taxpayer. No reduction of taxable 
income is allowed for a displaced individual who is the spouse or a 
dependent of the taxpayer.
    (3) One reduction per displaced individual. Except as provided in 
paragraph (c)(5) of this section, a taxpayer may not reduce taxable 
income under paragraph (a) of this section for a displaced individual 
for whom the taxpayer or any taxpayer residing in the same principal 
residence has reduced taxable income under this section for any prior 
taxable year.
    (4) Taxpayers occupying the same principal residence. Except as 
provided in paragraph (c)(5) of this section, for all taxable years, 
only one taxpayer occupying the same principal residence may reduce 
taxable income for a particular displaced individual.
    (5) Limitations applied separately to each disaster. The 
limitations of this paragraph (c) apply separately to each disaster 
area. Thus, a taxpayer may reduce taxable income by $2,000 for 
providing housing to Midwestern disaster displaced individuals even 
though the taxpayer reduced taxable income for providing housing to one 
or more Hurricane Katrina displaced individuals. For this purpose, all 
areas within the Midwestern disaster area are treated as one disaster 
area.
    (d) Substantiation. A taxpayer claiming a reduction of taxable 
income under this section must maintain records sufficient to show 
entitlement to the reduction as provided in forms, instructions, 
publications or other guidance published by the IRS.
    (e) The Commissioner may apply this section in additional guidance 
of general applicability, see Sec.  601.601(d)(2) of this chapter, to 
other disaster areas to which Congress extends relief under section 302 
of the Katrina Emergency Tax Relief Act of 2005.
    (f) In general. The following definitions apply for all purposes of 
this section.
    (1) Applicable taxable year. The term applicable taxable year 
means--
    (i) A taxable year beginning in 2005 or 2006, in the case of 
housing provided to a Hurricane Katrina displaced individual (as 
defined in paragraph (f)(2)(ii) of this section); and
    (ii) A taxable year beginning in 2008 or 2009, in the case of 
housing provided to a Midwestern disaster displaced individual (as 
defined in paragraph (f)(2)(iii) of this section).
    (2) Displaced individual--(i) Scope. The term displaced individual 
means a Hurricane Katrina displaced individual as defined in paragraph 
(f)(2)(ii) of this section and a Midwestern disaster displaced 
individual as defined in paragraph (f)(2)(iii) of this section.
    (ii) Hurricane Katrina displaced individual. The term Hurricane 
Katrina displaced individual means any natural person (other than the 
spouse or a dependent of the taxpayer) if the following requirements 
are met--
    (A) The person's principal place of abode on August 28, 2005, was 
in the Hurricane Katrina disaster area (as defined in paragraph 
(f)(4)(ii) of this section);
    (B) The person was displaced from that abode; and
    (C) If the abode was located outside the Hurricane Katrina core 
disaster area (as defined in paragraph (f)(5)(ii) of this section)--
    (1) The abode was damaged by Hurricane Katrina; or
    (2) The person was evacuated from that abode by reason of Hurricane 
Katrina.
    (iii) Midwestern disaster displaced individual. The term Midwestern 
disaster displaced individual means any natural person (other than the 
spouse or a dependent of the taxpayer) if the following requirements 
are met--
    (A) The person's principal place of abode on the Midwestern 
disaster date (as defined in paragraph (f)(3) of this section), was in 
any Midwestern disaster area (as defined in paragraph (f)(4)(iii) of 
this section);
    (B) The person was displaced from that abode; and
    (C) If the abode was located outside the Midwestern core disaster 
area (as defined in paragraph (f)(5)(iii) of this section)--
    (1) The abode was damaged by any Midwestern disaster; or
    (2) The person was evacuated from that abode by reason of any 
Midwestern disaster.
    (3) Midwestern disaster date. The term Midwestern disaster date 
means--
    (i) In Arkansas, May 2 through May 12, 2008;
    (ii) In Illinois, June 1 through July 22, 2008;
    (iii) In Indiana, May 30 through June 27, 2008;
    (iv) In Iowa, May 25 through August 13, 2008;
    (v) In Kansas, May 22 through June 16, 2008;
    (vi) In Michigan, June 6 through June 13, 2008;
    (vii) In Minnesota, June 6 through June 12, 2008;
    (viii) In Missouri, May 10 through May 11, 2008, and June 1 through 
August 13, 2008;
    (ix) In Nebraska, April 23 through April 26, 2008, May 22 through 
June 24, 2008, and June 27, 2008; or
    (x) In Wisconsin, June 5 through July 25, 2008.
    (4) Disaster area--(i) Scope. The term disaster area means the 
Hurricane Katrina disaster area as defined in paragraph (f)(4)(ii) of 
this section and the Midwestern disaster area as defined in paragraph 
(f)(4)(iii) of this section.
    (ii) Hurricane Katrina disaster area. The term Hurricane Katrina 
disaster area means the states of Alabama, Florida, Louisiana, and 
Mississippi.
    (iii) Midwestern disaster area. The term Midwestern disaster area 
means an area for which the President declared a major disaster on or 
after May 20, 2008, and before August 1, 2008, under section 401 of the 
Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 
U.S.C. 5170) (Stafford Act) by reason of severe storms, tornados, or 
flooding occurring in any of the states of Arkansas, Illinois, Indiana, 
Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, and Wisconsin.
    (5) Core disaster area--(i) Scope. The term core disaster area 
means the Hurricane Katrina core disaster area as defined in paragraph 
(f)(5)(ii) of this section and the Midwestern core disaster area as 
defined in paragraph (f)(5)(iii) of this section.
    (ii) Hurricane Katrina core disaster area. The term Hurricane 
Katrina core disaster area means the portion of the Hurricane Katrina 
disaster area designated by the President to warrant individual or 
individual and public assistance from the federal government under the 
Stafford Act.
    (iii) Midwestern core disaster area. The term Midwestern core 
disaster area means the portion of the Midwestern disaster area 
designated by the President to warrant individual or individual and 
public assistance from the federal government under the Stafford Act 
for damages attributable to the severe storms, tornados, or flooding in 
the Midwestern disaster area.
    (g) Examples. The provisions of this section are illustrated by the 
following examples. In each example, a taxpayer provides housing within 
the meaning of paragraph (b) of this section in, or on the site of, the 
taxpayer's principal residence for a period of at least 60 consecutive 
days (the 60th day being in the applicable taxable year) for each 
displaced individual, none of whom is a spouse or dependent of the 
taxpayer. The examples are as follows:


[[Page 66051]]


    Example 1. Taxpayer A provides housing to N, a Hurricane Katrina 
displaced individual, from September 1, 2005, until March 10, 2006. 
Under paragraphs (a) and (c)(3) of this section, A may reduce A's 
taxable income by $500 on A's income tax return for calendar year 
2005 or 2006 (but not both) for providing housing to N.
    Example 2. The facts are the same as in Example 1, except that A 
and A's unmarried roommate B are co-lessees of their principal 
residence. Both A and B provide housing to N. Under paragraphs (a) 
and (c)(4) of this section, either A or B, but not both, may reduce 
taxable income by $500 for 2005 or 2006 for providing housing to N. 
If A or B reduces taxable income for 2005 for providing housing to 
N, neither A nor B may reduce taxable income for 2006 for providing 
housing to N.
    Example 3. The facts are the same as in Example 2, except that 
in 2009 A and B provide housing to N, who in 2009 is a Midwestern 
disaster displaced individual. Under paragraph (c)(5) of this 
section, the limitation of paragraph (c)(4) of this section applies 
separately to each disaster. Therefore, either A or B may reduce 
taxable income by $500 for 2009 for providing housing to N.
    Example 4. During 2008, unmarried roommates and co-lessees C and 
D provide housing to eight Midwestern disaster displaced 
individuals. Under paragraphs (a) and (c)(1)(i)(A) of this section, 
C may reduce taxable income by $2,000 on C's 2008 income tax return 
for providing housing to any four of these displaced individuals and 
D may reduce taxable income by $2,000 on D's 2008 income tax return 
for providing housing to the other four displaced individuals.
    Example 5. (i) In 2008, a married couple, H and W, provide 
housing to a Midwestern disaster displaced individual, O. H and W 
file their 2008 income tax return as married filing jointly. Under 
paragraphs (a) and (c)(4) of this section, H and W may reduce 
taxable income by $500 on their 2008 income tax return for providing 
housing to O.
    (ii) In 2009, H and W provide housing to O and to another 
Midwestern disaster displaced individual, P. H and W file their 2009 
income tax returns as married filing separately. Because H and W 
reduced their 2008 taxable income for providing housing to O, under 
paragraph (c)(3) of this section, neither H nor W may reduce taxable 
income on their 2009 income tax returns for providing housing to O. 
Under paragraphs (a) and (c)(4) of this section, either H or W but 
not both, may reduce taxable income by $500 on his or her 2009 
income tax return for providing housing to P.
    Example 6. The facts are the same as in Example 5, except that 
in 2009 H and W provide housing to five Midwestern disaster 
displaced individuals in addition to O. H and W together may reduce 
taxable income on their 2009 income tax returns by a total of $2,000 
for the Midwestern disaster displaced individuals (other than O). 
Under paragraph (c)(1)(i)(B) of this section, H and W may allocate 
the $2,000 in increments of $500 between their separate returns. For 
example, either one may reduce taxable income by $500 and the other 
may reduce taxable income by $1,500, or H and W each may reduce 
taxable income by $1,000.
    (h) Effective/applicability date. This section applies for taxable 
years ending after December 11, 2006.


Sec.  1.9300-1T  [Removed]

0
Par. 3. Section 1.9300-1T is removed.

    Approved: December 8, 2009.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
Michael F. Mundaca,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. E9-29635 Filed 12-11-09; 8:45 am]
BILLING CODE 4830-01-P