Disaster Tax Relief Act of 2021

To amend the Internal Revenue Code of 1986 to provide disaster tax relief, exclude from gross income amounts received from State-based catastrophe loss mitigation programs, and for other purposes. 1. Short title This Act may be cited as the Disaster Tax Relief Act of 2021 2. Definitions For purposes of this Act— (1) Qualified disaster area (A) In general The term qualified disaster area (B) COVID–19 Such term shall not include any area with respect to which such a major disaster has been so declared only by reason of COVID–19. (2) Qualified disaster zone The term qualified disaster zone (3) Qualified disaster The term qualified disaster (4) Incident period The term incident period 3. Special disaster-related rules for use of retirement funds (a) Tax-Favored withdrawals from retirement plans (1) In general Section 72(t) (2) Aggregate dollar limitation (A) In general For purposes of this subsection, the aggregate amount of distributions received by an individual which may be treated as qualified disaster distributions for any taxable year shall not exceed the excess (if any) of— (i) $100,000, over (ii) the aggregate amounts treated as qualified disaster distributions received by such individual for all prior taxable years. (B) Treatment of plan distributions If a distribution to an individual would (without regard to subparagraph (A)) be a qualified disaster distribution, a plan shall not be treated as violating any requirement of the Internal Revenue Code of 1986 merely because the plan treats such distribution as a qualified disaster distribution, unless the aggregate amount of such distributions from all plans maintained by the employer (and any member of any controlled group which includes the employer) to such individual exceeds $100,000. (C) Controlled group For purposes of subparagraph (B), the term controlled group section 414 (D) Special rule for individuals affected by more than one disaster The limitation of subparagraph (A) shall be applied separately with respect to distributions made with respect to each qualified disaster. (3) Amount distributed may be repaid (A) In general Any individual who receives a qualified disaster distribution may, at any time during the 3-year period beginning on the day after the date on which such distribution was received, make 1 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 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16), of the Internal Revenue Code of 1986, as the case may be. (B) Treatment of repayments of distributions from eligible retirement plans other than IRAs For purposes of the Internal Revenue Code of 1986, if a contribution is made pursuant to subparagraph (A) with respect to a qualified disaster distribution from an eligible retirement plan other than an individual retirement plan, then the taxpayer shall, to the extent of the amount of the contribution, be treated as having received the qualified disaster distribution in an eligible rollover distribution (as defined in section 402(c)(4) of such Code) and as having transferred the amount to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution. (C) Treatment of repayments of distributions from IRAs For purposes of the Internal Revenue Code of 1986, if a contribution is made pursuant to subparagraph (A) with respect to a qualified disaster distribution from an individual retirement plan (as defined by section 7701(a)(37) of such Code), then, to the extent of the amount of the contribution, the qualified disaster distribution shall be treated as a distribution described in section 408(d)(3) of such Code and as having been transferred to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution. (4) Definitions For purposes of this subsection— (A) Qualified disaster distribution Except as provided in paragraph (2), the term qualified disaster distribution (i) on or after the first day of the incident period of a qualified disaster and before the date which is 180 days after the date of the enactment of this Act, and (ii) to an individual whose principal place of abode at any time during the incident period of such qualified disaster is located in the qualified disaster area with respect to such qualified disaster and who has sustained an economic loss by reason of such qualified disaster. (B) Eligible retirement plan The term eligible retirement plan section 402(c)(8)(B) (5) Income inclusion spread over 3-year period (A) In general In the case of any qualified disaster distribution, unless the taxpayer elects not to have this paragraph apply for any taxable year, any amount required to be included in gross income for such taxable year shall be so included ratably over the 3-taxable-year period beginning with such taxable year. (B) Special rule For purposes of subparagraph (A), rules similar to the rules of subparagraph (E) of section 408A(d)(3) (6) Special rules (A) Exemption of distributions from trustee to trustee transfer and withholding rules For purposes of sections 401(a)(31), 402(f), and 3405 of the Internal Revenue Code of 1986, qualified disaster distributions shall not be treated as eligible rollover distributions. (B) Qualified disaster distributions treated as meeting plan distribution requirements For purposes the Internal Revenue Code of 1986, a qualified disaster distribution shall be treated as meeting the requirements of sections 401(k)(2)(B)(i), 403(b)(7)(A)(ii), 403(b)(11), and 457(d)(1)(A) of such Code. (b) Recontributions of withdrawals for home purchases (1) Recontributions (A) In general Any individual who received a qualified distribution may, during the applicable period, make 1 or more contributions in an aggregate amount not to exceed the amount of such qualified distribution to an eligible retirement plan (as defined in section 402(c)(8)(B) (B) Treatment of repayments Rules similar to the rules of subparagraphs (B) and (C) of subsection (a)(3) shall apply for purposes of this subsection. (2) Qualified distribution For purposes of this subsection, the term qualified distribution (A) described in section 401(k)(2)(B)(i)(IV), 403(b)(7)(A)(ii) (but only to the extent such distribution relates to financial hardship), 403(b)(11)(B), or 72(t)(2)(F), of the Internal Revenue Code of 1986, (B) which was to be used to purchase or construct a principal residence in a qualified disaster area, but which was not so used on account of the qualified disaster with respect to such area, and (C) which was received during the period beginning on the date which is 180 days before the first day of the incident period of such qualified disaster and ending on the date which is 30 days after the last day of such incident period. (3) Applicable period For purposes of this subsection, the term applicable period (c) Loans from qualified plans (1) Increase in limit on loans not treated as distributions In the case of any loan from a qualified employer plan (as defined under section 72(p)(4) (A) clause (i) of section 72(p)(2)(A) of such Code shall be applied by substituting $100,000 $50,000 (B) clause (ii) of such section shall be applied by substituting the present value of the nonforfeitable accrued benefit of the employee under the plan one-half of the present value of the nonforfeitable accrued benefit of the employee under the plan (2) Delay of repayment In the case of a qualified individual (with respect to any qualified disaster) with an outstanding loan (on or after the first day of the incident period of such qualified disaster) from a qualified employer plan (as defined in section 72(p)(4) (A) if the due date pursuant to subparagraph (B) or (C) of section 72(p)(2) of such Code for any repayment with respect to such loan occurs during the period beginning on the first day of the incident period of such qualified disaster and ending on the date which is 180 days after the last day of such incident period, such due date shall be delayed for 1 year (or, if later, until the date which is 180 days after the date of the enactment of this Act), (B) any subsequent repayments with respect to any such loan shall be appropriately adjusted to reflect the delay in the due date under subparagraph (A) and any interest accruing during such delay, and (C) in determining the 5-year period and the term of a loan under subparagraph (B) or (C) of section 72(p)(2) of such Code, the period described in subparagraph (A) of this paragraph shall be disregarded. (3) Qualified individual For purposes of this subsection, the term qualified individual (A) whose principal place of abode at any time during the incident period of any qualified disaster is located in the qualified disaster area with respect to such qualified disaster, and (B) who has sustained an economic loss by reason of such qualified disaster. (d) Provisions relating to plan amendments (1) In general If this subsection applies to any amendment to any plan or annuity contract, such plan or contract shall be treated as being operated in accordance with the terms of the plan during the period described in paragraph (2)(B)(i). (2) Amendments to which subsection applies (A) In general This subsection shall apply to any amendment to any plan or annuity contract which is made— (i) pursuant to any provision of this section, or pursuant to any regulation issued by the Secretary or the Secretary of Labor under any provision of this section, and (ii) on or before the last day of the first plan year beginning on or after January 1, 2021, or such later date as the Secretary may prescribe. In the case of a governmental plan (as defined in section 414(d) (B) Conditions This subsection shall not apply to any amendment unless— (i) during the period— (I) beginning on the date that this section or the regulation described in subparagraph (A)(i) takes effect (or in the case of a plan or contract amendment not required by this section or such regulation, the effective date specified by the plan), and (II) ending on the date described in subparagraph (A)(ii) (or, if earlier, the date the plan or contract amendment is adopted), the plan or contract is operated as if such plan or contract amendment were in effect, and (ii) such plan or contract amendment applies retroactively for such period. 4. Employee retention credit for employers affected by qualified disasters (a) In general For purposes of section 38 (b) Definitions For purposes of this section— (1) Eligible employer The term eligible employer (A) which conducted an active trade or business in a qualified disaster zone at any time during the incident period of the qualified disaster with respect to such qualified disaster zone, and (B) with respect to whom the trade or business described in subparagraph (A) is inoperable at any time during the period beginning on the first day of the incident period of such qualified disaster and ending on the date of the enactment of this Act, as a result of damage sustained by reason of such qualified disaster. (2) Eligible employee The term eligible employee (3) Qualified wages The term qualified wages section 51(c)(1) (A) the date on which such trade or business has resumed significant operations at such principal place of employment, or (B) the date which 150 days after the last day of the incident period of the qualified disaster referred to in paragraph (1). Such term shall include wages paid without regard to whether the employee performs no services, performs services at a different place of employment than such principal place of employment, or performs services at such principal place of employment before significant operations have resumed. Such term shall not include any wages taken into account under section 2301 of the Coronavirus Aid, Relief, and Economic Security Act. (c) Special rules (1) Employee not taken into account more than once An employee shall not be treated as an eligible employee for purposes of this subsection for any period with respect to any employer if such employer is allowed a credit under section 51 (2) Denial of double benefit Any wages taken into account in determining the credit allowed under this section shall not be taken into account as wages for purposes of sections 41, 45A, 45P, 45S, 51, and 1396 of the Internal Revenue Code of 1986. (3) Certain other rules to apply For purposes of this subsection, rules similar to the rules of sections 51(i)(1), 52, and 280C(a), of the Internal Revenue Code of 1986, shall apply. (d) Election To not take certain wages into account (1) In general This section shall not apply to qualified wages paid by an eligible employer with respect to which such employer makes an election (at such time and in such manner as the Secretary may prescribe) to have this section not apply to such wages. (2) Coordination with paycheck protection program The Secretary, in consultation with the Administrator of the Small Business Administration, shall issue guidance providing that payroll costs paid or incurred during the covered period shall not fail to be treated as qualified wages under this section by reason of an election under paragraph (1) to the extent that a covered loan of the eligible employer is not forgiven by reason of a decision under section 1106(g) of the CARES Act. Terms used in the preceding sentence which are also used in section 1106 of such Act shall have the same meaning as when used in such section. (e) Amendment to paycheck protection program Section 1106(a)(8) of the CARES Act is amended by inserting , except that such costs shall not include qualified wages taken into account in determining the credit allowed under section 4 of the Disaster Tax Relief Act of 2021 5. Other disaster-related tax relief provisions (a) Special rules for qualified disaster relief contributions (1) In general In the case of a qualified disaster relief contribution made by a corporation— (A) section 2205(a)(2)(B) of the CARES Act shall be applied first to qualified contributions without regard to any qualified disaster relief contributions and then separately to such qualified disaster relief contribution, and (B) in applying such section to such qualified disaster relief contributions, clause (i) thereof shall be applied— (i) by substituting 100 percent 25 percent (ii) by treating qualified contributions other than qualified disaster relief contributions as contributions allowed under section 170(b)(2) (2) Qualified disaster relief contribution For purposes of this subsection, the term qualified disaster relief contribution (A) such contribution— (i) is paid, during the period beginning on December 28, 2020, and ending on the date which is 60 days after the date of the enactment of this Act, and (ii) is made for relief efforts in one or more qualified disaster areas, (B) the taxpayer obtains from such organization contemporaneous written acknowledgment (within the meaning of section 170(f)(8) of such Code) that such contribution was used (or is to be used) for relief efforts described in subparagraph (A)(ii), and (C) the taxpayer has elected the application of this subsection with respect to such contribution. (b) Special rules for qualified disaster-Related personal casualty losses (1) In general If an individual has a net disaster loss for any taxable year— (A) the amount determined under section 165(h)(2)(A)(ii) (i) such net disaster loss, and (ii) so much of the excess referred to in the matter preceding clause (i) of section 165(h)(2)(A) of such Code (reduced by the amount in clause (i) of this subparagraph) as exceeds 10 percent of the adjusted gross income of the individual, (B) in the case of qualified disaster-related personal casualty losses, section 165(h)(1) of such Code shall be applied to by substituting $500 $500 ($100 for taxable years beginning after December 31, 2009) (C) the standard deduction determined under section 63(c) of such Code shall be increased by the net disaster loss, and (D) section 56(b)(1)(E) of such Code shall not apply to so much of the standard deduction as is attributable to the increase under subparagraph (C) of this paragraph. (2) Net disaster loss For purposes of this subsection, the term net disaster loss section 165(h)(3)(A) (3) Qualified disaster-related personal casualty losses For purposes of this subsection, the term qualified disaster-related personal casualty losses section 165(c)(3) 6. Treatment of certain possessions (a) Payments to possessions with mirror code tax systems The Secretary of the Treasury shall pay to each possession of the United States which has a mirror code tax system amounts equal to the loss (if any) to that possession by reason of the application of the provisions of this Act. Such amounts shall be determined by the Secretary of the Treasury based on information provided by the government of the respective possession. (b) Payments to other possessions The Secretary of the Treasury shall pay to each possession of the United States which does not have a mirror code tax system amounts estimated by the Secretary of the Treasury as being equal to the aggregate benefits (if any) that would have been provided to residents of such possession by reason of the provisions of this Act if a mirror code tax system had been in effect in such possession. The preceding sentence shall not apply unless the respective possession has a plan, which has been approved by the Secretary of the Treasury, under which such possession will promptly distribute such payments to its residents. (c) Mirror code tax system For purposes of this section, the term mirror code tax system (d) Treatment of payments For purposes of section 1324 of title 31, United States Code, the payments under this section shall be treated in the same manner as a refund due from a credit provision referred to in subsection (b)(2) of such section. 7. Exclusion of amounts received from state-based catastrophe loss mitigation programs (a) In general Section 139 (h) State-Based catastrophe loss mitigation programs (1) In general Gross income shall not include any amount received by an individual as a qualified catastrophe mitigation payment under a program established by a State, or a political subdivision or instrumentality thereof, for the purpose of making such payments. (2) Qualified catastrophe mitigation payment For purposes of this section, the term qualified catastrophe mitigation payment (3) No increase in basis Rules similar to the rules of subsection (g)(3) shall apply in the case of this subsection. . (b) Conforming amendments (1) Section 139(d) and qualified , qualified catastrophe mitigation payments, and qualified (2) Section 139(i) (as redesignated by subsection (a)) is amended by striking or qualified , qualified catastrophe mitigation payment, or qualified (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2020. 8. Exclusion from gross income of certain emergency agricultural assistance (a) In general Section 139 (i) Certain agricultural assistance For purposes of this section, the term qualified disaster relief payment (1) Assistance received under the Wildfires and Hurricanes Indemnity Program Plus under subpart O of part 760 of title 7, Code of Federal Regulations. (2) Assistance received under section 1501 of the Agricultural Act of 2014 ( 7 U.S.C. 9081 (3) Noninsured crop assistance under section 196 of the Federal Agriculture Improvement and Reform Act of 1996 ( 7 U.S.C. 7333 (4) Assistance under a food assistance program under part 9 of title 7, Code of Federal Regulations. (5) Assistance under title IV of the Agricultural Credit Act of 1978 ( 16 U.S.C. 2201 et seq. (6) Assistance under the Quality Loss Assistance Program. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2020. 9. Sense of Congress regarding disaster loan processing It is the sense of Congress that the Administrator of the Small Business Administration should use district offices of the Administration whenever possible to expedite the processing of disaster loans under section 7(b) of the Small Business Act ( 15 U.S.C. 636(b) 10. Small business development center portability grants Section 21(a)(4)(C)(viii) of the Small Business Act ( 15 U.S.C. 648(a)(4)(C)(viii) (1) in the first sentence, by striking as a result of a business or government facility down sizing or closing, which has resulted in the loss of jobs or small business instability due to events that have resulted or will result in a business or government facility downsizing or closing (2) by adding at the end the following: At the discretion of the Administrator, the Administrator may make an award greater than $100,000 to a recipient to accommodate extraordinary occurrences having a catastrophic impact on the small business concerns in a community. 11. Disaster assistance to critical enterprises Section 237 of the Disaster Relief Act of 1970 ( 15 U.S.C. 636d (1) by redesignating subsection (b) as subsection (c); and (2) in subsection (a)— (A) by striking Farmers Home Administration Farm Service Agency (B) by striking major disaster major disaster or is vital to recovery efforts in the disaster area (including providing debris removal services, manufactured housing, gasoline, telecommunications, or building materials), (C) by striking Loans authorized pursuant thereto. (b) Terms and conditions Notwithstanding any other provision of law, loans authorized by this section— (1) shall be made without regard to limitations on the size of loans which may otherwise be imposed by any other provision of law or regulations promulgated pursuant thereto; and (2) may waive any required evaluation of creditworthiness in exchange for a fee, as set by the Small Business Administration or the Farm Service Agency, as applicable. . 12. Credit for qualified wildfire mitigation expenditures (a) In general Subpart B of part IV of subchapter A of chapter 1 28. Qualified wildfire mitigation expenditures (a) In general There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to 30 percent of the qualified wildfire mitigation expenditures paid or incurred by the taxpayer during such taxable year with respect to real property owned or leased by the taxpayer. (b) Qualified wildfire mitigation expenditures For purposes of this section— (1) In general The term qualified wildfire mitigation expenditures (2) Specified wildfire mitigation expenditure The term specified wildfire mitigation expenditure (3) Qualified State wildfire mitigation program The term qualified State wildfire mitigation program (4) Treatment of reimbursements Any amount originally paid or incurred by the taxpayer which is reimbursed by a State under a qualified wildfire mitigation program of such State shall be treated as paid by such State (and not by such taxpayer). (c) Application with other credits (1) Business credit treated as part of general business credit So much of the credit which would be allowed under subsection (a) for any taxable year (determined without regard to this subsection) that is attributable to expenditures made in the ordinary course of the taxpayer’s trade or business (or, in the case of expenditures made by a State, would have been expenditures made in the ordinary course of the taxpayer’s trade or business if made by the taxpayer) shall be treated as a credit listed in section 38(b) for taxable year (and not allowed under subsection (a)). (2) Personal credit For purposes of this title, the credit allowed under subsection (a) for any taxable year (determined after application of paragraph (1)) shall be treated as a credit allowable under subpart A for such taxable year. (d) Reduction of credit percentage where taxpayer expenditures less than 30 percent (1) In general If the expenditure percentage with respect to any item of qualified wildfire mitigation expenditure is less than 30 percent, subsection (a) shall be applied by substituting the expenditure percentage 30 percent (2) Expenditure percentage For purposes of this section, the term expenditure percentage (A) the taxpayer’s expenditure for such item, divided by (B) the sum of the taxpayer’s and such State’s expenditures for such item. (e) Special rules (1) Treatment of expenditures related to marketable timber An expenditure shall not be taken into account for purposes of this section (whether made by the taxpayer or a State pursuant to a qualified State wildfire mitigation program of such State) if such expenditure is properly allocable to timber which is sold or exchanged by the taxpayer. The preceding sentence shall not apply to the extent that such amount exceeds the gain on such sale or exchange. (2) Basis reduction For purposes of this subtitle, if the basis of any property would (but for this paragraph) be determined by taking into account any qualified wildfire mitigation expenditure, the basis of such property shall be reduced by the amount of the credit allowed under subsection (a) with respect to such expenditure (determined without regard to subsection (c)). (3) Denial of double benefit The amount of any deduction or other credit allowable under this chapter for any expenditure for which a credit is allowable under subsection (a) shall be reduced by the amount of credit allowed under such subsection for such expenditure (determined without regard to subsection (c)). . (b) Conforming amendments (1) Section 38(b) of such Code is amended by striking plus , plus (34) the portion of the qualified wildfire mitigation expenditures credit to which section 28(c)(1) applies. . (2) Section 1016(a) of such Code is amended by redesignating paragraphs (35) through (38) as paragraphs (36) through (39), respectively, and by inserting after paragraph (34) the following new paragraph: (35) to the extent provided in section 28(e)(2), . (3) The table of sections for subpart B of part IV of subchapter A of chapter 1 of such Code is amended by inserting after the item relating to section 27 the following new item: Sec. 28. Qualified wildfire mitigation expenditures. . (c) Effective date The amendments made by this section shall apply to expenditures paid or incurred after the date of the enactment of this Act, in taxable years ending after such date.

Summary: Disaster Tax Relief Act of 2021 This bill sets forth tax relief provisions for taxpayers residing in a disaster zone. Specifically, the bill allows penalty-free qualified disaster distributions from tax-exempt retirement plans up to $100,000; allows recontributions of distributions for home purchases cancelled due to disasters; increases to $100,000 the limit on loans from retirement plans not treated as distributions; allows an employee retention tax credit for 40% of wages paid by employers affected by a disaster; expands eligibility for disaster-related personal casualty losses; allows exclusions from gross income, for income tax purposes, of amounts received from state-based catastrophe loss mitigation programs and emergency agricultural assistance; suspends the limitation on corporate charitable contributions; allows the Small Business Administration to award grants to accomodate extraordinary occurrences having a catastrophic impact on small business concerns; and allows a new tax credit for 30% of qualified wildfire mitigation expenditures.