,,ii #aacth ,,congress #b;d ,session ,s4 #bbcc ,,in ,,the ,,senate ,,of ,,the ,,united ,,states ,april #i1 #bjad,mr4 ,schumer 7for himself1 ,mr4 ,menendez1 ,mr4 ,bennet1 ,ms4 ,landrieu1 ,mr4 ,udall of ,colorado1 ,mrs4 ,gillibrand1 ,mr4 ,rockefeller1 and ,mr4 ,booker7 introduced the following bill2 which was read twice and referred to the ,committee on ,finance ,a ,,bill ,to provide tax relief for major disaster areas declared in #bjab and #bjac and for other purposes4 #a4 ,short title2 table of contents 7a7 ,short title ,this ,act may be cited as the ,national ,disaster ,tax ,relief ,act of #bjad4 7b7 ,table of contents ,the table of contents for this ,act is as follows3 ,sec4 #a4 ,short title2 table of contents4 ,,title ,i--,tax relief relating to disasters in #bjab and #bjac ,sec4 #aja4 ,expensing of qualified disaster expenses4 ,sec4 #ajb4 ,increased limitation on charitable contributions for disaster relief4 ,sec4 #ajc4 ,losses attributable to disasters in #bjab and #bjac4 ,sec4 #ajd4 ,net operating losses attributable to disasters in #bjab and #bjac4 ,sec4 #aje4 ,waiver of certain mortgage revenue bond requirements following #bjab and #bjac disasters4 ,sec4 #ajf4 ,increased expensing and bonus depreciation for qualified disaster assistance property following #bjab and #bjac disasters4 ,sec4 #ajg4 ,increase in new markets tax credit for investments in community development entities serving #bjab and #bjac disaster areas4 ,sec4 #ajh4 ,special rules for use of retirement funds in connection with federally declared disasters in #bjab or #bjac4 ,sec4 #aji4 ,additional exemption for housing qualified disaster displaced individuals4 ,sec4 #aaj4 ,exclusions of certain cancellations of indebtedness by reason of #bjab or #bjac disasters4 ,sec4 #aaa4 ,special rule for determining earned income of individuals affected by federally declared disasters4 ,sec4 #aab4 ,increase in rehabilitation credit for buildings in #bjab and #bjac disaster areas4 ,sec4 #aac4 ,advanced refundings of certain tax-exempt bonds4 ,sec4 #aad4 ,qualified disaster area recovery bonds4 ,sec4 #aae4 ,additional low-income housing credit allocations4 ,sec4 #aaf4 ,facilitation of transfer of water leasing and water by mutual ditch or irrigation companies in disaster areas4 ,,title ,,ii--,other disaster tax relief provisions ,sec4 #bja4 ,exclusion for disaster mitigation payments received from ,state and local governments4 ,sec4 #bjb4 ,natural disaster funds4 ,i ,tax relief relating to disasters in #bjab and #bjac #aja4 ,expensing of qualified disaster expenses 7a7 ,in general ,section #aih;,a7b77#b7 of the ,internal ,revenue ,code of #aihf is amended-- 7#a7 by striking before ,january #a1 #bjaj in subparagraph 7,a7 and inserting during the period beginning after ,december #ca1 #bjjg1 and before ,january #a1 #bjaj1 or during the period beginning after ,december #ca1 #bjaa1 and before ,january #a1 #bjad1 and 7#b7 by striking before such date each place it appears in subparagraphs 7,b7 and 7,c7 and inserting during any such period4 7b7 ,effective date ,the amendment made by this section shall apply to amounts paid or incurred after ,december #ca1 #bjaa1 in connection with disasters declared after such date4 #ajb4 ,increased limitation on charitable contributions for disaster relief 7a7 ,individuals ,paragraph 7#a7 of section #agj7;b7 of the ,internal ,revenue ,code of #aihf is amended by redesignating subparagraphs 7,f7 and 7,g7 as subparagraphs 7,g7 and 7,h71 respectively1 and by inserting after subparagraph 7,e7 the following new subparagraph3 7,f7 ,qualified disaster contributions 7i7 ,in general ,any qualified disaster contribution shall be allowed to the extent that the aggregate of such contributions does not exceed the excess of #hj percent of the taxpayer's contribution base over the amount of all other charitable contributions allowable under this paragraph4 7ii7 ,carryover ,if the aggregate amount of contributions described in clause 7i7 exceeds the limitation under clause 7i71 such excess shall be treated 7in a manner consistent with the rules of subsection 7d77#a77 as a charitable contribution to which clause 7i7 applies in each of the #e succeeding years in order of time4 7iii7 ,coordination with other subparagraphs ,for purposes of applying this subsection and subsection 7d77#a71 contributions described in clause 7i7 shall not be treated as described in subparagraph 7,a7 and such subparagraph shall be applied without regard to such contributions4 7iv7 ,qualified disaster contributions ,for purposes of this subparagraph1 the term qualified disaster contribution means any charitable contribution if-- 7,i7 such contribution is for relief efforts related to a federally declared disaster 7as defined in section #afe7;h77#c77;,c77i771 7,,ii7 such contribution is made during the period beginning on the applicable disaster date with respect to the disaster described in subclause 7,i7 and ending on ,december #ca1 #bjad1 and 7,,iii7 such contribution is made in cash to an organization described in subparagraph 7,a7 7other than an organization described in section #eji7;a77#c774 ,such term shall not include a contribution if the contribution is for establishment of a new1 or maintenance in an existing1 donor advised fund 7as defined in section #diff7;d77#b774 7v7 ,applicable disaster date ,for purposes of clause 7iv77,,ii71 the term applicable disaster date means1 with respect to any federally declared disaster described in clause 7iv77,i71 the date on which the disaster giving rise to the ,presidential declaration described in section #afe7;h77#c77;,c77i7 occurred4 7vi7 ,substantiation requirement ,this paragraph shall not apply to any qualified disaster contribution unless the taxpayer obtains from such organization to which the contribution was made a contemporaneous written acknowledgment 7within the meaning of subsection 7f77#h77 that such contribution was used 7or is to be used7 for a purpose described in clause 7iv77,,iii74 4 7b7 ,corporations 7#a7 ,in general ,paragraph 7#b7 of section #agj7;b7 of the ,internal ,revenue ,code of #aihf is amended by redesignating subparagraph 7,c7 as subparagraph 7,d7 and by inserting after subparagraph 7,b7 the following new subparagraph3 7,c7 ,qualified disaster contributions 7i7 ,in general ,any qualified disaster contribution shall be allowed to the extent that the aggregate of such contributions does not exceed the excess of #bj percent of the taxpayer's taxable income over the amount of charitable contributions allowed under subparagraph 7,a74 7ii7 ,carryover ,if the aggregate amount of contributions described in clause 7i7 exceeds the limitation under clause 7i71 such excess shall be treated 7in a manner consistent with the rules of subsection 7d77#a77 as a charitable contribution to which clause 7i7 applies in each of the #e succeeding years in order of time4 7iii7 ,qualified disaster contribution ,the term qualified disaster contribution has the meaning given such term under paragraph 7#b77;,f77iv74 7iv7 ,substantiation requirement ,this paragraph shall not apply to any qualified disaster contribution unless the taxpayer obtains from such organization to which the contribution was made a contemporaneous written acknowledgment 7within the meaning of subsection 7f77#h77 that such contribution was used 7or is to be used7 for a purpose described in paragraph 7#a77;,f77iv77,,iii74 4 7#b7 ,conforming amendments 7,a7 ,subparagraph 7,a7 of section #agj7;b77#b7 of such ,code is amended by striking subparagraph 7,b7 applies and inserting subparagraphs 7,b7 and 7,c7 apply4 7,b7 ,subparagraph 7,b7 of section #agj7;b77#b7 of such ,code is amended by striking subparagraph 7,a7 and inserting subparagraphs 7,a7 and 7,c74 7c7 ,effective date ,the amendments made by this section shall apply to disasters arising in taxable years ending after ,december #ca1 #bjaa4 #ajc4 ,losses attributable to disasters in #bjab and #bjac 7a7 ,waiver of adjusted gross income limitation2 increase in standard deduction by disaster casualty loss ,subclause 7,i7 of section #afe7;h77#c77;,b77i7 of the ,internal ,revenue ,code of #aihf is amended by striking before ,january #a1 #bjaj and inserting during the period beginning after ,december #ca1 #bjjg1 and before ,january #a1 #bjaj1 or during the period beginning after ,december #ca1 #bjaa1 and before ,january #a1 #bjad4 7b7 ,loss allowed whether or not individual itemized deductions ,section #fb7;a7 of the ,internal ,revenue ,code of #aihf is amended by inserting after paragraph 7#ba7 the following new paragraph3 7#bb7 ,disaster casualty losses ,any net disaster loss 7as defined in section #afe7;h77#c77;,b774 4 7c7 ,technical amendment ,clause 7i7 of section #afe7;h77#c77;,c7 of the ,internal ,revenue ,code of #aihf is amended by inserting major after means any4 7d7 ,effective date ,the amendments made by this section shall apply to disasters declared in taxable years beginning after ,december #ca1 #bjaa4 7e7 ,use of amended income tax returns ,to take into account receipt of certain casualty loss grants by disallowing previously taken casualty loss deductions 7#a7 ,in general ,notwithstanding any other provision of the ,internal ,revenue ,code of #aihf1 if a taxpayer-- 7,a7 claims a deduction for any taxable year with respect to a casualty loss to a principal residence 7within the meaning of section #aba of such ,code7 resulting from any federally declared disaster 7as defined in section #afe7;h77#c77;,c7 of such ,code7 occurring during the period beginning after ,december #ca1 #bjaa1 and before ,january #a1 #bjad1 and 7,b7 in a subsequent taxable year receives a grant under any ,federal or ,state program as reimbursement for such loss1 such taxpayer may elect to file an amended income tax return for the taxable year in which such deduction was allowed 7and for any taxable year to which such deduction is carried7 and reduce 7but not below zero7 the amount of such deduction by the amount of such reimbursement4 7#b7 ,time of filing amended return ,paragraph 7#a7 shall apply with respect to any grant only if any amended income tax returns with respect to such grant are filed not later than the later of-- 7,a7 the due date for filing the tax return for the taxable year in which the taxpayer receives such grant1 or 7,b7 the date which is #a year after the date of the enactment of this ,act4 7#c7 ,waiver of penalties and interest ,any underpayment of tax resulting from the reduction under paragraph 7#a7 of the amount otherwise allowable as a deduction shall not be subject to any penalty or interest under such ,code if such tax is paid not later than #a year after the filing of the amended return to which such reduction relates4 #ajd4 ,net operating losses attributable to disasters in #bjab and #bjac 7a7 ,in general ,subclause 7,i7 of section #agb7;j77#a77;,a77i7 of the ,internal ,revenue ,code of #aihf is amended by striking before ,january #a1 #bjaj and inserting during the period beginning after ,december #ca1 #bjjg1 and before ,january #a1 #bjaj1 or during the period beginning after ,december #ca1 #bjaa1 and before ,january #a1 #bjad4 7b7 ,effective date ,the amendments made by this section shall apply to losses arising in taxable years beginning after ,december #ca1 #bjaa1 in connection with disasters declared after such date4 #aje4 ,waiver of certain mortgage revenue bond requirements following #bjab and #bjac disasters 7a7 ,in general ,section #adc7k7 of the ,internal ,revenue ,code of #aihf is amended-- 7#a7 by redesignating paragraph 7#ab71 as added by section #gji7;a7 of the ,tax ,extenders and ,alternative ,minimum ,tax ,relief ,act of #bjjh1 as paragraph 7#ac71 and 7#b7 by striking before ,january #a1 #bjaj in subparagraphs 7,a77i7 and 7,b77i7 of such paragraph and inserting during the period beginning after ,december #ca1 #bjjg1 and before ,january #a1 #bjaj1 or during the period beginning after ,december #ca1 #bjaa1 and before ,january #a1 #bjad4 7b7 ,effective date ,the amendments made by this section shall apply to disasters occurring after ,december #ca1 #bjaa4 #ajf4 ,increased expensing and bonus depreciation for qualified disaster assistance property following #bjab and #bjac disasters 7a7 ,in general ,subclause 7,i7 of section #afh7n77#b77;,a77ii7 of the ,internal ,revenue ,code of #aihf is amended by striking before ,january #a1 #bjaj and inserting during the period beginning after ,december #ca1 #bjjg1 and before ,january #a1 #bjaj1 or during the period beginning after ,december #ca1 #bjaa1 and before ,january #a1 #bjad4 7b7 ,removal of exclusion ,section #afh7n77#b77;,b77i7 of such ,code is amended by inserting and at the end of subclause 7,i71 by striking 1 and at the end of subclause 7,,ii7 and inserting a period1 and by striking subclause 7,,iii74 7c7 ,effective date ,the amendments made by this section shall apply to property placed in service after ,december #ca1 #bjaa1 with respect to disasters declared after such date4 #ajg4 ,increase in new markets tax credit for investments in community development entities serving #bjab and #bjac disaster areas 7a7 ,in general ,subsection 7f7 of section #de;,d of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new paragraph3 7#d7 ,increased special allocation for community development entities serving #bjab and #bjac disaster areas 7,a7 ,in general ,in the case of each calendar year which begins after #bjab and before #bjaf1 the new markets tax credit limitation shall be increased by an amount equal to #ejj1jjj1jjj1 to be allocated among qualified community development entities to make qualified low-income community investments within any #bjab or #bjac federally declared disaster area4 7,b7 ,allocation of increase ,the amount of the increase in limitation under subparagraph 7,a7 shall be allocated by the ,secretary under paragraph 7#b7 to qualified community development entities and shall give priority to such entities with a record of having successfully provided capital or technical assistance to businesses or communities within any #bjaa or #bjab federally declared disaster area or areas for which the allocation is requested4 7,c7 ,application of carryforward ,paragraph 7#c7 shall be applied separately with respect to the amount of any increase under subparagraph 7,a74 7,d7 #bjab or #bjac federally declared disaster area ,for purposes of this paragraph1 the term #bjab or #bjac federally declared disaster area means any disaster area resulting from any federally declared disaster occurring after ,december #ca1 #bjaa1 and before ,january #a1 #bjad4 ,for purposes of the preceding sentence1 the terms federally declared disaster and disaster area have the meanings given such terms in section #afe7;h77#c74 4 7b7 ,effective date ,the amendments made by this section shall apply to calendar years beginning after #bjab4 #ajh4 ,special rules for use of retirement funds in connection with federally declared disasters in #bjab or #bjac 7a7 ,tax-,favored withdrawals from retirement plans 7#a7 ,in general ,paragraph 7#b7 of section #gb7t7 of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new subparagraph3 7,h7 ,distributions from retirement plans in connection with federally declared disasters during #bjab and #bjac ,any qualified #bjab or #bjac disaster recovery distribution4 4 7#b7 ,qualified disaster recovery distribution ,section #gb7t7 of such ,code is amended by adding at the end the following new paragraph3 7#aa7 ,qualified #bjab or #bjac disaster recovery distribution ,for purposes of paragraph 7#b77;,h7-- 7,a7 ,in general ,except as provided in subparagraph 7,b71 the term qualified disaster recovery distribution means1 with respect to any federally declared disaster occurring during #bjab or #bjac1 any distribution from an eligible retirement plan made on or after the applicable disaster date and before ,january #a1 #bjae1 to an individual whose principal place of abode on the applicable disaster date1 is located in the disaster area and who has sustained an economic loss by reason of such federally declared disaster4 7,b7 ,dollar limitation 7i7 ,in general ,for purposes of this subsection1 the aggregate amount of distributions received by an individual with respect to any federally declared disaster occurring during #bjab or #bjac shall not exceed #ajj1jjj4 7ii7 ,treatment of plan distributions ,if a distribution to an individual would 7without regard to clause 7i77 be a qualified #bjab or #bjac disaster recovery distribution1 a plan shall not be treated as violating any requirement of this title merely because the plan treats such distribution as a qualified #bjab or #bjac disaster recovery distribution1 unless the aggregate amount of such distributions from all plans maintained by the employer 7and any member of any controlled group which includes the employer7 to such individual with respect to any federally declared disaster occurring during #bjab or #bjac exceeds #ajj1jjj4 7iii7 ,controlled group ,for purposes of clause 7ii71 the term controlled group means any group treated as a single employer under subsection 7b71 7c71 7m71 or 7o7 of section #dad4 7,c7 ,amount distributed may be repaid 7i7 ,in general ,any individual who receives a qualified #bjab or #bjac disaster recovery distribution may1 at any time during the #c-year period beginning on the day after the date on which such distribution was received1 make one or more contributions in an aggregate amount not to exceed the amount of such distribution to an eligible retirement plan of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made under section #djb7;c71 #djc7;a77#d71 #djc7;b77#h71 #djh7;d77#c71 or #deg7;e77#af71 as the case may be4 7ii7 ,treatment of repayments of distributions from eligible retirement plans other than iras ,for purposes of this title1 if a contribution is made pursuant to clause 7i7 with respect to a qualified #bjab or #bjac disaster recovery distribution from an eligible retirement plan other than an individual retirement plan1 then the taxpayer shall1 to the extent of the amount of the contribution1 be treated as having received the qualified #bjab or #bjac disaster recovery distribution in an eligible rollover distribution 7as defined in section #djb7;c77#d77 and as having transferred the amount to the eligible retirement plan in a direct trustee to trustee transfer within #fj days of the distribution4 7iii7 ,treatment of repayments for distributions from iras ,for purposes of this title1 if a contribution is made pursuant to clause 7i7 with respect to a qualified #bjab or #bjac disaster recovery distribution from an individual retirement plan 7as defined by section #ggja7;a77#cg771 then1 to the extent of the amount of the contribution1 the qualified #bjab or #bjac disaster recovery distribution shall be treated as a distribution described in section #djh7;d77#c7 and as having been transferred to the eligible retirement plan in a direct trustee to trustee transfer within #fj days of the distribution4 7,d7 ,income inclusion spread over #c-year period 7i7 ,in general ,in the case of any qualified #bjab or #bjac disaster recovery distribution1 unless the taxpayer elects not to have this paragraph apply for any taxable year1 any amount required to be included in gross income for such taxable year shall be so included ratably over the #c-taxable-year period beginning with such taxable year4 7ii7 ,special rule ,for purposes of clause 7i71 rules similar to the rules of subparagraph 7,e7 of section #djh;,a7d77#c7 shall apply4 7,e7 ,other definitions 7i7 ,federally declared disaster2 disaster area ,the terms federally declared disaster and disaster area have the meanings given such terms under section #afe7;h77#c77;,c74 7ii7 ,applicable disaster date ,the term applicable disaster date means1 with respect to any federally declared disaster1 the date on which such federally declared disaster occurs4 7iii7 ,eligible retirement plan ,the term eligible retirement plan shall have the meaning given such term by section #djb7;c77#h77;,b74 7,f7 ,special rules 7i7 ,exemption of distributions from trustee to trustee transfer and withholding rules ,for purposes of sections #dja7;a77#ca71 #djb7;f71 and #cdje1 qualified #bjab or #bjac disaster recovery distributions shall not be treated as eligible rollover distributions4 7ii7 ,qualified #bjab or #bjac disaster recovery distributions treated as meeting plan distribution requirements ,for purposes of this title1 a qualified #bjab or #bjac disaster recovery distribution shall be treated as meeting the requirements of sections #dja7k77#b77;,b77i71 #djc7;b77#g77;,a77ii71 #djc7;b77#aa71 and #deg7;d77#a77;,a74 4 7#c7 ,effective date ,the amendments made by this subsection shall apply to distributions with respect to disaster declared after ,december #ca1 #bjaa4 7b7 ,loans from qualified plans 7#a7 ,in general ,subsection 7p7 of section #gb of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new paragraph3 7#f7 ,increase in limit on loans not treated as distributions with respect to #bjab and #bjac disasters 7,a7 ,in general ,in the case of any loan from a qualified employer plan to a qualified individual made during the applicable period-- 7i7 clause 7i7 of paragraph 7#b77;,a7 shall be applied by substituting #ajj1jjj for #ej1jjj1 and 7ii7 clause 7ii7 of such paragraph shall be applied by substituting the present value of the nonforfeitable accrued benefit of the employee under the plan for one-half of the present value of the nonforfeitable accrued benefit of the employee under the plan4 7,b7 ,delay of repayment ,in the case of a qualified individual with an outstanding loan on or after the applicable disaster date from a qualified employer plan-- 7i7 if the due date pursuant to subparagraph 7,b7 or 7,c7 of paragraph 7#b7 for any repayment with respect to such loan occurs during the period beginning on the applicable disaster date and ending on ,december #ca1 #bjac1 such due date shall be delayed for #a year1 7ii7 any subsequent repayments with respect to any such loan shall be appropriately adjusted to reflect the delay in the due date under clause 7i7 and any interest accruing during such delay1 and 7iii7 in determining the #e-year period and the term of a loan under subparagraph 7,b7 or 7,c7 of paragraph 7#b71 the period described in clause 7i7 shall be disregarded4 7,c7 ,definitions ,for purposes of this paragraph-- 7i7 ,qualified individual ,the term qualified individual means1 with respect to any federally declared disaster occurring during #bjab or #bjac1 an individual whose principal place of abode on the applicable disaster date is located in the disaster area and who has sustained an economic loss by reason of such federally declared disaster4 7ii7 ,applicable period ,the applicable period is the period beginning on the applicable disaster date and ending on ,december #ca1 #bjac4 7iii7 ,federally declared disaster2 disaster area ,the terms federally declared disaster and disaster area have the meanings given such terms under section #afe7;h77#c77;,c74 7iv7 ,applicable disaster date ,the term applicable disaster date means1 with respect to any federally declared disaster1 the date on which such federally declared disaster occurs4 4 7#b7 ,effective date ,the amendment made by this subsection shall apply to loans made with respect to disaster declared after ,december #ca1 #bjaa4 7c7 ,provisions relating to plan amendments 7#a7 ,in general ,if this subsection applies to any amendment to any plan or annuity contract1 such plan or contract shall be treated as being operated in accordance with the terms of the plan during the period described in paragraph 7#b77;,b77i74 7#b7 ,amendments to which subsection applies 7,a7 ,in general ,this subsection shall apply to any amendment to any plan or annuity contract which is made-- 7i7 pursuant to any provision of1 or amendment made by1 this section1 or pursuant to any regulation issued by the ,secretary or the ,secretary of ,labor under any provision of1 or amendment made by1 this section1 and 7ii7 on or before the last day of the first plan year beginning on or after ,january #a1 #bjad1 or such later date as the ,secretary may prescribe4 ,in the case of a governmental plan 7as defined in section #dad7;d771 clause 7ii7 shall be applied by substituting the date which is #b years after the date otherwise applied under clause 7ii74 7,b7 ,conditions ,this subsection shall not apply to any amendment unless-- 7i7 during the period-- 7,i7 beginning on the date that the provisions of1 and amendments made by1 this section or the regulation described in subparagraph 7,a77i7 takes effect 7or in the case of a plan or contract amendment not required by the provisions of1 or amendments made by1 this section or such regulation1 the effective date specified by the plan71 and 7,,ii7 ending on the date described in subparagraph 7,a77ii7 7or1 if earlier1 the date the plan or contract amendment is adopted71 the plan or contract is operated as if such plan or contract amendment were in effect2 and 7ii7 such plan or contract amendment applies retroactively for such period4 #aji4 ,additional exemption for housing qualified disaster displaced individuals 7a7 ,in general ,section #aea of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new subsection3 7g7 ,additional exemption for certain disaster-,displaced individuals 7#a7 ,in general ,in the case of any taxable year beginning in #bjab or #bjac1 there shall be allowed an exemption of #ejj for each qualified disaster-displaced individual with respect to the taxpayer for the taxable year4 7#b7 ,limitations 7,a7 ,dollar limitation ,the exemption under paragraph 7#a7 shall not exceed #b1jjj1 reduced by the amount of the exemption under this subsection for all prior taxable years4 7,b7 ,individuals taken into account only once ,an individual shall not be taken into account under paragraph 7#a7 if such individual was taken into account under this subsection by the taxpayer for any prior taxable year4 7,c7 ,identifying information required ,an individual shall not be taken into account under paragraph 7#a7 for a taxable year unless the taxpayer identification number of such individual is included on the return of the taxpayer for such taxable year4 7#c7 ,qualified disaster-displaced individual 7,a7 ,in general ,for purposes of this subsection1 the term qualified disaster-displaced individual means1 with respect to any taxpayer for any taxable year1 any qualified individual if such individual is provided housing free of charge by the taxpayer in the principal residence of the taxpayer for a period of #fj consecutive days which ends in such taxable year4 ,such term shall not include the spouse or any dependent of the taxpayer4 7,b7 ,qualified individual ,the term qualified individual means any individual who-- 7i7 who on the date of a federally declared disaster occurring during #bjab or #bjac maintained such individual's principal place of abode in the disaster area declared with respect to such disaster1 and 7ii7 was displaced from such principal place of abode by reason of the federally declared disaster4 ,for purposes of the preceding sentence1 the terms federally declared disaster and disaster area have the meanings given such terms in section #afe7;h77#c74 7#d7 ,compensation for housing ,no deduction shall be allowed under this subsection if the taxpayer receives any rent or other amount 7from any source7 in connection with the providing of such housing4 4 7b7 ,effective date ,the amendment made by this section shall apply to taxable years beginning after ,december #ca1 #bjaa4 #aaj4 ,exclusions of certain cancellations of indebtedness by reason of #bjab or #bjac disasters 7a7 ,in general ,section #ajh of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new subsection3 7j7 ,discharge of indebtedness for individuals affected by #bjab and #bjac disasters 7#a7 ,in general ,except as provided in paragraph 7#b71 gross income shall not include any amount which 7but for this subsection7 would be includible in gross income by reason of any discharge 7in whole or in part7 of indebtedness of a natural person described in paragraph 7#c7 by an applicable entity 7as defined in section #fjej,p7c77#a77 during the applicable period4 7#b7 ,exceptions for business indebtedness ,paragraph 7#a7 shall not apply to any indebtedness incurred in connection with a trade or business4 7#c7 ,persons described ,a natural person is described in this paragraph if the principal place of abode of such person on the applicable disaster date was located in the disaster area with respect to any federally declared disaster occurring during #bjab or #bjac4 7#d7 ,applicable period ,for purposes of this subsection1 the term applicable period means the period beginning on the applicable disaster date and ending on the date which is #ad months after such date4 7#e7 ,other definitions ,for purposes of this subsection-- 7,a7 ,federally declared disaster2 disaster area ,the terms federally declared disaster and disaster area have the meanings given such terms under section #afe7;h77#c77;,c74 7,b7 ,applicable disaster date ,the term applicable disaster date means1 with respect to any federally declared disaster1 the date on which such federally declared disaster occurs4 4 7b7 ,effective date ,this section shall apply to discharges made on or after ,december #ca1 #bjaa4 #aaa4 ,special rule for determining earned income of individuals affected by federally declared disasters 7a7 ,in general ,section #cb of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new subsection3 7n7 ,special rule for determining earned income of taxpayers affected by federally declared disasters 7#a7 ,in general ,in the case of a qualified individual with respect to any federally declared disaster occurring during #bjab or #bjac1 if the earned income of the taxpayer for the taxable year which includes the applicable disaster date is less than the earned income of the taxpayer for the preceding taxable year1 the credit allowed under this section and section #bd7;d7 may1 at the election of the taxpayer1 be determined by substituting-- 7,a7 such earned income for the preceding taxable year1 for 7,b7 such earned income for the taxable year which includes the applicable date4 7#b7 ,qualified individual ,for purposes of this subsection1 the term qualified individual means1 with respect to any federally declared disaster occurring during #bjab or #bjac1 any individual whose principal place of abode on the applicable disaster date1 was located-- 7,a7 in any portion of a disaster area determined by the ,president to warrant individual or individual and public assistance under the ,robert ,t4 ,stafford ,disaster ,relief and ,emergency ,assistance ,act by reason of the federally declared disaster1 or 7,b7 in any portion of the disaster area not described in subparagraph 7,a7 and such individual was displaced from such principal place of abode by reason of the federally declared disaster4 7#c7 ,other definitions ,for purposes of this paragraph-- 7,a7 ,federally declared disaster2 disaster area ,the terms federally declared disaster and disaster area have the meanings given such terms under section #afe7;h77#c77;,c74 7,b7 ,applicable disaster date ,the term applicable disaster date means1 with respect to any federally declared disaster1 the date on which such federally declared disaster occurs4 7#d7 ,special rules 7,a7 ,application to joint returns ,for purposes of paragraph 7#a71 in the case of a joint return for a taxable year which includes the disaster date-- 7i7 such paragraph shall apply if either spouse is a qualified individual1 and 7ii7 the earned income of the taxpayer for the preceding taxable year shall be the sum of the earned income of each spouse for such preceding taxable year4 7,b7 ,uniform application of election ,any election made under paragraph 7#a7 shall apply with respect to both sections #bd7;d7 and this section4 7,c7 ,errors treated as mathematical error ,for purposes of section #fbac1 an incorrect use on a return of earned income pursuant to paragraph 7#a7 shall be treated as a mathematical or clerical error4 7,d7 ,no effect on determination of gross income1 etc ,except as otherwise provided in this subsection1 this title shall be applied without regard to any substitution under paragraph 7#a74 4 7b7 ,child tax credit ,section #bd7;d7 of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new paragraph3 7#e7 ,special rule for determining earned income of taxpayers affected by federally declared disasters ,for election by qualified individuals with respect to certain federally declared disasters to substitute earned income from the preceding taxable year1 see section #cb7n74 4 7c7 ,effective date ,the amendments made by this section shall apply to taxable years beginning after ,december #ca1 #bjaa4 #aab4 ,increase in rehabilitation credit for buildings in #bjab and #bjac disaster areas 7a7 ,in general ,section #dg of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new subsection3 7e7 ,special rule for expenditures made in connection with certain disasters 7#a7 ,in general ,in the case of qualified rehabilitation expenditures paid or incurred during the applicable period with respect to any qualified rehabilitated building or certified historic structure located in a disaster area with respect to any federally declared disaster occurring in #bjab or #bjac1 subsection 7a7 shall be applied-- 7,a7 by substituting #ac percent for #aj percent in paragraph 7#a7 thereof1 and 7,b7 by substituting #bf percent for #bj percent in paragraph 7#b7 thereof4 7#b7 ,definitions ,for purposes of this subsection-- 7,a7 ,federally declared disaster2 disaster area ,the terms federally declared disaster and disaster area have the meanings given such terms under section #afe7;h77#c77;,c74 7,b7 ,applicable period ,the term applicable period means the period beginning on the applicable disaster date and ending on ,december #ca1 #bjad4 7,c7 ,applicable disaster date ,the term applicable disaster date means1 with respect to any federally declared disaster1 the date on which such federally declared disaster occurs4 4 7b7 ,effective date ,the amendments made by this section shall apply to amounts paid or incurred after ,december #ca1 #bjaa4 #aac4 ,advanced refundings of certain tax-exempt bonds 7a7 ,in general ,section #adi7;d7 of the ,internal ,revenue ,code of #aihf is amended by redesignating paragraph 7#g7 as paragraph 7#h7 and by inserting after paragraph 7#f7 the following new paragraph3 7#g7 ,special rule with respect to certain natural disasters 7,a7 ,in general ,with respect to a bond described in subparagraph 7,c71 one additional advance refunding after the date of the enactment of this paragraph and before ,january #a1 #bjag1 shall be allowed under the rules of this subsection if-- 7i7 the ,governor of the ,state designates the advance refunding bond for purposes of this subsection1 and 7ii7 the requirements of subparagraph 7,e7 are met4 7,b7 ,certain private activity bonds ,with respect to a bond described in subparagraph 7,c7 which is an exempt facility bond described in paragraph 7#a7 or 7#b7 of section #adb7;a71 one advance refunding after the date of the enactment of this paragraph and before ,january #a1 #bjag1 shall be allowed under the applicable rules of this subsection 7notwithstanding paragraph 7#b7 thereof7 if the requirements of clauses 7i7 and 7ii7 of subparagraph 7,a7 are met4 7,c7 ,bonds described ,a bond is described in this paragraph if1 with respect to any federally declared disaster1 such bond-- 7i7 was outstanding on the applicable disaster date1 and 7ii7 is issued by an applicable ,state or a political subdivision thereof4 7,d7 ,aggregate limit ,the maximum aggregate face amount of bonds which may be designated under this subsection by the ,governor of a ,state shall not exceed #d1ejj1jjj1jjj4 7,e7 ,additional requirements ,the requirements of this subparagraph are met with respect to any advance refunding of a bond described in subparagraph 7,c7 if-- 7i7 no advance refundings of such bond would be allowed under this title on or after the applicable disaster date1 7ii7 the advance refunding bond is the only other outstanding bond with respect to the refunded bond1 and 7iii7 the requirements of section #adh are met with respect to all bonds issued under this paragraph4 7,f7 ,definitions ,for purposes of this subsection-- 7i7 ,federally declared disaster2 disaster area ,the terms federally declared disaster and disaster area have the meanings given such terms under section #afe7;h77#c77;,c74 7ii7 ,applicable disaster date ,the term applicable disaster date means1 with respect to any federally declared disaster1 the date on which such federally declared disaster occurs4 7iii7 ,applicable ,state ,the term applicable ,state means1 with respect to any federally declared disaster1 any ,state in which a portion of the disaster area is located4 4 #aad4 ,qualified disaster area recovery bonds 7a7 ,in general ,subpart ,a of part ,,iv of subchapter ,b of chapter #a of the ,internal ,revenue ,code of #aihf is amended by inserting after section #adf the following new section3 #adf;,a4 ,qualified disaster area recovery bonds 7a7 ,in general ,for purposes of this title1 any qualified disaster area recovery bond shall-- 7#a7 be treated as an exempt facility bond1 and 7#b7 not be subject to section #adf4 7b7 ,qualified disaster area recovery bond ,for purposes of this section1 the term qualified disaster area recovery bond means any bond issued as part of an issue if-- 7#a7 #ie percent or more of the net proceeds of such issue are to be used for qualified project costs1 7#b7 such bond is issued by a ,state or any political subdivision thereof any part of which is in a qualified disaster area1 7#c7 the ,governor of the issuing ,state designates such bond for purposes of this section1 and 7#d7 such bond is issued after the date of the enactment of this section and before ,january #a1 #bjaf4 7c7 ,limitation on amount of bonds 7#a7 ,in general ,the maximum aggregate face amount of bonds which may be designated under this section by any ,state shall not exceed #aj1jjj1jjj1jjj4 7#b7 ,movable property ,no bonds shall be issued which are to be used for movable fixtures and equipment4 7#c7 ,treatment of current refunding bonds ,paragraph 7#a7 shall not apply to any bond 7or series of bonds7 issued to refund a qualified disaster area recovery bond1 if-- 7,a7 the average maturity date of the issue of which the refunding bond is a part is not later than the average maturity date of the bonds to be refunded by such issue1 7,b7 the amount of the refunding bond does not exceed the outstanding amount of the refunded bond1 and 7,c7 the net proceeds of the refunding bond are used to redeem the refunded bond not later than #ij days after the date of the issuance of the refunding bond4 ,for purposes of subparagraph 7,a71 average maturity shall be determined in accordance with section #adg7;b77#b77;,a74 7d7 ,qualified project costs ,for purposes of this section1 the term qualified project costs means the cost of acquisition1 construction1 reconstruction1 and renovation of-- 7#a7 residential rental property 7as defined in section #adb7;d771 7#b7 nonresidential real property 7including fixed improvements associated with such property71 7#c7 a facility described in paragraph 7#b7 or 7#c7 of section #adb7;a71 or 7#d7 public utility property 7as defined in section #afh7;i77#aj771 which is located in a qualified disaster area and was damaged or destroyed by reason of the a federally declared disaster4 7e7 ,special rules ,in applying this title to any qualified disaster area recovery bond1 the following modifications shall apply3 7#a7 ,section #adg7;d7 7relating to acquisition of existing property not permitted7 shall be applied by substituting #ej percent for #ae percent each place it appears4 7#b7 ,section #adh7;f77#d77;,c7 7relating to exception from rebate for certain proceeds to be used to finance construction expenditures7 shall apply to the available construction proceeds of bonds issued under this section4 ,for purposes of the preceding sentence1 the following spending requirements shall apply in lieu of the requirements in clause 7ii7 of such section3 7,a7 #dj percent of such available construction proceeds are spent for the governmental purposes of the issue within the #b-year period beginning on the date the bonds are issued1 7,b7 #fj percent of such proceeds are spent for such purposes within the #c-year period beginning on such date1 7,c7 #hj percent of such proceeds are spent for such purposes within the #d-year period beginning on such date1 and 7,d7 #ajj percent of such proceeds are spent for such purposes within the #e-year period beginning on such date4 7#c7 ,repayments of principal on financing provided by the issue-- 7,a7 may not be used to provide financing1 and 7,b7 must be used not later than the close of the #ast semiannual period beginning after the date of the repayment to redeem bonds which are part of such issue4 ,the requirement of subparagraph 7,b7 shall be treated as met with respect to amounts received within #e years after the date of issuance of the issue 7or1 in the case of a refunding bond1 the date of issuance of the original bond7 if such amounts are used by the close of such #e years to redeem bonds which are part of such issue4 7#d7 ,section #eg7;a77#e7 shall not apply4 7f7 ,separate issue treatment of portions of an issue ,this section shall not apply to the portion of an issue which 7if issued as a separate issue7 would be treated as a qualified bond or as a bond that is not a private activity bond 7determined without regard to paragraph 7#a771 if the issuer elects to so treat such portion4 7g7 ,qualified disaster area2 federally declared disaster 7#a7 ,qualified disaster area ,the term qualified disaster area means any area determined to warrant individual or individual and public assistance from the ,federal ,government under the ,robert ,t4 ,stafford ,disaster ,relief and ,emergency ,assistance ,act by reason of a federally declared disaster occurring during the period beginning after ,december #ca1 #bjaa1 and before ,january #a1 #bjad4 7#b7 ,federally declared disaster ,the term federally declared disaster has the meaning given to such term under section #afe7;h77#c77;,c74 4 7b7 ,clerical amendment ,the table of sections for subpart ,a of part ,,iv of subchapter ,b of chapter #a of such ,code is amended by inserting after the item relating to section #adf the following new item3 ,sec4 #adf;,a4 ,qualified disaster area recovery bonds4 4 7c7 ,effective date ,the amendments made by this section shall apply to obligations issued after the date of the enactment of this ,act4 #aae4 ,additional low-income housing credit allocations 7a7 ,in general ,paragraph 7#c7 of section #db7;h7 of the ,internal ,revenue ,code of #aihf 7relating to limitation on aggregate credit allowable with respect to projects located in a ,state7 is amended by adding at the end the following new subparagraph3 7,j7 ,increase in ,state housing credit for ,states damaged by natural disasters 7i7 ,in general ,in the case of calendar year #bjad1 the ,state housing credit ceiling of each ,state any portion of which includes any portion of a qualifying disaster area shall be increased by so much of the aggregate housing credit dollar amount as does not exceed the applicable limitation allocated by the ,state housing credit agency of such ,state for such calendar year to buildings located in qualifying disaster areas4 7ii7 ,applicable limitation ,for purposes of clause 7i71 the applicable limitation is the greater of-- 7,i7 #h multiplied by the population of the qualifying disaster areas in such ,state1 or 7,,ii7 #ej percent of the ,state housing credit ceiling 7determined without regard to this subparagraph7 for #bjac4 7iii7 ,applicable percentage ,for purposes of this section1 the applicable percentage with respect to any building to which amounts allocated under clause 7i7 shall be determined under subsection 7b77#b71 except that subparagraph 7,a7 thereof shall be applied by substituting ,january #a1 #bjae for ,january #a1 #bjad4 7iv7 ,allocations treated as made first from additional allocation amount for purposes of determining carryover ,for purposes of determining the unused ,state housing credit ceiling under subparagraph 7,c7 for any calendar year1 any increase in the ,state housing credit ceiling under clause 7i7 shall be treated as an amount described in clause 7ii7 of such subparagraph4 7v7 ,qualifying disaster area ,for purposes of this subparagraph1 the term qualifying federally declared disaster area means-- 7,i7 each county which is determined to warrant individual or individual and public assistance from the ,federal ,government under a qualifying natural disaster declaration described in clause 7vi77,i71 and 7,,ii7 each county not described in subclause 7,i7 which is included in the geographical area covered by a qualifying natural disaster declaration described in subclause 7,,ii7 or 7,,iii7 of clause 7vi74 7vi7 ,qualifying natural disaster declaration ,for purposes of clause 7v71 the term qualifying natural disaster declaration means-- 7,i7 a federally declared disaster 7as defined in section #afe7;h77#c77;,c77 occurring during the period beginning after ,december #ca1 #bjaa1 and before ,january #a1 #bjad1 7,,ii7 a natural disaster declared by the ,secretary of ,agriculture in #bjaa due to damaging weather and other conditions relating to ,hurricane ,irene or ,tropical ,storm ,lee under section #cba7;a7 of the ,consolidated ,farm and ,rural ,development ,act 7#g ,u4,s4,c4 #aifa7;a771 or 7,,iii7 a major disaster or emergency designated by the ,president in #bjaa due to damaging weather and other conditions relating to ,hurricane ,irene or ,tropical ,storm ,lee under the ,robert ,t4 ,stafford ,disaster ,relief and ,emergency ,assistance ,act 7#db ,u4,s4,c4 #eaba et seq474 4 7b7 ,effective date ,the amendment made by this section shall take effect on the date of the enactment of this ,act4 #aaf4 ,facilitation of transfer of water leasing and water by mutual ditch or irrigation companies in disaster areas 7a7 ,in general ,paragraph 7#ab7 of section #eja7;c7 of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new subparagraph3 7,i7 ,treatment of mutual ditch or irrigation companies in certain disaster areas 7i7 ,in general ,in the case of a qualified mutual ditch or irrigation company or like organization1 subparagraph 7,a7 shall be applied without taking into account any income received or accrued during the applicable period-- 7,i7 from the sale1 lease1 or exchange of fee or other interests in real property1 including interests in water1 7,,ii7 from the sale or exchange of stock in a mutual ditch or irrigation company or like organization or contract rights for the delivery or use of water1 7,,iii7 from the investment of proceeds from sales1 leases1 or exchanges under subclauses 7,i7 and 7,,ii71 or 7,,iv7 from the ,united ,states1 or a ,state or local government1 resulting from the federally declared disaster4 except that any income received under subclause 7,i71 7,,ii71 7,,iii71 or 7,,iv7 which is distributed or expended for expenses 7other than for operations1 maintenance1 and capital improvements7 of the qualified mutual ditch or irrigation company or like organization shall be treated as nonmember income in the year in which it is distributed or expended4 7ii7 ,qualified mutual ditch or irrigation company or like organization ,for purposes of this paragraph-- 7,i7 ,in general ,the term qualified mutual ditch or irrigation company or like organization means any mutual ditch or irrigation company or like organization that diverted1 delivered1 transported1 stored1 or used its water for agricultural irrigation purposes on its own or through its shareholders in a qualified disaster area during #bjab or #bjac4 7,,ii7 ,qualified asset ,the term qualified asset means any real property or tangible personal property used in the mutual ditch or irrigation company's 7or like organization's7 system4 7,,iii7 ,multiple areas ,under regulations1 if the qualified assets of any mutual ditch or irrigation company or like organization are located in more than #a qualified disaster area1 all such areas shall be treated as #a area and if more than #a federally declared disaster is involved1 the date on which the last of such disasters occurred shall be the date used for purposes of this paragraph4 7iii7 ,applicable period ,for purposes of this paragraph1 the term applicable period means the taxable year in which the federally declared disaster occurred and the #e following taxable years4 7iv7 ,other definitions 7,i7 ,qualified disaster area ,the term qualified disaster area means any area determined to warrant individual or individual and public assistance from the ,federal ,government under the ,robert ,t4 ,stafford ,disaster ,relief and ,emergency ,assistance ,act by reason of a federally declared disaster occurring during the period beginning on ,january #a1 #bjab1 and ending on ,december #ca1 #bjac4 7,,ii7 ,federally declared disaster ,the term federally declared disaster has the meaning given to such term under section #afe7;h77#c77;,c74 4 7b7 ,effective date ,the amendment made by subsection 7a7 shall apply to taxable years ending after ,december #ca1 #bjaa4 ,,ii ,other disaster tax relief provisions #bja4 ,exclusion for disaster mitigation payments received from ,state and local governments 7a7 ,in general ,paragraph 7#b7 of section #aci7;g7 of the ,internal ,revenue ,code of #aihf is amended by inserting 1 or any other amount which is paid by a ,state or local government or agency or instrumentality thereof1 after 7as in effect on such date74 7b7 ,effective date ,the amendment made by this section shall apply to payments received after the date of the enactment of this ,act4 #bjb4 ,natural disaster funds 7a7 ,natural disaster fund ,subpart ,c of part ,,ii of subchapter ,e of chapter #a of the ,internal ,revenue ,code of #aihf is amended by inserting after section #dfh;,b the following new section3 #dfh;,c4 ,special rules for natural disaster funds 7a7 ,in general ,if a qualified taxpayer elects the application of this section1 there shall be allowed as a deduction for any taxable year the amount of payments made by the taxpayer to a natural disaster fund during such taxable year4 7b7 ,natural disaster fund ,the term natural disaster fund means a fund meeting the following requirements3 7#a7 ,designation ,the taxpayer designates-- 7,a7 the fund as a natural disaster fund in the manner prescribed by the ,secretary1 and 7,b7 the line or lines of business to which the fund applies4 7#b7 ,segregation ,the assets of the fund are segregated from other assets of the taxpayer4 7#c7 ,investments 7,a7 ,the assets of the fund are maintained in one or more qualified accounts and are invested only in-- 7i7 deposits with banks whose deposits are insured subject to applicable limits by the ,federal ,deposit ,insurance ,corporation1 or 7ii7 in stock or other securities in which the fund would be permitted to invest if it were a capital construction fund subject to the investment limitations of paragraphs 7#b7 and 7#c7 of section #geah7;b77#b74 7,b7 ,all investment earnings 7including gains and losses7 from investments of the fund become part of the fund4 7#d7 ,contributions to the fund ,the fund does not accept any deposits 7or other amounts7 other than cash payments with respect to which a deduction is allowable under subsection 7a7 and earnings 7including gains and losses7 from fund investments4 7#e7 ,purpose ,the fund is established and maintained for the purposes of covering costs1 expenses1 and losses 7including business interruption losses7 resulting from a ,federally declared natural disaster to the extent such costs are not covered by insurance4 7#f7 ,maximum balance ,the balance of the fund does not exceed the lesser of-- 7,a7 the sum of-- 7i7 #aej percent of the maximum deductible1 and 7ii7 #ajj percent of the maximum co-insurance 7to the extent not taken into account in clause 7i771 that1 in the case of a ,federally declared natural disaster resulting in losses1 the taxpayer could be expected to pay with respect to property and business interruption insurance maintained by the taxpayer for the line of business to which the fund applies and that would cover losses resulting from a ,federally declared natural disaster1 and 7,b7 the maximum loss under any insurance coverage that the taxpayer could reasonably expect to occur for the line of business in the case of a severe natural disaster4 7#g7 ,financial statements ,the fund or the balance of the fund is recorded in the taxpayer's financial statements in accordance with generally accepted accounting principles and not as a current asset and the footnotes to the taxpayer's financial statements include a short description of the fund and its purposes4 7#h7 ,insurance ,the taxpayer property insurance maintained by the qualified taxpayer applies to #ge percent or more of the property used-- 7,a7 in the qualified taxpayer's line of business to which the fund relates1 and 7,b7 in the ,united ,states4 7c7 ,qualified taxpayer ,for purposes of this section1 the term qualified taxpayer means any taxpayer that-- 7#a7 actively conducts a trade or business1 and 7#b7 maintains property insurance with respect to such trade or business that insures against losses in natural disasters4 7d7 ,failure ,to meet requirements ,if a fund that was a natural disaster fund ceases to meet any of the requirements of subsection 7b7 or a taxpayer who has a natural disaster fund ceases to meet the requirement of subsection 7c71 the entire balance of the fund shall be deemed distributed in a nonqualified distribution at the time the fund ceases to meet such requirements4 7e7 ,taxation of fund 7#a7 ,in general ,the earnings 7including gains and losses7 from the investment and reinvestment of amounts held in the fund shall not be taken into account in determining the gross income of the taxpayer that owns the fund4 7#b7 ,not a separate taxpayer ,a natural disaster fund shall not be considered a separate taxpayer for purposes of this subtitle4 7f7 ,taxation of distributions from the fund 7#a7 ,qualified distributions ,for purposes of this chapter1 qualified distributions shall be treated in the same manner as proceeds from property or business interruption insurance4 7#b7 ,nonqualified distributions 7,a7 ,in general ,in the case of any taxable year for which there is a nonqualified distribution-- 7i7 such nonqualified distributions shall be excluded from the gross income of the taxpayer1 and 7ii7 the tax imposed by this chapter 7determined without regard to this subsection7 shall be increased by the product of the amount of such nonqualified distribution and the highest rate of tax specified in section #a 7section #aa in the case of a corporation74 7,b7 ,tax benefit rule2 coordination with deduction for net operating losses ,rules similar to the rules of subparagraphs 7,b7 and 7,c7 of section #geah7;g77#f7 shall apply for purposes of this paragraph4 7#c7 ,additional tax ,the tax imposed by this chapter for any taxable year on any taxpayer that a owns natural disaster fund shall be increased by the greater of-- 7,a7 #bj percent of the amount of any non-qualified distributions from the fund in the taxable year1 and 7,b7 an amount equal to interest1 at the underpayment rate established under section #ffba1 on the nonqualified distribution from the time the amount is added to the fund to the time the amount is distributed4 7#d7 ,interest calculation ,for purposes of calculating interest under paragraph 7#c77;,b7-- 7,a7 all investment earnings 7including gains or losses7 in taxable year shall be treated as added to the fund on the last day of the taxable year1 and 7,b7 amounts distributed from the fund shall be treated as distributed on a first-in1 first-out basis4 7g7 ,definitions ,for purposes of this section-- 7#a7 ,federally declared natural disaster ,the term ,federally declared natural disaster means a natural disaster that is determined by ,presidential declaration under the ,robert ,t4 ,stafford ,disaster ,relief and ,emergency ,assistance ,act to warrant individual or individual and public assistance under such ,act4 7#b7 ,nonqualified distribution ,the term nonqualified distribution means a distribution from a natural disaster fund other than a qualified distribution4 7#c7 ,qualified account ,the term qualified account means an account with a bank 7as defined in section #eha7 or a brokerage account but only if the investments of such accounts are limited to those permitted by subsection 7b77#c7 and no investments are made in a related person 7as defined in section #dfe7;b77#c77;,c77 to the taxpayer4 7#d7 ,qualified distribution 7,a7 ,in general ,the term qualified distribution means with respect to natural disaster fund an amount equal to the excess of-- 7i7 costs1 expenses1 and losses 7including losses of a type reimbursable by proceeds of business interruption insurance7 incurred by the taxpayer as a result of the ,federally declared natural disaster with respect to the line or lines of business for which the fund was designated1 over 7ii7 the proceeds of property and business interruption insurance paid for the benefit of the taxpayer with respect to costs1 expenses1 and losses described in clause 7i74 7,b7 ,limitation ,a distribution from a natural disaster fund shall not be treated as a qualified distribution if such distribution is allocated to a ,federally declared natural disaster occurring more than #c years before the date of such distribution4 7h7 ,special rules ,for purposes of this section-- 7#a7 ,no double counting ,any portion of any deductible or coinsurance taken into account under subsection 7b77#f7 in determining the maximum balance for a natural disaster fund shall not be taken into account in determining the maximum balance for another natural disaster fund4 7#b7 ,excess balance 7,a7 ,in general ,if the balance of a natural disaster fund exceeds the maximum balance permitted by subsection 7b77#f7 by reason of investment earnings or a reduction in the maximum balance1 the account shall not cease to be a natural disaster fund as the result of exceeding such limit if the excess is distributed within #abj days of the date that such excess first occurred4 7,b7 ,treatment of distributions of excess balance ,in the case of any distribution of the excess balance of a natural disaster fund within #abj days of the date that such excess first occurred-- 7i7 paragraphs 7#b7 and 7#c7 of subsection 7f7 shall not apply to the distribution of such excess if distributed within such period1 and 7ii7 the amount of such distribution shall be included in the gross income of the taxpayer in the year such distribution was made4 7,c7 ,anti-abuse rule ,subparagraph 7,b7 shall not apply in the case of any reduction in the maximum balance resulting from any action of the taxpayer the primary purpose of which was to reduce the maximum balance to enable a distribution that would not be subject to the maximum tax rate calculation or the additional tax4 7#c7 ,certain asset acquisitions ,the transfer of a natural disaster fund 7or the portion of a natural disaster fund7 from one person to another person shall not constitute a nonqualified distribution if-- 7,a7 such transfer is part of a transaction-- 7i7 to which section #cha applies1 7ii7 the transferee acquires substantially all of the assets of the transferor used in the line or lines of business for which the fund was designated1 7iii7 the transferee acquires substantially all of the assets of the transferor used in one1 but not all1 of the lines of business for which the fund was designated1 or 7iv7 the transferee acquires substantially all of the transferor's assets located in a geographical area and used in a line of business for which the fund was designated1 and 7,b7 the transferee elects to treat the acquired natural disaster fund 7or portion thereof7 as a natural disaster fund for the line of business for which the transferor had previously designated the fund and as a continuation of the fund 7or pro rata portion thereof7 for purposes of determining the additional tax imposed by subsection 7f77#d74 7i7 ,regulations ,the ,secretary shall prescribe such regulations as may be necessary or appropriate to carry out the provisions of this section4 4 7b7 ,clerical amendment ,the table of sections for subpart ,c of part ,,ii of subchapter ,e of chapter #a of the ,internal ,revenue ,code of #aihf is amended by inserting after the item relating to section #dfh;,b the following new item3 ,sec4 #dfh;,c4 ,special rules for natural disaster funds4 4 7c7 ,effective date ,the amendment made by this section shall apply to taxable years beginning after ,december #ca1 #bjac4