[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 2802 Introduced in Senate (IS)]







107th CONGRESS
  2d Session
                                S. 2802

To amend the Internal Revenue Code of 1986 to provide tax fairness for 
                           military families.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 26, 2002

  Mr. Cleland introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to provide tax fairness for 
                           military families.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Military Families Tax Fairness 
Act''.

SEC. 2. EXCLUSION FROM GROSS INCOME FOR DEPARTMENT OF DEFENSE PAYMENTS 
              ON STUDENT LOANS OF MEMBERS OF THE ARMED FORCES.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to items specifically excluded 
from gross income) is amended by inserting after section 139 the 
following new section:

``SEC. 139A. CERTAIN PAYMENTS ON STUDENT LOANS OF MEMBERS OF ARMED 
              FORCES.

    ``Gross income shall not include any education loan repayment made 
by the Federal Government on behalf of a member of the Armed Forces of 
the United States.
    (b) Clerical Amendment.--The table of sections for such part III is 
amended by inserting after the item relating to section 139 the 
following new item:

                              ``Sec. 139A. Certain payments on student 
                                        loans of members of Armed 
                                        Forces.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to payments in taxable years ending after the date of the 
enactment of this Act.

SEC. 3. DEDUCTION OF CERTAIN EXPENSES OF MEMBERS OF THE RESERVE 
              COMPONENT.

    (a) Deduction Allowed.--Section 162 of the Internal Revenue Code of 
1986 (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), 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 during any period for 
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) of the Internal Revenue Code of 1986 (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, 2002.

SEC. 4. CREDIT FOR EMPLOYMENT OF RESERVE COMPONENT PERSONNEL.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to business-related 
credits) is amended by adding at the end the following new section:

``SEC. 45G. RESERVE COMPONENT EMPLOYMENT CREDIT.

    ``(a) General Rule.--For purposes of section 38, the reserve 
component employment credit determined under this section is an amount 
equal to the sum of--
            ``(1) the employment credit with respect to all qualified 
        employees of the taxpayer, plus
            ``(2) the self-employment credit of a qualified self-
        employed taxpayer.
    ``(b) Employment Credit.--For purposes of this section--
            ``(1) In general.--The employment credit with respect to a 
        qualified employee of the taxpayer for any taxable year is 
        equal to 50 percent of the amount of qualified compensation 
        that would have been paid to the employee with respect to all 
        periods during which the employee participates in 
qualified reserve component duty to the exclusion of normal employment 
duties, including time spent in a travel status had the employee not 
been participating in qualified reserve component duty. The employment 
credit, with respect to all qualified employees, is equal to the sum of 
the employment credits for each qualified employee under this 
subsection.
            ``(2) Qualified compensation.--When used with respect to 
        the compensation paid or that would have been paid to a 
        qualified employee for any period during which the employee 
        participates in qualified reserve component duty, the term 
        `qualified compensation' means compensation--
                    ``(A) which is normally contingent on the 
                employee's presence for work and which would be 
                deductible from the taxpayer's gross income under 
                section 162(a)(1) if the employee were present and 
                receiving such compensation, and
                    ``(B) which is not characterized by the taxpayer as 
                vacation or holiday pay, or as sick leave or pay, or as 
                any other form of pay for a nonspecific leave of 
                absence, and with respect to which the number of days 
                the employee participates in qualified reserve 
                component duty does not result in any reduction in the 
                amount of vacation time, sick leave, or other 
                nonspecific leave previously credited to or earned by 
                the employee.
            ``(3) Qualified employee.--The term `qualified employee' 
        means a person who--
                    ``(A) has been an employee of the taxpayer for the 
                21-day period immediately preceding the period during 
                which the employee participates in qualified reserve 
                component duty, and
                    ``(B) is a member of the Ready Reserve of a reserve 
                component of an Armed Force of the United States as 
                defined in sections 10142 and 10101 of title 10, United 
                States Code.
    ``(c) Self-Employment Credit.--
            ``(1) In general.--The self-employment credit of a 
        qualified self-employed taxpayer for any taxable year is equal 
        to 50 percent of the excess, if any, of--
                    ``(A) the self-employed taxpayer's average daily 
                self-employment income for the taxable year over
                    ``(B) the average daily military pay and allowances 
                received by the taxpayer during the taxable year, while 
                participating in qualified reserve component duty to 
                the exclusion of the taxpayer's normal self-employment 
                duties for the number of days the taxpayer participates 
                in qualified reserve component duty during the taxable 
                year, including time spent in a travel status.
            ``(2) Average daily self-employment income and average 
        daily military pay and allowances.--As used with respect to a 
        self-employed taxpayer--
                    ``(A) the term `average daily self-employment 
                income' means the self-employment income (as defined in 
                section 1402) of the taxpayer for the taxable year 
                divided by the difference between--
                            ``(i) 365, and
                            ``(ii) the number of days the taxpayer 
                        participates in qualified reserve component 
                        duty during the taxable year, including time 
                        spent in a travel status, and
                    ``(B) the term `average daily military pay and 
                allowances' means--
                            ``(i) the amount paid to the taxpayer 
                        during the taxable year as military pay and 
                        allowances on account of the taxpayer's 
                        participation in qualified reserve component 
                        duty, divided by
                            ``(ii) the total number of days the 
                        taxpayer participates in qualified reserve 
                        component duty, including time spent in travel 
                        status.
            ``(3) Qualified self-employed taxpayer.--The term 
        `qualified self-employed taxpayer' means a taxpayer who--
                    ``(A) has net earnings from self-employment (as 
                defined in section 1402) for the taxable year, and
                    ``(B) is a member of the Ready Reserve of a reserve 
                component of an Armed Force of the United States.
    ``(d) Credit In Addition to Deduction.--The employment credit 
provided in this section is in addition to any deduction otherwise 
allowable with respect to compensation actually paid to a qualified 
employee during any period the employee participates in qualified 
reserve component duty to the exclusion of normal employment duties.
    ``(e) Limitations.--
            ``(1) Maximum credit.--
                    ``(A) In general.--The credit allowed by subsection 
                (a) for the taxable year--
                            ``(i) shall not exceed $7,500 in the 
                        aggregate, and
                            ``(ii) shall not exceed $2,000 with respect 
                        to each qualified employee.
                    ``(B) Controlled groups.--For purposes of applying 
                the limitations in subparagraph (A)--
                            ``(i) all members of a controlled group 
                        shall be treated as one taxpayer, and
                            ``(ii) such limitations shall be allocated 
                        among the members of such group in such manner 
                        as the Secretary may prescribe.
                For purposes of this subparagraph, all persons treated 
                as a single employer under subsection (a) or (b) of 
                section 52 or subsection (m) or (o) of section 414 
                shall be treated as members of a controlled group.
            ``(2) Disallowance for failure to comply with employment or 
        reemployment rights of members of the reserve components of the 
        armed forces of the united states.--No credit shall be allowed 
        under subsection (a) to a taxpayer for--
                    ``(A) any taxable year in which the taxpayer is 
                under a final order, judgment, or other process issued 
                or required by a district court of the United States 
                under section 4323 of title 38 of the United States 
                Code with respect to a violation of chapter 43 of such 
                title, and
                    ``(B) the two succeeding taxable years.
            ``(3) Disallowance with respect to persons ordered to 
        active duty for training.--No credit shall be allowed under 
        subsection (a) to a taxpayer with respect to any period for 
        which the person on whose behalf the credit would otherwise be 
        allowable is called or ordered to active duty for any of the 
        following types of duty:
                    ``(A) active duty for training under any provision 
                of title 10, United States Code,
                    ``(B) training at encampments, maneuvers, outdoor 
                target practice, or other exercises under chapter 5 of 
                title 32, United States Code, or
                    ``(C) full-time National Guard duty, as defined in 
                section 101(d)(5) of title 10, United States Code.
    ``(f) General Definitions and Special Rules.--
            ``(1) Military pay and allowances.--The term `military pay' 
        means pay as that term is defined in section 101(21) of title 
        37, United States Code, and the term `allowances' means the 
        allowances payable to a member of the Armed Forces of the 
        United States under chapter 7 of that title.
            ``(2) Qualified reserve component duty.--The term 
        `qualified reserve component duty' includes only active duty 
        performed, as designated in the reservist's military orders, in 
        support of a contingency operation as defined in section 
        101(a)(13) of title 10, United States Code.
            ``(3) Normal employment and self-employment duties.--A 
        person shall be deemed to be participating in qualified reserve 
        component duty to the exclusion of normal employment or self-
        employment duties if the person does not engage in or undertake 
        any substantial activity related to the person's normal 
        employment or self-employment duties while participating in 
        qualified reserve component duty unless in an authorized leave 
        status or other authorized absence from military duties. If a 
        person engages in or undertakes any substantial activity 
        related to the person's normal employment or self-employment 
        duties at any time while participating in a period of qualified 
        reserve component duty, unless during a period of authorized 
        leave or other authorized absence from military duties, the 
        person shall be deemed to have engaged in or undertaken such 
        activity for the entire period of qualified reserve component 
        duty.
            ``(4) Certain rules to apply.--Rules similar to the rules 
        of subsections (c), (d), and (e) of section 52 shall apply for 
        purposes of this section.''.
    (b) Conforming Amendment.--Section 38(b) of the Internal Revenue 
Code of 1986 (relating to general business credit) is amended--
            (1) by striking ``plus'' at the end of paragraph (14),
            (2) by striking the period at the end of paragraph (15) and 
        inserting ``, plus'', and
            (3) by adding at the end the following new paragraph:
            ``(16) the reserve component employment credit determined 
        under section 45G(a).''.
    (c) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 of the Internal Revenue Code of 
1986 is amended by adding at the end the following new item:

                              ``Sec. 45G. Reserve component employment 
                                        credit.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.

SEC. 5. SPECIAL RULE FOR MEMBERS OF UNIFORMED SERVICES AND FOREIGN 
              SERVICE AND CIVILIAN DOD EMPLOYEES IN DETERMINING 
              EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE.

    (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:
            ``(9) Members of uniformed services and foreign service and 
        civilian dod employees.--
                    ``(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 or as a 
                civilian employee of the Department of Defense.
                    ``(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).
                    ``(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' 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 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.

SEC. 6. QUALIFIED MILITARY BASE REALIGNMENT AND CLOSURE FRINGE BENEFIT.

    (a) In General.--Section 132(a) of the Internal Revenue Code of 
1986 (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 of the Internal Revenue Code of 1986 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 an employee or a member of the Armed 
Forces 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.
                                 <all>