[Congressional Record Volume 147, Number 156 (Tuesday, November 13, 2001)]
[Senate]
[Pages S11722-S11725]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

  By Mr. McCain (for himself, Mr. Allard, Mr. Lieberman, Ms. Snowe, Mr. 
Levin, Mr. Murkowski, Mr. Cleland, Mr. Inhofe, Ms. Landrieu, Mr. Burns, 
Mr. Durbin, Mr. Sessions, and Mr. DeWine):
  S. 1678. A bill to amend the Internal Revenue Code of 1986 to provide 
that a member of the uniformed services or the Foreign Service shall be 
treated as using a principal residence while away from home on 
qualified official extended duty in determining the exclusion of gain 
from the sale of such residence; to the Committee on Finance.
  Mr. McCAIN. Madam President, I, along with Senators Allard, 
Lieberman, Snowe, Levin, Murkowski, Cleland, Inhofe, Landrieu, Burns, 
Durbin, Sessions and DeWine are proud to sponsor this bill to allow 
members of the Uniformed and Foreign Services, who are deployed or are 
away on extended active duty, to qualify for the same tax relief on the 
profit generated when they sell their main residence as other 
Americans. I am pleased to announce that the Secretary of State greatly 
appreciates this legislation and the strong support of this measure by 
the senior uniformed military leadership, the 31-member associations of 
The Military Coalition, the American Foreign Service Association, and 
the American Bar Association. Despite such considerable support, I have 
heard that there are some lower ranking officials from the Office of 
Management and Budget that may have some minor concerns with this 
legislation but they have not conveyed their concerns to me or my staff 
directly.
  This bill will not create a new tax benefit. Let me say that again: 
this bill will not create a new tax benefit, it merely modifies current 
law to include the time members of the Uniformed and Foreign Services 
are away from home on active duty when calculating the number of years 
the homeowner has lived in their primary residence. In short, this bill 
is narrowly tailored to remedy a specific dilemma, it treats service 
members and foreign service officers fairly, by treating them like all 
other Americans.
  The Taxpayer Relief Act of 1997 delivered sweeping tax relief to 
millions of Americans through a wide variety of important tax changes 
that affect individuals, families, investors, and businesses. It was 
also one of the most complex tax laws enacted in recent history.
  As with any complex legislation, there are winners and losers. But in 
this instance, there are unintended losers: service members and Foreign 
Service Officers.
  The 1997 act gives taxpayers who sell their principal residence a 
much-needed tax break. Prior to the 1997 act, taxpayers received a one-
time exclusion on the profit they made when they sold their principal 
residence, but the taxpayer had to be at least 55 years old and live in 
the residence for 2 of the 5 years preceding the sale. This provision 
primarily benefitted elderly taxpayers, while not providing any relief 
to younger taxpayers and their families.
  Fortunately, the 1997 act addressed this issue. Under this law, 
taxpayers who sell their principal residence on or after May 7, 1997, 
are not taxed on the first $250,000 of profit from the sale; joint 
filers are not taxed on the first $500,000 of profit they make from 
selling their principal residence. The taxpayer must meet two 
requirements to qualify for this tax relief. The taxpayer must: one, 
own the home for at least 2 of the 5 years preceding the sale; and two, 
live in the home as their main home for at least 2 years of the last 5 
years.
  I applaud the bi-partisan cooperation that resulted in this much-
needed form of tax relief. The home sales provision sounds great and it 
is. Unfortunately, the second part of this eligibility test 
unintentionally and unfairly prohibits many of our men and women in the 
Armed Forces and Foreign services from qualifying for this beneficial 
tax relief.
  Constant travel across the U.S. and abroad is inherent in the 
military and Foreign Services. Nonetheless, some service members and 
Foreign Service Officers choose to purchase a home in a certain locale, 
even though they will not live there much of the time. Under the new 
law, if a service man does not have a spouse who resides in the house 
during his absence or the spouse is also in the military and also must 
travel, that service member will not qualify for the full benefit of 
the new home sales provision, because no one ``lives'' in the home for 
the required period of time. The law is prejudiced against dual-
military couples who are often away on active duty, because they would 
not qualify for the home sales exclusion because neither spouse 
``lives'' in the house for enough time to qualify for the exclusion.
  This bill simply remedies an inequality in the 1997 law. The bill 
amends the Internal Revenue Code so that service members and Foreign 
Service Officers

[[Page S11723]]

will be considered to be using their house as their main residence for 
any period that they are away on extended active duty. In short, active 
and reserve service members will be deemed to be using their house as 
their main home, even if they are stationed in Bosnia, the Persian 
Gulf, in the ``no man's land,'' commonly called the DMZ between North 
and South Korea, or anywhere else on active duty orders.
  In 1998 alone, the United States had approximately 37,000 men and 
women deployed to the Persian Gulf region, preparing to go into combat, 
if so ordered. There were also 8,000 American troops deployed in 
Bosnia, and another 70,000 U.S. military personnel deployed in support 
of other commitments worldwide. That is a total of 108,000 men and 
women deployed outside of the United States, away from their primary 
home, protecting and furthering the freedoms we Americans hold so dear. 
Today since the September 11 attacks on the United States we've asked 
over 100,000 service members to deploy abroad to seek out and destroy 
the terrorists and their supporting organizations responsible for this 
incomprehensible deed.
  The average American participates in our Nation's growth through home 
ownership. Appreciation in the value of a home because of our country's 
overall economic growth allows everyday Americans to participate in our 
country's prosperity. Fortunately, the Taxpayer Relief Act of 1997 
recognized this and provided this break to lessen the amount of tax 
most Americans will pay on the profit they make when they sell their 
homes.
  The 1997 home sale provision unintentionally discourages home 
ownership among members of the Uniformed and Foreign Services, which is 
bad fiscal policy. Home ownership has numerous benefits for communities 
and individual homeowners. Owning a home provides Americans with a 
sense of community and adds stability to our Nation's neighborhoods. 
Home ownership also generates valuable property taxes for our nation's 
communities.
  We also cannot afford to discourage military service by penalizing 
military personnel with higher taxes merely because they are doing 
their job. Military and Foreign service entails sacrifice, such as long 
periods of time away from friends and family and the constant threat of 
mobilization into hostile territory. We must not use the tax code to 
heap additional burdens upon our men and women in uniform.
  In my view, the way to decrease the likelihood of further inequities 
in the tax code, intentional or otherwise, is to adopt a fairer, 
flatter tax system that is far less complicated than our current 
system. But, in the meantime, we must insure that the tax code is as 
fair and equitable as possible.
  The Taxpayer Relief Act of 1997 was designed to provide sweeping tax 
relief to all Americans, including our men and women in uniform. It is 
true that there are winners and losers in any tax code, but this 
inequity was unintended. Enacting this narrowly-tailored remedy to 
grant equal tax relief to the members of our Uniformed Services 
restores fairness and consistency to our increasingly complex tax code.
  I request unanimous consent that my statement and the letters of 
support be printed in the Record and that the full text of the 
legislation that I have introduced be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 1678

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Military Homeowners Equity 
     Act''.

     SEC. 2. MEMBER OF UNIFORMED SERVICE AND FOREIGN SERVICE 
                   TREATED AS USING PRINCIPAL RESIDENCE WHILE AWAY 
                   FROM HOME ON QUALIFIED OFFICIAL EXTENDED DUTY 
                   IN DETERMINING EXCLUSION OF GAIN ON SALE OF 
                   SUCH RESIDENCE.

       (a) In General.--Section 121(d) of the Internal Revenue 
     Code of 1986 (relating to special rules) is amended by adding 
     at the end the following:
       ``(9) Determination of use during periods of qualified 
     official extended duty with uniformed service or foreign 
     service.--
       ``(A) In general.--A taxpayer shall be treated as using 
     property as a principal residence during any period--
       ``(i) the taxpayer owns such property, and
       ``(ii) the taxpayer (or the taxpayer's spouse) is serving 
     on qualified official extended duty as a member of a 
     uniformed service or of the Foreign Service,

     but only if the taxpayer owned and used the property as a 
     principal residence for any period before the period of 
     qualified official extended duty.
       ``(B) Qualified official extended duty.--For purposes of 
     this paragraph--
       ``(i) In general.--The term `qualified official extended 
     duty' means any period of extended duty during which the 
     member of a uniformed service or the Foreign Service is under 
     a call or order compelling such duty at a duty station which 
     is a least 50 miles from the property described in 
     subparagraph (A) or compelling residence in Government 
     furnished quarters while on such duty.
       ``(ii) Extended duty.--The term `extended duty' means any 
     period of active duty pursuant to a call or order to such 
     duty for a period in excess of 90 days or for an indefinite 
     period.
       ``(C) Definitions.--For purposes of this paragraph--
       ``(i) Uniformed service.--The term `uniformed service' has 
     the meaning given such term by section 101(a)(5) of title 10, 
     United States Code.
       ``(ii) Foreign service of the united states.--The term 
     `member of the Foreign Service' has the meaning given the 
     term `member of the Service' by paragraph (1), (2), (3), (4), 
     or (5) of section 103 of the Foreign Service Act of 1980.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to sales or exchanges on or after the date of the 
     enactment of this Act.
                                  ____



                                       The Military Coalition,

                                 Alexandria, VA, November 6, 2001.
     Hon. John McCain,
     U.S. Senate,
     Washington, DC.
       Dear Senator McCain: The Military Coalition, a consortium 
     of nationally prominent uniformed services and veterans 
     organizations, representing more than 5.5 million members, 
     plus their families and survivors, is grateful to you for 
     introducing The Military Homeowners Equity Act--a bill that 
     would restore capital gains tax equity for military 
     homeowners.
       Your legislation is essential to correct a serious 
     oversight in the Taxpayer Relief Act of 1997, which 
     inadvertently penalizes servicemembers who are assigned away 
     from their principal residence for more than three years on 
     government orders. Very often, servicemembers keep their 
     homes while reassigned to overseas or elsewhere in the hopes 
     of returning to their residence. On occasions when this 
     proves impossible, and the home must be sold to permit 
     purchase of a new principal residence, servicemembers find 
     themselves subjected to substantial tax liabilities--all 
     because military orders kept them from occupying their 
     principal residence for at least two of the five years before 
     the sale.
       In 1999, both the House and Senate passed corrective 
     legislation (H.R. 865) as part of the Taxpayer Refund and 
     Relief Act of 1999, but the President vetoed this bill over 
     an unrelated issue. Your new bill will be important to 
     resurrect this fairness issue and allow servicemembers to 
     comply with government orders and leave home to serve their 
     country without risking a large capital gains tax liability.
       The Military Coalition pledges to work with you to seek 
     inclusion of your bill in the pending economic stimulus 
     package so military members can once again enjoy the same 
     capital gains tax relief already provided to all other 
     Americans.
           Sincerely,
                                           The Military Coalition.
       (Signed by representatives of the following organizations:)
         Air Force Association; Air Force Sergeants Association; 
           Army Aviation Assn. of America; Assn. of Military 
           Surgeons of the United States; Assn. of the US Army; 
           Commissioned Officers Assn. of the US Public Health 
           Service, Inc.; CWO & WO Assn. US Coast Guard; Enlisted 
           Association of the National Guard of the US; Fleet 
           Reserve Assn.; Gold Star Wives of America, Inc.; Jewish 
           War Veterans of the USA; Marine Corps League; Marine 
           Corps Reserve Officers Assn.; Military Order of the 
           Purple Heart; National Guard Assn. of the US; Nat'l 
           Military Family Assn.
         National Order of Battlefield Commissions; Naval Enlisted 
           Reserve Assn.; Naval Reserve Assn.; Navy League of the 
           US; Non Commissioned Officers Assn. of the United 
           States of America; Reserve Officers Assn.; Society of 
           Medical Consultants to the Armed Forces; The Military 
           Chaplains Assn. of the USA; The Retired Enlisted Assn.; 
           The Retired Officers Assn.; United Armed Forces Assn.; 
           USCG Chief Petty Officers Assn.; US Army Warrant 
           Officers Assn.; Veterans of Foreign Wars of the US; 
           Veterans' Widows International Network, Inc.

[[Page S11724]]

           
                                  ____
                                                  American Foreign


                                          Service Association,

                                 Washington, DC, November 5, 2001.
     Hon. John McCain,
     Senate Russell Building,
     Washington, DC.
       Dear Senator McCain: On behalf of the 23,000 active-duty 
     and retired members of the Foreign Service which the American 
     Foreign Service Association (AFSA) represents, thank you for 
     your leadership and support with your soon-to-be-introduced 
     bill extending to the Uniformed Services and the Foreign 
     Service the tax treatment enjoyed by all other Americans when 
     they sell their principal residence.
       As you know this is an important active-duty issue for both 
     the Uniformed Services and the Foreign Service. Your bill, 
     amending section 121(d) of the Internal Revenue Code of 1986, 
     addresses an inequity faced by our members because of the 
     particular nature of our profession. As you are well aware, 
     our careers require us to live for years at a time away from 
     our homes in duty posts around the world in service to our 
     nation. In the case of the Foreign Service, our duty 
     assignments range from 2-4 years. Back-to-back assignments 
     abroad are common. It is not unusual for a member of the 
     Foreign Service to spend six or more years abroad before 
     returning to Washington for an assignment here. With the 
     current two-in-five year occupancy test, many of our members 
     in both the Uniformed Services and the Foreign Service find 
     that we do not have the same flexibility in selling our homes 
     as enjoyed by our fellow Americans. After several years 
     abroad, there are many reasons why we may wish to sell our 
     homes upon returning home. As with other Americans, we would 
     like our homes to reflect and be suited to the changes in our 
     lives--the increase or decrease in the size of our families, 
     divorce, retirement, promotions and the ability to pay more 
     for a house, the schools our children would attend, etc. Yet 
     because of current law, we cannot sell our principal 
     residences without living in them again for two years or else 
     pay a serious tax penalty. Your bill, gratefully, addresses 
     these problems.
       The members of the Uniformed Services and the Foreign 
     Service have been faced with this problem since the change in 
     the tax code in 1997. We hope that your provision can become 
     law soon. If we can be of any assistance, please do not 
     hesitate to contact me or Ken Nakamura, AFSA's Director of 
     Congressional Relations at (202) 944-5517 or by e-mail at 
     [email protected].
           Sincerely,
                                                   John K. Naland,
     President.
                                  ____

                                                 October 31, 2001.
     Hon. John McCain,
     U.S. Senate,
     Washington, DC.
       Dear Senator McCain: Your efforts to improve the quality of 
     service enjoyed by our Navy-Marine Corps team are greatly 
     appreciated. I would like to extend my support for the 
     legislation that you intend to introduce to correct the tax 
     disadvantage created by The Tax Reform Act of 1997.
       The Marine Corps has been tracking several intended to 
     correct this tax disadvantage. As you know, The Tax Reform 
     Act repealed certain portions of the existing law that 
     allowed military members to maintain the status quo with 
     other taxpayers for exclusion of capital gains. The Act 
     provided for an exclusion, obviously not intended to 
     disadvantage military service members or members of the 
     Foreign Service. In order to qualify, a taxpayer must ``own 
     and use'' the property for two of the five years preceding 
     the sale. Since our personnel seldom remain in one location 
     for over three years, it is difficult to qualify for the 
     exclusion.
       Please let me know if there is any way in which I can be of 
     assistance or service.
           Semper Fidelis,

                                                   J.L. Jones,

                                       General, U.S. Marine Corps,
     Commandant of the Marine Corps.
                                  ____

                                         American Bar Association,


                                  Governmental Affairs Office,

                                 Washington, DC, November 7, 2001.
     Hon. John M. McCain,
     Russell Senate Office Building,
     Washington, DC.
       Dear Senator McCain: On behalf of the American Bar 
     Association, I would like to commend you for your leadership 
     in developing a proposal on the issue of the military 
     homeowners capital gains exemption. Such legislation is 
     needed to correct an inequity that occurred as a result of 
     the Taxpayer Relief Act of 1997 (Public Law No: 105-34).
       As you know, Section 121 of the Internal Revenue Code 
     permits a single taxpayer to exclude up to $250,000 of the 
     capital gains on the sale of a principal residence and 
     permits a married couple filing jointly to exclude up to 
     $500,000 on such a sale. Yet in order to qualify for such an 
     exclusion, a taxpayer must have owned and used the home as a 
     principal residence for two out of the five years prior to 
     its sale. Otherwise, a taxpayer must pay taxes on all or a 
     pro rata share of the capital gains on the sale of the home.
       Unfortunately, this provision penalizes service members who 
     are unable to use a principal residence for two out of the 
     five years prior to its sale, because they are deployed 
     overseas or required to live in military housing. The ABA 
     urges Congress to amend Section 121 of the IRC to either: (1) 
     treat time spent away from a principal residence while away 
     from home on official active duty as counting towards the 
     ownership and use requirement, or (2) suspend the ownership 
     and use requirement for time spent away from a principal 
     residence due to official active duty. Earlier this year, the 
     ABA submitted comments to the Internal Revenue Service on 
     proposed regulations regarding Section 121. A copy of our 
     comments is enclosed for your review.
       We want to thank you for your plans to rectify the inequity 
     created for service members by Section 121. We look forward 
     to working with you to establish a military homeowners 
     capital gains exemption.
           Sincerely,
                                                  Robert D. Evans,
                                                         Director.

  Mr. ALLARD. Madam President, I want to thank Senator McCain for 
offering the ``Military Homeowner Equity Act'' and voice my full 
support as original sponsor. The bill provides tax equity to members of 
the uniformed services and the Foreign Service by permitting them to 
benefit from the capital gains tax exemption when they sell a principal 
residence, as other Americans enjoy. The bill does so by providing that 
absences from the principal residence due to serving on a qualified 
official extended duty as a member of a uniformed or Foreign Service of 
the United States be treated as using the residence in determining the 
exclusion of gain from the sale of such residence.
  This bill does not create a new benefit, it simply adjusts an 
oversight and brings fairness and equality to the Code by recognizing 
the unique circumstances of the members of the uniformed and Foreign 
Services. This proposed correction is not new to this Congress. The 
Taxpayer Refund and Relief Act, which passed both the House and Senate 
during the 106th Congress included provisions to correct this problem. 
Unfortunately, that bill was vetoed.
  The citizens of this country earned the many improvements made to the 
tax code in the Taxpayer Relief Act of 1997. Under this law, taxpayers 
who sell their residence are not taxed on the first $250,000 of profit 
from the sale, $500,000 for joint filers. This is a well deserved tax 
break that encourages and rewards home ownership. The taxpayer must 
meet two requirements to qualify for this relief. First, they must own 
the home for at least 2 of the last 5 years, and second they must live 
in the home for at least 2 of the last 5 years. It is the latter 
requirement that is not fair or equitable to our service members.
  The requirement for a taxpayer to have lived in a principal residence 
for 2 of the previous 5 years from the date of sale in order to take 
advantage of the full capital gains exclusion on the sale of a 
principal residence is difficult if not impossible for our career 
service members to meet. Unlike most Americans, career members of our 
military must, as a matter of law, serve throughout the world based on 
the needs of the nation. Our Foreign Service personnel, on average, 
spend more than 55 percent of their career abroad, for periods of 2 to 
4 years. Consecutive tours keep our uniformed and Foreign Service 
members away from a ``principal residence'' far beyond the 5-year test 
period required in the current tax law. The unique circumstances of our 
uniformed and Foreign Service members effectively exclude them from 
taking full advantage of the 1997 changes in the tax law if they wish 
to sell their home.
  Service members move at the direction of the U.S. Government. They 
pick up and move their families on a regular basis whenever the need of 
their service requires them to move. It may be possible for service 
members to purchase a home at some locations, but selling that home and 
purchasing another at the next location is often not possible. This 
happens when their new location is overseas, they are assigned to live 
in government housing, off-post housing is not available for sale, or 
home prices in the new area are simply not within their budget. Thus, 
frequently they are unable to meet the requirement to live in a house 2 
of the last 5 years preceding a sale.
  Additionally, our career service members need and want to sell their 
homes for all of the multitude of reasons that most Americans sell. 
They may have an increase or a decrease in the size of the family or 
want to change neighborhoods or schools. They may have the ability to 
afford more because of promotions or salary increases or it may simply 
be time to retire and leave the service. They should not be

[[Page S11725]]

penalized for their time away when buying and selling their home was 
impossible or impractical.
  The intent of the capital gains exclusion in the IRS code is to 
encourage home ownership by exempting capital gains taxes on the sale 
their home and allow more Americans to enjoy our country's prosperity. 
Again, the situation that career service members are in makes it 
difficult, or impossible, to follow this course of action. This bill 
remedies the situation. I urge my colleagues to join us in co-
sponsoring this legislation.
                                 ______