A bipartisan group of Senators from Gulf Coast states is working on a package of tax breaks for small businesses and residents hit hardest by the BP oil spill.
Louisiana Democrat Mary Landrieu is running point. Joining the tax relief package effort are her Senate colleages Bill Nelson (D-Fla.), Roger Wicker (R-Miss), George
LeMieux (R-Fla.) and David Vitter (R-La.).
The group on Friday sent a letter to Senate Finance Committee leadership urging quick action on the package.
A similar measure, H.R. 5699, has been introduced in the House by Rep. Jeff Miller (R-Fla.)
Separate from an energy bill: There's been talk that Administration-backed energy legislation would have provisions to deal with the Deepwater Horizon oil spill, but that proposal is still evolving.
Plus, there seems to be little enthusiasm right now for a comprehensive
climate change bill in which energy issues would be addressed.
So the Gulf Coast lawmakers took matters into their own hands.
"Make no mistake of it, BP will be on the hook for all losses and damages caused by this disaster, but, in the meantime, thousands of small businesses are struggling to keep their doors open and workers are being let go by no fault of their own," said Landrieu in a statement announcing the tax relief effort. "Congress must do everything within its power to make sure that not a single Gulf Coast business is bankrupted by this oil spill."
Tax provisions for the Gulf Coast: The lawmakers would create an oil spill recovery zone around which most of the tax breaks would be based. They include:
- An income tax deferral for small businesses that invest damage reimbursements in the oil spill recovery zone;
- A five-year net operating loss (NOL) carryback period for business losses related to the spill;
- An oil spill recovery zone job creation tax credit;
- Expanded small-business expensing for the recovery zone;
- A special allocation of New Markets Tax Credits; and
- A hotel and car rental tax holiday for Gulf Coast states.
Retirement plan relief: Most of the proposed tax measures would apply to businesses. However, this latest measure does have one section that also affects individuals.
No, sorry, there is no suggestion (yet) that the BP payments to individuals be exempted from taxation.
But both business owners and other
taxpayers suffering economically because of the oil spill would be able to make penalty-free early withdrawals from their retirement plans.
While this hardship access to retirement savings would keep account owners from facing penalty charges, they still would owe taxes on the early distributions. However, the Senate proposal would allow eligible account holders to, for tax purposes, spread the taxable income over a three-year period.
In addition, the Gulf Coast Senators would like the period in which a taxpayer may have a nontaxable 401(k) loan
outstanding to be extended.
And if the economy recovers more quickly than expected, the lawmakers say that taxpayers who took money from their retirement plans should be allowed to recontribute the early withdrawals to their accounts as a roll-over contribution.
It's no surprise that oil spill specific tax legislation has been introduced. Will it, or at least some of the proposals, eventually make it into law?
All that is certain is that it will be added to the growing list of tax measures that are piling up on Capitol Hill.
- IRS issues BP payment tax answers
- Sen. Landrieu asks Treasury, IRS for clarification
of taxes on BP payments
- Are BP payments taxable income?
- Unemployment's terrible tax surprise
- Tax concerns of the unemployed
- Energy Star rebates aren't federal income
- Yes to more oil spill trust fund money;
No to higher oil company taxes