[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5063 Reported in Senate (RS)]






                                                       Calendar No. 603
107th CONGRESS
  2d Session
                                H. R. 5063

                          [Report No. 107-283]


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                July 11 (legislative day, July 10), 2002

     Received; read twice and referred to the Committee on Finance

                           September 17, 2002

Reported by Mr. Baucus, with an amendment and an amendment to the title
 [Strike out all after the enacting clause and insert the part printed 
                               in italic]

_______________________________________________________________________

                                 AN ACT


 
 To amend the Internal Revenue Code of 1986 to provide a special rule 
 for members of the uniformed services in determining the exclusion of 
  gain from the sale of a principal residence and to restore the tax 
 exempt status of death gratuity payments to members of the uniformed 
                               services.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

<DELETED>SECTION 1. SHORT TITLE.</DELETED>

<DELETED>    This Act may be cited as the ``Armed Forces Tax Fairness 
Act of 2002''.</DELETED>

<DELETED>SEC. 2. SPECIAL RULE FOR MEMBERS OF UNIFORMED SERVICES IN 
              DETERMINING EXCLUSION OF GAIN FROM SALE OF PRINCIPAL 
              RESIDENCE.</DELETED>

<DELETED>    (a) In General.--Subsection (d) of section 121 of the 
Internal Revenue Code of 1986 (relating to exclusion of gain from sale 
of principal residence) is amended by adding at the end the following 
new paragraph:</DELETED>
        <DELETED>    ``(9) Members of uniformed services.--</DELETED>
                <DELETED>    ``(A) In general.--At the election of an 
                individual with respect to a property, the running of 
                the 5-year period described in subsection (a) with 
                respect to such property shall be suspended during any 
                period that such individual or such individual's spouse 
                is serving on qualified official extended duty as a 
                member of the uniformed services.</DELETED>
                <DELETED>    ``(B) Maximum period of suspension.--The 
                5-year period described in subsection (a) shall not be 
                extended more than 5 years by reason of subparagraph 
                (A).</DELETED>
                <DELETED>    ``(C) Qualified official extended duty.--
                For purposes of this paragraph--</DELETED>
                        <DELETED>    ``(i) In general.--The term 
                        `qualified official extended duty' means any 
                        extended duty while serving at a duty station 
                        which is at least 250 miles from such property 
                        or while residing under Government orders in 
                        Government quarters.</DELETED>
                        <DELETED>    ``(ii) Uniformed services.--The 
                        term `uniformed services' has the meaning given 
                        such term by section 101(a)(5) of title 10, 
                        United States Code, as in effect on the date of 
                        the enactment of this paragraph.</DELETED>
                        <DELETED>    ``(iii) Extended duty.--The term 
                        `extended duty' means any period of active duty 
                        pursuant to a call or order to such duty for a 
                        period in excess of 180 days or for an 
                        indefinite period.</DELETED>
                <DELETED>    ``(D) Special rules relating to 
                election.--</DELETED>
                        <DELETED>    ``(i) Election limited to 1 
                        property at a time.--An election under 
                        subparagraph (A) with respect to any property 
                        may not be made if such an election is in 
                        effect with respect to any other 
                        property.</DELETED>
                        <DELETED>    ``(ii) Revocation of election.--An 
                        election under subparagraph (A) may be revoked 
                        at any time.''.</DELETED>
<DELETED>    (b) Effective Date.--The amendment made by this section 
shall apply to elections made after the date of the enactment of this 
Act for suspended periods under section 121(d)(9) of the Internal 
Revenue Code of 1986 (as added by this section) beginning after such 
date.</DELETED>

<DELETED>SEC. 3. RESTORATION OF FULL EXCLUSION FROM GROSS INCOME OF 
              DEATH GRATUITY PAYMENT.</DELETED>

<DELETED>    (a) In General.--Subsection (b)(3) of section 134 of the 
Internal Revenue Code of 1986 (relating to certain military benefits) 
is amended by adding at the end the following new 
subparagraph:</DELETED>
                <DELETED>    ``(C) Exception for death gratuity 
                adjustments made by law.--Subparagraph (A) shall not 
                apply to any adjustment to the amount of death gratuity 
                payable under chapter 75 of title 10, United States 
                Code, which is pursuant to a provision of law enacted 
                before December 31, 1991.''.</DELETED>
<DELETED>    (b) Conforming Amendment.--Subparagraph (A) of section 
134(b)(3) of such Code is amended by striking ``subparagraph (B)'' and 
inserting ``subparagraphs (B) and (C)''.</DELETED>
<DELETED>    (c) Effective Date.--The amendments made by this section 
shall apply with respect to deaths occurring after September 10, 
2001.</DELETED>

SECTION 1. SHORT TITLE; ETC.

    (a) Short Title.--This Act may be cited as the ``Armed Forces Tax 
Fairness Act of 2002''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; etc.

          TITLE I--IMPROVING TAX EQUITY FOR MILITARY PERSONNEL

Sec. 101. Exclusion from gross income of certain death gratuity 
                            payments.
Sec. 102. Exclusion of gain from sale of a principal residence by a 
                            member of the uniformed services or the 
                            Foreign Service.
Sec. 103. Exclusion for amounts received under Department of Defense 
                            Homeowners Assistance Program.
Sec. 104. Expansion of combat zone filing rules to contingency 
                            operations.
Sec. 105. Above-the-line deduction for overnight travel expenses of 
                            National Guard and Reserve members.
Sec. 106. Modification of membership requirement for exemption from tax 
                            for certain veterans' organizations.
Sec. 107. Clarification of treatment of certain dependent care 
                            assistance programs.

                       TITLE II--OTHER PROVISIONS

Sec. 201. Revision of tax rules on expatriation.
Sec. 202. Extension of IRS user fees.

          TITLE I--IMPROVING TAX EQUITY FOR MILITARY PERSONNEL

SEC. 101. EXCLUSION FROM GROSS INCOME OF CERTAIN DEATH GRATUITY 
              PAYMENTS.

    (a) In General.--Subsection (b)(3) of section 134 (relating to 
certain military benefits) is amended by adding at the end the 
following new subparagraph:
                    ``(C) Exception for death gratuity adjustments made 
                by law.--Subparagraph (A) shall not apply to any 
                adjustment to the amount of death gratuity payable 
                under chapter 75 of title 10, United States Code, which 
                is pursuant to a provision of law enacted after 
                September 9, 1986.''.
    (b) Conforming Amendment.--Subparagraph (A) of section 134(b)(3) is 
amended by striking ``subparagraph (B)'' and inserting ``subparagraphs 
(B) and (C)''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to deaths occurring after September 10, 2001.

SEC. 102. EXCLUSION OF GAIN FROM SALE OF A PRINCIPAL RESIDENCE BY A 
              MEMBER OF THE UNIFORMED SERVICES OR THE FOREIGN SERVICE.

    (a) In General.--Subsection (d) of section 121 (relating to 
exclusion of gain from sale of principal residence) is amended by 
adding at the end the following new paragraph:
            ``(9) Members of uniformed services and foreign service.--
                    ``(A) In general.--At the election of an individual 
                with respect to a property, the running of the 5-year 
                period described in subsection (a) with respect to such 
                property shall be suspended during any period that such 
                individual or such individual's spouse is serving on 
                qualified official extended duty as a member of the 
                uniformed services or of the Foreign Service of the 
                United States.
                    ``(B) Maximum period of suspension.--The 5-year 
                period described in subsection (a) shall not be 
                extended more than 10 years by reason of subparagraph 
                (A).
                    ``(C) Qualified official extended duty.--For 
                purposes of this paragraph--
                            ``(i) In general.--The term `qualified 
                        official extended duty' means any extended duty 
                        while serving at a duty station which is at 
                        least 50 miles from such property or while 
                        residing under Government orders in Government 
                        quarters.
                            ``(ii) Uniformed services.--The term 
                        `uniformed services' has the meaning given such 
                        term by section 101(a)(5) of title 10, United 
                        States Code, as in effect on the date of the 
                        enactment of this paragraph.
                            ``(iii) Foreign service of the united 
                        states.--The term `member of the Foreign 
                        Service of the United States' has the meaning 
                        given the term `member of the Service' by 
                        paragraph (1), (2), (3), (4), or (5) of section 
                        103 of the Foreign Service Act of 1980.
                            ``(iv) Extended duty.--The term `extended 
                        duty' means any period of duty pursuant to a 
                        call or order to such duty for a period in 
                        excess of 90 days or for an indefinite period.
                    ``(D) Special rules relating to election.--
                            ``(i) Election limited to 1 property at a 
                        time.--An election under subparagraph (A) with 
                        respect to any property may not be made if such 
                        an election is in effect with respect to any 
                        other property.
                            ``(ii) Revocation of election.--An election 
                        under subparagraph (A) may be revoked at any 
                        time.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to elections made with respect to sales and exchanges occurring after 
the date of the enactment of this Act.

SEC. 103. EXCLUSION FOR AMOUNTS RECEIVED UNDER DEPARTMENT OF DEFENSE 
              HOMEOWNERS ASSISTANCE PROGRAM.

    (a) In General.--Section 132(a) (relating to the exclusion from 
gross income of certain fringe benefits) is amended by striking ``or'' 
at the end of paragraph (6), by striking the period at the end of 
paragraph (7) and inserting ``, or'' and by adding at the end the 
following new paragraph:
            ``(8) qualified military base realignment and closure 
        fringe.''.
    (b) Qualified Military Base Realignment and Closure Fringe.--
Section 132 is amended by redesignating subsection (n) as subsection 
(o) and by inserting after subsection (m) the following new subsection:
    ``(n) Qualified Military Base Realignment and Closure Fringe.--For 
purposes of this section, the term `qualified military base realignment 
and closure fringe' means 1 or more payments under the authority of 
section 1013 of the Demonstration Cities and Metropolitan Development 
Act of 1966 (42 U.S.C. 3374) to offset the adverse effects on housing 
values as a result of a military base realignment or closure.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to payments made after the date of the enactment of this Act.

SEC. 104. EXPANSION OF COMBAT ZONE FILING RULES TO CONTINGENCY 
              OPERATIONS.

    (a) In General.--Section 7508(a) (relating to time for performing 
certain acts postponed by reason of service in combat zone) is 
amended--
            (1) by inserting ``or when deployed outside the United 
        States away from the individual's permanent duty station while 
        participating in an operation designated by the Secretary of 
        Defense as a contingency operation (as defined in section 
        101(a)(13) of title 10, United States Code) or which became 
        such a contingency operation by operation of law'' after 
        ``section 112'',
            (2) by inserting in the first sentence ``or at any time 
        during the period of such contingency operation'' after ``for 
        purposes of such section'',
            (3) by inserting ``or operation'' after ``such an area'', 
        and
            (4) by inserting ``or operation'' after ``such area''.
    (b) Conforming Amendments.--
            (1) Section 7508(d) is amended by inserting ``or 
        contingency operation'' after ``area''.
            (2) The heading for section 7508 is amended by inserting 
        ``or contingency operation'' after ``combat zone''.
            (3) The item relating to section 7508 in the table of 
        sections for chapter 77 is amended by inserting ``or 
        contingency operation'' after ``combat zone''.
    (c) Effective Date.--The amendments made by this section shall 
apply to any period for performing an act which has not expired before 
the date of the enactment of this Act.

SEC. 105. ABOVE-THE-LINE DEDUCTION FOR OVERNIGHT TRAVEL EXPENSES OF 
              NATIONAL GUARD AND RESERVE MEMBERS.

    (a) Deduction Allowed.--Section 162 (relating to certain trade or 
business expenses) is amended by redesignating subsection (p) as 
subsection (q) and inserting after subsection (o) the following new 
subsection:
    ``(p) Treatment of Expenses of Members of Reserve Component of 
Armed Forces of the United States.--For purposes of subsection (a)(2), 
in the case of an individual who performs services as a member of a 
reserve component of the Armed Forces of the United States at any time 
during the taxable year, such individual shall be deemed to be away 
from home in the pursuit of a trade or business for any period during 
which such individual is away from home in connection with such 
service.''.
    (b) Deduction Allowed Whether or Not Taxpayer Elects To Itemize.--
Section 62(a)(2) (relating to certain trade and business deductions of 
employees) is amended by adding at the end the following new 
subparagraph:
                    ``(E) Certain expenses of members of reserve 
                components of the armed forces of the united states.--
                The deductions allowed by section 162 which consist of 
                expenses, in amounts not in excess of the rates for 
                travel expenses (including per diem in lieu of 
                subsistence) authorized for employees of agencies under 
                subchapter I of chapter 57 of title 5, United States 
                Code, paid or incurred by the taxpayer in connection 
                with the performance of services by such taxpayer as a 
                member of a reserve component of the Armed Forces of 
                the United States.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred in taxable years beginning after 
December 31, 2001.

SEC. 106. MODIFICATION OF MEMBERSHIP REQUIREMENT FOR EXEMPTION FROM TAX 
              FOR CERTAIN VETERANS' ORGANIZATIONS.

    (a) In General.--Subparagraph (B) of section 501(c)(19) (relating 
to list of exempt organizations) is amended by striking ``or widowers'' 
and inserting ``, widowers, or ancestors or lineal descendants''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 107. CLARIFICATION OF THE TREATMENT OF CERTAIN DEPENDENT CARE 
              ASSISTANCE PROGRAMS.

    (a) In General.--Section 134(b) (defining qualified military 
benefit) is amended by adding at the end the following new paragraph:
            ``(4) Clarification of certain benefits.--For purposes of 
        paragraph (1), such term includes any dependent care assistance 
        program for any individual described in paragraph (1)(A).''.
    (b) Conforming Amendments.--
            (1) Section 134(b)(3)(A) is amended by inserting ``and 
        paragraph (4)'' after ``subparagraph (B)''.
            (2) Section 3121(a)(18) is amended by striking ``or 129'' 
        and inserting ``, 129, or 134(b)(4)''.
            (3) Section 3306(b)(13) is amended by striking ``or 129'' 
        and inserting ``, 129, or 134(b)(4)''.
            (4) Section 3401(a)(18) is amended by striking ``or 129'' 
        and inserting ``, 129, or 134(b)(4)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.
    (d) No Inference.--No inference may be drawn from the amendments 
made by this section with respect to the tax treatment of any amounts 
under the program described in section 134(b)(4) of the Internal 
Revenue Code of 1986 (as added by this section) for any taxable year 
beginning before January 1, 2002.

                       TITLE II--OTHER PROVISIONS

SEC. 201. REVISION OF TAX RULES ON EXPATRIATION.

    (a) In General.--Subpart A of part II of subchapter N of chapter 1 
is amended by inserting after section 877 the following new section:

``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

    ``(a) General Rules.--For purposes of this subtitle--
            ``(1) Mark to market.--Except as provided in subsections 
        (d) and (f), all property of a covered expatriate to whom this 
        section applies shall be treated as sold on the day before the 
        expatriation date for its fair market value.
            ``(2) Recognition of gain or loss.--In the case of any sale 
        under paragraph (1)--
                    ``(A) notwithstanding any other provision of this 
                title, any gain arising from such sale shall be taken 
                into account for the taxable year of the sale, and
                    ``(B) any loss arising from such sale shall be 
                taken into account for the taxable year of the sale to 
                the extent otherwise provided by this title, except 
                that section 1091 shall not apply to any such loss.
        Proper adjustment shall be made in the amount of any gain or 
        loss subsequently realized for gain or loss taken into account 
        under the preceding sentence.
            ``(3) Exclusion for certain gain.--
                    ``(A) In general.--The amount which, but for this 
                paragraph, would be includible in the gross income of 
                any individual by reason of this section shall be 
                reduced (but not below zero) by $600,000. For purposes 
                of this paragraph, allocable expatriation gain taken 
                into account under subsection (f)(2) shall be treated 
                in the same manner as an amount required to be 
                includible in gross income.
                    ``(B) Cost-of-living adjustment.--
                            ``(i) In general.--In the case of an 
                        expatriation date occurring in any calendar 
                        year after 2002, the $600,000 amount under 
                        subparagraph (A) shall be increased by an 
                        amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for such calendar year, 
                                determined by substituting `calendar 
                                year 2001' for `calendar year 1992' in 
                                subparagraph (B) thereof.
                            ``(ii) Rounding rules.--If any amount after 
                        adjustment under clause (i) is not a multiple 
                        of $1,000, such amount shall be rounded to the 
                        next lower multiple of $1,000.
            ``(4) Election to continue to be taxed as united states 
        citizen.--
                    ``(A) In general.--If a covered expatriate elects 
                the application of this paragraph--
                            ``(i) this section (other than this 
                        paragraph and subsection (i)) shall not apply 
                        to the expatriate, but
                            ``(ii) in the case of property to which 
                        this section would apply but for such election, 
                        the expatriate shall be subject to tax under 
                        this title in the same manner as if the 
                        individual were a United States citizen.
                    ``(B) Requirements.--Subparagraph (A) shall not 
                apply to an individual unless the individual--
                            ``(i) provides security for payment of tax 
                        in such form and manner, and in such amount, as 
                        the Secretary may require,
                            ``(ii) consents to the waiver of any right 
                        of the individual under any treaty of the 
                        United States which would preclude assessment 
                        or collection of any tax which may be imposed 
                        by reason of this paragraph, and
                            ``(iii) complies with such other 
                        requirements as the Secretary may prescribe.
                    ``(C) Election.--An election under subparagraph (A) 
                shall apply to all property to which this section would 
                apply but for the election and, once made, shall be 
                irrevocable. Such election shall also apply to property 
                the basis of which is determined in whole or in part by 
                reference to the property with respect to which the 
                election was made.
    ``(b) Election To Defer Tax.--
            ``(1) In general.--If the taxpayer elects the application 
        of this subsection with respect to any property treated as sold 
        by reason of subsection (a), the payment of the additional tax 
        attributable to such property shall be postponed until the due 
        date of the return for the taxable year in which such property 
        is disposed of (or, in the case of property disposed of in a 
        transaction in which gain is not recognized in whole or in 
        part, until such other date as the Secretary may prescribe).
            ``(2) Determination of tax with respect to property.--For 
        purposes of paragraph (1), the additional tax attributable to 
        any property is an amount which bears the same ratio to the 
        additional tax imposed by this chapter for the taxable year 
        solely by reason of subsection (a) as the gain taken into 
        account under subsection (a) with respect to such property 
        bears to the total gain taken into account under subsection (a) 
        with respect to all property to which subsection (a) applies.
            ``(3) Termination of postponement.--No tax may be postponed 
        under this subsection later than the due date for the return of 
        tax imposed by this chapter for the taxable year which includes 
        the date of death of the expatriate (or, if earlier, the time 
        that the security provided with respect to the property fails 
        to meet the requirements of paragraph (4), unless the taxpayer 
        corrects such failure within the time specified by the 
        Secretary).
            ``(4) Security.--
                    ``(A) In general.--No election may be made under 
                paragraph (1) with respect to any property unless 
                adequate security is provided to the Secretary with 
                respect to such property.
                    ``(B) Adequate security.--For purposes of 
                subparagraph (A), security with respect to any property 
                shall be treated as adequate security if--
                            ``(i) it is a bond in an amount equal to 
                        the deferred tax amount under paragraph (2) for 
                        the property, or
                            ``(ii) the taxpayer otherwise establishes 
                        to the satisfaction of the Secretary that the 
                        security is adequate.
            ``(5) Waiver of certain rights.--No election may be made 
        under paragraph (1) unless the taxpayer consents to the waiver 
        of any right under any treaty of the United States which would 
        preclude assessment or collection of any tax imposed by reason 
        of this section.
            ``(6) Elections.--An election under paragraph (1) shall 
        only apply to property described in the election and, once 
        made, is irrevocable. An election may be made under paragraph 
        (1) with respect to an interest in a trust with respect to 
        which gain is required to be recognized under subsection 
        (f)(1).
            ``(7) Interest.--For purposes of section 6601--
                    ``(A) the last date for the payment of tax shall be 
                determined without regard to the election under this 
                subsection, and
                    ``(B) section 6621(a)(2) shall be applied by 
                substituting `5 percentage points' for `3 percentage 
                points' in subparagraph (B) thereof.
    ``(c) Covered Expatriate.--For purposes of this section--
            ``(1) In general.--Except as provided in paragraph (2), the 
        term `covered expatriate' means an expatriate.
            ``(2) Exceptions.--An individual shall not be treated as a 
        covered expatriate if--
                    ``(A) the individual--
                            ``(i) became at birth a citizen of the 
                        United States and a citizen of another country 
                        and, as of the expatriation date, continues to 
                        be a citizen of, and is taxed as a resident of, 
                        such other country, and
                            ``(ii) has not been a resident of the 
                        United States (as defined in section 
                        7701(b)(1)(A)(ii)) during the 5 taxable years 
                        ending with the taxable year during which the 
                        expatriation date occurs, or
                    ``(B)(i) the individual's relinquishment of United 
                States citizenship occurs before such individual 
                attains age 18\1/2\, and
                    ``(ii) the individual has been a resident of the 
                United States (as so defined) for not more than 5 
                taxable years before the date of relinquishment.
    ``(d) Exempt Property; Special Rules for Pension Plans.--
            ``(1) Exempt property.--This section shall not apply to the 
        following:
                    ``(A) United states real property interests.--Any 
                United States real property interest (as defined in 
                section 897(c)(1)), other than stock of a United States 
                real property holding corporation which does not, on 
                the day before the expatriation date, meet the 
                requirements of section 897(c)(2).
                    ``(B) Specified property.--Any property or interest 
                in property not described in subparagraph (A) which the 
                Secretary specifies in regulations.
            ``(2) Special rules for certain retirement plans.--
                    ``(A) In general.--If a covered expatriate holds on 
                the day before the expatriation date any interest in a 
                retirement plan to which this paragraph applies--
                            ``(i) such interest shall not be treated as 
                        sold for purposes of subsection (a)(1), but
                            ``(ii) an amount equal to the present value 
                        of the expatriate's nonforfeitable accrued 
                        benefit shall be treated as having been 
                        received by such individual on such date as a 
                        distribution under the plan.
                    ``(B) Treatment of subsequent distributions.--In 
                the case of any distribution on or after the 
                expatriation date to or on behalf of the covered 
                expatriate from a plan from which the expatriate was 
                treated as receiving a distribution under subparagraph 
                (A), the amount otherwise includible in gross income by 
                reason of the subsequent distribution shall be reduced 
                by the excess of the amount includible in gross income 
                under subparagraph (A) over any portion of such amount 
                to which this subparagraph previously applied.
                    ``(C) Treatment of subsequent distributions by 
                plan.--For purposes of this title, a retirement plan to 
                which this paragraph applies, and any person acting on 
                the plan's behalf, shall treat any subsequent 
                distribution described in subparagraph (B) in the same 
                manner as such distribution would be treated without 
                regard to this paragraph.
                    ``(D) Applicable plans.--This paragraph shall apply 
                to--
                            ``(i) any qualified retirement plan (as 
                        defined in section 4974(c)),
                            ``(ii) an eligible deferred compensation 
                        plan (as defined in section 457(b)) of an 
                        eligible employer described in section 
                        457(e)(1)(A), and
                            ``(iii) to the extent provided in 
                        regulations, any foreign pension plan or 
                        similar retirement arrangements or programs.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Expatriate.--The term `expatriate' means--
                    ``(A) any United States citizen who relinquishes 
                citizenship, and
                    ``(B) any long-term resident of the United States 
                who--
                            ``(i) ceases to be a lawful permanent 
                        resident of the United States (within the 
                        meaning of section 7701(b)(6)), or
                            ``(ii) commences to be treated as a 
                        resident of a foreign country under the 
                        provisions of a tax treaty between the United 
                        States and the foreign country and who does not 
                        waive the benefits of such treaty applicable to 
                        residents of the foreign country.
            ``(2) Expatriation date.--The term `expatriation date' 
        means--
                    ``(A) the date an individual relinquishes United 
                States citizenship, or
                    ``(B) in the case of a long-term resident of the 
                United States, the date of the event described in 
                clause (i) or (ii) of paragraph (1)(B).
            ``(3) Relinquishment of citizenship.--A citizen shall be 
        treated as relinquishing United States citizenship on the 
        earliest of--
                    ``(A) the date the individual renounces such 
                individual's United States nationality before a 
                diplomatic or consular officer of the United States 
                pursuant to paragraph (5) of section 349(a) of the 
                Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),
                    ``(B) the date the individual furnishes to the 
                United States Department of State a signed statement of 
                voluntary relinquishment of United States nationality 
                confirming the performance of an act of expatriation 
                specified in paragraph (1), (2), (3), or (4) of section 
                349(a) of the Immigration and Nationality Act (8 U.S.C. 
                1481(a)(1)-(4)),
                    ``(C) the date the United States Department of 
                State issues to the individual a certificate of loss of 
                nationality, or
                    ``(D) the date a court of the United States cancels 
                a naturalized citizen's certificate of naturalization.
        Subparagraph (A) or (B) shall not apply to any individual 
        unless the renunciation or voluntary relinquishment is 
        subsequently approved by the issuance to the individual of a 
        certificate of loss of nationality by the United States 
        Department of State.
            ``(4) Long-term resident.--The term `long-term resident' 
        has the meaning given to such term by section 877(e)(2).
    ``(f) Special Rules Applicable to Beneficiaries' Interests in 
Trust.--
            ``(1) In general.--Except as provided in paragraph (2), if 
        an individual is determined under paragraph (3) to hold an 
        interest in a trust on the day before the expatriation date--
                    ``(A) the individual shall not be treated as having 
                sold such interest,
                    ``(B) such interest shall be treated as a separate 
                share in the trust, and
                    ``(C)(i) such separate share shall be treated as a 
                separate trust consisting of the assets allocable to 
                such share,
                    ``(ii) the separate trust shall be treated as 
                having sold its assets on the day before the 
                expatriation date for their fair market value and as 
                having distributed all of its assets to the individual 
                as of such time, and
                    ``(iii) the individual shall be treated as having 
                recontributed the assets to the separate trust.
        Subsection (a)(2) shall apply to any income, gain, or loss of 
        the individual arising from a distribution described in 
        subparagraph (C)(ii). In determining the amount of such 
        distribution, proper adjustments shall be made for liabilities 
of the trust allocable to an individual's share in the trust.
            ``(2) Special rules for interests in qualified trusts.--
                    ``(A) In general.--If the trust interest described 
                in paragraph (1) is an interest in a qualified trust--
                            ``(i) paragraph (1) and subsection (a) 
                        shall not apply, and
                            ``(ii) in addition to any other tax imposed 
                        by this title, there is hereby imposed on each 
                        distribution with respect to such interest a 
                        tax in the amount determined under subparagraph 
                        (B).
                    ``(B) Amount of tax.--The amount of tax under 
                subparagraph (A)(ii) shall be equal to the lesser of--
                            ``(i) the highest rate of tax imposed by 
                        section 1(e) for the taxable year which 
                        includes the day before the expatriation date, 
                        multiplied by the amount of the distribution, 
                        or
                            ``(ii) the balance in the deferred tax 
                        account immediately before the distribution 
                        determined without regard to any increases 
                        under subparagraph (C)(ii) after the 30th day 
                        preceding the distribution.
                    ``(C) Deferred tax account.--For purposes of 
                subparagraph (B)(ii)--
                            ``(i) Opening balance.--The opening balance 
                        in a deferred tax account with respect to any 
                        trust interest is an amount equal to the tax 
                        which would have been imposed on the allocable 
                        expatriation gain with respect to the trust 
                        interest if such gain had been included in 
                        gross income under subsection (a).
                            ``(ii) Increase for interest.--The balance 
                        in the deferred tax account shall be increased 
                        by the amount of interest determined (on the 
                        balance in the account at the time the interest 
                        accrues), for periods after the 90th day after 
                        the expatriation date, by using the rates and 
                        method applicable under section 6621 for 
                        underpayments of tax for such periods, except 
                        that section 6621(a)(2) shall be applied by 
                        substituting `5 percentage points' for `3 
                        percentage points' in subparagraph (B) thereof.
                            ``(iii) Decrease for taxes previously 
                        paid.--The balance in the tax deferred account 
                        shall be reduced--
                                    ``(I) by the amount of taxes 
                                imposed by subparagraph (A) on any 
                                distribution to the person holding the 
                                trust interest, and
                                    ``(II) in the case of a person 
                                holding a nonvested interest, to the 
                                extent provided in regulations, by the 
                                amount of taxes imposed by subparagraph 
                                (A) on distributions from the trust 
                                with respect to nonvested interests not 
                                held by such person.
                    ``(D) Allocable expatriation gain.--For purposes of 
                this paragraph, the allocable expatriation gain with 
                respect to any beneficiary's interest in a trust is the 
                amount of gain which would be allocable to such 
                beneficiary's vested and nonvested interests in the 
                trust if the beneficiary held directly all assets 
                allocable to such interests.
                    ``(E) Tax deducted and withheld.--
                            ``(i) In general.--The tax imposed by 
                        subparagraph (A)(ii) shall be deducted and 
                        withheld by the trustees from the distribution 
                        to which it relates.
                            ``(ii) Exception where failure to waive 
                        treaty rights.--If an amount may not be 
                        deducted and withheld under clause (i) by 
                        reason of the distributee failing to waive any 
                        treaty right with respect to such 
                        distribution--
                                    ``(I) the tax imposed by 
                                subparagraph (A)(ii) shall be imposed 
                                on the trust and each trustee shall be 
                                personally liable for the amount of 
                                such tax, and
                                    ``(II) any other beneficiary of the 
                                trust shall be entitled to recover from 
                                the distributee the amount of such tax 
                                imposed on the other beneficiary.
                    ``(F) Disposition.--If a trust ceases to be a 
                qualified trust at any time, a covered expatriate 
                disposes of an interest in a qualified trust, or a 
                covered expatriate holding an interest in a qualified 
                trust dies, then, in lieu of the tax imposed by 
                subparagraph (A)(ii), there is hereby imposed a tax 
                equal to the lesser of--
                            ``(i) the tax determined under paragraph 
                        (1) as if the day before the expatriation date 
                        were the date of such cessation, disposition, 
                        or death, whichever is applicable, or
                            ``(ii) the balance in the tax deferred 
                        account immediately before such date.
                Such tax shall be imposed on the trust and each trustee 
                shall be personally liable for the amount of such tax 
                and any other beneficiary of the trust shall be 
                entitled to recover from the covered expatriate or the 
                estate the amount of such tax imposed on the other 
                beneficiary.
                    ``(G) Definitions and special rules.--For purposes 
                of this paragraph--
                            ``(i) Qualified trust.--The term `qualified 
                        trust' means a trust which is described in 
                        section 7701(a)(30)(E).
                            ``(ii) Vested interest.--The term `vested 
                        interest' means any interest which, as of the 
                        day before the expatriation date, is vested in 
                        the beneficiary.
                            ``(iii) Nonvested interest.--The term 
                        `nonvested interest' means, with respect to any 
                        beneficiary, any interest in a trust which is 
                        not a vested interest. Such interest shall be 
                        determined by assuming the maximum exercise of 
                        discretion in favor of the beneficiary and the 
                        occurrence of all contingencies in favor of the 
                        beneficiary.
                            ``(iv) Adjustments.--The Secretary may 
                        provide for such adjustments to the bases of 
                        assets in a trust or a deferred tax account, 
                        and the timing of such adjustments, in order to 
                        ensure that gain is taxed only once.
                            ``(v) Coordination with retirement plan 
                        rules.--This subsection shall not apply to an 
                        interest in a trust which is part of a 
                        retirement plan to which subsection (d)(2) 
                        applies.
            ``(3) Determination of beneficiaries' interest in trust.--
                    ``(A) Determinations under paragraph (1).--For 
                purposes of paragraph (1), a beneficiary's interest in 
                a trust shall be based upon all relevant facts and 
                circumstances, including the terms of the trust 
                instrument and any letter of wishes or similar 
                document, historical patterns of trust distributions, 
                and the existence of and functions performed by a trust 
protector or any similar adviser.
                    ``(B) Other determinations.--For purposes of this 
                section--
                            ``(i) Constructive ownership.--If a 
                        beneficiary of a trust is a corporation, 
                        partnership, trust, or estate, the 
                        shareholders, partners, or beneficiaries shall 
                        be deemed to be the trust beneficiaries for 
                        purposes of this section.
                            ``(ii) Taxpayer return position.--A 
                        taxpayer shall clearly indicate on its income 
                        tax return--
                                    ``(I) the methodology used to 
                                determine that taxpayer's trust 
                                interest under this section, and
                                    ``(II) if the taxpayer knows (or 
                                has reason to know) that any other 
                                beneficiary of such trust is using a 
                                different methodology to determine such 
                                beneficiary's trust interest under this 
                                section.
    ``(g) Termination of Deferrals, Etc.--In the case of any covered 
expatriate, notwithstanding any other provision of this title--
            ``(1) any period during which recognition of income or gain 
        is deferred shall terminate on the day before the expatriation 
        date, and
            ``(2) any extension of time for payment of tax shall cease 
        to apply on the day before the expatriation date and the unpaid 
        portion of such tax shall be due and payable at the time and in 
        the manner prescribed by the Secretary.
    ``(h) Imposition of Tentative Tax.--
            ``(1) In general.--If an individual is required to include 
        any amount in gross income under subsection (a) for any taxable 
        year, there is hereby imposed, immediately before the 
        expatriation date, a tax in an amount equal to the amount of 
        tax which would be imposed if the taxable year were a short 
        taxable year ending on the expatriation date.
            ``(2) Due date.--The due date for any tax imposed by 
        paragraph (1) shall be the 90th day after the expatriation 
        date.
            ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
        shall be treated as a payment of the tax imposed by this 
        chapter for the taxable year to which subsection (a) applies.
            ``(4) Deferral of tax.--The provisions of subsection (b) 
        shall apply to the tax imposed by this subsection to the extent 
        attributable to gain includible in gross income by reason of 
        this section.
    ``(i) Special Liens for Deferred Tax Amounts.--
            ``(1) Imposition of lien.--
                    ``(A) In general.--If a covered expatriate makes an 
                election under subsection (a)(4) or (b) which results 
                in the deferral of any tax imposed by reason of 
                subsection (a), the deferred amount (including any 
                interest, additional amount, addition to tax, 
                assessable penalty, and costs attributable to the 
                deferred amount) shall be a lien in favor of the United 
                States on all property of the expatriate located in the 
                United States (without regard to whether this section 
                applies to the property).
                    ``(B) Deferred amount.--For purposes of this 
                subsection, the deferred amount is the amount of the 
                increase in the covered expatriate's income tax which, 
                but for the election under subsection (a)(4) or (b), 
                would have occurred by reason of this section for the 
                taxable year including the expatriation date.
            ``(2) Period of lien.--The lien imposed by this subsection 
        shall arise on the expatriation date and continue until--
                    ``(A) the liability for tax by reason of this 
                section is satisfied or has become unenforceable by 
                reason of lapse of time, or
                    ``(B) it is established to the satisfaction of the 
                Secretary that no further tax liability may arise by 
                reason of this section.
            ``(3) Certain rules apply.--The rules set forth in 
        paragraphs (1), (3), and (4) of section 6324A(d) shall apply 
        with respect to the lien imposed by this subsection as if it 
        were a lien imposed by section 6324A.
    ``(j) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''.
    (b) Inclusion in Income of Gifts and Bequests Received by United 
States Citizens and Residents From Expatriates.--Section 102 (relating 
to gifts, etc. not included in gross income) is amended by adding at 
the end the following new subsection:
    ``(d) Gifts and Inheritances From Covered Expatriates.--
            ``(1) In general.--Subsection (a) shall not exclude from 
        gross income the value of any property acquired by gift, 
        bequest, devise, or inheritance from a covered expatriate after 
        the expatriation date. For purposes of this subsection, any 
        term used in this subsection which is also used in section 877A 
        shall have the same meaning as when used in section 877A.
            ``(2) Exceptions for transfers otherwise subject to estate 
        or gift tax.--Paragraph (1) shall not apply to any property if 
        either--
                    ``(A) the gift, bequest, devise, or inheritance 
                is--
                            ``(i) shown on a timely filed return of tax 
                        imposed by chapter 12 as a taxable gift by the 
                        covered expatriate, or
                            ``(ii) included in the gross estate of the 
                        covered expatriate for purposes of chapter 11 
                        and shown on a timely filed return of tax 
                        imposed by chapter 11 of the estate of the 
                        covered expatriate, or
                    ``(B) no such return was timely filed but no such 
                return would have been required to be filed even if the 
                covered expatriate were a citizen or long-term resident 
                of the United States.''.
    (c) Definition of Termination of United States Citizenship.--
Section 7701(a) is amended by adding at the end the following new 
paragraph:
            ``(48) Termination of united states citizenship.--
                    ``(A) In general.--An individual shall not cease to 
                be treated as a United States citizen before the date 
                on which the individual's citizenship is treated as 
                relinquished under section 877A(e)(3).
                    ``(B) Dual citizens.--Under regulations prescribed 
                by the Secretary, subparagraph (A) shall not apply to 
                an individual who became at birth a citizen of the 
                United States and a citizen of another country.''.
    (d) Ineligibility for Visa or Admission To United States.--
            (1) In general.--Section 212(a)(10)(E) of the Immigration 
        and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to 
        read as follows:
                    ``(E) Former citizens not in compliance with 
                expatriation revenue provisions.--Any alien who is a 
                former citizen of the United States who relinquishes 
                United States citizenship (within the meaning of 
                section 877A(e)(3) of the Internal Revenue Code of 
                1986) and who is not in compliance with section 877A of 
                such Code (relating to expatriation).''.
            (2) Availability of information.--
                    (A) In general.--Section 6103(l) (relating to 
                disclosure of returns and return information for 
                purposes other than tax administration) is amended by 
                adding at the end the following new paragraph:
            ``(18) Disclosure to deny visa or admission to certain 
        expatriates.--Upon written request of the Attorney General or 
        the Attorney General's delegate, the Secretary shall disclose 
        whether an individual is in compliance with section 877A (and 
        if not in compliance, any items of noncompliance) to officers 
        and employees of the Federal agency responsible for 
        administering section 212(a)(10)(E) of the Immigration and 
        Nationality Act solely for the purpose of, and to the extent 
        necessary in, administering such section 212(a)(10)(E).''.
                    (B) Safeguards.--Section 6103(p)(4) (relating to 
                safeguards) is amended by striking ``or (17)'' each 
                place it appears and inserting ``(17), or (18)''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to individuals who relinquish United States 
        citizenship on or after the date of the enactment of this Act.
    (e) Conforming Amendments.--
            (1) Section 877 is amended by adding at the end the 
        following new subsection:
    ``(g) Application.--This section shall not apply to an expatriate 
(as defined in section 877A(e)) whose expatriation date (as so defined) 
occurs on or after September 12, 2002.''.
            (2) Section 2107 is amended by adding at the end the 
        following new subsection:
    ``(f) Application.--This section shall not apply to any expatriate 
subject to section 877A.''.
            (3) Section 2501(a)(3) is amended by adding at the end the 
        following new subparagraph:
                    ``(F) Application.--This paragraph shall not apply 
                to any expatriate subject to section 877A.''.
            (4)(A) Paragraph (1) of section 6039G(d) is amended by 
        inserting ``or 877A'' after ``section 877''.
            (B) The second sentence of section 6039G(e) is amended by 
        inserting ``or who relinquishes United States citizenship 
        (within the meaning of section 877A(e)(3))'' after ``877(a))''.
            (C) Section 6039G(f) is amended by inserting ``or 
        877A(e)(2)(B)'' after ``877(e)(1)''.
    (f) Clerical Amendment.--The table of sections for subpart A of 
part II of subchapter N of chapter 1 is amended by inserting after the 
item relating to section 877 the following new item:

                              ``Sec. 877A. Tax responsibilities of 
                                        expatriation.''.
    (g) Effective Date.--
            (1) In general.--Except as provided in this subsection, the 
        amendments made by this section shall apply to expatriates 
        (within the meaning of section 877A(e) of the Internal Revenue 
        Code of 1986, as added by this section) whose expatriation date 
        (as so defined) occurs on or after September 12, 2002.
            (2) Gifts and bequests.--Section 102(d) of the Internal 
        Revenue Code of 1986 (as added by subsection (b)) shall apply 
        to gifts and bequests received on or after September 12, 2002, 
        from an individual or the estate of an individual whose 
        expatriation date (as so defined) occurs after such date.
            (3) Due date for tentative tax.--The due date under section 
        877A(h)(2) of the Internal Revenue Code of 1986, as added by 
        this section, shall in no event occur before the 90th day after 
        the date of the enactment of this Act.

SEC. 202. EXTENSION OF INTERNAL REVENUE SERVICE USER FEES.

    (a) In General.--Chapter 77 (relating to miscellaneous provisions) 
is amended by adding at the end the following new section:

``SEC. 7527. INTERNAL REVENUE SERVICE USER FEES.

    ``(a) General Rule.--The Secretary shall establish a program 
requiring the payment of user fees for--
            ``(1) requests to the Internal Revenue Service for ruling 
        letters, opinion letters, and determination letters, and
            ``(2) other similar requests.
    ``(b) Program Criteria.--
            ``(1) In general.--The fees charged under the program 
        required by subsection (a)--
                    ``(A) shall vary according to categories (or 
                subcategories) established by the Secretary,
                    ``(B) shall be determined after taking into account 
                the average time for (and difficulty of) complying with 
                requests in each category (and subcategory), and
                    ``(C) shall be payable in advance.
            ``(2) Exemptions, etc.--
                    ``(A) In general.--The Secretary shall provide for 
                such exemptions (and reduced fees) under such program 
                as the Secretary determines to be appropriate.
                    ``(B) Exemption for certain requests regarding 
                pension plans.--The Secretary shall not require payment 
                of user fees under such program for requests for 
                determination letters with respect to the qualified 
status of a pension benefit plan maintained solely by 1 or more 
eligible employers or any trust which is part of the plan. The 
preceding sentence shall not apply to any request--
                            ``(i) made after the later of--
                                    ``(I) the fifth plan year the 
                                pension benefit plan is in existence, 
                                or
                                    ``(II) the end of any remedial 
                                amendment period with respect to the 
                                plan beginning within the first 5 plan 
                                years, or
                            ``(ii) made by the sponsor of any prototype 
                        or similar plan which the sponsor intends to 
                        market to participating employers.
                    ``(C) Definitions and special rules.--For purposes 
                of subparagraph (B)--
                            ``(i) Pension benefit plan.--The term 
                        `pension benefit plan' means a pension, profit-
                        sharing, stock bonus, annuity, or employee 
                        stock ownership plan.
                            ``(ii) Eligible employer.--The term 
                        `eligible employer' means an eligible employer 
                        (as defined in section 408(p)(2)(C)(i)(I)) 
                        which has at least 1 employee who is not a 
                        highly compensated employee (as defined in 
                        section 414(q)) and is participating in the 
                        plan. The determination of whether an employer 
                        is an eligible employer under subparagraph (B) 
                        shall be made as of the date of the request 
                        described in such subparagraph.
                            ``(iii) Determination of average fees 
                        charged.--For purposes of any determination of 
                        average fees charged, any request to which 
                        subparagraph (B) applies shall not be taken 
                        into account.
            ``(3) Average fee requirement.--The average fee charged 
        under the program required by subsection (a) shall not be less 
        than the amount determined under the following table:

                                                                Average
``Category                                                          Fee
    Employee plan ruling and opinion..............                $250 
    Exempt organization ruling....................                $350 
    Employee plan determination...................                $300 
    Exempt organization determination.............                $275 
    Chief counsel ruling..........................                $200.
    ``(c) Termination.--No fee shall be imposed under this section with 
respect to requests made after September 30, 2012.''.
    (b) Conforming Amendments.--
            (1) The table of sections for chapter 77 is amended by 
        adding at the end the following new item:

                              ``Sec. 7527. Internal Revenue Service 
                                        user fees.''.
            (2) Section 10511 of the Revenue Act of 1987 is repealed.
            (3) Section 620 of the Economic Growth and Tax Relief 
        Reconciliation Act of 2001 is repealed.
    (c) Limitations.--Notwithstanding any other provision of law, any 
fees collected pursuant to section 7527 of the Internal Revenue Code of 
1986, as added by subsection (a), shall not be expended by the Internal 
Revenue Service unless provided by an appropriations Act.
    (d) Effective Date.--The amendments made by this section shall 
apply to requests made after the date of the enactment of this Act.
            Amend the title so as to read: ``An Act to amend the 
        Internal Revenue Code of 1986 to improve tax equity for 
        military personnel, and for other purposes.''.




                                                       Calendar No. 603

107th CONGRESS

  2d Session

                               H. R. 5063

                          [Report No. 107-283]

_______________________________________________________________________

                                 AN ACT

 To amend the Internal Revenue Code of 1986 to provide a special rule 
 for members of the uniformed services in determining the exclusion of 
  gain from the sale of a principal residence and to restore the tax 
 exempt status of death gratuity payments to members of the uniformed 
                               services.

_______________________________________________________________________

                           September 17, 2002

        Reported with an amendment and an amendment to the title