[Congressional Record (Bound Edition), Volume 148 (2002), Part 14]
[Senate]
[Pages 19078-19091]
[From the U.S. Government Publishing Office, www.gpo.gov]




                 ARMED FORCES TAX FAIRNESS ACT OF 2002

  Mr. REID. Mr. President, I ask unanimous consent the Senate proceed 
to the consideration of Calendar No. 603, H.R. 5063.
  The PRESIDING OFFICER. The clerk will report the bill by title.
  The assistant legislative clerk read as follows:

       A bill (H.R. 5063) to amend the Internal Revenue Code of 
     1986 to provide a special rule for members of the uniformed 
     services in determining the exclusion of gain from

[[Page 19079]]

     the sale of principal residence and to restore the tax exempt 
     status of death gratuity payments to members of the uniformed 
     services.

  There being no objection, the Senate proceeded to consider the joint 
resolution which had been reported from the Committee on Finance, with 
an amendment to strike all after the enacting clause and inserting in 
lieu thereof the following:
  [Strike the part shown in black brackets and insert the part shown in 
italic.]

     [SECTION 1. SHORT TITLE.

       [This Act may be cited as the ``Armed Forces Tax Fairness 
     Act of 2002''.

     [SEC. 2. SPECIAL RULE FOR MEMBERS OF UNIFORMED SERVICES IN 
                   DETERMINING EXCLUSION OF GAIN FROM SALE OF 
                   PRINCIPAL RESIDENCE.

       [(a) In General.--Subsection (d) of section 121 of the 
     Internal Revenue Code of 1986 (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.--
       [``(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.
       [``(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 250 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) 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 180 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. 3. RESTORATION OF FULL EXCLUSION FROM GROSS INCOME OF 
                   DEATH GRATUITY PAYMENT.

       [(a) In General.--Subsection (b)(3) of section 134 of the 
     Internal Revenue Code of 1986 (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 before December 31, 1991.''.
       [(b) Conforming Amendment.--Subparagraph (A) of section 
     134(b)(3) of such Code 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.]

     SECTION 1. SHORT TITLE; ETC.

       (a) Short Title.--This Act may be cited as the ``Armed 
     Forces 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.

          TITLE I--IMPROVING TAX EQUITY FOR MILITARY PERSONNEL

Sec. 101. Exclusion from gross income of certain death gratuity 
              payments.
Sec. 102. Exclusion of gain from sale of a principal residence by a 
              member of the uniformed services or the Foreign Service.
Sec. 103. Exclusion for amounts received under Department of Defense 
              Homeowners Assistance Program.
Sec. 104. Expansion of combat zone filing rules to contingency 
              operations.
Sec. 105. Above-the-line deduction for overnight travel expenses of 
              National Guard and Reserve members.
Sec. 106. Modification of membership requirement for exemption from tax 
              for certain veterans' organizations.
Sec. 107. Clarification of treatment of certain dependent care 
              assistance programs.

                       TITLE II--OTHER PROVISIONS

Sec. 201. Revision of tax rules on expatriation.
Sec. 202. Extension of IRS user fees.

          TITLE I--IMPROVING TAX EQUITY FOR MILITARY PERSONNEL

     SEC. 101. EXCLUSION FROM GROSS INCOME OF CERTAIN DEATH 
                   GRATUITY PAYMENTS.

       (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. 102. EXCLUSION OF GAIN FROM SALE OF A PRINCIPAL 
                   RESIDENCE BY A MEMBER OF THE UNIFORMED SERVICES 
                   OR THE FOREIGN SERVICE.

       (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 of the United States.
       ``(B) Maximum period of suspension.--The 5-year period 
     described in subsection (a) shall not be extended more than 
     10 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 of the United States' 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 with respect to sales and 
     exchanges occurring after the date of the enactment of this 
     Act.

     SEC. 103. EXCLUSION FOR AMOUNTS RECEIVED UNDER DEPARTMENT OF 
                   DEFENSE HOMEOWNERS ASSISTANCE PROGRAM.

       (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:
       ``(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. 104. EXPANSION OF COMBAT ZONE FILING RULES TO 
                   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--

[[Page 19080]]

       (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. 105. ABOVE-THE-LINE DEDUCTION FOR OVERNIGHT TRAVEL 
                   EXPENSES OF NATIONAL GUARD AND RESERVE MEMBERS.

       (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)(2), 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 for any period during 
     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. 106. MODIFICATION OF MEMBERSHIP REQUIREMENT FOR 
                   EXEMPTION FROM TAX FOR CERTAIN 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. 107. CLARIFICATION OF THE TREATMENT OF CERTAIN DEPENDENT 
                   CARE ASSISTANCE PROGRAMS.

       (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 for any individual described in paragraph 
     (1)(A).''.
       (b) Conforming Amendments.--
       (1) Section 134(b)(3)(A) is amended by inserting ``and 
     paragraph (4)'' after ``subparagraph (B)''.
       (2) Section 3121(a)(18) is amended by striking ``or 129'' 
     and inserting ``, 129, or 134(b)(4)''.
       (3) Section 3306(b)(13) is amended by striking ``or 129'' 
     and inserting ``, 129, or 134(b)(4)''.
       (4) 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.

                       TITLE II--OTHER PROVISIONS

     SEC. 201. 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.--Except as provided in subsections 
     (d) and (f), all property of a covered expatriate to whom 
     this section applies 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.
       ``(3) Exclusion for certain gain.--
       ``(A) In general.--The amount which, but for this 
     paragraph, would be includible in the gross income of any 
     individual by reason of this section shall be reduced (but 
     not below zero) by $600,000. For purposes of this paragraph, 
     allocable expatriation gain taken into account under 
     subsection (f)(2) shall be treated in the same manner as an 
     amount required to be includible in gross income.
       ``(B) Cost-of-living adjustment.--
       ``(i) In general.--In the case of an expatriation date 
     occurring in any calendar year after 2002, the $600,000 
     amount under 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 such calendar year, determined by 
     substituting `calendar year 2001' for `calendar year 1992' in 
     subparagraph (B) thereof.

       ``(ii) Rounding rules.--If any amount after adjustment 
     under clause (i) is not a multiple of $1,000, such amount 
     shall be rounded to the next lower multiple of $1,000.
       ``(4) Election to continue to be taxed as united states 
     citizen.--
       ``(A) In general.--If a covered expatriate elects the 
     application of this paragraph--
       ``(i) this section (other than this paragraph and 
     subsection (i)) shall not apply to the expatriate, but
       ``(ii) in the case of property to which this section would 
     apply but for such election, the expatriate shall be subject 
     to tax under this title in the same manner as if the 
     individual were a United States citizen.
       ``(B) Requirements.--Subparagraph (A) shall not apply to an 
     individual unless the individual--
       ``(i) provides security for payment of tax in such form and 
     manner, and in such amount, as the Secretary may require,
       ``(ii) consents to the waiver of any right of the 
     individual under any treaty of the United States which would 
     preclude assessment or collection of any tax which may be 
     imposed by reason of this paragraph, and
       ``(iii) complies with such other requirements as the 
     Secretary may prescribe.
       ``(C) Election.--An election under subparagraph (A) shall 
     apply to all property to which this section would apply but 
     for the election and, once made, shall be irrevocable. Such 
     election shall also apply to property the basis of which is 
     determined in whole or in part by reference to the property 
     with respect to which the election was made.
       ``(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 payment of the 
     additional tax attributable to such property shall be 
     postponed 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 postponement.--No tax may be postponed 
     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 to the Secretary 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 in an amount equal to the deferred tax 
     amount under paragraph (2) for the property, or
       ``(ii) the taxpayer otherwise establishes to the 
     satisfaction of the Secretary that the security is adequate.
       ``(5) Waiver of certain rights.--No election may be made 
     under paragraph (1) unless the

[[Page 19081]]

     taxpayer consents to the 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. An election may be made under paragraph 
     (1) with respect to an interest in a trust with respect to 
     which gain is required to be recognized under subsection 
     (f)(1).
       ``(7) Interest.--For purposes of section 6601--
       ``(A) the last date for the payment of tax shall be 
     determined without regard to the election under this 
     subsection, and
       ``(B) section 6621(a)(2) shall be applied by substituting 
     `5 percentage points' for `3 percentage points' in 
     subparagraph (B) thereof.
       ``(c) Covered Expatriate.--For purposes of this section--
       ``(1) In general.--Except as provided in paragraph (2), the 
     term `covered expatriate' means an expatriate.
       ``(2) Exceptions.--An individual shall not be treated as a 
     covered expatriate if--
       ``(A) 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 not been a resident of the United States (as 
     defined in section 7701(b)(1)(A)(ii)) during the 5 taxable 
     years ending with the taxable year during which the 
     expatriation date occurs, or
       ``(B)(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 5 taxable years 
     before the date of relinquishment.
       ``(d) Exempt Property; Special Rules for Pension Plans.--
       ``(1) Exempt property.--This section shall not apply to the 
     following:
       ``(A) United states real property interests.--Any United 
     States real property interest (as defined in section 
     897(c)(1)), other than stock of a United States real property 
     holding corporation which does not, on the day before the 
     expatriation date, meet the requirements of section 
     897(c)(2).
       ``(B) Specified property.--Any property or interest in 
     property not described in subparagraph (A) which the 
     Secretary specifies in regulations.
       ``(2) Special rules for certain retirement plans.--
       ``(A) In general.--If a covered expatriate holds on the day 
     before the expatriation date any interest in a retirement 
     plan to which this paragraph applies--
       ``(i) such interest shall not be treated as sold for 
     purposes of subsection (a)(1), but
       ``(ii) an amount equal to the present value of the 
     expatriate's nonforfeitable accrued benefit shall be treated 
     as having been received by such individual on such date as a 
     distribution under the plan.
       ``(B) Treatment of subsequent distributions.--In the case 
     of any distribution on or after the expatriation date to or 
     on behalf of the covered expatriate from a plan from which 
     the expatriate was treated as receiving a distribution under 
     subparagraph (A), the amount otherwise includible in gross 
     income by reason of the subsequent distribution shall be 
     reduced by the excess of the amount includible in gross 
     income under subparagraph (A) over any portion of such amount 
     to which this subparagraph previously applied.
       ``(C) Treatment of subsequent distributions by plan.--For 
     purposes of this title, a retirement plan to which this 
     paragraph applies, and any person acting on the plan's 
     behalf, shall treat any subsequent distribution described in 
     subparagraph (B) in the same manner as such distribution 
     would be treated without regard to this paragraph.
       ``(D) Applicable plans.--This paragraph shall apply to--
       ``(i) any qualified retirement plan (as defined in section 
     4974(c)),
       ``(ii) an eligible deferred compensation plan (as defined 
     in section 457(b)) of an eligible employer described in 
     section 457(e)(1)(A), and
       ``(iii) to the extent provided in regulations, any foreign 
     pension plan or similar retirement arrangements or programs.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Expatriate.--The term `expatriate' means--
       ``(A) any United States citizen who relinquishes 
     citizenship, and
       ``(B) any long-term resident of the United States who--
       ``(i) ceases to be a lawful permanent resident of the 
     United States (within the meaning of section 7701(b)(6)), or
       ``(ii) 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 and who does not waive 
     the benefits of such treaty applicable to residents of the 
     foreign country.
       ``(2) 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 of the event described in clause (i) or (ii) 
     of paragraph (1)(B).
       ``(3) Relinquishment of citizenship.--A citizen shall be 
     treated as relinquishing United States citizenship on the 
     earliest of--
       ``(A) the date the individual renounces such individual's 
     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.
       ``(4) Long-term resident.--The term `long-term resident' 
     has the meaning given to such term by section 877(e)(2).
       ``(f) Special Rules Applicable to Beneficiaries' Interests 
     in Trust.--
       ``(1) In general.--Except as provided in paragraph (2), if 
     an individual is determined under paragraph (3) to hold an 
     interest in a trust on the day before the expatriation date--
       ``(A) the individual shall not be treated as having sold 
     such interest,
       ``(B) such interest shall be treated as a separate share in 
     the trust, and
       ``(C)(i) such separate share shall be treated as a separate 
     trust consisting of the assets allocable to such share,
       ``(ii) the separate trust shall be treated as having sold 
     its assets on the day before the expatriation date for their 
     fair market value and as having distributed all of its assets 
     to the individual as of such time, and
       ``(iii) the individual shall be treated as having 
     recontributed the assets to the separate trust.

     Subsection (a)(2) shall apply to any income, gain, or loss of 
     the individual arising from a distribution described in 
     subparagraph (C)(ii). In determining the amount of such 
     distribution, proper adjustments shall be made for 
     liabilities of the trust allocable to an individual's share 
     in the trust.
       ``(2) Special rules for interests in qualified trusts.--
       ``(A) In general.--If the trust interest described in 
     paragraph (1) is an interest in a qualified trust--
       ``(i) paragraph (1) and subsection (a) shall not apply, and
       ``(ii) in addition to any other tax imposed by this title, 
     there is hereby imposed on each distribution with respect to 
     such interest a tax in the amount determined under 
     subparagraph (B).
       ``(B) Amount of tax.--The amount of tax under subparagraph 
     (A)(ii) shall be equal to the lesser of--
       ``(i) the highest rate of tax imposed by section 1(e) for 
     the taxable year which includes the day before the 
     expatriation date, multiplied by the amount of the 
     distribution, or
       ``(ii) the balance in the deferred tax account immediately 
     before the distribution determined without regard to any 
     increases under subparagraph (C)(ii) after the 30th day 
     preceding the distribution.
       ``(C) Deferred tax account.--For purposes of subparagraph 
     (B)(ii)--
       ``(i) Opening balance.--The opening balance in a deferred 
     tax account with respect to any trust interest is an amount 
     equal to the tax which would have been imposed on the 
     allocable expatriation gain with respect to the trust 
     interest if such gain had been included in gross income under 
     subsection (a).
       ``(ii) Increase for interest.--The balance in the deferred 
     tax account shall be increased by the amount of interest 
     determined (on the balance in the account at the time the 
     interest accrues), for periods after the 90th day after the 
     expatriation date, by using the rates and method applicable 
     under section 6621 for underpayments of tax for such periods, 
     except that section 6621(a)(2) shall be applied by 
     substituting `5 percentage points' for `3 percentage points' 
     in subparagraph (B) thereof.
       ``(iii) Decrease for taxes previously paid.--The balance in 
     the tax deferred account shall be reduced--

       ``(I) by the amount of taxes imposed by subparagraph (A) on 
     any distribution to the person holding the trust interest, 
     and
       ``(II) in the case of a person holding a nonvested 
     interest, to the extent provided in regulations, by the 
     amount of taxes imposed by subparagraph (A) on distributions 
     from the trust with respect to nonvested interests not held 
     by such person.

       ``(D) Allocable expatriation gain.--For purposes of this 
     paragraph, the allocable expatriation gain with respect to 
     any beneficiary's interest in a trust is the amount of gain 
     which would be allocable to such beneficiary's vested and 
     nonvested interests in the trust if the beneficiary held 
     directly all assets allocable to such interests.
       ``(E) Tax deducted and withheld.--
       ``(i) In general.--The tax imposed by subparagraph (A)(ii) 
     shall be deducted and withheld by the trustees from the 
     distribution to which it relates.
       ``(ii) Exception where failure to waive treaty rights.--If 
     an amount may not be deducted and withheld under clause (i) 
     by reason

[[Page 19082]]

     of the distributee failing to waive any treaty right with 
     respect to such distribution--

       ``(I) the tax imposed by subparagraph (A)(ii) shall be 
     imposed on the trust and each trustee shall be personally 
     liable for the amount of such tax, and
       ``(II) any other beneficiary of the trust shall be entitled 
     to recover from the distributee the amount of such tax 
     imposed on the other beneficiary.

       ``(F) Disposition.--If a trust ceases to be a qualified 
     trust at any time, a covered expatriate disposes of an 
     interest in a qualified trust, or a covered expatriate 
     holding an interest in a qualified trust dies, then, in lieu 
     of the tax imposed by subparagraph (A)(ii), there is hereby 
     imposed a tax equal to the lesser of--
       ``(i) the tax determined under paragraph (1) as if the day 
     before the expatriation date were the date of such cessation, 
     disposition, or death, whichever is applicable, or
       ``(ii) the balance in the tax deferred account immediately 
     before such date.
     Such tax shall be imposed on the trust and each trustee shall 
     be personally liable for the amount of such tax and any other 
     beneficiary of the trust shall be entitled to recover from 
     the covered expatriate or the estate the amount of such tax 
     imposed on the other beneficiary.
       ``(G) Definitions and special rules.--For purposes of this 
     paragraph--
       ``(i) Qualified trust.--The term `qualified trust' means a 
     trust which is described in section 7701(a)(30)(E).
       ``(ii) Vested interest.--The term `vested interest' means 
     any interest which, as of the day before the expatriation 
     date, is vested in the beneficiary.
       ``(iii) Nonvested interest.--The term `nonvested interest' 
     means, with respect to any beneficiary, any interest in a 
     trust which is not a vested interest. Such interest shall be 
     determined by assuming the maximum exercise of discretion in 
     favor of the beneficiary and the occurrence of all 
     contingencies in favor of the beneficiary.
       ``(iv) Adjustments.--The Secretary may provide for such 
     adjustments to the bases of assets in a trust or a deferred 
     tax account, and the timing of such adjustments, in order to 
     ensure that gain is taxed only once.
       ``(v) Coordination with retirement plan rules.--This 
     subsection shall not apply to an interest in a trust which is 
     part of a retirement plan to which subsection (d)(2) applies.
       ``(3) Determination of beneficiaries' interest in trust.--
       ``(A) Determinations under paragraph (1).--For purposes of 
     paragraph (1), a beneficiary's interest in a trust shall be 
     based upon all relevant facts and circumstances, including 
     the terms of the trust instrument and any letter of wishes or 
     similar document, historical patterns of trust distributions, 
     and the existence of and functions performed by a trust 
     protector or any similar adviser.
       ``(B) Other determinations.--For purposes of this section--
       ``(i) Constructive ownership.--If a beneficiary of a trust 
     is a corporation, partnership, trust, or estate, the 
     shareholders, partners, or beneficiaries shall be deemed to 
     be the trust beneficiaries for purposes of this section.
       ``(ii) Taxpayer return position.--A taxpayer shall clearly 
     indicate on its income tax return--

       ``(I) the methodology used to determine that taxpayer's 
     trust interest under this section, and
       ``(II) if the taxpayer knows (or has reason to know) that 
     any other beneficiary of such trust is using a different 
     methodology to determine such beneficiary's trust interest 
     under this section.

       ``(g) Termination of Deferrals, Etc.--In the case of any 
     covered expatriate, notwithstanding any other provision of 
     this title--
       ``(1) any period during which recognition of income or gain 
     is deferred shall terminate on the day before the 
     expatriation date, and
       ``(2) 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.
       ``(h) Imposition of Tentative Tax.--
       ``(1) In general.--If an individual is required to include 
     any amount in gross income under subsection (a) for any 
     taxable year, there is hereby imposed, immediately before the 
     expatriation date, a tax in an amount equal to the amount of 
     tax which would be imposed if the taxable year were a short 
     taxable year ending on the expatriation date.
       ``(2) Due date.--The due date for any tax imposed by 
     paragraph (1) shall be the 90th day after the expatriation 
     date.
       ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
     shall be treated as a payment of the tax imposed by this 
     chapter for the taxable year to which subsection (a) applies.
       ``(4) Deferral of tax.--The provisions of subsection (b) 
     shall apply to the tax imposed by this subsection to the 
     extent attributable to gain includible in gross income by 
     reason of this section.
       ``(i) Special Liens for Deferred Tax Amounts.--
       ``(1) Imposition of lien.--
       ``(A) In general.--If a covered expatriate makes an 
     election under subsection (a)(4) or (b) which results in the 
     deferral of any tax imposed by reason of subsection (a), the 
     deferred amount (including any interest, additional amount, 
     addition to tax, assessable penalty, and costs attributable 
     to the deferred amount) shall be a lien in favor of the 
     United States on all property of the expatriate located in 
     the United States (without regard to whether this section 
     applies to the property).
       ``(B) Deferred amount.--For purposes of this subsection, 
     the deferred amount is the amount of the increase in the 
     covered expatriate's income tax which, but for the election 
     under subsection (a)(4) or (b), would have occurred by reason 
     of this section for the taxable year including the 
     expatriation date.
       ``(2) Period of lien.--The lien imposed by this subsection 
     shall arise on the expatriation date and continue until--
       ``(A) the liability for tax by reason of this section is 
     satisfied or has become unenforceable by reason of lapse of 
     time, or
       ``(B) it is established to the satisfaction of the 
     Secretary that no further tax liability may arise by reason 
     of this section.
       ``(3) Certain rules apply.--The rules set forth in 
     paragraphs (1), (3), and (4) of section 6324A(d) shall apply 
     with respect to the lien imposed by this subsection as if it 
     were a lien imposed by section 6324A.
       ``(j) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Inclusion in Income of Gifts and Bequests Received by 
     United States Citizens and Residents From Expatriates.--
     Section 102 (relating to gifts, etc. not included in gross 
     income) is amended by adding at the end the following new 
     subsection:
       ``(d) Gifts and Inheritances From Covered Expatriates.--
       ``(1) In general.--Subsection (a) shall not exclude from 
     gross income the value of any property acquired by gift, 
     bequest, devise, or inheritance from a covered expatriate 
     after the expatriation date. For purposes of this subsection, 
     any term used in this subsection which is also used in 
     section 877A shall have the same meaning as when used in 
     section 877A.
       ``(2) Exceptions for transfers otherwise subject to estate 
     or gift tax.--Paragraph (1) shall not apply to any property 
     if either--
       ``(A) the gift, bequest, devise, or inheritance is--
       ``(i) shown on a timely filed return of tax imposed by 
     chapter 12 as a taxable gift by the covered expatriate, or
       ``(ii) 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, or
       ``(B) no such return was timely filed but no such return 
     would have been required to be filed even if the covered 
     expatriate were a citizen or long-term resident of the United 
     States.''.
       (c) Definition of Termination of United States 
     Citizenship.--Section 7701(a) is amended by adding at the end 
     the following new paragraph:
       ``(48) 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(e)(3).
       ``(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.''.
       (d) Ineligibility for Visa or Admission To United States.--
       (1) In general.--Section 212(a)(10)(E) of the Immigration 
     and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to 
     read as follows:
       ``(E) Former citizens not in compliance with expatriation 
     revenue provisions.--Any alien who is a former citizen of the 
     United States who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3) of the Internal 
     Revenue Code of 1986) and who is not in compliance with 
     section 877A of such Code (relating to expatriation).''.
       (2) Availability of information.--
       (A) In general.--Section 6103(l) (relating to disclosure of 
     returns and return information for purposes other than tax 
     administration) is amended by adding at the end the following 
     new paragraph:
       ``(18) Disclosure to deny visa or admission to certain 
     expatriates.--Upon written request of the Attorney General or 
     the Attorney General's delegate, the Secretary shall disclose 
     whether an individual is in compliance with section 877A (and 
     if not in compliance, any items of noncompliance) to officers 
     and employees of the Federal agency responsible for 
     administering section 212(a)(10)(E) of the Immigration and 
     Nationality Act solely for the purpose of, and to the extent 
     necessary in, administering such section 212(a)(10)(E).''.
       (B) Safeguards.--Section 6103(p)(4) (relating to 
     safeguards) is amended by striking ``or (17)'' each place it 
     appears and inserting ``(17), or (18)''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to individuals who relinquish United States 
     citizenship on or after the date of the enactment of this 
     Act.
       (e) Conforming Amendments.--
       (1) Section 877 is amended by adding at the end the 
     following new subsection:
       ``(g) Application.--This section shall not apply to an 
     expatriate (as defined in section 877A(e)) whose expatriation 
     date (as so defined) occurs on or after September 12, 
     2002.''.
       (2) Section 2107 is amended by adding at the end the 
     following new subsection:
       ``(f) Application.--This section shall not apply to any 
     expatriate subject to section 877A.''.

[[Page 19083]]

       (3) Section 2501(a)(3) is amended by adding at the end the 
     following new subparagraph:
       ``(F) Application.--This paragraph shall not apply to any 
     expatriate subject to section 877A.''.
       (4)(A) Paragraph (1) of section 6039G(d) is amended by 
     inserting ``or 877A'' after ``section 877''.
       (B) The second sentence of section 6039G(e) is amended by 
     inserting ``or who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3))'' after 
     ``877(a))''.
       (C) Section 6039G(f) is amended by inserting ``or 
     877A(e)(2)(B)'' after ``877(e)(1)''.
       (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 expatriates 
     (within the meaning of section 877A(e) of the Internal 
     Revenue Code of 1986, as added by this section) whose 
     expatriation date (as so defined) occurs on or after 
     September 12, 2002.
       (2) Gifts and bequests.--Section 102(d) of the Internal 
     Revenue Code of 1986 (as added by subsection (b)) shall apply 
     to gifts and bequests received on or after September 12, 
     2002, from an individual or the estate of an individual whose 
     expatriation date (as so defined) occurs after such date.
       (3) Due date for tentative tax.--The due date under section 
     877A(h)(2) of the Internal Revenue Code of 1986, as added by 
     this section, shall in no event occur before the 90th day 
     after the date of the enactment of this Act.

     SEC. 202. EXTENSION OF INTERNAL REVENUE SERVICE USER FEES.

       (a) In General.--Chapter 77 (relating to miscellaneous 
     provisions) is amended by adding at the end the following new 
     section:

     ``SEC. 7527. INTERNAL REVENUE SERVICE USER FEES.

       ``(a) General Rule.--The Secretary shall establish a 
     program requiring the payment of user fees for--
       ``(1) requests to the Internal Revenue Service for ruling 
     letters, opinion letters, and determination letters, and
       ``(2) other similar requests.
       ``(b) Program Criteria.--
       ``(1) In general.--The fees charged under the program 
     required by subsection (a)--
       ``(A) shall vary according to categories (or subcategories) 
     established by the Secretary,
       ``(B) shall be determined after taking into account the 
     average time for (and difficulty of) complying with requests 
     in each category (and subcategory), and
       ``(C) shall be payable in advance.
       ``(2) Exemptions, etc.--
       ``(A) In general.--The Secretary shall provide for such 
     exemptions (and reduced fees) under such program as the 
     Secretary determines to be appropriate.
       ``(B) Exemption for certain requests regarding pension 
     plans.--The Secretary shall not require payment of user fees 
     under such program for requests for determination letters 
     with respect to the qualified status of a pension benefit 
     plan maintained solely by 1 or more eligible employers or any 
     trust which is part of the plan. The preceding sentence shall 
     not apply to any request--
       ``(i) made after the later of--

       ``(I) the fifth plan year the pension benefit plan is in 
     existence, or
       ``(II) the end of any remedial amendment period with 
     respect to the plan beginning within the first 5 plan years, 
     or

       ``(ii) made by the sponsor of any prototype or similar plan 
     which the sponsor intends to market to participating 
     employers.
       ``(C) Definitions and special rules.--For purposes of 
     subparagraph (B)--
       ``(i) Pension benefit plan.--The term `pension benefit 
     plan' means a pension, profit-sharing, stock bonus, annuity, 
     or employee stock ownership plan.
       ``(ii) Eligible employer.--The term `eligible employer' 
     means an eligible employer (as defined in section 
     408(p)(2)(C)(i)(I)) which has at least 1 employee who is not 
     a highly compensated employee (as defined in section 414(q)) 
     and is participating in the plan. The determination of 
     whether an employer is an eligible employer under 
     subparagraph (B) shall be made as of the date of the request 
     described in such subparagraph.
       ``(iii) Determination of average fees charged.--For 
     purposes of any determination of average fees charged, any 
     request to which subparagraph (B) applies shall not be taken 
     into account.
       ``(3) Average fee requirement.--The average fee charged 
     under the program required by subsection (a) shall not be 
     less than the amount determined under the following table:

                                                                Average
``Category                                                          Fee
  Employee plan ruling and opinion............................$250 ....

  Exempt organization ruling..................................$350 ....

  Employee plan determination.................................$300 ....

  Exempt organization determination...........................$275 ....

  Chief counsel ruling........................................$200.....

       ``(c) Termination.--No fee shall be imposed under this 
     section with respect to requests made after September 30, 
     2012.''.
       (b) Conforming Amendments.--
       (1) The table of sections for chapter 77 is amended by 
     adding at the end the following new item:

``Sec. 7527. Internal Revenue Service user fees.''.

       (2) Section 10511 of the Revenue Act of 1987 is repealed.
       (3) Section 620 of the Economic Growth and Tax Relief 
     Reconciliation Act of 2001 is repealed.
       (c) Limitations.--Notwithstanding any other provision of 
     law, any fees collected pursuant to section 7527 of the 
     Internal Revenue Code of 1986, as added by subsection (a), 
     shall not be expended by the Internal Revenue Service unless 
     provided by an appropriations Act.
       (d) Effective Date.--The amendments made by this section 
     shall apply to requests made after the date of the enactment 
     of this Act.
  Mr. BAUCUS. Mr. President, I rise today in support of the Armed 
Forces Tax Fairness Act of 2002. On September 12, 2002, the Finance 
Committee favorably reported the bill by unanimous voice vote.
  This bill will not only correct inequities in the current tax code 
that 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 a bill, HR 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 I believe we should 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 have moved forward with 
this military tax package and incorporate additional provisions already 
introduced by my colleagues.
  I would now like to describe the provisions that we have chosen to 
include in this critical piece of legislation:
  Death Gratuity Payments: 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 house version of 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.
  We support the provisions of the House version of H.R. 5063 and S. 
2783, therefore we have included them in this piece of legislation.
  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 rule states that up to $250,000, or $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 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. 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. Our 
proposal would permit service personnel and members of the Foreign 
Service to suspend the 5-year period while away on assignment, meaning 
those years would count toward neither the 2 years nor the 5 year 
periods.
  This is also similar to provisions in the House-version of H.R. 5063.
  Exclusion of Amounts Received Under Military Housing Assistance

[[Page 19084]]

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.
  There will be another round of base closures in the near future. That 
fate was decided in the fiscal year 2002 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 am happy we 
have included this provision in our legislation.
  Expand 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 
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.
  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 
who are just as focused on accomplishing their critical mission as our 
troops in the Afghanistan combat zone.
  I would like to thank Senator Johnson for introducing S. 2785. It is 
important that we support all our troops when they are deployed 
overseas.
  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 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 this provision in our 
military tax package.
  Expansion of Membership For Veterans' Organizations: 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 military, and substantially all of the other members must be 
either spouses, widows, or widowers of current or former 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. We have 
included it in our tax package.
  Clarification of Treatment of Child Care Subsidies: Finally, I want 
to ensure that parents in the military can continue their dedicated 
service even once they have entered parenthood 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 excludible from income. Senator Landrieu 
has introduced S.2807, a similar measure. I support this measure and am 
proud we have included it in this piece of legislation.
  In addition, this bill includes three provisions that raise revenue, 
to offset the revenue loss. First, we improve the collection of unpaid 
taxes from people who have renounced their American citizenship in 
order to avoid U.S. taxes.
  Second, we extend certain IRS user fees.
  Third, we restore the ability of IRS to permit partial-pay 
installment agreements with taxpayers. These are modest, sensible 
changes. In fact, in the case of expatriates, the offset seems 
especially fitting.
  All told, this bill does a small part to improve our Tax Code and, 
more importantly, pay respect to the men and women who are making 
sacrifices and risking their lives to defend us all.
  I thank all of the Members who have contributed to the development of 
the bill, including the support by Senators Levin, Warner and Cleland 
of the Armed Services Committee. I especially thank the ranking member 
of the Finance Committee, Senator Grassley, who has once again been a 
partner in the development of important bipartisan tax legislation.
  Mr. President, 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 am happy to see this military tax equity bill passed by the Senate 
today, and signed into law by the President before Congress adjourns.
  Mr. GRASSLEY. Mr. President, we are here today to consider the Armed 
Forces Tax Fairness Act which was voted out of the Finance Committee on 
September 12. A similar tax relief package was passed unanimously by 
the House in July. No one would dispute that many national defense 
challenges lie ahead for our country. We have spent and will continue 
to spend a good deal of time discussing homeland security and the war 
on terrorism as we continue our efforts to secure our borders. Now, we 
must consider seriously the possibility of military operations in Iraq.

[[Page 19085]]

  For those reasons, it is a particularly appropriate time to focus our 
attention on the important contributions of the men and women of our 
Armed Forces and national guard. These folks are the lifeblood of any 
initiative against terrorism or movement in Iraq and the first lien of 
defense in homeland security efforts. We need to make sure that these 
men and women are treated fairly in all respects and that the Tax Code 
does not provide any disincentives to continued service.
  Our military tax bill would remedy several tax problems and 
inequities faced by members of our uniformed services, National Guard, 
and foreign service. As a starting point, the legislation would make 
sure that military personnel subject to relocation are not 
disadvantaged in the Tax Code on the sales of their homes. In 1997, we 
enacted a capital gains tax exclusion on the sale of personal 
residences for individuals who live in the home for at least 2 of the 5 
years before the sale. This works well for most people, but the 
provision offers little help for military personnel who are frequently 
transferred. We should not punish members of our Armed Forces and 
foreign service who are asked to relocate in the name of service to 
their country. Like many of the provisions in this bill, the issue is 
one of fairness, and we should provide our military with home ownership 
tax incentives at least as favorable as those available to most 
Americans.
  Our military tax relief package also makes some important additions 
to the military tax package sent over by the House. One of those, 
Senator DeWine's proposal for the benefit of Reservists and National 
Guard, is both timely and important. Timely because Reservists continue 
to play an increasingly prominent role in our country's military 
operations. Historically, Reservists were used as manpower replacements 
only in national emergencies and wars. In fact, between 1945 and 1990, 
85 percent of involuntarily activated Reservists assisted in the Korean 
war. In the last decade, however, we have involuntarily activated 
Reservists six times for a broad array of operations, including (i) 
nation-building operations in Haiti, Bosnia, and Kosovo, (ii) armed 
conflicts such as those in Iraq, and (iii) current military operations 
fighting terrorism. Iowa alone currently has about 800 Guard and 
Reservists on active duty.
  Important because many Guard and Reservists who travel for weekend 
drills are required to spend their own money for travel expenses. If 
our military is unable to reimburse these folks for travel expenses 
related to training assignments, we should at a minimum allow these men 
and women to fully deduct those expenses on their Federal tax returns. 
Although we currently allow miscellaneous itemized deductions for such 
expenses, a limited number of Reservists itemize on their tax returns. 
Our bill includes a provision offered by Senator DeWine that such 
expenses be deductible by all reservists in above-the-line form. This 
would ensure (i) that Reservists are at least partly compensated for 
training-related travel expenses paid out of their own pockets, (ii) 
that all Reservists are treated equally, and (iii) would eliminate a 
potential disincentive to service. Many Iowans have contacted me with 
respect to this issue, and I ask unanimous consent to print their 
comments in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

             Snapshot Report: Incoming Constituent Messages

       Senator Grassley: Senator Max Baucus (D-MT), Chairman of 
     the Senate Finance Committee, has introduced the ``The 
     Foreign and Armed Services Tax Fairness Act of 2002'' (S 
     2616). The bill is intended to remedy a number of tax 
     inequities that have long plagued military service members. 
     Among the several provisions of the bill is one that is close 
     to the hearts of members of the Guard and Reserve--
     restoration of the tax deductibility of Reserve component 
     members' non-reimbursable training expenses. The 
     deductibility issue stems from a change to the Internal 
     Revenue Code made in 1986 that required that such 
     unreimbursed business expenses must be treated as itemized 
     deductions and must exceed two percent of adjusted gross 
     income. Since only about 25 percent of all taxpayers itemize 
     their deductions, this change has been the bane of many 
     citizens' existence. This includes citizen-soldiers, sailors, 
     airmen, and Marines who must now, in effect, subsidize their 
     own military training. If S 2816 becomes law, it's bill would 
     provide an above-the-line deduction for overnight travel 
     costs for Guardsmen and Reservists. Please sign on as a 
     cosponsor for ``The Foreign and Armed Services Tax Fairness 
     Act of 2002'' (S 2816). Sincerely, Thomas J. Hicks.
                                  ____

       Senator Grassley: Senator Max Baucus (D-MT), Chairman of 
     the Senate Finance Committee, has introduced the ``The 
     Foreign Armed Service Tax Fairness Act of 2002'' (S 2616). 
     The bill is intended to remedy a number of tax inequities 
     that have long plagued military service members. Among the 
     several provisions of the bill is one that is close to the 
     hearts of members of the Guard and Reserve--restoration of 
     the tax deductibility of Reserve component members' non-
     reimbursable training expenses. The deductibility issue stems 
     from a change to the Internal Revenue Code made in 1986 that 
     required that such unreimbursed business expenses must be 
     treated as itemized deductions and must exceed two percent of 
     adjusted gross income. Since only about 25 percent of all 
     taxpayers itemize their deductions, this change has been the 
     bane of many citizens' existence. This includes citizen-
     soldiers, sailors, airmen, and Marines who must now, in 
     effect, subsidize their own military training. If S 2816 
     becomes law, its bill would provide an above-the-line 
     deduction for overnight travel costs for Guardsmen and 
     Reservists. Please sign on as a cosponsor for ``The Foreign 
     and Armed Services Tax Fairness Act of 2002'' (S 2816). 
     Sincerely, J.D. Griffith, Burlington.
                                  ____

       Senator Grassley: SUPPORT HEARINGS ON CHANGE IN RC 
     RETIREMENT AGE Congressman Jim Saxton (R-NJ) recently 
     introduced a bill (HR 3831) that would reduce the age at 
     which Reservists could begin drawing their military 
     retirement from 60 to 55. I regard the bill as a significant 
     first step in the process of redefining the government's 
     longstanding contract with its Reserve forces. The world and 
     Reservists' terms of service have changed markedly in the 
     half-century since Reserve retirement was passed into law. I 
     believe that it is indeed time to reevaluate the whole 
     question of Reserve compensation. Please contact the chairmen 
     of the House and Senate military personnel subcommittees. 
     Urge them to hold hearings on lowering the Reserve retirement 
     eligibility age. This is a pivotal issue, one that has the 
     potential to change the shape of both the Reserve and the 
     Total Force. It is critical that the issue receive the full 
     consideration that it merits. Sincerely, James A. Brooks.
                                  ____

       Senatpr Grassley: The House recently unanimously passed the 
     Armed Services Tax Fairness Act of 2002 (HR 5063). This bill 
     eliminates two inequities in the tax code for active-duty 
     members of the Armed Services. The bill will now be sent to 
     the Senate and referred to the Senate Finance Committee for 
     consideration. Although it does not directly benefit most 
     Reserve component members, because it is almost certain to 
     win Senate approval, HR 5063 can serve as an ideal vehicle to 
     carry S 540, a bill we've been working on for some time now, 
     into law. (S 540, which currently has 62 cosponsors, would 
     provide tax credits for employers of mobilized Reservists and 
     restore the tax deductibility of Reservists' unreimbursed 
     training expenses.) To achieve this end, the Senate Finance 
     Committee will have to amend HR 5063 to add the provisions of 
     S 540 to the House bill. We need the strong support of 
     Senator Max Baucus, the chairman of the Senate Finance 
     Committee to make this happen. Please call Senator Baucus and 
     ask him to add the provisions of S 540 to HR 5063. It's the 
     right thing to do, and it will be deeply appreciated by the 
     men and women of our Reserve forces and their employers. 
     Sincerely, Jay R. Hildebrand.
                                  ____

       Senator Grassley: The House recently unanimously passed the 
     Armed Services Tax Fairness Act of 2002 (H.R. 5063). This 
     bill eliminates two inequities in the tax code for active-
     duty members of the Armed Services. The bill will now be sent 
     to the Senate and referred to the Senate Finance Committee 
     for consideration. Although it does not directly benefit most 
     Reserve component members, because it is almost certain to 
     win Senate approval, H.R. 5063 can serve as an ideal vehicle 
     to carry S. 540, a bill we've been working on for some time 
     now, into law. (S. 540, which currently has 62 cosponsors, 
     would provide tax credits for employers of mobilized 
     Reservists and restore the tax deductibility of Reservists' 
     unreimbursed training expenses.) To achieve this end, the 
     Senate Finance Committee will have to amend H.R. 5063 to add 
     the provisions of S. 540 to the House bill. We need the 
     strong support of Senator Max Baucus, the chairman of the 
     Senate Finance Committee to make this happen. Please call 
     Senator Baucus and ask him to add the provisions of S. 540 to 
     H.R. 5063. It's the right thing to do, and it will be deeply 
     appreciated by the men and women of our Reserve forces and 
     their employers. Sincerely, James A. Brooks.

[[Page 19086]]

     
                                  ____
       Senator Grassley: The House recently unanimously passed the 
     Armed Services Tax Fairness Act of 2002 (H.R. 5063). This 
     bill eliminates two inequities in the tax code for active-
     duty members of the Armed Services. The bill will now be sent 
     to the Senate and referred to the Senate Finance Committee 
     for consideration. Although it does not directly benefit most 
     Reserve component members, because it is almost certain to 
     win Senate approval, H.R. 5063 can serve as an ideal vehicle 
     to carry S. 540, a bill we've been working on for some time 
     now, into law. (S. 540, which currently has 62 cosponsors, 
     would provide tax credits for employers of mobilized 
     Reservists and restore the tax deductibility of Reservists' 
     unreimbursed training expenses.) To achieve this end, the 
     Senate Finance Committee will have to amend H.R. 5063 to add 
     the provisions of S. 540 to the House bill. We need the 
     strong support of Senator Max Baucus, the chairman of the 
     Senate Finance Committee to make this happen. Please call 
     Senator Baucus and ask him to add the provisions of S. 540 to 
     H.R. 5063. It's the right thing to do, and it will be deeply 
     appreciated by the men and women of our Reserve forces and 
     their employers. Sincerely, Thomas D. Heinold.
                                  ____

       Senator Grassley: Senator Max Baucus (D-MT), Chairman of 
     the Senate Finance Committee, has introduced the ``The 
     Foreign and Armed Services Tax Fairness Act of 2002'' (S. 
     2816). The bill is intended to remedy a number of tax 
     inequities that have long plagued military service members. 
     Among the several provisions of the bill is one that is close 
     to the hearts of members of the Guard and Reserve--
     restoration of the tax deductibility of Reserve component 
     members' non-reimbursable training expenses. The 
     deductibility issue stems from a change to the Internal 
     Revenue Code made in 1986 that required that such 
     unreimbursed business expenses must be treated as itemized 
     deductions and must exceed two percent of adjusted gross 
     income. Since only about 25 percent of all taxpayers itemize 
     their deductions, this change has been the bane of many 
     citizens' existence. This includes citizen-soldiers, sailors, 
     airmen, and Marines who must now, in effect, subsidize their 
     own military training. If S. 2816 becomes law, the bill would 
     provide an above-the-line deduction for overnight travel 
     costs for Guardsmen and Reservists. Please sign on as a 
     cosponsor for ``The Foreign and Armed Services Tax Fairness 
     Act of 2002'' (S. 2816). Sincerely, J. Neil McFarland.
  Mr. GRASSLEY. Mr. President, finally, our tax fairness bill ensures 
that military families receive comparable tax treatment for child care 
expenses. Most American workers are permitted to exclude from income 
$5,000 of employer-provided child care expenses. A separate blanket 
exclusion is provided to the military for all benefits. The provision, 
however, does not specify the treatment of military-provided child care 
expenses and some confusion has resulted. Our bill confirms this 
exclusion from military personnel. This ensures that military-provided 
child care is not treated less favorably than employer-provided child 
care or other military-provided benefits.
  Increased focus on national defense no doubt renews our deep 
appreciation for the members of our military. These men and women make 
tremendous sacrifices, and in some cases, risk their lives to protect 
and defend our freedom. It is a perfect time to ensure that men and 
women in service are treated fairly under our country's tax laws. In 
closing, I would like to thank those who continue to serve in the 
United States military and protect the freedoms that we so frequently 
take for granted. I thank my colleagues and urge them to vote for this 
important tax fairness measure.
  Mr. HUTCHINSON. Mr. President, I rise in strong support of H.R. 5063, 
the Armed Forces Tax Fairness Act. As a cosponsor of the Senate 
companion, S. 2816, I believe that this legislation will provide well-
deserved tax benefits for those in service to our nation. With the 
ongoing war on terrorism, it is critical that we do everything in our 
power to support members of our military, and their families.
  This legislation ensures that the entire benefit of $6,000 paid to 
the family of those individuals killed on active duty is made tax-free. 
Previously, only half of this benefit was exempt from taxes. H.R. 5063 
also ensures that members of our military can receive the tax treatment 
they deserve from the sale of their home. Because those in our armed 
forces are required to move frequently, many are unable to take 
advantage of the aspect of the tax code that allows the exclusion of 
gains from the sale of a person's home from the capital gains tax. This 
legislation ensures that they will qualify for this benefit.
  As the Ranking Member of the Personnel Subcommittee on the Senate 
Armed Services Committee, my top priority has been to improve the 
quality of life for members of our military and their families. H.R. 
5063 is an important step toward that effort.
  Mr. REID. I ask unanimous consent that the McCain-Baucus amendment at 
the desk be agreed to, the committee substitute amendment be agreed to, 
as amended, the bill as amended, be read the third time and passed, the 
amendment to the title be agreed to, the motion to reconsider be laid 
upon the table with no intervening action or debate, and that any 
statements related to this matter be printed in the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment (No. 4855) was agreed to, as follows:

   (Purpose: To apply the special rule for members of the uniformed 
 services and Foreign Service to sales or exchanges after May 6, 1997, 
                        and for other purposes)

       On page 9, strike lines 9 through 12, and insert the 
     following:
       (b) Effective Date; Special Rule.--
       (1) Effective date.--The amendment made by this section 
     shall take effect as if included in the amendments made by 
     section 312 of the Taxpayer Relief Act of 1997.
       (2) Waiver of limitations.--If refund or credit of any 
     overpayment of tax resulting from the amendment made by this 
     section is prevented at any time before the close of the 1-
     year period beginning on the date of the enactment of this 
     Act by the operation of any law or rule of law (including res 
     judicata), such refund or credit may nevertheless be made or 
     allowed if claim therefor is filed before the close of such 
     period.

       On page 46, after line 14, add the following:

     SEC. 203. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALLMENT 
                   AGREEMENTS.

       (a) In General.--
       (1) Section 6159(a) (relating to authorization of 
     agreements) is amended--
       (A) by striking ``satisfy liability for payment of'' and 
     inserting ``make payment on'', and
       (B) by inserting ``full or partial'' after ``facilitate''.
       (2) Section 6159(c) (relating to Secretary required to 
     enter into installment agreements in certain cases) is 
     amended in the matter preceding paragraph (1) by inserting 
     ``full'' before ``payment''.
       (b) Requirement To Review Partial Payment Agreements Every 
     Two Years.--Section 6159 is amended by redesignating 
     subsections (d) and (e) as subsections (e) and (f), 
     respectively, and inserting after subsection (c) the 
     following new subsection:
       ``(d) Secretary Required To Review Installment Agreements 
     for Partial Collection Every Two Years.--In the case of an 
     agreement entered into by the Secretary under subsection (a) 
     for partial collection of a tax liability, the Secretary 
     shall review the agreement at least once every 2 years.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to agreements entered into on or after the date 
     of the enactment of this Act.

  The committee amendment in the nature of a substitute, as amended, 
was agreed to.
  The amendment to the title was agreed to.
  The bill (H.R. 5063), as amended, was read the third time and passed 
as follows:

       Strike out all after the enacting clause and insert:

     SECTION 1. SHORT TITLE; ETC.

       (a) Short Title.--This Act may be cited as the ``Armed 
     Forces 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.

          TITLE I--IMPROVING TAX EQUITY FOR MILITARY PERSONNEL

Sec. 101. Exclusion from gross income of certain death gratuity 
              payments.
Sec. 102. Exclusion of gain from sale of a principal residence by a 
              member of the uniformed services or the Foreign Service.
Sec. 103. Exclusion for amounts received under Department of Defense 
              Homeowners Assistance Program.
Sec. 104. Expansion of combat zone filing rules to contingency 
              operations.
Sec. 105. Above-the-line deduction for overnight travel expenses of 
              National Guard and Reserve members.
Sec. 106. Modification of membership requirement for exemption from tax 
              for certain veterans' organizations.

[[Page 19087]]

Sec. 107. Clarification of treatment of certain dependent care 
              assistance programs.

                       TITLE II--OTHER PROVISIONS

Sec. 201. Revision of tax rules on expatriation.
Sec. 202. Extension of IRS user fees.
Sec. 203. Partial payment of tax liability in installment agreements.

          TITLE I--IMPROVING TAX EQUITY FOR MILITARY PERSONNEL

     SEC. 101. EXCLUSION FROM GROSS INCOME OF CERTAIN DEATH 
                   GRATUITY PAYMENTS.

       (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. 102. EXCLUSION OF GAIN FROM SALE OF A PRINCIPAL 
                   RESIDENCE BY A MEMBER OF THE UNIFORMED SERVICES 
                   OR THE FOREIGN SERVICE.

       (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 of the United States.
       ``(B) Maximum period of suspension.--The 5-year period 
     described in subsection (a) shall not be extended more than 
     10 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 of the United States' 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; Special Rule.--
       (1) Effective date.--The amendment made by this section 
     shall take effect as if included in the amendments made by 
     section 312 of the Taxpayer Relief Act of 1997.
       (2) Waiver of limitations.--If refund or credit of any 
     overpayment of tax resulting from the amendment made by this 
     section is prevented at any time before the close of the 1-
     year period beginning on the date of the enactment of this 
     Act by the operation of any law or rule of law (including res 
     judicata), such refund or credit may nevertheless be made or 
     allowed if claim therefor is filed before the close of such 
     period.

     SEC. 103. EXCLUSION FOR AMOUNTS RECEIVED UNDER DEPARTMENT OF 
                   DEFENSE HOMEOWNERS ASSISTANCE PROGRAM.

       (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:
       ``(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. 104. EXPANSION OF COMBAT ZONE FILING RULES TO 
                   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. 105. ABOVE-THE-LINE DEDUCTION FOR OVERNIGHT TRAVEL 
                   EXPENSES OF NATIONAL GUARD AND RESERVE MEMBERS.

       (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)(2), 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 for any period during 
     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. 106. MODIFICATION OF MEMBERSHIP REQUIREMENT FOR 
                   EXEMPTION FROM TAX FOR CERTAIN 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. 107. CLARIFICATION OF THE TREATMENT OF CERTAIN DEPENDENT 
                   CARE ASSISTANCE PROGRAMS.

       (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 for any individual described in paragraph 
     (1)(A).''.
       (b) Conforming Amendments.--
       (1) Section 134(b)(3)(A) is amended by inserting ``and 
     paragraph (4)'' after ``subparagraph (B)''.
       (2) Section 3121(a)(18) is amended by striking ``or 129'' 
     and inserting ``, 129, or 134(b)(4)''.
       (3) Section 3306(b)(13) is amended by striking ``or 129'' 
     and inserting ``, 129, or 134(b)(4)''.
       (4) 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.

                       TITLE II--OTHER PROVISIONS

     SEC. 201. 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:

[[Page 19088]]



     ``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

       ``(a) General Rules.--For purposes of this subtitle--
       ``(1) Mark to market.--Except as provided in subsections 
     (d) and (f), all property of a covered expatriate to whom 
     this section applies 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.
       ``(3) Exclusion for certain gain.--
       ``(A) In general.--The amount which, but for this 
     paragraph, would be includible in the gross income of any 
     individual by reason of this section shall be reduced (but 
     not below zero) by $600,000. For purposes of this paragraph, 
     allocable expatriation gain taken into account under 
     subsection (f)(2) shall be treated in the same manner as an 
     amount required to be includible in gross income.
       ``(B) Cost-of-living adjustment.--
       ``(i) In general.--In the case of an expatriation date 
     occurring in any calendar year after 2002, the $600,000 
     amount under 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 such calendar year, determined by 
     substituting `calendar year 2001' for `calendar year 1992' in 
     subparagraph (B) thereof.

       ``(ii) Rounding rules.--If any amount after adjustment 
     under clause (i) is not a multiple of $1,000, such amount 
     shall be rounded to the next lower multiple of $1,000.
       ``(4) Election to continue to be taxed as united states 
     citizen.--
       ``(A) In general.--If a covered expatriate elects the 
     application of this paragraph--
       ``(i) this section (other than this paragraph and 
     subsection (i)) shall not apply to the expatriate, but
       ``(ii) in the case of property to which this section would 
     apply but for such election, the expatriate shall be subject 
     to tax under this title in the same manner as if the 
     individual were a United States citizen.
       ``(B) Requirements.--Subparagraph (A) shall not apply to an 
     individual unless the individual--
       ``(i) provides security for payment of tax in such form and 
     manner, and in such amount, as the Secretary may require,
       ``(ii) consents to the waiver of any right of the 
     individual under any treaty of the United States which would 
     preclude assessment or collection of any tax which may be 
     imposed by reason of this paragraph, and
       ``(iii) complies with such other requirements as the 
     Secretary may prescribe.
       ``(C) Election.--An election under subparagraph (A) shall 
     apply to all property to which this section would apply but 
     for the election and, once made, shall be irrevocable. Such 
     election shall also apply to property the basis of which is 
     determined in whole or in part by reference to the property 
     with respect to which the election was made.
       ``(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 payment of the 
     additional tax attributable to such property shall be 
     postponed 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 postponement.--No tax may be postponed 
     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 to the Secretary 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 in an amount equal to the deferred tax 
     amount under paragraph (2) for the property, or
       ``(ii) the taxpayer otherwise establishes to the 
     satisfaction of the Secretary that the security is adequate.
       ``(5) Waiver of certain rights.--No election may be made 
     under paragraph (1) unless the taxpayer consents to the 
     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. An election may be made under paragraph 
     (1) with respect to an interest in a trust with respect to 
     which gain is required to be recognized under subsection 
     (f)(1).
       ``(7) Interest.--For purposes of section 6601--
       ``(A) the last date for the payment of tax shall be 
     determined without regard to the election under this 
     subsection, and
       ``(B) section 6621(a)(2) shall be applied by substituting 
     `5 percentage points' for `3 percentage points' in 
     subparagraph (B) thereof.
       ``(c) Covered Expatriate.--For purposes of this section--
       ``(1) In general.--Except as provided in paragraph (2), the 
     term `covered expatriate' means an expatriate.
       ``(2) Exceptions.--An individual shall not be treated as a 
     covered expatriate if--
       ``(A) 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 not been a resident of the United States (as 
     defined in section 7701(b)(1)(A)(ii)) during the 5 taxable 
     years ending with the taxable year during which the 
     expatriation date occurs, or
       ``(B)(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 5 taxable years 
     before the date of relinquishment.
       ``(d) Exempt Property; Special Rules for Pension Plans.--
       ``(1) Exempt property.--This section shall not apply to the 
     following:
       ``(A) United states real property interests.--Any United 
     States real property interest (as defined in section 
     897(c)(1)), other than stock of a United States real property 
     holding corporation which does not, on the day before the 
     expatriation date, meet the requirements of section 
     897(c)(2).
       ``(B) Specified property.--Any property or interest in 
     property not described in subparagraph (A) which the 
     Secretary specifies in regulations.
       ``(2) Special rules for certain retirement plans.--
       ``(A) In general.--If a covered expatriate holds on the day 
     before the expatriation date any interest in a retirement 
     plan to which this paragraph applies--
       ``(i) such interest shall not be treated as sold for 
     purposes of subsection (a)(1), but
       ``(ii) an amount equal to the present value of the 
     expatriate's nonforfeitable accrued benefit shall be treated 
     as having been received by such individual on such date as a 
     distribution under the plan.
       ``(B) Treatment of subsequent distributions.--In the case 
     of any distribution on or after the expatriation date to or 
     on behalf of the covered expatriate from a plan from which 
     the expatriate was treated as receiving a distribution under 
     subparagraph (A), the amount otherwise includible in gross 
     income by reason of the subsequent distribution shall be 
     reduced by the excess of the amount includible in gross 
     income under subparagraph (A) over any portion of such amount 
     to which this subparagraph previously applied.
       ``(C) Treatment of subsequent distributions by plan.--For 
     purposes of this title, a retirement plan to which this 
     paragraph applies, and any person acting on the plan's 
     behalf, shall treat any subsequent distribution described in 
     subparagraph (B) in the same manner as such distribution 
     would be treated without regard to this paragraph.
       ``(D) Applicable plans.--This paragraph shall apply to--
       ``(i) any qualified retirement plan (as defined in section 
     4974(c)),
       ``(ii) an eligible deferred compensation plan (as defined 
     in section 457(b)) of an eligible employer described in 
     section 457(e)(1)(A), and
       ``(iii) to the extent provided in regulations, any foreign 
     pension plan or similar retirement arrangements or programs.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Expatriate.--The term `expatriate' means--
       ``(A) any United States citizen who relinquishes 
     citizenship, and
       ``(B) any long-term resident of the United States who--
       ``(i) ceases to be a lawful permanent resident of the 
     United States (within the meaning of section 7701(b)(6)), or
       ``(ii) 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 and who does not waive 
     the benefits of such treaty applicable to residents of the 
     foreign country.
       ``(2) 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 of the event described in clause (i) or (ii) 
     of paragraph (1)(B).

[[Page 19089]]

       ``(3) Relinquishment of citizenship.--A citizen shall be 
     treated as relinquishing United States citizenship on the 
     earliest of--
       ``(A) the date the individual renounces such individual's 
     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.
       ``(4) Long-term resident.--The term `long-term resident' 
     has the meaning given to such term by section 877(e)(2).
       ``(f) Special Rules Applicable to Beneficiaries' Interests 
     in Trust.--
       ``(1) In general.--Except as provided in paragraph (2), if 
     an individual is determined under paragraph (3) to hold an 
     interest in a trust on the day before the expatriation date--
       ``(A) the individual shall not be treated as having sold 
     such interest,
       ``(B) such interest shall be treated as a separate share in 
     the trust, and
       ``(C)(i) such separate share shall be treated as a separate 
     trust consisting of the assets allocable to such share,
       ``(ii) the separate trust shall be treated as having sold 
     its assets on the day before the expatriation date for their 
     fair market value and as having distributed all of its assets 
     to the individual as of such time, and
       ``(iii) the individual shall be treated as having 
     recontributed the assets to the separate trust.

     Subsection (a)(2) shall apply to any income, gain, or loss of 
     the individual arising from a distribution described in 
     subparagraph (C)(ii). In determining the amount of such 
     distribution, proper adjustments shall be made for 
     liabilities of the trust allocable to an individual's share 
     in the trust.
       ``(2) Special rules for interests in qualified trusts.--
       ``(A) In general.--If the trust interest described in 
     paragraph (1) is an interest in a qualified trust--
       ``(i) paragraph (1) and subsection (a) shall not apply, and
       ``(ii) in addition to any other tax imposed by this title, 
     there is hereby imposed on each distribution with respect to 
     such interest a tax in the amount determined under 
     subparagraph (B).
       ``(B) Amount of tax.--The amount of tax under subparagraph 
     (A)(ii) shall be equal to the lesser of--
       ``(i) the highest rate of tax imposed by section 1(e) for 
     the taxable year which includes the day before the 
     expatriation date, multiplied by the amount of the 
     distribution, or
       ``(ii) the balance in the deferred tax account immediately 
     before the distribution determined without regard to any 
     increases under subparagraph (C)(ii) after the 30th day 
     preceding the distribution.
       ``(C) Deferred tax account.--For purposes of subparagraph 
     (B)(ii)--
       ``(i) Opening balance.--The opening balance in a deferred 
     tax account with respect to any trust interest is an amount 
     equal to the tax which would have been imposed on the 
     allocable expatriation gain with respect to the trust 
     interest if such gain had been included in gross income under 
     subsection (a).
       ``(ii) Increase for interest.--The balance in the deferred 
     tax account shall be increased by the amount of interest 
     determined (on the balance in the account at the time the 
     interest accrues), for periods after the 90th day after the 
     expatriation date, by using the rates and method applicable 
     under section 6621 for underpayments of tax for such periods, 
     except that section 6621(a)(2) shall be applied by 
     substituting `5 percentage points' for `3 percentage points' 
     in subparagraph (B) thereof.
       ``(iii) Decrease for taxes previously paid.--The balance in 
     the tax deferred account shall be reduced--

       ``(I) by the amount of taxes imposed by subparagraph (A) on 
     any distribution to the person holding the trust interest, 
     and
       ``(II) in the case of a person holding a nonvested 
     interest, to the extent provided in regulations, by the 
     amount of taxes imposed by subparagraph (A) on distributions 
     from the trust with respect to nonvested interests not held 
     by such person.

       ``(D) Allocable expatriation gain.--For purposes of this 
     paragraph, the allocable expatriation gain with respect to 
     any beneficiary's interest in a trust is the amount of gain 
     which would be allocable to such beneficiary's vested and 
     nonvested interests in the trust if the beneficiary held 
     directly all assets allocable to such interests.
       ``(E) Tax deducted and withheld.--
       ``(i) In general.--The tax imposed by subparagraph (A)(ii) 
     shall be deducted and withheld by the trustees from the 
     distribution to which it relates.
       ``(ii) Exception where failure to waive treaty rights.--If 
     an amount may not be deducted and withheld under clause (i) 
     by reason of the distributee failing to waive any treaty 
     right with respect to such distribution--

       ``(I) the tax imposed by subparagraph (A)(ii) shall be 
     imposed on the trust and each trustee shall be personally 
     liable for the amount of such tax, and
       ``(II) any other beneficiary of the trust shall be entitled 
     to recover from the distributee the amount of such tax 
     imposed on the other beneficiary.

       ``(F) Disposition.--If a trust ceases to be a qualified 
     trust at any time, a covered expatriate disposes of an 
     interest in a qualified trust, or a covered expatriate 
     holding an interest in a qualified trust dies, then, in lieu 
     of the tax imposed by subparagraph (A)(ii), there is hereby 
     imposed a tax equal to the lesser of--
       ``(i) the tax determined under paragraph (1) as if the day 
     before the expatriation date were the date of such cessation, 
     disposition, or death, whichever is applicable, or
       ``(ii) the balance in the tax deferred account immediately 
     before such date.

     Such tax shall be imposed on the trust and each trustee shall 
     be personally liable for the amount of such tax and any other 
     beneficiary of the trust shall be entitled to recover from 
     the covered expatriate or the estate the amount of such tax 
     imposed on the other beneficiary.
       ``(G) Definitions and special rules.--For purposes of this 
     paragraph--
       ``(i) Qualified trust.--The term `qualified trust' means a 
     trust which is described in section 7701(a)(30)(E).
       ``(ii) Vested interest.--The term `vested interest' means 
     any interest which, as of the day before the expatriation 
     date, is vested in the beneficiary.
       ``(iii) Nonvested interest.--The term `nonvested interest' 
     means, with respect to any beneficiary, any interest in a 
     trust which is not a vested interest. Such interest shall be 
     determined by assuming the maximum exercise of discretion in 
     favor of the beneficiary and the occurrence of all 
     contingencies in favor of the beneficiary.
       ``(iv) Adjustments.--The Secretary may provide for such 
     adjustments to the bases of assets in a trust or a deferred 
     tax account, and the timing of such adjustments, in order to 
     ensure that gain is taxed only once.
       ``(v) Coordination with retirement plan rules.--This 
     subsection shall not apply to an interest in a trust which is 
     part of a retirement plan to which subsection (d)(2) applies.
       ``(3) Determination of beneficiaries' interest in trust.--
       ``(A) Determinations under paragraph (1).--For purposes of 
     paragraph (1), a beneficiary's interest in a trust shall be 
     based upon all relevant facts and circumstances, including 
     the terms of the trust instrument and any letter of wishes or 
     similar document, historical patterns of trust distributions, 
     and the existence of and functions performed by a trust 
     protector or any similar adviser.
       ``(B) Other determinations.--For purposes of this section--
       ``(i) Constructive ownership.--If a beneficiary of a trust 
     is a corporation, partnership, trust, or estate, the 
     shareholders, partners, or beneficiaries shall be deemed to 
     be the trust beneficiaries for purposes of this section.
       ``(ii) Taxpayer return position.--A taxpayer shall clearly 
     indicate on its income tax return--

       ``(I) the methodology used to determine that taxpayer's 
     trust interest under this section, and
       ``(II) if the taxpayer knows (or has reason to know) that 
     any other beneficiary of such trust is using a different 
     methodology to determine such beneficiary's trust interest 
     under this section.

       ``(g) Termination of Deferrals, Etc.--In the case of any 
     covered expatriate, notwithstanding any other provision of 
     this title--
       ``(1) any period during which recognition of income or gain 
     is deferred shall terminate on the day before the 
     expatriation date, and
       ``(2) 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.
       ``(h) Imposition of Tentative Tax.--
       ``(1) In general.--If an individual is required to include 
     any amount in gross income under subsection (a) for any 
     taxable year, there is hereby imposed, immediately before the 
     expatriation date, a tax in an amount equal to the amount of 
     tax which would be imposed if the taxable year were a short 
     taxable year ending on the expatriation date.
       ``(2) Due date.--The due date for any tax imposed by 
     paragraph (1) shall be the 90th day after the expatriation 
     date.
       ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
     shall be treated as a payment of the tax imposed by this 
     chapter for the taxable year to which subsection (a) applies.
       ``(4) Deferral of tax.--The provisions of subsection (b) 
     shall apply to the tax imposed by this subsection to the 
     extent attributable to gain includible in gross income by 
     reason of this section.
       ``(i) Special Liens for Deferred Tax Amounts.--
       ``(1) Imposition of lien.--
       ``(A) In general.--If a covered expatriate makes an 
     election under subsection (a)(4) or (b) which results in the 
     deferral of any tax imposed by reason of subsection (a), the 
     deferred amount

[[Page 19090]]

     (including any interest, additional amount, addition to tax, 
     assessable penalty, and costs attributable to the deferred 
     amount) shall be a lien in favor of the United States on all 
     property of the expatriate located in the United States 
     (without regard to whether this section applies to the 
     property).
       ``(B) Deferred amount.--For purposes of this subsection, 
     the deferred amount is the amount of the increase in the 
     covered expatriate's income tax which, but for the election 
     under subsection (a)(4) or (b), would have occurred by reason 
     of this section for the taxable year including the 
     expatriation date.
       ``(2) Period of lien.--The lien imposed by this subsection 
     shall arise on the expatriation date and continue until--
       ``(A) the liability for tax by reason of this section is 
     satisfied or has become unenforceable by reason of lapse of 
     time, or
       ``(B) it is established to the satisfaction of the 
     Secretary that no further tax liability may arise by reason 
     of this section.
       ``(3) Certain rules apply.--The rules set forth in 
     paragraphs (1), (3), and (4) of section 6324A(d) shall apply 
     with respect to the lien imposed by this subsection as if it 
     were a lien imposed by section 6324A.
       ``(j) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Inclusion in Income of Gifts and Bequests Received by 
     United States Citizens and Residents From Expatriates.--
     Section 102 (relating to gifts, etc. not included in gross 
     income) is amended by adding at the end the following new 
     subsection:
       ``(d) Gifts and Inheritances From Covered Expatriates.--
       ``(1) In general.--Subsection (a) shall not exclude from 
     gross income the value of any property acquired by gift, 
     bequest, devise, or inheritance from a covered expatriate 
     after the expatriation date. For purposes of this subsection, 
     any term used in this subsection which is also used in 
     section 877A shall have the same meaning as when used in 
     section 877A.
       ``(2) Exceptions for transfers otherwise subject to estate 
     or gift tax.--Paragraph (1) shall not apply to any property 
     if either--
       ``(A) the gift, bequest, devise, or inheritance is--
       ``(i) shown on a timely filed return of tax imposed by 
     chapter 12 as a taxable gift by the covered expatriate, or
       ``(ii) 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, or
       ``(B) no such return was timely filed but no such return 
     would have been required to be filed even if the covered 
     expatriate were a citizen or long-term resident of the United 
     States.''.
       (c) Definition of Termination of United States 
     Citizenship.--Section 7701(a) is amended by adding at the end 
     the following new paragraph:
       ``(48) 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(e)(3).
       ``(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.''.
       (d) Ineligibility for Visa or Admission To United States.--
       (1) In general.--Section 212(a)(10)(E) of the Immigration 
     and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to 
     read as follows:
       ``(E) Former citizens not in compliance with expatriation 
     revenue provisions.--Any alien who is a former citizen of the 
     United States who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3) of the Internal 
     Revenue Code of 1986) and who is not in compliance with 
     section 877A of such Code (relating to expatriation).''.
       (2) Availability of information.--
       (A) In general.--Section 6103(l) (relating to disclosure of 
     returns and return information for purposes other than tax 
     administration) is amended by adding at the end the following 
     new paragraph:
       ``(18) Disclosure to deny visa or admission to certain 
     expatriates.--Upon written request of the Attorney General or 
     the Attorney General's delegate, the Secretary shall disclose 
     whether an individual is in compliance with section 877A (and 
     if not in compliance, any items of noncompliance) to officers 
     and employees of the Federal agency responsible for 
     administering section 212(a)(10)(E) of the Immigration and 
     Nationality Act solely for the purpose of, and to the extent 
     necessary in, administering such section 212(a)(10)(E).''.
       (B) Safeguards.--Section 6103(p)(4) (relating to 
     safeguards) is amended by striking ``or (17)'' each place it 
     appears and inserting ``(17), or (18)''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to individuals who relinquish United States 
     citizenship on or after the date of the enactment of this 
     Act.
       (e) Conforming Amendments.--
       (1) Section 877 is amended by adding at the end the 
     following new subsection:
       ``(g) Application.--This section shall not apply to an 
     expatriate (as defined in section 877A(e)) whose expatriation 
     date (as so defined) occurs on or after September 12, 
     2002.''.
       (2) Section 2107 is amended by adding at the end the 
     following new subsection:
       ``(f) Application.--This section shall not apply to any 
     expatriate subject to section 877A.''.
       (3) Section 2501(a)(3) is amended by adding at the end the 
     following new subparagraph:
       ``(F) Application.--This paragraph shall not apply to any 
     expatriate subject to section 877A.''.
       (4)(A) Paragraph (1) of section 6039G(d) is amended by 
     inserting ``or 877A'' after ``section 877''.
       (B) The second sentence of section 6039G(e) is amended by 
     inserting ``or who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3))'' after 
     ``877(a))''.
       (C) Section 6039G(f) is amended by inserting ``or 
     877A(e)(2)(B)'' after ``877(e)(1)''.
       (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 expatriates 
     (within the meaning of section 877A(e) of the Internal 
     Revenue Code of 1986, as added by this section) whose 
     expatriation date (as so defined) occurs on or after 
     September 12, 2002.
       (2) Gifts and bequests.--Section 102(d) of the Internal 
     Revenue Code of 1986 (as added by subsection (b)) shall apply 
     to gifts and bequests received on or after September 12, 
     2002, from an individual or the estate of an individual whose 
     expatriation date (as so defined) occurs after such date.
       (3) Due date for tentative tax.--The due date under section 
     877A(h)(2) of the Internal Revenue Code of 1986, as added by 
     this section, shall in no event occur before the 90th day 
     after the date of the enactment of this Act.

     SEC. 202. EXTENSION OF INTERNAL REVENUE SERVICE USER FEES.

       (a) In General.--Chapter 77 (relating to miscellaneous 
     provisions) is amended by adding at the end the following new 
     section:

     ``SEC. 7527. INTERNAL REVENUE SERVICE USER FEES.

       ``(a) General Rule.--The Secretary shall establish a 
     program requiring the payment of user fees for--
       ``(1) requests to the Internal Revenue Service for ruling 
     letters, opinion letters, and determination letters, and
       ``(2) other similar requests.
       ``(b) Program Criteria.--
       ``(1) In general.--The fees charged under the program 
     required by subsection (a)--
       ``(A) shall vary according to categories (or subcategories) 
     established by the Secretary,
       ``(B) shall be determined after taking into account the 
     average time for (and difficulty of) complying with requests 
     in each category (and subcategory), and
       ``(C) shall be payable in advance.
       ``(2) Exemptions, etc.--
       ``(A) In general.--The Secretary shall provide for such 
     exemptions (and reduced fees) under such program as the 
     Secretary determines to be appropriate.
       ``(B) Exemption for certain requests regarding pension 
     plans.--The Secretary shall not require payment of user fees 
     under such program for requests for determination letters 
     with respect to the qualified status of a pension benefit 
     plan maintained solely by 1 or more eligible employers or any 
     trust which is part of the plan. The preceding sentence shall 
     not apply to any request--
       ``(i) made after the later of--

       ``(I) the fifth plan year the pension benefit plan is in 
     existence, or
       ``(II) the end of any remedial amendment period with 
     respect to the plan beginning within the first 5 plan years, 
     or

       ``(ii) made by the sponsor of any prototype or similar plan 
     which the sponsor intends to market to participating 
     employers.
       ``(C) Definitions and special rules.--For purposes of 
     subparagraph (B)--
       ``(i) Pension benefit plan.--The term `pension benefit 
     plan' means a pension, profit-sharing, stock bonus, annuity, 
     or employee stock ownership plan.
       ``(ii) Eligible employer.--The term `eligible employer' 
     means an eligible employer (as defined in section 
     408(p)(2)(C)(i)(I)) which has at least 1 employee who is not 
     a highly compensated employee (as defined in section 414(q)) 
     and is participating in the plan. The determination of 
     whether an employer is an eligible employer under 
     subparagraph (B) shall be made as of the date of the request 
     described in such subparagraph.
       ``(iii) Determination of average fees charged.--For 
     purposes of any determination of average fees charged, any 
     request to which subparagraph (B) applies shall not be taken 
     into account.
       ``(3) Average fee requirement.--The average fee charged 
     under the program required by subsection (a) shall not be 
     less than the amount determined under the following table:

                                                            Average Fee
``Category
  Employee plan ruling and opinion............................$250 ....

  Exempt organization ruling..................................$350 ....

  Employee plan determination.................................$300 ....

  Exempt organization determination...........................$275 ....

  Chief counsel ruling........................................$200.....

       ``(c) Termination.--No fee shall be imposed under this 
     section with respect to requests made after September 30, 
     2012.''.

[[Page 19091]]

       (b) Conforming Amendments.--
       (1) The table of sections for chapter 77 is amended by 
     adding at the end the following new item:

``Sec. 7527. Internal Revenue Service user fees.''.
       (2) Section 10511 of the Revenue Act of 1987 is repealed.
       (3) Section 620 of the Economic Growth and Tax Relief 
     Reconciliation Act of 2001 is repealed.
       (c) Limitations.--Notwithstanding any other provision of 
     law, any fees collected pursuant to section 7527 of the 
     Internal Revenue Code of 1986, as added by subsection (a), 
     shall not be expended by the Internal Revenue Service unless 
     provided by an appropriations Act.
       (d) Effective Date.--The amendments made by this section 
     shall apply to requests made after the date of the enactment 
     of this Act.

     SEC. 203. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALLMENT 
                   AGREEMENTS.

       (a) In General.--
       (1) Section 6159(a) (relating to authorization of 
     agreements) is amended--
       (A) by striking ``satisfy liability for payment of'' and 
     inserting ``make payment on'', and
       (B) by inserting ``full or partial'' after ``facilitate''.
       (2) Section 6159(c) (relating to Secretary required to 
     enter into installment agreements in certain cases) is 
     amended in the matter preceding paragraph (1) by inserting 
     ``full'' before ``payment''.
       (b) Requirement To Review Partial Payment Agreements Every 
     Two Years.--Section 6159 is amended by redesignating 
     subsections (d) and (e) as subsections (e) and (f), 
     respectively, and inserting after subsection (c) the 
     following new subsection:
       ``(d) Secretary Required To Review Installment Agreements 
     for Partial Collection Every Two Years.--In the case of an 
     agreement entered into by the Secretary under subsection (a) 
     for partial collection of a tax liability, the Secretary 
     shall review the agreement at least once every 2 years.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to agreements entered into on or after the date 
     of the enactment of this Act.

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

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