Lessons learned: CPAs share tips on disaster recovery.

• Author: Ascierto, Jerry
• Position: Certified Public Accountants

ON OCT. 19, 1991, CPA Anna Maria Galdieri took a picture of her friend's children on their porch in the Oakland Hills. Galdieri and the children had just finished making Halloween costumes.

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The next day, the house was destroyed by the worst urban firestorm California had known: 3,000 homes and 1,600 square acres were destroyed.

In October 2003, 750,000 acres and 2,800 homes were destroyed in the Southern California firestorms. And because of the work done to help the Oakland fire victims, those affected by the Southern California fires have clear guidance on many of the issues that face them in the rebuilding process.

Galdieri, an Oakland-based sole practitioner and a natural disaster victim advocate, lectured, wrote articles and talked with the IRS and local members of the U.S. Senate and House of Representatives following the Oakland fires to enact changes to the income tax law and then garner clarification of what that law meant.

For the CPA assisting disaster victims, there are several considerations--from helping victims remember the contents of their homes to disaster-related tax issues--that may go overlooked in the emotion and panic following a natural disaster.

"After a disaster, dealing with the recovery process could be a disaster in itself," Galdieri says.

ENACTMENT OF SECTION 1033 (H)(1)

The enactment of Section 1033 (h)(1) and the issuance of several IRS Revenue Rulings eased the particular challenges victims faced as they rebuilt their lives following a natural disaster.

Galdieri recounts one of her first community meetings, where a firestorm victim stood up and asked her why the insurance money received for his household contents was subject to tax. That comment was the impetus for what became Sec. 1033 (h)(1), enacted in August 1993 and effective for all federally declared disasters occurring after Aug. 31, 1991.

"The Oakland firestorm community ... came together with a common purpose--informing each other about the insurance recovery process and working to enact changes that made a big difference to the rebuilding of communities and homes," Galdieri says.

Prior to Sec. 1033(h)(1), disaster victims faced taxation of their contents money if it was used to rebuild their homes. Sec. 1033(h)(1) exempts proceeds received for unscheduled personal property from income, and treats proceeds received for real and scheduled personal property as a common pool of funds.

"These provisions allow disaster victims to...