Executive Branch Service and the “Revolving Door” in Cabinet Departments: Background and Issues for Congress

Summary: Individuals may be subject to certain restrictions when leaving the government for private employment or joining the government from the private sector. These restrictions were enacted in response to what is often referred to as the revolving door . Generally, the revolving door is described as the movement of individuals between the public and private sector. Individuals may move because they possess policy and procedural knowledge and have relationships with former colleagues that are useful to prospective employers.

Summary: Laws attempting to restrict the movement of individuals between the government and the private sector have existed since at least the late 1800s. Today's revolving door laws focus on restricting former government employees' representational activities that attempt to influence federal officials with whom they used to work. Found at 18 U.S.C. Â§207, revolving door laws for executive branch officials include (1) a lifetime ban on "switching sides" (e.g., representing a private party on the same "particular matter" involving identified parties on which the former executive branch employee had worked while in government); (2) a two-year ban on "switching sides" on a broader range of issues; (3) a one-year restriction on assisting others on certain trade and treaty negotiations; (4) a one-year "cooling off" period for certain senior officials on lobbying; (5) two-year "cooling off" periods for very senior officials from lobbying; and (6) a one-year ban on certain former officials from representing a foreign government or foreign political party. In addition to laws, executive orders have been used to place further restrictions on executive branch officials, including officials entering government. For example, President Trump issued an executive order (E.O. 13770) to lengthen "cooling off" periods for certain executive branch appointees both entering and exiting government.

Summary: To date, much of the empirical work concerning the revolving door has focused on former Members of Congress or congressional staff leaving Capitol Hill, especially those who become lobbyists in their postcongressional careers. This report provides some empirical data about a different aspect of the revolving doorâthe movement into and out of government by executive branch personnel. Using research conducted by the Bush School of Government and Public Service at Texas A&M University's capstone class over the 2017-2018 academic year, this report presents data about the revolving door in the executive branch through the lens of President George W. Bush's and President Barack Obama's Administrations. The analysis includes Cabinet department officials who were listed, for either Administration, in the United States Government Policy and Supporting Positions (the Plum Book ).

Summary: Through an examination of appointees in President Bush's and President Obama's Administrations, several findings emerge. First, approximately 92% of executive branch officials in the examined dataset were never registered lobbyists, while 8% were registered lobbyists at some point before or after their government service. Second, Cabinet departments differed greatly in the number of officials who were registered lobbyists either before or after their federal service. Although every Cabinet department surveyed had some percentage of officials registered as lobbyists either before or after their government service, the percentage of officials included in the dataset who registered as lobbyists before their government service, after their government service, or both ranged from a high of 18% (Department of Commerce) to a low of 1% (Department of Justice).

Summary: Third, the data also show that for lobbyists entering government, the percentage of officials in the dataset who had been lobbyists before government serving in the Bush and Obama Administrations ranged from 10% in the Department of Labor to 61% in the Department of Veterans Affairs. The analogous percentages for government employees in the dataset leaving to become lobbyists ranged from 39% in the Department of Veterans Affairs to 82% in the Department of Transportation.

Summary: Finally, the report identifies several areas for potential congressional consideration. In recent years, several bills have been introduced in Congress to address many of these potential areas. These include options to amend existing "cooling off" periods and evaluate the administration and enforcement of revolving door regulations. Alternatively, Congress may choose to maintain current "cooling off" periods, administration, and enforcement practices.

In 1883, following the assassination of President James A. Garfield by disgruntled job seeker Charles Guiteau, the Pendleton Act was signed into law by President Chester A. Arthur to ensure that "government jobs be awarded on the basis of meritâ¦." The Pendleton Act ended the spoils system to ensure that qualified individuals were hired into federal service and to prevent the President from being "hounded by job seekers." With the advent of the merit system, federal employees found themselves serving longer in government while also being attracted to private-sector jobs related to their federal employment. The movement of employees between the private sector and government is often referred to as the revolving door .

Generally, the revolving door is described as the movement of individuals between the public and private sector, and vice versa. Individuals may move because they possess policy and procedural knowledge and have relationships with former colleagues that are useful to prospective employers, either in government or in the private sector. Some observers see the revolving door as potentially valuable to both private-sector firms and the government; other observers believe that employees leaving government to join the industries they were regulating, or leaving the private sector to join a relevant government agency, could provide an unfair representational advantage and create the potential for conflicts of interest.

While Congress has passed laws regulating the revolving door phenomenon in the executive branch, there has to date been little data available about the underlying phenomenon. This report provides data on the movement into and out of government by executive branch personnel in President George W. Bush's and President Barack Obama's Administrations. Using a dataset of executive branch Cabinet department officials compiled by graduate students at the Bush School of Government and Public Service at Texas A&M University in partnership with CRS, this report provides empirical data about the use of the revolving door by a subset of federal officials, with a particular focus on those who were registered lobbyists either before or after their government service.

This report begins with an overview of existing revolving door laws and regulations that affect executive branch personnel. It next examines the potential advantages and disadvantages of the revolving door phenomenon. Data collected in partnership with the Bush School of Government and Public Service at Texas A&M University are then presented and analyzed. The data provide an empirical picture of the executive branch revolving door as it relates to registered lobbyists. This analysis is followed by a discussion of select issues for potential congressional consideration.

The Revolving Door in the Executive Branch

Revolving door provisions, which can include laws, regulations, and executive orders, are often considered as a subset of conflict-of-interest provisions that govern the interaction of government and nongovernmental individuals. While most historic revolving door provisions generally addressed individuals exiting government for work in the private sector, some have also addressed individuals entering government. Overall, revolving door conflict-of-interest laws have existed since the late 19 th century. The first identified conflict-of-interest provision was enacted in 1872. This provision generally prohibited a federal employee from dealing with matters in which they were involved prior to government service. In 1919, the first restrictions were placed on individuals who had specifically served as procurement officials from leaving government service "to solicit employment in the presentation or to aid or assist for compensation in the prosecution of claims against the United States arising out of any contracts or agreements for the procurement of supplies â¦ which were pending or entered into while the said officer or employee was associated therewith." Similarly, the Contract Settlement Act of 1944 (58 Stat. 649) included a provision making it

Unlawful for any person employed in any Government agency â¦ during the period such person is engaged in such employment or service, to prosecute or to act as counsel attorney or agent for prosecuting, any claim against the United States, or for any such person within two years after the time when such employment or serve has ceased, to prosecute, or to act as counsel, attorney, or agent for prosecuting, any claim against the United States involving any subject matter directly connected with which such person was so employed or performed duty.

In 1962, portions of the current statutory provision at 18 U.S.C. Â§207 were enacted as part of a major revision of federal conflict-of-interest laws. Since the 1960s, postemployment restriction laws have been amended several times, including by the Ethics in Government Act of 1978 to add certain one-year "cooling off" periods for high-level executive branch personnel and limit executive branch official postemployment advocacy (i.e., lobbying) activities; by the Ethics Reform Act of 1989; and by the Honest Leadership and Open Government Act of 2007, which extended the "cooling off" period to two years for "very senior" executive branch officials.

Revolving door provisions, including conflict-of-interest laws and "cooling off" periods, were initially designed to protect government interests against former officials using proprietary information on behalf of a private party and current officials against inappropriately dealing with matters on which they were involved prior to government service. Additionally, they attempted to limit the possible influence and allure of potential private arrangements by federal officials when they interact with prospective private clients or would-be future employers while still employed by the government.

Historically, the decision to adopt, or amend, revolving door and conflict-of-interest provisions has been balanced against the potential deterrent of restricting the movement of individuals between the public and private sector. For example, in 1977, the Senate Committee on Governmental Affairs reported a bill that would have amended the existing revolving door provisions. As part of its justification for the measure, the committee explained the need to balance the appearance of impropriety against the need to attract skilled government workers. Its report noted the following:

18 USC Â§207, like other conflict of interest statutes, seeks to avoid even the appearance of public office being used for personnel or private gain. In striving for public confidence in the integrity of government, it is imperative to remember that what appears to be true is often as important as what is true. Thus government in its dealings must make every reasonable effort to avoid even the appearance of conflict of interest and favoritism.

But, as with other desirable policies, it can be pressed too far. Conflict of interest standards must be balanced with the government's objective in attracting experienced and qualified persons to public service. Both are important, and a conflicts policy cannot focus on one to the detriment of the other. There can be no doubt that overly stringent restrictions have a decidedly [sic] adverse impact on the government's ability to attract and retain able and experienced persons in federal office.

The revolving door allows movement in both directions, with individuals both entering and exiting government. Some past researchers have argued that those who enter government with prior industry experience are more supportive of regulated industry than those without industry experience. Similarly, two studies have concluded that the lure of private-sector employment has led regulators to support the regulated industry during their time in government.

Whether or not the revolving door on net helps or hinders the functioning of government agencies may depend, however, on the potential benefits of transitioning individuals between government and the private sector versus the potential for conflicts of interest to develop on the part of those individuals. Some studies have identified positive aspects of the revolving door and the relationships developed between regulators and the regulated. Other studies find that government agencies are better run with stable leadership that does not often utilize the revolving door and keeps some distance between the agency and the regulated industry.

Existing Revolving Door Laws and Executive Orders

Current laws and regulations generally govern the movement of federal employees from the government to the private sector and vice versa. These provisions can be divided into three categories: broadly applicable postemployment laws, supplemental regulations, and executive order requirements. Revolving door provisions, however, do not necessarily apply to all instances of an employee leaving government service. Rather, they are specific to covered officials (see below) who leave government and are then involved with an issue they were also involved in while a federal employee. For some circumstances, the Office of Government Ethics (OGE) "has emphasized that the term [ particular matter ] typically involves a specific proceeding affecting the legal rights of the parties, or an isolatable transaction or related set of transactions between identified parties."

Initially enacted in 1962, 18 U.S.C. Â§207 provides a series of postemployment restrictions and was enacted "to prevent former Government employees from leveraging relationships forged during their Government service to assist others in their dealings with the Government." These include

a lifetime ban on "switching sides" on a particular matter involving specific parties on which any executive branch employee had worked personally and substantially while with the government; a two-year ban on "switching sides" on a somewhat broader range of matters that were under the employee's official responsibility; a one-year restriction on assisting others on certain trade or treaty negotiations; a one-year "cooling off" period for certain "senior" officials, barring representational communications before their former departments or agencies; a two-year "cooling off" period for "very senior" officials, barring representational communications and attempts to influence certain other high-ranking officials in the entire executive branch of government; and a one-year ban on certain officials performing some representational or advisory activities for foreign governments or foreign political parties.

Current law focuses on postemployment restrictions of former federal employees rather than on individuals entering government. These postemployment laws focus on "representational" activities of former federal employees and are "designed to protect against the improper use of influence and government information by former employees, as well as to limit the potential influence that a prospective employment arrangement may have on current federal officials when dealing with prospective private clients or future employers while still in government service." One study found the appeal of postemployment contact with the government to be strong, especially when there is a "demand for the personnel credentials" of former officials within an industry, and when former officials can move from a regulatory agency to the regulated industry.

The revolving door restrictions are in addition to statutes that apply more broadly to all individuals engaged in certain representational activities, regardless of whether they ever worked for the federal government. These restrictions, found primarily in the Foreign Agents Registration Act (FARA) and the Lobbying Disclosure Act (LDA), however, do not prohibit any particular behavior. Rather, they require registration as a foreign agent or lobbyist and the periodic disclosure of information about influence activities.

Regulations for the implementation of revolving door provisions are issued by OGE. Found at 5 C.F.R. Â§2641, these regulations provide an overview and definitions for current revolving door, postemployment conflict-of-interest restrictions; list prohibitions covered by the regulations and the law; and provide a summary of statutory exceptions and waivers. The OGE regulations pertain only to postemployment restrictions found at 18 U.S.C. Â§207 and only to executive branch employees.

In some cases, agencies have issued additional regulations that supplement OGE's regulations. For example, the Office of Management and Budget (OMB) provides guidance on the application of postemployment restrictions to all government employees, whereas the Federal Housing Finance Agency provides specific additional postemployment restrictions for its employees.

In several instances, the President has issued an executive order to influence the interactions and relationships between the public and the executive branch. For example, President John F. Kennedy issued an executive order (E.O. 10939) that included provisions for behavior by government employees. In the years after President Kennedy's Administration, other Presidents also issued ethics executive orders to address postgovernment revolving door restrictions. These executive orders were issued by President Lyndon Johnson, President Richard Nixon, President Ronald Reagan, and President George H. W. Bush.

In more recent Administrations, three Presidents have each issued an executive order that included additional revolving door restrictions for certain Administration appointees. They are President Clinton (1993), President Obama (2009), and President Trump (2017). Each of these executive orders contained an ethics pledge that provided additional conflict-of-interest requirements for executive branch personnel leaving the government and for individuals entering government. Each also extended statutory and regulatory revolving door provisions, included additional restrictions on lobbyists entering government and lobbying back government upon departure, and in two instances (Clinton and Trump) contained restrictions on former appointees leaving the government to represent a foreign principal.

For a more detailed discussion of executive order ethics pledges, see CRS Report R44974, Ethics Pledges and Other Executive Branch Appointee Restrictions Since 1993: Historical Perspective, Current Practices, and Options for Change , by Jacob R. Straus.

Revolving Door: Advantages and Disadvantages

Discussion of whether revolving door restrictions are positive or negative generally focuses on whether former government employees, when they switch jobs, have an inherent or perceived conflict of interest. Though legislation often treats the revolving door as a negative trend, the movement of individuals between the government and private sector may also present multiple potential benefits. One argument in favor of the revolving door, for example, is that the promise of future private-sector employment could potentially improve the quality of candidates applying for government jobs. Further, direct connections with government officials are important, but a close relationship is not necessarily what drives postemployment activities. Although some believe that government employees contemplating a move to the private sector will be friendly to industry interests at the expense of the public interest, two studies have also concluded that regulators instead may engage in more aggressive actions, regardless of their future job prospects. Additionally, the flow of personnel between the public and private sectors may increase the knowledge base of both sectors.

Critics of the revolving door and the movement of employees between the government and private sector often advocate for longer "cooling off" periods and stronger restrictions related to conflicts of interest. Additionally, critics often assert that the revolving door has negative effects for the transparency and efficiency of government. These critics see existing bias between those in government and their connections with lobbying firms and the potential for those connections to be exploited when the individual is employed by the private sector.

Additional criticism of the revolving door focuses on the worth of a former government employee over time. One study has concluded that a majority of revenue generated by private lobbying firms was directly attributable to employees with previous government experience. Another study found that "'who you know' rather than 'what you know' drives a good proportion of lobbying revenues."

In every Administration, executive branch officials arrive from, and depart to, the private sector. The movement between the government and the private sector touches on many industries and professions. When such movement occurs, it is possible that conflicts of interest could arise for current and former government officials.

Data on executive branch employees entering and exiting the government have historically been difficult to compile. During the 2017-2018 academic year (September 2017 to May 2018), CRS partnered with graduate students at the Bush School of Government and Public Service at Texas A&M University to collect and analyze data on the revolving door. Data were collected on the subset of former executive branch officials who were listed in the United States Government Policy and Supporting Positions (the Plum Book ). Published every four years, the Plum Book "lists over 7,000 Federal civil service leadership and support positions â¦ that may be subject to noncompetitive appointment, nationwide. Data covers positions such as agency heads and their immediate subordinates, policy executives and advisors, and aides who report to these officials." The positions listed in the Plum Book are political appointments, which represent a subset of executive branch employees. Therefore, this report presents data on that subset of individuals who have worked in these executive branch positions. Additionally, since the Plum Book is published only once every four years, it is a "snapshot" of a given Administration's appointees and includes only individuals who were serving at the time of publication.

Four Plum Books were used to build a dataset of political appointees who served in President George W. Bush's and President Barack Obama's Administrations. Overall, 6,665 federal appointees were included spanning the two Administrations. Table 1 reports the number of appointees from each Administration included in this dataset. If an appointee served in more than one Administration, data reported are for the most recent Administration served. Appointees were not included in the dataset twice. Further, if an appointee left the Administration prior to the Plum Book 's publication, then they do not appear in the data.

Political appointees included in the dataset represented 15 Cabinet departments and were paid at the GS-13 level or higherâa pay rate generally considered to have supervisory authority in the executive branch. Table 2 lists the Cabinet departments included in this study and the number of employees from that Cabinet department included in the dataset.

For most individuals and industries, data on both pregovernment and postgovernment service is not readily obtainable from public sources. Therefore, this report uses official Lobbying Disclosure Act (LDA) data on registered lobbyists to gain insight into the revolving door phenomenon. Administered by the Clerk of the House of Representatives and the Secretary of the Senate, LDA registration data are required by law to be published online. The LDA database includes all registration and disclosure statements for lobbyists and is searchable by name, lobbying firm, or lobbying client. Since the Plum Book provides the names of former executive branch officials, the LDA database was searched to match pregovernment and postgovernment service of individuals registered as lobbyists. Appointees were classified as lobbyists if they were registered under LDA at any time before or after their government service, regardless of the duration of their registration. These data, which reflect a subset of people who move between employment in the private sector and government in either direction, are the focus of this report's analysis.

Revolving Door Lobbyists in the Executive Branch

Of Bush and Obama Administration executive branch appointees in the dataset, approximately 92% (6,159) were never registered as lobbyists, while 8% (506) were registered either before, after, or both before and after their government service. Of those registered as lobbyists, approximately 36.5% registered before joining the government, 55.1% registered after leaving their executive branch jobs, and 8.3% registered both before and after their federal service. Overall, these numbers generally appear to be in line with other studies of the executive branch, which suggest that most high-level federal appointees were not employed as lobbyists either prior to, or after, their government service.

Examining the number and percentage of lobbyists in the dataset by Administration ( Table 3 ) shows that the overall levels of registered lobbyists either before or after government service is relatively low in both the Bush Administration and the Obama Administration. The Obama Administration, however, had more of its appointees who were registered lobbyists before their government service than after their government service, while the Bush Administration had more of its appointees who were registered lobbyists after their government service than before their government service.

As shown in Table 3 , the total number of registered lobbyists in the dataset from the Bush Administration (340) was higher overall than from the Obama Administration (166), although the number of lobbyists serving in either Administration is not particularly large compared to the total number of appointees included in the dataset. During his Administration, President Obama instituted an executive order to restrict the number of lobbyists entering the Administration, a policy that did not exist in the Bush Administration. The number of individuals who were registered lobbyists before serving in President Obama's first term is similar to the first term of the Bush Administration.

The number of lobbyists entering government, however, was higher in President Obama's second term than in either the Bush Administration or President Obama's first term. For individuals leaving the Administration, the number of registered lobbyists is lower in the Obama Administration than in the Bush Administration.

In the dataset, Cabinet departments differed greatly in the number of officials who were registered lobbyists either before or after their federal service. Some departments had few individuals who were registered lobbyists either before or after their time in government, whereas others had more. Figure 1 reports the percentage of registered lobbyists by department in the dataset collected by the Bush School of Government and Public Service and CRS.

As shown in Figure 1 , the percentage of federal appointees in the dataset who registered as lobbyists before their government service, after their government service, or both ranges from a high of 18% (Department of Commerce) to a low of 1% (Department of Justice). The figures for other agencies ranges between 2% and 17%.

The overall percentages of Cabinet department officials in the dataset who have ever been registered lobbyists might raise some questions for future research on the connections between government agencies and regulated industries. For example, some agencies appear to have a higher percentage of lobbyists than other agencies. Could a high percentage of lobbyists indicate stronger links to regulated industries? Similarly, how might lobbyists entering government differ in their government-industry connection than lobbyists leaving government? Might maintaining government-industry connections allow for better outreach by government agencies and access to information and resources by interest groups?

The timing of when lobbyists registered may provide additional insight into how often federal officials in the dataset utilized the revolving door between government and lobbying. Figure 2 shows the percentage of LDA-registered officials at various agencies divided by when they registeredâbefore their service, after their service, or both.

As Figure 2 shows, every Cabinet department for which data were gathered had some number of officials listed in the Plum Book who registered as lobbyists either before or after their government service, or both. The number of officials in the dataset identified as registered lobbyists is noted on the left-hand side of Figure 2 next to the name of the federal department at which they worked. As the figure shows, each department had a different mix of the percentage of its officials in the dataset identified as registered lobbyists who registered to lobby before their government service, after their government service, or both.

The percentage of the total number of lobbyists who worked at a particular agency who were registered lobbyists before their government service ranged from 10% in the Department of Labor to 61% in the Department of Veterans Affairs. The percentage of the total number of lobbyists who worked at a particular agency who were registered lobbyists after their government service ranged from 39% in the Department of Veterans Affairs to 82% in the Department of Transportation. Additionally, all departments included in the data except the Department of Veterans Affairs had individuals who were registered lobbyists before and after their government service. For the Department of Labor, half of officials who were lobbyists registered both before and after their government service. For other agencies, the percentages ranged from 1% (Department of State) to 19% (Department of Housing and Urban Development).

Conclusions and Selected Considerations for Congress

In every Administration, individuals move between the public and private sectors. In recent years, there has been greater focus on potential additional restrictions that might be placed on individuals entering and exiting government through the introduction of legislation to amend current revolving door restrictions and the issuance of executive orders to temporarily increase the "cooling off" period for executive branch appointees.

Current law compartmentalizes the revolving door by placing distinctive postemployment restrictions on different types of government employees. For example, restrictions on government officials engaged in contracting do not necessarily apply to nonprocurement or noncontracting employees. Such varying restrictions were enacted because "the present complexity and size of Executive departments require occasional separate treatment of certain departmental agencies and bureaus. It would be patently unfair in some cases to apply the one year no contact prohibition to certain employees for the purpose of an entire departmentâwhen, in reality, the agency in which he worked was separate and distinct from the larger entity."

In past Congresses, legislation has been introduced to lengthen revolving door "cooling off" periods. Those measures often propose extending "cooling off" periods to as few as two years to instituting a lifetime ban. If enacted, increased restrictions could serve to diminish the interaction between former government officials and government agencies and could reduce the appeal of leaving the government for a private-sector position. Additionally, such additional restrictions might "eliminate the appearance of favoritism a former official may have in lobbying his or her former office, and â¦ prevent a former official from financially benefiting from the use of confidential information obtained while working for the Federal Government."

Conversely, extending the "cooling off" period could possibly be seen as an unreasonable restriction on postemployment and "curtailing an individual's constitutional right of free association." Alternatively, Congress could reduce or eliminate the "cooling off" period. Having a shorter "cooling off" period, or eliminating it altogether, might arguably increase the talent pool available both inside and outside the government.

Finally, Congress could codify past executive branch ethics pledges that generally placed additional restrictions on executive branch appointees. Codifying ethics pledge provisions would have the effect of making those changes permanent, and not subject to being revoked by a future executive order. This could allow for permanent changes to existing ethics and conflict-of-interest provisions.

Administration and enforcement of revolving door provisions are spread among several entities. For example, each agency is responsible for collecting financial disclosure statements from individual employees and ensuring that they comply with conflict-of-interest provisions, including revolving door restrictions. Potential violations of revolving door laws, however, would likely be prosecuted by the Department of Justice. Congress could amend current law to consolidate the administration and enforcement of conflict of interest and revolving door provisions. Consolidation could provide a single office to help ensure compliance and enforcement of existing laws. Consolidation, however, would potentially add an additional layer to the collection and evaluation documents used to identify potential conflicts-of-interest or revolving door concerns. Since each agency collects financial disclosure forms from its employees, those forms would still need to be transmitted to a central location. Ethics enforcement, including the review of financial disclosure forms for potential conflicts of interest, has historically been conducted at the agency level, as each agency is often in the best position to determine whether a real or perceived conflict exists for its employees.

Maintain Current Revolving Door Standards

Congress might determine that current revolving door laws and regulations are effective or that the potential costs of changes outweigh potential benefits. Instead of amending existing revolving door provisions, Congress could continue to use existing law and regulations to govern the movement of individuals between the federal government and private sector. Changes to the revolving door could be made on an as-needed basis through modifications to executive branch regulations or executive orders.


Tax Policy and Disaster Recovery

Summary: The Internal Revenue Code (IRC) contains a number of provisions intended to provide disaster relief. Following certain disasters, Congress has passed legislation with temporary and targeted tax relief policies. At other times, Congress has passed legislation providing tax relief to those affected by all federally declared major disasters (disasters with Stafford Act declarations) occurring during a set time period. In addition, several disaster tax relief provisions are permanent features of the IRC.

Summary: This report discusses the following permanent provisions:

Summary: disaster casualty loss deductions; deferral of gain from involuntary conversions of property destroyed by a disaster; disaster relief for owners of low-income housing tax credit properties; income exclusion for disaster relief payments to individuals; income exclusion for certain insurance living expense payments; and IRS administrative relief in the form of extended deadlines and waiving of certain penalties.

Summary: Congress began enacting tax legislation generally intended to assist victims of specific disasters in 2002 in the wake of the September 11, 2001, terrorist attacks. Laws targeting specific disasters contained provisions that were temporary in nature. Three acts, howeverâthe Heartland Disaster Tax Relief Act of 2008 ( P.L. 110-343 ), the 2017 tax act ( P.L. 115-97 ), and the Taxpayer Certainty and Disaster Tax Relief Act of 2019 ( P.L. 116-94 )âprovided more general, but still temporary, relief for any federally declared disaster occurring during designated time periods. The acts providing temporary relief include the following:

Summary: The Job Creation and Worker Assistance Act of 2002 ( P.L. 107-147 ), which provided tax benefits for areas of New York City damaged by the terrorist attacks of September 11, 2001; The Katrina Emergency Tax Relief Act of 2005 (KETRA; P.L. 109-73 ), which provided tax relief to assist the victims of Hurricane Katrina in 2005; The Gulf Opportunity Zone (GO Zone) Act of 2005 ( P.L. 109-135 ), which provided tax relief to those affected by Hurricanes Katrina, Rita, and Wilma in 2005; The Food, Conservation, and Energy Act of 2008 (2008 Farm Bill; P.L. 110-234 ), which provided tax relief intended to assist those affected by severe storms and tornadoes in Kansas in 2007; The Heartland Disaster Tax Relief Act of 2008 ( P.L. 110-343 ), which provided tax relief to assist recovery from both the severe weather that affected the Midwest during summer 2008 and Hurricane Ike (this act also included general disaster tax relief provisions that applied to federally declared disasters occurring before January 1, 2010); The Disaster Tax Relief and Airport and Airway Extension Act of 2017 ( P.L. 115-63 ), which provided tax relief to those affected by Hurricanes Harvey, Irma, and Maria in 2017; The 2017 tax act ( P.L. 115-97 , commonly referred to using the title of the bill as passed in the House, the "Tax Cuts and Jobs Act") responded to major disasters occurring in 2016; The Bipartisan Budget Act of 2018 (BBA18; P.L. 115-123 ), which provided relief to those affected by the 2017 California wildfires; and The Taxpayer Certainty and Disaster Tax Relief Act of 2019 (Division Q of the Further Consolidated Appropriations Act, 2020; P.L. 116-94 ), which provided relief for major disasters generally occurring in 2018 and 2019.

Summary: This report provides a basic overview of existing, permanent disaster tax provisions, as well as past, targeted legislative responses to specific disasters. The report also includes a discussion of economic and policy considerations related to providing disaster tax relief to individuals and businesses, and encouraging charitable giving to support disaster relief.

T ax policy is one of several policy tools that can be used for disaster relief. At various points in time, Congress has passed legislation to provide tax relief and to support recovery following disaster incidents. Permanent tax relief provisions may take effect following qualifying disaster events. Targeted, temporary tax relief provisions can be designed to respond to specific disaster events.

The Internal Revenue Code (IRC) contains a number of permanent disaster-related tax provisions. These include provisions providing that qualified disaster relief payments and certain insurance payments are excluded from income, and thus not subject to tax. Taxpayers are also able to deduct casualty losses and defer gain on involuntary conversions (an involuntary conversion occurs when property or money is received in payment for destroyed property). The Internal Revenue Service (IRS) can also provide administrative relief to taxpayers affected by disasters by delaying filing and payment deadlines, waiving underpayment of tax penalties, and waiving the 60-day requirement for retirement plan rollovers. For disasters declared after December 20, 2019, the IRS is required to postpone federal tax deadlines for 60 days. The availability of certain tax benefits is triggered by a federal disaster declaration. Before 2017, casualty losses were generally deductible. However, changes made in the 2017 tax revision (commonly referred to as the "Tax Cuts and Jobs Act" [TCJA]; P.L. 115-97 ) restrict casualty loss deductions to federally declared disasters.

Temporary tax-related disaster relief measures were enacted following a number of major disasters that occurred between 2001 and 2019. The following measures addressed specific disasters:

The Job Creation and Worker Assistance Act of 2002 (Job Creation Act; P.L. 107-147 ) responded to the terrorist attacks of September 11, 2001. The Katrina Emergency Tax Relief Act of 2005 (KETRA; P.L. 109-73 ) responded to Hurricane Katrina. The Gulf Opportunity Zone Act of 2005 (GO Zone Act; P.L. 109-135 ) responded to Hurricanes Katrina, Rita, and Wilma. The Food, Conservation, and Energy Act of 2008 (2008 Farm Bill; P.L. 110-246 ) responded to severe storms and tornadoes in Kansas in 2007. The Heartland Disaster Tax Relief Act of 2008, enacted as Title VII of Division C of P.L. 110-343 (the Heartland Act), and other provisions in P.L. 110-343 responded to severe Midwest storms in summer 2008 and Hurricane Ike and provided general disaster relief for events occurring before January 1, 2010. The Disaster Tax Relief and Airport and Airway Extension Act of 2017 (Disaster Tax Relief Act of 2017; P.L. 115-63 ) responded to Hurricanes Harvey, Irma, and Maria. The 2017 tax act ( P.L. 115-97 ; commonly referred to using the title of the bill as passed in the House, the "Tax Cuts and Jobs Act") responded to disasters occurring in 2016. The Bipartisan Budget Act of 2018 (BBA18; P.L. 115-123 ) responded to the 2017 California wildfires. The Taxpayer Certainty and Disaster Tax Relief Act of 2019 (Division Q of the Further Consolidated Appropriations Act, 2020; P.L. 116-94 ) provided relief for major disasters that generally occurred in 2018 or 2019.

This report provides an overview of permanent and temporary disaster tax provisions that have been enacted in response to specific disaster events. The report also summarizes which types of temporary provisions have been used to support different disaster events. Policy considerations related to business, individual, and charitable disaster relief are also addressed.

Permanent Disaster Tax Relief Provisions

There are several permanent disaster tax relief provisions. In some cases, these provisions apply to any property that is destroyed or damaged due to casualty or theft. In other cases, relief is limited to property lost as a result of federally declared disasters or for disasters for which the IRS undertakes administrative actions. Additionally, as discussed further below, there are instances where these permanent relief provisions have been temporarily enhanced in response to specific disaster events.

Taxpayers may be able to deduct casualty losses resulting from damage to or destruction of personal property (property not connected to a trade or business). For tax years 2018 through 2025, the casualty loss deduction is limited to losses attributable to federally declared disasters. After 2025, under current law, the deduction is to be available to losses arising from any fire, storm, shipwreck, or other casualty or theft. Casualty losses are an itemized deduction. Each casualty is subject to a $100 floor, meaning that only losses in excess of $100 are deductible for each casualty. Additionally, casualty losses are deductible only to the extent that aggregate losses exceed 10% of the taxpayer's adjusted gross income (AGI). Only casualty losses not compensated for by insurance or otherwise can be deducted.

An involuntary conversion occurs when property is destroyed, stolen, condemned, or disposed of under threat of condemnation, and the owner of the property receives money or payment for the property, such as an insurance payment. An involuntary conversion can also be viewed as a forced sale of property. The IRC allows taxpayers to defer recognizing a gain on property that is involuntarily converted. The replacement periodâthe time within which a taxpayer must replace converted property to receive complete deferralâis two years (three years for condemned business property). For a taxpayer's principal residence and its contents, the replacement period for an involuntary conversion stemming from a federally declared disaster is four years.

Taxpayers whose principal residence or any of its contents are involuntarily converted as a result of a federally declared disaster qualify for additional special rules. First, gain realized from the receipt of insurance proceeds for unscheduled personal property (property in the home that is not listed as being covered under the insurance policy) is not recognized. Second, any other insurance proceeds received for the residence or its contents are treated as a common fund. If the fund is used to purchase property that is similar or related in service or use to the converted residence or its contents, then the owner may elect to recognize gain only to the extent that the common fund exceeds the cost of the replacement property.

If a taxpayer's business property is involuntarily converted as a result of a federally declared disaster, then the taxpayer is not required to replace it with property that is similar or related in service to the original property in order to avoid having to recognize gain on the conversion, as long as the replacement property is still held for a type of business purpose.

Disaster Relief for Low-Income Housing Credit

The low-income housing tax credit allows owners of qualified residential rental property to claim a credit over a 10-year period that is based on the costs of constructing, rehabilitating, or acquiring the building attributable to low-income units. Owners may claim a credit based on 130% of the project's costs if the housing is in a low-income or difficult development area. Owners must be allocated this credit by a state. Each state is limited in the amount of credits it may allocate to the greater of $2,000,000 or $1.75 multiplied by the state's population (both figures are adjusted for inflation and are $3,166,875 and $2.75625, respectively, for 2019), with adjustments.

Owners of low-income housing tax credit (LIHTC) properties are eligible for relief from certain requirements of the program if the property is located in a major disaster area. Specifically, property owners are provided relief from credit recapture, carryover allocation rules, and income certifications for displaced households temporarily housed in an LIHTC unit. Property owners may also qualify for additional credits for rehabilitation expenditures, and, for severely damaged buildings in the first year of the credit period, the allocation of credits may either be treated as having been returned, or the first year of the credit period can be extended. State LIHTC allocating agencies are eligible for relief from compliance monitoring under the same IRS guidance. Additionally, households are eligible to occupy an LIHTC unit without being subject to the program's income limits if their principal residence was located in a major disaster area.

Exclusion for Disaster Assistance Payments to Individuals

Taxpayers can exclude from income qualified disaster relief and disaster mitigation payments. Excludable relief payments include payments for expenses that are not compensated for by insurance (or otherwise compensated). Excludable relief payments can include personal, family, living, or funeral expenses incurred as a result of the disaster; payments for home repairs or to replace damaged and destroyed contents; payments by a transportation provider for injuries or deaths resulting from a disaster; and payments from governments (or similar entities) for general welfare when disaster relief is warranted. Qualified disaster mitigation payments include amounts paid under the Robert T. Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) for hazard mitigation.

Exclusion for Insurance Living Expense Payments

Taxpayers whose principal residence is damaged in a disaster (including a fire, storm, or other casualty) can exclude insurance reimbursements for living expenses while temporarily occupying another residence from income. This exclusion also applies to taxpayers who are denied access to their home by government authorities due to the threat of casualty or disaster.

The IRS is authorized to postpone any federal tax deadline, including deadlines for filing returns, paying taxes, or claiming refunds, for up to one year for taxpayers affected by federally declared disasters. The IRS may also postpone certain Individual Retirement Account (IRA) deadlines. Specifically, the IRS can extend the 60-day period for plan participants to deposit rollover retirement plan distributions to another qualified plan or IRA. Additionally, the IRS may extend the time for a qualified plan to make a required minimum distribution.

The IRS is required to postpone federal tax deadlines for 60 days for disasters declared after December 20, 2019. Taxpayers for whom deadlines are automatically postponed include (1) those whose principal residence is in a disaster area; (2) those whose principal place of business is in a disaster area; (3) individuals who are relief workers assisting in a disaster area; (4) individuals whose tax records are maintained in a disaster area; (5) any individual visiting a disaster area who was killed or injured as a result of the disaster; or (6) spouses filing a joint return with any person described in (1) to (5). The IRS is also authorized to waive underpayment penalties when a casualty, disaster, or other unusual circumstances have made it such that the imposition of a penalty would be against equity and good conscience.

Past Temporary Disaster-Relief Provisions

At times, Congress has chosen to use tax policy to provide temporary relief and support following disaster incidents. Temporary and event-specific disaster tax policy has been enacted following many major disaster events in recent years. However, temporary or targeted tax relief has not been enacted following all major disaster events. For example, no temporary or targeted disaster tax relief was enacted in response to Hurricane Irene in 2011 or Hurricane Sandy in 2012.

The specific tax relief provisions enacted to respond to past disaster events are summarized in Table 3 and Table 4 . The following discussion provides additional information on these provisions. Tax provisions that have been used to respond to disasters most recently are discussed first .

Temporary Provisions Enacted to Respond to Recent Disasters

The disaster tax relief packages enacted in 2017 to respond to Hurricanes Harvey, Irma, and Maria; in 2018 to respond to the 2017 California wildfires; and in 2019 to respond to disasters that occurred in 2018 and 2019 contained the same five provisions: (1) an enhanced casualty loss deduction; (2) expanded access to retirement plan funds; (3) increased limits on charitable deductions; (4) employee retention tax credits; and (5) EITC/CTC credit computation look-back rules. Enhanced casualty loss deductions were allowed for losses associated with any federally declared disaster occurring in 2016 and 2017, and access to retirement plan funds was enhanced for 2016 disasters. Certain areas of California that were affected by natural disasters in 2017 and 2018 will receive additional LIHTC allocations in 2020. Additionally, disaster tax relief for 2018 and 2019 disasters will also be available in U.S. possessions.

An enhanced casualty loss deduction has been made available for losses attributable to certain disasters or for losses occurring during certain periods of time. Most recently, an enhanced casualty loss deduction was provided for 2018 and 2019 disasters in the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (Division Q of P.L. 116-94 ). Before that, an enhanced casualty loss deduction was provided for California wildfires in the Bipartisan Budget Act of 2018 (BBA18; P.L. 115-123 ); any disaster-related casualty loss in calendar years 2016 or 2017 in the 2017 tax act, commonly called the "Tax Cuts and Jobs Act" (TCJA; P.L. 115-97 ); and Hurricanes Harvey, Irma, and Maria in the Disaster Tax Relief and Airport and Airway Extension Act of 2017 ( P.L. 115-63 ). The enhancements (1) waive the 10% of AGI floor; (2) increase the $100 floor for each casualty to $500; and (3) allow taxpayers not itemizing deductions to add the deduction to their standard deduction. Generally, casualty loss deductions are claimed in the year of the loss. However, a loss in a federally declared disaster area may be deducted on the prior year's tax return. A similar provision was enacted in response to several previous disasters.

The Disaster Tax Relief Act of 2019, BBA18, TCJA, and the Disaster Tax Relief Act of 2017 all provided tax relief relating to retirement plan distributions. First, each act waived the 10% penalty that would otherwise apply on early withdrawals made from a qualifying retirement plan if the individual's principal place of abode was in the disaster area and the individual sustained an economic loss due to the disaster. The distributions were required to occur within a specified time frame, and the maximum amount that could be withdrawn without penalty was $100,000 or 100% of the present value of the plan participant's benefits (but not less than $10,000). Funds could be recontributed to a qualified plan over a three-year period and receive tax-free rollover treatment. Additionally, with respect to any taxable portion of the distribution, the individual could include one-third of such amount in gross income each year over the course of three tax years rather than including the entire amount on the tax return for the year of distribution.

The acts increased the amount disaster victims could borrow from their retirement plans without immediate tax consequences. Under current law, the maximum amount that may be borrowed without being treated as a taxable distribution is the lesser of (1) $50,000, reduced by certain outstanding loans, or (2) the greater of $10,000 or 50% of the present value of the employee's vested benefits. For loans made during the applicable period, the acts increased this to the lesser of (1) $100,000, reduced by certain outstanding loans, or (2) the greater of $10,000 or 100% of the present value of the employee's vested benefits, as well as extending certain loan repayment dates by one year. A similar provision was enacted in response to several previous disasters.

Increased Limits on Charitable Deductions

Taxpayers are generally permitted to deduct contributions made to 501(c)(3) charitable organizations, subject to various limitations. Individuals may not claim a charitable deduction that exceeds 50% (temporarily increased to 60% beginning in 2018 through 2025) of their "contribution base" (adjusted gross income with certain adjustments), and corporations may not claim a deduction that exceeds 10% of their taxable income with certain adjustments. Any excess contributions may generally be carried forward for five years.

The Disaster Tax Relief Act of 2019, BBA18, and the Disaster Tax Relief Act of 2017 temporarily suspended the 50% and 10% limitations for qualified contributions made for disaster relief efforts. An additional deduction is allowed for amounts by which the taxpayer's charitable contribution base exceeds the amount of all other allowable charitable contributions in the tax year. For individuals, the deduction could not exceed the amount by which the charitable contribution base exceeded other charitable contributions. For individuals, the earlier acts also suspended the overall limitation on itemized deductions for qualified contributions that was in effect through 2017. A similar provision was enacted in response to several previous disasters.

The Disaster Tax Relief Act of 2019, BBA18, and the Disaster Tax Relief Act of 2017 provided a temporary retention credit for disaster-damaged businesses that continued to pay wages to their employees who were unable to work after the disaster rendered the business inoperable. Eligible employees were those whose principal place of employment was in the applicable disaster area. The credit equaled 40% of the employee's first $6,000 in wages paid between the date the business became inoperable and the date it resumed significant operations at that location (or the end of the first calendar year, whichever came first). Wages can be those paid even if the employee provides no services for the employer, or for wages paid for services performed at a different location or before significant operations resume. This employee retention may not be for an employee during any period that the employer claims a work opportunity credit for the employee. A similar provision was enacted in response to several previous disasters.

The Disaster Tax Relief Act of 2019 and BBA18 permitted individuals affected by 2018 and 2019 disasters or California wildfires in 2017 to elect to use their earned income from the previous year for computing the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC), instead of their disaster-year income, if previous-year income was greater than disaster-year income. The Disaster Tax Relief Act of 2017 also included this provision for those affected by Hurricanes Harvey, Irma, and Maria. This may have benefited taxpayers whose income was reduced in the year of the disaster. Taxpayers generally qualified only if they lived in the disaster zone or lived in the disaster area and the disaster caused them to be displaced from their principal place of abode. A similar provision was enacted in response to several previous disasters.

The Disaster Tax Relief Act of 2019 increased credits available to California in 2020. Specifically, for certain areas of California that were affected by natural disasters in 2017 and 2018, the act increased California's 2020 LIHTC allocation by the lesser of the state's 2020 LIHTC allocations to buildings located in qualified 2017 and 2018 California disaster areas, or 50% of the state's combined 2017 and 2018 total LIHTC allocations.

In the past, disaster relief legislation has provided additional LIHTC allocations to disaster-affected areas. The GO Zone Act temporarily increased the credits available to Alabama, Louisiana, and Mississippi for use in the GO Zone by up to $18.00 multiplied by the state's population that was located in the GO Zone prior to the date of Hurricane Katrina. It also temporarily treated the disaster zones as difficult development areas and used an alternate test for determining whether certain GO Zone projects qualified as low-income housing. The Heartland Act permitted affected states to allocate additional amounts for use in the disaster area of up to $8.00 multiplied by the state's disaster area population.

Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa, and the Commonwealth of the Northern Mariana Islands are U.S. territories. Each has a local tax system with features that help determine the territory's local public finances. Guam, the U.S. Virgin Islands, and the Northern Mariana Islands are mirror code possessions, meaning these territories use the Internal Revenue Code as their territorial tax law. Puerto Rico and American Samoa are non-mirror code possessions. These two possessions have their own tax laws.

The Disaster Tax Relief Act of 2019 requires payments from the U.S. Treasury to possessions for the temporary tax relief provided in the bill. Mirror code possessions will receive an amount equal to the loss in revenue by reason of the temporary disaster-related tax relief provided in the legislation. Non-mirror code possessions may receive a similar payment (a payment equal to the amount of temporary disaster tax relief that would have been provided if a mirror code had been in effect) if the possession has an approved plan for prompt distribution of payments .

Temporary Tax Provisions Used to Respond to Disasters Before 2010

Provisions used to respond to 2016, 2017, 2018, and 2019 disasters were also used to respond to some disasters before 2010. Additionally, a number of other temporary tax provisions were used to respond to these pre-2010 disasters. The first time a temporary disaster tax relief package was enacted was in response to the September 11 terrorist attacks. The following sections summarize the various provisions included in temporary disaster tax relief legislation before 2010.

In general, capital expenditures must be added to a property's basis rather than being expensed (i.e., deducted in the current year). IRC Section 179 provides an exception so that a business may expense the costs of certain property in the year it is placed in service. After 2018, the maximum expensing allowance is $1 million, with an investment limitation of $2.5 million (both amounts are adjusted for inflation). In the past, these thresholds have been lower. For example, in 2007, the maximum expensing allowance under Section 179 was $125,000, and the deduction decreased dollar-for-dollar as the total cost of all property the business placed in service during the year exceeded $500,000. The Heartland Act increased the Section 179 limitations by up to $100,000 and $600,000 for qualified disaster area property for federally declared disasters occurring prior to January 1, 2010. Increased expensing allowances were enacted in response to several disasters before 2007 as well.

The Heartland Act also added IRC Section 198A, which permitted full expensing (subject to depreciation recapture) of qualified expenditures for the abatement or control of hazardous substances released on account of a federally declared disaster, the removal of debris or the demolition of structures on business-related real property damaged by such a disaster, and the repair of business-related property damaged by such a disaster. This provision applied only to federally declared disasters occurring prior to January 1, 2010.

Under current law, a business's net operating loss (NOL) can be carried forward indefinitely. Additionally, NOLs are limited to 80% of taxable income. There is no carryback of NOLs. This treatment was enacted in the 2017 tax act ( P.L. 115-97 ). Before 2018, in general, a taxpayer's net operating loss (NOL) could be carried back and deducted in the two tax years before the NOL year, and then carried forward for up to 20 years after the NOL year. Additionally, before 2018, the carryback was extended to three years for individuals who had a loss of property arising from a casualty or theft. A three-year period also applied for small businesses and farmers for NOLs attributable to federally declared disasters.

The Heartland Act provided for a five-year carryback period for qualified losses from any federally declared disaster occurring prior to January 1, 2010. For such disasters, it also suspended the alternative minimum tax (AMT) provision that generally limits NOL deductions to 90% of alternative minimum taxable income. The corporate AMT was repealed in the 2017 tax act.

For eligible property acquired and placed in service after September 27, 2017, and before January 1, 2023, businesses may claim a 100% expensing (or bonus depreciation) allowance under Section 168(k). Like expensing limitations, the bonus depreciation allowance has changed over time. The Heartland Act provided a 50% bonus depreciation provision for qualified disaster assistance property from a federally declared disaster occurring prior to January 1, 2010. However, since other legislation provided 50% bonus depreciation during this time period, the provision was probably not meaningful. With 100% bonus depreciation in effect through 2022, providing additional bonus depreciation is not currently a policy option.

Mortgage revenue bonds are tax-exempt bonds used to finance below-market-rate mortgages for low- and moderate-income homebuyers. In general, the homebuyers must not have owned a residence for the past three years, and the houses' costs may not exceed 90% of the average purchase price for the area. However, for areas that are low income or in chronic economic distress, the three-year restriction does not apply, and the purchase price limitation is increased to 110%.

For individuals whose homes were declared unsafe or ordered to be demolished or relocated due to a federally declared disaster occurring prior to January 1, 2010, the Heartland Act waived the three-year restriction and increased the purchase price limitation from 90% to 110%. It also permitted individuals whose homes were damaged by the disaster to treat the amount of owner financing provided for home repair and construction as a qualified rehabilitation loan, limited to $150,000 (the amount is generally limited to $15,000), which had the effect of waiving the three-year requirement for such financing. The GO Zone Act and KETRA contained similar provisions.

In the Heartland Act, the maximum amount of bonds each state could issue was $1,000 multiplied by that state's population in the disaster area, and need-based prioritization for state allocations was established. The GO Zone Act also expanded qualified private activity bond issuances for mortgage revenue bonds in disaster areas. The Go Zone Act added $2,500 per person in the federally declared Katrina disaster areas in which the residents qualify for individual and public assistance. The increased capacity added approximately $2.2 billion for Alabama, $7.8 billion for Louisiana, and $4.8 billion for Mississippi in aggregate bonds over the subsequent five years through 2010.

Expensing of Environmental Remediation Costs ("Brownfields")

Capital expenditures must generally be added to the property's basis rather than being expensed (i.e., deducted in the current year). IRC Section 198 provided an exception by allowing taxpayers to expense any qualifying environmental remediation costs paid or incurred prior to January 1, 2012, for the abatement or control of hazardous substances at a qualified contaminated site. Unlike the other provisions discussed in this report, Section 198 is not limited to federally declared disasters or specific disasters. The provision was enacted as a temporary one in the Taxpayer Relief Act of 1997 ( P.L. 105-34 ) and was extended a number of times before expiring at the end of 2011.

The Heartland Act was among those laws that temporarily extended Section 198. The GO Zone Act had also extended the provision, but only for those costs for contaminated sites in the GO Zone, and treated petroleum products as a hazardous substance for the purposes of environmental remediation.

Before 2005, donors of food inventory that were not C corporations could only claim a charitable deduction equal to their basis in the inventory (typically, its cost). C corporations were allowed an enhanced deduction, which was the lesser of (1) the basis plus 50% of the property's appreciated value, or (2) two times basis.

KETRA provided special rules that allowed all donors of wholesome food inventory to benefit from the enhanced deduction and allowed C corporations to claim an enhanced deduction for donations of book inventory to public schools. Neither provision was limited to donations related to the hurricane, but both were originally set to expire on December 31, 2005. The provisions have been extended several times since then, including by the Heartland Act (as part of its tax extenders package, rather than its disaster relief provisions). The enhanced deduction for charitable contributions of food inventory was made permanent in the Protecting Americans from Tax Hikes Act of 2015, enacted as Division Q in the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ). The enhanced deduction for book inventory expired as scheduled at the end of 2011.

In addition to the general treatment of involuntary conversions (discussed above), the Job Creation Act, KETRA, the 2008 Farm Bill, and the Heartland Act increased the two-year time period to purchase the replacement property to five years for property in the applicable disaster area so long as substantially all of the use of the replacement property occurred in such area.

When all or part of a debt is forgiven, the amount of the cancellation is ordinarily included in the income of the taxpayer receiving the benefit of the discharge. However, there are several exceptions to this general rule. For example, no amount of the discharge is included in income if the cancellation is intended to be a gift or is from the discharge of student loans for the performance of qualifying services. The Mortgage Forgiveness Debt Relief Act of 2007 ( P.L. 110-142 ) temporarily excluded qualified canceled mortgage debt income that is associated with a primary residence from taxation (this provision was extended multiple times, and expired at the end of 2017). There are also certain situations in which the taxpayer may defer taxation, with the possibility of permanent exclusion, on income from the discharge of indebtedness, such as if discharge occurs when the debtor is in Title 11 bankruptcy proceedings or legally insolvent. Both KETRA and the Heartland Act included provisions that allowed victims to exclude nonbusiness debt forgiveness from income in certain conditions.

Victims of Hurricane Katrina were allowed to exclude nonbusiness debt that was forgiven by a governmental agency or certain financial institutions if the discharge occurred after August 24, 2005, and before January 1, 2007. Individuals were eligible for this benefit if (1) their principal place of abode was in the core disaster area, or (2) it was in the Hurricane Katrina disaster area and they suffered an economic loss due to the hurricane. Individuals with certain tax attributes (such as basis) were required to reduce them by the amount excluded from income, which has the effect of deferring (rather than permanently eliminating) the tax on the cancelled debt.

For victims with a principal place of abode in a Midwestern disaster area, the Heartland Act provided similar relief. However, if that home was in an area determined by the President to warrant only public assistance, the individual also had to have suffered an economic loss due to the severe weather.

Both the GO Zone Act and the Heartland Act excluded the value of certain employer-provided housing, limited to $600 per month, from the employee's income and allowed the employer to claim a credit equal to 30% of that amount. Among other requirements, the employee must have had a principal residence in the applicable disaster area and have performed substantially all employment services for that employer in that area. The employer must have had a trade or business located within the applicable disaster area.

Both the GO Zone Act and the Heartland Act temporarily allowed affected states to issue tax-exempt bonds to finance (1) qualified activities involving residential rental projects, nonresidential real property, and public utility property located in the disaster area; and (2) below-market rate mortgages for low- and moderate-income homebuyers. Under the GO Zone Act, the maximum amount of bonds that each state could issue was $2,500 multiplied by that state's population located in the GO Zone as determined prior to the date of Hurricane Katrina. Under the Heartland Act, the maximum amount of bonds each state could issue was capped at $1,000 multiplied by that state's population in the disaster area, and the act expressly stated that the bonds would have to be designated by the appropriate state authority on the basis of providing assistance to where it was most needed. The Job Creation Act, meanwhile, allowed New York to issue up to $8 billion (divided equally between the state and New York City) in tax-exempt bonds to finance qualified activities involving residential rental projects, nonresidential real property, and public utility property located in the disaster zone. The Job Creation Act and the GO Zone Act also allowed one additional advance refunding of qualifying bonds that were issued by those states.

The GO Zone Act, the 2008 Farm Bill, and the Heartland Act allowed operators of low-income residential rental projects financed by IRC Section 142(d) bonds to rely on the representations of displaced individuals regarding their income qualifications so long as the tenancy began within six months of the displacement.

Both the GO Zone Act and the Heartland Act permitted affected states to issue tax credit bonds to pay the principal, interest, or premiums on qualified governmental bonds or to make loans to political subdivisions to make such payments. Bondholders may claim a credit based on the product of a credit rate and the bonds' outstanding face amount. The bonds were required to be issued within a certain time period and could not have a maturity date beyond two years, among other requirements. Further, each state was capped in the amount of bonds it could issueâfor example, under the Heartland Act, the maximum amount of bonds that could be issued by states with disaster area populations of at least 2 million was $100 million; the cap was $50 million for states with disaster area populations between 1 million and 2 million; and the other states could not issue any bonds. Bonds could not be used for certain activities.

Both KETRA and the Heartland Act provided tax relief to those who provided free housing to those displaced by the storms. Individuals could claim additional personal exemptions of $500 each for up to four displaced people whom they housed for at least 60 consecutive days. These exemptions could be claimed in both the year of the disaster and the next year; however, no person could qualify the taxpayer for the exemption in both years. Among other requirements, the displaced person must have had a principal place of abode in the disaster area; if the home was not in the core disaster area, then the person must have been displaced due to either storm damage to the home or evacuation caused by the storm.

Generally, individuals who use their personal vehicles for charitable purposes may claim a deduction based on the number of miles driven. The amount is set by statute at 14 cents per mile.

KETRA and the Heartland Act each temporarily increased the charitable mileage rate to 70% of the standard business mileage rate if the vehicle was used for hurricane or Midwest disaster relief. The standard business mileage rate is periodically set by the IRS. In 2019, the standard mileage rate is 56 cents per mile.

Additionally, both acts provided a temporary exclusion from a charitable volunteer's gross income for any qualifying mileage reimbursements received from the charity for the operating expenses of a volunteer's passenger automobile, when used for disaster relief.

Treasury Authority to Make Adjustments Relating to Status

KETRA, the GO Zone Act, and the Heartland Act all contained similar provisions that authorized the Treasury Secretary to make adjustments in the application of the tax laws for the tax years of the disaster and the immediate subsequent year so that temporary relocations due to the disaster did not cause taxpayers to lose any deduction or credit or to experience a change of filing status.

Individuals with eligible tuition and related expenses may claim certain higher education tax credits. Under the law existing when KETRA, the GO Zone Act, and the Heartland Act were enacted, the Hope credit was 100% of the first $1,000 of eligible expenses plus 50% of the next $1,000 of eligible expenses, both adjusted for inflation. The maximum Lifetime Learning credit is and was 20% of up to $10,000 of eligible expenses. Beginning in 2009, the partially refundable American Opportunity Tax Credit (AOTC) temporarily increased the Hope credit, allowing 100% of eligible expenses up to $2,000 plus 25% of the next $2,000 of eligible expenses. The Protecting Americans from Tax Hikes (PATH) Act (Division Q of P.L. 114-113 ) made the AOTC permanent, effectively eliminating the Hope credit.

For individuals attending school in the GO Zone for 2005 and 2006, the GO Zone Act allowed certain nontuition expenses (e.g., books, equipment, and room and board) to qualify for the Hope and Lifetime Learning credits; doubled the $1,000 limitations in the Hope credit to $2,000; and increased the 20% limitation in the Lifetime Learning credit to 40%. The Heartland Act provided similar rules for students attending school in a Midwestern disaster area during 2008 or 2009. However, to take advantage of this provision for 2009, taxpayers were required to waive application of the AOTC provisions.

Taxpayers may claim a credit equal to 10% of the qualifying expenditures to rehabilitate a qualified building or 20% of such expenditures for a certified historic structure. Both the GO Zone Act and the Heartland Act temporarily increased these percentages to 13% and 26%, respectively, for rehabilitating qualifying buildings and structures damaged by the applicable disasters.

Under IRC Section 172, certain net operating losses, called specified liability losses, may be carried back for 10 years. Under IRC Section 165(i), certain disaster losses may be deducted in the year prior to the disaster. The GO Zone Act treated public utility casualty losses as a Section 172 loss. The GO Zone Act and the 2008 Farm Bill allowed public utility disaster losses to be deducted in the fifth taxable year preceding the disaster.

The GO Zone included provisions to encourage the Treasury Secretary to designate at least one series of bonds as Gulf Coast Recovery Bonds. The Treasury designated Series I inflation-indexed savings bonds purchased through financial institutions as "Gulf Coast Recovery Bonds."

Under the new markets tax credit, taxpayers are allocated a credit for investments made in qualified community development entities. The credit is claimed over a period of seven years and equals the amount of the investment multiplied by a percentage: 5% for the first three years and 6% for the next four years. The credit was capped at $2 billion for 2005 and $3.5 billion for 2006 and 2007. The GO Zone Act increased the cap by $300 million for 2005 and 2006 and by $400 million for 2007, and it allocated these amounts to entities making low-income community investments in the GO Zone.

Under IRC Section 194, taxpayers may expense up to $10,000 of qualifying reforestation expenditures. Under IRC Section 172, the general rule is that taxpayers may carry net operating losses back for two years. The GO Zone Act created two special rules for timber producers with less than 501 acres of timber property: it (1) increased the Section 194 limit by up to $10,000 for expenditures made for qualified timber property in the applicable disaster zones; and (2) increased the Section 172 carry back period to five years for certain losses attributable to timber property in those zones.

Generally, businesses that hire individuals from groups with high unemployment rates or special employment needs, such as high-risk youths and veterans, may claim the work opportunity tax credit. The credit may be claimed for the wages of up to $6,000 that were paid during the employee's first year. For an employee who worked at least 400 hours, the credit equals 40% of his or her wagesâthus, the maximum credit is $2,400.

KETRA allowed businesses to claim the work opportunity credit on wages paid to certain employees hired after Hurricane Katrina. Eligible employees were those who had a principal place of abode in the core disaster area and either (1) were hired during the two-year period beginning August 28, 2005, for a position in the area, or (2) were displaced by the hurricane and hired after August 27, 2005, and before January 1, 2006. Congress later extended the WOTC's expiration from August 28, 2007, to August 28, 2009, for firms who hire "Hurricane Katrina employees" to work in the core disaster area (see the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 in P.L. 110-343 ). The Job Creation Act provided similar treatment for New York Liberty Zone business employees and certain employees outside the zone.

For purposes of depreciation, the Job Creation Act generally shortened the recovery period for leasehold improvement property to five years for qualifying property located in the New York disaster zone.

Tax policy for disaster relief might be motivated by multiple objectives. One objective could be distributional or relief-oriented. Tax policy could be designed to provide additional resources to businesses or individuals who experienced an uncompensated disaster loss. This relief could be targeted toward the low-income, although there are limitations when using tax policy to address low-income individuals and businesses.

Tax policy can also be used to encourage investment in disaster-affected areas. Absent government intervention, some level of private rebuilding will occur. A policy question, however, is whether this private building is sufficient, or if there are other barriers to investment in the disaster-affected region that call for government intervention. When investment subsidies are provided, there is the question of how much new investment is supported relative to how much investment is subsidized that would have occurred absent the subsidy.

There are also challenges associated with identifying the disaster area for the purposes of providing tax relief. In some cases, relief has been provided to a certain geographic area. In other cases, relief has been tied to a federal disaster declaration or provided only when individual assistance or individual and public assistance is provided. Narrowly defined geographic areas can limit tax benefits to those most likely to be harmed by the disaster, but can exclude some disaster victims.

The following sections discuss considerations by examining instances in which disaster relief was provided through the tax code for businesses and individuals, as well as through tax policy designed to support disaster-related charitable giving.

Providing Disaster Tax Relief to Businesses

For businesses, hurricanes like Katrina, Maria, Irma, and Harvey caused unprecedented property and earnings losses. Employee displacement can create labor market challenges that persist over time. Further, longer-term supply chain disruptions can make it difficult for businesses to resume operations after initial clean-up efforts are complete.

In the past, tax policy has been used to reduce the cost of business investment in cleanup and repairs. Bonus depreciation and enhanced expensing were used to provide disaster tax relief to businesses following several disasters before 2010. However, at present, with bonus depreciation at 100% (100% bonus depreciation is expensing), this policy tool is not readily available. Expensing allowances are higher than they have been historically, but could, if deemed necessary and under certain circumstances, be expanded further to provide additional expensing allowances in disaster areas. For instance, this could be a policy option should bonus depreciation be set at a rate of less than 100%, or eliminated altogether. An expansion to expensing for disaster-relief purposes could be accomplished through raising the expensing limit; expensing is currently allowed for investments up to $1,040,000.

Expansions to net operating loss (NOL) carrybacks and lengthening of replacement periods for involuntary conversions have also been used to provide tax relief following past disasters. Under current law, there is no carryback of NOLs. Allowing an NOL carryback for disaster-related losses could provide relief for taxpayers experiencing losses who had positive tax liability in a recent tax year. Expanding the replacement period for involuntary conversions could provide more flexibility to taxpayers looking to rebuild or reestablish businesses in the disaster area.

Tax policy can also be used to encourage businesses to provide employment and housing following disaster events. Employee retention credits encourage employers to continue paying employees in circumstances where the disaster affects business operations. Targeted hiring credits, such as the WOTC, can be used to provide an incentive to hire workers who were displaced by a disaster. With respect to housing, tax policy has been used to encourage employers to provide housing to their employees, as well as to support more low-income housing development in disaster-affected areas.

Disaster recovery and rebuilding has also been supported following certain disasters by providing targeted tax benefits to disaster-impacted geographic zones. The New York Liberty Zone was established following the September 11 terrorist attacks. The Gulf Opportunity Zone was established following the 2005 Gulf Coast hurricanes. These zones can receive additional allocations of allocated tax credits, such as the NMTC or the LIHTC. Past disaster tax relief has also provided additional allocations of tax-exempt or tax-credit bonds in disaster-affected zones. Some have questioned the effectiveness of tax-exempt private activity bonds as a tool for disaster relief, noting that in the case of the GO Zone, areas with the most damage were less likely to have access to bonds to help finance recovery and rebuilding. Should special bond allocations be deployed in response to future disasters, there may be ways to improve the bond allocation process to better target small businesses or heavily impacted areas.

Other provisions might be designed to support specific industries or sectors affected by the disaster. For example, tax provisions for small timber producers and public utilities have been included in past disaster tax legislation. Narrowly targeted tax benefits, however, might leave out disaster-affected taxpayers that suffered losses yet have business activities that differ from the sector targeted for relief.

One consideration related to tax relief provisions for business is timing. The tax code is not well-suited to provide capital for cleanup, rebuilding, or recovery in the short term. Reduced tax liabilities provide a future financial benefit, but past disaster tax relief has not been designed to provide immediate access to capital that may be needed following a disaster.

Another consideration related to business disaster tax relief is the potential scope of the benefit. For many business-related provisions, the benefit is limited to businesses with positive taxable income. Accelerated cost recovery, special deductions, and nonrefundable tax credits provide limited benefits to businesses with little profit or no tax liability. Businesses with limited current income or tax liability may, however, benefit from expanded NOL carrybacks.

One policy question is whether certain disaster-related tax benefits are necessary or effective in achieving intended policy goals, given that much of the tax relief accrues to taxpayers who would have rebuilt without incentives. This critique raises the question of whether disaster-related tax benefits are intended to encourage certain behavior (rebuilding, for example), or primarily provide financial relief for businesses affected by the disaster.

Providing Disaster Tax Relief to Individuals

Tax provisions might be used to provide financial relief to individuals who have lost property, income, or both following a disaster. To provide relief for taxpayers experiencing a loss of property, Congress has enacted legislation following certain past disasters to expand the deduction for casualty losses (beyond what is available under the permanent provision). Relief has been provided to taxpayers experiencing a loss of income by providing enhanced access to retirement plan funds or by using look-back rules for computing refundable tax credits. Several past disaster relief packages have also included provisions to support providing housing to affected individuals.

There are limits to using tax policy to provide disaster relief to low- and moderate-income taxpayers. Many low- and moderate-income individuals have zero individual income tax liability. For these individuals, additional exclusions from income or deductions will provide little or no relief, as there is no tax burden to eliminate. Further, low- and moderate-income individuals may have limited wealth. Tax provisions designed to enhance access to certain forms of savings (e.g., retirement accounts) also provide limited relief to the least well-off. Allowing refundable tax creditsâthe EITC and CTCâto be computed using the previous year's income is one form of individual disaster tax relief that is targeted at low- and moderate-income taxpayers.

Tax policy is generally better suited for providing relief to taxpayers higher in the income distribution. These taxpayers tend to have a positive tax liability that can be offset with various forms of tax reductions. Additionally, taxpayers in higher tax brackets receive a larger tax benefit from additional deductions (a deduction of $100 is worth $35 to someone in the 35% tax bracket, but worth $12 to someone in the 12% tax bracket, for example). Empirical evidence suggests access to savings via retirement account withdrawals helped some taxpayers replace lost income or destroyed assets following Hurricane Katrina. Thus, policies that reduce penalties associated with early withdrawals from retirement accounts or otherwise enhance access to this form of savings is one option for providing relief to taxpayers that have such resources to draw on.

There are also timing concerns in using the tax code to provide individuals relief following a disaster. As was noted for businesses, the tax code does not lend itself to providing immediate relief.

Another question regarding individual disaster tax relief is whether relief should be contingent on an individual having suffered losses due to a federally declared disaster, as opposed to some other disaster event. Through 2025, the casualty loss deduction is limited to federally declared disasters. However, after 2025, individuals may be able to claim a deduction for casualty losses arising from a fire, storm, shipwreck, or other casualty, regardless of whether the casualty was caused by an event with a federal disaster declaration. Is there something about having one's personal property destroyed in a federally declared disaster that merits special relief, different from what is provided when property is destroyed from a disaster without a federal disaster declaration? As it stands, disaster tax policy is inconsistently applied across different types of disaster events (e.g., federally declared versus non-federally declared disasters; disaster areas receiving or not receiving individual or individual and public assistance).

Disaster tax policy can also be designed to prevent taxpayers from facing a tax burden triggered by receipt of disaster relief. The permanent exclusions from income for disaster relief payments and insurance living expense payments clarify that these items are excluded from income for income tax purposes, and thus do not result in additional tax liability. In response to past disasters, temporary provisions have provided that certain forgiven debt would not be treated as income for income tax purposes.

Charitable Giving to Support Disaster Relief

The charitable sector supports a wide range of activities associated with disaster relief and longer-term recovery. At times, Congress has acted following a disaster to provide additional tax incentives to support charitable disaster-related activities.

To encourage charitable giving in the wake of a disaster, Congress has, in the past, relaxed certain income limitations associated with the deduction for charitable giving. The amount individuals can deduct for charitable use of a vehicle (the charitable mileage rate) was also temporarily increased in response to certain past disasters. Qualifying mileage reimbursements have also been allowed to be excluded from income. Other tax incentives enacted in response to disasters have encouraged particular types of charitable giving. Provisions designed to encourage charitable contributions of food inventory and books were enacted following Hurricane Katrina. The enhanced deduction for contributions of food inventory was later made permanent, while the enhanced deduction for book inventory expired in 2011. In some instances, Congress has relaxed charitable giving deadlines to allow contributions for disaster relief made early in the year to be deducted on the previous year's tax return.

A key question regarding enhanced deductions for charitable giving is how much additional giving results from the policy change. Is it the tax benefits that drive giving, or individuals' desire to aid those affected by the storm? Another question to consider is whether individuals shift their giving to disaster-related causes at the expense of other charitable activities (i.e., does disaster-related giving "crowd out" other forms of charitable giving?). When evaluating enhanced charitable giving incentives following a disaster, another question is how much giving is for disaster-related charitable activities, as opposed to other activities or uses. Charitable giving incentives are often applied broadly, and it can be difficult to target them to a particular event or geographic region.

Another consideration is who benefits from an enhanced charitable giving deduction. On the individual side, the value of the tax benefit of the charitable deduction is highly concentrated among high-income taxpayers.

Since 2001, a variety of temporary tax policies have been used to respond to various disaster events. Following some disaster events, tax relief packages providing numerous types of tax relief were passed by Congress and became law. Following other disaster events, no temporary disaster relief was enacted. Certain permanent tax provisions provide tax relief to all affected by qualifying disasters, even in cases where specific or targeted disaster tax relief is not enacted.

Disasters are inevitable. Each disaster is also unique, with damages affecting individuals, businesses, industries, and other economic sectors differently. This poses a challenge for policymakers in determining what type of disaster relief can provide efficient and effective one-size-fits-all relief. Some disasters may require a targeted and tailored policy response. Some disasters are especially catastrophic events that fundamentally change the economy of the affected region. If disasters cause economic hardships across the region, disaster relief might include broader economic development measures, ones that go beyond compensating individuals or businesses for lost income or property.

Disaster tax relief as presently applied combines a base set of permanent disaster tax provisions, with additional provisions or relief provided for certain disaster events, targeted disaster zones, or time periods. Conceptually, this provides policymakers with flexibility regarding relief provided after certain disaster events. A question to consider is whether the current balance of permanent and temporary disaster tax relief provides the desired policy response efficiently and effectively. If temporary tax relief cannot be relied upon to deliver relief that is efficient and effective, one option could be to expand the set of permanent disaster-triggered tax relief provisions. Tax relief that is provided broadly, however, may not be particularly efficient, as it is not designed to provide the specific type of relief needed in the wake of a certain disaster event.