President Signs Gulf Coast Recovery/Technical Correction Legislation

On December 21, 2005, President Bush signed the Gulf Opportunity Zone Act of 2005, making December 21, 2005 the enactment date. The legislation includes tax breaks to promote recovery on the Gulf Coast, provisions to extend tax relief to victims of Hurricanes Rita and Wilma, a significant technical corrections package, a few expiring provisions, and some miscellaneous provisions. The legislation includes a somewhat controversial provision placing restrictions on the tax relief available to casinos, animal racetracks, liquor stores, hot tub and tanning facilities, and massage parlors.

Among the provisions included related to Gulf Coast recovery are:

1. Creation of Gulf opportunity zones related to areas affected by Hurricanes Katrina, Rita, and Wilma;
2. 50 percent first-year expensing related to rebuilding in the Katrina zone;
3. 50 percent first-year expensing of demolition and clean-up costs in the Katrina zone;
4. Expanded Code Sec. 179 expensing for investments in the Katrina zone;
5. Five-year net operating loss carryback for investments in the Katrina zone;
6. Enhancement of the low-income housing credit within all three zones;
7. Increase in the new markets tax credits available in the Katrina zone; and
8. Expanded tax-exempt bond limits within the Katrina zone.

The legislation also codifies many of the provisions of the previously enacted Katrina Emergency Tax Relief Act of 2005 and expands them to apply to victims of Hurricanes Rita and Wilma.

As this was likely to be the last tax legislation to pass in 2005, Congress added some noncontroversial provisions that might otherwise have languished. A package of expiring provisions includes extensions for defining combat pay as earned income for purposes of the earned income credit, authority for certain undercover operations, and disclosures of certain tax return information.

Technical corrections are included for ten tax acts going back as far as 1987. Most of the corrections are substantive in nature. Nearly 40 amendments relate to the American Jobs Creation Act of 2004 alone, affecting most of the significant areas of that legislation.

The overall ten-year cost of the legislation is estimated at around $8.7 billion.