[Congressional Record (Bound Edition), Volume 148 (2002), Part 14]
[House]
[Pages 19404-19407]
[From the U.S. Government Publishing Office, www.gpo.gov]




                 ARMED FORCES TAX FAIRNESS ACT OF 2002

  Mr. WELLER. Madam Speaker, I move to suspend the rules and pass the 
bill (H.R. 5557) to amend the Internal Revenue Code of 1986 to provide 
a special rule for members of the uniformed services and Foreign 
Service in determining the exclusion of gain from the sale of a 
principal residence and to restore the tax exempt status of death 
gratuity payments to members of the uniformed services, and for other 
purposes.
  The Clerk read as follows:

                               H.R. 5557

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

     SECTION 1. SHORT TITLE.

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

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

       (a) In General.--Subsection (d) of section 121 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:
       ``(10) Members of uniformed services and foreign service.--
       ``(A) In general.--At the election of an individual with 
     respect to a property, the running of the 5-year period 
     described in subsection (a) with respect to such property 
     shall be suspended during any period that such individual or 
     such individual's spouse is serving on qualified official 
     extended duty as a member of the uniformed services or of the 
     Foreign Service.
       ``(B) Maximum period of suspension.--The 5-year period 
     described in subsection (a) shall not be extended more than 5 
     years by reason of subparagraph (A).
       ``(C) Qualified official extended duty.--For purposes of 
     this paragraph--
       ``(i) In general.--The term `qualified official extended 
     duty' means any extended duty while serving at a duty station 
     which is at least 150 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.--The term `member of the Foreign 
     Service' has the meaning given the term `member of the 
     Service' by paragraph (1), (2), (3), (4), or (5) of section 
     103 of the Foreign Service Act of 1980, as in effect on the 
     date of the enactment of this paragraph.
       ``(iv) 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; 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. 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.

     SEC. 4. EXCLUSION FOR AMOUNTS RECEIVED UNDER DEPARTMENT OF 
                   DEFENSE HOMEOWNERS ASSISTANCE PROGRAM.

       (a) In General.--Section 132(a) of the Internal Revenue 
     Code of 1986 (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 of such Code is amended by redesignating 
     subsection (n) as subsection (o) and by inserting after 
     subsection (m) the following new subsection:
       ``(n) Qualified Military Base Realignment and Closure 
     Fringe.--For purposes of this section, the term `qualified 
     military base realignment and closure fringe' means 1 or more 
     payments under the authority of section 1013 of the 
     Demonstration Cities and Metropolitan Development Act of 1966 
     (42 U.S.C. 3374) to offset the adverse effects on housing 
     values as a result of a military base realignment or 
     closure.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to payments made after the date of the enactment 
     of this Act.

     SEC. 5. EXPANSION OF COMBAT ZONE FILING RULES TO CONTINGENCY 
                   OPERATIONS.

       (a) In General.--Section 7508(a) of the Internal Revenue 
     Code of 1986 (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) of such Code is amended by inserting 
     ``or contingency operation'' after ``area''.
       (2) The heading for section 7508 of such Code is amended by 
     inserting ``OR CONTINGENCY OPERATION'' after ``COMBAT ZONE''.
       (3) The item relating to section 7508 of such Code in the 
     table of sections for chapter 77 is amended by inserting ``or 
     contingency operation'' after ``combat zone''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to any period for performing an act which has not 
     expired before the date of the enactment of this Act.

     SEC. 6. MODIFICATION OF MEMBERSHIP REQUIREMENT FOR EXEMPTION 
                   FROM TAX FOR CERTAIN VETERANS' ORGANIZATIONS.

       (a) In General.--Subparagraph (B) of section 501(c)(19) of 
     the Internal Revenue Code of 1986 (relating to list of exempt 
     organizations) is amended by striking ``or widowers''

[[Page 19405]]

     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. 7. CLARIFICATION OF THE TREATMENT OF CERTAIN DEPENDENT 
                   CARE ASSISTANCE PROGRAMS.

       (a) In General.--Section 134(b) of the Internal Revenue 
     Code of 1986 (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 (as in effect on the date of the enactment 
     of this paragraph) for any individual described in paragraph 
     (1)(A).''.
       (b) Conforming Amendments.--
       (1) Section 134(b)(3)(A) of such Code (as amended by 
     section 3) is further amended by inserting ``and paragraph 
     (4)'' after ``subparagraphs (B) and (C)''.
       (2) Section 3121(a)(18) of such Code is amended by striking 
     ``or 129'' and inserting ``, 129, or 134(b)(4)''.
       (3) Section 3306(b)(13) of such Code is amended by striking 
     ``or 129'' and inserting ``, 129, or 134(b)(4)''.
       (4) Section 3401(a)(18) of such Code 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.

     SEC. 8. PROTECTION OF SOCIAL SECURITY.

       The amounts transferred to any trust fund under title II of 
     the Social Security Act shall be determined as if this Act 
     had not been enacted.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Illinois (Mr. Weller) and the gentleman from California (Mr. Becerra) 
each will control 20 minutes.
  The Chair recognizes the gentleman from Illinois (Mr. Weller).
  Mr. WELLER. Madam Speaker, I yield myself such time as I may consume.
  Madam Speaker, on July 9, 2002, the House of Representatives passed 
H.R. 5063, the Armed Forces Tax Fairness Act of 2002, by a unanimous 
bipartisan vote of 413 to 0. That legislation contained two important 
provisions that would restore equity to the Tax Code for Members of the 
Armed Forces.
  The Senate expanded the bill by adding other provisions and passed 
H.R. 5063 by unanimous consent on October 3. The bill before us today, 
H.R. 5557, combines the House- and Senate-passed bills to provide 
several important tax benefits to members of our Nation's military.
  First, H.R. 5557 fixes an inequity in the law relating to the capital 
gains exclusion on home sales. Under the present law, the first 
$250,000 of gain from the sale of a home is not subject to capital 
gains tax if the individual lived in the home for 2 of the past 5 
years. The exclusion is $500,000 for married couples.
  Members of the military and Foreign Service often cannot meet this 
residency requirement if they are transferred on extended duty. As a 
result, military personnel, through no fault of their own, cannot take 
advantage of the tax relief when they sell their homes.
  The Armed Forces Tax Fairness Act of 2002 fixes this inequity by 
suspending the 5-year ownership test when a member of the military or 
Foreign Service is transferred on extended duty more than 150 miles 
from home.
  The second provision of the bill provides tax-free treatment for 
gratuity death payments paid to survivors of military personnel. Under 
present law, survivors of the members of the Armed Forces receive a 
$6,000 death gratuity payment, but only half of this payment is tax-
free.

                              {time}  2200

  H.R. 5063 updates the tax codes by providing tax-free treatment for 
the entire and full $6,000 amount.
  Third, it provides that payments made under the Homeowners' 
Assistance Program are tax free. These payments are made to compensate 
members of the Armed Forces if they suffer a decline in home value 
because of a military base closure or realignment.
  Fourth, the bill clarifies that dependent care benefits provided 
under a military dependent care assistance program are excludable from 
income. As a result, the value of employer-provided dependent care is 
not taxed.
  Fifth, the definition of a qualified veterans organization is 
expanded so that more organizations qualify under the law. And, 
finally, the bill extends several tax filing extensions to individuals 
serving in a contingency operation. These benefits are already provided 
to individuals serving in a combat zone.
  Madam Speaker, these provisions are noncontroversial and they are 
fair. I hope the House will join me in supporting this legislation 
today; and I hope that the other body, the Senate, will quickly take up 
the bill and send it to the President's desk for his signature before 
we adjourn in this Congress.
  Madam Speaker, I reserve the balance of my time.
  Mr. BECERRA. Madam Speaker, I yield myself such time as I might 
consume.
  Madam Speaker, the House passed H.R. 5063, the Armed Forces Tax 
Fairness Act of 2002 back on July 9, 2002, by a vote of 413 to zero. 
Last Thursday, October 3, the Senate approved H.R. 5063 with an 
amendment by unanimous consent and returned the same bill to the House. 
The bill before us is nearly identical to the Senate-passed version of 
H.R. 5063 with two key differences, as my friends and colleague from 
Illinois (Mr. Weller) has mentioned.
  Even with these differences, even with some differences in the bill 
that the Senate passed which I will explore in just a few moments in 
more detail in my remarks, I feel it is again important for us to 
support our military and pass H.R. 5557. During these times when we 
depend on our men and women in uniform to perform the highest levels of 
service, and we place them in harm's way, and I need not remind people 
today that we have troops remaining in Afghanistan, we have National 
Guard troops who are patrolling our borders, and in the days ahead we 
will be debating the merits of the President's call for the use of 
force against Iraq. But given all of that, these benefits that we are 
trying to provide under this legislation should go to our men and women 
in uniform without delay.
  The talk of war quickly reminds us of the willingness of our military 
men and women to place their lives at risk for each of us and for our 
country. The families deserve all the support and help we can provide.
  First, this bill provides much-needed relief for favorable tax 
treatment to death benefits that are paid on behalf of military 
personnel who die in the line of duty. While the deaths gratuity 
received by spouses is $6,000, only half of that amount, $3,000, is 
currently excluded for income for tax purposes. The other $3,000 in 
deaths benefits incongruously gets taxed.
  Under this bill, the full $6,000 that the surviving spouse of that 
man or woman who served our country who receive death benefits would be 
excluded from income for tax purposes.
  Secondly, the bill would ensure that military families do not lose 
the current law principle residence tax gains exclusion because of 
extended military assignments away from home. Under current law, any 
American who is a taxpayer receives exclusion from taxes of up to 
$250,000 as an individual or if you are married and you file jointly, 
up to $500,000 of any gain that is realized on the sale of your 
principal residence. So if Jane Smith were to purchase a home today for 
$100,000 and in something more than 2 years have the good fortune to 
sell it for $350,000, Jane Smith under our current tax law would not 
have to pay any taxes on the $250,000 profit on the sale of her 
principal residence.
  Many of our military personnel cannot receive this same military tax 
benefit because they are stationed away from home for an extended tour 
of duty. By being away from their home they fail to meet one of the 
criteria for qualifying for this tax exclusion. One of the requirements 
of our tax law is that the taxpayer must have lived,

[[Page 19406]]

owned or used his residence as the principal residence for at least 2 
of the previous 5 years prior to the sale or exchange of the property.
  H.R. 5557 addresses this inequity and extends appropriate 
consideration in tax treatment to our men and women in uniform.
  Madam Speaker, as I have said, this bill includes several positive 
changes from the original House-passed bill that were added by the 
Senate. Unfortunately, two important Senate-passed provisions are not 
included in this bill that I would like to mention because they also 
affect the livelihood of our men and women in uniform.
  First, the Senate had included an above the line deduction for 
overnight travel expenses of National Guard and Reserve members in 
their version of the bill. This provision would have benefited men and 
women who do not itemize in their tax filing, whether it is a 1040, a 
1040EZ form; but for those men and women in uniform in the National 
Guard who do not take the time or do not have enough deductions to fill 
out and itemize those deductions, those individuals would not be able 
to benefit as a result of this legislation because the provision which 
had been included by the Senate to allow for an above the line 
deduction for these overnight travel expenses of National Guards and 
Reserve members has been excluded from this final version of the bill.
  Many of these men and women who would have benefited happen to be 
modest-income soldiers often with family and they would have benefited 
most from the extra money in their pocket. The Senate by the way passed 
this provision by unanimous consent; and unfortunately, as I said, it 
was not included in this version of the House bill.
  The second provision I would like to mention would have been the 
provision that would have paid for the cost of this legislation. We 
know from the Congressional Budget Office that we are projected to have 
somewhere on the order of a $300 billion deficit, not just for this 
year, but for several years to come. If you look at what we are doing 
these days to Social Security and Medicare and how we are beginning to 
use these monies from the trust fund because of the fact that we now 
are in deficit, it makes you wonder why we would want to put forward 
bills that were not paid for. Because every time we do that we take the 
chance of having to take out money from Social Security and from the 
Medicare trust funds. And that is not fair for those who are retired or 
preparing to retire.
  We should be responsible and pay for these bills that we have before 
us, especially this one because I believe every Member of this House 
would agree that we should do this for our men and women in uniform. A 
significant provision to pay for the cost of this legislation, which 
was included by the Senate but dropped by this House, would have really 
been something that I think most Americans would have agreed with 
almost immediately. And that would have been a provision that would 
have taken what we have in current law that says that an individual who 
relinquishes his or her U.S. citizenship or terminates his or her U.S. 
residency for the purpose of avoiding U.S. income tax estate or gift 
taxes right now is allowed to do that. But under the Senate provision 
we would have said to anyone who wished to become an expatriate for the 
purposes of avoiding taxes that he or she would not be able to escape 
his or her responsibilities.
  While we have men and women today, whether in Afghanistan or on our 
borders trying to protect us who are willing to put their lives in 
harm's way, we should not have individuals who are trying to relinquish 
their U.S. citizenship simply to avoid paying U.S. taxes to help us pay 
for the costs of providing our men and women the best equipment, the 
best training that they need in order to protect us.
  The provision that the Senate had included would have raised over 
$650 million over the next 10 years from these expatriates who are 
trying to evade U.S. taxation by giving up, relinquishing their U.S. 
citizenship. That would have been more than two times the amount of 
money necessary to pay for the cost of providing these benefits to our 
men and women in uniform, which we would all agree are good to provide.
  At the very time that we are asking our military to be prepared to 
defend America, it seems wholly inconsistent to allow those people who 
should help us pay for the cost of supporting our men and women to 
escape any taxation and to go abroad by relinquishing their U.S. 
citizenship and avoid that tax.
  Madam Speaker, it is important that we again look at this legislation 
and pass it as quickly as possible. The Armed Forces Tax Fairness Act 
is something that we must do now. We will send this bill to the Senate 
and we hope we get a quick signature from the President.
  I join my colleague from Illinois (Mr. Weller), and I believe every 
Member who would have an opportunity to speak on this legislation would 
say that it is time that we do this. I join some of my colleagues in 
also expressing some dismay that we are not paying for this 
legislation. As much as we need it, we should be responsible and pay 
for it. But what we should do is pass it now. For those reasons, Madam 
Speaker, I too stand in support of this legislation and urge my 
colleagues to also vote for it.
  Madam Speaker, I yield back the balance of my time.
  Mr. WELLER. Madam Speaker, I yield myself such time as I may consume.
  Madam Speaker, this is important legislation. Our Nation is making 
very tough decisions and this Congress is making very tough decisions, 
and we have military men and women who are currently in combat in 
Afghanistan.
  This is important legislation that protects their personal interest 
while we ask them to go overseas and put their lives at risk for our 
freedom as well as in our efforts to win the war on terrorism. And as 
we all know, the war on terrorism will neither begin or end in 
Afghanistan, nor will it end in a few short months, but it is expected 
to last years.
  This legislation deserves bipartisan support. And in quick reaction 
to my friend and colleague's comment, I would note that there are no 
funds at all, none, no funds taken from Social Security or Medicare to 
provide for this legislation to help our military men and women. And we 
are not touching Social Security or Medicare. But I do want to ask for 
strong bipartisan support for this legislation. It is important for our 
military men and women that we stand in strong bipartisan support of 
what they do when we ask them to take the risks that they do.
  As I noted earlier, this legislation has six provisions that benefit 
working men and women who serve in the military and I ask for an 
``aye'' vote.
  Mr. BUYER. Madam Speaker, the Medical Device User Fee and 
Modernization Act addresses three crucial interests of the medical 
device community and the patients and providers it serves.
  First, it has been recognized for some time that the Food and Drug 
Administration is not reviewing medical device applications in a timely 
fashion. For this to happen, FDA needs adequate resources to have 
personnel who have the necessary expertise to conduct reviews. This 
bill would address this matter by imposing user fees on the medical 
device community for the first time, to provide FDA additional funding 
for hiring and maintaining a highly skilled workforce and to implement 
infrastructure improvements. The FDA will also pledge to enhance its 
performance in reviewing and evaluating device applications.
  Second, the device community would like to see more utilization of 
expert third parties in quality assurance of facilities and 
manufacturing processes and review of applications. This measure will 
provide flexibility in regard to inspection while retaining FDA's 
authority in device manufacturing.
  Finally, the bill addresses concerns over the labeling and reuse of 
medical devices.
  On the whole I think this is a balanced bill. The agreement on these 
provisions was reached after much hard work and it is my view that all 
parties negotiated in good faith to achieve the best agreement.
  I am very appreciative of the adoption of several suggestions I have 
made to ensure that children are well served by this bill. I am pleased 
that the bill excludes from user fees those devices, both PMAs and 
510(k)s, that are intended solely for a pediatric population. Hopefully 
this will provide some incentive for

[[Page 19407]]

manufacturers to address needs in the pediatric population that cannot 
be met by devices used in adults.
  I must also express my concerns over the user fee provisions. While I 
will support the bill, I am troubled by the level at which the bill 
defines a ``small'' company. The bill recognizes that there are 
differences in large and small companies and their ability to pay user 
fees. The ``two-tiered'' approach to take in the application of user 
fees is the correct approach to take. However, the bill defines a 
``small'' manufacturer as one with revenues of $10 million annually or 
less. This will capture only around 8 percent of medical device 
companies. In my opinion, this is too low and not adequate to meet the 
needs of small manufacturers. A more appropriate level for a ``small'' 
manufacturer would be around $25 to $30 million in annual revenue, 
companies that have 50-70 employees. The resources that must be 
invested in research and the testing necessary before a company even 
goes to FDA with an application is significant. There are individual 
innovators who have started companies based upon their own hard work 
and research. . . . modern day Thomas Edisons. While I would not say 
that they work out of their garages, it is true that many ideas and 
advances in technology have come from hard working individuals, who 
take the risk of starting their own medical device company. I do not 
want to have the federal government enact legislation that will stifle 
this innovation or make it impossible for the small companies to become 
big companies.
  This past summer, I met with the representatives of many small 
medical device manufacturers based in Indiana. All these companies 
wanted is a chance to develop their products and to compete. They are 
very willing to play by the rules of safety and effectiveness that we 
impose on all manufacturers as good public policy. But because of their 
more limited resources, they do not want to be disadvantaged from the 
big companies. I agree with their concerns and, therefore, I am 
troubled by the level set in this bill.
  Nonetheless, I intend to support the bill and I urge its adoption.
  Mr. WELLER. Madam Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore (Ms. Hart). The question is on the motion 
offered by the gentleman from Illinois (Mr. Weller) that the House 
suspend the rules and pass the bill, H.R. 5557.
  The question was taken.
  The SPEAKER pro tempore. In the opinion of the Chair, two-thirds of 
those present have voted in the affirmative.
  Mr. WELLER. Madam Speaker, on that I demand the yeas and nays.
  The yeas and nays were ordered.
  The SPEAKER pro tempore. Pursuant to clause 8 of rule XX and the 
Chair's prior announcement, further proceedings on this motion will be 
postponed.

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