[Congressional Record Volume 149, Number 157 (Monday, November 3, 2003)]
[Senate]
[Pages S13831-S13833]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                     FALLEN PATRIOTS TAX RELIEF ACT

  Mr. McCONNELL. Mr. President, I ask unanimous consent that the Senate 
proceed to the immediate consideration of H.R. 3365.
  The PRESIDING OFFICER. The clerk will report the bill by title.
  The legislative clerk read as follows:

       A bill (H.R. 3365) to amend title 10, United States Code, 
     and the Internal Revenue Code of 1986 to increase the death 
     gratuity payable with respect to deceased members of the 
     Armed Forces and to exclude such gratuity from gross income.

  There being no objection, the Senate proceeded to consider the bill.
  Mr. GRASSLEY. Mr. President, we are tonight adopting long overdue 
legislation to rectify a number of inequities faced by members of our 
Nation's armed services.
  Since the terrorist attacks of September 11, these brave men and 
women have been called upon to make terrific sacrifices. They have left 
their families and friends behind for months at a time to willingly 
cast themselves into harm's way. Whether in Afghanistan, Iraq, or on 
whatever battlefield the war against terrorism must be fought, these 
courageous patriots have put their lives on the line to defend our 
freedoms.
  While I realize that we could never begin to fully repay these fine 
young Americans--not to mention the loved ones they leave behind--the 
Senate has an opportunity tonight to show our gratitude for their 
sacrifices.
  The legislation before us, which the Finance Committee first 
developed during the 107th Congress, will ensure that members of the 
uniformed services, the National Guard, and the foreign service are 
treated fairly in all aspects of the tax code.
  First, this legislation ensures that the families of military 
personnel called into active duty are not disadvantaged under the home 
sale exclusion. Unlike most Americans, military personnel who are 
called to active duty or asked to relocate often lack the flexibility 
to meet residency requirements under the exclusion and are adversely 
impacted by these rules. This legislation would suspend the residency 
test for periods of active duty aggregating no more than 10 years.
  We should not punish members of our military and their families who 
are asked to relocate in the name of service to their country.
  This legislation also clarifies that dependent care benefits provided 
to families of the uniformed services will not be treated as taxable 
compensation. The provision of affordable childcare is an important 
function of the military during peacetime; but it is never more 
critical than during periods of conflict--families.
  We must also not forget about the increasing role that Reserve and 
National Guard members fulfill in our Nation's defense. Currently, more 
than 157,000 reservists and National Guard are on active duty status--
most assisting in Operation Iraqi Freedom. We have begun to rely 
increasingly on these service personnel to defend our borders and to 
serve and protect in other areas of the world.
  This legislation will allow an above-the-line deduction for travel 
expenses that these men and women incur related to training 
assignments. This provision will at least partially reimburse national 
guard members and reservists for the expenses they incur when they 
travel for weekend drills.

[[Page S13832]]

  The Armed Forces Tax Fairness Act also ensures that military 
personnel serving in Secretary of Defense designated ``contingency 
operations'' receive appropriate relief from the administrative burdens 
of our tax laws during participation in those operations.
  What's more, this legislation is completely offset. All of the 
military tax fairness provisions in this legislation are fully funded 
by extending Customs user fees.
  As we consider this legislation tonight, the men and women of our 
armed forces remain in hostile situations, battling terrorism wherever 
that battle may lead. At the same time, their loved ones--wives, 
husbands, parents, children--remain at home, making equally demanding 
sacrifices as they struggle to make ends meet. It is deeply regrettable 
that Congress has delayed so long to enact this commonsense 
legislation.
  We must delay no longer. I urge my colleagues to support this 
legislation to provide the tax relief that our military personnel need 
and deserve.
  Mr. BAUCUS. Mr. President, I rise today in support of this amendment 
to the Fallen Patriots Tax Benefit Act of 2003. The bill that we 
received from the House includes two important provisions that the 
Senate has already approved this year. However, it does not include the 
numerous other provisions that the Senate has passed to ensure equity 
for military personnel. This amendment would add these important 
provisions.
  First, the House bill doubles the amount of the death gratuity 
payments for members of our military. Under current law, the families 
of military personnel receive a death gratuity benefit of $6,000. This 
bill would increase that amount to $12,000. The Senate included this 
provision in the defense authorization bill that is currently in 
conference.
  Second, the House bill ensures that these payments will not be 
subject to taxation. Under current law, death gratuity benefits are 
excludable from income only to the extent they were as of September 9, 
1986, which 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.
  The House bill would make the entire $12,000 death gratuity benefit 
tax-free, and ensure that families are not hit with a tax bill during 
their most difficult hour. This provision was included in the Senate 
passed Armed Forces Tax Fairness Act.
  That is what this bill does. Now let me talk about what the House 
bill does not do.
  This bill does not include the numerous other provisions for military 
personnel that were included in the Armed Forces Tax Fairness Act of 
2003, which was passed by the Senate in May. These provisions are vital 
to ensuring tax equity for our active duty military and reservists.
  Let me explain these provisions.
  First, the House bill does not include the exclusion of gain on the 
sale of a principal residence.
  In 1997, Congress passed legislation revising the taxation of capital 
gains on the sale of a person's principal residence.
  The new law provides that up to $250,000--or $500,000 for a married 
couple--is excluded on the sale of a principal residence if the 
individual has lived in the house for at least 2 of the previous 5 
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.
  Our proposal in the Armed Forces Tax Fairness Act would permit 
service personnel and members of the Foreign Service to suspend the 5-
year period while away on assignment. That means that those years would 
not count toward either the 2 years or the 5-year periods. Senators 
McCain, Graham, and Lincoln proposed a bill in the last session to 
correct this.
  Second, the House bill does not allow for the exclusion from taxable 
income of amounts received under the Military Housing Assistance 
Program. 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 $140,000 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 $40,000 
diminution in value. Under current law, those amounts are taxable as 
compensation.
  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 in the Armed Forces Tax Fairness Act would provide that 
payments for this type of lost value are not includible into income.
  Third, the House bill does not expand the combat zone filing rules to 
include contingency operations. 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 
in the Armed Forces Taxes Fairness Act would extend the same benefits 
to military personnel assigned to contingency operations.
  It cannot be easy trying to figure out our complicated tax system 
while you are overseas and protecting our nation's freedom. Those men 
and women who are sent to uphold democracy and freedom in other 
countries are confronted with the same filing complications as combat 
zone personnel.
  Contingency operations are just as demanding as combat zone 
deployment, although not always in the same manner. For example, in our 
current war on terrorism, this proposal would help members of our 
Special Forces in the Philippines supporting Operation Enduring 
Freedom. These troops are just as focused on accomplishing their 
critical mission as our troops in the Iraqi combat zone.
  Fourth, the House bill does not provide an above-the-line deduction 
for overnight travel expenses of National Guard and Reserve members. 
Some reservists who travel one weekend per month and two weeks in the 
summer for Reserve duty incur significant travel and lodging expenses.
  For the most part, these expenses are not reimbursed. 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 3,500 reservists--
800 of whom travel each month across the State for their training. 
These 800 reservists pay travel and lodging expenses out of their own 
pocket.
  Montana ranks 48th in the Nation for per capita personal income. So 
that $200 expense for Reserve duty every month means a lot to the 
Montana reservist. Yet, they continue selflessly to provide their 
services to our country at their own expense. For those reservists who 
travel out of State for their training, this expense is even higher.
  The proposal in the Armed Forces Tax Fairness Act would provide an 
above the line deduction for overnight travel costs and would be 
available for all reservists and members of the National Guard.
  Fifth, the House bill does not expand the rules to qualify for 
membership of veterans organizations. Currently, qualified veterans 
organizations under section 501(c)(19) of the tax code 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. For example, 75 percent of the members must be current 
or former military, and substantially all of the other members must be 
either spouses, widows, or widowers of current or former military.
  The proposal in the Armed Forces Tax Fairness Act would permit lineal 
descendants and ancestors to qualify as eligible members of these 
important groups.
  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 tax-exempt status. The Armed Forces Tax Fairness Act helps 
ensure the vitality of these organizations.

[[Page S13833]]

  Sixth, the House bill does not clarify the tax treatment of childcare 
subsidies. I want to ensure that parents in the military can continue 
their dedicated service with the knowledge that their children are well 
taken care of.
  The military provides extensive childcare benefits to its employees. 
Employees at DoD-owned facilities provide childcare services while 
other areas with non-DoD owned facilities 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 childcare provisions are 
covered under this provision.
  The proposal in the Armed Forces Tax Fairness Act would clarify that 
any childcare benefit provided to military personnel would be 
excludable from income.
  Seventh, the House bill does not allow students at the Service 
Academies to use their education savings account funds. In contrast, 
the Armed Forces Tax Fairness Act does permit penalty-free withdrawals 
from education savings accounts and qualified tuition programs made on 
account of the attendance of the account holder or beneficiary at any 
of the Service Academies. The amount of the funds that can be withdrawn 
penalty-free is limited to the costs of advanced education in that 
calendar year.
  Eighth, the House does not allow the IRS to suspend the tax-exempt 
status of terrorist organizations. Under current law, there is no 
procedure for the IRS to suspend the tax-exempt status of an 
organization.
  The Armed Forces Tax Fairness Act would allow the suspension of the 
tax-exempt status of an organization for any period during which the 
organization is designated or identified by Executive Order as a 
terrorist organization.
  Ninth, the House bill does not provide tax relief for families of 
those killed in the Space Shuttle Columbia. Current law provides for 
income tax, estate tax, and death benefit relief to soldiers who are 
killed in a combat zone, victims of the September 11 attacks, the 
Oklahoma City bombing victims, and the victims of the anthrax attacks.
  The crew of the Space Shuttle Columbia was heroic in every sense of 
the word. We have a duty to those who lost their lives for the 
advancement of science and increasing our knowledge of the world we 
live in. The Armed Forces Tax Fairness Act would make all of the above 
benefits available to the families of the Columbia crew.
  The tenth and final difference between the House bill before us and 
the Armed Forces Tax Fairness Act is that the bill before us is not 
offset. In contrast, the Armed Forces Tax Fairness Act is completely 
offset by strengthening the collection of taxes from people who have 
renounced their U.S. citizenship in order to avoid U.S. taxes.
  However, some of our colleagues in the House have objected to this 
provision. So in the interest of enacting these important military tax 
provisions as quickly as possible, the Senate changed the offset to a 
simple extension of the present law customs user fees.
  The Senate amendment to the House bill would add these very important 
nine provisions. In addition, it would add an offset that the House has 
not opposed this offset in the past. We hope that this compromise on 
our part will allow them to pass the provisions from the Armed Forces 
Tax Fairness Act that we have included in this amendment.
  The passage of the death gratuity payments provision is an important 
first step. However, there are thousands of men and women in uniform 
that are depending on us to pass the other ten provisions included in 
the Armed Forces Tax Fairness Act.
  Simply put, there is absolutely no excuse if Congress fails to pass 
the Armed Forces Tax Fairness Act this year.
  Everyday, our military men and women fight for our freedom and the 
freedom of every American. Their sacrifices are great. Passing the 
other ten provisions included in the Armed Forces Tax Fairness Act is 
not a lot for them to ask of Congress.
  I urge my colleagues in the House to pass the Senate amendment to the 
Fallen Patriots Act of 2003.
  Ms. COLLINS. Mr. President, I want to express my full support for the 
passage of H.R. 3365, the Fallen Patriots Tax Relief Act. Earlier this 
year, the Senate passed S. 704, introduced by myself, Senator Warner, 
Senator McCain, Senator Allen, and Senator Ben Nelson, which would have 
increased the death gratuity paid to the survivors of deceased members 
of our military from $6,000 to $12,000. Further, it would make this 
increase retroactive to September 11, 2001. I am pleased that H.R. 3365 
incorporates this legislation.
  There is no better way to honor the memories of fallen soldiers than 
to ensure that their loved ones receive the support they deserve. The 
death gratuity is provided within days to the family of the 
servicemember killed while on active duty. These funds help the family 
to deal with immediate needs during this difficult time. Given the 
sacrifices of our troops currently in Iraq. I believe that this 
increase in assistance is far past due.
  H.R. 3365 also ensures that the death gratuity is tax free. I fully 
support this legislation, and believe that it sends a strong message of 
support to our troops. As the brave men and women of our military 
continue to go in harm's way in defense of our Nation, it is crucial 
that they do so with the confidence that their families will have our 
full support should tragedy occur.
  Mr. McCONNELL. Mr. President, I ask unanimous consent that the 
McCain-Baucus-Grassley amendment, which is at the desk, be agreed to; 
that the bill, as amended, be read a third time and passed; that the 
title amendment be agreed to; that the motions to reconsider be laid 
upon the table, en bloc; and that any statements relating to the bill 
be printed in the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment (No. 2051) was agreed to.
  (The amendment is printed in today's Record under ``Text of 
Amendments.'')
  The title amendment (No. 2052) was agreed to, as follows:
       Amend the title so as to read: ``An Act to amend title 10, 
     United States Code, and the Internal Revenue Code of 1986 to 
     increase the death gratuity payable with respect to deceased 
     members of the Armed Forces and to exclude such gratuity from 
     gross income, to provide additional tax relief for members of 
     the Armed Forces and their families, and for other 
     purposes.''.

  The bill (H.R. 3365), as amended, was read the third time and passed.
  (The bill will be printed in a future edition of the Record.)

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