[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[H.R. 6081 Enrolled Bill (ENR)]

        H.R.6081

                       One Hundred Tenth Congress

                                 of the

                        United States of America


                          AT THE SECOND SESSION

          Begun and held at the City of Washington on Thursday,
            the third day of January, two thousand and eight


                                 An Act


 
   To amend the Internal Revenue Code of 1986 to provide benefits 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 ``Heroes Earnings 
Assistance and Relief Tax Act of 2008''.
    (b) Reference.--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--BENEFITS FOR MILITARY

Sec. 101. Recovery rebate provided to military families.
Sec. 102. Election to include combat pay as earned income for purposes 
          of earned income tax credit.
Sec. 103. Modification of mortgage revenue bonds for veterans.
Sec. 104. Survivor and disability payments with respect to qualified 
          military service.
Sec. 105. Treatment of differential military pay as wages.
Sec. 106. Special period of limitation when uniformed services retired 
          pay is reduced as a result of award of disability 
          compensation.
Sec. 107. Distributions from retirement plans to individuals called to 
          active duty.
Sec. 108. Authority to disclose return information for certain veterans 
          programs made permanent.
Sec. 109. Contributions of military death gratuities to Roth IRAs and 
          Education Savings Accounts.
Sec. 110. Suspension of 5-year period during service with the Peace 
          Corps.
Sec. 111. Credit for employer differential wage payments to employees 
          who are active duty members of the uniformed services.
Sec. 112. State payments to service members treated as qualified 
          military benefits.
Sec. 113. Permanent exclusion of gain from sale of a principal residence 
          by certain employees of the intelligence community.
Sec. 114. Special disposition rules for unused benefits in health 
          flexible spending arrangements of individuals called to active 
          duty.
Sec. 115. Technical correction related to exclusion of certain property 
          tax rebates and other benefits provided to volunteer 
          firefighters and emergency medical responders.

         TITLE II--IMPROVEMENTS IN SUPPLEMENTAL SECURITY INCOME

Sec. 201. Treatment of uniformed service cash remuneration as earned 
          income.
Sec. 202. State annuities for certain veterans to be disregarded in 
          determining supplemental security income benefits.
Sec. 203. Exclusion of AmeriCorps benefits for purposes of determining 
          supplemental security income eligibility and benefit amounts.
Sec. 204. Effective date.

                      TITLE III--REVENUE PROVISIONS

Sec. 301. Revision of tax rules on expatriation.
Sec. 302. Certain domestically controlled foreign persons performing 
          services under contract with United States Government treated 
          as American employers.
Sec. 303. Increase in minimum penalty on failure to file a return of 
          tax.

 TITLE IV--PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL HEALTH 
                                BENEFITS

Sec. 401. Parity in the application of certain limits to mental health 
          benefits.

                     TITLE I--BENEFITS FOR MILITARY

    SEC. 101. RECOVERY REBATE PROVIDED TO MILITARY FAMILIES.
    (a) In General.--Subsection (h) of section 6428 (relating to 
identification number requirement) is amended by adding at the end the 
following new paragraph:
        ``(3) Special rule for members of the armed forces.--Paragraph 
    (1) shall not apply to a joint return where at least 1 spouse was a 
    member of the Armed Forces of the United States at any time during 
    the taxable year.''.
    (b) Effective Date.--The amendments made by this section shall take 
effect as if included in the amendments made by section 101 of the 
Economic Stimulus Act of 2008.
    SEC. 102. ELECTION TO INCLUDE COMBAT PAY AS EARNED INCOME FOR 
      PURPOSES OF EARNED INCOME TAX 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) Conforming Amendment.--Paragraph (4) of section 6428(e) is 
amended by striking ``except that--'' and all that follows through 
``(B) such term shall'' and inserting ``except that such term shall''.
    (c) Sunset Not Applicable.--Section 105 of the Working Families Tax 
Relief Act of 2004 (relating to application of EGTRRA sunset to this 
title) shall not apply to section 104(b) of such Act.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after December 31, 2007.
    SEC. 103. MODIFICATION OF MORTGAGE REVENUE BONDS FOR VETERANS.
    (a) Qualified Mortgage Bonds Used To Finance Residences for 
Veterans Without Regard to First-Time Homebuyer Requirement.--
Subparagraph (D) of section 143(d)(2) (relating to exceptions) is 
amended by striking ``and before January 1, 2008''.
    (b) Increase in Bond Limitation for Alaska, Oregon, and 
Wisconsin.--Clause (ii) of section 143(l)(3)(B) (relating to State 
veterans limit) is amended by striking ``$25,000,000'' each place it 
appears and inserting ``$100,000,000''.
    (c) Definition of Qualified Veteran.--Paragraph (4) of section 
143(l) (defining qualified veteran) is amended to read as follows:
        ``(4) Qualified veteran.--For purposes of this subsection, the 
    term `qualified veteran' means any veteran who--
            ``(A) served on active duty, and
            ``(B) applied for the financing before the date 25 years 
        after the last date on which such veteran left active 
        service.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to bonds issued after December 31, 2007.
    (e) Transition Rule.--In the case of any bond issued after December 
31, 2007, and before the date of the enactment of this Act, 
subparagraph (B) of section 143(l)(4) of the Internal Revenue Code of 
1986, as amended by this section, shall be applied by substituting ``30 
years'' for ``25 years''.
    SEC. 104. 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, 2010.

            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 ``2012'' for ``2010'' 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. 105. 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 (as defined in chapter 43 of title 
        38, United States Code) 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, 2008.
    (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 section 103(b), is amended by adding at the end the 
        following new paragraph:
        ``(12) 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, 2008.
    (c) Provisions Relating to Plan Amendments.--
        (1) In general.--If this subsection applies to any plan or 
    annuity contract amendment, 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).
        (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 subsection 
            (b)(1), and
                (ii) on or before the last day of the first plan year 
            beginning on or after January 1, 2010.
        In the case of a governmental plan (as defined in section 
        414(d) of the Internal Revenue Code of 1986), this subparagraph 
        shall be applied by substituting ``2012'' for ``2010'' in 
        clause (ii).
            (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. 106. SPECIAL PERIOD OF LIMITATION WHEN UNIFORMED SERVICES 
      RETIRED PAY IS REDUCED AS A RESULT OF AWARD OF DISABILITY 
      COMPENSATION.
    (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 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 for ``the date of such 
    determination'' in subparagraph (A) thereof.
    SEC. 107. DISTRIBUTIONS FROM RETIREMENT PLANS TO INDIVIDUALS CALLED 
      TO ACTIVE DUTY.
    (a) In General.--Clause (iv) of section 72(t)(2)(G) is amended by 
striking ``, and before December 31, 2007''.
    (b) Effective Date.--The amendment made by this section shall apply 
to individuals ordered or called to active duty on or after December 
31, 2007.
    SEC. 108. AUTHORITY TO DISCLOSE RETURN INFORMATION FOR CERTAIN 
      VETERANS PROGRAMS MADE PERMANENT.
    (a) In General.--Paragraph (7) of section 6103(l) is amended by 
striking the last sentence thereof.
    (b) Conforming Amendment.--Section 6103(l)(7)(D)(viii)(III) is 
amended by striking ``sections 1710(a)(1)(I), 1710(a)(2), 1710(b), and 
1712(a)(2)(B)'' and inserting ``sections 1710(a)(2)(G), 1710(a)(3), and 
1710(b)''.
    (c) Effective Date.--The amendment made by subsection (a) shall 
apply to requests made after September 30, 2008.
    SEC. 109. 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.
    SEC. 110. 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.
    SEC. 111. 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. 45P. 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 than 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 (31), by striking the period at the 
end of paragraph (32) and inserting ``, plus'', and by adding at the 
end of following new paragraph:
        ``(33) the differential wage payment credit determined under 
    section 45P(a).''.
    (c) No Deduction for Compensation Taken Into Account for Credit.--
Section 280C(a) (relating to rule for employment credits) is amended by 
inserting ``45P(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. 45P. 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. 112. 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. 113. PERMANENT EXCLUSION OF GAIN FROM SALE OF A PRINCIPAL 
      RESIDENCE BY CERTAIN EMPLOYEES OF THE INTELLIGENCE COMMUNITY.
    (a) In General.--Paragraph (9) of section 121(d) is amended by 
striking subparagraph (E).
    (b) Duty Station May Be Inside 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 the date of the enactment of this 
Act.
    SEC. 114. SPECIAL DISPOSITION RULES FOR UNUSED BENEFITS IN HEALTH 
      FLEXIBLE SPENDING ARRANGEMENTS OF INDIVIDUALS CALLED TO ACTIVE 
      DUTY.
    (a) In General.--Section 125 (relating to cafeteria plans) is 
amended by redesignating subsections (h) and (i) as subsection (i) and 
(j), respectively, and by inserting after subsection (g) the following 
new subsection:
    ``(h) Special Rule for Unused Benefits in Health Flexible Spending 
Arrangements of Individuals Called to Active Duty.--
        ``(1) In general.--For purposes of this title, a plan or other 
    arrangement shall not fail to be treated as a cafeteria plan or 
    health flexible spending arrangement merely because such 
    arrangement provides for qualified reservist distributions.
        ``(2) Qualified reservist distribution.--For purposes of this 
    subsection, the term `qualified reservist distribution' means, any 
    distribution to an individual of all or a portion of the balance in 
    the employee's account under such arrangement if--
            ``(A) such individual was (by reason of being a member of a 
        reserve component (as defined in section 101 of title 37, 
        United States Code)) ordered or called to active duty for a 
        period in excess of 179 days or for an indefinite period, and
            ``(B) such distribution is made during the period beginning 
        on the date of such order or call and ending on the last date 
        that reimbursements could otherwise be made under such 
        arrangement for the plan year which includes the date of such 
        order or call.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to distributions made after the date of the enactment of this Act.
    SEC. 115. TECHNICAL CORRECTION RELATED TO EXCLUSION OF CERTAIN 
      PROPERTY TAX REBATES AND OTHER BENEFITS PROVIDED TO VOLUNTEER 
      FIREFIGHTERS AND EMERGENCY MEDICAL RESPONDERS.
    (a) Social Security Taxes.--
        (1) Section 3121(a) (relating to definition of wages) is 
    amended by striking ``or'' at the end of paragraph (21), by 
    striking the period at the end of paragraph (22) and inserting ``; 
    or'', and by inserting after paragraph (22) the following new 
    paragraph:
        ``(23) any benefit or payment which is excludable from the 
    gross income of the employee under section 139B(b).''.
        (2) Section 209(a) of the Social Security Act is amended by 
    striking ``or'' at the end of paragraph (18), by striking the 
    period at the end of paragraph (19) and inserting ``; or'', and by 
    inserting after paragraph (19) the following new paragraph:
        ``(20) Any benefit or payment which is excludable from the 
    gross income of the employee under section 139B(b) of the Internal 
    Revenue Code of 1986).''.
    (b) Unemployment Taxes.--Section 3306(b) (relating to definition of 
wages) is amended by striking ``or'' at the end of paragraph (18), by 
striking the period at the end of paragraph (19) and inserting ``; 
or'', and by inserting after paragraph (19) the following new 
paragraph:
        ``(20) any benefit or payment which is excludable from the 
    gross income of the employee under section 139B(b).''.
    (c) Wage Withholding.--Section 3401(a) (defining wages) is amended 
by striking ``or'' at the end of paragraph (21), by striking the period 
at the end of paragraph (22) and inserting ``; or'', and by inserting 
after paragraph (22) the following new paragraph:
        ``(23) for any benefit or payment which is excludable from the 
    gross income of the employee under section 139B(b).''.
    (d) Effective Date.--The amendments made by this section shall take 
effect as if included in section 5 of the Mortgage Forgiveness Debt 
Relief Act of 2007.

         TITLE II--IMPROVEMENTS IN SUPPLEMENTAL SECURITY INCOME

    SEC. 201. TREATMENT OF UNIFORMED SERVICE CASH REMUNERATION AS 
      EARNED INCOME.
    (a) In General.--Section 1612(a)(1)(A) of the Social Security Act 
(42 U.S.C. 1382a(a)(1)(A)) is amended by inserting ``(and, in the case 
of cash remuneration paid for service as a member of a uniformed 
service (other than payments described in paragraph (2)(H) of this 
subsection or subsection (b)(20)), without regard to the limitations 
contained in section 209(d))'' before the semicolon.
    (b) Certain Housing Payments Treated as In-Kind Support and 
Maintenance.--Section 1612(a)(2) of such Act (42 U.S.C. 1382a(a)(2)) is 
amended--
        (1) by striking ``and'' at the end of subparagraph (F);
        (2) by striking the period at the end of subparagraph (G) and 
    inserting ``; and''; and
        (3) by adding at the end the following:
            ``(H) payments to or on behalf of a member of a uniformed 
        service for housing of the member (and his or her dependents, 
        if any) on a facility of a uniformed service, including 
        payments provided under section 403 of title 37, United States 
        Code, for housing that is acquired or constructed under 
        subchapter IV of chapter 169 of title 10 of such Code, or any 
        related provision of law, and any such payments shall be 
        treated as support and maintenance in kind subject to 
        subparagraph (A) of this paragraph.''.
    SEC. 202. STATE ANNUITIES FOR CERTAIN VETERANS TO BE DISREGARDED IN 
      DETERMINING SUPPLEMENTAL SECURITY INCOME BENEFITS.
    (a) Income Disregard.--Section 1612(b) of the Social Security Act 
(42 U.S.C. 1382a(b)) is amended--
        (1) by striking ``and'' at the end of paragraph (22);
        (2) by striking the period at the end of paragraph (23) and 
    inserting ``; and''; and
        (3) by adding at the end the following:
        ``(24) any annuity paid by a State to the individual (or such 
    spouse) on the basis of the individual's being a veteran (as 
    defined in section 101 of title 38, United States Code), and blind, 
    disabled, or aged.''.
    (b) Resource Disregard.--Section 1613(a) of such Act (42 U.S.C. 
1382b(a)) is amended--
        (1) by striking ``and'' at the end of paragraph (14);
        (2) by striking the period at the end of paragraph (15) and 
    inserting ``; and''; and
        (3) by inserting after paragraph (15) the following:
        ``(16) for the month of receipt and every month thereafter, any 
    annuity paid by a State to the individual (or such spouse) on the 
    basis of the individual's being a veteran (as defined in section 
    101 of title 38, United States Code), and blind, disabled, or 
    aged.''.
    SEC. 203. EXCLUSION OF AMERICORPS BENEFITS FOR PURPOSES OF 
      DETERMINING SUPPLEMENTAL SECURITY INCOME ELIGIBILITY AND BENEFIT 
      AMOUNTS.
    Section 1612(b) of the Social Security Act (42 U.S.C. 1382a(b)), as 
amended by section 202(a) of this Act, is amended--
        (1) in paragraph (23), by striking ``and'' at the end;
        (2) in paragraph (24), by striking the period and inserting ``; 
    and''; and
        (3) by adding at the end the following:
        ``(25) any benefit (whether cash or in-kind) conferred upon (or 
    paid on behalf of) a  participant in an AmeriCorps position 
    approved by the Corporation for  National and Community Service 
    under section 123 of the National and Community Service Act of 1990 
    (42 U.S.C. 12573).''.
    SEC. 204. EFFECTIVE DATE.
    The amendments made by this title shall be effective with respect 
to benefits payable for months beginning after 60 days after the date 
of the enactment of this Act.

                     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 to the extent 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 unless the covered expatriate agrees 
        to such other treatment as the Secretary determines 
        appropriate.
        ``(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 the dollar amount in effect 
under section 2503(b) for such calendar year.
    ``(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) Exceptions for transfers to spouse or charity.--Such term 
    shall not include any property with respect to which a deduction 
    would be allowed under section 2055, 2056, 2522, or 2523, whichever 
    is appropriate, if the decedent or donor were a United States 
    person.
        ``(4) 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) Termination of Section 877.--Section 877 is amended by adding 
at the end the following new subsection:
    ``(h) Termination.--This section shall not apply to any individual 
whose expatriation date (as defined in section 877A(g)(3)) is on or 
after the date of the enactment of this subsection.''.
    (e) 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).
    (f) Clerical Amendment.--The table of sections for subpart A of 
part II of subchapter N of chapter 1 is amended by inserting after the 
item relating to section 877 the following new item:

``Sec. 877A. Tax responsibilities of expatriation.''.

    (g) Effective Date.--
        (1) In general.--Except as provided in this subsection, the 
    amendments made by this section shall apply to any individual 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 (or from the estates of transferors) whose 
    expatriation date is on or after such date of enactment.
    SEC. 302. CERTAIN DOMESTICALLY CONTROLLED FOREIGN PERSONS 
      PERFORMING SERVICES UNDER CONTRACT WITH UNITED STATES GOVERNMENT 
      TREATED AS AMERICAN EMPLOYERS.
    (a) FICA Taxes.--Section 3121 (relating to definitions) is amended 
by adding at the end the following new subsection:
    ``(z) Treatment of Certain Foreign Persons as American Employers.--
        ``(1) In general.--If any employee of a foreign person is 
    performing services in connection with a contract between the 
    United States Government (or any instrumentality thereof) and any 
    member of any domestically controlled group of entities which 
    includes such foreign person, such foreign person shall be treated 
    for purposes of this chapter as an American employer with respect 
    to such services performed by such employee.
        ``(2) Domestically controlled group of entities.--For purposes 
    of this subsection--
            ``(A) In general.--The term `domestically controlled group 
        of entities' means a controlled group of entities the common 
        parent of which is a domestic corporation.
            ``(B) Controlled group of entities.--The term `controlled 
        group of entities' means a controlled group of corporations as 
        defined in section 1563(a)(1), except that--
                ``(i) `more than 50 percent' shall be substituted for 
            `at least 80 percent' each place it appears therein, and
                ``(ii) the determination shall be made without regard 
            to subsections (a)(4) and (b)(2) of section 1563.
        A partnership or any other entity (other than a corporation) 
        shall be treated as a member of a controlled group of entities 
        if such entity is controlled (within the meaning of section 
        954(d)(3)) by members of such group (including any entity 
        treated as a member of such group by reason of this sentence).
        ``(3) Liability of common parent.--In the case of a foreign 
    person who is a member of any domestically controlled group of 
    entities, the common parent of such group shall be jointly and 
    severally liable for any tax under this chapter for which such 
    foreign person is liable by reason of this subsection, and for any 
    penalty imposed on such person by this title with respect to any 
    failure to pay such tax or to file any return or statement with 
    respect to such tax or wages subject to such tax. No deduction 
    shall be allowed under this title for any liability imposed by the 
    preceding sentence.
        ``(4) Provisions preventing double taxation.--
            ``(A) Agreements.--Paragraph (1) shall not apply to any 
        services which are covered by an agreement under subsection 
        (l).
            ``(B) Equivalent foreign taxation.--Paragraph (1) shall not 
        apply to any services if the employer establishes to the 
        satisfaction of the Secretary that the remuneration paid by 
        such employer for such services is subject to a tax imposed by 
        a foreign country which is substantially equivalent to the 
        taxes imposed by this chapter.
        ``(5) Cross reference.--For relief from taxes in cases covered 
    by certain international agreements, see sections 3101(c) and 
    3111(c).''.
    (b) Social Security Benefits.--Subsection (e) of section 210 of the 
Social Security Act (42 U.S.C. 410(e)) is amended--
        (1) by striking ``(e) The term'' and inserting ``(e)(1) The 
    term'',
        (2) by redesignating clauses (1) through (6) as clauses (A) 
    through (F), respectively, and
        (3) by adding at the end the following new paragraph:
    ``(2)(A) If any employee of a foreign person is performing services 
in connection with a contract between the United States Government (or 
any instrumentality thereof) and any member of any domestically 
controlled group of entities which includes such foreign person, such 
foreign person shall be treated as an American employer with respect to 
such services performed by such employee.
    ``(B) For purposes of this paragraph--
        ``(i) The term `domestically controlled group of entities' 
    means a controlled group of entities the common parent of which is 
    a domestic corporation.
        ``(ii) The term `controlled group of entities' means a 
    controlled group of corporations as defined in section 1563(a)(1) 
    of the Internal Revenue Code of 1986, except that--
            ``(I) `more than 50 percent' shall be substituted for `at 
        least 80 percent' each place it appears therein, and
            ``(II) the determination shall be made without regard to 
        subsections (a)(4) and (b)(2) of section 1563 of such Code.
    A partnership or any other entity (other than a corporation) shall 
    be treated as a member of a controlled group of entities if such 
    entity is controlled (within the meaning of section 954(d)(3) of 
    such Code) by members of such group (including any entity treated 
    as a member of such group by reason of this sentence).
    ``(C) Subparagraph (A) shall not apply to any services to which 
paragraph (1) of section 3121(z) of the Internal Revenue Code of 1986 
does not apply by reason of paragraph (4) of such section.''.
    (c) Effective Date.--The amendment made by this section shall apply 
to services performed in calendar months beginning more than 30 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 ``$135''.
    (b) Effective Date.--The amendment made by this section shall apply 
to returns required to be filed after December 31, 2008.

TITLE IV--PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL HEALTH 
                                BENEFITS

    SEC. 401. PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL 
      HEALTH BENEFITS.
    (a) Internal Revenue Code of 1986.--Subsection (f) of section 9812 
is amended--
        (1) by striking ``and'' at the end of paragraph (2), and
        (2) by striking paragraph (3) and inserting the following new 
    paragraphs:
        ``(3) on or after January 1, 2008, and before the date of the 
    enactment of the Heroes Earnings Assistance and Relief Tax Act of 
    2008, and
        ``(4) after December 31, 2008.''.
    (b) Employee Retirement Income Security Act of 1974.--Subsection 
(f) of section 712 of the Employee Retirement Income Security Act of 
1974 (29 U.S.C. 1185a(f)) is amended by striking ``services furnished 
after December 31, 2007'' and inserting ``services furnished--
        ``(1) on or after January 1, 2008, and before the date of the 
    enactment of the Heroes Earnings Assistance and Relief Tax Act of 
    2008, and
        ``(2) after December 31, 2008.''.
    (c) Public Health Service Act.--Subsection (f) of section 2705 of 
the Public Health Service Act (42 U.S.C. 300gg-5(f)) is amended by 
striking ``services furnished after December 31, 2007'' and inserting 
``services furnished--
        ``(1) on or after January 1, 2008, and before the date of the 
    enactment of the Heroes Earnings Assistance and Relief Tax Act of 
    2008, and
        ``(2) after December 31, 2008.''.

                               Speaker of the House of Representatives.

                            Vice President of the United States and    
                                               President of the Senate.