[House Report 110-426]
[From the U.S. Government Publishing Office]
110th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 110-426
======================================================================
HEROES EARNINGS ASSISTANCE AND RELIEF TAX ACT OF 2007
_______
November 5, 2007.--Ordered to be printed
_______
Mr. Rangel, from the Committee on Ways and Means, submitted the
following
R E P O R T
[To accompany H.R. 3997]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 3997) to amend the Internal Revenue Code of 1986 to
provide tax relief for members of the military and volunteer
firefighters, and for other purposes, having considered the
same, report favorably thereon with an amendment and recommend
that the bill as amended do pass.
CONTENTS
Page
I. AMENDMENT........................................................2
II. SUMMARY AND BACKGROUND..........................................11
III. EXPLANATION OF THE BILL.........................................13
TITLE I--BENEFITS FOR MILITARY AND VOLUNTEER FIREFIGHTERS.......13
A. Make Permanent the Election to Treat Combat Pay as
Earned Income for Purposes of the Earned Income
Credit (sec. 101 of the bill and secs. 32 and 112
of the Code)....................................... 13
B. Modification of Qualified Mortgage Bond Program
Rules for Veterans (sec. 102 of the bill and sec.
143 of the Code)................................... 14
C. Survivor and Disability Payments with Respect to
Qualified Military Service (sec. 103 of the bill
and secs. 401(a), 414(u), 403(b), and 457(g) of the
Code).............................................. 16
D. Treatment of Differential Military Pay as Wages
(sec. 104 of the bill and secs. 3401 and 414(u) of
the Code).......................................... 19
E. Tax Treatment Related to Certain Benefits Provided
to Volunteer Firefighters and Emergency Medical
Responders (sec. 105 of the bill and new sec. 139B
of the Code)....................................... 23
F. Extension of the Statute of Limitations to File
Claims for Refunds Relating to Disability
Determinations by the Department of Veterans
Affairs (sec. 106 of the bill and sec. 6511(d) of
the Code).......................................... 24
G. Treatment of Distributions to Individuals Called to
Active Duty for at Least 180 Days (sec. 107 of the
bill and sec. 72(t) of the Code)................... 25
H. Permanent Extension of Disclosure Authority to the
Department of Veterans Affairs (sec. 108 of the
bill and sec. 6103(1)(7)(D) of the Code)........... 27
I. Contributions of Military Death Gratuities to
Certain Tax-
Favored Accounts (sec. 109 of the bill and secs.
408A and 530 of the Code).......................... 27
J. Exclusion of Gain on Sale of a Principal Residence
by Certain Peace Corps Volunteers (sec. 110 of the
bill and sec. 121(d) of the Code).................. 30
TITLE II--IMPROVEMENTS IN SUPPLEMENTAL SECURITY INCOME (``SSI'')32
A. Ensure Equitable Treatment of Military Families
Under SSI (sec. 201 of the bill)................... 32
B. Remove Penalties for Blind Veterans Under SSI (sec.
202 of the bill)................................... 33
C. Exclusion of Benefits for Americorps Volunteers
Under SSI (sec. 203 of the bill)................... 33
TITLE III--REVENUE PROVISIONS...................................34
A. Increase in Penalty for Failure to File Partnership
Returns (sec. 301 of the bill and new sec. 6698 of
the Code).......................................... 34
B. Penalty for Failure to File S Corporation Returns
(sec. 302 of the bill and new sec. 6699 of the
Code).............................................. 35
C. Increase in Information Return Penalties (sec. 303
of the bill and secs. 6721, 6722, and 6723 of the
Code).............................................. 36
D. Minimum Failure to File Penalty (sec. 304 of the
bill and sec. 6651 of the Code).................... 37
IV. VOTES OF THE COMMITTEE..........................................38
V. BUDGET EFFECTS OF THE BILL......................................38
VI. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......43
VII. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........44
I. AMENDMENT
The amendment is as follows:
Strike all after the enacting clause and insert the following:
SECTION 1. SHORT TITLE, ETC.
(a) Short Title.--This Act may be cited as the ``Heroes Earnings
Assistance and Relief Tax Act of 2007''.
(b) Reference.--Except as otherwise expressly provided, whenever in
this Act an amendment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference shall be
considered to be made to a section or other provision of the Internal
Revenue Code of 1986.
(c) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title, etc.
TITLE I--BENEFITS FOR MILITARY AND VOLUNTEER FIREFIGHTERS
Sec. 101. Election to include combat pay as earned income for purposes
of earned income tax credit.
Sec. 102. Modification of mortgage revenue bonds for veterans.
Sec. 103. Survivor and disability payments with respect to qualified
military service.
Sec. 104. Treatment of differential military pay as wages.
Sec. 105. Exclusion from income for benefits provided to volunteer
firefighters and emergency medical responders.
Sec. 106. Special period of limitation when uniformed services retired
pay is reduced as a result of award of disability compensation.
Sec. 107. Distributions from retirement plans to individuals called to
active duty.
Sec. 108. Disclosure of return information relating to veterans
programs made permanent.
Sec. 109. Contributions of military death gratuities to Roth IRAs and
Education Savings Accounts.
Sec. 110. Suspension of 5-year period during service with the Peace
Corps.
TITLE II--IMPROVEMENTS IN SUPPLEMENTAL SECURITY INCOME
Sec. 201. Treatment of uniformed service cash remuneration as earned
income.
Sec. 202. State annuities for blind veterans to be disregarded in
determining supplemental security income benefits.
Sec. 203. Exclusion of AmeriCorps benefits for purposes of determining
supplemental security income eligibility and benefit amounts.
Sec. 204. Effective date.
TITLE III--REVENUE PROVISIONS
Sec. 301. Modification of penalty for failure to file partnership
returns.
Sec. 302. Penalty for failure to file S corporation returns.
Sec. 303. Increase in information return penalties.
Sec. 304. Increase in minimum penalty on failure to file a return of
tax.
TITLE I--BENEFITS FOR MILITARY AND VOLUNTEER FIREFIGHTERS
SEC. 101. ELECTION TO INCLUDE COMBAT PAY AS EARNED INCOME FOR PURPOSES
OF EARNED INCOME TAX CREDIT.
(a) In General.--Clause (vi) of section 32(c)(2)(B) (defining earned
income) is amended to read as follows:
``(vi) a taxpayer may elect to treat amounts
excluded from gross income by reason of section
112 as earned income.''.
(b) Sunset Not Applicable.--Section 105 of the Working Families Tax
Relief Act of 2004 (relating to application of EGTRRA sunset to this
title) shall not apply to section 104(b) of such Act.
(c) Effective Date.--The amendment made by this section shall apply
to taxable years ending after December 31, 2007.
SEC. 102. MODIFICATION OF MORTGAGE REVENUE BONDS FOR VETERANS.
(a) Qualified Mortgage Bonds Used To Finance Residences for Veterans
Without Regard to First-Time Homebuyer Requirement.--Subparagraph (D)
of section 143(d)(2) (relating to exceptions) is amended by striking
``and before January 1, 2008''.
(b) Increase in Bond Limitation for Alaska, Oregon, and Wisconsin.--
Clause (ii) of section 143(l)(3)(B) (relating to State veterans limit)
is amended by striking ``$25,000,000'' each place it appears and
inserting ``$100,000,000''.
(c) Definition of Qualified Veteran.--Paragraph (4) of section 143(l)
(defining qualified veteran) is amended to read as follows:
``(4) Qualified veteran.--For purposes of this subsection,
the term `qualified veteran' means any veteran who--
``(A) served on active duty, and
``(B) applied for the financing before the date 25
years after the last date on which such veteran left
active service.''.
(d) Effective Date.--The amendments made by this section shall apply
to bonds issued after December 31, 2007.
SEC. 103. SURVIVOR AND DISABILITY PAYMENTS WITH RESPECT TO QUALIFIED
MILITARY SERVICE.
(a) Plan Qualification Requirement for Death Benefits Under USERRA-
Qualified Active Military Service.--Subsection (a) of section 401
(relating to requirements for qualification) is amended by inserting
after paragraph (36) the following new paragraph:
``(37) Death benefits under userra-qualified active military
service.--A trust shall not constitute a qualified trust unless
the plan provides that, in the case of a participant who dies
while performing qualified military service (as defined in
section 414(u)), the survivors of the participant are entitled
to any additional benefits (other than benefit accruals
relating to the period of qualified military service) provided
under the plan had the participant resumed and then terminated
employment on account of death.''.
(b) Treatment in the Case of Death or Disability Resulting From
Active Military Service for Benefit Accrual Purposes.--Subsection (u)
of section 414 (relating to special rules relating to veterans'
reemployment rights under USERRA) is amended by redesignating
paragraphs (9) and (10) as paragraphs (10) and (11), respectively, and
by inserting after paragraph (8) the following new paragraph:
``(9) Treatment in the case of death or disability resulting
from active military service.--
``(A) In general.--For benefit accrual purposes, an
employer sponsoring a retirement plan may treat an
individual who dies or becomes disabled (as defined
under the terms of the plan) while performing qualified
military service with respect to the employer
maintaining the plan as if the individual has resumed
employment in accordance with the individual's
reemployment rights under chapter 43 of title 38,
United States Code, on the day preceding death or
disability (as the case may be) and terminated
employment on the actual date of death or disability.
In the case of any such treatment, and subject to
subparagraphs (B) and (C), any full or partial
compliance by such plan with respect to the benefit
accrual requirements of paragraph (8) with respect to
such individual shall be treated for purposes of
paragraph (1) as if such compliance were required under
such chapter 43.
``(B) Nondiscrimination requirement.--Subparagraph
(A) shall apply only if all individuals performing
qualified military service with respect to the employer
maintaining the plan (as determined under subsections
(b), (c), (m), and (o)) who die or became disabled as a
result of performing qualified military service prior
to reemployment by the employer are credited with
service and benefits on reasonably equivalent terms.
``(C) Determination of benefits.--The amount of
employee contributions and the amount of elective
deferrals of an individual treated as reemployed under
subparagraph (A) for purposes of applying paragraph
(8)(C) shall be determined on the basis of the
individual's average actual employee contributions or
elective deferrals for the lesser of--
``(i) the 12-month period of service with the
employer immediately prior to qualified
military service, or
``(ii) if service with the employer is less
than such 12-month period, the actual length of
continuous service with the employer.''.
(c) Conforming Amendments.--
(1) Section 404(a)(2) is amended by striking ``and (31)'' and
inserting ``(31), and (37)''.
(2) Section 403(b) is amended by adding at the end the
following new paragraph:
``(14) Death benefits under userra-qualified active military
service.--This subsection shall not apply to an annuity
contract unless such contract meets the requirements of section
401(a)(37).''.
(3) Section 457(g) is amended by adding at the end the
following new paragraph:
``(4) Death benefits under userra-qualified active military
service.--A plan described in paragraph (1) shall not be
treated as an eligible deferred compensation plan unless such
plan meets the requirements of section 401(a)(37).''.
(d) Effective Date.--
(1) In general.--The amendments made by this section shall
apply with respect to deaths and disabilities occurring on or
after January 1, 2007.
(2) Provisions relating to plan amendments.--
(A) In general.--If this subparagraph applies to any
plan or contract amendment, such plan or contract shall
be treated as being operated in accordance with the
terms of the plan during the period described in
subparagraph (B)(iii).
(B) Amendments to which subparagraph (A) applies.--
(i) In general.--Subparagraph (A) shall apply
to any amendment to any plan or annuity
contract which is made--
(I) pursuant to the amendments made
by subsection (a) or pursuant to any
regulation issued by the Secretary of
the Treasury under subsection (a), and
(II) on or before the last day of the
first plan year beginning on or after
January 1, 2009.
In the case of a governmental plan (as defined
in section 414(d) of the Internal Revenue Code
of 1986), this clause shall be applied by
substituting ``2011'' for ``2009'' in subclause
(II).
(ii) Conditions.--This paragraph shall not
apply to any amendment unless--
(I) the plan or contract is operated
as if such plan or contract amendment
were in effect for the period described
in clause (iii), and
(II) such plan or contract amendment
applies retroactively for such period.
(iii) Period described.--The period described
in this clause is the period--
(I) beginning on the effective date
specified by the plan, and
(II) ending on the date described in
clause (i)(II) (or, if earlier, the
date the plan or contract amendment is
adopted).
SEC. 104. TREATMENT OF DIFFERENTIAL MILITARY PAY AS WAGES.
(a) Income Tax Withholding on Differential Wage Payments.--
(1) In general.--Section 3401 (relating to definitions) is
amended by adding at the end the following new subsection:
``(h) Differential Wage Payments to Active Duty Members of the
Uniformed Services.--
``(1) In general.--For purposes of subsection (a), any
differential wage payment shall be treated as a payment of
wages by the employer to the employee.
``(2) Differential wage payment.--For purposes of paragraph
(1), the term `differential wage payment' means any payment
which--
``(A) is made by an employer to an individual with
respect to any period during which the individual is
performing service in the uniformed services (as
defined in chapter 43 of title 38, United States Code)
while on active duty for a period of more than 30 days,
and
``(B) represents all or a portion of the wages the
individual would have received from the employer if the
individual were performing service for the employer.''.
(2) Effective date.--The amendment made by this subsection
shall apply to remuneration paid after December 31, 2007.
(b) Treatment of Differential Wage Payments for Retirement Plan
Purposes.--
(1) Pension plans.--
(A) In general.--Section 414(u) (relating to special
rules relating to veterans' reemployment rights under
USERRA), as amended by section 103(b), is amended by
adding at the end the following new paragraph:
``(12) Treatment of differential wage payments.--
``(A) In general.--Except as provided in this
paragraph, for purposes of applying this title to a
retirement plan to which this subsection applies--
``(i) an individual receiving a differential
wage payment shall be treated as an employee of
the employer making the payment,
``(ii) the differential wage payment shall be
treated as compensation, and
``(iii) the plan shall not be treated as
failing to meet the requirements of any
provision described in paragraph (1)(C) by
reason of any contribution or benefit which is
based on the differential wage payment.
``(B) Special rule for distributions.--
``(i) In general.--Notwithstanding
subparagraph (A)(i), for purposes of section
401(k)(2)(B)(i)(I), 403(b)(7)(A)(ii),
403(b)(11)(A), or 457(d)(1)(A)(ii), an
individual shall be treated as having been
severed from employment during any period the
individual is performing service in the
uniformed services described in section
3401(h)(2)(A).
``(ii) Limitation.--If an individual elects
to receive a distribution by reason of clause
(i), the plan shall provide that the individual
may not make an elective deferral or employee
contribution during the 6-month period
beginning on the date of the distribution.
``(C) Nondiscrimination requirement.--Subparagraph
(A)(iii) shall apply only if all employees of an
employer (as determined under subsections (b), (c),
(m), and (o)) performing service in the uniformed
services described in section 3401(h)(2)(A) are
entitled to receive differential wage payments on
reasonably equivalent terms and, if eligible to
participate in a retirement plan maintained by the
employer, to make contributions based on the payments
on reasonably equivalent terms. For purposes of
applying this subparagraph, the provisions of
paragraphs (3), (4), and (5) of section 410(b) shall
apply.
``(D) Differential wage payment.--For purposes of
this paragraph, the term `differential wage payment'
has the meaning given such term by section
3401(h)(2).''.
(B) Conforming amendment.--The heading for section
414(u) is amended by inserting ``and to Differential
Wage Payments to Members on Active Duty'' after
``USERRA''.
(2) Differential wage payments treated as compensation for
individual retirement plans.--Section 219(f)(1) (defining
compensation) is amended by adding at the end the following new
sentence: ``The term compensation includes any differential
wage payment (as defined in section 3401(h)(2)).''.
(3) Effective date.--The amendments made by this subsection
shall apply to years beginning after December 31, 2007.
(c) Provisions Relating to Plan Amendments.--
(1) In general.--If this subsection applies to any plan or
annuity contract amendment, such plan or contract shall be
treated as being operated in accordance with the terms of the
plan or contract during the period described in paragraph
(2)(B)(i).
(2) Amendments to which section applies.--
(A) In general.--This subsection shall apply to any
amendment to any plan or annuity contract which is
made--
(i) pursuant to any amendment made by
subsection (b)(1), and
(ii) on or before the last day of the first
plan year beginning on or after January 1,
2009.
In the case of a governmental plan (as defined in
section 414(d) of the Internal Revenue Code of 1986),
this subparagraph shall be applied by substituting
``2011'' for ``2009'' in clause (ii).
(B) Conditions.--This subsection shall not apply to
any plan or annuity contract amendment unless--
(i) during the period beginning on the date
the amendment described in subparagraph (A)(i)
takes effect and ending on the date described
in subparagraph (A)(ii) (or, if earlier, the
date the plan or contract amendment is
adopted), the plan or contract is operated as
if such plan or contract amendment were in
effect, and
(ii) such plan or contract amendment applies
retroactively for such period.
SEC. 105. EXCLUSION FROM INCOME FOR BENEFITS PROVIDED TO VOLUNTEER
FIREFIGHTERS AND EMERGENCY MEDICAL RESPONDERS.
(a) In General.--Part III of subchapter B of chapter 1 (relating to
items specifically excluded from gross income) is amended by inserting
after section 139A the following new section:
``SEC. 139B. BENEFITS PROVIDED TO VOLUNTEER FIREFIGHTERS AND EMERGENCY
MEDICAL RESPONDERS.
``(a) In General.--In the case of any member of a qualified volunteer
emergency response organization, gross income shall not include--
``(1) any qualified State and local tax benefit, and
``(2) any qualified payment.
``(b) Denial of Double Benefits.--In the case of any member of a
qualified volunteer emergency response organization--
``(1) the deduction under 164 shall be determined with regard
to any qualified State and local tax benefit, and
``(2) expenses paid or incurred by the taxpayer in connection
with the performance of services as such a member shall be
taken into account under section 170 only to the extent such
expenses exceed the amount of any qualified payment excluded
from gross income under subsection (a).
``(c) Definitions.--For purposes of this section--
``(1) Qualified state and local tax benefit.--The term
`qualified state and local tax benefit' means any reduction or
rebate of a tax described in paragraph (1), (2), or (3) of
section 164(a) provided by a State or political division
thereof on account of services performed as a member of a
qualified volunteer emergency response organization.
``(2) Qualified payment.--
``(A) In general.--The term `qualified payment' means
any payment (whether reimbursement or otherwise)
provided by a State or political division thereof on
account of the performance of services as a member of a
qualified volunteer emergency response organization.
``(B) Applicable dollar limitation.--The amount
determined under subparagraph (A) for any taxable year
shall not exceed $30 multiplied by the number of months
during such year that the taxpayer performs such
services.
``(3) Qualified volunteer emergency response organization.--
The term `qualified volunteer emergency response organization'
means any volunteer organization--
``(A) which is organized and operated to provide
firefighting or emergency medical services for persons
in the State or political subdivision, as the case may
be, and
``(B) which is required (by written agreement) by the
State or political subdivision to furnish firefighting
or emergency medical services in such State or
political subdivision.''.
(b) Clerical Amendment.--The table of sections for such part is
amended by inserting after the item relating to section 139A the
following new item:
``Sec. 139B. Benefits provided to volunteer firefighters and emergency
medical responders.''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after the date of the enactment of this Act.
SEC. 106. SPECIAL PERIOD OF LIMITATION WHEN UNIFORMED SERVICES RETIRED
PAY IS REDUCED AS A RESULT OF AWARD OF DISABILITY
COMPENSATION.
(a) In General.--Subsection (d) of section 6511 (relating to special
rules applicable to income taxes) is amended by adding at the end the
following new paragraph:
``(8) Special rules when uniformed services retired pay is
reduced as a result of award of disability compensation.--
``(A) Period of limitation on filing claim.--If the
claim for credit or refund relates to an overpayment of
tax imposed by subtitle A on account of--
``(i) the reduction of uniformed services
retired pay computed under section 1406 or 1407
of title 10, United States Code, or
``(ii) the waiver of such pay under section
5305 of title 38 of such Code,
as a result of an award of compensation under title 38
of such Code pursuant to a determination by the
Secretary of Veterans Affairs, the 3-year period of
limitation prescribed in subsection (a) shall be
extended, for purposes of permitting a credit or refund
based upon the amount of such reduction or waiver,
until the end of the 1-year period beginning on the
date of such determination.
``(B) Limitation to 5 taxable years.--Subparagraph
(A) shall not apply with respect to any taxable year
which began more than 5 years before the date of such
determination.''.
(b) Effective Date.--The amendment made by subsection (a) shall apply
to claims for credit or refund filed after the date of the enactment of
this Act.
(c) Transition Rules.--In the case of a determination described in
paragraph (8) of section 6511(d) of the Internal Revenue Code of 1986
(as added by this section) which is made by the Secretary of Veterans
Affairs after December 31, 2000, and before the date of the enactment
of this Act, such paragraph--
(1) shall not apply with respect to any taxable year which
began before January 1, 2001, and
(2) shall be applied by substituting for ``the date of such
determination'' in subparagraph (A) thereof.
SEC. 107. DISTRIBUTIONS FROM RETIREMENT PLANS TO INDIVIDUALS CALLED TO
ACTIVE DUTY.
(a) In General.--Clause (iv) of section 72(t)(2)(G) is amended by
striking ``, and before December 31, 2007''.
(b) Effective Date.--The amendment made by this section shall apply
to individuals ordered or called to active duty on or after December
31, 2007.
SEC. 108. DISCLOSURE OF RETURN INFORMATION RELATING TO VETERANS
PROGRAMS MADE PERMANENT.
(a) In General.--Subparagraph (D) of section 6103(l)(7) (relating to
disclosure of return information to Federal, State, and local agencies
administering certain programs under the Social Security Act, the Food
Stamp Act of 1977, or title 38, United States Code or certain housing
assistance programs) is amended by striking the last sentence.
(b) Effective Date.--The amendments made by this section shall apply
to requests made after September 30, 2008.
SEC. 109. CONTRIBUTIONS OF MILITARY DEATH GRATUITIES TO ROTH IRAS AND
EDUCATION SAVINGS ACCOUNTS.
(a) Provision in Effect Before Pension Protection Act.--Subsection
(e) of section 408A (relating to qualified rollover contribution), as
in effect before the amendments made by section 824 of the Pension
Protection Act of 2006, is amended to read as follows:
``(e) Qualified Rollover Contribution.--For purposes of this
section--
``(1) In general.--The term `qualified rollover contribution'
means a rollover contribution to a Roth IRA from another such
account, or from an individual retirement plan, but only if
such rollover contribution meets the requirements of section
408(d)(3). Such term includes a rollover contribution described
in section 402A(c)(3)(A). For purposes of section 408(d)(3)(B),
there shall be disregarded any qualified rollover contribution
from an individual retirement plan (other than a Roth IRA) to a
Roth IRA.
``(2) Military death gratuity.--
``(A) In general.--The term `qualified rollover
contribution' includes a contribution to a Roth IRA
maintained for the benefit of an individual made before
the end of the 1-year period beginning on the date on
which such individual receives an amount under section
1477 of title 10, United States Code, or section 1967
of title 38 of such Code, with respect to a person, to
the extent that such contribution does not exceed--
``(i) the sum of the amounts received during
such period by such individual under such
sections with respect to such person, reduced
by
``(ii) the amounts so received which were
contributed to a Coverdell education savings
account under section 530(d)(9).
``(B) Annual limit on number of rollovers not to
apply.--Section 408(d)(3)(B) shall not apply with
respect to amounts treated as a rollover by
subparagraph (A).
``(C) Application of section 72.--For purposes of
applying section 72 in the case of a distribution which
is not a qualified distribution, the amount treated as
a rollover by reason of subparagraph (A) shall be
treated as investment in the contract.''.
(b) Provision in Effect After Pension Protection Act.--Subsection (e)
of section 408A, as in effect after the amendments made by section 824
of the Pension Protection Act of 2006, is amended to read as follows:
``(e) Qualified Rollover Contribution.--For purposes of this
section--
``(1) In general.--The term `qualified rollover contribution'
means a rollover contribution--
``(A) to a Roth IRA from another such account,
``(B) from an eligible retirement plan, but only if--
``(i) in the case of an individual retirement
plan, such rollover contribution meets the
requirements of section 408(d)(3), and
``(ii) in the case of any eligible retirement
plan (as defined in section 402(c)(8)(B) other
than clauses (i) and (ii) thereof), such
rollover contribution meets the requirements of
section 402(c), 403(b)(8), or 457(e)(16), as
applicable.
For purposes of section 408(d)(3)(B), there shall be
disregarded any qualified rollover contribution from an
individual retirement plan (other than a Roth IRA) to a
Roth IRA.
``(2) Military death gratuity.--
``(A) In general.--The term `qualified rollover
contribution' includes a contribution to a Roth IRA
maintained for the benefit of an individual made before
the end of the 1-year period beginning on the date on
which such individual receives an amount under section
1477 of title 10, United States Code, or section 1967
of title 38 of such Code, with respect to a person, to
the extent that such contribution does not exceed--
``(i) the sum of the amounts received during
such period by such individual under such
sections with respect to such person, reduced
by
``(ii) the amounts so received which were
contributed to a Coverdell education savings
account under section 530(d)(9).
``(B) Annual limit on number of rollovers not to
apply.--Section 408(d)(3)(B) shall not apply with
respect to amounts treated as a rollover by the
subparagraph (A).
``(C) Application of section 72.--For purposes of
applying section 72 in the case of a distribution which
is not a qualified distribution, the amount treated as
a rollover by reason of subparagraph (A) shall be
treated as investment in the contract.''.
(c) Education Savings Accounts.--Subsection (d) of section 530 is
amended by adding at the end the following new paragraph:
``(9) Military death gratuity.--
``(A) In general.--For purposes of this section, the
term `rollover contribution' includes a contribution to
a Coverdell education savings account made before the
end of the 1-year period beginning on the date on which
the contributor receives an amount under section 1477
of title 10, United States Code, or section 1967 of
title 38 of such Code, with respect to a person, to the
extent that such contribution does not exceed--
``(i) the sum of the amounts received during
such period by such contributor under such
sections with respect to such person, reduced
by
``(ii) the amounts so received which were
contributed to a Roth IRA under section
408A(e)(2) or to another Coverdell education
savings account.
``(B) Annual limit on number of rollovers not to
apply.--The last sentence of paragraph (5) shall not
apply with respect to amounts treated as a rollover by
the subparagraph (A).
``(C) Application of section 72.--For purposes of
applying section 72 in the case of a distribution which
is includible in gross income under paragraph (1), the
amount treated as a rollover by reason of subparagraph
(A) shall be treated as investment in the contract.''.
(d) Effective Dates.--
(1) In general.--Except as provided by paragraphs (2) and
(3), the amendments made by this section shall apply with
respect to deaths from injuries occurring on or after the date
of the enactment of this Act.
(2) Application of amendments to deaths from injuries
occurring on or after october 7, 2001, and before enactment.--
The amendments made by this section shall apply to any
contribution made pursuant to section 408A(e)(2) or 530(d)(5)
of the Internal Revenue Code of 1986, as amended by this Act,
with respect to amounts received under section 1477 of title
10, United States Code, or under section 1967 of title 38 of
such Code, for deaths from injuries occurring on or after
October 7, 2001, and before the date of the enactment of this
Act if such contribution is made not later than 1 year after
the date of the enactment of this Act.
(3) Pension protection act changes.--Section 408A(e)(1) of
the Internal Revenue Code of 1986 (as in effect after the
amendments made by subsection (b)) shall apply to taxable years
beginning after December 31, 2007.
SEC. 110. SUSPENSION OF 5-YEAR PERIOD DURING SERVICE WITH THE PEACE
CORPS.
(a) In General.--Subsection (d) of section 121 (relating to special
rules) is amended by adding at the end the following new paragraph:
``(12) Peace corps.--
``(A) In general.--At the election of an individual
with respect to a property, the running of the 5-year
period described in subsections (a) and (c)(1)(B) and
paragraph (7) of this subsection with respect to such
property shall be suspended during any period that such
individual or such individual's spouse is serving
outside the United States--
``(i) on qualified official extended duty (as
defined in paragraph (9)(C)) as an employee of
the Peace Corps, or
``(ii) as an enrolled volunteer or volunteer
leader under section 5 or 6 (as the case may
be) of the Peace Corps Act (22 U.S.C. 2504,
2505).
``(B) Applicable rules.--For purposes of subparagraph
(A), rules similar to the rules of subparagraphs (B)
and (D) shall apply.''.
(b) Effective Date.--The amendment made by subsection (a) shall apply
to taxable years beginning after December 31, 2007.
TITLE II--IMPROVEMENTS IN SUPPLEMENTAL SECURITY INCOME
SEC. 201. TREATMENT OF UNIFORMED SERVICE CASH REMUNERATION AS EARNED
INCOME.
(a) In General.--Section 1612(a)(1)(A) of the Social Security Act (42
U.S.C. 1382a(a)(1)(A)) is amended by inserting ``(and, in the case of
cash remuneration paid for service as a member of a uniformed service
(other than payments described in paragraph (2)(H) of this subsection
or subsection (b)(20)), without regard to the limitations contained in
section 209(d))'' before the semicolon.
(b) Certain Housing Payments Treated as In-Kind Support and
Maintenance.--Section 1612(a)(2) of such Act (42 U.S.C. 1382a(a)(2)) is
amended--
(1) by striking ``and'' at the end of subparagraph (F);
(2) by striking the period at the end of subparagraph (G) and
inserting ``; and''; and
(3) by adding at the end the following:
``(H) payments to or on behalf of a member of a
uniformed service for housing of the member (and his or
her dependents, if any) on a facility of a uniformed
service, including payments provided under section 403
of title 37, United States Code, for housing that is
acquired or constructed under subchapter IV of chapter
169 of title 10 of such Code, or any related provision
of law, and any such payments shall be treated as
support and maintenance in kind subject to subparagraph
(A) of this paragraph.''.
SEC. 202. STATE ANNUITIES FOR BLIND VETERANS TO BE DISREGARDED IN
DETERMINING SUPPLEMENTAL SECURITY INCOME BENEFITS.
(a) Income Disregard.--Section 1612(b) of the Social Security Act (42
U.S.C. 1382a(b)) is amended--
(1) by striking ``and'' at the end of paragraph (22);
(2) by striking the period at the end of paragraph (23) and
inserting ``; and''; and
(3) by adding at the end the following:
``(24) any annuity paid by a State to the individual (or such
spouse) on the basis of the individual's being a veteran (as
defined in section 101 of title 38, United States Code) and
blind.''.
(b) Resource Disregard.--Section 1613(a) of such Act (42 U.S.C.
1382b(a)) is amended--
(1) by striking ``and'' at the end of paragraph (14);
(2) by striking the period at the end of paragraph (15) and
inserting ``; and''; and
(3) by inserting after paragraph (15) the following:
``(16) for the month of receipt and every month thereafter,
any annuity paid by a State to the individual (or such spouse)
on the basis of the individual's being a veteran (as defined in
section 101 of title 38, United States Code) and blind.''.
SEC. 203. EXCLUSION OF AMERICORPS BENEFITS FOR PURPOSES OF DETERMINING
SUPPLEMENTAL SECURITY INCOME ELIGIBILITY AND
BENEFIT AMOUNTS.
Section 1612(b) of the Social Security Act (42 U.S.C. 1382a(b)), as
amended by section 202(a) of this Act, is amended--
(1) in paragraph (23), by striking ``and'' at the end;
(2) in paragraph (24), by striking the period and inserting
``; and''; and
(3) by adding at the end the following:
``(25) any benefit (whether cash or in-kind) conferred upon
(or paid on behalf of) a participant in an AmeriCorps position
approved by the Corporation for National and Community Service
under section 123 of the National and Community Service Act of
1990 (42 U.S.C. 12573).''.
SEC. 204. EFFECTIVE DATE.
The amendments made by this title shall be effective with respect to
benefits payable for months beginning after 60 days after the date of
the enactment of this Act.
TITLE III--REVENUE PROVISIONS
SEC. 301. MODIFICATION OF PENALTY FOR FAILURE TO FILE PARTNERSHIP
RETURNS.
(a) Extension of Time Limitation.--Subsection (a) of section 6698
(relating to general rule) is amended by striking ``5 months'' and
inserting ``12 months''.
(b) Increase in Penalty Amount.--Paragraph (1) of section 6698(b) is
amended by striking ``$50'' and inserting ``$100''.
(c) Effective Date.--The amendments made by this section shall apply
to returns required to be filed after the date of the enactment of this
Act.
SEC. 302. PENALTY FOR FAILURE TO FILE S CORPORATION RETURNS.
(a) In General.--Part I of subchapter B of chapter 68 (relating to
assessable penalties) is amended by adding at the end the following new
section:
``SEC. 6699. FAILURE TO FILE S CORPORATION RETURN.
``(a) General Rule.--In addition to the penalty imposed by section
7203 (relating to willful failure to file return, supply information,
or pay tax), if any S corporation required to file a return under
section 6037 for any taxable year--
``(1) fails to file such return at the time prescribed
therefor (determined with regard to any extension of time for
filing), or
``(2) files a return which fails to show the information
required under section 6037,
such S corporation shall be liable for a penalty determined under
subsection (b) for each month (or fraction thereof) during which such
failure continues (but not to exceed 12 months), unless it is shown
that such failure is due to reasonable cause.
``(b) Amount Per Month.--For purposes of subsection (a), the amount
determined under this subsection for any month is the product of--
``(1) $100, multiplied by
``(2) the number of persons who were shareholders in the S
corporation during any part of the taxable year.
``(c) Assessment of Penalty.--The penalty imposed by subsection (a)
shall be assessed against the S corporation.
``(d) Deficiency Procedures Not to Apply.--Subchapter B of chapter 63
(relating to deficiency procedures for income, estate, gift, and
certain excise taxes) shall not apply in respect of the assessment or
collection of any penalty imposed by subsection (a).''.
(b) Clerical Amendment.--The table of sections for part I of
subchapter B of chapter 68 is amended by adding at the end the
following new item:
``Sec. 6699. Failure to file S corporation return.''.
(c) Effective Date.--The amendments made by this section shall apply
to returns required to be filed after the date of the enactment of this
Act.
SEC. 303. INCREASE IN INFORMATION RETURN PENALTIES.
(a) Failure To File Correct Information Returns.--
(1) In general.--Subsections (a)(1), (b)(1)(A), and (b)(2)(A)
of section 6721 are each amended by striking ``$50'' and
inserting ``$100''.
(2) Aggregate annual limitation.--Subsections (a)(1),
(d)(1)(A), and (e)(3)(A) of section 6721 are each amended by
striking ``$250,000'' and inserting ``$600,000''.
(b) Reduction Where Correction Within 30 Days.--
(1) In general.--Subparagraph (A) of section 6721(b)(1) is
amended by striking ``$15'' and inserting ``$25''.
(2) Aggregate annual limitation.--Subsections (b)(1)(B) and
(d)(1)(B) of section 6721 are each amended by striking
``$75,000'' and inserting ``$200,000''.
(c) Reduction Where Correction on or Before August 1.--
(1) In general.--Subparagraph (A) of section 6721(b)(2) is
amended by striking ``$30'' and inserting ``$60''.
(2) Aggregate annual limitation.--Subsections (b)(2)(B) and
(d)(1)(C) of section 6721 are each amended by striking
``$150,000'' and inserting ``$400,000''.
(d) Aggregate Annual Limitations for Persons With Gross Receipts of
Not More Than $5,000,000.--Paragraph (1) of section 6721(d) is
amended--
(1) by striking ``$100,000'' in subparagraph (A) and
inserting ``$250,000'',
(2) by striking ``$25,000'' in subparagraph (B) and inserting
``$75,000'', and
(3) by striking ``$50,000'' in subparagraph (C) and inserting
``$150,000''.
(e) Penalty in Case of Intentional Disregard.--Paragraph (2) of
section 6721(e) is amended by striking ``$100'' and inserting ``$250''.
(f) Failure To Furnish Correct Payee Statements.--
(1) In general.--Subsection (a) of section 6722 is amended by
striking ``$50'' and inserting ``$100''.
(2) Aggregate annual limitation.--Subsections (a) and
(c)(2)(A) of section 6722 are each amended by striking
``$100,000'' and inserting ``$600,000''.
(3) Penalty in case of intentional disregard.--Paragraph (1)
of section 6722(c) is amended by striking ``$100'' and
inserting ``$250''.
(g) Failure To Comply With Other Information Reporting
Requirements.--Section 6723 is amended--
(1) by striking ``$50'' and inserting ``$100'', and
(2) by striking ``$100,000'' and inserting ``$600,000''.
(h) Effective Date.--The amendments made by this section shall apply
with respect to information returns required to be filed on or after
January 1, 2008.
SEC. 304. INCREASE IN MINIMUM PENALTY ON FAILURE TO FILE A RETURN OF
TAX.
(a) In General.--Subsection (a) of section 6651 is amended by
striking ``$100'' in the last sentence and inserting ``$225''.
(b) Effective Date.--The amendment made by this section shall apply
to returns the due date for the filing of which (including extensions)
is after December 31, 2007.
II. SUMMARY AND BACKGROUND
A. Purpose and Summary
PURPOSE
The bill, H.R. 3997, as amended, includes provisions for
providing tax relief and other benefits to military personnel,
volunteer firefighters, Peace Corps volunteers, and AmeriCorps
volunteers.
SUMMARY
The bill permanently extends the availability of the
election to treat combat pay that is otherwise excluded from
gross income under section 112 as earned income for purposes of
the earned income credit.\1\ The bill permanently extends the
limited exception from the first-time homebuyer requirement for
veterans under the qualified mortgage bond program. The bill
also changes eligibility requirements and volume limits for
qualified veterans' mortgage bonds. For tax-qualified plans,
the bill provides that, in the case of a participant who dies
while performing qualified military service, the survivors of
the participant must be entitled to any additional benefits
(other than benefit accruals relating to the period of
qualified military service) that would be provided under the
plan had the participant resumed employment with the employer
maintaining the plan and then terminated employment on account
of death.
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\1\ Unless otherwise indicated, all section references are to the
Internal Revenue Code of 1986, as amended (``Code'').
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The bill makes several changes to the treatment of military
differential pay. First, the bill amends the definition of
wages for purposes of the Federal income tax withholding rules
by including in such definition differential wage payments to
an employee. Second, the bill provides rules relating to
differential wage payments (as defined for purposes of wage
withholding) for purposes of a retirement plan that is subject
to section 414(u). Third, for purposes of the limitation on
contributions to an individual retirement account (``IRA''),
the bill amends the term ``compensation'' to include
differential wage payments. In general, the bill permits a plan
or annuity contract to be retroactively amended to comply with
the bill provided that the amendment is made no later than the
last day of the first plan year beginning on or after January
1, 2009.
The bill provides an exclusion from gross income to members
of qualified volunteer emergency response organizations for:
(1) any qualified State or local tax benefit; and (2) any
qualified reimbursement payment. The bill extends the time
period for filing claims for credits or refunds for retired
military personnel who receive disability determinations from
the Department of Veterans Affairs (e.g., determinations after
the tax return is filed). The bill extends the rules applicable
to qualified reservist distributions to individuals ordered or
called to active duty on or after December 31, 2007. The bill
makes the disclosure authority to the Department of Veteran's
Affairs permanent. In the case of an individual who receives a
military death gratuity or a Servicemembers' Group Life
Insurance (``SGLI'') payment, the bill permits the individual
to contribute an amount no greater than the sum of the gratuity
and SGLI payments received by the individual to a Roth IRA or
to one or more Coverdell education savings accounts,
notwithstanding the contributions limits that otherwise apply
to contributions to Roth IRAs and Coverdell education savings
accounts. The bill creates a new rule with respect to the
exclusion of gain from the sale of a principal residence for
Peace Corps volunteers similar to the rules applicable to the
uniformed services and Foreign Service and the intelligence
community.
The bill expands the definition of earned income under the
Supplemental Security Income (``SSI'') program to include all
cash remuneration paid to members of the uniformed services and
not otherwise excluded by law. The bill specifies that any
money paid by a state to a blind veteran is excluded from the
SSI income calculation. The bill also specifies that the value
of any money paid by a state to a blind veteran in a given
month shall not be counted as a resource by the SSI program in
that month. The bill specifies that any cash or in-kind benefit
paid to a participant in the AmeriCorps program is excluded
from the SSI income calculation.
The bill extends the period for calculating the monthly
failure to file penalty for partnership returns from five
months to 12 months, increases the penalty amount to $100 per
partner, and creates a similar penalty for any failure to
timely file an S corporation return. The bill increases the
penalties for failing to file correct information returns and
correct payee statements. Finally, the bill increases the
minimum penalty for a failure to file a tax return within 60
days of the due date to the lesser of $225 or 100 percent of
the amount of tax required to be shown on the return.
B. Background and Need for Legislation
In meeting the needs of their country and fellow citizens,
members of the military and volunteer firefighters may make
certain financial and other sacrifices. The bill provides tax
relief for members of the military and volunteer firefighters
to offset some of these financial sacrifices.
C. Legislative History
BACKGROUND
On October 17, 2007, the Subcommittee on Select Revenue
Measures and the Subcommittee on Income Security and Family
Support held a joint hearing to focus on legislative proposals
designed to help members of our armed forces and their
families, as well as others volunteering in service to America.
H.R. 3997 was introduced in the House of Representatives on
October 30, 2007, and was referred to the Committee on Ways and
Means.
COMMITTEE ACTION
The Committee on Ways and Means marked up the bill on
November 1, 2007, and ordered the bill, as amended, favorably
reported.
III. EXPLANATION OF THE BILL
TITLE I--BENEFITS FOR MILITARY AND VOLUNTEER FIREFIGHTERS
A. Make Permanent the Election To Treat Combat Pay as Earned Income for
Purposes of the Earned Income Credit (Sec. 101 of the Bill and Secs. 32
and 112 of the Code)
PRESENT LAW
In general
Subject to certain limitations, military compensation
earned by members of the Armed Forces while serving in a combat
zone may be excluded from gross income. In addition, for up to
two years following service in a combat zone, military
personnel may also exclude compensation earned while
hospitalized from wounds, disease, or injuries incurred while
serving in the combat zone.
Child credit
Combat pay that is otherwise excluded from gross income
under section 112 is treated as earned income which is taken
into account in computing taxable income for purposes of
calculating the refundable portion of the child credit.
Earned income credit
Any taxpayer may elect to treat combat pay that is
otherwise excluded from gross income under section 112 as
earned income for purposes of the earned income credit. This
election is available with respect to any taxable year ending
after the date of enactment and before January 1, 2008.
REASONS FOR CHANGE
The Committee believes that members of the armed forces
serving in combat should have full availability of the earned
income credit, notwithstanding the exclusion of combat pay from
gross income for purposes of determining federal tax liability.
The Committee believes a permanent extension of the election to
treat combat pay as earnings for purposes of the earned income
credit is necessary to achieve this result.
EXPLANATION OF PROPOSAL
The provision permanently extends the availability of the
election to treat combat pay that is otherwise excluded from
gross income under section 112 as earned income for purposes of
the earned income credit.
EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2007.
B. Modification of Qualified Mortgage Bond Program Rules for Veterans
(Sec. 102 of the Bill and Sec. 143 of the Code)
PRESENT LAW
In general
Private activity bonds are bonds that are issued by States
or local governments, but the proceeds of which are used
(directly or indirectly) by a private person and payment of
which is derived from funds of such private person. The
exclusion from income for State and local bonds does not apply
to private activity bonds, unless the bonds are issued for
certain permitted purposes (``qualified private activity
bonds''). The definition of a qualified private activity bond
includes both qualified mortgage bonds and qualified veterans'
mortgage bonds.
Qualified mortgage bonds
Qualified mortgage bonds are issued to make mortgage loans
to qualified mortgagors for owner-occupied residences. The Code
imposes several limitations on qualified mortgage bonds,
including income limitations for homebuyers and purchase price
limitations for the home financed with bond proceeds. In
addition, qualified mortgage bonds generally cannot be used to
finance a mortgage for a homebuyer who had an ownership
interest in a principal residence in the three years preceding
the execution of the mortgage (the ``first-time homebuyer''
requirement).
Under a special rule, qualified mortgage bonds may be
issued to finance mortgages for veterans who served in the
active military without regard to the first-time homebuyer
requirement. Present-law income and purchase price limitations
apply to loans to veterans financed with the proceeds of
qualified mortgage bonds. Veterans are eligible for the
exception from the first-time homebuyer requirement without
regard to the date they last served on active duty or the date
they applied for a loan after leaving active duty. However,
veterans may only use the exception one time and the exception
only applies to financing provided from bonds issued before
January 1, 2008.
Qualified veterans mortgage bonds
Qualified veterans' mortgage bonds are private activity
bonds the proceeds of which are used to make mortgage loans to
certain veterans. Authority to issue qualified veterans'
mortgage bonds is limited to States that had issued such bonds
before June 22, 1984. Qualified veterans' mortgage bonds are
not subject to the State volume limitations generally
applicable to private activity bonds. Instead, annual issuance
in each State is subject to a separate State volume limitation.
The five States eligible to issue these bonds are Alaska,
California, Oregon, Texas, and Wisconsin.
In the case of qualified veterans' mortgage bonds issued by
California or Texas, mortgage loans only can be made to
veterans who served on active duty before 1977 and who applied
for the financing before the date 30 years after the last date
on which such veteran left active service. In the case of
qualified veterans' mortgage bonds issued by the States of
Alaska, Oregon, and Wisconsin, mortgage loans can be made to
veterans who apply for financing before the date 25 years after
the last date on which such veteran left active service,
without regard to the calendar year the veteran served on
active duty.
The annual volume of qualified veterans' mortgage bonds
that can be issued in California or Texas is based on the
average amount of bonds issued in the respective State between
1979 and 1984. In Alaska, Oregon, and Wisconsin, the annual
limit on qualified veterans' mortgage bonds that can be issued
in years after 2009 is $25 million. This $25 million per-State
limit is phased in from 2006 through 2009 by allowing the
applicable percentage of the $25 million limit. The following
table provides those percentages.
------------------------------------------------------------------------
Calendar year Applicable percentage is
------------------------------------------------------------------------
2006..................................... 20 percent
2007..................................... 40 percent
2008..................................... 60 percent
2009..................................... 80 percent
------------------------------------------------------------------------
Unused allocation cannot be carried forward to subsequent
years.
REASONS FOR CHANGE
The Committee believes that the eligibility requirements
for qualified veterans' mortgage bonds should be consistent.
Thus, the Committee believes the programs in California and
Texas should be expanded to permit financing for veterans
without regard to the date they served on active duty, as is
the case for financing provided in Alaska, Oregon, and
Wisconsin under present law. The Committee also believes that
the volume limits for qualified veterans' mortgage bonds should
be modified so that more veterans are able to benefit from the
program. Similarly, the Committee believes that the present-law
exception to the first-time homebuyer rule for qualified
mortgage bonds should be made permanent. The Committee believes
this will allow a broader class of veterans to achieve
homeownership under the program.
EXPLANATION OF PROVISION
Qualified mortgage bonds
The provision permanently extends the limited exception
from the first-time homebuyer rule for veterans under the
qualified mortgage bond program.
Qualified veterans' mortgage bonds
The provision increases the annual limit on qualified
veterans' mortgage bonds that can be issued in Alaska, Oregon,
and Wisconsin in years after 2009 to $100 million. For 2008 and
2009, the $100 million limit is phased in by applying the
present-law applicable percentages for those years (i.e., 60
percent in 2008 and 80 percent in 2009).
With respect to qualified veterans' mortgage bonds issued
in California or Texas, the provision repeals the requirement
that veterans receiving loans financed with qualified veterans'
mortgage bonds must have served before 1977 and reduces the
eligibility period to 25 years (rather than 30 years) following
release from the military service.
EFFECTIVE DATE
The provision applies to bonds issued after December 31,
2007.
C. Survivor and Disability Payments With Respect to Qualified Military
Service (Sec. 103 of the Bill and Secs. 401(a), 414(u), 403(b), and
457(g) of the Code)
PRESENT LAW
Under the Uniformed Services Employment and Reemployment
Rights Act of 1994 (``USERRA''),\2\ which revised and restated
the Federal law protecting veterans' reemployment rights, an
employee who leaves a civilian job for qualified military
service generally is entitled to be reemployed by the civilian
employer if the individual returns to employment within a
specified time period. In addition to reemployment rights, a
returning veteran also is entitled to the restoration of
certain pension, profit sharing and similar benefits that would
have accrued, but for the employee's absence due to the
qualified military service. The protections provided under
USERRA do not apply if the veteran is not reemployed by the
veteran's civilian employer.
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\2\ Pub. L. No. 103-353.
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USERRA generally provides that for a reemployed veteran,
service in the uniformed services is considered service with
the employer for retirement plan vesting and benefit accrual
purposes. The employer that reemploys the returning veteran is
liable for funding any resulting obligation. USERRA also
provides that the reemployed veteran is entitled to any accrued
benefits that are contingent on the making of, or derived from,
employee contributions or elective deferrals only to the extent
the reemployed veteran makes payment to the plan with respect
to such contributions or deferrals. No such payment may exceed
the amount the reemployed veteran would have been permitted or
required to contribute had the person remained continuously
employed by the employer throughout the period of uniformed
service. Under USERRA, any such payment to the plan must be
made during the period beginning with the date of reemployment
and whose duration is three times the reemployed veteran's
period of uniform service, not to exceed five years.
The Small Business Job Protection Act of 1996 \3\ added
section 414(u) to the Code to provide rules regarding the
interaction of the USERRA protections with generally applicable
rules that govern tax qualified retirement plans. For example,
section 414(u) provides that if any make-up contribution is
made by an employer or employee with respect to a reemployed
veteran, then such contribution is not subject to the otherwise
applicable plan contribution and deduction limits for the year
in which the contribution is made (such as the section 402(g)
annual limit on elective deferrals, which is generally $15,500
in 2007). Such limits are instead applied for the year to which
the contribution relates had the individual continued to be
employed by the employer during the period of uniformed
service.
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\3\ Pub. L. No. 104-188.
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Under section 414(u), a plan to which a make-up
contribution is made on account of a reemployed veteran is not
treated as failing to meet the qualified plan
nondiscrimination, coverage, minimum participation, and top
heavy rules \4\ by reason of the making of such contribution.
Consequently, for purposes of applying the requirements and
tests associated with these rules, make-up contributions are
not taken into account either for the year in which they are
made or for the year to which they relate.
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\4\ These include Code sections 401(a)(4), 401(a)(26), 401(k)(3),
401(k)(11), 401(k)(12), 401(m), 403(b)(12), 408(k)(3), 408(k)(6),
408(p), 410(b), and 416.
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In addition, section 414(u) provides for a special rule in
the case of make-up contributions of salary reduction, employer
matching, and after-tax employee amounts. A plan that provides
for elective deferrals or employee contributions is treated as
meeting the requirements of USERRA if the employer permits
reemployed veterans to make additional elective deferrals or
employee contributions under the plan during the period which
begins on the date of reemployment and has the same length as
the lesser of (1) the period of the individual's absence due to
uniformed service multiplied by three or (2) five years. The
employer is required to match any additional elective deferrals
or employee contributions at the same rate that would have been
required had the deferrals or contributions actually been made
during the period of uniformed service. Additional elective
deferrals, employer matching contributions, and employee
contributions are treated as make-up contributions for purposes
of the rule exempting such contributions from qualified plan
nondiscrimination, coverage, minimum participation, and top
heavy rules described above.
REASONS FOR CHANGE
Current law provides certain retirement plan protections
for reservists who are called to active duty and who are able
to return to their civilian employers after serving our
country. The Committee is concerned that there is a gap in this
protection for those who are called to serve our country, but
who are unable to return to their civilian employers because
they have given their lives in service, or have suffered a
disability that makes reemployment impossible. The Committee
believes that certain retirement plan protections should be
extended to the survivors of reservists who have sacrificed
their lives, and that other protections should be permitted to
be made available under employer-sponsored qualified pension
plans in the case of reservists who do not survive, or who are
disabled while serving our country.
EXPLANATION OF PROVISION
The provision adds a new tax qualification requirement for
retirement plans that are qualified under section 401(a) of the
Code (a ``tax-qualified plan''). Under the new requirement, a
tax-qualified plan must provide that, in the case of a
participant who dies while performing qualified military
service, the survivors of the participant must be entitled to
any additional benefits (other than benefit accruals relating
to the period of qualified military service) that would be
provided under the plan had the participant resumed employment
with the employer maintaining the plan and then terminated
employment on account of death. Thus, if a plan provides for
accelerated vesting, ancillary life insurance benefits, or
other survivor benefits that are contingent upon a
participant's termination of employment on account of death,
the plan must provide such benefits to the beneficiary of a
participant who dies during qualified military service.
Under the provision, conforming amendments apply the new
tax qualification requirement to section 403(b) tax-deferred
annuities and eligible deferred compensation plans (described
in section 457(b)) maintained by State and local governments.
The provision also conditions the deduction timing rule of
section 404(a)(2) (permitting contributions for the purchase of
employee retirement annuities that meet certain requirements
applicable to tax-qualified retirement plans to be deducted in
the year of payment) on satisfaction of the new qualification
requirement.
In addition, for benefit accrual purposes, the provision
permits a retirement plan to treat an individual who leaves
service with the plan's sponsoring employer for qualified
military service, and who cannot be reemployed on account of
death or disability, as if the individual had been rehired as
of the day before death or disability (a ``deemed rehired
employee'') and then had terminated employment on the date of
death or disability. In the case of a deemed rehired employee,
the plan is permitted to comply fully or partially with the
benefit accrual restoration provisions that would be required
under section 414(u) had the individual actually been rehired.
Subject to several conditions, if a plan complies fully or
partially with the benefit accrual requirements of section
414(u), the special section 414(u) rules regarding the
interaction of USERRA with the otherwise applicable benefit
limitation and nondiscrimination rules apply. The first
condition is that all employees performing qualified military
service of the employer maintaining the plan who die or become
disabled must be credited with benefits on a reasonably
equivalent basis. Thus, differences in credited benefits on
account of different compensation levels are permissible, but
complying fully with the section 414(u) benefit accrual
requirements with respect to highly compensated employees and
complying partially with respect to nonhighly compensated
employees is not permissible. The second condition is that if
the plan credits deemed rehired employees with benefits that
are contingent on employee contributions or elective
contributions, the plan must determine the rate of employee
contributions or elective deferrals on the basis of the actual
average contributions or deferrals made by the employee during
the 12-month period prior to military service (or if less, the
average for the actual period of service).
The provision provides rules regarding the date by which a
plan must be amended to comply with the provision. In general,
a plan must be amended on or before the last day of the plan
year beginning on or after January 1, 2009.
EFFECTIVE DATE
The provision applies in the case of deaths and
disabilities occurring on or after January 1, 2007.
D. Treatment of Differential Military Pay as Wages (Sec. 104 of the
Bill and Secs. 3401 and 414(u) of the Code)
PRESENT LAW
In general
In the case of an employee who is called to active duty
with the United States uniformed services, some employers
voluntarily agree to continue paying the level of compensation
that the service member would otherwise have received from the
employer during the service member's period of active duty.
Such compensation is commonly referred to as ``differential
pay.''
Wage withholding
Differential pay is not treated as wages for purposes of
the Federal income tax withholding rules that apply to an
employer's payment of wages. This is because the service member
is treated as terminating the employment relationship with the
employer that pays the differential pay upon being called for
active duty.\5\
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\5\ See Rev. Rul. 69-136, 1969-1 C.B. 252.
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Retirement plans
Section 415 imposes limitations on the benefits that may be
provided under a retirement plan that is qualified under Code
section 401(a) (a ``qualified plan''). For a defined
contribution plan, section 415 limits the annual additions to a
participant's account under the plan to the lesser of a dollar
amount ($45,000 in 2007) or 100 percent of the participant's
compensation. In the case of a defined benefit plan, section
415 generally limits the annual benefit payable under the plan
to the lesser of a dollar amount ($180,000 in 2007) or 100
percent of the participant's average compensation for the
participant's high three years.
Final regulations issued in 2007 generally permit a plan to
treat differential pay as compensation for purposes of section
415.\6\ The section 415 limitations also apply to tax deferred
annuities \7\ and simplified employee pensions \8\ (``SEPs'').
The definition of compensation in section 415 is used in
limiting the amount that may be deferred under an eligible
deferred compensation plan (described in section 457(b)).
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\6\ Treas. Reg. sec. 1.415(c)-2(e)(4), 72 Fed. Reg. 16,878 (Apr. 5,
2007).
\7\ Sec. 403(b).
\8\ Sec. 408(k).
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Limitation on in-service distributions
Under present law, certain types of contributions to a
retirement plan are subject to restrictions that generally
limit distributions to a participant prior to the participant
severing employment with the employer that sponsors the plan.
This limitation on in-service distributions applies to: (1)
elective deferrals under a qualified cash or deferred
compensation arrangement (a ``section 401(k) plan''); (2)
amounts attributable to a salary reduction agreement under a
section 403(b) tax-sheltered annuity; (3) amounts contributed
to a custodial account described in Code section 403(b)(7); and
(4) amounts deferred under an eligible deferred compensation
plan (described in Code section 457(b)).
USERRA
Under the Uniformed Services Employment and Reemployment
Rights Act of 1994 (``USERRA''), which revised and restated the
Federal law protecting veterans' reemployment rights, an
employee who leaves a civilian job for qualified military
service generally is entitled to be reemployed by the civilian
employer if the individual returns to employment within a
specified time period. In addition to reemployment rights, a
returning veteran also is entitled to the restoration of
certain pension, profit sharing and similar benefits that would
have accrued, but for the employee's absence due to the
qualified military service. Section 414(u) provides special
rules that permit defined benefit plans and individual account
plans to satisfy the requirements of USERRA. An individual
account plan for this purpose is any defined contribution plan
(such as a section 401(k) plan), and includes a section 403(b)
tax sheltered annuity, a SEP, a qualified salary reduction
arrangement under section 408(p) (``SIMPLE''), and an eligible
deferred compensation plan (described in Code section 457(b)).
Section 414(u) does not apply to a plan to which Chapter 43 of
Title 38 of the United States Code does not apply.
IRA contributions
There are two general types of individual retirement
arrangements (``IRAs''): traditional IRAs and Roth IRAs.\9\
Under Code section 219, the total amount that an individual may
contribute to one or more IRAs for a year is generally limited
to the lesser of: (1) a dollar amount ($4,000 for 2007); or (2)
the amount of the individual's compensation that is includible
in gross income for the year. In the case of a married couple,
contributions can be made up to the dollar limit for each
spouse if the combined compensation of the spouses that is
includible in gross income is at least equal to the contributed
amount. For purposes of the IRA contribution limitations,
compensation includes an individual's net earnings from self
employment.
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\9\ Secs. 408 and 408A.
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REASONS FOR CHANGE
The Committee is concerned that the current law treatment
of differential pay for purposes of the Federal wage
withholding rules creates a possible trap for unwary reservists
who are called to active duty. This is because differential pay
is paid by the reservist's former civilian employer and thus
reservists may assume that such payments are subject to the
wage withholding rules as other compensation paid when not on
qualified military service. Thus, the reservist would not
anticipate that there is an estimated tax payment obligation
with respect to such payments. The Committee also believes that
differential pay should be treated as employer-paid
compensation for purposes of tax-favored retirement savings
programs.
The Committee believes that a reservist called to active
duty is properly treated as having terminated employment for
purposes of rules that limit an individual's ability to access
certain contributions to tax-favored retirement savings plans.
This rule allows reservists access to amounts in their
retirement savings plans. However, the Committee believes that
such contributions should not be accessed if reservists have
other means of satisfying their financial obligations. Thus, if
such contributions are accessed by a reservist, no additional
contributions may be made to the plan by the reservist for the
six-month period following the distribution.
EXPLANATION OF PROVISION
Wage withholding
The provision amends the definition of wages for purposes
of the Federal income tax withholding rules applicable to an
employer's payment of wages. The provision includes as wages
the employer's payment of any differential wage payment to the
employee. Differential wage payment is defined as any payment
which: (1) is made by an employer to an individual with respect
to any period during which the individual is performing service
in the uniformed services while on active duty for a period of
more than 30 days; and (2) represents all or a portion of the
wages that the individual would have received from the employer
if the individual were performing services for the employer.
Retirement plans
The provision also provides rules relating to differential
wage payments (as defined for purposes of wage withholding) for
purposes of a retirement plan that is subject to section
414(u). Specifically, an individual receiving a differential
wage payment is required to be treated as an employee of the
employer making the payment, and the differential wage payment
is required to be treated as compensation. In addition, a
retirement plan that is subject to section 414(u) is not
treated as failing to meet certain requirements relating to
minimum participation and nondiscrimination standards \10\ by
reason of any contribution or benefit that is based on the
differential wage payment if all of the sponsoring employer's
employees: (1) are entitled to differential wage payments on
reasonably equivalent terms; and (2) if all employees eligible
to participate in a retirement plan maintained by the employer
are entitled to make contributions based on such differential
payments on reasonably equivalent terms.
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\10\ These standards include the following: section 401(a)(4)
(prohibiting discrimination in contributions or benefits provided under
qualified plans); section 401(a)(26) (providing minimum participation
rules for qualified defined benefit plans); section 401(10(3), (11),
and (12) (providing nondiscrimination rules for elective deferrals
under qualified cash or deferred arrangements); section 401(m)
(providing non-discrimination rules for employee contributions and
employer matching contributions to qualified plans); 403(b)(12)
(providing non-discrimination rules for section 403(b) tax sheltered
annuities); section 408(k)(3), (k)(6), and (p) (providing non-
discrimination rules for SEPs and SIMPLEs); section 410(b) (providing
minimum coverage rules for qualified plans); and section 416 (requiring
minimum benefits in the case of top heavy qualified plans).
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Under the provision, an individual is treated as having
been severed from employment during any period the individual
is performing service in the uniformed services while on active
duty for a period of more than 30 days for purposes of the
limitation on in-service distributions with respect to: (1)
elective deferrals under a section 401(k) plan; (2) amounts
attributable to a salary reduction agreement under a section
403(b) tax-sheltered annuity; (3) amounts contributed to a
custodial account described in Code section 403(b)(7); and (4)
amounts deferred under an eligible deferred compensation plan
(described in Code section 457(b)). Thus, such individuals are
not prohibited from receiving distributions on account of not
severing employment. However, if any amounts are distributed on
account of the foregoing rule, the individual is not permitted
to make elective deferrals or employee contributions to the
plan during the six-month period beginning on the date of
distribution.
IRAs
For purposes of the limitation on contributions to an IRA,
the provision amends the term ``compensation'' to include
differential wage payments (as defined for purposes of wage
withholding).
Plan amendment timing
In general, the provision permits a plan or annuity
contract to be retroactively amended to comply with the
provision provided that the amendment is made no later than the
last day of the first plan year beginning on or after January
1, 2009. Subject to certain conditions, a plan or annuity
contract is treated as being operated in accordance with its
terms during the period prior to amendment and, except as
provided by the Secretary of the Treasury, the plan or annuity
contract does not fail to meet the requirements of the Code or
the Employee Retirement Income Security Act of 1974 by reason
of the amendment.
EFFECTIVE DATE
For purposes of the wage withholding rules, the provision
is effective with respect to remuneration paid after December
31, 2007. Otherwise, the provision is effective with respect to
years beginning after December 31, 2007.
E. Tax Treatment Related to Certain Benefits Provided to Volunteer
Firefighters and Emergency Medical Responders (Sec. 105 of the Bill and
new Sec. 139B of the Code)
Certain tax reductions or tax rebates provided by a State or local
government
The Internal Revenue Service has provided guidance \11\
that reductions or rebates of taxes by State or local
governments on account of services performed by members of
qualified volunteer emergency response organizations are
taxable income to the taxpayers receiving these reductions or
rebates of taxes.
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\11\ Chief Couns. Adv. 200302045 (Jan. 10, 2002).
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Deduction for certain State or local taxes
For purposes of determining regular tax liability, an
itemized deduction is permitted for certain State and local
taxes paid, including individual income taxes, real property
taxes, and personal property taxes. The itemized deduction is
not permitted for purposes of determining a taxpayer's
alternative minimum taxable income. For taxable years beginning
before January 1, 2008, at the election of the taxpayer, an
itemized deduction may be taken for State and local general
sales taxes in lieu of the itemized deduction provided under
present law for State and local income taxes.
The otherwise allowable itemized deduction for these State
or local taxes is not reduced by the amount of any reduction or
rebate on account of services performed as a member of a
qualified volunteer emergency response organization.
Charitable deduction for certain expenses
In computing taxable income, a taxpayer who itemizes
deductions generally is allowed to deduct the amount of cash
and the fair market value of property contributed to an
organization described in section 501(c)(3), to a Federal,
State, or local governmental entity, or to certain other
organizations.\12\ The amount of the deduction allowable for a
taxable year with respect to a charitable contribution of
property may be reduced or limited depending on the type of
property contributed, the type of charitable organization to
which the property is contributed, and the income of the
taxpayer. Within certain limitations, donors also are entitled
to deduct their contributions to section 501(c)(3)
organizations for Federal estate and gift tax purposes.
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\12\ Sec. 170(a), (c), and (e).
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REASONS FOR CHANGE
The Committee recognizes the numerous sacrifices that
volunteer firefighters and emergency medical responders make,
and believes that assistance provided to them in the form of
certain State and local tax benefits, or other similar
reimbursements for expenses incurred in connection with the
performance of services as a member of a qualified volunteer
emergency response organization, should not be included in
gross income for purposes of Federal income taxes.
EXPLANATION OF PROVISION
Certain tax reductions or tax rebates provided by a State or local
government
The bill provides an exclusion from gross income to members
of qualified volunteer emergency response organizations for:
(1) any qualified State or local tax benefit; and (2) any
qualified reimbursement payment. A qualified State or local tax
benefit is any reduction or rebate of certain taxes provided by
State or local governments on account of services performed by
individuals as members of a qualified volunteer emergency
response organization. These taxes are limited to State or
local income taxes, State or local real property taxes, and
State or local personal property taxes. A qualified
reimbursement payment is a payment provided by a State or
political subdivision thereof on account of reimbursement for
expenses incurred in connection with the performance of
services as a member of a qualified volunteer emergency
response organization. The amount of such qualified
reimbursement payments is limited to $30 for each month during
which the taxpayer performs such services.
A qualified volunteer emergency response organization is
any volunteer organization: (1) which is organized and operated
to provide firefighting or emergency medical services for
persons in the State or its political subdivision; and (2)
which is required (by written agreement) by the State or
political subdivision to furnish firefighting or emergency
medical services in such State or political subdivision.
Denial of double benefits
The bill provides that the amount of State or local taxes
taken into account in determining the deduction for taxes is
reduced by the amount of any qualified State or local tax
benefit.
Also, the bill provides that expenses paid or incurred by
the taxpayer in connection with the performance of services as
a member of a qualified volunteer emergency response
organization is taken into account for purposes of the
charitable deduction only to the extent such expenses exceed
the amount of any qualified reimbursement payment excluded from
income under the bill.
EFFECTIVE DATE
The provision is effective for taxable years beginning
after the date of enactment.
F. Extension of the Statute of Limitations To File Claims for Refunds
Relating to Disability Determinations by the Department of Veterans
Affairs (Sec. 106 of the Bill and Sec. 6511(d) of the Code)
PRESENT LAW
In general, a taxpayer must file a claim for credit or
refund within three years of the filing of the tax return or
within two years of the payment of the tax, whichever expires
later (if no tax return is filed, the two-year limit applies).
A claim for credit or refund that is not filed within these
time periods is rejected as untimely.
Generally, military retirement benefits based on length of
service are included in income, whereas veterans' benefits
based on a service-connected disability are excluded from
income. If an individual receives includible retirement
benefits and is later retroactively determined to be eligible
for service-connected disability benefits, the portion of the
retirement benefits attributable to the disability is
retroactively excluded from income. In that case, the
individual may claim a refund of the tax paid on the
retroactively excluded benefits, subject to the statute of
limitations on filing a refund claim.
REASONS FOR CHANGE
Because of the lapse of time between retirement and the
determination of, or the onset and determination of, a service
connected disability, the Committee believes it is appropriate
to extend the statute of limitations to permit retired military
personnel to file claims for refunds when a determination of a
service-connected disability is made.
EXPLANATION OF PROVISION
The provision extends the time period for filing claims for
credits or refunds for retired military personnel who receive
disability determinations from the Department of Veterans
Affairs (e.g., determinations after the tax return is filed).
Specifically, in the case of a determination after the date of
enactment, the provision extends the period for filing such a
refund claim until one year after the date of the disability
determination (if later than the time periods allowed under
present law). The provision applies to any taxable year which
begins five years before the date of the determination or
thereafter. In the case of a determination after December 31,
2000, and on or before the date of enactment, the period for
filing a claim for credit or refund is extended until one year
after the date of enactment (if later than the time periods
allowed under present law).
EFFECTIVE DATE
The provision is effective for claims for credits or
refunds filed after the date of enactment.
G. Treatment of Distributions to Individuals Called to Active Duty for
at Least 180 Days (Sec. 107 of the Bill and Sec. 72(t) of the Code)
PRESENT LAW
Under present law, a taxpayer who receives a distribution
from a qualified retirement plan prior to age 59\1/2\, death,
or disability generally is subject to a 10-percent early
withdrawal tax on the amount includible in income, unless an
exception to the tax applies. Among other exceptions, the early
distribution tax does not apply to distributions made to an
employee who separates from service after age 55, or to
distributions that are part of a series of substantially equal
periodic payments made for the life (or life expectancy) of the
employee or the joint lives (or life expectancies) of the
employee and his or her beneficiary.
Certain amounts held in a qualified cash or deferred
arrangement (a ``section 401(k) plan'') or in a tax-sheltered
annuity (a ``section 403(b) annuity'') may not be distributed
before severance from employment, age 59\1/2\, death,
disability, or financial hardship of the employee.
Pursuant to amendments to section 72(t) made by the Pension
Protection Act of 2006,\13\ the 10-percent early withdrawal tax
does not apply to a qualified reservist distribution. A
qualified reservist distribution is a distribution (1) from an
IRA or attributable to elective deferrals under a section
401(k) plan, section 403(b) annuity, or certain similar
arrangements, (2) made to an individual who (by reason of being
a member of a reserve component as defined in section 101 of
title 37 of the United States Code) was ordered or called to
active duty for a period in excess of 179 days or for an
indefinite period, and (3) that is made during the period
beginning on the date of such order or call to duty and ending
at the close of the active duty period. A section 401(k) plan
or section 403(b) annuity does not violate the distribution
restrictions applicable to such plans by reason of making a
qualified reservist distribution.
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\13\ Pub. L. No. 109-280.
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An individual who receives a qualified reservist
distribution may, at any time during the two-year period
beginning on the day after the end of the active duty period,
make one or more contributions to an IRA of such individual in
an aggregate amount not to exceed the amount of such
distribution. The dollar limitations otherwise applicable to
contributions to IRAs do not apply to any contribution made
pursuant to this special repayment rule. No deduction is
allowed for any contribution made under the special repayment
rule.
The special rules applicable to a qualified reservist
distribution apply to individuals ordered or called to active
duty after September 11, 2001, and before December 31, 2007.
REASONS FOR CHANGE
The Committee believes that the exception to the 10-percent
early withdrawal tax is an important tax relief provision for
reservists called to active duty. Reservists called to active
duty may need access to amounts that they have contributed to
tax-favored retirement savings programs in order to meet their
personal financial obligations while serving our country. Given
the continuing need for activation of reservists, the Committee
believes that this tax relief provision should be made
permanent so that it applies to reservists called to active
duty on or after December 31, 2007.
EXPLANATION OF PROVISION
The provision makes permanent the rules applicable to
qualified reservist distributions to individuals ordered or
called to active duty on or after December 31, 2007.
EFFECTIVE DATE
The provision is effective upon enactment.
H. Permanent Extension of Disclosure Authority to the Department of
Veterans Affairs (Sec. 108 of the Bill and Sec. 6103(1)(7)(D) of the
Code)
PRESENT LAW
The Code prohibits disclosure of returns and return
information, except to the extent specifically authorized by
the Code (sec. 6103). Unauthorized disclosure is a felony
punishable by a fine not exceeding $5,000 or imprisonment of
not more than five years, or both (sec. 7213). An action for
civil damages also may be brought for unauthorized disclosure
(sec. 7431). No tax information may be furnished by the
Internal Revenue Service (``IRS'') to another agency unless the
other agency establishes procedures satisfactory to the IRS for
safeguarding the tax information it receives (sec. 6103(p)).
Among the disclosures permitted under the Code is
disclosure of certain tax information to the Department of
Veterans Affairs. Disclosure is permitted to assist the
Department of Veterans Affairs in determining eligibility for,
and establishing correct benefit amounts under, certain of its
needs-based pension, health care, and other programs (sec.
6103(1)(7)(D)(viii)). The Department of Veterans Affairs
disclosure provision is scheduled to expire after September 30,
2008.
REASONS FOR CHANGE
The temporary provision permitting the disclosure of
otherwise confidential return information to the Department of
Veterans Affairs to ensure the correctness of government
benefit payments has been in existence since 1990. The
Committee believes it is appropriate to make permanent this
long-standing temporary provision.
EXPLANATION OF PROVISION
The provision makes the disclosure authority to the
Department of Veterans Affairs permanent.
EFFECTIVE DATE
The provision is effective on the date of enactment.
I. Contributions of Military Death Gratuities to Certain Tax-Favored
Accounts (Sec. 109 of the Bill and Secs. 408A and 530 of the Code)
PRESENT LAW
Military death gratuities and SGLI
Section 1477 of Title 10 of the United States Code provides
for the payment of a military death gratuity to an eligible
survivor of a servicemember. Under Code section 134, as amended
by the Military Family Tax Relief Act of 2003, the full amount
of the military death gratuity is excludable from gross income.
Pursuant to section 1967 of Title 38 of the United States Code,
certain members of the uniformed services are automatically
insured against death under the Servicemembers' Group Life
Insurance (``SGLI'') program. In general, life insurance
proceeds are excludable from gross income under Code section
101.
Roth IRAs
There are two general types of individual retirement
arrangements (``IRAs''): traditional IRAs and Roth IRAs.\14\ In
general, contributions (other than a rollover contribution) to
a traditional IRA may be deductible, and distributions from a
traditional IRA are includible in gross income to the extent
not attributable to a return of nondeductible contributions.
Contributions to a Roth IRA are not deductible, and qualified
distributions from a Roth IRA are excludable from gross income.
Distributions from a Roth IRA that are not qualified
distributions are includible in gross income to the extent
attributable to earnings. In general, a qualified distribution
is a distribution that is made on or after the individual
attains age 59\1/2\, death, or disability or which is a
qualified special purpose distribution. A distribution is not a
qualified distribution if it is made within the five-taxable
year period beginning with the taxable year for which an
individual first made a contribution to a Roth IRA.
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\14\ Traditional IRAs are described in Code section 408, and Roth
IRAs in Code section 408A.
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The total amount that an individual may contribute to one
or more IRAs for a year is generally limited to the lesser of:
(1) a dollar amount ($4,000 for 2007); or (2) the amount of the
individual's compensation that is includible in gross income
for the year. IRA contributions in excess of the applicable
limit are generally subject to an excise tax of six percent per
year until withdrawn. The contribution limit is reduced to the
extent an individual makes contributions to any other IRA for
the same taxable year.
As under the rules relating to traditional IRAs, a
contribution of up to the dollar limit for each spouse may be
made to a Roth IRA provided the combined compensation of the
spouses is at least equal to the contributed amount. The
maximum annual contribution that can be made to a Roth IRA is
phased out for taxpayers with adjusted gross income for the
taxable year over certain indexed levels. The adjusted gross
income phase-out ranges for 2007 are: (1) for single taxpayers,
$99,000 to $114,000; (2) for married taxpayers filing joint
returns, $156,000 to $166,000; and (3) for married taxpayers
filing separate returns, $0 to $10,000.
The foregoing contribution limitations generally do not
apply in the case of a rollover contribution to an IRA. If
certain requirements are satisfied, a participant in a tax-
qualified retirement plan, a tax-sheltered annuity,\15\ or a
governmental section 457 plan may roll over distributions from
the plan or annuity into a traditional IRA. For distributions
after December 31, 2007, certain taxpayers are permitted to
make qualified rollover contributions from such plans or
annuities into a Roth IRA (subject to inclusion in gross income
of any amount that would be includible were it not part of the
qualified rollover contribution).
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\15\ Sec. 403(b).
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Coverdell Education Savings Accounts
Annual contributions to a Coverdell education savings
account \16\ may not exceed $2,000 (except in cases involving
certain tax-free rollovers) and may not be made after the
designated beneficiary reaches age 18. The maximum annual
contribution that can be made to a Coverdell education savings
account is phased out for taxpayers with adjusted gross income
for the taxable year over certain indexed levels. Contributions
to a Coverdell education savings account are not deductible. In
general, a rollover is permitted between Coverdell education
savings accounts for the benefit of the same beneficiary or
member of such beneficiary's family.
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\16\ Coverdell education savings accounts are described in sec.
530.
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In general, a distribution from a Coverdell education
savings account is includible in the gross income of the
distributee. However, distributions from an account are
excludable from the distributee's gross income to the extent
that the total distribution does not exceed the qualified
education expenses incurred by the beneficiary during the year
the distribution is made. Contributions to a Coverdell
education savings account are treated as nontaxable investment
in the contract. Thus, earnings on contributions are subject to
tax if amounts withdrawn from the account exceed qualified
education expenses. The portion of a distribution from a
Coverdell education savings account that is includible in
income (i.e., the portion allocable to earnings on
contributions when a distribution exceeds qualified education
expenses) is generally subject to an additional 10-percent tax.
REASONS FOR CHANGE
The survivor of a servicemember who dies while serving our
country is eligible to receive certain death benefits. In some
cases, these benefit proceeds may not be needed by the survivor
for immediate living expenses. Instead, the benefit proceeds
may be needed for future expenses, such as retirement or
education expenses. Under present law, contributions to tax-
favored accounts for retirement and education savings are
subject to annual limits. As a result, immediate contribution
of death benefit proceeds to such accounts is prohibited. The
Committee believes survivors of servicemembers should be able
to contribute death benefit proceeds to such accounts to save
for future retirement and education needs.
EXPLANATION OF PROVISION
In the case of an individual who receives a military death
gratuity or SGLI payment, the provision permits the individual
to contribute an amount no greater than the sum of the gratuity
and SGLI payments received by the individual to a Roth IRA,
notwithstanding the contributions limits that otherwise apply
to contributions to Roth IRAs (e.g., the annual contribution
limit and the income phase-out of the contribution dollar
limit). The provision also permits such an individual to
contribute the gratuity and SGLI payments that the individual
receives to one or more Coverdell education savings accounts,
notwithstanding the $2,000 annual contribution limit and the
income phase-out of the limit that would otherwise apply. The
maximum amount that can be contributed to a Roth IRA or one or
more Coverdell education savings accounts in the aggregate
under the provision is limited to the sum of the gratuity and
SGLI payments that the individual receives.
The contribution of a military death gratuity or SGLI
payment to a Roth IRA is treated as a qualified rollover
contribution to the Roth IRA. Similarly, the contribution of a
military death gratuity or SGLI payment to a Coverdell
education savings account is treated as a permissible rollover
to such an account. The contribution of a military death
gratuity or SGLI payment to a Roth IRA or Coverdell education
savings account cannot be made later than one year after the
date on which the gratuity or SGLI payment is received by the
individual.
In the event of a subsequent distribution from a Roth IRA
that is not a qualified distribution or a distribution from a
Coverdell education savings account that is not a qualified
education distribution, the amount of the distribution
attributable to the contribution of the military death gratuity
or SGLI payment is treated as nontaxable investment in the
contract.
EFFECTIVE DATE
The provision is generally effective with respect to
payments made on account of deaths from injuries occurring on
or after the date of enactment. In addition, the provision
permits the contribution to a Roth IRA or a Coverdell education
savings account of a military death gratuity or SGLI payment
received by an individual with respect to a death from injury
occurring on or after October 7, 2001, and before the date of
enactment of the provision if the individual makes the
contribution to the account no later than one year after the
date of enactment of the provision.
J. Exclusion of Gain on Sale of a Principal Residence by Certain Peace
Corps Volunteers (Sec. 110 of the Bill and Sec. 121(d) of the Code)
PRESENT LAW
In general
Under present law, an individual taxpayer may exclude up to
$250,000 ($500,000 if married filing a joint return) of gain
realized on the sale or exchange of a principal residence. To
be eligible for the exclusion, the taxpayer must have owned and
used the residence as a principal residence for at least two of
the five years ending on the sale or exchange. A taxpayer who
fails to meet these requirements by reason of a change of place
of employment, health, or, to the extent provided under
regulations, unforeseen circumstances is able to exclude an
amount equal to the fraction of the $250,000 ($500,000 if
married filing a joint return) that is equal to the fraction of
the two years that the ownership and use requirements are met.
Uniformed services and Foreign Service
Present law also contains special rules relating to members
of the uniformed services or the Foreign Service of the United
States. An individual may elect to suspend for a maximum of 10
years the five-year test period for ownership and use during
certain absences due to service in the uniformed services or
the Foreign Service of the United States. The uniformed
services include: (1) the Armed Forces (the Army, Navy, Air
Force, Marine Corps, and Coast Guard); (2) the commissioned
corps of the National Oceanic and Atmospheric Administration;
and (3) the commissioned corps of the Public Health Service. If
the election is made, the five-year period ending on the date
of the sale or exchange of a principal residence does not
include any period up to 10 years during which the taxpayer or
the taxpayer's spouse is on qualified official extended duty as
a member of the uniformed services or in the Foreign Service of
the United States. For these purposes, qualified official
extended duty is any period of extended duty while serving at a
place of duty at least 50 miles away from the taxpayer's
principal residence or under orders compelling residence in
government furnished quarters. Extended duty is defined as any
period of duty pursuant to a call or order to such duty for a
period in excess of 90 days or for an indefinite period. The
election may be made with respect to only one property for a
suspension period.
Intelligence community
Specified employees of the intelligence community may elect
to suspend the running of the five-year test period during any
period in which they are serving on extended duty. The term
``employee of the intelligence community'' means an employee of
the Office of the Director of National Intelligence, the
Central Intelligence Agency, the National Security Agency, the
Defense Intelligence Agency, the National Geospatial-
Intelligence Agency, or the National Reconnaissance Office. The
term also includes employment with: (1) any other office within
the Department of Defense for the collection of specialized
national intelligence through reconnaissance programs; (2) any
of the intelligence elements of the Army, the Navy, the Air
Force, the Marine Corps, the Federal Bureau of Investigation,
the Department of the Treasury, the Department of Energy, and
the Coast Guard; (3) the Bureau of Intelligence and Research of
the Department of State; and (4) the elements of the Department
of Homeland Security concerned with the analyses of foreign
intelligence information. To qualify, a specified employee must
move from one duty station to another and the new duty station
must be located outside of the United States. The five-year
period may not be extended more than 10 years.
The provision relating to employees of the intelligence
community is effective for sales and exchanges before January
1, 2011.
REASONS FOR CHANGE
For purposes of determining the excludability of gain on
the sale of a principal residence, the Committee believes it is
appropriate to treat Peace Corps volunteers in a manner similar
to members of the uniformed services, the Foreign Service, and
the intelligence community. Specifically, the Committee
recognizes that Peace Corps volunteers face the same
requirements to serve abroad, and thus should receive treatment
similar to that provided members of the uniformed services, the
Foreign Service and the intelligence community with respect to
determining whether the necessary residency tests have been met
to qualify for exclusion of gain.
EXPLANATION OF PROVISION
The bill creates a new rule for Peace Corps volunteers
similar to the rules applicable to the uniformed services and
Foreign Service and the intelligence community. Under this new
rule, an individual may elect to suspend for a maximum of 10
years the five-year test period for ownership and use during
certain absences due to volunteer service in the Peace Corps.
If the election is made, the five-year period ending on the
date of the sale or exchange of a principal residence does not
include any period up to 10 years during which the taxpayer or
the taxpayer's spouse is serving as a Peace Corps volunteer.
EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2007.
TITLE II--IMPROVMENTS IN SUPPLEMENTAL SECURITY INCOME (``SSI'')
A. Ensure Equitable Treatment of Military Families Under SSI (Sec. 201
of the Bill)
PRESENT LAW
Section 1612(a)(2) of the Social Security Act specifies
that any income not defined as earned income by Section
1612(a)(1) of the act is considered unearned income, which
reduces SSI benefits more quickly than earned income.
Section SI 00830.540 of the Social Security Administration
(``SSA'') Programs Operations Manual System (``POMS'')
specifies the following regarding military compensation:
Only military basic pay is considered earned
income;
Hostile fire pay and imminent danger pay are
excluded from income;
In deeming situations only, any other type
of pay received for serving in a combat zone is
excluded from income; and
All other types of military pay are
considered unearned income.
Section 1612(a)(2) of the Social Security Act specifies
that in-kind support and maintenance (``ISM'') is considered
unearned income by the SSI program. Section 1612(a)(2)(A) of
the Social Security Act states that if a person is receiving
ISM then his or her SSI benefit is reduced by one-third of the
SSI federal benefit rate.
Section SI 00830.540 of the POMS specifies that payments
made to or for a member of the uniformed services for housing
at a military facility or for privatized military housing are
considered ISM by the SSI program.
REASONS FOR CHANGE
The SSA testified that this provision would ensure that
most cash military compensation is treated in the same manner
as civilian wages for SSI purposes, thus eliminating the
present unfair treatment of military compensation other than
basic pay.
In addition, SSA testified that the bill's treatment of
housing benefits was needed because such benefits are generally
deducted from the service member's pay and paid directly to the
landlord of the privatized housing. Such treatment is
consistent with the SSI program's determination of ISM. This
provision will codify current administrative practice.
EXPLANATION OF PROVISION
The bill expands the definition of earned income for the
SSI program to include all cash remuneration paid to members of
the uniformed services and not otherwise excluded by law.
Hostile fire pay and imminent danger would continue to be
excluded from the SSI income calculation under the provision of
Section 1612(b)(20) of the Social Security Act.
The bill also specifies that any payments made to or for a
member of the uniformed services for housing at a military
facility or for privatized military housing shall be considered
as ISM by the SSI program and subject to the One-Third
Reduction rule.
EFFECTIVE DATE
The provision is effective with respect to benefits payable
for months beginning after 60 days after the date of the
enactment.
B. Remove Penalties for Blind Veterans Under SSI (Sec. 202 of the Bill)
PRESENT LAW
Section 1612(b) of the Social Security Act provides a list
of income exclusions and contains no reference to State
annuities for blind veterans. 20 C.F.R. sec. 416.1121 specifies
that annuities for veterans are considered unearned income by
the SSI program unless excluded by law. This means such
annuities generally count dollar-for-dollar against SSI
benefits.
Section 1613(a) of the Social Security Act provides a list
of resource exclusions and contains no reference to State
annuities for blind veterans. 20 C.F.R. sec. 416.1201 specifies
that any cash or liquid asset or any real or personal property
that a person owns and could convert into cash is considered a
resource by the SSI program unless excluded by law.
REASONS FOR CHANGE
The Committee does not believe that special payments States
choose to make to blind veterans should count against such
individuals' SSI benefits.
EXPLANATION OF PROVISION
The bill specifies that any money paid by a State to a
blind veteran is excluded from the SSI income calculation. The
bill also specifies that the value of any money paid by a State
to a blind veteran in a given month shall not be counted as a
resource by the SSI program in that month.
EFFECTIVE DATE
The provision is effective with respect to benefits payable
for months beginning after 60 days after the date of the
enactment.
C. Exclusion of Benefits for AmeriCorps Volunteers Under SSI (Sec. 203
of the Bill)
PRESENT LAW
Section 1612(b) of the Social Security Act provides a list
of income exclusions and contains no reference to the
AmeriCorps program. 42 U.S.C. sec. 5044(f) specifies that
payments made to volunteers in programs authorized under
Chapter 66 of Title 42 of the United States Code are excluded
from the SSI income calculation. The AmeriCorps*VISTA program,
but not the AmeriCorps program, falls under this exclusion
(AmeriCorps*VISTA and AmeriCorps are different programs).
REASONS FOR CHANGE
The provision would ensure uniform treatment of all
AmeriCorps programs under the SSI program, thus providing
equity for beneficiaries, administrative simplification, and
fewer barriers for participating in AmeriCorps.
EXPLANATION OF PROVISION
The bill specifies that any cash or in-kind benefit paid to
a participant in the AmeriCorps program is excluded from the
SSI income calculation.
EFFECTIVE DATE
The provision is effective with respect to benefits payable
for months beginning after 60 days after the date of the
enactment.
TITLE III--REVENUE PROVISIONS
A. Increase in Penalty for Failure To File Partnership Returns (Sec.
301 of the Bill and New Sec. 6698 of the Code)
PRESENT LAW
A partnership generally is treated as a pass-through
entity. Income earned by a partnership, whether distributed or
not, is taxed to the partners. Distributions from the
partnership generally are tax-free. The items of income, gain,
loss, deduction or credit of a partnership generally are taken
into account by a partner as allocated under the terms of the
partnership agreement. If the agreement does not provide for an
allocation, or the agreed allocation does not have substantial
economic effect, then the items are to be allocated in
accordance with the partners' interests in the partnership. To
prevent double taxation of these items, a partner's basis in
its interest is increased by its share of partnership income
(including tax-exempt income), and is decreased by its share of
any losses (including nondeductible losses).
Under present law, a partnership is required to file a tax
return for each taxable year. The partnership's tax return is
required to include the names and addresses of the individuals
who would be entitled to share in the taxable income if
distributed and the amount of the distributive share of each
individual. In addition to applicable criminal penalties,
present law imposes a civil penalty for the failure to timely
file a partnership return. The penalty is $50 per partner for
each month (or fraction of a month) that the failure continues,
up to a maximum of five months.
REASONS FOR CHANGE
A recent report by the Treasury Inspector General for Tax
Compliance (``TIGTA'') indicated that the incidence of late-
filed returns, measured as a percentage of total returns filed,
is nearly 2 to 4 times higher among partnerships and S
corporations, respectively, than it is among individual
taxpayers.\17\ The TIGTA report indicated that the present-law
penalty for partnerships fails to address the most egregious
late filers.
---------------------------------------------------------------------------
\17\ Treasury Inspector General for Tax Administration, Stronger
Sanctions Are Needed to Encourage Timely Filing of Pass-Through Returns
and Ensure Fairness in the Tax System, 2005-30-048 (March 2005).
---------------------------------------------------------------------------
The Committee is concerned that the level of filing
noncompliance by partnerships adversely affects the compliance
of the individual partners. The Committee believes that the
present law penalty should be increased to a level that
effectively discourages noncompliance. The Committee believes
this will improve overall tax administration.
EXPLANATION OF PROVISION
Under the provision, the period for calculating the monthly
failure to file penalty for partnership returns is extended
from five months to 12 months and the penalty amount is
increased to $100 per partner.
EFFECTIVE DATE
The provision applies to returns required to be filed after
the date of enactment.
B. Penalty for Failure To File S Corporation Returns (Sec. 302 of the
Bill and New Sec. 6699 of the Code)
PRESENT LAW
In general, an S corporation is not subject to corporate-
level income tax on its items of income and loss. Instead, an S
corporation passes through its items of income and loss to its
shareholders. The shareholders take into account separately
their shares of these items on their individual income tax
returns.
Under present law, S corporations are required to file a
tax return for each taxable year. The S corporation's tax
return is required to include the following: the names and
addresses of all persons owning stock in the corporation at any
time during the taxable year; the number of shares of stock
owned by each shareholder at all times during the taxable year;
the amount of money and other property distributed by the
corporation during the taxable year to each shareholder and the
date of such distribution; each shareholder's pro rata share of
each item of the corporation for the taxable year; and such
other information as the Secretary may require.
REASONS FOR CHANGE
A recent report by the Treasury Inspector General for Tax
Compliance (``TIGTA'') indicated that the incidence of late-
filed returns, measured as a percentage of total returns filed,
is nearly 2 to 4 times higher among partnerships and S
corporations, respectively, than it is among individual
taxpayers.\18\ The TIGTA report attributed the high rate of
late-filed S corporation returns to the lack of an effective
penalty regime.
---------------------------------------------------------------------------
\18\ Treasury Inspector General for Tax Administration, Stronger
Sanctions Are Needed to Encourage Timely Filing of Pass-Through Returns
and Ensure Fairness in the Tax System, 2005-30-048 (March 2005).
---------------------------------------------------------------------------
The Committee believes the level of filing noncompliance by
S corporations is unacceptably high. Late-filed S corporation
returns can have an adverse effect on the filing and reporting
compliance of the individual shareholders. Thus, the Committee
believes that establishing an effective penalty for failing to
timely file an S corporation return will improve overall tax
administration.
EXPLANATION OF PROVISION
The provision imposes a monthly penalty for any failure to
timely file an S corporation return or any failure to provide
the information required to be shown on such a return. The
penalty is $100 times the number of shareholders in the S
corporation during any part of the taxable year for which the
return was required, for each month (or a fraction of a month)
during which the failure continues, up to a maximum of 12
months.
EFFECTIVE DATE
The provision applies to returns required to be filed after
the date of enactment.
C. Increase in Information Return Penalties (Sec. 303 of the Bill and
Secs. 6721, 6722, and 6723 of the Code)
PRESENT LAW
Present law imposes information reporting requirements on
participants in certain transactions. Under section 6721 of the
Code, any person required to file a correct information return
who fails to do so on or before the prescribed filing date is
subject to a penalty that varies based on when, if at all, the
correct information return is filed. If a person files a
correct information return after the prescribed filing date but
on or before the date that is 30 days after the prescribed
filing date, the amount of the penalty is $15 per return (the
``first-tier penalty''), with a maximum penalty of $75,000 per
calendar year. If a person files a correct information return
more than 30 days after the prescribed filing date but on or
before August 1, the amount of the penalty is $30 per return
(the ``second-tier penalty''), with a maximum penalty of
$150,000 per calendar year. If a correct information return is
not filed on or before August 1, of any year, the amount of the
penalty is $50 per return (the ``third-tier penalty''), with a
maximum penalty of $250,000 per calendar year.
Special lower maximum levels for this penalty apply to
small businesses. Small businesses are defined as firms having
average annual gross receipts for the most recent three taxable
years that do not exceed $5 million. The maximum penalties for
small businesses are: $25,000 (instead of $75,000) if the
failures are corrected on or before 30 days after the
prescribed filing date; $50,000 (instead of $150,000) if the
failures are corrected on or before August 1; and $100,000
(instead of $250,000) if the failures are not corrected on or
before August 1.
Section 6722 of the Code also imposes penalties for failing
to furnish correct payee statements to taxpayers. In addition,
section 6723 imposes a penalty for failing to comply with other
information reporting requirements. Under both section 6722 and
section 6723, the penalty amount is $50 for each failure, up to
a maximum of $100,000.
REASONS FOR CHANGE
The Committee notes that the penalties for failing to file
accurate information returns have not been increased in many
years. The Committee believes the present law penalties are too
low to discourage noncompliance. The Committee believes that
increasing the information return penalties will encourage the
filing of timely and accurate information returns which, in
turn, will improve overall tax administration.
EXPLANATION OF PROVISION
The provision increases the penalties for failing to file
correct information returns, for failing to furnish correct
payee statements, and for failing to comply with other
information reporting requirements. Specifically, the provision
increases the penalties for failing to file correct information
returns as follows: the first-tier penalty would be increased
from $15 to $25, with a maximum penalty of $200,000 per
calendar year; the second-tier penalty would be increased from
$30 to $60, with a maximum penalty of $400,000 per calendar
year; and the third-tier penalty would be increased from $50 to
$100, with a maximum penalty of $600,000 per calendar year. The
maximum penalties for small businesses would be: $75,000 if the
failures are corrected on or before 30 days after the
prescribed filing date; $150,000 if the failures are corrected
on or before August 1; and $250,000 if the failures are not
corrected on or before August 1.
The provision increases both the penalty for failing to
furnish correct payee statements to taxpayers and the penalty
for failing to comply with other information reporting
requirements penalties to $100 for each such failure, up to a
maximum of $600,000 in a calendar year.
EFFECTIVE DATE
The provision is effective with respect to information
returns required to be filed on or after January 1, 2008.
D. Minimum Failure To File Penalty (Sec. 304 of the Bill and Sec. 6651
of the Code)
PRESENT LAW
Under present law, a taxpayer who fails to file a tax
return on a timely basis is subject to a penalty equal to five
percent of the net amount of tax due for each month that the
return is not filed, up to a maximum of five months or 25
percent.\19\ An exception from the penalty applies if the
failure is due to reasonable cause. The net amount of tax due
is the excess of the amount of the tax required to be shown on
the return over the amount of any tax paid on or before the due
date prescribed for the payment of tax.\20\
---------------------------------------------------------------------------
\19\ Sec. 6651(a)(1).
\20\ Sec. 6651(b)(1).
---------------------------------------------------------------------------
In the case of a failure to file a tax return within 60
days of the due date, present law imposes a minimum penalty
equal to the lesser of $100 or 100 percent of the amount of tax
required to be shown on the return.
REASONS FOR CHANGE
The minimum penalty for an extended failure to file (i.e.,
a return not filed within 60 days of the due date) has not been
modified since 1982. The Committee believes that inflation has
eroded the deterrent effect of the present law penalty. Thus,
the Committee believes that the minimum penalty for an extended
failure to file should be increased to a level that effectively
discourages noncompliance.
EXPLANATION OF PROVISION
The provision increases the minimum penalty for a failure
to file a tax return within 60 days of the due date to the
lesser of $225 or 100 percent of the amount of tax required to
be shown on the return.
EFFECTIVE DATE
The provision is effective for tax returns required to be
filed on or after January 1, 2008.
IV. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the vote of the Committee on Ways and Means in its
consideration of the bill, HR. 3997, the ``Heroes Earnings
Assistance and Relief Tax Act of 2007'': On November 1, 2007,
the Chairman's Amendment in the Nature of a Substitute to H.R.
3997 was ordered favorably reported, by a voice vote with a
quorum being present.
V. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d)(2) of rule XIII of the Rules
of the House of Representatives, the following statement is
made concerning the effects on the budget of HR. 3997, as
reported.
The bill is estimated to have the following effects on
Federal budget receipts for fiscal years 2008-2017:
B. Statement Regarding New Budget Authority and Tax Expenditures Budget
Authority
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority. In
compliance with section 308(a)(2) of the Budget Act, the
Committee states that the revenue-reducing provisions of the
bill involve increased tax expenditures (see revenue table in
Part A., above). The revenue-increasing provisions of the bill
involve reduced tax expenditures (see revenue table in Part A.,
above).
C. Cost Estimate Prepared by the Congressional Budget Office
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the CBO, the following statement by CBO is
provided.
November 5, 2007.
Hon. Charles B. Rangel,
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. 3997, the
Heroes Earnings Assistance and Relief Act of 2007, as ordered
reported by the Committee on Ways and Means on November 1,
2007. The bill would provide tax relief to members of the
military and volunteer firefighters, adjust the rules regarding
the Supplemental Security Income (SSI) program, permanently
extend the tax disclosure authority for the Department of
Veterans Affairs, and adjust certain penalties that apply to
tax reporting.
JCT estimates that enacting the legislation would increase
revenues by $278 million over the 2008-2012 period and by $35
million over the 2008-2017 period. CBO and JCT estimate that,
under the bill, direct spending would increase by $13 million
over the 2008-2012 period and decrease by $58 million over the
2008-2017 period.
JCT has reviewed the tax provisions of the bill and
determined that they contain no intergovernmental or private-
sector mandates as defined in the Unfunded Mandates Reform Act
(UMRA). CBO has reviewed the nontax provisions of the bill
(title II) and determined that they contain no
intergovernmental or private-sector mandates as defined in
UMRA, but that those provisions would result in some spending
increases by states for SSI supplemental payments and for
Medicaid.
The estimated budgetary effects are summarized in the
following table.
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
------------------------------------------------------------------------------------------------
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008-2012 2008-2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN REVENUES
Estimated Revenues..................................... 47 75 63 59 32 7 -21 -47 -73 -102 278 35
CHANGES IN DIRECT SPENDING
Estimated Budget Authority............................. 2 15 4 1 -7 -8 -12 -14 -17 -19 13 -58
Estimated Outlays...................................... 2 15 4 -1 -7 -8 -12 -14 -17 -19 13 -58
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources: Congressional Budget Office and Joint Committee on Taxation.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts for this
estimate are Zachary Epstein (for revenues), and David Rafferty
(for Supplemental Security Income).
Sincerely,
Peter R. Orszag,
Director.
D. Macroeconomic Impact Analysis
In compliance with clause 3(h)(2) of rule XIII of the Rules
of the House of Representatives, the following statement is
made by the Joint Committee on Taxation with respect to the
provisions of the bill amending the Internal Revenue Code of
1986: the effects of the bill on economic activity are so small
as to be incalculable within the context of a model of the
aggregate economy.
E. PAY-GO Rule
In compliance with clause 10 of rule XXI of the Rules of
the House of Representatives, the following statement is made
concerning the effects on the budget of the bill, H.R. 3997, as
reported: [See CBO letter]
VI. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE
A. Committee Oversight Findings and Recommendations
With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it is appropriate and timely to
enact the provisions of the bill as reported.
B. Statement of General Performance Goals and Objectives
With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.
C. Constitutional Authority Statement
With respect to clause 3(d)(1) of rule XIII of the Rules of
the House of Representatives (relating to Constitutional
Authority), the Committee states that the Committee's action in
reporting this bill is derived from Article I of the
Constitution, Section 8 (``The Congress shall have Power To lay
and collect Taxes, Duties, Imposts and Excises . . .''), and
from the 16th Amendment to the Constitution.
D. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423
of the Unfunded Mandates Act of 1995 (Pub. L. No. 104-4).
The Committee has determined that none of the tax
provisions of the reported bill contain Federal private sector
mandates within the meaning of Public Law No. 104-4, the
Unfunded Mandates Reform Act of 1995. The tax provisions of the
reported bill do not impose a Federal intergovernmental mandate
on State, local, or tribal governments within the meaning of
Public Law No. 104-4, the Unfunded Mandates Reform Act of 1995.
E. Applicability of House Rule XXI 5(b)
Clause 5 of rule XXI of the Rules of the House of
Representatives provides, in part, that ``A bill or joint
resolution, amendment, or conference report carrying a Federal
income tax rate increase may not be considered as passed or
agreed to unless so determined by a vote of not less than
three-fifths of the Members voting, a quorum being present.''
The Committee has carefully reviewed the provisions of the
bill, and states that the provisions of the bill do not involve
any Federal income tax rate increases within the meaning of the
rule.
F. Tax Complexity Analysis
Section 4022(b) of the Internal Revenue Service Reform and
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the
Joint Committee on Taxation (in consultation with the Internal
Revenue Service and the Department of the Treasury) to provide
a tax complexity analysis. The complexity analysis is required
for all legislation reported by the Senate Committee on
Finance, the House Committee on Ways and Means, or any
committee of conference if the legislation includes a provision
that directly or indirectly amends the Internal Revenue Code
and has widespread applicability to individuals or small
businesses.
The staff of the Joint Committee on Taxation has determined
that a complexity analysis is not required under section
4022(b) of the IRS Reform Act because the bill contains no
provisions that amend the Code and that have ``widespread
applicability'' to individuals or small businesses.
G. Limited Tax Benefits
Pursuant to clause 9 of rule XXI of the Rules of the House
of Representatives, the Committee on Ways and Means has
determined that the bill as reported contains no congressional
earmarks, limited tax benefits, or limited tariff benefits
within the meaning of that rule.
VII. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
In compliance with clause 3(e) 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 italic, existing law in which no change is
proposed is shown in roman):
INTERNAL REVENUE CODE OF 1986
* * * * * * *
SUBTITLE A--INCOME TAXES
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter A--Determination of Tax Liability
* * * * * * *
PART IV--CREDITS AGAINST TAX
* * * * * * *
Subpart C--Refundable Credits
* * * * * * *
SEC. 32. EARNED INCOME.
(a) * * *
* * * * * * *
(c) Definitions and Special Rules.--
(1) * * *
(2) Earned income.--
(A) * * *
(B) For purposes of subparagraph (A)--
(i) * * *
* * * * * * *
[(vi) In the case of any taxable year
ending--
[(I) after the date of the
enactment of this clause, and
[(II) before January 1, 2008,
a taxpayer may elect to treat
amounts excluded from gross
income by reason of section 112
as earned income.]
(vi) a taxpayer may elect to treat
amounts excluded from gross income by
reason of section 112 as earned income.
* * * * * * *
Subchapter B--Computation of Taxable Income
* * * * * * *
PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
* * * * * * *
SEC. 72. ANNUITIES; CERTAIN PROCEEDS OF ENDOWMENT AND LIFE INSURANCE
CONTRACTS.
(a) * * *
* * * * * * *
(t) 10-Percent Additional Tax on Early Distributions from
Qualified Retirement Plans.--
(1) * * *
(2) Subsection not to apply to certain
distributions.--
(A) * * *
* * * * * * *
(G) Distributions from retirement plans to
individuals called to active duty.--
(i) * * *
* * * * * * *
(iv) Application of subparagraph.--
This subparagraph applies to
individuals ordered or called to active
duty after September 11, 2001[, and
before December 31, 2007]. In no event
shall the 2-year period referred to in
clause (ii) end before the date which
is 2 years after the date of the
enactment of this subparagraph.
* * * * * * *
PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
Sec. 101. Certain death benefits.
* * * * * * *
Sec. 139B. Benefits provided to volunteer firefighters and emergency
medical responders.
* * * * * * *
SEC. 121. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE.
(a) * * *
* * * * * * *
(d) Special Rules.--
(1) * * *
* * * * * * *
(12) Peace corps.--
(A) In general.--At the election of an
individual with respect to a property, the
running of the 5-year period described in
subsections (a) and (c)(1)(B) and paragraph (7)
of this subsection with respect to such
property shall be suspended during any period
that such individual or such individual's
spouse is serving outside the United States--
(i) on qualified official extended
duty (as defined in paragraph (9)(C))
as an employee of the Peace Corps, or
(ii) as an enrolled volunteer or
volunteer leader under section 5 or 6
(as the case may be) of the Peace Corps
Act (22 U.S.C. 2504, 2505).
(B) Applicable rules.--For purposes of
subparagraph (A), rules similar to the rules of
subparagraphs (B) and (D) shall apply.
* * * * * * *
SEC. 139B. BENEFITS PROVIDED TO VOLUNTEER FIREFIGHTERS AND EMERGENCY
MEDICAL RESPONDERS.
(a) In General.--In the case of any member of a qualified
volunteer emergency response organization, gross income shall
not include--
(1) any qualified State and local tax benefit, and
(2) any qualified payment.
(b) Denial of Double Benefits.--In the case of any member of
a qualified volunteer emergency response organization--
(1) the deduction under 164 shall be determined with
regard to any qualified State and local tax benefit,
and
(2) expenses paid or incurred by the taxpayer in
connection with the performance of services as such a
member shall be taken into account under section 170
only to the extent such expenses exceed the amount of
any qualified payment excluded from gross income under
subsection (a).
(c) Definitions.--For purposes of this section--
(1) Qualified state and local tax benefit.--The term
``qualified state and local tax benefit'' means any
reduction or rebate of a tax described in paragraph
(1), (2), or (3) of section 164(a) provided by a State
or political division thereof on account of services
performed as a member of a qualified volunteer
emergency response organization.
(2) Qualified payment.--
(A) In general.--The term ``qualified
payment'' means any payment (whether
reimbursement or otherwise) provided by a State
or political division thereof on account of the
performance of services as a member of a
qualified volunteer emergency response
organization.
(B) Applicable dollar limitation.--The amount
determined under subparagraph (A) for any
taxable year shall not exceed $30 multiplied by
the number of months during such year that the
taxpayer performs such services.
(3) Qualified volunteer emergency response
organization.--The term ``qualified volunteer emergency
response organization'' means any volunteer
organization--
(A) which is organized and operated to
provide firefighting or emergency medical
services for persons in the State or political
subdivision, as the case may be, and
(B) which is required (by written agreement)
by the State or political subdivision to
furnish firefighting or emergency medical
services in such State or political
subdivision.
* * * * * * *
PART IV--TAX EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS
Subpart A--Private Activity Bonds
* * * * * * *
SEC. 143. MORTGAGE REVENUE BONDS: QUALIFIED MORTGAGE BOND AND QUALIFIED
VETERANS' MORTGAGE BOND.
(a) * * *
* * * * * * *
(d) 3-Year Requirement.--
(1) * * *
(2) Exceptions.--For purposes of paragraph (1), the
proceeds of an issue which are used to provide--
(A) * * *
* * * * * * *
(D) in the case of bonds issued after the
date of the enactment of this subparagraph [and
before January 1, 2008], financing of any
residence for a veteran (as defined in section
101 of title 38, United States Code), if such
veteran has not previously qualified for and
received such financing by reason of this
subparagraph,
* * * * * * *
(l) Additional Requirements for Qualified Veterans' Mortgage
Bonds.--An issue meets the requirements of this subsection only
if it meets the requirements of paragraphs (1), (2), and (3).
(1) * * *
* * * * * * *
(3) Volume limitation.--
(A) * * *
(B) State veterans limit.--
(i) * * *
(ii) Alaska, oregon, and wisconsin.--
In the case of the following States,
the State veterans limit for any
calendar year is the amount equal to--
(I) [$25,000,000]
$100,000,000 for the State of
Alaska,
(II) [$25,000,000]
$100,000,000 for the State of
Oregon, and
(III) [$25,000,000]
$100,000,000 for the State of
Wisconsin.
[(4) Qualified veteran.--For purposes of this
subsection, the term ``qualified veteran'' means--
[(A) in the case of the States of Alaska,
Oregon, and Wisconsin, any veteran--
[(i) who served on active duty, and
[(ii) who applied for the financing
before the date 25 years after the last
date on which such veteran left active
service, and
[(B) in the case of any other State, any
veteran--
[(i) who served on active duty at
some time before January 1, 1977, and
[(ii) who applied for the financing
before the later of--
[(I) the date 30 years after
the last date on which such
veteran left active service, or
[(II) January 31, 1985.]
(4) Qualified veteran.--For purposes of this
subsection, the term ``qualified veteran'' means any
veteran who--
(A) served on active duty, and
(B) applied for the financing before the date
25 years after the last date on which such
veteran left active service.
* * * * * * *
PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
* * * * * * *
SEC. 219. RETIREMENT SAVINGS.
(a) * * *
* * * * * * *
(f) Other Definitions and Special Rules.--
(1) Compensation.--For purposes of this section, the
term ``compensation'' includes earned income (as
defined in section 401(c)(2)). The term
``compensation'' does not include any amount received
as a pension or annuity and does not include any amount
received as deferred compensation. The term
``compensation'' shall include any amount includible in
the individual's gross income under section 71 with
respect to a divorce or separation instrument described
in subparagraph (A) of section 71(b)(2). For purposes
of this paragraph, section 401(c)(2) shall be applied
as if the term trade or business for purposes of
section 1402 included service described in subsection
(c)(6). The term compensation includes any differential
wage payment (as defined in section 3401(h)(2)).
* * * * * * *
Subchapter D--Deferred Compensation, Etc
* * * * * * *
PART I--PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC
* * * * * * *
Subpart A--General Rule
* * * * * * *
SEC. 401. QUALIFIED PENSION, PROFIT-SHARING, AND STOCK BONUS PLANS.
(a) Requirements for Qualification.--A trust created or
organized in the United States and forming part of a stock
bonus, pension, or profit-sharing plan of an employer for the
exclusive benefit of his employees or their beneficiaries shall
constitute a qualified trust under this section--
(1) * * *
* * * * * * *
(37) Death benefits under userra-qualified active
military service.--A trust shall not constitute a
qualified trust unless the plan provides that, in the
case of a participant who dies while performing
qualified military service (as defined in section
414(u)), the survivors of the participant are entitled
to any additional benefits (other than benefit accruals
relating to the period of qualified military service)
provided under the plan had the participant resumed and
then terminated employment on account of death.
* * * * * * *
SEC. 403. TAXATION OF EMPLOYEE ANNUITIES.
(a) * * *
(b) Taxability of Beneficiary under Annuity Purchased by
Section 501(c)(3) Organization or Public School.--
(1) * * *
* * * * * * *
(14) Death benefits under userra-qualified active
military service.--This subsection shall not apply to
an annuity contract unless such contract meets the
requirements of section 401(a)(37).
SEC. 404. DEDUCTION FOR CONTRIBUTIONS OF AN EMPLOYER TO AN EMPLOYEES'
TRUST OR ANNUITY PLAN AND COMPENSATION UNDER A
DEFERRED-PAYMENT PLAN.
(a) General Rule.--If contributions are paid by an employer
to or under a stock bonus, pension, profit-sharing, or annuity
plan, or if compensation is paid or accrued on account of any
employee under a plan deferring the receipt of such
compensation, such contributions or compensation shall not be
deductible under this chapter; but, if they would otherwise be
deductible, they shall be deductible under this section,
subject, however, to the following limitations as to the
amounts deductible in any year:
(1) * * *
(2) Employees' annuities.--In the taxable year when
paid, in an amount determined in accordance with
paragraph (1), if the contributions are paid toward the
purchase of retirement annuities, or retirement
annuities and medical benefits as described in section
401(h), and such purchase is part of a plan which meets
the requirements of section 401(a)(3), (4), (5), (6),
(7), (8), (9), (11), (12), (13), (14), (15), (16),
(17), (19), (20), (22), (26), (27), [and (31)] (31),
and (37) and, if applicable, the requirements of
section 401(a)(10) and of section 401(d), and if
refunds of premiums, if any, are applied within the
current taxable year or next succeeding taxable year
toward the purchase of such retirement annuities, or
such retirement annuities and medical benefits.
* * * * * * *
SEC. 408A. ROTH IRAS.
(a) * * *
* * * * * * *
[Note: Section 109(a) of HR 3997 amends section 408A(e) as in effect
before the amendments made by section 824 of the Pension Protection Act
of 2006]
[(e) For purposes of this section, the term ``qualified
rollover contribution'' means a rollover contribution to a Roth
IRA from another such account, or from an individual retirement
plan, but only if such rollover contribution meets the
requirements of section 408(d)(3). Such term includes a
rollover contribution described in section 402A(c)(3)(A). For
purposes of section 408(d)(3)(B), there shall be disregarded
any qualified rollover contribution from an individual
retirement plan (other than a Roth IRA) to a Roth IRA.]
(e) Qualified Rollover Contribution.--For purposes of this
section--
(1) In general.--The term ``qualified rollover
contribution'' means a rollover contribution to a Roth
IRA from another such account, or from an individual
retirement plan, but only if such rollover contribution
meets the requirements of section 408(d)(3). Such term
includes a rollover contribution described in section
402A(c)(3)(A). For purposes of section 408(d)(3)(B),
there shall be disregarded any qualified rollover
contribution from an individual retirement plan (other
than a Roth IRA) to a Roth IRA.
(2) Military death gratuity.--
(A) In general.--The term ``qualified
rollover contribution'' includes a contribution
to a Roth IRA maintained for the benefit of an
individual made before the end of the 1-year
period beginning on the date on which such
individual receives an amount under section
1477 of title 10, United States Code, or
section 1967 of title 38 of such Code, with
respect to a person, to the extent that such
contribution does not exceed--
(i) the sum of the amounts received
during such period by such individual
under such sections with respect to
such person, reduced by
(ii) the amounts so received which
were contributed to a Coverdell
education savings account under section
530(d)(9).
(B) Annual limit on number of rollovers not
to apply.--Section 408(d)(3)(B) shall not apply
with respect to amounts treated as a rollover
by subparagraph (A).
(C) Application of section 72.--For purposes
of applying section 72 in the case of a
distribution which is not a qualified
distribution, the amount treated as a rollover
by reason of subparagraph (A) shall be treated
as investment in the contract.
[Note: Section 109(b) of HR 3997 amends section 408A(e) as in effect
after the amendments made by section 824 of the Pension Protection Act
of 2006]
[(e) Qualified Rollover Contribution.--For purposes of this
section, the term ``qualified rollover contribution'' means a
rollover contribution--
[(1) to a Roth IRA from another such account,
[(2) from an eligible retirement plan, but only if--
[(A) in the case of an individual retirement
plan, such rollover contribution meets the
requirements of section 408(d)(3), and
[(B) in the case of any eligible retirement
plan (as defined in section 402(c)(8)(B) other
than clauses (i) and (ii) thereof), such
rollover contribution meets the requirements of
section 402(c), 403(b)(8), or 457(e)(16), as
applicable.
For purposes of section 408(d)(3)(B), there shall be
disregarded any qualified rollover contribution from an
individual retirement plan (other than a Roth IRA) to a Roth
IRA.]
(e) Qualified Rollover Contribution.--For purposes of this
section--
(1) In general.--The term ``qualified rollover
contribution'' means a rollover contribution--
(A) to a Roth IRA from another such account,
(B) from an eligible retirement plan, but
only if--
(i) in the case of an individual
retirement plan, such rollover
contribution meets the requirements of
section 408(d)(3), and
(ii) in the case of any eligible
retirement plan (as defined in section
402(c)(8)(B) other than clauses (i) and
(ii) thereof), such rollover
contribution meets the requirements of
section 402(c), 403(b)(8), or
457(e)(16), as applicable.
For purposes of section 408(d)(3)(B), there
shall be disregarded any qualified rollover
contribution from an individual retirement plan
(other than a Roth IRA) to a Roth IRA.
(2) Military death gratuity.--
(A) In general.--The term ``qualified
rollover contribution'' includes a contribution
to a Roth IRA maintained for the benefit of an
individual made before the end of the 1-year
period beginning on the date on which such
individual receives an amount under section
1477 of title 10, United States Code, or
section 1967 of title 38 of such Code, with
respect to a person, to the extent that such
contribution does not exceed--
(i) the sum of the amounts received
during such period by such individual
under such sections with respect to
such person, reduced by
(ii) the amounts so received which
were contributed to a Coverdell
education savings account under section
530(d)(9).
(B) Annual limit on number of rollovers not
to apply.--Section 408(d)(3)(B) shall not apply
with respect to amounts treated as a rollover
by the subparagraph (A).
(C) Application of section 72.--For purposes
of applying section 72 in the case of a
distribution which is not a qualified
distribution, the amount treated as a rollover
by reason of subparagraph (A) shall be treated
as investment in the contract.
* * * * * * *
Subpart B--Special Rules
* * * * * * *
SEC. 414. DEFINITIONS AND SPECIAL RULES.
(a) * * *
* * * * * * *
(u) Special Rules Relating to Veterans' Reemployment Rights
under USERRA and to Differential Wage Payments to Members on
Active Duty.--
(1) * * *
* * * * * * *
(9) Treatment in the case of death or disability
resulting from active military service.--
(A) In general.--For benefit accrual
purposes, an employer sponsoring a retirement
plan may treat an individual who dies or
becomes disabled (as defined under the terms of
the plan) while performing qualified military
service with respect to the employer
maintaining the plan as if the individual has
resumed employment in accordance with the
individual's reemployment rights under chapter
43 of title 38, United States Code, on the day
preceding death or disability (as the case may
be) and terminated employment on the actual
date of death or disability. In the case of any
such treatment, and subject to subparagraphs
(B) and (C), any full or partial compliance by
such plan with respect to the benefit accrual
requirements of paragraph (8) with respect to
such individual shall be treated for purposes
of paragraph (1) as if such compliance were
required under such chapter 43.
(B) Nondiscrimination requirement.--
Subparagraph (A) shall apply only if all
individuals performing qualified military
service with respect to the employer
maintaining the plan (as determined under
subsections (b), (c), (m), and (o)) who die or
became disabled as a result of performing
qualified military service prior to
reemployment by the employer are credited with
service and benefits on reasonably equivalent
terms.
(C) Determination of benefits.--The amount of
employee contributions and the amount of
elective deferrals of an individual treated as
reemployed under subparagraph (A) for purposes
of applying paragraph (8)(C) shall be
determined on the basis of the individual's
average actual employee contributions or
elective deferrals for the lesser of--
(i) the 12-month period of service
with the employer immediately prior to
qualified military service, or
(ii) if service with the employer is
less than such 12-month period, the
actual length of continuous service
with the employer.
[(9)] (10) Plans not subject to title 38.--This
subsection shall not apply to any retirement plan to
which chapter 43 of title 38, United States Code, does
not apply.
[(10)] (11) References.--For purposes of this
section, any reference to chapter 43 of title 38,
United States Code, shall be treated as a reference to
such chapter as in effect on December 12, 1994 (without
regard to any subsequent amendment).
(12) Treatment of differential wage payments.--
(A) In general.--Except as provided in this
paragraph, for purposes of applying this title
to a retirement plan to which this subsection
applies--
(i) an individual receiving a
differential wage payment shall be
treated as an employee of the employer
making the payment,
(ii) the differential wage payment
shall be treated as compensation, and
(iii) the plan shall not be treated
as failing to meet the requirements of
any provision described in paragraph
(1)(C) by reason of any contribution or
benefit which is based on the
differential wage payment.
(B) Special rule for distributions.--
(i) In general.--Notwithstanding
subparagraph (A)(i), for purposes of
section 401(k)(2)(B)(i)(I),
403(b)(7)(A)(ii), 403(b)(11)(A), or
457(d)(1)(A)(ii), an individual shall
be treated as having been severed from
employment during any period the
individual is performing service in the
uniformed services described in section
3401(h)(2)(A).
(ii) Limitation.--If an individual
elects to receive a distribution by
reason of clause (i), the plan shall
provide that the individual may not
make an elective deferral or employee
contribution during the 6-month period
beginning on the date of the
distribution.
(C) Nondiscrimination requirement.--
Subparagraph (A)(iii) shall apply only if all
employees of an employer (as determined under
subsections (b), (c), (m), and (o)) performing
service in the uniformed services described in
section 3401(h)(2)(A) are entitled to receive
differential wage payments on reasonably
equivalent terms and, if eligible to
participate in a retirement plan maintained by
the employer, to make contributions based on
the payments on reasonably equivalent terms.
For purposes of applying this subparagraph, the
provisions of paragraphs (3), (4), and (5) of
section 410(b) shall apply.
(D) Differential wage payment.--For purposes
of this paragraph, the term ``differential wage
payment'' has the meaning given such term by
section 3401(h)(2).
* * * * * * *
Subchapter E--Accounting Periods and Methods of Accounting
* * * * * * *
PART II--METHODS OF ACCOUNTING
* * * * * * *
Subpart B--Taxable Year for Which Items of Gross Income Included
* * * * * * *
SEC. 457. DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS
AND TAX-EXEMPT ORGANIZATIONS.
(a) * * *
* * * * * * *
(g) Governmental Plans Must Maintain Set-Asides for Exclusive
Benefit of Participants.--
(1) * * *
* * * * * * *
(4) Death benefits under userra-qualified active
military service.--A plan described in paragraph (1)
shall not be treated as an eligible deferred
compensation plan unless such plan meets the
requirements of section 401(a)(37).
* * * * * * *
Subchapter F--Exempt Organizations
* * * * * * *
PART VIII--HIGHER EDUCATION SAVINGS ENTITIES
* * * * * * *
SEC. 530. COVERDELL EDUCATION SAVINGS ACCOUNTS.
(a) * * *
* * * * * * *
(d) Tax Treatment of Distributions.--
(1) * * *
* * * * * * *
(9) Military death gratuity.--
(A) In general.--For purposes of this
section, the term ``rollover contribution''
includes a contribution to a Coverdell
education savings account made before the end
of the 1-year period beginning on the date on
which the contributor receives an amount under
section 1477 of title 10, United States Code,
or section 1967 of title 38 of such Code, with
respect to a person, to the extent that such
contribution does not exceed--
(i) the sum of the amounts received
during such period by such contributor
under such sections with respect to
such person, reduced by
(ii) the amounts so received which
were contributed to a Roth IRA under
section 408A(e)(2) or to another
Coverdell education savings account.
(B) Annual limit on number of rollovers not
to apply.--The last sentence of paragraph (5)
shall not apply with respect to amounts treated
as a rollover by the subparagraph (A).
(C) Application of section 72.--For purposes
of applying section 72 in the case of a
distribution which is includible in gross
income under paragraph (1), the amount treated
as a rollover by reason of subparagraph (A)
shall be treated as investment in the contract.
* * * * * * *
SUBTITLE C--EMPLOYMENT TAXES
* * * * * * *
CHAPTER 24--COLLECTION OF INCOME TAX AT SOURCE ON WAGES
* * * * * * *
SEC. 3401. DEFINITIONS.
(a) * * *
* * * * * * *
(h) Differential Wage Payments to Active Duty Members of the
Uniformed Services.--
(1) In general.--For purposes of subsection (a), any
differential wage payment shall be treated as a payment
of wages by the employer to the employee.
(2) Differential wage payment.--For purposes of
paragraph (1), the term ``differential wage payment''
means any payment which--
(A) is made by an employer to an individual
with respect to any period during which the
individual is performing service in the
uniformed services (as defined in chapter 43 of
title 38, United States Code) while on active
duty for a period of more than 30 days, and
(B) represents all or a portion of the wages
the individual would have received from the
employer if the individual were performing
service for the employer.
* * * * * * *
SUBTITLE F--PROCEDURE AND ADMINISTRATION
* * * * * * *
CHAPTER 61--INFORMATION AND RETURNS
* * * * * * *
Subchapter B--Miscellaneous Provisions
* * * * * * *
SEC. 6103. CONFIDENTIALITY AND DISCLOSURE OF RETURNS AND RETURN
INFORMATION.
(a) * * *
* * * * * * *
(l) Disclosure of Returns and Return Information for Purposes
Other Than Tax Administration.--
(1) * * *
* * * * * * *
(7) Disclosure of return information to federal,
state, and local agencies administering certain
programs under the social security act, the food stamp
act of 1977, or title 38, united states code, or
certain housing assistance programs.--
(A) * * *
* * * * * * *
(D) Programs to which rule applies.--The
programs to which this paragraph applies are:
(i) * * *
* * * * * * *
Only return information from returns with
respect to net earnings from self-employment
and wages may be disclosed under this paragraph
for use with respect to any program described
in clause (viii)(IV). [Clause (viii) shall not
apply after September 30, 2008.]
* * * * * * *
CHAPTER 66--LIMITATIONS
* * * * * * *
Subchapter B--Limitations on Credit or Refund
* * * * * * *
SEC. 6511. LIMITATIONS ON CREDIT OR REFUND.
(a) * * *
* * * * * * *
(d) Special Rules Applicable to Income Taxes.--
(1) * * *
* * * * * * *
(8) Special rules when uniformed services retired pay
is reduced as a result of award of disability
compensation.--
(A) Period of limitation on filing claim.--If
the claim for credit or refund relates to an
overpayment of tax imposed by subtitle A on
account of--
(i) the reduction of uniformed
services retired pay computed under
section 1406 or 1407 of title 10,
United States Code, or
(ii) the waiver of such pay under
section 5305 of title 38 of such Code,
as a result of an award of compensation under title 38
of such Code pursuant to a determination by the
Secretary of Veterans Affairs, the 3-year period of
limitation prescribed in subsection (a) shall be
extended, for purposes of permitting a credit or refund
based upon the amount of such reduction or waiver,
until the end of the 1-year period beginning on the
date of such determination.
(B) Limitation to 5 taxable years.--
Subparagraph (A) shall not apply with respect
to any taxable year which began more than 5
years before the date of such determination.
* * * * * * *
CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE
PENALTIES
* * * * * * *
Subchapter A--Additions to the Tax and Additional Amounts
* * * * * * *
PART I--GENERAL PROVISIONS
* * * * * * *
SEC. 6551. FAILURE TO FILE TAX RETURN OR TO PAY TAX.
(a) Addition to the Tax.--In case of failure--
(1) * * *
* * * * * * *
In the case of a failure to file a return of tax imposed by
chapter 1 within 60 days of the date prescribed for filing of
such return (determined with regard to any extensions of time
for filing), unless it is shown that such failure is due to
reasonable cause and not due to willful neglect, the addition
to tax under paragraph (1) shall not be less than the lesser of
[$100] $225 or 100 percent of the amount required to be shown
as tax on such return.
* * * * * * *
Subchapter B--Assessable Penalties
* * * * * * *
PART I--GENERAL PROVISIONS
Sec. 6671. Rules for application of assessable penalties.
* * * * * * *
Sec. 6699. Failure to file S corporation return.
* * * * * * *
SEC. 6698. FAILURE TO FILE PARTNERSHIP RETURN.
(a) General Rule.--In addition to the penalty imposed by
section 7203 (relating to willful failure to file return,
supply information, or pay tax), if any partnership required to
file a return under section 6031 for any taxable year--
(1) * * *
* * * * * * *
such partnership shall be liable for a penalty determined under
subsection (b) for each month (or fraction thereof) during
which such failure continues (but not to exceed [5 months] 12
months), unless it is shown that such failure is due to
reasonable cause.
(b) Amount Per Month.--For purposes of subsection (a), the
amount determined under this subsection for any month is the
product of--
(1) [$50] $100, multiplied by
* * * * * * *
SEC. 6699. FAILURE TO FILE S CORPORATION RETURN.
(a) General Rule.--In addition to the penalty imposed by
section 7203 (relating to willful failure to file return,
supply information, or pay tax), if any S corporation required
to file a return under section 6037 for any taxable year--
(1) fails to file such return at the time prescribed
therefor (determined with regard to any extension of
time for filing), or
(2) files a return which fails to show the
information required under section 6037,
such S corporation shall be liable for a penalty determined
under subsection (b) for each month (or fraction thereof)
during which such failure continues (but not to exceed 12
months), unless it is shown that such failure is due to
reasonable cause.
(b) Amount Per Month.--For purposes of subsection (a), the
amount determined under this subsection for any month is the
product of--
(1) $100, multiplied by
(2) the number of persons who were shareholders in
the S corporation during any part of the taxable year.
(c) Assessment of Penalty.--The penalty imposed by subsection
(a) shall be assessed against the S corporation.
(d) Deficiency Procedures Not to Apply.--Subchapter B of
chapter 63 (relating to deficiency procedures for income,
estate, gift, and certain excise taxes) shall not apply in
respect of the assessment or collection of any penalty imposed
by subsection (a).
* * * * * * *
PART II--FAILURE TO COMPLY WITH CERTAIN INFORMATION REPORTING
REQUIREMENTS
* * * * * * *
SEC. 6721. FAILURE TO FILE CORRECT INFORMATION RETURNS.
(a) Imposition of Penalty.--
(1) In general.--In the case of a failure described
in paragraph (2) by any person with respect to an
information return, such person shall pay a penalty of
[$50] $100 for each return with respect to which such a
failure occurs, but the total amount imposed on such
person for all such failures during any calendar year
shall not exceed [$250,000] $600,000.
* * * * * * *
(b) Reduction Where Correction in Specified Period.--
(1) Correction within 30 days.--If any failure
described in subsection (a)(2) is corrected on or
before the day 30 days after the required filing date--
(A) the penalty imposed by subsection (a)
shall be [$15] $25 in lieu of [$50] $100, and
(B) the total amount imposed on the person
for all such failures during any calendar year
which are so corrected shall not exceed
[$75,000] $200,000.
(2) Failures corrected on or before august 1.--If any
failure described in subsection (a)(2) is corrected
after the 30th day referred to in paragraph (1) but on
or before August 1 of the calendar year in which the
required filing date occurs--
(A) the penalty imposed by subsection (a)
shall be [$30] $60 in lieu of [$50] $100, and
(B) the total amount imposed on the person
for all such failures during the calendar year
which are so corrected shall not exceed
[$150,000] $400,000.
* * * * * * *
(d) Lower Limitations for Persons with Gross Receipts of Not
More Than $5,000,000.--
(1) In general.--If any person meets the gross
receipts test of paragraph (2) with respect to any
calendar year, with respect to failures during such
taxable year--
(A) subsection (a)(1) shall be applied by
substituting [$100,000] $250,000 for [$250,000]
$600,000,
(B) subsection (b)(1)(B) shall be applied by
substituting [$25,000] $75,000 for [$75,000]
$200,000, and
(C) subsection (b)(2)(B) shall be applied by
substituting [$50,000] $150,000 for [$150,000]
$400,000.
* * * * * * *
(e) Penalty in Case of Intentional Disregard.--If 1 or more
failures described in subsection (a)(2) are due to intentional
disregard of the filing requirement (or the correct information
reporting requirement), then, with respect to each such
failure--
(1) * * *
(2) the penalty imposed under subsection (a) shall be
[$100] $250, or, if greater--
(A) * * *
* * * * * * *
(3) in the case of any penalty determined under
paragraph (2)--
(A) the [$250,000] $600,000 limitation under
subsection (a) shall not apply, and
* * * * * * *
SEC. 6722. FAILURE TO FURNISH CORRECT PAYEE STATEMENTS.
(a) General Rule .--In the case of each failure described in
subsection (b) by any person with respect to a payee statement,
such person shall pay a penalty of [$50] $100 for each
statement with respect to which such a failure occurs, but the
total amount imposed on such person for all such failures
during any calendar year shall not exceed [$100,000] $600,000.
* * * * * * *
(c) Penalty in Case of Intentional Disregard.--If 1 or more
failures to which subsection (a) applies are due to intentional
disregard of the requirement to furnish a payee statement (or
the correct information reporting requirement), then, with
respect to each failure--
(1) the penalty imposed under subsection (a) shall be
[$100] $250, or, if greater--
(A) * * *
* * * * * * *
(2) in the case of any penalty determined under
paragraph (1)--
(A) the [$100,000] $600,000 limitation under
subsection (a) shall not apply, and
* * * * * * *
SEC. 6723. FAILURE TO COMPLY WITH OTHER INFORMATION REPORTING
REQUIREMENTS
In the case of a failure by any person to comply with a
specified information reporting requirement on or before the
time prescribed therefor, such person shall pay a penalty of
[$50] $100 for each such failure, but the total amount imposed
on such person for all such failures during any calendar year
shall not exceed [$100,000] $600,000.
* * * * * * *
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SOCIAL SECURITY ACT
* * * * * * *
TITLE XVI--SUPPLEMENTAL SECURITY INCOME FOR THE AGED, BLIND, AND
DISABLED
* * * * * * *
Part A--Determination of Benefits
* * * * * * *
INCOME
Meaning of Income
Sec. 1612. (a) For purposes of this title, income means both
earned income and unearned income; and--
(1) earned income means only--
(A) wages as determined under section 203(f)(5)(C)
but without the application of section 210( j)(3) (and,
in the case of cash remuneration paid for service as a
member of a uniformed service (other than payments
described in paragraph (2)(H) of this subsection or
subsection (b)(20)), without regard to the limitations
contained in section 209(d));
* * * * * * *
(2) unearned income means all other income, including--
(A) * * *
* * * * * * *
(F) rents, dividends, interest, and royalties not
described in paragraph (1)(E); [and]
(G) any earnings of, and additions to, the corpus of
a trust established by an individual (within the
meaning of section 1613(e)), of which the individual is
a beneficiary, to which section 1613(e) applies, and,
in the case of an irrevocable trust, with respect to
which circumstances exist under which a payment from
the earnings or additions could be made to or for the
benefit of the individual[.]; and
(H) payments to or on behalf of a member of a
uniformed service for housing of the member (and his or
her dependents, if any) on a facility of a uniformed
service, including payments provided under section 403
of title 37, United States Code, for housing that is
acquired or constructed under subchapter IV of chapter
169 of title 10 of such Code, or any related provision
of law, and any such payments shall be treated as
support and maintenance in kind subject to subparagraph
(A) of this paragraph.
Exclusions From Income
(b) In determining the income of an individual (and his
eligible spouse) there shall be excluded--
(1) * * *
* * * * * * *
(22) any gift to, or for the benefit of, an
individual who has not attained 18 years of age and who
has a life-threatening condition, from an organization
described in section 501(c)(3) of the Internal Revenue
Code of 1986 which is exempt from taxation under
section 501(a) of such Code--
(A) * * *
(B) in the case of a cash gift, only to the
extent that the total amount excluded from the
income of the individual pursuant to this
paragraph in the calendar year in which the
gift is made does not exceed $2,000; [and]
(23) interest or dividend income from resources--
(A) * * *
(B) excluded pursuant to Federal law other
than section 1613(a)[.];
(24) any annuity paid by a State to the individual
(or such spouse) on the basis of the individual's being
a veteran (as defined in section 101 of title 38,
United States Code) and blind; and
(25) any benefit (whether cash or in-kind) conferred
upon (or paid on behalf of) a participant in an
AmeriCorps position approved by the Corporation for
National and Community Service under section 123 of the
National and Community Service Act of 1990 (42 U.S.C.
12573).
RESOURCES
Exclusions From Resources
Sec. 1613. (a) In determining the resources of an individual
(and his eligible spouse, if any) there shall be excluded--
(1) * * *
* * * * * * *
(14) for the 9-month period beginning after the month in
which received, any amount received by such individual (or
spouse) or any other person whose income is deemed to be
included in such individual's (or spouse's) income for purposes
of this title as restitution for benefits under this title,
title II, or title VIII that a representative payee of such
individual (or spouse) or such other person under section
205(j), 807, or 1631(a)(2) has misused; [and]
(15) for the 9-month period beginning after the month in
which received, any grant, scholarship, fellowship, or gift (or
portion of a gift) used to pay the cost of tuition and fees at
any educational (including technical or vocational education)
institution[.]; and
(16) for the month of receipt and every month thereafter, any
annuity paid by a State to the individual (or such spouse) on
the basis of the individual's being a veteran (as defined in
section 101 of title 38, United States Code) and blind.
* * * * * * *