[Congressional Record Volume 148, Number 105 (Monday, July 29, 2002)]
[Senate]
[Pages S7498-S7500]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BAUCUS (for himself, Mr. Grassley, Mr. McCain, Mr. DeWine, 
        Ms. Landrieu, Mr. Johnson, Mrs. Carnahan, Mr. Hatch, Mr. 
        Rockefeller, Mrs. Lincoln, Mr. Torricelli, Mr. Durbin, Mr. 
        Murkowski, and Mr. Kerry):
  S. 2816. A bill to amend the Internal Revenue Code of 1986 to improve 
tax equity for military personnel, and for other purposes; to the 
Committee on Finance.
  Mr. BAUCUS. Mr. President, I rise today to introduce the Foreign and 
Armed Services Tax Fairness Act of 2002, FAST Fairness, that will not 
only correct inequities in the current tax code our military men and 
women are subject to, but it will also provide incentives for our 
dedicated forces to continue their service to America.
  On July 9, 2002, the House passed unanimously a bill, H.R. 5063, that 
provided limited relief to military personnel. The bill would provide a 
special rule for members of the armed forces in determining the 
exclusion of gain from the sale of a principal residence and would 
restore the tax-exempt status of death gratuity payments to members of 
the armed forces. I support the efforts of the House, but believe we 
can go farther.
  These are the men and women that put their lives on the line for our 
freedom on a daily basis. We need to ensure that laws that we here in 
Congress pass do not negatively impact them. We should also develop 
sound policy that serves as an incentive for our youth to follow in the 
steps of the men and women that went before them to defend our country.
  It is with these principles in mind that I move forward with this 
military tax package and incorporate additional provisions already 
introduced by my colleagues. I would now like to describe the 
provisions that I have chosen to include in this critical piece of 
legislation:
  On July 24, 2002, Senator Carnahan introduced S. 2783, which would 
restore the tax exempt status of all death gratuity payments. This 
proposal is similar to the provision included in H.R. 5063.
  Why is this provision so important? Under current law, death gratuity 
benefits are excludable from income only to the extent that they were 
as of September 9, 1986. In 1986, the death gratuity benefit was 
$3,000. In 1991, the benefit was increased to $6,000, but the tax code 
was never adjusted to exclude the additional $3,000 from income. 
Because of this oversight, the U.S. government has been taxing families 
for the death of a family member who died in combat. This is just 
wrong.
  I support the provisions of H.R. 5063 and S. 2783, therefore I have 
included them in this piece of legislation.
  In 1997, Congress passed legislation revising the taxation of capital 
gains on the sale of a person's principal residence. The new rule is 
that up to $250,000, $500,000 per couple, is excluded on that sale of a 
principal residence if the individual has lived in the house for at 
least two of the previous five years.
  However, when enacted, Congress failed to provide a special rule for 
military and Foreign Service personnel who are required to move either 
within the U.S. or abroad. Senators McCain and Graham both have 
introduced legislation to address this oversight.
  I agree that we should adjust the rule for our service men and women. 
We shouldn't penalize them for choosing to serve our country. My 
proposal would permit service personnel and members of the Foreign 
Service to suspend the five-year period while away on assignment, 
meaning those years would count toward neither the two years nor the 
five year periods. This is a also similar to provisions on H.R. 5063.
  The Department of Defense provides payments to members of the Armed 
Services to offset diminution in housing values due to military base 
realignment or closure. For example, if a house near a base was worth 
$180,000 prior to the base closure and $100,000 after the base closure, 
DOD may provide the owner with a payment to offset some, but not all of 
the $80,000 diminution in value. Under current law, those amounts are 
taxable as compensation.
  There will be another round of base closures in the near future. That 
fate was decided in the FY2002 Defense Authorization bill. We should 
ensure that those men and women losing value in their homes due to a 
federal government decision are not adversely affected financially. The 
proposal would provide that payments for lost value are not includible 
into income. Recently, Senator Cleland introduced a package that 
included this provision. I thank him for his unending pursuit to 
provide military personnel with the best quality of life available. 
And, I'm happy to include this provision in my legislation.
  Under current law, military personnel in a combat zone are afforded 
an extended period for filing tax returns. However, this does not apply 
to contingency operations. This proposal would extend the same benefits 
to military personnel assigned to contingency operations.
  It can't be easy trying to figure out our complicated tax system 
while you are overseas and protecting our nation's freedom. Those men 
and women that have been sent to uphold freedom in other countries are 
confronted with similar circumstances, such as in Operation Just Cause 
in Panama, 1989, or in Operation Restore Hope in Somalia in 1992 and 
1993, or in Operation Uphold Democracy in Haiti, 1994. Contingency 
operations are just as demanding as combat zone deployment, although 
not always in the same manner. I would like to thank Senator Johnson 
for introducing S. 2785. It is important that we support all our troops 
when they are overseas.

[[Page S7499]]

  Some reservists who travel one weekend per month and two weeks in the 
summer for reserve duty incur significant travel and lodging expenses. 
Under current law, these are deductible as itemized deductions but must 
exceed 2 percent of adjusted gross income. For lower income reservists, 
this deduction does not provide a benefit, because they do not itemize. 
For higher income reservists, the 2 percent floor limits the amount of 
the benefit of the deductions.
  In my home state of Montana, we have approximately 3500 reservists, 
800 of which travel each month across the State for their training. 
These 800 reservists pay out of their own pocket the expense for 
travel, and hotel rooms. In Montana we rank 48th in the Nation for per 
capita personal income. I know it can't be easy for Montanans to incur 
approximately $200 in expenses each and every month. Yet, they continue 
selflessly to provide their services to our country at their own 
expense. For those reservists that travel out of State for their 
training, this expense is higher on average. This proposal would 
provide an above the line deduction for overnight travel costs and 
would be available for all reservists and members of the National 
Guard.

  This issue is currently addressed in S. 540, which Senator DeWine 
introduced back in March of 2001. I can't tell you just how many people 
have contacted our office in support of this bill. I support what this 
bill does and I am glad that we can include some of its provisions in 
my military tax package.
  Recently, Senator Harkin introduced S. 2789, which would expand the 
membership for Veteran's organizations. Currently, qualified veterans' 
organizations under section 501(c)(19) of the tax code are both tax-
exempt and contributions to the organization are tax-deductible. In 
order to qualify under 501(c)(19), the organization must meet several 
tests, including 75 percent of the members must be current or former 
active military, and substantially all of the members must be either 
current or former active military or widows of former active military. 
The proposal would permit lineal descendants and ancestors to qualify 
for the ``substantially all'' test.
  It is important that our veterans' organizations continue the good 
work that they do. But, as the organizations age, they are in danger of 
losing their tax-exempt status. I support Senator Harkin's bill, as 
does the American Legion. I have included it in my tax package.
  Finally, I want to ensure that women in the military can continue 
their dedicated service even once they have entered motherhood knowing 
that their children are being well taken care of. The military provides 
extensive childcare benefits to its employees. DOD employees at DOD-
owned facilities provide childcare services while other areas contract 
out their childcare.
  When Congress passed the Tax Reform Act of 1986, we included a 
provision stating that qualified military benefits are excluded from 
income. It is not absolutely clear whether child care provisions are 
covered under this provision. The proposal would clarify that any 
childcare benefit provided to military personnel would be excludable 
from income. Senator Landrieu has introduced S. 2807, a similar 
measure. I support this measure and am proud to include it in this 
piece of legislation.
  It is my intention to mark-up this legislation soon in hopes that we 
can move it through the Senate quickly. It is important that we 
continue to show members of the armed forces our support and solidarity 
during this time of conflict. The War on Terrorism has brought to light 
the essential role the armed services play in upholding freedom 
throughout the world. I would like to see a military tax equity bill 
signed into law by the President before the end of the year.
  Mr. President, I ask consent that the text of the bill be printed in 
the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2816

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

     SECTION 1. SHORT TITLE; ETC.

       (a) Short Title.--This Act may be cited as the ``Foreign 
     and Armed Services Tax Fairness Act of 2002''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.
       (c) Table of Contents.--The table of contents for this Act 
     is as follows:

Sec. 1. Short title; etc.
Sec. 2. Restoration of full exclusion from gross income of death 
              gratuity payment.
Sec. 3. Special rule for members of uniformed services and Foreign 
              Service in determining exclusion of gain from sale of 
              principal residence.
Sec. 4. Qualified military base realignment and closure fringe benefit.
Sec. 5. Extension of tax filing delay provisions to military personnel 
              serving in contingency operations.
Sec. 6. Deduction of certain expenses of members of the reserve 
              component.
Sec. 7. Modification of membership requirement for exemption from tax 
              for veterans' organizations.
Sec. 8. Clarification of the treatment of dependent care assistance 
              programs sponsored by the Department of Defense for 
              members of the Armed Forces of the United States.

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

       (a) In General.--Subsection (b)(3) of section 134 (relating 
     to certain military benefits) is amended by adding at the end 
     the following new subparagraph:
       ``(C) Exception for death gratuity adjustments made by 
     law.--Subparagraph (A) shall not apply to any adjustment to 
     the amount of death gratuity payable under chapter 75 of 
     title 10, United States Code, which is pursuant to a 
     provision of law enacted after September 9, 1986.''.
       (b) Conforming Amendment.--Subparagraph (A) of section 
     134(b)(3) is amended by striking ``subparagraph (B)'' and 
     inserting ``subparagraphs (B) and (C)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to deaths occurring after September 
     10, 2001.

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

       (a) In General.--Subsection (d) of section 121 (relating to 
     exclusion of gain from sale of principal residence) is 
     amended by adding at the end the following new paragraph:
       ``(9) Members of uniformed services and foreign service.--
       ``(A) In general.--At the election of an individual with 
     respect to a property, the running of the 5-year period 
     described in subsection (a) with respect to such property 
     shall be suspended during any period that such individual or 
     such individual's spouse is serving on qualified official 
     extended duty as a member of the uniformed services or of the 
     Foreign Service.
       ``(B) Maximum period of suspension.--The 5-year period 
     described in subsection (a) shall not be extended more than 5 
     years by reason of subparagraph (A).
       ``(C) Qualified official extended duty.--For purposes of 
     this paragraph--
       ``(i) In general.--The term `qualified official extended 
     duty' means any extended duty while serving at a duty station 
     which is at least 50 miles from such property or while 
     residing under Government orders in Government quarters.
       ``(ii) Uniformed services.--The term `uniformed services' 
     has the meaning given such term by section 101(a)(5) of title 
     10, United States Code, as in effect on the date of the 
     enactment of this paragraph.
       ``(iii) Foreign service of the united states.--The term 
     `member of the Foreign Service' has the meaning given the 
     term `member of the Service' by paragraph (1), (2), (3), (4), 
     or (5) of section 103 of the Foreign Service Act of 1980.
       ``(iv) Extended duty.--The term `extended duty' means any 
     period of duty pursuant to a call or order to such duty for a 
     period in excess of 90 days or for an indefinite period.
       ``(D) Special rules relating to election.--
       ``(i) Election limited to 1 property at a time.--An 
     election under subparagraph (A) with respect to any property 
     may not be made if such an election is in effect with respect 
     to any other property.
       ``(ii) Revocation of election.--An election under 
     subparagraph (A) may be revoked at any time.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to elections made after the date of the enactment 
     of this Act for suspended periods under section 121(d)(9) of 
     the Internal Revenue Code of 1986 (as added by this section) 
     beginning after such date.

     SEC. 4. QUALIFIED MILITARY BASE REALIGNMENT AND CLOSURE 
                   FRINGE BENEFIT.

       (a) In General.--Section 132(a) (relating to the exclusion 
     from gross income of certain fringe benefits) is amended by 
     striking ``or'' at the end of paragraph (6), by striking the 
     period at the end of paragraph (7) and inserting ``, or'' and 
     by adding at the end the following new paragraph:

[[Page S7500]]

       ``(8) qualified military base realignment and closure 
     fringe.''.
       (b) Qualified Military Base Realignment and Closure 
     Fringe.--Section 132 is amended by redesignating subsection 
     (n) as subsection (o) and by inserting after subsection (m) 
     the following new subsection:
       ``(n) Qualified Military Base Realignment and Closure 
     Fringe.--For purposes of this section, the term `qualified 
     military base realignment and closure fringe' means 1 or more 
     payments under the authority of section 1013 of the 
     Demonstration Cities and Metropolitan Development Act of 1966 
     (42 U.S.C. 3374) to offset the adverse effects on housing 
     values as a result of a military base realignment or 
     closure.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to payments made after the date of the enactment 
     of this Act.

     SEC. 5. EXTENSION OF TAX FILING DELAY PROVISIONS TO MILITARY 
                   PERSONNEL SERVING IN CONTINGENCY OPERATIONS.

       (a) In General.--Section 7508(a) (relating to time for 
     performing certain acts postponed by reason of service in 
     combat zone) is amended--
       (1) by inserting ``or when deployed outside the United 
     States away from the individual's permanent duty station 
     while participating in an operation designated by the 
     Secretary of Defense as a contingency operation (as defined 
     in section 101(a)(13) of title 10, United States Code) or 
     which became such a contingency operation by operation of 
     law'' after ``section 112'',
       (2) by inserting in the first sentence ``or at any time 
     during the period of such contingency operation'' after ``for 
     purposes of such section'',
       (3) by inserting ``or operation'' after ``such an area'', 
     and
       (4) by inserting ``or operation'' after ``such area''.
       (b) Conforming Amendments.--
       (1) Section 7508(d) is amended by inserting ``or 
     contingency operation'' after ``area''.
       (2) The heading for section 7508 is amended by inserting 
     ``or contingency operation'' after ``combat zone''.
       (3) The item relating to section 7508 in the table of 
     sections for chapter 77 is amended by inserting ``or 
     contingency operation'' after ``combat zone''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to any period for performing an act which has not 
     expired before the date of the enactment of this Act.

     SEC. 6. DEDUCTION OF CERTAIN EXPENSES OF MEMBERS OF THE 
                   RESERVE COMPONENT.

       (a) Deduction Allowed.--Section 162 (relating to certain 
     trade or business expenses) is amended by redesignating 
     subsection (p) as subsection (q) and inserting after 
     subsection (o) the following new subsection:
       ``(p) Treatment of Expenses of Members of Reserve Component 
     of Armed Forces of the United States.--For purposes of 
     subsection (a), in the case of an individual who performs 
     services as a member of a reserve component of the Armed 
     Forces of the United States at any time during the taxable 
     year, such individual shall be deemed to be away from home in 
     the pursuit of a trade or business during any period for 
     which such individual is away from home in connection with 
     such service.''.
       (b) Deduction Allowed Whether or Not Taxpayer Elects To 
     Itemize.--Section 62(a)(2) (relating to certain trade and 
     business deductions of employees) is amended by adding at the 
     end the following new subparagraph:
       ``(E) Certain expenses of members of reserve components of 
     the armed forces of the united states.--The deductions 
     allowed by section 162 which consist of expenses, in amounts 
     not in excess of the rates for travel expenses (including per 
     diem in lieu of subsistence) authorized for employees of 
     agencies under subchapter I of chapter 57 of title 5, United 
     States Code, paid or incurred by the taxpayer in connection 
     with the performance of services by such taxpayer as a member 
     of a reserve component of the Armed Forces of the United 
     States.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred in taxable years 
     beginning after December 31, 2001.

     SEC. 7. MODIFICATION OF MEMBERSHIP REQUIREMENT FOR EXEMPTION 
                   FROM TAX FOR VETERANS' ORGANIZATIONS.

       (a) In General.--Subparagraph (B) of section 501(c)(19) 
     (relating to list of exempt organizations) is amended by 
     striking ``or widowers'' and inserting ``, widowers, or 
     ancestors or lineal descendants''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 8. CLARIFICATION OF THE TREATMENT OF DEPENDENT CARE 
                   ASSISTANCE PROGRAMS SPONSORED BY THE DEPARTMENT 
                   OF DEFENSE FOR MEMBERS OF THE ARMED FORCES OF 
                   THE UNITED STATES.

       (a) In General.--Section 134(b) (defining qualified 
     military benefit) is amended by adding at the end the 
     following new paragraph:
       ``(4) Clarification of certain benefits.--For purposes of 
     paragraph (1), such term includes any dependent care 
     assistance program sponsored by the Department of Defense for 
     members of the Armed Forces of the United States.''.
       (b) Conforming Amendments.--
       (1) Section 3121(a)(18) is amended by striking ``or 129'' 
     and inserting ``, 129, or 134(b)(4)''.
       (2) Section 3306(b)(13) is amended by striking ``or 129'' 
     and inserting ``, 129, or 134(b)(4)''.
       (3) Section 3401(a)(18) is amended by striking ``or 129'' 
     and inserting ``, 129, or 134(b)(4)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.
       (d) No Inference.--No inference may be drawn from the 
     amendments made by this section with respect to the tax 
     treatment of any amounts under the program described in 
     section 134(b)(4) of the Internal Revenue Code of 1986 (as 
     added by this section) for any taxable year beginning before 
     January 1, 2002.
                                 ______