[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 2816 Introduced in Senate (IS)]







107th CONGRESS
  2d Session
                                S. 2816

 To amend the Internal Revenue Code of 1986 to improve tax equity for 
              military personnel, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 29, 2002

  Mr. Baucus (for himself, Mr. Grassley, Mr. McCain, Mr. DeWine, Ms. 
Landrieu, Mr. Johnson, Mrs. Carnahan, Mr. Hatch, Mr. Rockefeller, Mrs. 
  Lincoln, Mr. Torricelli, Mr. Durbin, Mr. Murkowski, and Mr. Kerry) 
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 improve tax equity for 
              military personnel, and for other purposes.

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

SECTION 1. SHORT TITLE; ETC.

    (a) Short Title.--This Act may be cited as the ``Foreign and Armed 
Services 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.
Sec. 2. Restoration of full exclusion from gross income of death 
                            gratuity payment.
Sec. 3. Special rule for members of uniformed services and Foreign 
                            Service in determining exclusion of gain 
                            from sale of principal residence.
Sec. 4. Qualified military base realignment and closure fringe benefit.
Sec. 5. Extension of tax filing delay provisions to military personnel 
                            serving in contingency operations.
Sec. 6. Deduction of certain expenses of members of the reserve 
                            component.
Sec. 7. Modification of membership requirement for exemption from tax 
                            for veterans' organizations.
Sec. 8. Clarification of the treatment of dependent care assistance 
                            programs sponsored by the Department of 
                            Defense for members of the Armed Forces of 
                            the United States.

SEC. 2. RESTORATION OF FULL EXCLUSION FROM GROSS INCOME OF DEATH 
              GRATUITY PAYMENT.

    (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. 3. SPECIAL RULE FOR MEMBERS OF UNIFORMED SERVICES AND FOREIGN 
              SERVICE IN DETERMINING EXCLUSION OF GAIN FROM SALE OF 
              PRINCIPAL RESIDENCE.

    (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.
                    ``(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. 4. QUALIFIED MILITARY BASE REALIGNMENT AND CLOSURE FRINGE BENEFIT.

    (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. 5. EXTENSION OF TAX FILING DELAY PROVISIONS TO MILITARY PERSONNEL 
              SERVING IN 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. 6. DEDUCTION OF CERTAIN EXPENSES OF MEMBERS OF THE RESERVE 
              COMPONENT.

    (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), 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) (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. 7. MODIFICATION OF MEMBERSHIP REQUIREMENT FOR EXEMPTION FROM TAX 
              FOR 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. 8. CLARIFICATION OF THE TREATMENT OF DEPENDENT CARE ASSISTANCE 
              PROGRAMS SPONSORED BY THE DEPARTMENT OF DEFENSE FOR 
              MEMBERS OF THE ARMED FORCES OF THE UNITED STATES.

    (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 sponsored by the Department of Defense for members of 
        the Armed Forces of the United States.''.
    (b) Conforming Amendments.--
            (1) Section 3121(a)(18) is amended by striking ``or 129'' 
        and inserting ``, 129, or 134(b)(4)''.
            (2) Section 3306(b)(13) is amended by striking ``or 129'' 
        and inserting ``, 129, or 134(b)(4)''.
            (3) 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.
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