[Congressional Record (Bound Edition), Volume 148 (2002), Part 14]
[Senate]
[Pages 19158-19159]
[From the U.S. Government Publishing Office, www.gpo.gov]




               TAX RELIEF FOR MEMBERS OF THE ARMED FORCES

  Mr. GRAHAM. Mr. President, I would like to thank Senators Baucus and 
Grassley for introducing the Armed Forces Tax Fairness Act, and for 
including a very important provision within it. I, along with Senators 
Lincoln and McCain, am proud to cosponsor a specific provision that 
provides tax relief for members of the military and foreign service 
officers serving on assignment abroad. This provision provides tax 
relief on the profit generated by the sale of a primary residence--
allowing those who serve our country the ability to exclude their time 
living abroad from the calculation of total years living in their 
primary residence.
  This provision does not create a new tax benefit, it merely modifies 
current law. The Taxpayer Relief Act of 1997 gave taxpayers who sell 
their principal residence a much-needed tax break. Prior to the 1997 
act, taxpayers received a one-time exclusion on the profit they made 
when they sold their principal residence, but the taxpayer had to live 
in the residence for two of the five years preceding the sale and be at 
least 55 years old. This policy provided no tax relief to younger 
taxpayers and their families.
  The 1997 act corrected this flaw. Now, a taxpayer who sells his or 
her principal residence is not taxed on the first $250,000 of profit 
from the sale. Joint filers are not taxed on their first $500,000 of 
profit. To qualify for this tax relief, the taxpayer must meet two 
requirements: No. 1, they must own the home for at least two of the 
five years preceding the sale; and No. 2, they must live in the home as 
their primary residence for at least two of the last five years.
  Unfortunately, this second requirement unintentionally and unfairly 
prohibits men and women in the armed services and foreign service from 
qualifying for this beneficial tax relief when their service mandates 
that they live abroad for longer periods of time.
  The bill being considered today remedies the inequality in the 
Taxpayer Relief Act of 1997. While military and foreign service 
professionals working abroad would still be required to own and live in 
their home for at least 2 years, the Internal Revenue Code would be 
amended to suspend the five-year determination period--when members of 
the military and foreign service are away from home.
  The 1997 home sale provision was bad fiscal policy because as it 
unintentionally discouraged government personnel from owning their own 
homes. We all know that home ownership has numerous benefits. It 
provides Americans with a valuable sense of community. It adds 
stability to our Nation's neighborhoods, and generates valuable 
property taxes for our Nation's communities. Home ownership should be 
commended and encouraged, and members of the military and foreign 
service should not be penalized with higher taxes simply because they 
are on extended assignment abroad. Enacting this remedy will grant 
equal and fair tax relief to those U.S. citizens who serve our country 
away from home.
  Ms. LANDRIEU. Mr. President, I want to commend the chairman and 
ranking member of the Finance Committee for bringing the Armed Forces 
Tax Fairness Act of 2002 to the floor and winning Senate passage of 
this important legislation. This bill contains some valuable tax 
benefits for the men and women who defend out country, fighting the war 
against terrorism.
  I am very pleased that this bill contains provisions based on a bill 
I introduced, S. 2807, to clarify that dependent care benefits paid to 
our armed forces are excluded from their gross incomes. S. 2807 fixes 
what I believe was an oversight in the Tax Reform Act of 1986. That Act 
consolidated the laws regarding the tax treatment of certain military 
benefits. The conference report to the 1986 Act contained a long list 
of benefits to be excluded from the gross incomes of military 
personnel. According to the report, this list was to be exhaustive. The 
problem was that dependent and child care benefits were not included on 
the list.
  The Treasury Secretary does have the authority to expand the list of 
benefits in the 1986 Act, but so far no

[[Page 19159]]

Treasury Secretary has chosen to expand the list. As a matter of 
practice, we do not tax these benefits, but the Department of Defense 
is concerned that this may change without greater clarification. The 
Defense Department came to us to clarify the tax treatment of dependent 
and child care benefits once and for all. I was proud to help them. I 
thank Senator Baucus, the chairman of the Finance Committee and the 
ranking member, Senator Grassley, for including my legislation in this 
package.
  Throughout our history, in times of war and in times of peace we have 
worked to make sure that our armed forces have everything they need and 
we have spared no expense in this regard. The Armed Forces Tax Fairness 
Act of 2002 is another symbol of this support. I hope the House of 
Representatives will pass this bill as well and move it on to the 
President's desk for passage into law before we adjourn this session of 
Congress. The men and women of our armed forces and their families 
deserve this legislation.
  Mrs. CARNAHAN. Mr. President, last night the Senate acted to 
demonstrate our support and gratitude for those brave men and women who 
are fighting to protect our freedom and our Nation's interests abroad. 
I am proud to be an original cosponsor of the Armed Forces Tax Fairness 
Act. These common sense tax cuts rectify injustices in our tax code 
that punish those who serve in our military.
  Even in times of peace, extraordinary demands are placed on our 
troops. They are separated from their families. They endure physically 
grueling training. And most important, they commit to put their own 
lives at risk for the sake of this country. Since last year's attacks, 
we have become even more dependent on the dedication of our armed 
forces.
  This reality makes it all the more important that we ensure our tax 
laws are fair to those who serve in our military. In August, I 
introduced the Honoring Our Heroes Act. Under my bill, families of 
soldiers who lose their lives while serving their country do not have 
to pay income taxes on the death benefit payment the federal government 
provides. Under current law the government provides $6,000 to families 
of servicemen and women who die. However, families are required to pay 
income tax on half of that benefit. My legislation enables a family to 
use the entire death benefit to cover funeral or other expenses they 
face after losing their loved one.
  The bill passed by the Senate last night includes my bill, and other 
improvements to our tax code. Reservists and members of the National 
Guard will be pleased to know that this bill enables them to deduct 
their service-related travel expenses even if they do not itemize their 
tax deductions. This bill also ensures that service members will not be 
penalized when they sell their houses after a period of service away 
from home. In addition, this legislation provides automatic filing 
extensions to military personnel who are assigned to contingency 
operations and would naturally have trouble meeting the regular IRS 
deadlines.
  These and other tax cuts for our service members are paid for by 
closing a horrible loophole in our tax code. Currently wealthy 
individuals can escape paying taxes by renouncing their U.S. 
citizenship. This is unconscionable. Citizens who have benefited from 
the freedom and opportunity provided by this country should not be 
allowed to avoid paying income tax by renouncing their citizenship. I 
believe we owe it to those fighting for our country's freedom to close 
this loophole.
  I am pleased to work with my colleagues on both sides of the aisle to 
make our tax code more fair. The United States is extremely grateful 
for the hard work and dedication of our armed forces. And the bill we 
passed last night will ensure that our tax code reflects this 
gratitude.

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