The Internal Revenue Service said victims of Hurricane Katrina will have until Jan. 3, 2006 to file any returns, pay any taxes, or make any deposits due -- extending an earlier announced reprieve.

The measure applies to any return, tax payment or tax deposit with an original or extended due date that fell on or after Aug. 29, 2005 in areas of Louisiana, Mississippi, Alabama and Florida hit by the storm. Any disaster area taxpayer who receives a penalty notice from the IRS should call the toll-free number on the notice to receive penalty abatement.

The Department of the Treasury and IRS officials also announced a special relief intended to support leave-based donation programs to aid victims who have suffered from the extraordinary destruction caused by Katrina. Under the programs, employees donate their vacation, sick or personal leave in exchange for employer cash payments made to qualified tax-exempt organizations providing relief for the victims.

"The scale of this catastrophe is unprecedented and the generosity of the American people is extremely important to Katrina's victims," said Treasury Secretary John Snow, in a statement. "America's tradition of generosity, of helping our neighbors, is one the most important advantages we have in terms of recovering from this disaster."

Under Notice 2005-68, employees can forgo leave in exchange for employer cash payments made before Jan. 1, 2007, to qualified tax-exempt organizations providing relief.  Employees do not have to include the donated leave in their income and employers will be permitted to deduct the amount of the cash payment.  

The IRS also said it would provide issuers of tax exempt bonds affected by Katrina with additional time to file certain information returns and arbitrage rebate returns. Affected issuers who have an original filing or payment deadline between Aug. 29, 2005, and Dec. 31, 2005, have until Jan. 3, 2006, to file the return and make any payment due with the return. Tax-exempt bond issuers entitled to the extension should write, "Hurricane Katrina Relief.  See Announcement 2005-69," in red ink at the top of their return.

More information regarding disaster relief is available on the IRS Web site, www.IRS.gov, or by calling the toll-free disaster hotline at (866) 562-5227.

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