Thousands of Hurricane Victims Owe Back Taxes

About 80,000 (five percent) of the 1.5 million victims of Hurricanes Katrina and Rita who received disaster assistance owe a combined total of over $700 million in unpaid federal taxes, according to an investigation conducted by the Government Accountability Office (GAO). The actual total may be even higher, because the GAO limited the scope of its investigation to tax debts confirmed for tax years prior to 2005.

According to the Federal Emergency Management Agency (FEMA), who handed out the recovery funds, there is no law or federal regulation requiring them to pre-screen disaster recovery applicants for outstanding tax debts.

The GAO report (.pdf) focused on five hurricane recovery assistance recipients (two doctors, a contractor, an attorney and a petroleum entrepreneur) who had run up federal tax debts ranging from $400,000 to over $2 million before the storms. Some of these individuals had failed to file tax returns for several years, reported the GAO, and had attempted to use sophisticated financial maneuvers to avoid paying taxes.

More FEMA Problems Found: The investigation also revealed what GAO called "significant control weaknesses" in FEMA's efforts to prevent paying fraudulent disaster recovery claims. In "several" cases, FEMA distributed disaster recovery funds to the tax-delinquent recipients without inspecting the claimed damage. In other cases, FEMA distributed the funds, only to find out later that no damage had occurred.

Also See: FEMA Lost Tens of Millions in Katrina Fraud, GAO Finds