Katrina Emergency Tax Relief Act of 2005

Congress recently passed a new law that creates many tax code changes to benefit Hurricane Katrina victims. The Katrina Emergency Tax Relief Act of 2005 applies to people affected by Hurricane Katrina and to those taxpayers helping victims of the disaster.

In general, for individuals affected by Hurricanes Katrina, Rita and Wilma, recent legislation provides tax-favored early distributions and loans from retirement accounts, eliminates the limitations on claiming losses, and permits certain earned income tax credit (EITC) and refundable child tax credit recipients to choose either tax year 2005 or 2004 to determine their earned income and use the more beneficial result.

Definition of Disaster Area

Hurricane Katrina Disaster Area

The Hurricane Katrina disaster area covers the area for which the President declared a major disaster before September 14, 2005, because of Hurricane Katrina. The Hurricane Katrina disaster area covers the entire states of Alabama, Florida, Louisiana, and Mississippi.
In above state, some portion of the Hurricane Katrina disaster area has been designated by the IRS as a covered disaster area. The Katrina covered disaster area covers the following areas in four states.

• Alabama
The counties of Baldwin, Bibb, Choctaw, Clarke, Colbert, Cullman, Greene, Hale, Jefferson, Lamar, Lauderdale, Marengo, Marion, Mobile, Monroe, Perry, Ickens, Sumter, Tuscaloosa, Washington, Wilcox, and Winston

• Florida
The counties of Bay, Broward, Collier, Escambia, Franklin, Gulf, Miami-Dade, Monroe, Okaloosa, Santa Rosa, and Walton.

• Louisiana
All parishes.

• Mississippi
All counties.

Hurricane Rita Disaster Area

The Hurricane Rita disaster area (also designated by the IRS as the Rita covered disaster area) covers the area for which the President declared a major disaster before October 6, 2005, because of Hurricane Rita. This area covers the entire states of Louisiana and Texas.

Benefits of Extended Tax deadlines

The IRS has extended deadlines that apply to filing returns, paying taxes, and performing certain other time-sensitive acts for certain taxpayers affected by Hurricane Katrina, Rita, or Wilma, until February 28, 2006. The extension applies to deadlines (either an original or extended due date) that occur during the following periods.
• After August 28, 2005 (August 23, 2005, for Florida affected taxpayers), and before February 28, 2006, for taxpayers affected by Hurricane Katrina.
• After September 22, 2005, and before February 28, 2006 for taxpayers affected by Hurricane Wilma.
• After October 22, 2005 and before February 28, 2006, for taxpayers affected by Hurricane Wilma.

Eligible taxpayers for the extension

• Any individual whose main home is located in a covered disaster area.
• Any business entity or sole proprietor whose principal place of business is located in a covered disaster area.
• Any individual, business entity or sole proprietor whose records needed to meet a postponed deadline are maintained or whose tax professional’s office is in a covered disaster area. The main home or principal place of business does not have to be located in the covered area.
• Any individual visiting a country or parish in the Hurricane Katrina or Hurricane Rita covered disaster area that was injured or killed (and the estate of an individual killed) as a result of the hurricane or its aftermath.
• Generally any individual who is a worker assisting in the relief activities in a covered disaster area.
• The spouse of an affected taxpayer, solely with regard to a joint income tax return with tax payer.

Note:To ensure correct processing, affected taxpayers should write the assigned disaster designation (for example, “Hurricane Katrina”) in red ink at the top of any forms or documents filed with the IRS

Meaning of Extension

In deadlines for performing the following acts are extended.
• Filling any return of income, estate, gift, generation-skipping transfer, excise, or employment tax.
• Paying any income, estate, gift, generation-skipping transfer, excise, or employment tax. This includes making estimated tax payments.
• Making certain contribution, distributions, recharacterizing contributions, or making a rollover to or from a qualified retirement plan.
• Filling certain petitions with the Tax Court.
• Filing a claim for credit or refund of any tax.
• Bringing suit upon a claim for credit or refund.