House Measure Excludes Mitigation Grants as Income Under Flood Program

July 13, 2005

The U.S. House of Representatives has passed a measure to exclude from consideration as income certain payments under the National Flood Insurance Program (NFIP).

Introduced by Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee Chairman Richard H. Baker (La.), the bill (H.R.804) would prevent federal agencies from considering NFIP mitigation grants as income.

An Internal Revenue Service ruling in July, 2004, stated that flood mitigation grants must be reported as income for tax purposes. This ruling has caused significant uncertainty in the administration of the Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004, accroding to Baker.

Baker cited anecdotal reports that homeowners have refused mitigation offers not only due to the fear of a potential tax liability, but also the potential for other unknown liabilities imposed by other Federal government agencies. These penalties could include the loss of certain federal education, nutrition and health care benefits. H.R. 804 eliminates the potential for additional penalties by preventing federal government agencies (other than the IRS) from considering NFIP flood mitigation grants as income.

The Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004 enacted reforms dealing with repetitive loss properties and flood mitigation. The Federal Emergency Management Association, which administers the NFIP, has found that repetitive loss properties alone incur $200 million in losses annually.

“This bill reaffirms the purpose of flood mitigation grants, which is to lend a hand to people badly in need of assistance, and to do away with the unfair punishment of counting the grants against them and rendering them ineligible for other programs,” Baker said.

An amendment to H.R. 804 would narrow the scope of the bill to include only the owner of the property.

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