I 
109TH CONGRESS 
1ST SESSION H. R. 4035 
To amend the Internal Revenue Code of 1986 to eliminate capital gains 
taxes on investments in the Hurricane Katrina disaster area to reduce 
the estate tax for victims of Hurricane Katrina. 
IN THE HOUSE OF REPRESENTATIVES 
OCTOBER 7, 2005 
Mr. GARRETT of New Jersey introduced the following bill; which was referred 
to the Committee on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to eliminate 
capital gains taxes on investments in the Hurricane 
Katrina disaster area to reduce the estate tax for victims 
of Hurricane Katrina. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Economic Relief for 
Gulf Coast Families and Businesses Act’’.
SEC. 2. TAX BENEFITS RELATED TO HURRICANE KATRINA 
DISASTER AREA. 
(a) IN GENERAL.—Subchapter Y of chapter 1 of the 
Internal Revenue Code of 1986 is amended by adding at 
the end the following new section: 
‘‘SEC. 1400M. TAX BENEFITS RELATED TO HURRICANE 
KATRINA DISASTER AREA. 
‘‘(a) ZERO PERCENT CAPITAL GAINS RATE.— 
‘‘(1) EXCLUSION.—Gross income shall not in-
clude qualified capital gain from the sale or ex-
change of any Katrina Zone asset held for more 
than 5 years. 
‘‘(2) KATRINA
ZONE.—For purposes of this 
subsection, the term ‘Katrina Zone asset’ means— 
‘‘(A) any Katrina Zone business stock, 
‘‘(B) any Katrina Zone partnership inter-
est, and 
‘‘(C) any Katrina Zone business property. 
‘‘(3) KATRINA
ZONE
BUSINESS
STOCK.—For 
purposes of this subsection— 
‘‘(A) IN
GENERAL.—The term ‘Katrina 
Zone business stock’ means any stock in a do-
mestic corporation which is originally issued 
after August 28, 2005, if— 
‘‘(i) such stock is acquired by the tax-
payer, before January 1, 2007, at its origi-
nal issue (directly or through an under-
writer) solely in exchange for cash, 
‘‘(ii) as of the time such stock was 
issued, such corporation was a Katrina 
Zone business (or, in the case of a new 
corporation, such corporation was being or-
ganized for purposes of being a Katrina 
Zone business), and 
‘‘(iii) during substantially all of the 
taxpayer’s holding period for such stock, 
such corporation qualified as a Katrina 
Zone business. 
‘‘(B) REDEMPTIONS.—A rule similar to 
the rule of section 1202(c)(3) shall apply for 
purposes of this paragraph. 
‘‘(4) KATRINA
ZONE
PARTNERSHIP
INTER-
EST.—For purposes of this subsection, the term 
‘Katrina Zone partnership interest’ means any cap-
ital or profits interest in a domestic partnership 
which is originally issued after August 28, 2005, 
if— 
‘‘(A) such interest is acquired by the tax-
payer, before January 1, 2007, from the part-
nership solely in exchange for cash,
‘‘(B) as of the time such interest was ac-
quired, such partnership was a Katrina Zone 
business (or, in the case of a new partnership, 
such partnership was being organized for pur-
poses of being a Katrina Zone business), and 
‘‘(C) during substantially all of the tax-
payer’s holding period for such interest, such 
partnership qualified as a Katrina Zone busi-
ness. 
A rule similar to the rule of subparagraph (B)(ii) 
shall apply for purposes of this paragraph. 
‘‘(5) KATRINA
ZONE
BUSINESS
PROPERTY.— 
For purposes of this subsection— 
‘‘(A) IN
GENERAL.—The term ‘Katrina 
Zone business property’ means tangible prop-
erty if— 
‘‘(i) such property was acquired by 
the taxpayer by purchase (as defined in 
section 179(d)(2)) after August 28, 2005, 
and before January 1, 2007, 
‘‘(ii) the original use of such property 
in the Katrina Zone commences with the 
taxpayer, and 
‘‘(iii) during substantially all of the 
taxpayer’s holding period for such prop-
erty, substantially all of the use of such 
property was in a Katrina Zone business of 
the taxpayer. 
‘‘(B) SPECIAL
RULE
FOR
BUILDINGS 
WHICH ARE SUBSTANTIALLY IMPROVED.— 
‘‘(i) IN GENERAL.—The requirements 
of clauses (i) and (ii) of subparagraph (A) 
shall be treated as met with respect to— 
‘‘(I) property which is substan-
tially improved by the taxpayer before 
January 1, 2007, and 
‘‘(II) any land on which such 
property is located. 
‘‘(ii) SUBSTANTIAL IMPROVEMENT.— 
For purposes of clause (i), property shall 
be treated as substantially improved by the 
taxpayer only if, during any 24-month pe-
riod beginning after August 28, 2005, ad-
ditions to basis with respect to such prop-
erty in the hands of the taxpayer exceed 
the greater of— 
‘‘(I) an amount equal to the ad-
justed basis of such property at the 
beginning of such 24-month period in 
the hands of the taxpayer, or
‘‘(II) $5,000. 
‘‘(6) KATRINA ZONE BUSINESS.—For purposes 
of this subsection, the term ‘Katrina Zone business’ 
means any corporation, partnership, or business 
which would be an enterprise zone business (as de-
fined in section 1397C) if such section were applied 
by substituting ‘Katrina Zone’ for ‘empowerment 
zone’ each place it appears. 
‘‘(7) SPECIAL
RULES
RELATED
TO
KATRINA 
ZONE ASSETS.—For purposes of this subsection— 
‘‘(A) TREATMENT OF SUBSEQUENT PUR-
CHASERS, ETC.—For purposes of this sub-
section, the term ‘Katrina Zone asset’ includes 
any property which would be a Katrina Zone 
asset but for paragraph (3)(A)(i), (4)(A), or 
(5)(A)(i) or (ii) in the hands of the taxpayer if 
such property was a Katrina Zone asset in the 
hands of a prior holder. 
‘‘(B) 5-YEAR SAFE HARBOR.—If any prop-
erty ceases to be a Katrina Zone asset by rea-
son 
of 
paragraph 
(3)(A)(iii), 
(4)(C), 
or 
(5)(A)(iii) after the 5-year period beginning on 
the date the taxpayer acquired such property, 
such property shall continue to be treated as 
meeting the requirements of such paragraph;
except that the amount of gain to which para-
graph (1) applies on any sale or exchange of 
such property shall not exceed the amount 
which would be qualified capital gain had such 
property been sold on the date of such ces-
sation. 
‘‘(8) QUALIFIED CAPITAL GAIN.—For purposes 
of this subsection— 
‘‘(A) IN GENERAL.—Except as otherwise 
provided in this paragraph, the term ‘qualified 
capital gain’ means any gain recognized on the 
sale or exchange of— 
‘‘(i) a capital asset, or 
‘‘(ii) property used in the trade or 
business (as defined in section 1231(b). 
‘‘(B) GAIN BEFORE HURRICANE OR AFTER 
2011 NOT QUALIFIED.—The term ‘qualified cap-
ital gain’ shall not include any gain attributable 
to periods before August 29, 2005, or after De-
cember 31, 2011. 
‘‘(C) CERTAIN
ORDINARY
INCOME
GAIN 
NOT
QUALIFIED.—The term ‘qualified capital 
gain’ shall not include any gain which would be 
treated as ordinary income under section 1245 
or under section 1250 if section 1250 applied to
all depreciation rather than the additional de-
preciation. 
‘‘(D) INTANGIBLES AND LAND NOT INTE-
GRAL PART OF KATRINA ZONE BUSINESS.—The 
term ‘qualified capital gain’ shall not include 
any gain which is attributable to real property, 
or an intangible asset, which is not an integral 
part of a Katrina Zone business. 
‘‘(E) RELATED
PARTY
TRANSACTIONS.— 
The term ‘qualified capital gain’ shall not in-
clude any gain attributable, directly or indi-
rectly, in whole or in part, to a transaction with 
a related person. For purposes of this subpara-
graph, persons are related to each other if such 
persons are described in section 267(b) or 
707(b)(1). 
‘‘(9) CERTAIN OTHER RULES TO APPLY.—Rules 
similar to the rules of subsections (g), (h), (i)(2), 
and (j) of section 1202 shall apply for purposes of 
this subsection. 
‘‘(10) SALES AND EXCHANGES OF INTERESTS 
IN PARTNERSHIPS AND S CORPORATIONS WHICH ARE 
KATRINA ZONE BUSINESSES.—In the case of the sale 
or exchange of an interest in a partnership, or of 
stock in an S corporation, which was a Katrina Zone
business during substantially all of the period the 
taxpayer held such interest or stock, the amount of 
qualified capital gain shall be determined without re-
gard to— 
‘‘(A) any gain which is attributable to real 
property, or an intangible asset, which is not an 
integral part of a Katrina Zone business, and 
‘‘(B) any gain attributable to periods be-
fore August 29, 2005, or after December 31, 
2011. 
‘‘(b) ESTATE TAX REDUCTION
FOR HURRICANE 
KATRINA VICTIMS.— 
‘‘(1) IN GENERAL.— For purposes of this title, 
a Hurricane Katrina victim shall be treated as a 
qualified decedent within the meaning of section 
2201(b). 
‘‘(2) HURRICANE KATRINA VICTIM.—For pur-
poses of this section, the term ‘Hurricane Katrina 
victim’ means any decedent who dies after August 
28, 2005, as a result of wounds or injuries incurred 
in the Katrina Zone as a result of Hurricane 
Katrina. 
‘‘(c) KATRINA ZONE.—For purposes of this section, 
the term ‘Katrina Zone’ means an area determined by the 
President to warrant individual or individual and public
assistance from the Federal Government under the Robert 
T. Stafford Disaster Relief and Emergency Assistance Act 
by reason of Hurricane Katrina.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) The heading for subchapter Y of chapter 1 
of such Code is amended to read as follows: 
‘‘Subchapter Y—Short-term Regional 
Benefits’’. 
(2) The table of sections for such subchapter is 
amended by adding at the end the following new 
item: 
‘‘Sec. 1400M. Tax benefits related to Hurricane Katrina disaster area.’’. 
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