charge of indebtedness to the extent that real property 
constituting security for such indebtedness is located out-
side of the area described in subsection (c). 
(e) DENIAL OF DOUBLE BENEFIT.—The amount ex-
cluded from gross income under subsection (a) shall be 
applied to reduce the tax attributes of the taxpayer as pro-
vided in section 108(b) of the Internal Revenue Code of 
1986. 
(f) APPLICATION.—This section shall not apply to 
discharges after December 31, 2008. 
SEC. 104. SPECIAL RULES RELATED TO CALIFORNIA 
WILDFIRES OF OCTOBER 2007 FOR MORT-
GAGE REVENUE BONDS. 
(a) IN GENERAL.—In the case of financing provided 
with respect to a qualified California Wildfires of October 
2007 recovery residence, subsection (d) of section 143 of 
the Internal Revenue Code of 1986 shall be applied as if 
such residence were a targeted area residence. 
(b) QUALIFIED CALIFORNIA WILDFIRES OF OCTO-
BER 2007 RECOVERY RESIDENCE.—For purposes of this 
section, the term ‘‘qualified California Wildfires of Octo-
ber 2007 recovery residence’’ means any residence if such 
residence is located in an area which is determined by the 
President to warrant individual or individual and public 
assistance from the Federal Government under the Robert 
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T. Stafford Disaster Relief and Emergency Assistance Act 
by reason of the wildfires which burned in California dur-
ing October 2007. 
(c) APPLICATION.—Subsection (a) shall not apply to 
financing provided after December 31, 2009. 
SEC. 105. SUSPENSION OF CERTAIN LIMITATIONS ON PER-
SONAL CASUALTY LOSSES RELATED TO CALI-
FORNIA WILDFIRES OF OCTOBER 2007. 
Paragraphs (1) and (2)(A) of section 165(h) of the 
Internal Revenue Code of 1986 shall not apply to losses 
described in section 165(c)(3) of such Code which are at-
tributable to the wildfires which burned in California dur-
ing October 2007. In the case of any other losses, section 
165(h)(2)(A) of such Code shall be applied without regard 
to the losses referred to in the preceding sentence. 
SEC. 106. ADDITIONAL EXEMPTION FOR HOUSING DIS-
PLACED 
INDIVIDUALS 
OF 
CALIFORNIA 
WILDFIRES OF OCTOBER 2007. 
(a) IN GENERAL.—In the case of taxable years of a 
natural person beginning in 2007 and 2008, for purposes 
of the Internal Revenue Code of 1986, taxable income 
shall be reduced by $500 for each California Wildfires of 
October 2007 displaced individual of the taxpayer for the 
taxable year. 
(b) LIMITATIONS.— 
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(1) DOLLAR LIMITATION.—The reduction under 
subsection (a) shall not exceed $2,000, reduced by 
the amount of the reduction under this section for 
all previous taxable years. 
(2) INDIVIDUALS TAKEN INTO ACCOUNT ONLY 
ONCE.—An individual shall not be taken into ac-
count under subsection (a) if such individual was 
taken into account under such subsection by the tax-
payer in any prior taxable year. 
(c) CALIFORNIA WILDFIRES OF OCTOBER 2007 DIS-
PLACED INDIVIDUAL.—For purposes of this subsection, 
the term ‘‘displaced individual from California Wildfires 
of October 2007’’ means, with respect to any taxpayer for 
any taxable year, a natural person who— 
(1) was (as of October 20, 2007) a resident of 
any area which is determined by the President to 
warrant individual or individual and public assist-
ance from the Federal Government under the Robert 
T. Stafford Disaster Relief and Emergency Assist-
ance Act by reason of the wildfires which burned in 
California during October 2007, 
(2) is displaced from the person’s residence lo-
cated in the area described in paragraph (1), and 
(3) is provided housing free of charge by the 
taxpayer in the principal residence of the taxpayer 
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for a period of 60 consecutive days which ends in 
such taxable year. 
Such term shall not include the spouse or any dependent 
of the taxpayer. 
SEC. 
107. 
SPECIAL 
RULE 
RELATED 
TO 
CALIFORNIA 
WILDFIRES OF OCTOBER 2007 FOR DETER-
MINING EARNED INCOME. 
(a) IN GENERAL.—In the case of a qualified indi-
vidual, if the earned income of the taxpayer for the taxable 
year of such taxpayer which includes October 21, 2007, 
is less than the earned income which is attributable to the 
taxpayer for the preceding taxable year, the credits al-
lowed under sections 24(d) and 32 of the Internal Revenue 
Code of 1986 may, at the election of the taxpayer, be de-
termined by substituting— 
(1) such earned income for the preceding tax-
able year, for 
(2) such earned income for the taxable year 
which includes October 21, 2007. 
(b) QUALIFIED INDIVIDUAL.—For purposes of this 
section, the term ‘‘qualified individual’’ means any indi-
vidual who was (as of October 21, 2007) a resident of 
any area which is determined by the President to warrant 
individual or individual and public assistance from the 
Federal Government under the Robert T. Stafford Dis-
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aster Relief and Emergency Assistance Act by reason of 
the wildfires which burned in California during October 
2007. 
(c) EARNED INCOME.—For purposes of this section, 
the term ‘‘earned income’’ has the meaning given such 
term under section 32(c) of such Code. 
(d) SPECIAL RULES.— 
(1) APPLICATION
TO
JOINT
RETURNS.—For 
purpose of subsection (a), in the case of a joint re-
turn for a taxable year which includes October 21, 
2007— 
(A) such subsection shall apply if either 
spouse is a qualified individual, 
(B) the earned income which is attrib-
utable to the taxpayer for the preceding taxable 
year shall be the sum of the earned income 
which is attributable to each spouse for such 
preceding taxable year, and 
(C) the substitution described in such sub-
section shall apply only with respect to earned 
income which is attributable to a spouse who is 
a qualified individual. 
(2) UNIFORM
APPLICATION
OF
ELECTION.— 
Any election made under subsection (a) shall apply 
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with respect to both section 24(d) and section 32 of 
such Code. 
(3) ERRORS
TREATED
AS
MATHEMATICAL 
ERROR.—For purposes of section 6213 of such 
Code, an incorrect use on a return of earned income 
pursuant to subsection (a) shall be treated as a 
mathematical or clerical error. 
(4) NO EFFECT ON DETERMINATION OF GROSS 
INCOME.—For purposes of the Internal Revenue 
Code of 1986, gross income shall be determined 
without regard to any substitution under subsection 
(a). 
SEC. 108. SECRETARIAL AUTHORITY TO MAKE ADJUST-
MENTS REGARDING TAXPAYER AND DEPEND-
ENCY 
STATUS 
RELATED 
TO 
CALIFORNIA 
WILDFIRES OF OCTOBER 2007. 
With respect to taxable years beginning in 2007 or 
2008, the Secretary of the Treasury, or his delegate, may 
make such adjustments in the application of the internal 
revenue laws as may be necessary to ensure that taxpayers 
do not lose dependency exemptions or child credits or ex-
perience a change of filing status by reason of temporary 
relocations after the wildfires which burned in California 
during October 2007 or by reason of the receipt of wildfire 
relief. Any adjustments made under the preceding sen-
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tence shall ensure that an individual is not taken into ac-
count by more than one taxpayer with respect to the same 
tax benefit. 
TITLE II—PENALTY FREE USE 
OF RETIREMENT FUNDS RE-
LATED 
TO 
CALIFORNIA 
WILDFIRES OF OCTOBER 2007 
SEC. 201. PENALTY FREE WITHDRAWALS FROM RETIRE-
MENT 
PLANS 
RELATED 
TO 
CALIFORNIA 
WILDFIRES OF OCTOBER 2007. 
(a) IN GENERAL.—Paragraph (2) of section 72(t) of 
the Internal Revenue Code of 1986 (relating to 10-percent 
additional tax on early distributions from qualified retire-
ment plans) is amended by adding at the end the following 
new subparagraph: 
‘‘(H) DISTRIBUTIONS FROM RETIREMENT 
PLANS UPON FEDERAL DECLARATION OF NAT-
URAL DISASTER.— 
‘‘(i) IN GENERAL.—Any qualified dis-
aster-relief distribution. 
‘‘(ii) AGGREGATE
LIMITATION.—The 
aggregate amount of payments or distribu-
tions received by an individual which may 
be treated as qualified disaster-relief dis-
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tributions for any taxable year shall not 
exceed the excess (if any) of— 
‘‘(I) $100,000, over 
‘‘(II) 
the 
aggregate 
amounts 
treated as qualified disaster-relief dis-
tributions with respect to such indi-
vidual for all prior taxable years. 
‘‘(iii) AMOUNT DISTRIBUTED MAY BE 
REPAID.— 
‘‘(I) IN
GENERAL.—Any indi-
vidual who receives a qualified dis-
aster-relief distribution may, at any 
time during the 3-year period begin-
ning on the day after the date on 
which such distribution was made, 
make one or more contributions in an 
aggregate amount not to exceed the 
amount of such distribution to an eli-
gible retirement plan (as defined in 
section 402(c)(8)(B)) of which such 
individual is a beneficiary and to 
which a rollover contribution of such 
distribution could be made under sec-
tion 402(c), 403(a)(4), 403(b)(8), or 
408(d)(3), as the case may be. 
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‘‘(II) TREATMENT
OF
REPAY-
MENTS FOR DISTRIBUTIONS FROM EL-
IGIBLE
RETIREMENT
PLANS
OTHER 
THAN
IRAS.—For purposes of this 
title, if a contribution is made pursu-
ant to subclause (I) with respect to a 
qualified 
disaster-relief 
distribution 
from an eligible retirement plan (as so 
defined) other than an individual re-
tirement plan, then the taxpayer shall, 
to the extent of the amount of the 
contribution, be treated as having re-
ceived the qualified disaster-relief dis-
tribution in an eligible rollover dis-
tribution 
(as 
defined 
in 
section 
402(c)(4)) and as having transferred 
the amount to the eligible retirement 
plan in a direct trustee to trustee 
transfer within 60 days of the dis-
tribution. 
‘‘(III) TREATMENT
OF
REPAY-
MENTS
FOR
DISTRIBUTIONS
FROM 
IRAS.—For purposes of this title, if a 
contribution is made pursuant to sub-
clause (I) with respect to a qualified 
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disaster-relief distribution from an in-
dividual retirement plan, then, to the 
extent of the amount of the contribu-
tion, the qualified disaster-relief dis-
tribution shall be treated as a dis-
tribution 
described 
in 
section 
408(d)(3) and as having been trans-
ferred to the eligible retirement plan 
in a direct trustee to trustee transfer 
within 60 days of the distribution. 
‘‘(IV) APPLICATION TO GOVERN-
MENTAL SECTION 457 PLANS.—In de-
termining whether any distribution is 
a qualified disaster-relief distribution 
for purposes of this clause, an eligible 
deferred compensation plan (as de-
fined in section 457(b)) maintained by 
an employer described in section 
457(e)(1)(A) shall be treated as a 
qualified retirement plan. 
‘‘(iv) QUALIFIED
DISASTER-RELIEF 
DISTRIBUTION.—For purposes of this sub-
paragraph, the term ‘qualified disaster-re-
lief distribution’ means any distribution— 
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‘‘(I) to an individual who has 
sustained a loss as a result of a major 
disaster declared under section 401 of 
the Robert T. Stafford Disaster Relief 
and Emergency Assistance Act by rea-
son of the wildfires which burned in 
California during October 2007 and 
who has a principal place of abode im-
mediately before the declaration in a 
qualified disaster area, and 
‘‘(II) which is made during the 1- 
year period beginning on the date 
such declaration is made. 
‘‘(v) QUALIFIED
DISASTER
AREA.— 
For purposes of this subparagraph, the 
term ‘qualified disaster area’ means any 
area which is determined by the President 
to warrant individual or individual and 
public assistance from the Federal Govern-
ment under the Robert T. Stafford Dis-
aster Relief and Emergency Assistance Act 
by reason of the wildfires which burned in 
California during October 2007.’’. 
(b) EXEMPTION OF DISTRIBUTIONS FROM TRUSTEE 
TO TRUSTEE TRANSFER AND WITHHOLDING RULES.— 
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October 2007 (but only to the extent provided in 
section 72(t)(2)(H)),’’ before ‘‘or’’. 
(3) Section 403(b)(11) of such Code is amend-
ed by striking ‘‘or’’ at the end of subparagraph (B), 
by striking the period at the end of subparagraph 
(C) and inserting ‘‘, or’’, and by inserting after sub-
paragraph (C) the following new subparagraph: 
‘‘(D) for distributions to which section 
72(t)(2)(H) applies.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions received after Oc-
tober 21, 2007. 
SEC. 202. INCOME AVERAGING FOR DISASTER-RELIEF DIS-
TRIBUTIONS 
RELATED 
TO 
CALIFORNIA 
WILDFIRES OF OCTOBER 2007. 
(a) IN GENERAL.—In the case of any qualified dis-
aster-relief distribution (within the meaning of section 
72(t)(2)(G) of the Internal Revenue Code of 1986) from 
a qualified retirement plan (as defined in section 4974(c) 
of such Code) to a qualified individual, unless the taxpayer 
elects not to have this section 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 RULES.— 
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(1) APPLICATION TO GOVERNMENTAL SECTION 
457 PLANS.—In determining whether any distribu-
tion is a qualified disaster-relief distribution (as so 
defined) for purposes of this section, an eligible de-
ferred compensation plan (as defined in section 
457(b) of such Code) maintained by an employer de-
scribed in section 457(e)(1)(A) of such Code shall be 
treated as a qualified retirement plan (as so de-
fined). 
(2) CERTAIN RULES TO APPLY.—Rules similar 
to the rules of subparagraph (E) of section 
408A(d)(3) of such Code shall apply for purposes of 
this section. 
(c) QUALIFIED INDIVIDUAL.—For purposes of this 
section, the term ‘‘qualified individual’’ means an indi-
vidual who has sustained a loss as a result of the major 
disaster declared under section 401 of the Robert T. Staf-
ford Disaster Relief and Emergency Assistance Act (42 
U.S.C. 5170) by reason of the wildfires which burned in 
California during October 2007 and who has a principal 
place of abode immediately before the declaration in a 
California wildfires of October 2007 disaster area. 
(d) CALIFORNIA WILDFIRES OF OCTOBER 2007 DIS-
ASTER AREA.—For purposes of this section, the term 
‘‘California wildfires of October 2007 disaster area’’ 
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means any area which is determined by the President to 
warrant individual or individual and public assistance 
from the Federal Government under the Robert T. Staf-
ford Disaster Relief and Emergency Assistance Act by 
reason of the wildfires which burned in California during 
October 2007. 
SEC. 203. RECONTRIBUTIONS OF WITHDRAWALS FOR HOME 
PURCHASES 
CANCELLED 
DUE 
TO 
CALI-
FORNIA WILDFIRES OF OCTOBER 2007. 
(a) RECONTRIBUTIONS.— 
(1) IN GENERAL.—Any individual who received 
a qualified distribution may, at any time during the 
6-month period beginning on the day after the dis-
aster declaration date, make one or more contribu-
tions 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) 
of the Internal Revenue Code of 1986) 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 such Code, as the case 
may be. 
(2) TREATMENT OF REPAYMENTS.— 
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(A) TREATMENT
OF
REPAYMENTS
FOR 
DISTRIBUTIONS
FROM
ELIGIBLE
RETIREMENT 
PLANS
OTHER
THAN
IRAS.—For purposes of 
the Internal Revenue Code of 1986, if a con-
tribution is made pursuant to paragraph (1) 
with respect to a qualified distribution from an 
eligible retirement plan (as so defined) other 
than an individual retirement plan (as defined 
in section 7701(a)(37) of such Code), then the 
taxpayer shall, to the extent of the amount of 
the contribution, be treated as having received 
the qualified 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 di-
rect trustee to trustee transfer within 60 days 
of the distribution. 
(B) TREATMENT
OF
REPAYMENTS
FOR 
DISTRIBUTIONS FROM IRAS.—For purposes of 
the Internal Revenue Code of 1986, if a con-
tribution is made pursuant to paragraph (1) 
with respect to a qualified distribution from an 
individual retirement plan (as so defined), then, 
to the extent of the amount of the contribution, 
the qualified distribution shall be treated as a 
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distribution described in section 408(d)(3) of 
such Code and as having been transferred to 
the eligible retirement plan (as so defined) in a 
direct trustee to trustee transfer within 60 days 
of the distribution. 
(b) DEFINITIONS.—For purposes of this section— 
(1) 
QUALIFIED
DISTRIBUTION.—The 
term 
‘‘qualified distribution’’ means any distribution— 
(A) 
described 
in 
section 
401(k)(2)(B)(i)(IV), 
403(b)(7)(A)(ii), 
403(b)(11)(B), 457(d)(1)(A)(iii), or 72(t)(2)(F) 
of the Internal Revenue Code of 1986, 
(B) received after February 28, 2007, and 
before October 21, 2007, and 
(C) which was to be used to purchase or 
construct a principal residence in a California 
wildfires of October 2007 disaster area, but 
which was not so purchased or constructed. 
(2) DISASTER DECLARATION DATE.—The term 
‘‘disaster declaration date’’ means the date on which 
the President designated the area as a disaster area 
by reason of the wildfires which burned in California 
during October 2007. 
(3) CALIFORNIA WILDFIRES OF OCTOBER 2007 
DISASTER AREA.—The term ‘‘California wildfires of 
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