[House Report 108-25]
[From the U.S. Government Publishing Office]



108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     108-25

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PROVIDING FOR CONSIDERATION OF H.R. 878, ARMED FORCES TAX FAIRNESS ACT 
                                OF 2003

                                _______
                                

   March 5, 2003.--Referred to the House Calendar and ordered to be 
                                printed

                                _______
                                

   Mrs. Myrick, from the Committee on Rules, submitted the following

                              R E P O R T

                       [To accompany H. Res. 126]

    The Committee on Rules, having had under consideration 
House Resolution 126, by a record vote of 6 to 4, report the 
same to the House with the recommendation that the resolution 
be adopted.

                SUMMARY OF PROVISIONS OF THE RESOLUTION

    The resolution provides for the consideration of H.R. 878, 
the Armed Forces Tax Fairness Act of 2003, under a closed rule. 
The rule provides one hour of debate in the House equally 
divided and controlled by the chairman and ranking minority 
member of the Committee on Ways and Means. The rule waives all 
points of order against consideration of the bill.
    The rule provides that the amendment recommended by the 
Committee on Ways and Means now printed in the bill, modified 
by the amendment printed in this report, shall be considered as 
adopted. Finally, the rule provides one motion to recommit with 
or without instructions.
    The waiver of all points of order against consideration of 
the bill includes a waiver of clause 4(a)(1) of rule XIII 
(requiring a three-day layover of the committee report). The 
waiver is needed because the Committee on Ways and Means report 
(H. Rept. 108-23) was not filed until Wednesday, March 5, 2003 
and the bill may be considered in the House as early as 
Thursday, March 6, 2003.

                            COMMITTEE VOTES

    Pursuant to clause 3(b) of House rule XIII the results of 
each record vote on an amendment or motion to report, together 
with the names of those voting for and against, are printed 
below:

Rules Committee record vote No. 7

    Date: March 5, 2003.
    Measure: H.R. 878, Armed Forces Tax Fairness Act of 2003.
    Motion by: Mr. Frost.
    Summary of motion: To make in order the amendment offered 
by Representative Rangel which provides $851 million in tax 
relief for the National Guard and Reserves over the next 10 
years. Includes an exclusion of gain from the sale of a 
principal residence by a member of the uniformed services or 
the foreign service. Exempts from gross income certain death 
gratuity payments. Includes tax-free treatment for amounts 
received under the DOD homeowners assistance program. Expands 
combat zone filing rules to contingency operations. Modifies 
the membership requirement for exemption from tax for certain 
veterans' organizations. Clarifies the treatment of certain 
dependent care assistance programs. Suspends tax-exempt status 
of terrorist organizations. Provides capital gains relief for 
sales of principal residences for members of the military. 
Extend IRS user fees. Provides for partial payment of tax 
liability installment agreements. Denies certain tax benefits 
to individuals when they renounce their US citizenship for tax 
purposes.
    Results: Defeated 4 to 6.
    Vote by Members: Goss--Nay; Linder--Nay; Myrick--Nay; 
Sessions--Nay; Reynolds--Nay; Frost--Yea; Slaughter--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee record vote No. 8

    Date: March 5, 2003.
    Measure: H.R. 878, Armed Forces Tax Fairness Act of 2003.
    Motion by: Mr. Frost.
    Summary of motion: To make in order the amendment offered 
by Representatives Frost and Hefley which extends to civilian 
employees of the DOD serving in combat zones the tax treatment 
given to members of the Armed Forces serving in the same combat 
zones. Ensures that additional estate tax will not apply to 
civilian employees in case of death. Provides that no tax on 
telephone calls originating in a combat zone will apply to 
civilian employee phone calls.
    Results: Defeated 4 to 6.
    Vote by Members: Goss--Nay; Linder--Nay; Myrick--Nay; 
Sessions--Nay; Reynolds--Nay; Frost--Yea; Slaughter--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee record vote No. 9

    Date: March 5, 2003.
    Measure: H.R. 878, Armed Forces Tax Fairness Act of 2003.
    Motion by: Mr. Frost.
    Summary of motion: To make in order the amendment offered 
by Representative Frost which allows the INS to conduct 
citizenship interviews and other ceremonies for military 
personnel stationed abroad. Reduces from three years to two 
years the amount of military service required for citizenship 
and exempt non-citizen personnel from paying fees related to 
naturalization.
    Results: Defeated 4 to 6.
    Vote by Members: Goss--Nay; Linder--Nay; Myrick--Nay; 
Sessions--Nay; Reynolds--Nay; Frost--Yea; Slaughter--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee record vote No. 10

    Date: March 5, 2003.
    Measure: H.R. 878, Armed Forces Tax Fairness Act of 2003.
    Motion by: Mr. Frost.
    Summary of motion: To make in order the amendment offered 
by Representative Frost which removes the $500 cap on the 
amount of overnight travel expenses that can be deducted by the 
National Guard and Reserves.
    Vote by Members: Goss--Nay; Linder--Nay; Myrick--Nay; 
Sessions--Nay; Reynolds--Nay; Frost--Yea; Slaughter--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee record vote No. 11

    Date: March 5, 2003.
    Measure: H.R. 878, Armed Forces Tax Fairness Act of 2003.
    Motion by: Mrs. Slaughter.
    Summary of motion: To make in order the amendment offered 
by Delegate Bordallo which reconciles the discrepancy in the 
Internal Revenue Code between coordination of withholding taxes 
for members of the Armed Forces on temporary duty for more than 
30 days in a U.S. Territory with those duty stationed therein.
    Results: Defeated 4 to 6.
    Vote by Members: Goss--Nay; Linder--Nay; Myrick--Nay; 
Sessions--Nay; Reynolds--Nay; Frost--Yea; Slaughter--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee record vote No. 12

    Date: March 5, 2003.
    Measure: H.R. 878, Armed Forces Tax Fairness Act of 2003.
    Motion by: Mr. McGovern.
    Summary of motion: To make in order the amendment offered 
by Representative McGovern which denies tax benefits to former 
American companies that reincorporate offshore to avoid U.S. 
income taxes. Applies to any corporate expatriation transaction 
completed after September 11, 2001. Applies to any corporate 
expatriation transaction prior to September 11, 2001, but only 
with respect to taxable years beginning after December 31, 
2003.
    Results: Defeated 4 to 6.
    Vote by Members: Goss--Nay; Linder--Nay; Myrick--Nay; 
Sessions--Nay; Reynolds--Nay; Frost--Yea; Slaughter--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee record vote No. 13

    Date: March 5, 2003.
    Measure: H.R. 878, Armed Forces Tax Fairness Act of 2003.
    Motion by: Mr. McGovern.
    Summary of motion: To make in order the amendment offered 
by Representative McGovern which requires the President to 
report to Congress specific information relating to certain 
possible costs and consequences of the use of United States 
Armed Forces against Iraq.
    Results: Defeated 4 to 6.
    Vote by Members: Goss--Nay; Linder--Nay; Myrick--Nay; 
Sessions--Nay; Reynolds--Nay; Frost--Yea; Slaughter--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee record vote No. 14

    Date: March 5, 2003.
    Measure: H.R. 878, Armed Forces Tax Fairness Act of 2003.
    Motion by: Mr. Hastings of Florida.
    Summary of motion: To make in order the amendment offered 
by Representative Jefferson which allows that in addition to 
the exclusion from gross income allowed under Tax Code section 
112 (combat zone compensation), for reservists and or their 
spouse to exclude up to $30,000 of income, provided the section 
112 compensation does not exceed $40,000. Extends the benefits 
of section 112 to civilian employees of the DOD.
    Results: Defeated 4 to 6.
    Vote by Members: Goss--Nay; Linder--Nay; Myrick--Nay; 
Sessions--Nay; Reynolds--Nay; Frost--Yea; Slaughter--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee record vote No. 15

    Date: March 5, 2003.
    Measure: H.R. 878, Armed Forces Tax Fairness Act of 2003.
    Motion by: Mr. Goss.
    Summary of motion: To report the resolution.
    Results: Agreed to 6 to 4.
    Vote by Members: Goss--Yea; Linder--Yea; Myrick--Yea; 
Sessions--Yea; Reynolds--Yea; Frost--Nay; Slaughter--Nay; 
McGovern--Nay; Hastings (FL)--Nay; Dreier--Yea.

               SUMMARY OF AMENDMENT CONSIDERED AS ADOPTED

    (Summary derived from information provided by amendment 
sponsors.)
    McInnis/Johnson (CT)/Houghton--Provides a two-year 
moratorium on corporate inversions where the corporation has 
done little more than change its corporate residence for tax 
purposes. Provides that modifications made in the underlying 
bill to the orphan drug tax credit will expire after December 
31, 2010. Provides that it is the sense of Congress that the 
tax laws of the United States are overly complex and burdensome 
and that tax reform is needed to address the issue of corporate 
expatriation.

                TEXT OF AMENDMENT CONSIDERED AS ADOPTED

  Redesignate section 302 as section 304 and insert after 
section 301 the following new sections (and conform the table 
of contents accordingly):

SEC. 302. TAX TREATMENT OF CORPORATE EXPATRIATION.

  (a) In General.--Subchapter C of chapter 80 (relating to 
provisions affecting more than one subtitle) is amended by 
adding at the end the following new section:

``SEC. 7874. TAX TREATMENT OF CORPORATE EXPATRIATION.

  ``(a) Inverted Corporations Treated as Domestic 
Corporations.--
          ``(1) In general.--If a foreign incorporated entity 
        is treated as an inverted domestic corporation, then, 
        notwithstanding section 7701(a)(4), such entity shall 
        be treated for purposes of this title as a domestic 
        corporation.
          ``(2) Inverted domestic corporation.--For purposes of 
        this section, a foreign incorporated entity shall be 
        treated as an inverted domestic corporation if, 
        pursuant to a plan (or a series of related 
        transactions)--
                  ``(A) the entity completes after March 4, 
                2003, the direct or indirect acquisition of 
                substantially all of the properties held 
                directly or indirectly by a domestic 
                corporation or substantially all of the 
                properties constituting a trade or business of 
                a domestic partnership,
                  ``(B) after the acquisition at least 80 
                percent of the stock (by vote or value) of the 
                entity is held--
                          ``(i) in the case of an acquisition 
                        with respect to a domestic corporation, 
                        by former shareholders of the domestic 
                        corporation by reason of holding stock 
                        in the domestic corporation, or
                          ``(ii) in the case of an acquisition 
                        with respect to a domestic partnership, 
                        by former partners of the domestic 
                        partnership by reason of holding a 
                        capital or profits interest in the 
                        domestic partnership, and
                  ``(C) the expanded affiliated group which 
                after the acquisition includes the entity does 
                not have substantial business activities in the 
                foreign country in which or under the law of 
                which the entity is created or organized when 
                compared to the total business activities of 
                such expanded affiliated group.
          ``(3) Termination.--This subsection shall not apply 
        to any acquisition completed after December 31, 2004.
  ``(b) Definitions and Special Rules.--For purposes of this 
section--
          ``(1) Foreign incorporated entity.--The term `foreign 
        incorporated entity' means any entity which is, or but 
        for subsection (a) would be, treated as a foreign 
        corporation for purposes of this title.
          ``(2) Expanded affiliated group.--The term `expanded 
        affiliated group' means an affiliated group as defined 
        in section 1504(a) but without regard to paragraphs 
        (2), (3), and (4) of section 1504(b), except that 
        section 1504(a) shall be applied by substituting `more 
        than 50 percent' for `at least 80 percent' each place 
        it appears.
          ``(3) Certain stock disregarded.--There shall not be 
        taken into account in determining ownership under 
        subsection (a)(3)(B)--
                          ``(i) stock held by members of the 
                        expanded affiliated group which 
                        includes the foreign incorporated 
                        entity, or
                          ``(ii) stock of such foreign 
                        incorporated entity which is sold in a 
                        public offering related to the 
                        acquisition described in subsection 
                        (a)(3)(A).
          ``(4) Plan deemed in certain cases.--If a foreign 
        incorporated entity acquires directly or indirectly 
        substantially all of the properties of a domestic 
        corporation or partnership during the 4-year period 
        beginning on the date which is 2 years before the 
        ownership requirements of subsection (a)(3)(B) are met, 
        such actions shall be treated as pursuant to a plan.
          ``(5) Certain transfers disregarded.--The transfer of 
        properties or liabilities (including by contribution or 
        distribution) shall be disregarded if such transfers 
        are part of a plan a principal purpose of which is to 
        avoid the purposes of this section.
          ``(6) Special rule for related partnerships.--For 
        purposes of applying subsection (a)(3)(B) to the 
        acquisition of a domestic partnership, except as 
        provided in regulations, all partnerships which are 
        under common control (within the meaning of section 
        482) shall be treated as 1 partnership.
          ``(7) Regulations.--The Secretary shall prescribe 
        such regulations as may be appropriate to determine 
        whether a corporation is an inverted domestic 
        corporation, including regulations--
                  ``(A) to treat warrants, options, contracts 
                to acquire stock, convertible debt interests, 
                and other similar interests as stock, and
                  ``(B) to treat stock as not stock.
  ``(c) Special Rule for Treaties.--Nothing in section 894 or 
7852(d) or in any other provision of law shall be construed as 
permitting an exemption, by reason of any treaty obligation of 
the United States heretofore or hereafter entered into, from 
the provisions of this section.
  ``(d) Regulations.--The Secretary shall provide such 
regulations as are necessary to carry out this section, 
including regulations providing for such adjustments to the 
application of this section as are necessary to prevent the 
avoidance of the purposes of this section, including the 
avoidance of such purposes through--
          ``(1) the use of related persons, pass-through or 
        other noncorporate entities, or other intermediaries, 
        or
          ``(2) transactions designed to have persons cease to 
        be (or not become) members of expanded affiliated 
        groups or related persons.''.
  (b) Conforming Amendment.--The table of sections for 
subchapter C of chapter 80 is amended by adding at the end the 
following new item:

        ``Sec. 7874. Tax treatment of corporate expatriation.''

  (c) Effective Date.--The amendments made by this section 
shall apply to taxable years ending after March 4, 2003.

SEC. 303. EXPRESSING THE SENSE OF THE CONGRESS THAT TAX REFORM IS 
                    NEEDED TO ADDRESS THE ISSUE OF CORPORATE 
                    EXPATRIATION.

  (a) Findings.--The Congress finds that--
          (1) the tax laws of the United States are overly 
        complex;
          (2) the tax laws of the United States are among the 
        most burdensome and uncompetitive in the world;
          (3) the tax laws of the United States make it 
        difficult for domestically-owned United States 
        companies to compete abroad and in the United States;
          (4) a domestically-owned corporation is disadvantaged 
        compared to a United States subsidiary of a foreign-
        owned corporation; and
          (5) international competitiveness is forcing many 
        United States corporations to make a choice they do not 
        want to make--go out of business, sell the business to 
        a foreign competitor, or become a subsidiary of a 
        foreign corporation (i.e., engage in an inversion 
        transaction).
  (b) Sense of Congress.--It is the sense of Congress that 
passage of legislation to fix the underlying problems with our 
tax laws is essential and should occur as soon as possible, so 
United States corporations will not face the current pressures 
to engage in inversion transactions.
  Subparagraph (C) of section 45C(b)(2) of the Internal Revenue 
Code of 1986 (as proposed to be added by section 208 of the 
bill) is amended by adding at the end the following new 
sentence: ``The preceding sentence shall not apply with respect 
to any expense incurred after December 31, 2010.''.

                                
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