Financial Concepts Used to Execute Term Paper
- Length: 10 pages
- Sources: 3
- Subject: Urban Studies
- Type: Term Paper
- Paper: #25602705
Excerpt from Term Paper :
As per IRC Sec. 1033(h), the tax rules for the replacement of those properties destroyed or converted in such cases are eased and the overall replacement period extended as well. "Some rules were also revised like the 'Rev. Rule 95-22' which considers the funds received for the primary residence as well as scheduled property such as jewelry, pieces of art, coins, etc. which had been insured, as funds for a single item of property." (IRS, Tax Law Changes Related to Hurricanes Katrina, Rita and Wilma) These funds were to be considered as a "common pool" of proceeds from which the gains realized by the taxpayer could be to the extent of the amount exceeding the expenses after meeting a suitable replacement property. This revised rule also clarifies that the replacement property could refer to the residence being replaced or any scheduled private property "in any proportion." (Kess, Hurricane Katrina tax relief); (Hurricane Katrina Recovery Assistance Programs)
For those suffering casualty losses due to presidentially declared disasters like Hurricane Katrina a federal income tax deduction is provided which means that victims from affected regions who have a deductible loss can opt to deduct that amount from their tax return of the year before, i.e. 2004. For victims who had already filed their tax returns for the previous year the deductible loss amount for the previous year could be claimed through filing a revised return -- Form 1040X for individuals and Form 1120X for corporations. (Kess, Hurricane Katrina tax relief); (IRS, Tax Law Changes Related to Hurricanes Katrina, Rita and Wilma); (Hurricane Katrina Recovery Assistance Programs)
Several retirement funds were also made available in the aftermath of Hurricane Katrina. Victims, who suffered economic loss of their primary residence located in the hurricane-affected region on 28th August 2005, could take loans up to $100,000, an increase of $50,000 from the earlier limit, from qualified retirement plans. These loans had to be availed before 1st January, 2007. In addition, the repayment period was extended from five years to six years. Recipients of such suitable retirement distributions were exempted from paying the supplementary 10% tax on early distributions. According to the revised law, the compulsory twenty-percent withholding for qualified distributions was also not required. (Kess, Hurricane Katrina tax relief); (IRS, Tax Law Changes Related to Hurricanes Katrina, Rita and Wilma); (Hurricane Katrina Recovery Assistance Programs)
Another financial concept used in the interests of Katrina-affected people was re-contributions to retirement plans. Eligible individuals in the affected regions, who had availed a "qualified first-time homebuyer distribution" or a "hardship distribution" from a 403(b) or 401(k) annuity from the IRA with the intention of building or buying a house in the affected area between February 25, 2005 to August 29, 2005 but could neither build nor purchase were provided with the option of re-contributing the money in a suitable retirement plan provided that the re-contribution was made between 25th August, 2005 and 28th February, 2006. "This amount would be considered as a payment in a direct rollover." (IRS, Tax Law Changes Related to Hurricanes Katrina, Rita and Wilma)
Many of the provisions offered in "Katrina Emergency Tax Relief Act of 2005" were expanded in the subsequently declared Gulf Opportunity Zone Act of 2005. (IRS, Tax Law Changes Related to Hurricanes Katrina, Rita and Wilma) This offered educational aid by extending the "Hope and Lifetime Learning" credits meant for students who were studying in the Gulf Opportunity Zone with affected counties in Alabama, Louisiana and Mississippi in the tax years 2005/2006. The educational assistance limit was increased to 100% of the initial $2,000 and 50% of the subsequent $2,000 up to a total $3,000 per student. The "Lifetime Learning Credit" was also increased to 40% from the initial 20%. Non-business debts taken by people residing in the Katrina affected regions were also cancelled only in cases where the debt was not secured by property outside the affected regions. (Kess, Hurricane Katrina tax relief); (IRS, Tax Law Changes Related to Hurricanes Katrina, Rita and Wilma); (Hurricane Katrina Recovery Assistance Programs)
Provisions were also made in the new law for suspension of charitable limits in case of specific charitable contributions. Deduction for qualified charitable contributions by individuals was permitted up to the total amount by which the individual's contribution surpassed the deduction for other charities. Any amounts contributed beyond this limit are usually carried forward to subsequent taxable periods. Corporations were also permitted to make qualified contributions only towards the relief operations of Katrina and the hurricanes which followed it such as Rita or Wilma. Here, qualified contributions refers to cash contributions provided in the period between 28th August 2005 and 31st December 2005 to charitable institutions as listed in Section 170(b)(1)(A). Contributions other than cash, i.e. securities, etc. are not counted as qualified contributions. (Kess, Hurricane Katrina tax relief); (IRS, Tax Law Changes Related to Hurricanes Katrina, Rita and Wilma); (Hurricane Katrina Recovery Assistance Programs)
This new law passed by the Congress in the aftermath of Hurricane Katrina uses yet another financial concept in the form of increasing the standard mileage rate for vehicles being used in charitable work. This new mileage deduction is available only to those individuals which use a vehicle exclusively to offer contributions/voluntary services to charities involved in Hurricane Katrina relief work. The rate for standard mileage has been set at seventy percent and rounded off to the next cent. This new law also permits a taxpayer to exclude a particular amount from his income -- an amount calculated at the rate of business standard mileage obtained from any charitable institution as reimbursement for the expenses incurred towards providing relief operations in the aftermath of Hurricane Katrina. (Kess, Hurricane Katrina tax relief); (IRS, Tax Law Changes Related to Hurricanes Katrina, Rita and Wilma); (Hurricane Katrina Recovery Assistance Programs)
Lastly, many credit unions in the Hurricane Katrina disaster area took financial initiatives totally voluntarily without any governmental instructions and solely as moral obligation towards people affected by Katrina. These local credit unions had done away with any modern financial concepts and tools and fell back upon the age-old paper-and-pen method of recording transactions in the absence of electricity, phone services and data lines right from the day following the one in which Katrina struck. (Committee on financial services, House of Representatives, 21)
Their contribution towards providing financial relief went as far as waiving fees apart from increasing overdraft limits on checking accounts, deferring payments on loans taken by members, and raising lines of credit on credit cards. Some of these credit unions can be credited for coming up with on-the-spot ideas to provide financial assistance. For instance, the Jackson County Federal Credit Union at Pascagoula in Mississippi, lost its building in the Katrina storm surge and despite not getting flood insurance due to not being located in a designation flood zone, the employees went to work in the rear section of a pickup truck. (Committee on financial services, House of Representatives, 21)
To conclude, it can be said that the extent of physical, emotional, infrastructural and financial damage caused by Hurricane Katrina has few parallels in the history of natural disasters in the U.S. The financial interventions of the federal government, state governments, government agencies, charitable institutions, and individual donors have helped a large number of evacuees, but not all, to rebuild their lives after the devastating hurricane. However, FEMA card scandals and inadequate facilities have added to the criticisms that the government has faced in handling the situation. Moreover, the shattered economy of the desired area also required much more funding and financial initiatives to come back to its original state. It is expected that the government will fulfill these financial obligations to the region and the country.
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