After Katrina

Issue #2
September 30, 2005

Legal News

Table of Contents

Katrina Emergency Tax Relief Act of 2005

After Katrina Legal News is a Phelps Dunbar publication intended to inform and advise our clients and friends of legal issues and information related to Hurricane Katrina and the rebuilding of the Gulf Coast.  This newsletter is published as a service to clients and friends of Phelps Dunbar LLP, and should not be construed as legal or professional advice or as opinion on specific fact.

Phelps Dunbar’s New Orleans office is presently closed because of Hurricane Katrina. The office will re-open as soon as possible. Our New Orleans attorneys and staff are working in the firm’s Baton Rouge (225-346-0285), Houston (713-626-1386) and Jackson (601-352-2300) offices. You may also contact these individuals through the same e-mail addresses as before the hurricane.

Katrina Emergency Tax Relief Act of 2005

President Bush signed the Katrina Emergency Tax Relief Act of 2005 on September 23, 2005.  The Act provides over $6 billion of tax breaks, including the following relief:

• Deadlines Extended Further.  The IRS had already extended tax filing and payment deadlines falling after August 25, 2005 until January 3, 2006 for taxpayers affected by Katrina.  The Act further extends these deadlines until February 28, 2006.

• Limitations on Casualty Losses Removed.  Individuals normally can only deduct personal casualty losses (such as flood or wind damage) to the extent each casualty loss exceeds $100 and the total of all casualty losses exceeds 10% of adjusted gross income.  The Act waives the $100 and 10% floors for Katrina-related casualty losses.

• Early Distributions and Loans from IRAs and Pensions.  Distributions from IRAs and pensions are generally subject to a 10-percent penalty if they are made before a certain age.  This penalty is intended to discourage early withdrawals of funds needed for retirement.

The Act allows Katrina victims to withdraw up to $100,000 from their IRAs and pensions without paying this penalty.  Any income taxes owed on the distribution can be paid over three years.  No income taxes are due if the distribution is repaid to the account within three years.  Also, the normal limit of $50,000 on loans from pension plans is increased to $100,000 for Katrina victims.  These rules apply until December 31, 2006.

• Discharge of Indebtedness.  Discharge of indebtedness is normally taxable.  The Act generally removes this rule for Katrina victims on personal debt relieved before 2007.  This rule will assist taxpayers that are underinsured on their residence if their lender forgives the loan balance.

• Shelter Provided to Evacuees.  Individuals that provide free housing at their personal residence to evacuees for at least 60 consecutive days will receive an exemption of $500 per evacuee, up to a maximum of $2,000.  These additional exemptions are not subject to the normal income-based phase-out rules.

• Work Opportunity Tax Credit.  Employers will receive a tax credit if they hire individuals who lived in the core disaster area (a FEMA “individual assistance” area) on August 28, 2005.  The credit is generally 40% of the first $6,000 of wages paid to these employees in the first year.  This credit is available for any hire nation-wide until December 31, 2005, and it is available until August 27, 2007 for hires in the core disaster area.

• Employee Retention Credit.  Employers in the core disaster area with 200 or fewer employees whose business is inoperable because of Katrina will receive a 40% credit on the first $6,000 of wages paid to retain employees between August 28, 2005 and January 1, 2006.

back to top

Tax Treatment for Timber Damaged by Hurricane Katrina

The owners of timber tracts damaged by the strong winds of Hurricane Katrina may be allowed to take a deduction arising for losses qualifying under Section 165 of the Internal Revenue Code.  Corporate tax payers and individuals alike are able to take such losses, because the damage caused to the timber by hurricane winds qualifies as a “casualty loss.”  Certain limitations do apply to individual taxpayers in regards to the amount of loss that can be taken.  The gain realized from salvaging storm damaged timber may also qualify for deferral treatment under Section 1033 of the Internal Revenue Code.  The I.R.S. has held that hurricane damage may result in an involuntary conversion and therefore, be subject to the nonrecognition provisions of I.R.C. Section 1033.  In order to take advantage of nonrecognition treatment under I.R.C. Section 1033, the amount realized from the sale of the salvaged timber, must be reinvested in similar property or related services within a specified time period.  The type of property and services that have qualified as similar or related for to timber include reforestation or afforestation on woodlands owned or leased by the taxpayer; the purchase or lease of timber, timberland, or land for purposes of reforestation or afforestation; and the purchase of stock in the acquisition of control of a corporation owning such property.

back to top

Katrina-Related Employment Considerations

• Application of the WARN Act – A federal statute commonly known as the WARN Act requires that employers having more than 100 permanent employees give advance notice of closure of a facility which will result in a significant employment loss. Failure to provide notice can result in substantial penalties. However, the employer is excused from giving notice when the closing is the direct result of a natural disaster. Even under that exception, the employer must give as much notice as is practicable.

• Obligations to pay employees when business is suspended due to Hurricane Katrina and Rita – Unless an employee has an employment contract guaranteeing payment of salary regardless of operations, employers are not required to pay employees while operations are suspended. Employees must be paid for hours actually worked.

• Payment for vacation time – Throughout the gulf south region, including Mississippi, Louisiana and Texas, an employer’s already established employment agreements and/or policies will govern how vacation time should accrue as well as how and when it will be paid. In Louisiana, however, there is another important consideration that employers must be mindful of in dealing with vacation time. Specifically, Louisiana law provides that any accrued vacation is deemed to be considered a “wage.” This has significant repercussions for employers with respect to paying employees for all wages. For example, in the event that an employee is terminated as a result of Hurricane Katrina, or for any other justifiable reason, the employer must not only honor its policies and employment agreements, but if they have employees in Louisiana, they must also take into account whether the vacation was accrued and thus due and owing as a wage.

More detailed information on these and other human resource issues may be found in the Newsletters section on the Phelps Dunbar Web site.

back to top

Court Information

LOUISIANA FEDERAL COURTS

United States Fifth Circuit Court of Appeal:

• The Court opened for new filings on September 21, 2005. 

• All filing deadlines on or after August 24^th through September 30^th are extended to October 10, 2005.

• The physical address is Room 1217, 515 Rusk Street, Houston, Texas  77002.  The mailing address is PO Box 610160, Houston, Texas  77208.  The phone number is (713) 250-5440.  The office hours are 9:00 a.m. to 4:00 p.m. Monday through Friday.

USDC Eastern District:

• The Court will reconfigure in three locations:  Houma, Baton Rouge and Lafayette.  Court filings can be effected in Lafayette and Baton Rouge.

Change in Court Schedules Due to Hurricane Rita
FOR THE WESTERN DISTRICT OF LOUISIANA

• Lafayette Division Clerk's office is open for regular business.

• The Lake Charles Division Courthouse is CLOSED until further notice.  By Order of Chief Judge Richard Haik and Judge Patricia Minaldi all deadlines in Criminal and Civil cases in the Lake Charles Division are suspended.  All court proceedings previously set are CONTINUED WITHOUT DATE.

• The Alexandria Division Courthouse is now OPEN.  

LOUISIANA STATE COURTS

Governor Blanco has issued an executive order No. KBB 2005-48 declaring that all deadlines in all legal proceedings, including liberative prescriptive and peremptive periods, in all state courts, administrative agencies and boards are further suspended until October 25, 2005. 

Louisiana Supreme Court

• The Court is closed from August 29, 2005 through October 1, 2005. All filings due during the period of closure will be deemed timely filed if filed within 5 days of the resumption of normal Court operations.

• The Web site is www.lasc.org.

Louisiana Third Circuit Court of Appeal

• Due to the effects of Hurricane Rita, the Third Circuit Court of Appeal will be closed from September 23, 2005 through October 14, 2005.

• To contact the Louisiana Third Circuit Court of Appeal:

131 S. Court Street
Opelousas, LA  70570
(337) 942-4240
louisianathirdcircuit@yahoo.com

Louisiana Fourth Circuit Court of Appeal

• The Court is closed from August 29, 2005 through October 1, 2005.

Louisiana Fifth Circuit Court of Appeal

• The Court is closed from August 29, 2005 through October 1, 2005.

Civil District Court, Parish of Orleans

• The Court is closed from August 29, 2005 through October 2, 2005, reopening on October 3, 2005, from 9:00 a.m. to 4:00 p.m.

• The Court’s temporary address is:

1056 Worley Street
Gonzales  LA  70737
225-342-1687

• The judges will be available to sign pleadings, conduct hearings and hold conferences.

MISSISSIPPI COURTS

• The Mississippi State and Federal Courts are open and fully operational. All Mississippi Circuit and Chancery Courts are open and operational. Some Courts on the Mississippi Gulf Coast are operating under special procedures and in other temporary locations.

back to top

Contact Information

As we prepare for the reopening of our office in New Orleans, we thought it would be helpful to furnish you with contact information should you need to reach a Phelps Dunbar attorney:

Gulfport, Mississippi
NorthCourt One
2304 19th Street, Suite 300
Gulfport, Mississippi 39501
(228) 679-1130
Fax (228) 679-1131

London, England
Lloyd's
1 Lime Street
Suite 903
London EC3M 7DQ
England
011-44-207-929-4765
Fax 011-44-207-929-0046