[Congressional Record (Bound Edition), Volume 149 (2003), Part 6]
[Senate]
[Pages 7710-7713]
[From the U.S. Government Publishing Office, www.gpo.gov]




                 ARMED FORCES TAX FAIRNESS ACT OF 2003

  The PRESIDING OFFICER. Under the previous order, the Senate will 
proceed to the consideration of H.R. 1307, which the clerk will report.
  The senior assistant bill clerk read as follows:

       A bill (H. R. 1307) 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 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 Senate proceeded to consider the bill.
  The PRESIDING OFFICER. Under the previous order, there will now be 3 
hours of debate on the bill.
  The Senator from Montana.
  Mr. BAUCUS. Mr. President, we are now awaiting the arrival of the 
chairman of the committee. Pending his arrival, I suggest the absence 
of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The senior assistant bill clerk proceeded to call the roll.
  Mr. BAUCUS. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The Senator from Iowa.
  Mr. GRASSLEY. Mr. President, it is a privilege for me to be before 
the Senate again in a working relationship with Senator Baucus, the 
ranking Democrat of the Senate Finance Committee. It is another example 
of legislation that comes out of our committee in the bipartisan 
tradition of our committee, and this one came out, I believe, with 
unanimous support.
  I very much appreciate not only the cooperation of Senator Baucus, 
but other members on the Democratic side of the committee, for helping 
us move along a very important piece of legislation, one that was very 
important last fall when we did not get it passed but more important 
now because it deals with our people in the military and because of 
what is going on in Iraq at this moment.
  We are here today to consider the Armed Forces Tax Fairness Act which 
the Finance Committee developed during this and the last Congress. This 
is a particularly somber time in our country as we continue our 
dangerous operations in the country of Iraq.

[[Page 7711]]

  The contributions of the men and women of our uniformed services, our 
reservists and our National Guard, are foremost in our minds, and our 
thoughts and prayers remain with their loved ones and with families. I 
particularly wish to extend my condolences to the family of SGT Bradley 
Korthaus of Davenport, IA, whose death was reported yesterday. SGT 
Korthaus died while serving his Marine Corps engineering unit in 
southeast Iraq. So we have before us legislation affecting all of these 
men and women, legislation to ensure that our service men and women and 
their families are treated fairly under tax law. It seems to me this 
legislation is particularly timely.
  The military bill we consider today rectifies a number of inequities 
faced by the uniformed services, our National Guard, and even Foreign 
Service personnel. For example, this legislation before the Senate now 
ensures that the families of military personnel called into active duty 
are not disadvantaged under the home sale exclusion provisions that 
affect many homeowners in the United States because most Americans are 
permitted to exclude built-in gain on the sale of their personal 
residence if they meet certain residency requirements.
  The situation for military personnel owning a home is entirely 
different because we know that military personnel, called to active 
duty or asked to relocate, do not have the flexibility to meet these 
residency requirements and are consequently then adversely impacted by 
these rules. The Tax Code is unfair to them because they have no 
control over where they are going to live because they are called to 
meet the command of a military commanding officer to move out to 
someplace else.
  The legislation, then, would suspend the residency test for periods 
of active duty aggregating no more than 10 years. We should obviously 
not punish members of our military and their families who are asked to 
relocate in the name of serving their country and protecting our 
national security, protecting our freedoms. To that extent, the Tax 
Code is unfair so that they get punished in ways that people who are 
nonmilitary and can control more of their lives would not be punished.
  Another important issue weighing on the minds of many military 
personnel called into active duty is the well-being and the care of 
their children. The Federal Government works to ensure that military 
families have adequate and affordable access to child care, as we 
should. This is an important function of the military during peacetime, 
but it is essential, even more so, during periods of conflict such as 
the one we are experiencing in Iraq.
  The need is that much more pressing obviously for single parents and 
dual military career families. This legislation clarifies that 
dependent care benefits provided to families of the uniformed services 
will not be treated as taxable compensation.
  In recent days, the press has focused significantly on the impending 
service contributions of our Reserve, military people, and National 
Guard members. To date, we have more than 200,000 reservists and 
National Guard being called to active duty, most of them called for the 
sole purpose of assisting Operation Iraqi Freedom. This includes, in my 
own State of Iowa, 3,500 men and women who have been called to active 
duty. We have begun to rely increasingly on these service personnel to 
defend our borders and serve and protect in other areas of the world, 
meeting their commitment to our total force concept of the military.
  Many of Iowa's reservists have contacted me to emphasize that 
reservists who travel for training exercises that they do on weekends, 
or any other time, are required to spend their own money for these 
travel expenses. If our military is not able to reimburse reservists 
for travel expenses related to training assignments, we should, at a 
very minimum, allow these men and women to fully deduct those expenses 
on their Federal tax returns and not be hit by some threshold that 
precludes most of these deductions from being taken. Reservists should 
not be in a position of subsidizing their own military training.
  Among other things, this legislation also ensures that military 
personnel serving in Secretary of Defense-designated contingency 
operations--and this would include Operation Desert Storm and 
presumably now Operation Iraqi Freedom--receive appropriate relief from 
the administrative burdens that our tax laws foist upon them during 
participation in those operations.
  In closing, we all thank the men and women of the U.S. military and 
Reserve components. The onset of the conflict in Iraq, no doubt, renews 
our deep appreciation for the tremendous sacrifices and risks that they 
undertake to protect the freedom of American people and others around 
the world. It is a perfect time then to ensure that our military is 
more fairly treated under our country's tax laws. That is what this 
legislation is all about.
  So I thank my colleagues for their consideration of this legislation. 
I urge each of my colleagues to vote for this very important tax 
fairness measure, particularly considering the importance of it at this 
time of sacrifice on the battlefield of Iraq.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Montana.
  Mr. BAUCUS. Mr. President, I rise today in support of the Armed 
Forces Tax Fairness Act of 2003. On February 5, 2003, the Finance 
Committee favorably reported the bill by unanimous voice vote.
  As the conflict in Iraq continues, our thoughts are with the men and 
women who are leading America's response and serving our country. 
Whether it be the Marines deployed in Iraq, the National Guard 
supporting our troops, or the Foreign Service Officers serving in 
dangerous diplomatic posts.
  I think in particular of the many men and women in Montana. These men 
and women have been called to service to defend our Nation. In fact, on 
September 11 of 2002, the members of the 120th Fighter Wing of the 
Montana Air National Guard were called on to secure the skies of the 
no-fly zone over Iraq.
  For these dedicated public servants, we are considering the Armed 
Forces Tax Fairness Act. 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.
  These are the men and women who put their lives on the line for our 
freedom on a daily basis. We need to ensure that the tax laws we pass 
do not negatively impact them.
  It is with these principles in mind that I have moved forward with 
the introduction of this military tax package and that the Finance 
Committee favorably reported the bill.
  I would now like to describe the provisions included in this critical 
piece of legislation:

  Why is the death gratuity payments 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.
  Just 2 weeks ago, one of our soldiers from Montana, PFC Stryder 
Stoutenburg, was killed during a Blackhawk helicopter crash. A native 
of Missoula, Private First Class Stoutenburg was only 18.
  His mother will receive the death benefit payment, but will be taxed 
on half of it. She has already lost so much. It is unfair to also take 
away part of the small compensation she is receiving.
  In 1997, Congress passed legislation revising the taxation of capital 
gains on the sale of a person's principal residence.
  The new law provides that up to $250,000 or $500,000 for a married 
couple is excluded on the sale of a principal

[[Page 7712]]

residence if the individual has lived in the house for at least two of 
the previous five years.
  However, when enacted, Congress failed to provide a special rule for 
military and foreign service personnel who are required to move either 
within the U.S. or abroad.
  Our proposal would permit service personnel and members of the 
foreign service to suspend the 5-year period while away on assignment. 
That means that those years would not count toward either the two years 
or the five year periods.
  Senators McCain, Graham, and Lincoln proposed a bill in the last 
session to correct this.
  The Department of Defense provides payments to members of the Armed 
Services to offset diminution in housing values due to military base 
realignment or closure.
  For example, if a house near a base was worth $140,000 prior to the 
base closure and $100,000 after the base closure, DoD may provide the 
owner with a payment to offset some, but not all, of the $40,000 
diminution in value. Under current law, those amounts are taxable as 
compensation.
  We should ensure that those men and women losing value in their homes 
due to a federal government decision are not adversely affected 
financially.
  The proposal would provide that payments for lost value are not 
includible into income.
  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 cannot be easy trying to figure out our complicated tax system 
while you are overseas and protecting our nation's freedom. Those men 
and women who are sent to uphold democracy and freedom in other 
countries are confronted with the same filing complications as combat 
zone personnel.
  Contingency operations are just as demanding as combat zone 
deployment, although not always in the same manner. For example, in our 
current war on terrorism, this proposal would help members of our 
Special Forces in the Philippines supporting Operation Enduring Freedom 
who are just as focused on accomplishing their critical mission as our 
troops in the Iraqi combat zone.
  Some reservists who travel one weekend per month and two weeks in the 
summer for reserve duty incur significant travel and lodging expenses.
  For the most part, these expenses are not reimbursed. Under current 
law, these are deductible as itemized deductions but must exceed 2 
percent of adjusted gross income.
  For lower income reservists, this deduction does not provide a 
benefit, because they do not itemize. For higher income reservists, the 
2 percent floor limits the amount of the benefit of the deductions.
  In my home state of Montana, we have approximately 3,500 reservists, 
800 of whom travel each month across the state for their training. 
These 800 reservists pay travel and lodging expenses out of their own 
pocket.
  Montana ranks 48th in the nation for per capita personal income. So, 
that $200 expense for reserve duty every month means a lot to the 
Montana reservist. Yet, they continue selflessly to provide their 
services to our country at their own expense. For those reservists who 
travel out of state for their training, this expense is even higher.
  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.
  Currently, qualified veterans' organizations under section 501(c)(19) 
of the tax code are tax-exempt. In addition 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. This bill helps ensure the vitality of 
these organizations.
  I want to ensure that parents in the military can continue their 
dedicated service once they enter parenthood, with the knowledge that 
their children are being well taken care of.
  The military provides extensive childcare benefits to its employees. 
Employees at DoD-owned facilities provide childcare services while 
other areas with non-DoD owned facilities contract out their childcare.
  When Congress passed the Tax Reform Act of 1986, we included a 
provision stating that qualified military benefits are excluded from 
income. It is not absolutely clear whether childcare provisions are 
covered under this provision.
  The proposal would clarify that any childcare benefit provided to 
military personnel would be excludible from income.
  This bill permits penalty-free withdrawals from Coverdell education 
savings accounts and qualified tuition programs made on account of the 
attendance of the account holder or beneficiary at any of the service 
academies. The amount of the funds that can be withdrawn penalty-free 
is limited to the costs of advanced education in that calendar year.
  Under current law there is no procedure for the IRS to suspend the 
tax-exempt status of an organization.
  This proposal would suspend the tax-exempt status of an organization 
for any period during which the organization is designated or 
identified by Executive Order as a terrorist organization.
  Current law provides for income tax, estate tax and death benefit 
relief to soldiers who are killed in a combat zone, victims of the 
September 11th attacks, the Oklahoma City bombing victims, and the 
victims of the anthrax attacks.
  The crew of the Space Shuttle Columbia was heroic in every sense of 
the word. We have a duty to those who lost their lives for the 
advancement of science and increasing our knowledge of the world we 
live in. This legislation makes all of the above benefits available to 
the families of the Columbia crew.
  In addition, this bill includes three revenue offsets. 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 the IRS to permit partial-pay 
installment agreements with taxpayers.
  The Military bill passed by the Senate Finance Committee fixes some 
of the inequities in our tax code and, more importantly, acknowledges 
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: Senators Levin and Warner of the Armed Services Committee, 
Senator Landrieu for the childcare provision, Senator Johnson for the 
contingency operation provision, Senator DeWine for the above-the-line 
deduction, and Senator Harkin for the Veterans and Expatriation 
provisions.
  I especially thank the Chairman 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 and the conflict with Iraq have brought 
to light the essential role the armed services play in upholding 
freedom throughout the world.
  I hope to see this military tax equity bill passed by the Senate 
today, and signed into law by the President swiftly.
  Mr. President, I suggest the absence of a quorum.

[[Page 7713]]

  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. GRASSLEY. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The majority leader.

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