[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.
---------------------------------------------------------------------------
    \1\ Unless otherwise indicated, all section references are to the 
Internal Revenue Code of 1986, as amended (``Code'').
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \2\ Pub. L. No. 103-353.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \3\ Pub. L. No. 104-188.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \5\ See Rev. Rul. 69-136, 1969-1 C.B. 252.
---------------------------------------------------------------------------

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)).
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------
    \9\ Secs. 408 and 408A.
---------------------------------------------------------------------------

                           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.
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \11\ Chief Couns. Adv. 200302045 (Jan. 10, 2002).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------
    \12\ Sec. 170(a), (c), and (e).
---------------------------------------------------------------------------

                           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.
---------------------------------------------------------------------------
    \13\ Pub. L. No. 109-280.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \14\ Traditional IRAs are described in Code section 408, and Roth 
IRAs in Code section 408A.
---------------------------------------------------------------------------
    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).
---------------------------------------------------------------------------
    \15\ Sec. 403(b).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------
    \16\ Coverdell education savings accounts are described in sec. 
530.
---------------------------------------------------------------------------
    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.

           *       *       *       *       *       *       *

                              ----------                              


                          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.

           *       *       *       *       *       *       *


                                  
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