Could Louisiana taxpayers deduct hurricane recovery benefits and insurance settlement proceeds that were included in federal income?

Plain-English summary

Louisiana allowed an income-tax deduction for qualifying hurricane recovery benefits included in federal income, but not for insurance settlement proceeds. When a taxpayer received both, the Department treated hurricane benefits as entering federal income before insurance proceeds.

That ordering rule determined how much of the federal inclusion qualified for the Louisiana deduction.

Which payments qualified

Act 247 of the 2007 Regular Session created parallel deductions for corporations, resident individuals, and nonresident individuals.

The corporate provision, La. R.S. 47:287.738(G), covered a gratuitous grant, loan, or other benefit provided directly or indirectly by a “hurricane recovery entity,” but only if the benefit was included in federal adjusted gross income. Sections 47:293(9)(a)(i) and 47:293(10) supplied similar individual deductions.

La. R.S. 47:293(5) limited hurricane recovery entities to:

• the Road Home Corporation;
• the Louisiana Recovery Authority; and
• the Louisiana Family Recovery Corps.

Insurance proceeds were different

Insurance settlement proceeds were not benefits from one of the statutory hurricane recovery entities. They therefore did not qualify for the Act 247 deduction.

If insurance proceeds were included in federal adjusted gross income, they remained included on the Louisiana return to that extent.

The ruling's ordering rule

When both payment types were received and only part of the total entered federal income, the Department deemed qualifying hurricane recovery benefits included first. Insurance proceeds occupied any remaining federal inclusion.

For example, the ruling described a taxpayer with a $52,000 casualty loss who received $50,000 of hurricane benefits and $10,000 of insurance proceeds and reported $52,000 of federal taxable income. The first $50,000 was treated as hurricane benefits and deducted on the Louisiana return; the remaining $2,000 was taxable insurance proceeds.

In another example, the taxpayer received $55,000 of hurricane benefits and $10,000 of insurance proceeds, with $52,000 federally taxable. Because hurricane benefits were included first, the full $52,000 qualified for the Louisiana deduction.

Other examples in the ruling

• A $20,000 insurance recovery included federally remained in Louisiana income because it was not a hurricane recovery benefit.
• When $75,000 of an $80,000 insurance recovery entered federal income, the $75,000 also remained in Louisiana income.
• When $60,000 of hurricane benefits entered federal income, the same $60,000 was deductible in Louisiana.
• When $65,000 of hurricane benefits produced a $60,000 federal inclusion, the Louisiana deduction was limited to $60,000.

What this means for you

Disaster-assistance recipients

Identify the payer. A payment connected with hurricane recovery did not qualify merely because of its purpose; it had to come directly or indirectly from a statutory hurricane recovery entity.

Taxpayers receiving insurance and grants

Track each payment separately and reconcile it to the federal amount included in income. The Louisiana deduction did not exceed the qualifying benefit included federally.

Accountants and tax professionals

Apply the ruling's hurricane-benefit-first ordering rule when both qualifying benefits and insurance proceeds contribute to a smaller federal income inclusion.

Common questions

Q: Were insurance settlements deductible under Act 247?

A: No.

Q: Which organizations counted as hurricane recovery entities?

A: The Road Home Corporation, Louisiana Recovery Authority, and Louisiana Family Recovery Corps.

Q: Was every qualifying benefit deductible?

A: Only to the extent the benefit was included in federal adjusted gross income.

Q: Which payment was treated as included first when both were received?

A: The qualifying hurricane recovery benefit.

Citations and references

• La. R.S. 47:287.738(G) — corporate hurricane-recovery-benefit deduction
• La. R.S. 47:293(9)(a)(i) — resident individual deduction
• La. R.S. 47:293(10) — nonresident individual deduction
• La. R.S. 47:293(5) — hurricane recovery entity definition
• Act 247 of the 2007 Regular Session — enacted or amended the provisions addressed
• LAC 61:III.101.C — Revenue Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA Revenue Ruling 08-001

Original ruling text

RPage 1 of 2Revenue Revenue RevenueRRRRevenue Information Bulletin No 01-xxxx
Transactions by Roustabouts, “Work as Directed" Service ProvidersrrEVENUErRRR

Revenue Ruling
No. 08- 001
January 9, 2008
Individual Income Tax and Corporation Income Tax
Hurricane Recovery Benefits and Insurance Settlement Proceeds
Purpose: The purpose of this Revenue Ruling is to address whether or not hurricane recovery
benefits can be deducted from individual and corporate income tax and whether insurance
settlement proceeds have similar treatment.
Conclusion: Insurance settlement proceeds do not fall within the provisions of Act 247 of the
2007 Regular Session. As such, insurance settlement proceeds would have a different treatment
from hurricane recovery benefits and would not be deducted from individual and corporate
income tax. When a taxpayer receives both hurricane recovery benefits and insurance settlement
proceeds, the hurricane recovery benefits will be deemed included in income prior to the
inclusion of the insurance settlement proceeds.
Analysis/Discussion: Act 247 of the 2007 Regular Session enacted La. R.S. 47:287.738(G) to
provide a corporate income tax deduction for hurricane recovery benefits. Specifically, La. R.S.
47:287.738(G) states that “Any gratuitous grant, loan, or other benefit directly or indirectly
provided to a taxpayer by a hurricane recovery entity as defined in La. R.S. 47:293(5) shall be
allowed as a deduction if such benefit was included in federal adjusted gross income.”
Act 247 of the 2007 Regular Session enacted La. R.S. 47:293(9)(a)(i) to provide a similar
income tax deduction for resident individuals and amended La. R.S. 47:293(10) to provide a
similar income tax deduction for nonresident individuals.
Finally, Act 247 of the 2007 Regular Session enacted La. R.S. 47:293(5) to define a “hurricane
recovery entity” to be either the Road Home Corporation, the Louisiana Recovery Authority, or
the Louisiana Family Recovery Corps.
Example 1: Taxpayer sustained a casualty loss in 2005 in the amount of $75,000 that was
claimed on Taxpayer’s federal tax return. In 2007, Taxpayer receives $20,000 in insurance
settlement proceeds which were not accounted for in the casualty loss and includes the $20,000
as income on the 2007 federal return. Since the insurance settlement proceeds are not hurricane
recovery benefits, the insurance settlement proceeds would be included on the 2007 state income
tax return, to the extent that it would be included in federal adjusted gross income.
Example 2: Taxpayer sustained a casualty loss in 2005 in the amount of $75,000 that was
claimed on Taxpayers federal tax return. In 2007, Taxpayer receives $80,000 in insurance
settlement proceeds which were not accounted for in the casualty loss and includes $75,000 as
income on the 2007 federal return. Since the insurance settlement proceeds are not hurricane
recovery benefits, the insurance settlement proceeds would be included on the 2007 state income
tax return, to the extent that it would be included in federal adjusted gross income.
Example 3: Taxpayer sustained a casualty loss in 2005 in the amount of $60,000 that was
claimed on Taxpayers federal tax return. In 2007, Taxpayer receives $60,000 in hurricane
A Revenue Ruling is issued under the authority of LAC 61III.101 (C ). A Revenue Ruling is written to provide
guidance to the public and to Department of Revenue employees. It is a written statement issued to apply principles
of law to a specific set of facts. A Revenue Ruling does not have the force and effect of law and is not binding on
the public. It is a statement of the department's position and is binding on the department until superseded or
modified by a subsequent change in statute, regulation, declaratory ruling, or court decision.

Revenue Ruling No. 08-001
Page 2 of 2

recovery benefits. On the 2007 federal return, $60,000 is taxable. Hurricane recovery benefits
are not taxable in Louisiana to the extent that such income is considered taxable income at the
federal level. In this case, the $60,000 would be deemed to be hurricane recovery benefits, and
$60,000 would be allowed as a deduction on the Louisiana return.
Example 4: Taxpayer sustained a casualty loss in 2005 in the amount of $60,000 that was
claimed on Taxpayers federal tax return. In 2007, Taxpayer receives $65,000 in hurricane
recovery benefits. On the 2007 federal return, $60,000 is taxable. In this case, since the
hurricane recovery benefits exceed the casualty loss, the $60,000 that was included in federal
adjusted gross income is allowed as a deduction on the Louisiana return.
Example 5: Taxpayer sustained a casualty loss in 2005 in the amount of $52,000. In 2007,
Taxpayer receives $50,000 in hurricane recovery benefits, $10,000 in insurance settlement
proceeds, and includes $52,000 in 2007 federal taxable income. In this case, the first $50,000
would be deemed to be hurricane recovery benefits, leaving $2,000 of taxable insurance
settlement proceeds. The $50,000 in hurricane recovery benefits would be allowed as a
deduction on the Louisiana return.
Example 6: Taxpayer sustained a casualty loss in 2005 in the amount of $52,000 that was
claimed on Taxpayers federal tax return. In 2007, Taxpayer receives $55,000 in hurricane
recovery benefits and $10,000 in insurance settlement proceeds. On the 2007 federal return,
$52,000 is taxable. Hurricane recovery benefits are deemed included in federal adjusted gross
income prior to insurance proceeds, so a deduction of $52,000 is allowed on the Louisiana
return.
Cynthia Bridges
Secretary