[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3997 Engrossed Amendment Senate (EAS)]

  
  
  
  
  
  
  
  
  
  

                  In the Senate of the United States,

                                                     December 12, 2007.
    Resolved, That the bill from the House of Representatives (H.R. 
3997) entitled ``An Act to amend the Internal Revenue Code of 1986 to 
provide earnings assistance and tax relief to members of the uniformed 
services, volunteer firefighters, and Peace Corps volunteers, and for 
other purposes.'', do pass with the following

                              AMENDMENTS:

            Strike out all after the enacting clause and insert:

SECTION 1. SHORT TITLE; ETC.

    (a) Short Title.--This Act may be cited as the ``Defenders of 
Freedom Tax Relief Act of 2007''.
    (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--TAX RELIEF AND PROTECTIONS FOR MILITARY PERSONNEL

Sec. 101. Permanent extension of qualified mortgage bond program rules 
                            for veterans.
Sec. 102. Exclusion of certain amounts from income for purposes of 
                            eligibility for certain housing provisions.
Sec. 103. Permanent extension of election to treat combat pay as earned 
                            income for purposes of earned income 
                            credit.
Sec. 104. Extension of statute of limitations to file claims for 
                            refunds relating to disability 
                            determinations by Department of Veterans 
                            Affairs.
Sec. 105. Credit for employer differential wage payments to employees 
                            who are active duty members of the 
                            uniformed services.
Sec. 106. Permanent extension of penalty-free withdrawals from 
                            retirement plans by individual called to 
                            active duty.
Sec. 107. State payments to service members treated as qualified 
                            military benefits.
Sec. 108. Survivor and disability payments with respect to qualified 
                            military service.
Sec. 109. Treatment of differential military pay as wages.
Sec. 110. Disclosure of return information relating to veterans 
                            programs made permanent.
Sec. 111. Contributions of military death gratuities to Roth IRAs and 
                            Education Savings Accounts.

TITLE II--CERTAIN HOUSING BENEFITS FOR INTELLIGENCE COMMUNITY AND PEACE 
                            CORPS VOLUNTEERS

Sec. 201. Permanent exclusion of gain from sale of a principal 
                            residence by certain employees of the 
                            intelligence community.
Sec. 202. Suspension of 5-year period during service with the Peace 
                            Corps.

                     TITLE III--REVENUE PROVISIONS

Sec. 301. Revision of tax rules on expatriation.
Sec. 302. Special enrollment option by employer health plans for 
                            members of uniform services who lose health 
                            care coverage.
Sec. 303. Increase in minimum penalty on failure to file a return of 
                            tax.

       TITLE I--TAX RELIEF AND PROTECTIONS FOR MILITARY PERSONNEL

SEC. 101. PERMANENT EXTENSION OF QUALIFIED MORTGAGE BOND PROGRAM RULES 
              FOR VETERANS.

    (a) In General.--Section 143(d)(2)(D) (relating to exception) is 
amended by striking ``in the case of bonds issued after the date of the 
enactment of this subparagraph and before January 1, 2008,''.
    (b) Effective Date.--The amendment made by this section shall apply 
to bonds issued after December 31, 2007.

SEC. 102. EXCLUSION OF CERTAIN AMOUNTS FROM INCOME FOR PURPOSES OF 
              ELIGIBILITY FOR CERTAIN HOUSING PROVISIONS.

    (a) In General.--The last sentence of 142(d)(2)(B) (relating to 
income of individuals; area median gross income) is amended to read as 
follows ``For purposes of determining income under this subparagraph, 
subsections (g) and (h) of section 7872 shall not apply and any 
payments to a member of the Armed Forces under section 403 of title 37, 
United States Code, as a basic pay allowance for housing, shall be 
disregarded.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to--
            (1) housing credit dollar amounts allocated after the date 
        of the enactment of this Act, and
            (2) buildings placed in service after such date to the 
        extent paragraph (1) of section 42(h) of the Internal Revenue 
        Code of 1986 does not apply to such building by reason of 
        paragraph (4) thereof, but only with respect to bonds issued 
        after such date.

SEC. 103. PERMANENT EXTENSION OF ELECTION TO TREAT COMBAT PAY AS EARNED 
              INCOME FOR PURPOSES OF EARNED INCOME CREDIT.

    (a) In General.--Clause (vi) of section 32(c)(2)(B) (defining 
earned income) is amended to read as follows:
                            ``(vi) a taxpayer may elect to treat 
                        amounts excluded from gross income by reason of 
                        section 112 as earned income.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years ending after December 31, 2007.

SEC. 104. EXTENSION OF STATUTE OF LIMITATIONS TO FILE CLAIMS FOR 
              REFUNDS RELATING TO DISABILITY DETERMINATIONS BY 
              DEPARTMENT OF VETERANS AFFAIRS.

    (a) In General.--Subsection (d) of section 6511 (relating to 
special rules applicable to income taxes) is amended by adding at the 
end the following new paragraph:
            ``(8) Special rules when uniformed services retired pay is 
        reduced as a result of award of disability compensation.--
                    ``(A) Period of limitation on filing claim.--If the 
                claim for credit or refund relates to an overpayment of 
                tax imposed by subtitle A on account of--
                            ``(i) the reduction of uniformed services 
                        retired pay computed under section 1406 or 1407 
                        of title 10, United States Code, or
                            ``(ii) the waiver of such pay under section 
                        5305 of title 38 of such Code,
                as a result of an award of compensation under title 38 
                of such Code pursuant to a determination by the 
                Secretary of Veterans Affairs, the 3-year period of 
                limitation prescribed in subsection (a) shall be 
                extended, for purposes of permitting a credit or refund 
                based upon the amount of such reduction or waiver, 
                until the end of the 1-year period beginning on the 
                date of such determination.
                    ``(B) Limitation to 5 taxable years.--Subparagraph 
                (A) shall not apply with respect to any taxable year 
                which began more than 5 years before the date of such 
                determination.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to claims for credit or refund filed after the date of the 
enactment of this Act.
    (c) Transition Rules.--In the case of a determination described in 
paragraph (8) of section 6511(d) of the Internal Revenue Code of 1986 
(as added by this section) which is made by the Secretary of Veterans 
Affairs after December 31, 2000, and on or before the date of the 
enactment of this Act, such paragraph--
            (1) shall not apply with respect to any taxable year which 
        began before January 1, 2001, and
            (2) shall be applied by substituting ``the date of the 
        enactment of the Defenders of Freedom Tax Relief Act of 2007'' 
        for ``the date of such determination'' in subparagraph (A) 
        thereof.

SEC. 105. CREDIT FOR EMPLOYER DIFFERENTIAL WAGE PAYMENTS TO EMPLOYEES 
              WHO ARE ACTIVE DUTY MEMBERS OF THE UNIFORMED SERVICES.

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

``SEC. 45O. EMPLOYER WAGE CREDIT FOR EMPLOYEES WHO ARE ACTIVE DUTY 
              MEMBERS OF THE UNIFORMED SERVICES.

    ``(a) General Rule.--For purposes of section 38, in the case of an 
eligible small business employer, the differential wage payment credit 
for any taxable year is an amount equal to 20 percent of the sum of the 
eligible differential wage payments for each of the qualified employees 
of the taxpayer during such taxable year.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Eligible differential wage payments.--The term 
        `eligible differential wage payments' means, with respect to 
        each qualified employee, so much of the differential wage 
        payments (as defined in section 3401(h)(2)) paid to such 
        employee for the taxable year as does not exceed $20,000.
            ``(2) Qualified employee.--The term `qualified employee' 
        means a person who has been an employee of the taxpayer for the 
        91-day period immediately preceding the period for which any 
        differential wage payment is made.
            ``(3) Eligible small business employer.--
                    ``(A) In general.--The term `eligible small 
                business employer' means, with respect to any taxable 
                year, any employer which--
                            ``(i) employed an average of less that 50 
                        employees on business days during such taxable 
                        year, and
                            ``(ii) under a written plan of the 
                        employer, provides eligible differential wage 
                        payments to every qualified employee of the 
                        employer.
                    ``(B) Controlled groups.--For purposes of 
                subparagraph (A), all persons treated as a single 
                employer under subsection (b), (c), (m), or (o) of 
                section 414 shall be treated as a single employer.
    ``(c) Coordination With Other Credits.--The amount of credit 
otherwise allowable under this chapter with respect to compensation 
paid to any employee shall be reduced by the credit determined under 
this section with respect to such employee.
    ``(d) 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--
            ``(1) any taxable year, beginning after the date of the 
        enactment of this section, 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
            ``(2) the 2 succeeding taxable years.
    ``(e) Certain Rules To Apply.--For purposes of this section, rules 
similar to the rules of subsections (c), (d), and (e) of section 52 
shall apply.
    ``(f) Termination.--This section shall not apply to any payments 
made after December 31, 2009.''.
    (b) Credit Treated as Part of General Business Credit.--Section 
38(b) (relating to general business credit) is amended by striking 
``plus'' at the end of paragraph (30), by striking the period at the 
end of paragraph (31) and inserting ``, plus'', and by adding at the 
end of following new paragraph:
            ``(32) the differential wage payment credit determined 
        under section 45O(a).''.
    (c) No Deduction for Compensation Taken Into Account for Credit.--
Section 280C(a) (relating to rule for employment credits) is amended by 
inserting ``45O(a),'' after ``45A(a),''.
    (d) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 is amended by adding at the end 
the following new item:

``Sec. 45O. Employer wage credit for employees who are active duty 
                            members of the uniformed services.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to amounts paid after the date of the enactment of this Act.

SEC. 106. PERMANENT EXTENSION OF PENALTY-FREE WITHDRAWALS FROM 
              RETIREMENT PLANS BY INDIVIDUAL CALLED TO ACTIVE DUTY.

    Clause (iv) of section 72(t)(2)(G) (relating to distributions from 
retirement plans to individuals called to active duty) is amended by 
striking all after ``September 11, 2001'' and inserting a period.

SEC. 107. STATE PAYMENTS TO SERVICE MEMBERS TREATED AS QUALIFIED 
              MILITARY BENEFITS.

    (a) In General.--Section 134(b) (defining qualified military 
benefit) is amended by adding at the end the following new paragraph:
            ``(6) Certain state payments.--The term `qualified military 
        benefit' includes any bonus payment by a State or political 
        subdivision thereof to any member or former member of the 
        uniformed services of the United States or any dependent of 
        such member only by reason of such member's service in an 
        combat zone (as defined in section 112(c)(2), determined 
        without regard to the parenthetical).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to payments made before, on, or after the date of the enactment of this 
Act.

SEC. 108. SURVIVOR AND DISABILITY PAYMENTS WITH RESPECT TO QUALIFIED 
              MILITARY SERVICE.

    (a) Plan Qualification Requirement for Death Benefits Under USERRA-
Qualified Active Military Service.--Subsection (a) of section 401 
(relating to requirements for qualification) is amended by inserting 
after paragraph (36) the following new paragraph:
            ``(37) Death benefits under userra-qualified active 
        military service.--A trust shall not constitute a qualified 
        trust unless the plan provides that, in the case of a 
        participant who dies while performing qualified military 
        service (as defined in section 414(u)), the survivors of the 
        participant are entitled to any additional benefits (other than 
        benefit accruals relating to the period of qualified military 
        service) provided under the plan had the participant resumed 
        and then terminated employment on account of death.''.
    (b) Treatment in the Case of Death or Disability Resulting From 
Active Military Service for Benefit Accrual Purposes.--Subsection (u) 
of section 414 (relating to special rules relating to veterans' 
reemployment rights under USERRA) is amended by redesignating 
paragraphs (9) and (10) as paragraphs (10) and (11), respectively, and 
by inserting after paragraph (8) the following new paragraph:
            ``(9) Treatment in the case of death or disability 
        resulting from active military service.--
                    ``(A) In general.--For benefit accrual purposes, an 
                employer sponsoring a retirement plan may treat an 
                individual who dies or becomes disabled (as defined 
                under the terms of the plan) while performing qualified 
                military service with respect to the employer 
                maintaining the plan as if the individual has resumed 
                employment in accordance with the individual's 
                reemployment rights under chapter 43 of title 38, 
                United States Code, on the day preceding death or 
                disability (as the case may be) and terminated 
                employment on the actual date of death or disability. 
                In the case of any such treatment, and subject to 
                subparagraphs (B) and (C), any full or partial 
                compliance by such plan with respect to the benefit 
                accrual requirements of paragraph (8) with respect to 
                such individual shall be treated for purposes of 
                paragraph (1) as if such compliance were required under 
                such chapter 43.
                    ``(B) Nondiscrimination requirement.--Subparagraph 
                (A) shall apply only if all individuals performing 
                qualified military service with respect to the employer 
                maintaining the plan (as determined under subsections 
                (b), (c), (m), and (o)) who die or became disabled as a 
                result of performing qualified military service prior 
                to reemployment by the employer are credited with 
                service and benefits on reasonably equivalent terms.
                    ``(C) Determination of benefits.--The amount of 
                employee contributions and the amount of elective 
                deferrals of an individual treated as reemployed under 
                subparagraph (A) for purposes of applying paragraph 
                (8)(C) shall be determined on the basis of the 
                individual's average actual employee contributions or 
                elective deferrals for the lesser of--
                            ``(i) the 12-month period of service with 
                        the employer immediately prior to qualified 
                        military service, or
                            ``(ii) if service with the employer is less 
                        than such 12-month period, the actual length of 
                        continuous service with the employer.''.
    (c) Conforming Amendments.--
            (1) Section 404(a)(2) is amended by striking ``and (31)'' 
        and inserting ``(31), and (37)''.
            (2) Section 403(b) is amended by adding at the end the 
        following new paragraph:
            ``(14) Death benefits under userra-qualified active 
        military service.--This subsection shall not apply to an 
        annuity contract unless such contract meets the requirements of 
        section 401(a)(37).''.
            (3) Section 457(g) is amended by adding at the end the 
        following new paragraph:
            ``(4) Death benefits under userra-qualified active military 
        service.--A plan described in paragraph (1) shall not be 
        treated as an eligible deferred compensation plan unless such 
        plan meets the requirements of section 401(a)(37).''.
    (d) Effective Date
            (1) In general.--The amendments made by this section shall 
        apply with respect to deaths and disabilities occurring on or 
        after January 1, 2007.
            (2) Provisions relating to plan amendments.--
                    (A) In general.--If this subparagraph applies to 
                any plan or contract amendment, such plan or contract 
                shall be treated as being operated in accordance with 
                the terms of the plan during the period described in 
                subparagraph (B)(iii).
                    (B) Amendments to which subparagraph (A) applies.--
                            (i) In general.--Subparagraph (A) shall 
                        apply to any amendment to any plan or annuity 
                        contract which is made--
                                    (I) pursuant to the amendments made 
                                by subsection (a) or pursuant to any 
                                regulation issued by the Secretary of 
                                the Treasury under subsection (a), and
                                    (II) on or before the last day of 
                                the first plan year beginning on or 
                                after January 1, 2009.
                        In the case of a governmental plan (as defined 
                        in section 414(d) of the Internal Revenue Code 
                        of 1986), this clause shall be applied by 
                        substituting ``2011'' for ``2009'' in subclause 
                        (II).
                            (ii) Conditions.--This paragraph shall not 
                        apply to any amendment unless--
                                    (I) the plan or contract is 
                                operated as if such plan or contract 
                                amendment were in effect for the period 
                                described in clause (iii), and
                                    (II) such plan or contract 
                                amendment applies retroactively for 
                                such period.
                            (iii) Period described.--The period 
                        described in this clause is the period--
                                    (I) beginning on the effective date 
                                specified by the plan, and
                                    (II) ending on the date described 
                                in clause (i)(II) (or, if earlier, the 
                                date the plan or contract amendment is 
                                adopted).

SEC. 109. TREATMENT OF DIFFERENTIAL MILITARY PAY AS WAGES.

    (a) Income Tax Withholding on Differential Wage Payments.--
            (1) In general.--Section 3401 (relating to definitions) is 
        amended by adding at the end the following new subsection:
    ``(h) Differential Wage Payments to Active Duty Members of the 
Uniformed Services.--
            ``(1) In general.--For purposes of subsection (a), any 
        differential wage payment shall be treated as a payment of 
        wages by the employer to the employee.
            ``(2) Differential wage payment.--For purposes of paragraph 
        (1), the term `differential wage payment' means any payment 
        which--
                    ``(A) is made by an employer to an individual with 
                respect to any period during which the individual is 
                performing service in the uniformed services while on 
                active duty for a period of more than 30 days, and
                    ``(B) represents all or a portion of the wages the 
                individual would have received from the employer if the 
                individual were performing service for the employer.''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to remuneration paid after December 31, 2007.
    (b) Treatment of Differential Wage Payments for Retirement Plan 
Purposes.--
            (1) Pension plans.--
                    (A) In general.--Section 414(u) (relating to 
                special rules relating to veterans' reemployment rights 
                under USERRA), as amended by this Act, is amended by 
                redesignating paragraphs (10) and (11) as paragraphs 
                (11) and (12), respectively, and by inserting after 
                paragraph (9) the following new paragraph:
            ``(10) Treatment of differential wage payments.--
                    ``(A) In general.--Except as provided in this 
                paragraph, for purposes of applying this title to a 
                retirement plan to which this subsection applies--
                            ``(i) an individual receiving a 
                        differential wage payment shall be treated as 
                        an employee of the employer making the payment,
                            ``(ii) the differential wage payment shall 
                        be treated as compensation, and
                            ``(iii) the plan shall not be treated as 
                        failing to meet the requirements of any 
                        provision described in paragraph (1)(C) by 
                        reason of any contribution or benefit which is 
                        based on the differential wage payment.
                    ``(B) Special rule for distributions.--
                            ``(i) In general.--Notwithstanding 
                        subparagraph (A)(i), for purposes of section 
                        401(k)(2)(B)(i)(I), 403(b)(7)(A)(ii), 
                        403(b)(11)(A), or 457(d)(1)(A)(ii), an 
                        individual shall be treated as having been 
                        severed from employment during any period the 
                        individual is performing service in the 
                        uniformed services described in section 
                        3401(h)(2)(A).
                            ``(ii) Limitation.--If an individual elects 
                        to receive a distribution by reason of clause 
                        (i), the plan shall provide that the individual 
                        may not make an elective deferral or employee 
                        contribution during the 6-month period 
                        beginning on the date of the distribution.
                    ``(C) Nondiscrimination requirement.--Subparagraph 
                (A)(iii) shall apply only if all employees of an 
                employer (as determined under subsections (b), (c), 
                (m), and (o)) performing service in the uniformed 
                services described in section 3401(h)(2)(A) are 
                entitled to receive differential wage payments on 
                reasonably equivalent terms and, if eligible to 
                participate in a retirement plan maintained by the 
                employer, to make contributions based on the payments 
                on reasonably equivalent terms. For purposes of 
                applying this subparagraph, the provisions of 
                paragraphs (3), (4), and (5) of section 410(b) shall 
                apply.
                    ``(D) Differential wage payment.--For purposes of 
                this paragraph, the term `differential wage payment' 
                has the meaning given such term by section 
                3401(h)(2).''.
                    (B) Conforming amendment.--The heading for section 
                414(u) is amended by inserting ``and to Differential 
                Wage Payments to Members on Active Duty'' after 
                ``USERRA''.
            (2) Differential wage payments treated as compensation for 
        individual retirement plans.--Section 219(f)(1) (defining 
        compensation) is amended by adding at the end the following new 
        sentence: ``The term `compensation' includes any differential 
        wage payment (as defined in section 3401(h)(2)).''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to years beginning after December 31, 2007.
    (c) Provisions Relating to Plan Amendments.--
            (1) In general.--If this subsection applies to any plan or 
        annuity contract amendment--
                    (A) such plan or contract shall be treated as being 
                operated in accordance with the terms of the plan or 
                contract during the period described in paragraph 
                (2)(B)(i), and
                    (B) except as provided by the Secretary of the 
                Treasury, such plan shall not fail to meet the 
                requirements of the Internal Revenue Code of 1986 or 
                the Employee Retirement Income Security Act of 1974 by 
                reason of such amendment.
            (2) Amendments to which section applies.--
                    (A) In general.--This subsection shall apply to any 
                amendment to any plan or annuity contract which is 
                made--
                            (i) pursuant to any amendment made by this 
                        section, and
                            (ii) on or before the last day of the first 
                        plan year beginning on or after January 1, 
                        2009.
                    (B) Conditions.--This subsection shall not apply to 
                any plan or annuity contract amendment unless--
                            (i) during the period beginning on the date 
                        the amendment described in subparagraph (A)(i) 
                        takes effect and ending on the date described 
                        in subparagraph (A)(ii) (or, if earlier, the 
                        date the plan or contract amendment is 
                        adopted), the plan or contract is operated as 
                        if such plan or contract amendment were in 
                        effect, and
                            (ii) such plan or contract amendment 
                        applies retroactively for such period.

SEC. 110. DISCLOSURE OF RETURN INFORMATION RELATING TO VETERANS 
              PROGRAMS MADE PERMANENT.

    (a) In General.--Subparagraph (D) of section 6103(l)(7) (relating 
to disclosure of return information to Federal, State, and local 
agencies administering certain programs under the Social Security Act, 
the Food Stamp Act of 1977, or title 38, United States Code or certain 
housing assistance programs) is amended by striking the last sentence.
    (b) Effective Date.--The amendments made by this section shall 
apply to requests made after September 30, 2008.

SEC. 111. CONTRIBUTIONS OF MILITARY DEATH GRATUITIES TO ROTH IRAS AND 
              EDUCATION SAVINGS ACCOUNTS.

    (a) Provision in Effect Before Pension Protection Act.--Subsection 
(e) of section 408A (relating to qualified rollover contribution), as 
in effect before the amendments made by section 824 of the Pension 
Protection Act of 2006, is amended to read as follows:
    ``(e) Qualified Rollover Contribution.--For purposes of this 
section--
            ``(1) In general.--The term `qualified rollover 
        contribution' means a rollover contribution to a Roth IRA from 
        another such account, or from an individual retirement plan, 
        but only if such rollover contribution meets the requirements 
        of section 408(d)(3). Such term includes a rollover 
        contribution described in section 402A(c)(3)(A). For purposes 
        of section 408(d)(3)(B), there shall be disregarded any 
        qualified rollover contribution from an individual retirement 
        plan (other than a Roth IRA) to a Roth IRA.
            ``(2) Military death gratuity.--
                    ``(A) In general.--The term `qualified rollover 
                contribution' includes a contribution to a Roth IRA 
                maintained for the benefit of an individual made before 
                the end of the 1-year period beginning on the date on 
                which such individual receives an amount under section 
                1477 of title 10, United States Code, or section 1967 
                of title 38 of such Code, with respect to a person, to 
                the extent that such contribution does not exceed--
                            ``(i) the sum of the amounts received 
                        during such period by such individual under 
                        such sections with respect to such person, 
                        reduced by
                            ``(ii) the amounts so received which were 
                        contributed to a Coverdell education savings 
                        account under section 530(d)(9).
                    ``(B) Annual limit on number of rollovers not to 
                apply.--Section 408(d)(3)(B) shall not apply with 
                respect to amounts treated as a rollover by 
                subparagraph (A).
                    ``(C) Application of section 72.--For purposes of 
                applying section 72 in the case of a distribution which 
                is not a qualified distribution, the amount treated as 
                a rollover by reason of subparagraph (A) shall be 
                treated as investment in the contract.''.
    (b) Provision in Effect After Pension Protection Act.--Subsection 
(e) of section 408A, as in effect after the amendments made by section 
824 of the Pension Protection Act of 2006, is amended to read as 
follows:
    ``(e) Qualified Rollover Contribution.--For purposes of this 
section--
            ``(1) In general.--The term `qualified rollover 
        contribution' means a rollover contribution--
                    ``(A) to a Roth IRA from another such account,
                    ``(B) from an eligible retirement plan, but only 
                if--
                            ``(i) in the case of an individual 
                        retirement plan, such rollover contribution 
                        meets the requirements of section 408(d)(3), 
                        and
                            ``(ii) in the case of any eligible 
                        retirement plan (as defined in section 
                        402(c)(8)(B) other than clauses (i) and (ii) 
                        thereof), such rollover contribution meets the 
                        requirements of section 402(c), 403(b)(8), or 
                        457(e)(16), as applicable.
                For purposes of section 408(d)(3)(B), there shall be 
                disregarded any qualified rollover contribution from an 
                individual retirement plan (other than a Roth IRA) to a 
                Roth IRA.
            ``(2) Military death gratuity.--
                    ``(A) In general.--The term `qualified rollover 
                contribution' includes a contribution to a Roth IRA 
                maintained for the benefit of an individual made before 
                the end of the 1-year period beginning on the date on 
                which such individual receives an amount under section 
                1477 of title 10, United States Code, or section 1967 
                of title 38 of such Code, with respect to a person, to 
                the extent that such contribution does not exceed--
                            ``(i) the sum of the amounts received 
                        during such period by such individual under 
                        such sections with respect to such person, 
                        reduced by
                            ``(ii) the amounts so received which were 
                        contributed to a Coverdell education savings 
                        account under section 530(d)(9).
                    ``(B) Annual limit on number of rollovers not to 
                apply.--Section 408(d)(3)(B) shall not apply with 
                respect to amounts treated as a rollover by the 
                subparagraph (A).
                    ``(C) Application of section 72.--For purposes of 
                applying section 72 in the case of a distribution which 
                is not a qualified distribution, the amount treated as 
                a rollover by reason of subparagraph (A) shall be 
                treated as investment in the contract.''.
    (c) Education Savings Accounts.--Subsection (d) of section 530 is 
amended by adding at the end the following new paragraph:
            ``(9) Military death gratuity.--
                    ``(A) In general.--For purposes of this section, 
                the term `rollover contribution' includes a 
                contribution to a Coverdell education savings account 
                made before the end of the 1-year period beginning on 
                the date on which the contributor receives an amount 
                under section 1477 of title 10, United States Code, or 
                section 1967 of title 38 of such Code, with respect to 
                a person, to the extent that such contribution does not 
                exceed--
                            ``(i) the sum of the amounts received 
                        during such period by such contributor under 
                        such sections with respect to such person, 
                        reduced by
                            ``(ii) the amounts so received which were 
                        contributed to a Roth IRA under section 
                        408A(e)(2) or to another Coverdell education 
                        savings account.
                    ``(B) Annual limit on number of rollovers not to 
                apply.--The last sentence of paragraph (5) shall not 
                apply with respect to amounts treated as a rollover by 
                the subparagraph (A).
                    ``(C) Application of section 72.--For purposes of 
                applying section 72 in the case of a distribution which 
                is includible in gross income under paragraph (1), the 
                amount treated as a rollover by reason of subparagraph 
                (A) shall be treated as investment in the contract.''.
    (d) Effective Dates.--
            (1) In general.--Except as provided by paragraphs (2) and 
        (3), the amendments made by this section shall apply with 
        respect to deaths from injuries occurring on or after the date 
        of the enactment of this Act.
            (2) Application of amendments to deaths from injuries 
        occurring on or after october 7, 2001, and before enactment.--
        The amendments made by this section shall apply to any 
        contribution made pursuant to section 408A(e)(2) or 530(d)(5) 
        of the Internal Revenue Code of 1986, as amended by this Act, 
        with respect to amounts received under section 1477 of title 
        10, United States Code, or under section 1967 of title 38 of 
        such Code, for deaths from injuries occurring on or after 
        October 7, 2001, and before the date of the enactment of this 
        Act if such contribution is made not later than 1 year after 
        the date of the enactment of this Act.
            (3) Pension protection act changes.--Section 408A(e)(1) of 
        the Internal Revenue Code of 1986 (as in effect after the 
        amendments made by subsection (b)) shall apply to taxable years 
        beginning after December 31, 2007.

TITLE II--CERTAIN HOUSING BENEFITS FOR INTELLIGENCE COMMUNITY AND PEACE 
                            CORPS VOLUNTEERS

SEC. 201. PERMANENT EXCLUSION OF GAIN FROM SALE OF A PRINCIPAL 
              RESIDENCE BY CERTAIN EMPLOYEES OF THE INTELLIGENCE 
              COMMUNITY.

    (a) In General.--Section 417(e) of division A of the Tax Relief and 
Health Care Act of 2006 is amended by striking ``and before January 1, 
2011''.
    (b) Duty Station May Be Outside United States.--Section 
121(d)(9)(C) (defining qualified official extended duty) is amended by 
striking clause (vi).
    (c) Effective Date.--The amendments made by this section shall 
apply to sales or exchanges after December 31, 2010.

SEC. 202. SUSPENSION OF 5-YEAR PERIOD DURING SERVICE WITH THE PEACE 
              CORPS.

    (a) In General.--Subsection (d) of section 121 (relating to special 
rules) is amended by adding at the end the following new paragraph:
            ``(12) Peace corps.--
                    ``(A) In general.--At the election of an individual 
                with respect to a property, the running of the 5-year 
                period described in subsections (a) and (c)(1)(B) and 
                paragraph (7) of this subsection with respect to such 
                property shall be suspended during any period that such 
                individual or such individual's spouse is serving 
                outside the United States--
                            ``(i) on qualified official extended duty 
                        (as defined in paragraph (9)(C)) as an employee 
                        of the Peace Corps, or
                            ``(ii) as an enrolled volunteer or 
                        volunteer leader under section 5 or 6 (as the 
                        case may be) of the Peace Corps Act (22 U.S.C. 
                        2504, 2505).
                    ``(B) Applicable rules.--For purposes of 
                subparagraph (A), rules similar to the rules of 
                subparagraphs (B) and (D) shall apply.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 2007.

                     TITLE III--REVENUE PROVISIONS

SEC. 301. 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.--All property of a covered expatriate 
        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, determined without regard to 
        paragraph (3).
            ``(3) Exclusion for certain gain.--
                    ``(A) In general.--The amount which would (but for 
                this paragraph) be includible in the gross income of 
                any individual by reason of paragraph (1) shall be 
                reduced (but not below zero) by $600,000.
                    ``(B) Adjustment for inflation.--
                            ``(i) In general.--In the case of any 
                        taxable year beginning in a calendar year after 
                        2008, the dollar amount in 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 the calendar year in which 
                                the taxable year begins, by 
                                substituting `calendar year 2007' for 
                                `calendar year 1992' in subparagraph 
                                (B) thereof.
                            ``(ii) Rounding.--If any amount as adjusted 
                        under clause (i) is not a multiple of $1,000, 
                        such amount shall be rounded to the nearest 
                        multiple of $1,000.
    ``(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 time for payment of the 
        additional tax attributable to such property shall be extended 
        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 extension.--The due date for payment 
        of tax may not be extended 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 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 which is furnished to, 
                        and accepted by, the Secretary, which is 
                        conditioned on the payment of tax (and interest 
                        thereon), and which meets the requirements of 
                        section 6325, or
                            ``(ii) it is another form of security for 
                        such payment (including letters of credit) that 
                        meets such requirements as the Secretary may 
                        prescribe.
            ``(5) Waiver of certain rights.--No election may be made 
        under paragraph (1) unless the taxpayer makes an irrevocable 
        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.
            ``(7) Interest.--For purposes of section 6601, the last 
        date for the payment of tax shall be determined without regard 
        to the election under this subsection.
    ``(c) Exception for Certain Property.--Subsection (a) shall not 
apply to--
            ``(1) any deferred compensation item (as defined in 
        subsection (d)(4)),
            ``(2) any specified tax deferred account (as defined in 
        subsection (e)(2)), and
            ``(3) any interest in a nongrantor trust (as defined in 
        subsection (f)(3)).
    ``(d) Treatment of Deferred Compensation Items.--
            ``(1) Withholding on eligible deferred compensation 
        items.--
                    ``(A) In general.--In the case of any eligible 
                deferred compensation item, the payor shall deduct and 
                withhold from any taxable payment to a covered 
                expatriate with respect to such item a tax equal to 30 
                percent thereof.
                    ``(B) Taxable payment.--For purposes of 
                subparagraph (A), the term `taxable payment' means with 
                respect to a covered expatriate any payment to the 
                extent it would be includible in the gross income of 
                the covered expatriate if such expatriate continued to 
                be subject to tax as a citizen or resident of the 
                United States. A deferred compensation item shall be 
                taken into account as a payment under the preceding 
                sentence when such item would be so includible.
            ``(2) Other deferred compensation items.--In the case of 
        any deferred compensation item which is not an eligible 
        deferred compensation item--
                    ``(A)(i) with respect to any deferred compensation 
                item to which clause (ii) does not apply, an amount 
                equal to the present value of the covered expatriate's 
                accrued benefit shall be treated as having been 
                received by such individual on the day before the 
                expatriation date as a distribution under the plan, and
                    ``(ii) with respect to any deferred compensation 
                item referred to in paragraph (4)(D), the rights of the 
                covered expatriate to such item shall be treated as 
                becoming transferable and not subject to a substantial 
                risk of forfeiture on the day before the expatriation 
                date,
                    ``(B) no early distribution tax shall apply by 
                reason of such treatment, and
                    ``(C) appropriate adjustments shall be made to 
                subsequent distributions from the plan to reflect such 
                treatment.
            ``(3) Eligible deferred compensation items.--For purposes 
        of this subsection, the term `eligible deferred compensation 
        item' means any deferred compensation item with respect to 
        which--
                    ``(A) the payor of such item is--
                            ``(i) a United States person, or
                            ``(ii) a person who is not a United States 
                        person but who elects to be treated as a United 
                        States person for purposes of paragraph (1) and 
                        meets such requirements as the Secretary may 
                        provide to ensure that the payor will meet the 
                        requirements of paragraph (1), and
                    ``(B) the covered expatriate--
                            ``(i) notifies the payor of his status as a 
                        covered expatriate, and
                            ``(ii) makes an irrevocable waiver of any 
                        right to claim any reduction under any treaty 
                        with the United States in withholding on such 
                        item.
            ``(4) Deferred compensation item.--For purposes of this 
        subsection, the term `deferred compensation item' means--
                    ``(A) any interest in a plan or arrangement 
                described in section 219(g)(5),
                    ``(B) any interest in a foreign pension plan or 
                similar retirement arrangement or program,
                    ``(C) any item of deferred compensation, and
                    ``(D) any property, or right to property, which the 
                individual is entitled to receive in connection with 
                the performance of services to the extent not 
                previously taken into account under section 83 or in 
                accordance with section 83.
            ``(5) Exception.--Paragraphs (1) and (2) shall not apply to 
        any deferred compensation item which is attributable to 
        services performed outside the United States while the covered 
        expatriate was not a citizen or resident of the United States.
            ``(6) Special rules.--
                    ``(A) Application of withholding rules.--Rules 
                similar to the rules of subchapter B of chapter 3 shall 
                apply for purposes of this subsection.
                    ``(B) Application of tax.--Any item subject to the 
                withholding tax imposed under paragraph (1) shall be 
                subject to tax under section 871.
                    ``(C) Coordination with other withholding 
                requirements.--Any item subject to withholding under 
                paragraph (1) shall not be subject to withholding under 
                section 1441 or chapter 24.
    ``(e) Treatment of Specified Tax Deferred Accounts.--
            ``(1) Account treated as distributed.--In the case of any 
        interest in a specified tax deferred account held by a covered 
        expatriate on the day before the expatriation date--
                    ``(A) the covered expatriate shall be treated as 
                receiving a distribution of his entire interest in such 
                account on the day before the expatriation date,
                    ``(B) no early distribution tax shall apply by 
                reason of such treatment, and
                    ``(C) appropriate adjustments shall be made to 
                subsequent distributions from the account to reflect 
                such treatment.
            ``(2) Specified tax deferred account.--For purposes of 
        paragraph (1), the term `specified tax deferred account' means 
        an individual retirement plan (as defined in section 
        7701(a)(37)) other than any arrangement described in subsection 
        (k) or (p) of section 408, a qualified tuition program (as 
        defined in section 529), a Coverdell education savings account 
        (as defined in section 530), a health savings account (as 
        defined in section 223), and an Archer MSA (as defined in 
        section 220).
    ``(f) Special Rules for Nongrantor Trusts.--
            ``(1) In general.--In the case of a distribution (directly 
        or indirectly) of any property from a nongrantor trust to a 
        covered expatriate--
                    ``(A) the trustee shall deduct and withhold from 
                such distribution an amount equal to 30 percent of the 
                taxable portion of the distribution, and
                    ``(B) if the fair market value of such property 
                exceeds its adjusted basis in the hands of the trust, 
                gain shall be recognized to the trust as if such 
                property were sold to the expatriate at its fair market 
                value.
            ``(2) Taxable portion.--For purposes of this subsection, 
        the term `taxable portion' means, with respect to any 
        distribution, that portion of the distribution which would be 
        includible in the gross income of the covered expatriate if 
        such expatriate continued to be subject to tax as a citizen or 
        resident of the United States.
            ``(3) Nongrantor trust.--For purposes of this subsection, 
        the term `nongrantor trust' means the portion of any trust that 
        the individual is not considered the owner of under subpart E 
        of part I of subchapter J. The determination under the 
        preceding sentence shall be made immediately before the 
        expatriation date.
            ``(4) Special rules relating to withholding.--For purposes 
        of this subsection--
                    ``(A) rules similar to the rules of subsection 
                (d)(6) shall apply, and
                    ``(B) the covered expatriate shall be treated as 
                having waived any right to claim any reduction under 
                any treaty with the United States in withholding on any 
                distribution to which paragraph (1)(A) applies.
            ``(5) Application.--This subsection shall apply to a 
        nongrantor trust only if the covered expatriate was a 
        beneficiary of the trust on the day before the expatriation 
        date.
    ``(g) Definitions and Special Rules Relating to Expatriation.--For 
purposes of this section--
            ``(1) Covered expatriate.--
                    ``(A) In general.--The term `covered expatriate' 
                means an expatriate who meets the requirements of 
                subparagraph (A), (B), or (C) of section 877(a)(2).
                    ``(B) Exceptions.--An individual shall not be 
                treated as meeting the requirements of subparagraph (A) 
                or (B) of section 877(a)(2) if--
                            ``(i) 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 been a resident of the 
                                United States (as defined in section 
                                7701(b)(1)(A)(ii)) for not more than 10 
                                taxable years during the 15-taxable 
                                year period ending with the taxable 
                                year during which the expatriation date 
                                occurs, or
                            ``(ii)(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 10 taxable years before the date of 
                        relinquishment.
                    ``(C) Covered expatriates also subject to tax as 
                citizens or residents.--In the case of any covered 
                expatriate who is subject to tax as a citizen or 
                resident of the United States for any period beginning 
                after the expatriation date, such individual shall not 
                be treated as a covered expatriate during such period 
                for purposes of subsections (d)(1) and (f) and section 
                2801.
            ``(2) Expatriate.--The term `expatriate' means--
                    ``(A) any United States citizen who relinquishes 
                his citizenship, and
                    ``(B) any long-term resident of the United States 
                who ceases to be a lawful permanent resident of the 
                United States (within the meaning of section 
                7701(b)(6)).
            ``(3) 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 on which the individual ceases 
                to be a lawful permanent resident of the United States 
                (within the meaning of section 7701(b)(6)).
            ``(4) Relinquishment of citizenship.--A citizen shall be 
        treated as relinquishing his United States citizenship on the 
        earliest of--
                    ``(A) the date the individual renounces his 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.
            ``(5) Long-term resident.--The term `long-term resident' 
        has the meaning given to such term by section 877(e)(2).
            ``(6) Early distribution tax.--The term `early distribution 
        tax' means any increase in tax imposed under section 72(t), 
        220(e)(4), 223(f)(4), 409A(a)(1)(B), 529(c)(6), or 530(d)(4).
    ``(h) Other Rules.--
            ``(1) Termination of deferrals, etc.--In the case of any 
        covered expatriate, notwithstanding any other provision of this 
        title--
                    ``(A) any time period for acquiring property which 
                would result in the reduction in the amount of gain 
                recognized with respect to property disposed of by the 
                taxpayer shall terminate on the day before the 
                expatriation date, and
                    ``(B) 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.
            ``(2) Step-up in basis.--Solely for purposes of determining 
        any tax imposed by reason of subsection (a), property which was 
        held by an individual on the date the individual first became a 
        resident of the United States (within the meaning of section 
        7701(b)) shall be treated as having a basis on such date of not 
        less than the fair market value of such property on such date. 
        The preceding sentence shall not apply if the individual elects 
        not to have such sentence apply. Such an election, once made, 
        shall be irrevocable.
            ``(3) Coordination with section 684.--If the expatriation 
        of any individual would result in the recognition of gain under 
        section 684, this section shall be applied after the 
        application of section 684.
    ``(i) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''.
    (b) Tax on Gifts and Bequests Received by United States Citizens 
and Residents From Expatriates.--
            (1) In general.--Subtitle B (relating to estate and gift 
        taxes) is amended by inserting after chapter 14 the following 
        new chapter:

           ``CHAPTER 15--GIFTS AND BEQUESTS FROM EXPATRIATES

``Sec. 2801. Imposition of tax.

``SEC. 2801. IMPOSITION OF TAX.

    ``(a) In General.--If, during any calendar year, any United States 
citizen or resident receives any covered gift or bequest, there is 
hereby imposed a tax equal to the product of--
            ``(1) the highest rate of tax specified in the table 
        contained in section 2001(c) as in effect on the date of such 
        receipt (or, if greater, the highest rate of tax specified in 
        the table applicable under section 2502(a) as in effect on the 
        date), and
            ``(2) the value of such covered gift or bequest.
    ``(b) Tax To Be Paid by Recipient.--The tax imposed by subsection 
(a) on any covered gift or bequest shall be paid by the person 
receiving such gift or bequest.
    ``(c) Exception for Certain Gifts.--Subsection (a) shall apply only 
to the extent that the value of covered gifts and bequests received by 
any person during the calendar year exceeds $10,000.
    ``(d) Tax Reduced by Foreign Gift or Estate Tax.--The tax imposed 
by subsection (a) on any covered gift or bequest shall be reduced by 
the amount of any gift or estate tax paid to a foreign country with 
respect to such covered gift or bequest.
    ``(e) Covered Gift or Bequest.--
            ``(1) In general.--For purposes of this chapter, the term 
        `covered gift or bequest' means--
                    ``(A) any property acquired by gift directly or 
                indirectly from an individual who, at the time of such 
                acquisition, is a covered expatriate, and
                    ``(B) any property acquired directly or indirectly 
                by reason of the death of an individual who, 
                immediately before such death, was a covered 
                expatriate.
            ``(2) Exceptions for transfers otherwise subject to estate 
        or gift tax.--Such term shall not include--
                    ``(A) any property shown on a timely filed return 
                of tax imposed by chapter 12 which is a taxable gift by 
                the covered expatriate, and
                    ``(B) any property 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.
            ``(3) Transfers in trust.--
                    ``(A) Domestic trusts.--In the case of a covered 
                gift or bequest made to a domestic trust--
                            ``(i) subsection (a) shall apply in the 
                        same manner as if such trust were a United 
                        States citizen, and
                            ``(ii) the tax imposed by subsection (a) on 
                        such gift or bequest shall be paid by such 
                        trust.
                    ``(B) Foreign trusts.--
                            ``(i) In general.--In the case of a covered 
                        gift or bequest made to a foreign trust, 
                        subsection (a) shall apply to any distribution 
                        attributable to such gift or bequest from such 
                        trust (whether from income or corpus) to a 
                        United States citizen or resident in the same 
                        manner as if such distribution were a covered 
                        gift or bequest.
                            ``(ii) Deduction for tax paid by 
                        recipient.--There shall be allowed as a 
                        deduction under section 164 the amount of tax 
                        imposed by this section which is paid or 
                        accrued by a United States citizen or resident 
                        by reason of a distribution from a foreign 
                        trust, but only to the extent such tax is 
                        imposed on the portion of such distribution 
                        which is included in the gross income of such 
                        citizen or resident.
                            ``(iii) Election to be treated as domestic 
                        trust.--Solely for purposes of this section, a 
                        foreign trust may elect to be treated as a 
                        domestic trust. Such an election may be revoked 
                        with the consent of the Secretary.
    ``(f) Covered Expatriate.--For purposes of this section, the term 
`covered expatriate' has the meaning given to such term by section 
877A(g)(1).''.
            (2) Clerical amendment.--The table of chapters for subtitle 
        B is amended by inserting after the item relating to chapter 14 
        the following new item:

         ``Chapter 15. Gifts and Bequests From Expatriates.''.

    (c) Definition of Termination of United States Citizenship.--
            (1) In general.--Section 7701(a) is amended by adding at 
        the end the following new paragraph:
            ``(50) 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(g)(4).
                    ``(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.''.
            (2) Conforming amendments.--
                    (A) Paragraph (1) of section 877(e) is amended to 
                read as follows:
            ``(1) In general.--Any long-term resident of the United 
        States who ceases to be a lawful permanent resident of the 
        United States (within the meaning of section 7701(b)(6)) shall 
        be treated for purposes of this section and sections 2107, 
        2501, and 6039G in the same manner as if such resident were a 
        citizen of the United States who lost United States citizenship 
        on the date of such cessation or commencement.''.
                    (B) Paragraph (6) of section 7701(b) is amended by 
                adding at the end the following flush sentence:
        ``An individual shall cease to be treated as a lawful permanent 
        resident of the United States if such individual 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, does not waive the benefits of such treaty 
        applicable to residents of the foreign country, and notifies 
        the Secretary of the commencement of such treatment.''.
                    (C) Section 7701 is amended by striking subsection 
                (n) and by redesignating subsections (o) and (p) as 
                subsections (n) and (o), respectively.
    (d) Information Returns.--Section 6039G is amended--
            (1) by inserting ``or 877A'' after ``section 877(b)'' in 
        subsection (a), and
            (2) by inserting ``or 877A'' after ``section 877(a)'' in 
        subsection (d).
    (e) 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.''.
    (f) Effective Date.--
            (1) In general.--Except as provided in this subsection, the 
        amendments made by this section shall apply to expatriates (as 
        defined in section 877A(g) of the Internal Revenue Code of 
        1986, as added by this section) whose expatriation date (as so 
        defined) is on or after the date of the enactment of this Act.
            (2) Gifts and bequests.--Chapter 15 of the Internal Revenue 
        Code of 1986 (as added by subsection (b)) shall apply to 
        covered gifts and bequests (as defined in section 2801 of such 
        Code, as so added) received on or after the date of the 
        enactment of this Act from transferors whose expatriation date 
        is on or after such date of enactment.

SEC. 302. SPECIAL ENROLLMENT OPTION BY EMPLOYER HEALTH PLANS FOR 
              MEMBERS OF UNIFORM SERVICES WHO LOSE HEALTH CARE 
              COVERAGE.

    (a) In General.--Section 9801(f) (relating to special enrollment 
periods) is amended by adding at the end the following new paragraph:
            ``(3) Loss of military health coverage.--
                    ``(A) In general.--Notwithstanding paragraphs (1) 
                and (2), a group health plan shall permit an employee 
                who is eligible, but not enrolled, for coverage under 
                the terms of the plan (or a dependent of such an 
                employee if the dependent is eligible, but not 
                enrolled, for coverage under such terms) to enroll for 
                coverage under the terms of the plan if each of the 
                following conditions is met:
                            ``(i) The employee or dependent, by reason 
                        of service in the uniformed services (within 
                        the meaning of section 4303 of title 38, United 
                        States Code), was covered under a Federal 
                        health care benefit program (including coverage 
                        under the TRICARE program (as that term is 
                        defined in section 1072 of title 10, United 
                        States Code) or by reason of entitlement to 
                        health care benefits under the laws 
                        administered by the Secretary of Veterans 
                        Affairs or as a member of the uniformed 
                        services on active duty), and the employee or 
                        dependent loses eligibility for such coverage.
                            ``(ii) The employee or dependent is 
                        otherwise eligible to enroll for coverage under 
                        the terms of the plan.
                            ``(iii) The employee requests such coverage 
                        not later than 90 days after the date on which 
                        the coverage described in clause (i) 
                        terminated.
                    ``(B) Effective date of coverage.--Coverage 
                requested under subparagraph (A)(iii) shall become 
                effective not later than the first day of the first 
                month after the date of such request.''.
    (b) Employee Retirement Income Security Act of 1974.--Section 
701(f) of the Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1181(f)) is amended by adding at the end the following:
            ``(3) Loss of military health coverage.--
                    ``(A) In general.--Notwithstanding paragraphs (1) 
                and (2), a group health plan, and a health insurance 
                issuer offering group health insurance coverage in 
                connection with a group health plan, shall permit an 
                employee who is eligible, but not enrolled, for 
                coverage under the terms of the plan (or a dependent of 
                such an employee if the dependent is eligible, but not 
                enrolled, for coverage under such terms) to enroll for 
                coverage under the terms of the plan if each of the 
                following conditions is met:
                            ``(i) The employee or dependent, by reason 
                        of service in the uniformed services (within 
                        the meaning of section 4303 of title 38, United 
                        States Code), was covered under a Federal 
                        health care benefit program (including coverage 
                        under the TRICARE program (as that term is 
                        defined in section 1072 of title 10, United 
                        States Code) or by reason of entitlement to 
                        health care benefits under the laws 
                        administered by the Secretary of Veterans 
                        Affairs or as a member of the uniformed 
                        services on active duty), and the employee or 
                        dependent loses eligibility for such coverage.
                            ``(ii) The employee or dependent is 
                        otherwise eligible to enroll for coverage under 
                        the terms of the plan.
                            ``(iii) The employee requests such coverage 
                        not later than 90 days after the date on which 
                        the coverage described in clause (i) 
                        terminated.
                    ``(B) Effective date of coverage.--Coverage 
                requested under subparagraph (A)(iii) shall become 
                effective not later than the first day of the first 
                month after the date of such request.''.
    (c) Public Health Service Act.--Section 2701(f) of the Public 
Health Service Act (42 U.S.C. 300gg(f)) is amended by adding at the end 
the following:
            ``(3) Loss of military health coverage.--
                    ``(A) In general.--Notwithstanding paragraphs (1) 
                and (2), a group health plan, and a health insurance 
                issuer offering group health insurance coverage in 
                connection with a group health plan, shall permit an 
                employee who is eligible, but not enrolled, for 
                coverage under the terms of the plan (or a dependent of 
                such an employee if the dependent is eligible, but not 
                enrolled, for coverage under such terms) to enroll for 
                coverage under the terms of the plan if each of the 
                following conditions is met:
                            ``(i) The employee or dependent, by reason 
                        of service in the uniformed services (within 
                        the meaning of section 4303 of title 38, United 
                        States Code), was covered under a Federal 
                        health care benefit program (including coverage 
                        under the TRICARE program (as that term is 
                        defined in section 1072 of title 10, United 
                        States Code) or by reason of entitlement to 
                        health care benefits under the laws 
                        administered by the Secretary of Veterans 
                        Affairs or as a member of the uniformed 
                        services on active duty), and the employee or 
                        dependent loses eligibility for such coverage.
                            ``(ii) The employee or dependent is 
                        otherwise eligible to enroll for coverage under 
                        the terms of the plan.
                            ``(iii) The employee requests such coverage 
                        not later than 90 days after the date on which 
                        the coverage described in clause (i) 
                        terminated.
                    ``(B) Effective date of coverage.--Coverage 
                requested under subparagraph (A)(iii) shall become 
                effective not later than the first day of the first 
                month after the date of such request.''.
    (d) Regulations.--The Secretary of the Treasury, the Secretary of 
Labor, and the Secretary of Health and Human Services, consistent with 
section 104 of the Health Insurance Portability and Accountability Act 
of 1996 (42 U.S.C. 300gg-92 note), may promulgate such regulations as 
may be necessary or appropriate to require the notification of 
individuals (or their dependents) of their rights under the amendment 
made by this Act.
    (e) Effective Date.--The amendments made by this section shall take 
effect 90 days after the date of the enactment of this Act.

SEC. 303. INCREASE IN MINIMUM PENALTY ON FAILURE TO FILE A RETURN OF 
              TAX.

    (a) In General.--Subsection (a) of section 6651 is amended by 
striking ``$100'' in the last sentence and inserting ``$225''.
    (b) Effective Date.--The amendment made by this section shall apply 
to returns the due date for the filing of which (including extensions) 
is after December 31, 2007.

            Amend the title so as to read: ``An Act to amend the 
        Internal Revenue Code of 1986 to provide tax relief and 
        protections for military personnel, and for other purposes.''.

            Attest:

                                                             Secretary.
110th CONGRESS

  1st Session

                               H. R. 3997

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                               AMENDMENTS