[House Report 104-465]
[From the U.S. Government Publishing Office]



104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     104-465
_______________________________________________________________________


 
 TAX BENEFITS FOR INDIVIDUALS PERFORMING SERVICES IN CERTAIN HAZARDOUS 
                               DUTY AREAS

                                _______


 February 29, 1996.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

_______________________________________________________________________


    Mr. Archer, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 2778]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 2778) to provide that members of the Armed Forces 
performing services for the peacekeeping effort in the Republic 
of Bosnia and Herzegovina shall be entitled to certain tax 
benefits in the same manner as if such services were performed 
in a combat zone, having considered the same, report favorably 
thereon with amendments and recommend that the bill as amended 
do pass.

                                CONTENTS

                                                                   Page
 I. Introduction......................................................3
          A.  Purpose and Summary................................     3
          B.  Background and Need for Legislation................     3
          C.  Legislative History................................     3
II. Explanation of the Bill...........................................4
III.Votes of the Committee............................................8

IV. Budget Effects of the Bill........................................9
          A.  Committee Estimates of Budgetary Effects...........     9
          B.  Statement Regarding New Budget Authority and Tax 
              Expenditures.......................................    11
          C.  Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    11
 V. Other Matters To Be Discussed Under the Rules of the House.......12
          A.  Committee Oversight Findings and Recommendations...    12
          B.  Summary of Findings and Recommendations of the 
              Committee on Government Reform and Oversight.......    12
          C.  Inflationary Impact Statement......................    12
VI. Changes in Existing Law Made by the Bill, as Reported............12

    The amendments are as follows:
    Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. TREATMENT OF CERTAIN INDIVIDUALS PERFORMING SERVICES IN 
                    CERTAIN HAZARDOUS DUTY AREAS.

    (a) General Rule.--For purposes of the following provisions of the 
Internal Revenue Code of 1986, a qualified hazardous duty area shall be 
treated in the same manner as if it were a combat zone (as determined 
under section 112 of such Code):
          (1) Section 2(a)(3) (relating to special rule where deceased 
        spouse was in missing status).
          (2) Section 112 (relating to the exclusion of certain combat 
        pay of members of the Armed Forces).
          (3) Section 692 (relating to income taxes of members of Armed 
        Forces on death).
          (4) Section 2201 (relating to members of the Armed Forces 
        dying in combat zone or by reason of combat-zone-incurred 
        wounds, etc.).
          (5) Section 340(a)(1) (defining wages relating to combat pay 
        for members of the Armed Forces).
          (6) Section 4253(d) (relating to the taxation of phone 
        service originating from a combat zone from members of the 
        Armed Forces).
          (7) Section 6013(f)(1) (relating to joint return where 
        individual is in missing status).
          (8) Section 7508 (relating to time for performing certain 
        acts postponed by reason of service in combat zone).
    (b) Qualified Hazardous Duty Area.--For purposes of this section, 
the term ``qualified hazardous duty area'' means Bosnia and 
Herzegovina, Croatia, or Macedonia, if as of the date of the enactment 
of this section any member of the Armed Forces of the United States is 
entitled to special pay under section 310 of title 37, United States 
Code (relating to special pay; duty subject to hostile fire or imminent 
danger) for services performed in such country. Such term includes any 
such country only during the period such entitlement is in effect. 
Solely for purposes of applying section 7508 of the Internal Revenue 
Code of 1986, in the case of an individual who is performing services 
as part of Operation Joint Endeavor outside the United States while 
deployed away from such individual's permanent duty station, the term 
``qualified hazardous duty area'' includes, during the period for which 
such entitlement is in effect, any area in which such services are 
performed.
    (c) Exclusion of Combat Pay From Withholding Limited to Amount 
Excludable From Gross Income.--Paragraph (1) of section 3401(a) of the 
Internal Revenue Code of 1986 (defining wages) is amended by inserting 
before the semicolon the following: ``to the extent remuneration for 
such service is excludable from gross income under such section''.
    (d) Increase in Combat Pay Exclusion for Officers to Highest Amount 
Applicable to Enlisted Personnel.--
          (1) In general.--Subsection (b) of section 112 of such Code 
        (relating to commissioned officers) is amended by striking 
        ``$500'' and inserting ``the maximum enlisted amount''.
          (2) Maximum enlisted amount.--Subsection (c) of section 112 
        of such Code (relating to definitions) is amended by adding at 
        the end the following new paragraph:
          ``(5) The term `maximum enlisted amount' means, for any 
        month, the sum of--
                  ``(A) the highest rate of basic pay payable for such 
                month to any enlisted member of the Armed Forces of the 
                United States at the highest pay grade applicable to 
                enlisted members, and
                  ``(B) in the case of an officer entitled to special 
                pay under section 310 of title 37, United States Code, 
                for such month, the amount of such special pay payable 
                to such officer for such month.''
    (e) Effective Date.--
          (1) In general.--Except as provided in paragraph (2), the 
        provisions of and amendments made by this section shall take 
        effect on November 21, 1995.
          (2) Withholding.--Subsection (a)(5) and the amendment made by 
        subsection (c) shall apply to remuneration paid after the date 
        of the enactment of this Act.

SEC. 2. EXTENSION OF INTERNAL REVENUE SERVICE USER FEES.

    Subsection (c) of section 10511 of the Revenue Act of 1987 is 
amended by striking ``October 1, 2000'' and by inserting ``October 1, 
2003''.

    Amend the title so as to read:

    A bill to provide that members of the Armed Forces performing 
services for the peacekeeping efforts in Bosnia and Herzegovina, 
Croatia, and Macedonia shall be entitled to tax benefits in the same 
manner as if such services were performed in a combat zone, and for 
other purposes.

                            I. INTRODUCTION

                         A. Purpose and Summary

    H.R. 2778, as amended: (1) provides that service in a 
qualified hazardous duty area (Bosnia and Herzegovina, Croatia, 
or Macedonia) is to be treated in the same manner as if it were 
a combat zone; (2) makes the suspension of time provisions of 
Code sec. 7508 applicable to other Operation Joint Endeavor 
personnel; (3) increases the dollar value of the officer combat 
pay exclusion from the present-law $500 per month limit to the 
highest rate of pay applicable to enlisted personnel plus the 
amount of hostile fire/imminent danger pay which the officer 
receives; and (4) extends IRS user fees for three additional 
years (until October 1, 2003) as a revenue offset to the other 
provisions.

                 B. Background and Need for Legislation

    The bill, as amended, is intended to treat service by 
United States Armed Forces (and support) personnel in Bosnia 
and Herzegovina, Croatia, or Macedonia in the same manner as if 
it were combat zone service for purposes of the Internal 
Revenue Code as long as the personnel are entitled to receive 
hostile fire/imminent danger pay for services in such country. 
Members of the Armed Forces are in Bosnia and Herzegovina and 
Croatia as part of ``Operation Joint Endeavor'' (the NATO 
operation) and in Macedonia as part of ``Operation Able 
Sentry'' (the United Nations operation). The bill, as amended, 
also makes the suspension of time provisions of Code sec. 7508 
applicable to other Operation Joint Endeavor personnel.
    In addition, the bill, as amended, modifies the present-law 
exclusion from income for officer combat pay from a maximum of 
$500 per month to the highest rate of pay for enlisted 
personnel plus the amount of hostile fire/imminent danger pay 
which the officer receives. Finally, the bill, as amended, 
extended IRS user fees for three additional years (until 
October 1, 2003) as a revenue offset to the other provisions in 
order to make the bill deficit neutral.

                         C. Legislative History

    H.R. 2778 was introduced by Mr. Bunning on December 14, 
1995, and was amended by the Committee in a markup on February 
28, 1996. An amendment in the nature of a substitute (offered 
by Chairman Archer and Mr. Gibbons) was adopted by a voice 
vote. The bill, as amended, was ordered favorably reported by a 
voice vote on February 28, 1996.

                      II. EXPLANATION OF THE BILL

                              Present Law

General time limits for filing tax returns

    Present law provides that individuals generally must file 
their Federal income tax returns by April 15 of the year 
following the close of a taxable year (sec. 6072). Present law 
also provides that the Secretary may grant reasonable 
extensions of time for filing such returns (sec. 6081). 
Treasury regulations provide an additional automatic two-month 
extension (until June 15 for calendar-year individuals) for 
United States citizens and residents in military or naval 
service on duty outside the United States (Treas. Reg. sec. 
1.6081-5(a)(6). No action is necessary to apply for this 
extension. This extension applies to both filing returns and 
paying the tax due.
    Treasury regulations also provide, upon application on the 
proper form, an automatic four-month extension (until August 15 
for calendar-year individuals) for any individual properly 
filing that form (Treas. Reg. sec. 1.6081-4T).
    In general, individuals must make quarterly estimated tax 
payments by April 15, June 15, September 15, and January 15 of 
the following taxable year. Wage withholding is considered to 
be a payment of estimated taxes.

Suspension of time periods

    In general, present law suspends the period of time for 
performing various acts under the Internal Revenue Code, such 
as filing tax returns, paying taxes, or filing a claim for 
credit or refund of tax, for any individual serving in the 
Armed Forces of the United States in an area designated as a 
``combat zone'' during the period of combatant activities (sec. 
7508). An individual who becomes a prisoner of war is 
considered to continue in active service and is therefore also 
eligible for these suspension of time provisions. The 
suspension of time also applies to an individual serving in 
support of such Armed Forces in the combat zone, such as Red 
Cross personnel, accredited correspondents, and civilian 
personnel acting under the direction of the Armed Forces in 
support of those Forces. The designation of a combat zone must 
be made by the President in an Executive Order. The President 
also designates the period of combatant activities in the 
combat zone (the starting date and the termination date of 
combat).
    The suspension of time encompasses the period of service in 
the combat zone during the period of combatant activities in 
the zone. In addition, it encompasses any time of continuous 
hospitalization resulting from injury received in the combat 
zone \1\ or time in missing in action status, plus the next 180 
days.
    \1\ Two special rules apply to continuous hospitalization inside 
the United States. First, the suspension of time provisions based on 
continuous hospitalization inside the United States are applicable only 
to the hospitalized individual; they are not applicable to the spouse 
of such individual. Second, in no event do the suspension of time 
provisions based on continuous hospitalization inside the United States 
extend beyond five years from the date the individual returns to the 
United States. These two special rules do not apply to continuous 
hospitalization outside the United States.
---------------------------------------------------------------------------
    The suspension of time applies to the following acts:
          (1) Filing any return of income, estate, or gift tax 
        (except employment and withholding taxes);
          (2) Payment of any income, estate, or gift tax 
        (except employment and withholding taxes);
          (3) Filing a petition with the Tax Court for 
        redetermination of a deficiency, or for review of a 
        decision rendered by the Tax Court;
          (4) Allowance of a credit or refund of any tax;
          (5) Filing a claim for credit or refund of any tax;
          (6) Bringing suit upon any such claim for credit or 
        refund;
          (7) Assessment of any tax;
          (8) Giving or making any notice or demand for the 
        payment of any tax, or with respect to any liability to 
        the United States in respect of any tax;
          (9) Collection of the amount of any liability in 
        respect of any tax;
          (10) Bringing suit by the United States in respect of 
        any liability in respect of any tax; and
          (11) Any other act required or permitted under the 
        internal revenue laws specified in regulations 
        prescribed under section 7508 by the Secretary of the 
        Treasury.
Individuals may, if they choose, perform any of these acts 
during the period of suspension.
    Spouses of qualifying individuals are entitled to the same 
suspension of time, except that the spouse is ineligible for 
this suspension for any taxable year beginning more than two 
years after the date of termination of combatant activities in 
the combat zone.

Exclusion for combat pay

    Gross income does not include certain combat pay of members 
of the Armed Forces (sec. 112). If enlisted personnel serve in 
a combat zone during any part of any month, military pay for 
that month is excluded from gross income. In addition, if 
enlisted personnel are hospitalized as a result of injuries, 
wounds, or disease incurred in a combat zone, military pay for 
that month is also excluded from gross income; this exclusion 
is limited, however, to hospitalization during any part of any 
month beginning not more than two years after the end of combat 
in the zone. In the case of commissioned officers, these 
exclusions from income are limited to $500 per month of 
military pay.
    Income tax withholding does not apply to military pay for 
any month in which an employee (whether enlisted personnel or 
commissioned officer) is entitled to the exclusion from income 
for combat pay (sec. 3401(a)(1)).

Exemption from tax upon death in a combat zone

    An individual in active service as a member of the Armed 
Forces who dies while serving in a combat zone (or as a result 
of wounds, disease, or injury received while serving in a 
combat zone) is not subject to income tax for the year of death 
(as well as for any prior taxable year ending on or after the 
first day the individual served in the combat zone) (sec. 692). 
Special computational rules apply in the case of joint returns. 
A reduction in estate taxes is also provided with respect to 
individuals dying under these circumstances (sec. 2201).
    Special rules permit the filing of a joint return where a 
spouse is in missing status as a result of service in a combat 
zone (sec. 6013(f)(1)). Special rules for determining surviving 
spouse status apply where the deceased spouse was in missing 
status as a result of service in a combat zone (sec. 2(a)(3)).

Exemption from telephone excise tax

    The telephone excise tax is not imposed on ``any toll 
telephone service'' that originates in a combat zone (sec. 
4253(d)).

Operation Desert Storm: Executive Order designating Persian Gulf Area 
        as a combat zone

    On January 21, 1991, President Bush signed Executive Order 
12744, designating the Persian Gulf Area as a combat zone. This 
designation was retroactive to January 17, 1991, the date 
combat commenced in that area, and continues in effect until 
terminated by another Executive Order. An Executive Order 
terminating this combat zone designation has not been issued. 
Thus, individuals serving in the Persian Gulf Area are eligible 
for the suspension of time provisions and military pay 
exclusions (among other provisions) described above, beginning 
on January 17, 1991.
    The Executive Order specifies that the Persian Gulf Area is 
the Persian Gulf, the Red Sea, the Gulf of Oman, part of the 
Arabian Sea, the Gulf of Aden, and the entire land areas of 
Iraq, Kuwait, Saudi Arabia, Oman, Bahrain, Qatar, and the 
United Arab Emirates.
    The Department of Defense provides to the Internal Revenue 
Service, on a monthly basis, a computer tape with information 
regarding the military personnel whose service is in the combat 
zone designated by the Executive Order and who are therefore 
eligible for, among other provisions, the extension of time 
provisions of section 7508 and the exclusion from income 
provisions of section 112.

Operation Desert Shield: Legislative extension of time

    On January 30, 1991, President Bush signed Public Law 102-
2. This Act amended section 7508 by providing that any 
individual who performs Desert Shield services (and the spouse 
of such an individual) is entitled to the benefits of the 
suspension of time provisions of section 7508. Desert Shield 
services are defined as services in the Armed Forces of the 
United States (or in support of those Armed Forces) if such 
services are performed in the area designated by the President 
as the ``Persian Gulf Desert Shield area'' and such services 
are performed during the period beginning August 2, 1990, and 
ending on the date on which any portion of the area was 
designated by the President as a combat zone pursuant to 
section 112 (which was January 17, 1991).

Operation Joint Endeavor: Administrative extension of time

    On December 12, 1995, the Internal Revenue Service 
announced \2\ that it was administratively extending the time 
to file tax returns until December 15, 1996, for members of the 
Armed Forces ``departing `Operation Joint Endeavor' '' on or 
after March 1, 1996. In addition, the IRS stated that the 
penalties for failure to file tax returns and failure to pay 
taxes would not be assessed with respect to these individuals. 
Also, the IRS stated that it would administratively place any 
balance due accounts into suspense status and suspend 
examinations while the member is serving in ``Operation Joint 
Endeavor.''
    \2\ Letter from John T. Lyons, Assistant Commissioner 
(International), Internal Revenue Service, to Lt. Col. David M. 
Pronchick, Armed Forces Tax Counsel, Department of Defense
---------------------------------------------------------------------------

IRS user fees

    The IRS provides written responses to questions of 
individuals, corporations, and organizations relating to their 
tax status or the effects of particular transactions for tax 
purposes. The IRS generally charges a fee for requests for a 
letter ruling, determination letter, opinion letter, or other 
similar ruling or determination. The Uruguay Round Agreements 
Act extended the IRS user fee program for five years (until 
October 1, 2000).

                           Reasons for Change

    The Committee believes that it is appropriate to apply the 
special tax rules applicable to combat zones to service in 
Bosnia and Herzegovina, Croatia, and Macedonia in the same 
manner as if they were a combat zone.

                       Explanation of Provisions

Treatment of portions of former Yugoslavia as if they were a combat 
        zone

    The bill provides that a qualified hazardous duty area 
shall be treated in the same manner as if it were a combat zone 
for purposes of the following provisions of the Code:
          (1) the special rule for determining surviving spouse 
        status where the deceased spouse was in missing status 
        as a result of service in a combat zone (sec. 2(a)(3));
          (2) the exclusions from income for combat pay (sec. 
        112);
          (3) forgiveness of income taxes of members of the 
        Armed Forces dying in the combat zone or by reason of 
        combat-zone incurred wounds (sec. 692);
          (4) the reduction in estate taxes for members of the 
        Armed Forces dying in the combat zone or by reason of 
        combat-zone incurred wounds (sec. 2201);
          (5) the exemption from income tax withholding for 
        military pay for any month in which an employee is 
        entitled to the exclusion from income (sec. 
        3401(a)(1));
          (6) the exemption from the telephone excise tax for 
        toll telephone service that originates in a combat zone 
        (sec. 4253(d));
          (7) the special rule permitting filing of a joint 
        return where a spouse is in missing status as a result 
        of service in a combat zone (sec. 6013(f)(1)); and
          (8) the suspension of time provisions (sec. 7508).
    A qualified hazardous duty area means Bosnia and 
Herzegovina, Croatia, or Macedonia, if, as of the date of 
enactment, any member of the Armed Forces is entitled to 
hostile fire/imminent danger pay for services performed in such 
country. Members of the Armed Forces are in Bosnia and 
Herzegovina and Croatia as part of ``Operation Joint Endeavor'' 
(the NATO operation). Members of the Armed Forces are in 
Macedonia as part of ``Operation Able Sentry'' (the United 
Nations operation).

Suspension of time provisions for other Operation Joint Endeavor 
        personnel

    An individual who is performing services as part of 
Operation Joint Endeavor outside the United States while 
deployed away from the individual's permanent duty station will 
qualify for the suspension of time provisions in section 7508 
of the Code during the period that hostile fire/imminent danger 
pay is paid in Bosnia and Herzegovina, Croatia, or Macedonia.

Combat pay exclusion for officers

    In addition, the bill raises the dollar value of the 
exclusion from income for combat pay for officers in section 
112 of the Code from the present-law level of $500 per month to 
the highest rate of basic pay at the highest pay grade that 
enlisted personnel may receive plus the amount of hostile fire/
imminent danger pay which the officer receives. Currently, the 
highest level of basic pay received by enlisted members of the 
Armed Forces is $4,104.80 per month. The bill also conforms the 
wage withholding rules to the income exclusion rules for 
officers.

Extension of IRS user fees

    The bill extends IRS user fees for three additional years 
(until October 1, 2003).

                             Effective Date

    The bill generally is effective on November 21, 1995 (the 
date on which the Dayton Accord was initialed); the 
modifications to the wage withholding rules apply to 
remuneration paid after the date of enactment. The amendment 
relating to IRS user fees is effective on the date of 
enactment.

                      III. VOTES OF THE COMMITTEE

    In compliance with cause 2(l)(2)(B) of rule XI of the Rules 
of the House of Representatives, the following statement is 
made concerning the votes of the Committee in its consideration 
of the bill, H.R. 2778.

Motion to report the bill

    The bill, H.R. 2778, as amended, was ordered favorably 
reported by voice vote on February 28, 1996, with a quorum 
present.

Motion on substitute amendment

    The Committee adopted an amendment in the nature of a 
substitute (offered by Chairman Archer and Mr. Gibbons) by 
voice vote, with a quorum present.

                     IV. BUDGET EFFECTS OF THE BILL

               A. Committee Estimate of Budgetary Effects

    In compliance with clause 7(a) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill, H.R. 2778, as 
reported.
    The bill, as amended, is estimated to have the following 
effects on budget receipts for fiscal years 1996-2005:

                                        ESTIMATED REVENUE EFFECTS OF H.R. 2778 AS AMENDED--FISCAL YEARS 1996-2005                                       
                                                                [In Millions of Dollars]                                                                
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                           1996-   1006-
                 Provision                    Effective    1996    1997    1998    1999    2000    2001    2002    2003    2004    2005    2000    2005 
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. Extend certain tax benefits to Armed                                                                                                                 
 Forces personnel serving in the former                                                                                                                 
 Yugoslavia; raise the monthly exclusion                                                                                                                
 from income for combat pay for officers                                                                                                                
 from $500/month to the highest pay level                                                                                                               
 for enlisted personnel; and conform wage                                                                                                               
 withholding rule to income exclusion rule                                                                                                              
 for officers..............................     11/21/95     -38     -45   (\1\)  ......  ......  ......  ......  ......  ......  ......     -83     -83
2. Extend IRS user fees through 9/30/03 \1\      10/1/00  ......  ......  ......  ......  ......      35      35      35  ......  ......  ......     105
                                            ------------------------------------------------------------------------------------------------------------
      Net totals...........................  ...........     -38     -45   (\2\)  ......  ......      35      35      35  ......  ......     -83      22
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimate provided by the Congressional Budget Office.                                                                                               
\2\ Negligible revenue effect.                                                                                                                          
                                                                                                                                                        
Note.--Details may not add to totals due to rounding.                                                                                                   
                                                                                                                                                        
Source: Joint Committee on Taxation.                                                                                                                    

    B. Statement Regarding New Budget Authority and Tax Expenditures

    In compliance with subdivision (B) of clause 2(l)(3) of 
rule XI of the Rules of the House of Representatives, the 
Committee states that the bill, as amended, involves no new or 
increased budget authority. The bill, as amended, involves 
increased tax expenditures for the income tax benefit 
provisions related to combat pay (for amounts, see Part IV.A., 
above).

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with subdivision (C) of clause 2(l)(3) of 
rule XI of the Rules of the House of Representatives, requiring 
a cost estimate prepared by the Congressional Budget Office 
(CBO), the following statement by CBO is provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, February 29, 1996.
Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office and the 
Joint Committee on Taxation (JCT) have reviewed H.R. 2778, as 
ordered reported by the House Committee on Ways and Means on 
February 28, 1996. CBO and JCT estimate that this bill would 
reduce revenues by $38 million in 1996 and increase revenues by 
$22 million over the fiscal years 1996 through 2005. H.R. 2778 
contains no intergovernmental or private sector mandates as 
defined in Public Law 104-4 and would impose no direct costs on 
state, local, or tribal governments.
    H.R. 2778 provides members of the Armed Forces performing 
services for the peacekeeping efforts in Bosnia and 
Herzegovina, Croatia, and Macedonia with certain tax benefits 
granted to individuals performing services in a combat zone. 
JCT estimates that this provision would reduce revenues by $38 
million in fiscal year 1996, $45 million in fiscal year 1997, 
and by a negligible amount in fiscal year 1998. In addition, 
H.R. 2778 extends the expiration of IRS user fees from October 
1, 2000 to October 1, 2003. CBO estimates that this provision 
would increase revenues by $35 million, net of payroll and 
income tax offsets, in each of the fiscal years from 2001 
through 2003. The revenue effects of H.R. 2778 are summarized 
in the table below.

                                          REVENUE EFFECTS OF H.R. 2778                                          
                                    [By fiscal years, in millions of dollars]                                   
----------------------------------------------------------------------------------------------------------------
                                   1996    1997    1998    1999    2000    2001    2002    2003    2004    2005 
----------------------------------------------------------------------------------------------------------------
Extend tax benefits to soldiers                                                                                 
 in the former Yugoslavia.......     -38     -45  ( \1\                                                         
                                                       )       0       0       0       0       0       0       0
Extend IRS Fees through 10/1/03.       0       0       0       0       0      35      35      35       0       0
----------------------------------------------------------------------------------------------------------------
\1\ Negligible revenue effect.                                                                                  

    Section 252 of the Balanced Budget and Emergency Deficit 
Control Act of 1985 sets up pay-as-you-go procedures for 
legislation affecting receipts or direct spending through 1998. 
Because H.R. 2778 would affect receipts, pay-as-you-go 
procedures would apply to the bill. These effects are 
summarized in the table below.

                       PAY-AS-YOU-GO CONSIDERATION                      
                [By fiscal years, in millions of dollars]               
------------------------------------------------------------------------
                                       1996         1997         1998   
------------------------------------------------------------------------
Changes in receipts..............          -38          -45      ( \1\ )
Changes in outlays...............      ( \2\ )      ( \2\ )      ( \2\ )
------------------------------------------------------------------------
\1\ Negligible revenue effect.                                          
\2\ Not applicable.                                                     

    If you wish further details, please feel free to contact me 
or your staff may wish to contact Stephanie Weiner.
            Sincerely,
                                         June E. O'Neill, Director.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

          a. committee oversight findings and recommendations

    With respect to subdivision (A) of clause 2(l)(3) of rule 
XI of the Rules of the House of Representatives (relating to 
oversight findings), the Committee advises that it was a result 
of the Committee's oversight activities concerning the tax 
treatment and tax return filing requirements of military (and 
support) personnel serving in ``Operation Joint Endeavor'' (in 
Bosnia and Herzegovina and Croatia) and ``Operation Able 
Sentry'' (in Macedonia), tax treatment of combat pay generally, 
and the need to provide a revenue offset for the bill that the 
Committee concluded that it is appropriate to enact the 
provisions contained in the bill as amended.

    b. summary of findings and recommendations of the committee on 
                    government reform and oversight

    With respect to subdivision (D) of clause 2(l)(3) of rule 
XI of the Rules of the House of Representatives, the Committee 
advises that no oversight findings or recommendations have been 
submitted to this Committee by the Committee on Government 
Reform and Oversight with respect to the provisions contained 
in the bill.

                    c. inflationary impact statement

    In compliance with clause 2(l)(4) of rule XI of the Rules 
of the House of Representatives, the Committee states that the 
provisions of the bill are not expected to have an overall 
inflationary impact on prices and costs in the operation of the 
national economy. As indicated above in Part IV of this report, 
the bill is projected to reduce the aggregate deficit by $22 
million over fiscal years 1996-2005.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In compliance with clause 3 of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

                      INTERNAL REVENUE ACT OF 1986

                        Subtitle A--Income Taxes

          * * * * * * *

                  CHAPTER 1--NORMAL TAXES AND SURTAXES

          * * * * * * *

              Subchapter B--Computation of Taxable Income

          * * * * * * *

        PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

          * * * * * * *

SEC. 112. CERTAIN COMBAT PAY OF MEMBERS OF THE ARMED FORCES.

    (a) * * *
    (b) Commissioned Officers.--Gross income does not include 
so much of the compensation as does not exceed [$500] the 
maximum enlisted amount received for active service as a 
commissioned officer in the Armed Forces of the United States 
for any month during any part of which such officer--
          (1) served in a combat zone, or
          (2) was hospitalized as a result of wounds, disease, 
        or injury incurred while serving in a combat zone, but 
        this paragraph shall not apply for any month beginning 
        more than 2 years after the date of the termination of 
        combatant activities in such zone.
With respect to service in the combat zone designated for 
purposes of the Vietnam conflict, paragraph (2) shall not apply 
to any month after January 1978.
    (c) Definitions.--For purposes of this section--
          (1) * * *
          * * * * * * *
          (5) The term ``maximum enlisted amount'' means, for 
        any month, the sum of--
                  (A) the highest rate of basic pay payable for 
                such month to any enlisted member of the Armed 
                Forces of the United States at the highest pay 
                grade applicable to enlisted members, and
                  (B) in the case of an officer entitled to 
                special pay under section 310 of title 37, 
                United States Code, for such month, the amount 
                of such special pay payable to such officer for 
                such month.
          * * * * * * *

                      Subtitle C--Employment Taxes

          * * * * * * *

        CHAPTER 24--COLLECTION OF INCOME TAX AT SOURCE ON WAGES

          * * * * * * *

SEC. 3401. DEFINITIONS.

    (a) Wages.--For purposes of this chapter, the term 
``wages'' means all remuneration (other than fees paid to a 
public official) for services performed by an employee for his 
employer, including the cash value of all remuneration 
(including benefits) paid in any medium other than cash; except 
that such term shall not include remuneration paid--
          (1) for active service performed in a month for which 
        such employee is entitled to the benefits of section 
        112 (relating to certain combat pay of members of the 
        Armed Forces of the United States) to the extent 
        remuneration for such service is excludable from gross 
        income under such section; or
          * * * * * * *
                              ----------                              


           SECTION 10511 OF THE INTERNAL REVENUE ACT OF 1987

SEC. 10511. FEES FOR REQUESTS FOR RULING, DETERMINATION, AND SIMILAR 
                    LETTERS.

    (a) * * *
          * * * * * * *
    (c) Application of Section.--Subsection (a) shall apply 
with respect to requests made on or after the 1st day of the 
second calendar month beginning after the date of the enactment 
of this Act and before September 30, 1990. Subsection (a) shall 
also apply with respect to requests made after September 30, 
1990, and before October 1, [2000] 2003.