[110th Congress Public Law 245]
[From the U.S. Government Printing Office]


[DOCID: f:publ245.110]

[[Page 1623]]

          HEROES EARNINGS ASSISTANCE AND RELIEF TAX ACT OF 2008

[[Page 122 STAT. 1624]]

Public Law 110-245
110th Congress

                                 An Act


 
   To amend the Internal Revenue Code of 1986 to provide benefits for 
      military personnel, and for other purposes. <<NOTE: June 17, 
                         2008 -  [H.R. 6081]>> 

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress <<NOTE: Heroes Earnings Assistance 
and Relief Tax Act of 2008.>> assembled,
SECTION 1. SHORT TITLE, ETC.

    (a) Short <<NOTE: 26 USC 1 note.>> Title.--This Act may be cited as 
the ``Heroes Earnings Assistance and Relief Tax Act of 2008''.

    (b) Reference.--Except <<NOTE: 26 USC 1 et seq.>> 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

Sec. 101. Recovery rebate provided to military families.
Sec. 102. Election to include combat pay as earned income for purposes 
           of earned income tax credit.
Sec. 103. Modification of mortgage revenue bonds for veterans.
Sec. 104. Survivor and disability payments with respect to qualified 
           military service.
Sec. 105. Treatment of differential military pay as wages.
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. Authority to disclose return information for certain 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.
Sec. 111. Credit for employer differential wage payments to employees 
           who are active duty members of the uniformed services.
Sec. 112. State payments to service members treated as qualified 
           military benefits.
Sec. 113. Permanent exclusion of gain from sale of a principal residence 
           by certain employees of the intelligence community.
Sec. 114. Special disposition rules for unused benefits in health 
           flexible spending arrangements of individuals called to 
           active duty.
Sec. 115. Technical correction related to exclusion of certain property 
           tax rebates and other benefits provided to volunteer 
           firefighters and emergency medical responders.

         TITLE II--IMPROVEMENTS IN SUPPLEMENTAL SECURITY INCOME

Sec. 201. Treatment of uniformed service cash remuneration as earned 
           income.
Sec. 202. State annuities for certain 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.

[[Page 122 STAT. 1625]]

Sec. 204. Effective date.

                      TITLE III--REVENUE PROVISIONS

Sec. 301. Revision of tax rules on expatriation.
Sec. 302. Certain domestically controlled foreign persons performing 
           services under contract with United States Government treated 
           as American employers.
Sec. 303. Increase in minimum penalty on failure to file a return of 
           tax.

 TITLE IV--PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL HEALTH 
                                BENEFITS

Sec. 401. Parity in the application of certain limits to mental health 
           benefits.

                     TITLE I--BENEFITS FOR MILITARY

SEC. 101. RECOVERY REBATE PROVIDED TO MILITARY FAMILIES.

    (a) In General.--Subsection (h) of section 6428 <<NOTE: 26 USC 
6428.>> (relating to identification number requirement) is amended by 
adding at the end the following new paragraph:
            ``(3) Special rule for members of the armed forces.--
        Paragraph (1) shall not apply to a joint return where at least 1 
        spouse was a member of the Armed Forces of the United States at 
        any time during the taxable year.''.

    (b) Effective <<NOTE: 26 USC 6428 note.>> Date.--The amendments made 
by this section shall take effect as if included in the amendments made 
by section 101 of the Economic Stimulus Act of 2008.
SEC. 102. 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) Conforming Amendment.--Paragraph (4) of section 6428(e) is 
amended by striking ``except that--'' and all that follows through ``(B) 
such term shall'' and inserting ``except that such term shall''.
    (c) Sunset Not Applicable.--Section <<NOTE: 26 USC 32 note.>> 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.

    (d) Effective <<NOTE: 26 USC 32 note.>> Date.--The amendments made 
by this section shall apply to taxable years ending after December 31, 
2007.
SEC. 103. 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

[[Page 122 STAT. 1626]]

                    ``(B) applied for the financing before the date 25 
                years after the last date on which such veteran left 
                active service.''.

    (d) Effective <<NOTE: 26 USC 143 note.>> Date.--The amendments made 
by this section shall apply to bonds issued after December 31, 2007.

    (e) Transition Rule.--In <<NOTE: Applicability. 26 USC 143 
note.>> the case of any bond issued after December 31, 2007, and before 
the date of the enactment of this Act, subparagraph (B) of section 
143(l)(4) of the Internal Revenue Code of 1986, as amended by this 
section, shall be applied by substituting ``30 years'' for ``25 years''.
SEC. 104. 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 <<NOTE: 26 USC 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 <<NOTE: Applicability.>> 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

[[Page 122 STAT. 1627]]

                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) <<NOTE: 26 USC 404.>> 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 <<NOTE: 26 USC 401 note.>> 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, 2010.
                      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 ``2012'' for ``2010'' in subclause 
                      (II).

[[Page 122 STAT. 1628]]

                          (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. 105. TREATMENT OF DIFFERENTIAL MILITARY PAY AS WAGES.

    (a) Income Tax Withholding on Differential Wage Payments.--
            (1) In <<NOTE: 26 USC 3401.>> 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 <<NOTE: 26 USC 3401 note.>> date.--The 
        amendment made by this subsection shall apply to remuneration 
        paid after December 31, 2008.

    (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

[[Page 122 STAT. 1629]]

                      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 <<NOTE: Applicability.>> 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) <<NOTE: 26 USC 414.>> 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 <<NOTE: 26 USC 219 note.>> date.--The 
        amendments made by this subsection shall apply to years 
        beginning after December 31, 2008.

    (c) Provisions <<NOTE: 26 USC 414 note.>> 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, 2010.

[[Page 122 STAT. 1630]]

                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 
                ``2012'' for ``2010'' 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. 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) <<NOTE: 26 USC 6511.>> 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 <<NOTE: 26 USC 6511 note.>> 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 note.

    (c) Transition Rules.--In <<NOTE: Applicability. 26 USC 6511 
note.>> 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.

[[Page 122 STAT. 1631]]

SEC. 107. DISTRIBUTIONS FROM RETIREMENT PLANS TO INDIVIDUALS 
                        CALLED TO ACTIVE DUTY.

    (a) In General.--Clause (iv) of <<NOTE: 26 USC 72.>> section 
72(t)(2)(G) is amended by striking ``, and before December 31, 2007''.

    (b) Effective Date.--The <<NOTE: 26 USC 72 note.>> amendment made by 
this section shall apply to individuals ordered or called to active duty 
on or after December 31, 2007.
SEC. 108. AUTHORITY TO DISCLOSE RETURN INFORMATION FOR CERTAIN 
                        VETERANS PROGRAMS MADE PERMANENT.

    (a) In General.--Paragraph (7) of section 6103(l) is amended by 
striking the last sentence thereof.
    (b) Conforming Amendment.--Section 6103(l)(7)(D)(viii)(III) is 
amended by striking ``sections 1710(a)(1)(I), 1710(a)(2), 1710(b), and 
1712(a)(2)(B)'' and inserting ``sections 1710(a)(2)(G), 1710(a)(3), and 
1710(b)''.
    (c) Effective <<NOTE: 26 USC 6103 note.>> Date.--The amendment made 
by subsection (a) 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

[[Page 122 STAT. 1632]]

                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, <<NOTE: 26 USC 408.>> 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

[[Page 122 STAT. 1633]]

                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 <<NOTE: 26 USC 408A note.>> 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 <<NOTE: Applicability.>> 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 <<NOTE: 26 USC 121.>> 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).

[[Page 122 STAT. 1634]]

                    ``(B) Applicable rules.--For purposes of 
                subparagraph (A), rules similar to the rules of 
                subparagraphs (B) and (D) shall apply.''.

    (b) Effective <<NOTE: 26 USC 121 note.>> Date.--The amendment made 
by subsection (a) shall apply to taxable years beginning after December 
31, 2007.
SEC. 111. CREDIT FOR EMPLOYER DIFFERENTIAL WAGE PAYMENTS TO 
                        EMPLOYEES WHO ARE ACTIVE DUTY MEMBERS OF 
                        THE UNIFORMED SERVICES.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business credits) is amended by adding at the end the 
following new section:
``SEC. 45P. EMPLOYER WAGE CREDIT FOR EMPLOYEES WHO ARE ACTIVE DUTY 
                        MEMBERS OF THE UNIFORMED SERVICES.

    ``(a) General Rule.--For purposes of section 38, in the case of an 
eligible small business employer, the differential wage payment credit 
for any taxable year is an amount equal to 20 percent of the sum of the 
eligible differential wage payments for each of the qualified employees 
of the taxpayer during such taxable year.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Eligible differential wage payments.--The term 
        `eligible differential wage payments' means, with respect to 
        each qualified employee, so much of the differential wage 
        payments (as defined in section 3401(h)(2)) paid to such 
        employee for the taxable year as does not exceed $20,000.
            ``(2) Qualified employee.--The term `qualified employee' 
        means a person who has been an employee of the taxpayer for the 
        91-day period immediately preceding the period for which any 
        differential wage payment is made.
            ``(3) Eligible small business employer.--
                    ``(A) In general.--The term `eligible small business 
                employer' means, with respect to any taxable year, any 
                employer which--
                          ``(i) employed an average of less than 50 
                      employees on business days during such taxable 
                      year, and
                          ``(ii) under a written plan of the employer, 
                      provides eligible differential wage payments to 
                      every qualified employee of the employer.
                    ``(B) Controlled groups.--For purposes of 
                subparagraph (A), all persons treated as a single 
                employer under subsection (b), (c), (m), or (o) of 
                section 414 shall be treated as a single employer.

    ``(c) Coordination With Other Credits.--The amount of credit 
otherwise allowable under this chapter with respect to compensation paid 
to any employee shall be reduced by the credit determined under this 
section with respect to such employee.
    ``(d) Disallowance for Failure To Comply With Employment or 
Reemployment Rights of Members of the Reserve Components of the Armed 
Forces of the United States.--No credit shall be allowed under 
subsection (a) to a taxpayer for--
            ``(1) any taxable year, beginning after the date of the 
        enactment of this section, in which the taxpayer is under a 
        final order, judgment, or other process issued or required by a 
        district court of the United States under section 4323 of title 
        38 of the United States Code with respect to a violation of 
        chapter 43 of such title, and

[[Page 122 STAT. 1635]]

            ``(2) the 2 succeeding taxable years.

    ``(e) Certain Rules to Apply.--For purposes of this section, rules 
similar to the rules of subsections (c), (d), and (e) of section 52 
shall apply.
    ``(f) Termination.--This section shall not apply to any payments 
made after December 31, 2009.''.
    (b) Credit Treated as Part of General Business Credit.--Section 
38(b) (relating to general business credit) <<NOTE: 26 USC 38.>> is 
amended by striking ``plus'' at the end of paragraph (31), by striking 
the period at the end of paragraph (32) and inserting ``, plus'', and by 
adding at the end of following new paragraph:
            ``(33) the differential wage payment credit determined under 
        section 45P(a).''.

    (c) No Deduction for Compensation Taken Into Account for Credit.--
Section 280C(a) (relating to rule for employment credits) is amended by 
inserting ``45P(a),'' after ``45A(a),''.
    (d) Clerical Amendment.--The table of sections for subpart D of part 
IV of subchapter A of chapter 1 is amended by adding at the end the 
following new item:

``Sec. 45P. Employer wage credit for employees who are active duty 
           members of the uniformed services.''.

    (e) Effective <<NOTE: 26 USC 38 note.>> Date.--The amendments made 
by this section shall apply to amounts paid after the date of the 
enactment of this Act.
SEC. 112. STATE PAYMENTS TO SERVICE MEMBERS TREATED AS QUALIFIED 
                        MILITARY BENEFITS.

    (a) In General.--Section 134(b) (defining qualified military 
benefit) is amended by adding at the end the following new paragraph:
            ``(6) Certain state payments.--The term `qualified military 
        benefit' includes any bonus payment by a State or political 
        subdivision thereof to any member or former member of the 
        uniformed services of the United States or any dependent of such 
        member only by reason of such member's service in an combat zone 
        (as defined in section 112(c)(2), determined without regard to 
        the parenthetical).''.

    (b) Effective <<NOTE: 26 USC 134 note.>> Date.--The amendment made 
by this section shall apply to payments made before, on, or after the 
date of the enactment of this Act.
SEC. 113. PERMANENT EXCLUSION OF GAIN FROM SALE OF A PRINCIPAL 
                        RESIDENCE BY CERTAIN EMPLOYEES OF THE 
                        INTELLIGENCE COMMUNITY.

    (a) In General.--Paragraph (9) of section 121(d) is amended by 
striking subparagraph (E).
    (b) Duty Station May Be Inside United States.--Section 121(d)(9)(C) 
(defining qualified official extended duty) is amended by striking 
clause (vi).
    (c) Effective <<NOTE: 26 USC 121 note.>> Date.--The amendments made 
by this section shall apply to sales or exchanges after the date of the 
enactment of this Act.

[[Page 122 STAT. 1636]]

SEC. 114. SPECIAL DISPOSITION RULES FOR UNUSED BENEFITS IN HEALTH 
                        FLEXIBLE SPENDING ARRANGEMENTS OF 
                        INDIVIDUALS CALLED TO ACTIVE DUTY.

    (a) In General.--Section 125 <<NOTE: 26 USC 125.>> (relating to 
cafeteria plans) is amended by redesignating subsections (h) and (i) as 
subsection (i) and (j), respectively, and by inserting after subsection 
(g) the following new subsection:

    ``(h) Special Rule for Unused Benefits in Health Flexible Spending 
Arrangements of Individuals Called to Active Duty.--
            ``(1) In general.--For purposes of this title, a plan or 
        other arrangement shall not fail to be treated as a cafeteria 
        plan or health flexible spending arrangement merely because such 
        arrangement provides for qualified reservist distributions.
            ``(2) Qualified reservist distribution.--For purposes of 
        this subsection, the term `qualified reservist distribution' 
        means, any distribution to an individual of all or a portion of 
        the balance in the employee's account under such arrangement 
        if--
                    ``(A) such individual was (by reason of being a 
                member of a reserve component (as defined in section 101 
                of title 37, United States Code)) ordered or called to 
                active duty for a period in excess of 179 days or for an 
                indefinite period, and
                    ``(B) such distribution is made during the period 
                beginning on the date of such order or call and ending 
                on the last date that reimbursements could otherwise be 
                made under such arrangement for the plan year which 
                includes the date of such order or call.''.

    (b) Effective <<NOTE: 26 USC 125 note.>> Date.--The amendment made 
by this section shall apply to distributions made after the date of the 
enactment of this Act.
SEC. 115. TECHNICAL CORRECTION RELATED TO EXCLUSION OF CERTAIN 
                        PROPERTY TAX REBATES AND OTHER BENEFITS 
                        PROVIDED TO VOLUNTEER FIREFIGHTERS AND 
                        EMERGENCY MEDICAL RESPONDERS.

    (a) Social Security Taxes.--
            (1) Section 3121(a) (relating to definition of wages) is 
        amended by striking ``or'' at the end of paragraph (21), by 
        striking the period at the end of paragraph (22) and inserting 
        ``; or'', and by inserting after paragraph (22) the following 
        new paragraph:
            ``(23) any benefit or payment which is excludable from the 
        gross income of the employee under section 139B(b).''.
            (2) Section 209(a) of the Social Security Act <<NOTE: 42 USC 
        409.>> is amended by striking ``or'' at the end of paragraph 
        (18), by striking the period at the end of paragraph (19) and 
        inserting ``; or'', and by inserting after paragraph (19) the 
        following new paragraph:
            ``(20) Any benefit or payment which is excludable from the 
        gross income of the employee under section 139B(b) of the 
        Internal Revenue Code of 1986).''.

    (b) Unemployment Taxes.--Section 3306(b) <<NOTE: 26 USC 
3306.>> (relating to definition of wages) is amended by striking ``or'' 
at the end of paragraph (18), by striking the period at the end of 
paragraph (19) and inserting ``; or'', and by inserting after paragraph 
(19) the following new paragraph:

[[Page 122 STAT. 1637]]

            ``(20) any benefit or payment which is excludable from the 
        gross income of the employee under section 139B(b).''.

    (c) Wage Withholding.--Section 3401(a) <<NOTE: 26 USC 
3401.>> (defining wages) is amended by striking ``or'' at the end of 
paragraph (21), by striking the period at the end of paragraph (22) and 
inserting ``; or'', and by inserting after paragraph (22) the following 
new paragraph:
            ``(23) for any benefit or payment which is excludable from 
        the gross income of the employee under section 139B(b).''.

    (d) Effective <<NOTE: 26 USC 3121 note.>> Date.--The amendments made 
by this section shall take effect as if included in section 5 of the 
Mortgage Forgiveness Debt Relief Act of 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 CERTAIN 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, disabled, or aged.''.

    (b) Resource Disregard.--Section 1613(a) of such Act (42 U.S.C. 
1382b(a)) is amended--

[[Page 122 STAT. 1638]]

            (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, 
        disabled, or aged.''.
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. <<NOTE: 42 USC 1382a note.>> 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. REVISION OF TAX RULES ON EXPATRIATION.

    (a) In General.--Subpart A of part II of subchapter N of chapter 1 
is amended by inserting after section 877 the following new section:
``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

    ``(a) General Rules.--For purposes of this subtitle--
            ``(1) Mark to market.--All property of a covered expatriate 
        shall be treated as sold on the day before the expatriation date 
        for its fair market value.
            ``(2) Recognition of gain or loss.--In the case of any sale 
        under paragraph (1)--
                    ``(A) notwithstanding any other provision of this 
                title, any gain arising from such sale shall be taken 
                into account for the taxable year of the sale, and
                    ``(B) any loss arising from such sale shall be taken 
                into account for the taxable year of the sale to the 
                extent otherwise provided by this title, except that 
                section 1091 shall not apply to any such loss.
        Proper adjustment shall be made in the amount of any gain or 
        loss subsequently realized for gain or loss taken into account 
        under the preceding sentence, determined without regard to 
        paragraph (3).
            ``(3) Exclusion for certain gain.--

[[Page 122 STAT. 1639]]

                    ``(A) In general.--The amount which would (but for 
                this paragraph) be includible in the gross income of any 
                individual by reason of paragraph (1) shall be reduced 
                (but not below zero) by $600,000.
                    ``(B) Adjustment for inflation.--
                          ``(i) In general.--In the case of any taxable 
                      year beginning in a calendar year after 2008, the 
                      dollar amount in subparagraph (A) shall be 
                      increased by an amount equal to--
                                    ``(I) such dollar amount, multiplied 
                                by
                                    ``(II) the cost-of-living adjustment 
                                determined under section 1(f)(3) for the 
                                calendar year in which the taxable year 
                                begins, by substituting `calendar year 
                                2007' for `calendar year 1992' in 
                                subparagraph (B) thereof.
                          ``(ii) Rounding.--If any amount as adjusted 
                      under clause (i) is not a multiple of $1,000, such 
                      amount shall be rounded to the nearest multiple of 
                      $1,000.

    ``(b) Election To Defer Tax.--
            ``(1) In general.--If the taxpayer elects the application of 
        this subsection with respect to any property treated as sold by 
        reason of subsection (a), the time for payment of the additional 
        tax attributable to such property shall be extended until the 
        due date of the return for the taxable year in which such 
        property is disposed of (or, in the case of property disposed of 
        in a transaction in which gain is not recognized in whole or in 
        part, until such other date as the Secretary may prescribe).
            ``(2) Determination of tax with respect to property.--For 
        purposes of paragraph (1), the additional tax attributable to 
        any property is an amount which bears the same ratio to the 
        additional tax imposed by this chapter for the taxable year 
        solely by reason of subsection (a) as the gain taken into 
        account under subsection (a) with respect to such property bears 
        to the total gain taken into account under subsection (a) with 
        respect to all property to which subsection (a) applies.
            ``(3) Termination of extension.--The due date for payment of 
        tax may not be extended under this subsection later than the due 
        date for the return of tax imposed by this chapter for the 
        taxable year which includes the date of death of the expatriate 
        (or, if earlier, the time that the security provided with 
        respect to the property fails to meet the requirements of 
        paragraph (4), unless the taxpayer corrects such failure within 
        the time specified by the Secretary).
            ``(4) Security.--
                    ``(A) In general.--No election may be made under 
                paragraph (1) with respect to any property unless 
                adequate security is provided with respect to such 
                property.
                    ``(B) Adequate security.--For purposes of 
                subparagraph (A), security with respect to any property 
                shall be treated as adequate security if--
                          ``(i) it is a bond which is furnished to, and 
                      accepted by, the Secretary, which is conditioned 
                      on the payment of tax (and interest thereon), and 
                      which meets the requirements of section 6325, or
                          ``(ii) it is another form of security for such 
                      payment (including letters of credit) that meets 
                      such requirements as the Secretary may prescribe.

[[Page 122 STAT. 1640]]

            ``(5) Waiver of certain rights.--No election may be made 
        under paragraph (1) unless the taxpayer makes an irrevocable 
        waiver of any right under any treaty of the United States which 
        would preclude assessment or collection of any tax imposed by 
        reason of this section.
            ``(6) Elections.--An <<NOTE: Applicability.>> election under 
        paragraph (1) shall only apply to property described in the 
        election and, once made, is irrevocable.
            ``(7) Interest.--For purposes of section 6601, the last date 
        for the payment of tax shall be determined without regard to the 
        election under this subsection.

    ``(c) Exception for Certain Property.--Subsection (a) shall not 
apply to--
            ``(1) any deferred compensation item (as defined in 
        subsection (d)(4)),
            ``(2) any specified tax deferred account (as defined in 
        subsection (e)(2)), and
            ``(3) any interest in a nongrantor trust (as defined in 
        subsection (f)(3)).

    ``(d) Treatment of Deferred Compensation Items.--
            ``(1) Withholding on eligible deferred compensation items.--
                    ``(A) In general.--In the case of any eligible 
                deferred compensation item, the payor shall deduct and 
                withhold from any taxable payment to a covered 
                expatriate with respect to such item a tax equal to 30 
                percent thereof.
                    ``(B) Taxable payment.--For purposes of subparagraph 
                (A), the term `taxable payment' means with respect to a 
                covered expatriate any payment to the extent it would be 
                includible in the gross income of the covered expatriate 
                if such expatriate continued to be subject to tax as a 
                citizen or resident of the United States. A deferred 
                compensation item shall be taken into account as a 
                payment under the preceding sentence when such item 
                would be so includible.
            ``(2) Other deferred compensation items.--In the case of any 
        deferred compensation item which is not an eligible deferred 
        compensation item--
                    ``(A)(i) with respect to any deferred compensation 
                item to which clause (ii) does not apply, an amount 
                equal to the present value of the covered expatriate's 
                accrued benefit shall be treated as having been received 
                by such individual on the day before the expatriation 
                date as a distribution under the plan, and
                    ``(ii) with respect to any deferred compensation 
                item referred to in paragraph (4)(D), the rights of the 
                covered expatriate to such item shall be treated as 
                becoming transferable and not subject to a substantial 
                risk of forfeiture on the day before the expatriation 
                date,
                    ``(B) no early distribution tax shall apply by 
                reason of such treatment, and
                    ``(C) appropriate adjustments shall be made to 
                subsequent distributions from the plan to reflect such 
                treatment.
            ``(3) Eligible deferred compensation items.--For purposes of 
        this subsection, the term `eligible deferred compensation item' 
        means any deferred compensation item with respect to which--

[[Page 122 STAT. 1641]]

                    ``(A) the payor of such item is--
                          ``(i) a United States person, or
                          ``(ii) a person who is not a United States 
                      person but who elects to be treated as a United 
                      States person for purposes of paragraph (1) and 
                      meets such requirements as the Secretary may 
                      provide to ensure that the payor will meet the 
                      requirements of paragraph (1), and
                    ``(B) the covered expatriate--
                          ``(i) notifies the payor of his status as a 
                      covered expatriate, and
                          ``(ii) makes an irrevocable waiver of any 
                      right to claim any reduction under any treaty with 
                      the United States in withholding on such item.
            ``(4) Deferred compensation item.--For purposes of this 
        subsection, the term `deferred compensation item' means--
                    ``(A) any interest in a plan or arrangement 
                described in section 219(g)(5),
                    ``(B) any interest in a foreign pension plan or 
                similar retirement arrangement or program,
                    ``(C) any item of deferred compensation, and
                    ``(D) any property, or right to property, which the 
                individual is entitled to receive in connection with the 
                performance of services to the extent not previously 
                taken into account under section 83 or in accordance 
                with section 83.
            ``(5) Exception.--Paragraphs (1) and (2) shall not apply to 
        any deferred compensation item to the extent attributable to 
        services performed outside the United States while the covered 
        expatriate was not a citizen or resident of the United States.
            ``(6) Special rules.--
                    ``(A) Application of withholding rules.--Rules 
                similar to the rules of subchapter B of chapter 3 shall 
                apply for purposes of this subsection.
                    ``(B) Application of tax.--Any item subject to the 
                withholding tax imposed under paragraph (1) shall be 
                subject to tax under section 871.
                    ``(C) Coordination with other withholding 
                requirements.--Any item subject to withholding under 
                paragraph (1) shall not be subject to withholding under 
                section 1441 or chapter 24.

    ``(e) Treatment of Specified Tax Deferred Accounts.--
            ``(1) Account treated as distributed.--In the case of any 
        interest in a specified tax deferred account held by a covered 
        expatriate on the day before the expatriation date--
                    ``(A) the covered expatriate shall be treated as 
                receiving a distribution of his entire interest in such 
                account on the day before the expatriation date,
                    ``(B) no early distribution tax shall apply by 
                reason of such treatment, and
                    ``(C) appropriate adjustments shall be made to 
                subsequent distributions from the account to reflect 
                such treatment.
            ``(2) Specified tax deferred account.--For purposes of 
        paragraph (1), the term `specified tax deferred account' means 
        an individual retirement plan (as defined in section 
        7701(a)(37))

[[Page 122 STAT. 1642]]

        other than any arrangement described in subsection (k) or (p) of 
        section 408, a qualified tuition program (as defined in section 
        529), a Coverdell education savings account (as defined in 
        section 530), a health savings account (as defined in section 
        223), and an Archer MSA (as defined in section 220).

    ``(f) Special Rules for Nongrantor Trusts.--
            ``(1) In general.--In the case of a distribution (directly 
        or indirectly) of any property from a nongrantor trust to a 
        covered expatriate--
                    ``(A) the trustee shall deduct and withhold from 
                such distribution an amount equal to 30 percent of the 
                taxable portion of the distribution, and
                    ``(B) if the fair market value of such property 
                exceeds its adjusted basis in the hands of the trust, 
                gain shall be recognized to the trust as if such 
                property were sold to the expatriate at its fair market 
                value.
            ``(2) Taxable portion.--For purposes of this subsection, the 
        term `taxable portion' means, with respect to any distribution, 
        that portion of the distribution which would be includible in 
        the gross income of the covered expatriate if such expatriate 
        continued to be subject to tax as a citizen or resident of the 
        United States.
            ``(3) Nongrantor trust.--For purposes of this subsection, 
        the term `nongrantor trust' means the portion of any trust that 
        the individual is not considered the owner of under subpart E of 
        part I of subchapter J. The determination under the preceding 
        sentence shall be made immediately before the expatriation date.
            ``(4) Special rules relating 
        to <<NOTE: Applicability.>> withholding.--For purposes of this 
        subsection--
                    ``(A) rules similar to the rules of subsection 
                (d)(6) shall apply, and
                    ``(B) the covered expatriate shall be treated as 
                having waived any right to claim any reduction under any 
                treaty with the United States in withholding on any 
                distribution to which paragraph (1)(A) applies unless 
                the covered expatriate agrees to such other treatment as 
                the Secretary determines appropriate.
            ``(5) Application.--This subsection shall apply to a 
        nongrantor trust only if the covered expatriate was a 
        beneficiary of the trust on the day before the expatriation 
        date.

    ``(g) Definitions and Special Rules Relating to Expatriation.--For 
purposes of this section--
            ``(1) Covered expatriate.--
                    ``(A) In general.--The term `covered expatriate' 
                means an expatriate who meets the requirements of 
                subparagraph (A), (B), or (C) of section 877(a)(2).
                    ``(B) Exceptions.--An individual shall not be 
                treated as meeting the requirements of subparagraph (A) 
                or (B) of section 877(a)(2) if--
                          ``(i) the individual--
                                    ``(I) became at birth a citizen of 
                                the United States and a citizen of 
                                another country and, as of the 
                                expatriation date, continues to be a 
                                citizen of, and is taxed as a resident 
                                of, such other country, and

[[Page 122 STAT. 1643]]

                                    ``(II) has been a resident of the 
                                United States (as defined in section 
                                7701(b)(1)(A)(ii)) for not more than 10 
                                taxable years during the 15-taxable year 
                                period ending with the taxable year 
                                during which the expatriation date 
                                occurs, or
                          ``(ii)(I) the individual's relinquishment of 
                      United States citizenship occurs before such 
                      individual attains age 18\1/2\, and
                          ``(II) the individual has been a resident of 
                      the United States (as so defined) for not more 
                      than 10 taxable years before the date of 
                      relinquishment.
                    ``(C) Covered expatriates also subject to tax as 
                citizens or residents.--In the case of any covered 
                expatriate who is subject to tax as a citizen or 
                resident of the United States for any period beginning 
                after the expatriation date, such individual shall not 
                be treated as a covered expatriate during such period 
                for purposes of subsections (d)(1) and (f) and section 
                2801.
            ``(2) Expatriate.--The term `expatriate' means--
                    ``(A) any United States citizen who relinquishes his 
                citizenship, and
                    ``(B) any long-term resident of the United States 
                who ceases to be a lawful permanent resident of the 
                United States (within the meaning of section 
                7701(b)(6)).
            ``(3) Expatriation date.--The term `expatriation date' 
        means--
                    ``(A) the date an individual relinquishes United 
                States citizenship, or
                    ``(B) in the case of a long-term resident of the 
                United States, the date on which the individual ceases 
                to be a lawful permanent resident of the United States 
                (within the meaning of section 7701(b)(6)).
            ``(4) Relinquishment of citizenship.--A citizen shall be 
        treated as relinquishing his United States citizenship on the 
        earliest of--
                    ``(A) the date the individual renounces his United 
                States nationality before a diplomatic or consular 
                officer of the United States pursuant to paragraph (5) 
                of section 349(a) of the Immigration and Nationality Act 
                (8 U.S.C. 1481(a)(5)),
                    ``(B) the date the individual furnishes to the 
                United States Department of State a signed statement of 
                voluntary relinquishment of United States nationality 
                confirming the performance of an act of expatriation 
                specified in paragraph (1), (2), (3), or (4) of section 
                349(a) of the Immigration and Nationality Act (8 U.S.C. 
                1481(a)(1)-(4)),
                    ``(C) the date the United States Department of State 
                issues to the individual a certificate of loss of 
                nationality, or
                    ``(D) the date a court of the United States cancels 
                a naturalized citizen's certificate of naturalization.
        Subparagraph (A) or (B) shall not apply to any individual unless 
        the renunciation or voluntary relinquishment is subsequently 
        approved by the issuance to the individual of a certificate of 
        loss of nationality by the United States Department of State.

[[Page 122 STAT. 1644]]

            ``(5) Long-term resident.--The term `long-term resident' has 
        the meaning given to such term by section 877(e)(2).
            ``(6) Early distribution tax.--The term `early distribution 
        tax' means any increase in tax imposed under section 72(t), 
        220(e)(4), 223(f)(4), 409A(a)(1)(B), 529(c)(6), or 530(d)(4).

    ``(h) Other Rules.--
            ``(1) Termination of deferrals, etc.--In the case of any 
        covered expatriate, notwithstanding any other provision of this 
        title--
                    ``(A) any time period for acquiring property which 
                would result in the reduction in the amount of gain 
                recognized with respect to property disposed of by the 
                taxpayer shall terminate on the day before the 
                expatriation date, and
                    ``(B) any extension of time for payment of tax shall 
                cease to apply on the day before the expatriation date 
                and the unpaid portion of such tax shall be due and 
                payable at the time and in the manner prescribed by the 
                Secretary.
            ``(2) Step-up in basis.--Solely for purposes of determining 
        any tax imposed by reason of subsection (a), property which was 
        held by an individual on the date the individual first became a 
        resident of the United States (within the meaning of section 
        7701(b)) shall be treated as having a basis on such date of not 
        less than the fair market value of such property on such date. 
        The preceding sentence shall not apply if the individual elects 
        not to have such sentence apply. Such an election, once made, 
        shall be irrevocable.
            ``(3) Coordination <<NOTE: Applicability.>> with section 
        684.--If the expatriation of any individual would result in the 
        recognition of gain under section 684, this section shall be 
        applied after the application of section 684.

    ``(i) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''.
    (b) Tax on Gifts and Bequests Received by United States Citizens and 
Residents From Expatriates.--
            (1) In general.--Subtitle B (relating to estate and gift 
        taxes) is amended by inserting after chapter 14 the following 
        new chapter:

            ``CHAPTER 15--GIFTS AND BEQUESTS FROM EXPATRIATES

``Sec. 2801. Imposition of tax.

``SEC. 2801. IMPOSITION OF TAX.

    ``(a) In General.--If, during any calendar year, any United States 
citizen or resident receives any covered gift or bequest, there is 
hereby imposed a tax equal to the product of--
            ``(1) the highest rate of tax specified in the table 
        contained in section 2001(c) as in effect on the date of such 
        receipt (or, if greater, the highest rate of tax specified in 
        the table applicable under section 2502(a) as in effect on the 
        date), and
            ``(2) the value of such covered gift or bequest.

    ``(b) Tax To Be Paid by Recipient.--The tax imposed by subsection 
(a) on any covered gift or bequest shall be paid by the person receiving 
such gift or bequest.

[[Page 122 STAT. 1645]]

    ``(c) Exception for <<NOTE: Applicability.>> Certain Gifts.--
Subsection (a) shall apply only to the extent that the value of covered 
gifts and bequests received by any person during the calendar year 
exceeds the dollar amount in effect under section 2503(b) for such 
calendar year.

    ``(d) Tax Reduced by Foreign Gift or Estate Tax.--The tax imposed by 
subsection (a) on any covered gift or bequest shall be reduced by the 
amount of any gift or estate tax paid to a foreign country with respect 
to such covered gift or bequest.
    ``(e) Covered Gift or Bequest.--
            ``(1) In general.--For purposes of this chapter, the term 
        `covered gift or bequest' means--
                    ``(A) any property acquired by gift directly or 
                indirectly from an individual who, at the time of such 
                acquisition, is a covered expatriate, and
                    ``(B) any property acquired directly or indirectly 
                by reason of the death of an individual who, immediately 
                before such death, was a covered expatriate.
            ``(2) Exceptions for transfers otherwise subject to estate 
        or gift tax.--Such term shall not include--
                    ``(A) any property shown on a timely filed return of 
                tax imposed by chapter 12 which is a taxable gift by the 
                covered expatriate, and
                    ``(B) any property included in the gross estate of 
                the covered expatriate for purposes of chapter 11 and 
                shown on a timely filed return of tax imposed by chapter 
                11 of the estate of the covered expatriate.
            ``(3) Exceptions for transfers to spouse or charity.--Such 
        term shall not include any property with respect to which a 
        deduction would be allowed under section 2055, 2056, 2522, or 
        2523, whichever is appropriate, if the decedent or donor were a 
        United States person.
            ``(4) Transfers in trust.--
                    ``(A) Domestic trusts.--In the case of a covered 
                gift or bequest made to a domestic trust--
                          ``(i) <<NOTE: Applicability.>> subsection (a) 
                      shall apply in the same manner as if such trust 
                      were a United States citizen, and
                          ``(ii) the tax imposed by subsection (a) on 
                      such gift or bequest shall be paid by such trust.
                    ``(B) Foreign trusts.--
                          ``(i) In <<NOTE: Applicability.>> general.--In 
                      the case of a covered gift or bequest made to a 
                      foreign trust, subsection (a) shall apply to any 
                      distribution attributable to such gift or bequest 
                      from such trust (whether from income or corpus) to 
                      a United States citizen or resident in the same 
                      manner as if such distribution were a covered gift 
                      or bequest.
                          ``(ii) Deduction for tax paid by recipient.--
                      There shall be allowed as a deduction under 
                      section 164 the amount of tax imposed by this 
                      section which is paid or accrued by a United 
                      States citizen or resident by reason of a 
                      distribution from a foreign trust, but only to the 
                      extent such tax is imposed on the portion of such 
                      distribution which is included in the gross income 
                      of such citizen or resident.
                          ``(iii) Election to be treated as domestic 
                      trust.--Solely for purposes of this section, a 
                      foreign trust may elect to be treated as a 
                      domestic trust.

[[Page 122 STAT. 1646]]

                      Such an election may be revoked with the consent 
                      of the Secretary.

    ``(f) Covered Expatriate.--For purposes of this section, the term 
`covered expatriate' has the meaning given to such term by section 
877A(g)(1).''.
            (2) Clerical amendment.--The table of chapters for subtitle 
        B is amended by inserting after the item relating to chapter 14 
        the following new item:

          ``Chapter 15. Gifts and Bequests From Expatriates.''.

    (c) Definition of Termination of United States Citizenship.--
            (1) In general.--Section 7701(a) <<NOTE: 26 USC 7701.>> is 
        amended by adding at the end the following new paragraph:
            ``(50) Termination of united states citizenship.--
                    ``(A) In general.--An individual shall not cease to 
                be treated as a United States citizen before the date on 
                which the individual's citizenship is treated as 
                relinquished under section 877A(g)(4).
                    ``(B) Dual citizens.--
                Under <<NOTE: Regulations.>> regulations prescribed by 
                the Secretary, subparagraph (A) shall not apply to an 
                individual who became at birth a citizen of the United 
                States and a citizen of another country.''.
            (2) Conforming amendments.--
                    (A) Paragraph (1) of section 877(e) is amended to 
                read as follows:
            ``(1) In general.--Any long-term resident of the United 
        States who ceases to be a lawful permanent resident of the 
        United States (within the meaning of section 7701(b)(6)) shall 
        be treated for purposes of this section and sections 2107, 2501, 
        and 6039G in the same manner as if such resident were a citizen 
        of the United States who lost United States citizenship on the 
        date of such cessation or commencement.''.
                    (B) Paragraph (6) of section 7701(b) is amended by 
                adding at the end the following flush sentence:
        ``An individual shall cease to be treated as a lawful permanent 
        resident of the United States if such individual commences to be 
        treated as a resident of a foreign country under the provisions 
        of a tax treaty between the United States and the foreign 
        country, does not waive the benefits of such treaty applicable 
        to residents of the foreign country, and notifies the Secretary 
        of the commencement of such treatment.''.
                    (C) Section 7701 is amended by striking subsection 
                (n) and by redesignating subsections (o) and (p) as 
                subsections (n) and (o), respectively.

    (d) Termination of Section 877.--Section 877 is amended by adding at 
the end the following new subsection:
    ``(h) Termination.--This section shall not apply to any individual 
whose expatriation date (as defined in section 877A(g)(3)) is on or 
after the date of the enactment of this subsection.''.
    (e) Information Returns.--Section 6039G is amended--
            (1) by inserting ``or 877A'' after ``section 877(b)'' in 
        subsection (a), and
            (2) by inserting ``or 877A'' after ``section 877(a)'' in 
        subsection (d).

[[Page 122 STAT. 1647]]

    (f) Clerical Amendment.--The table of sections for subpart A of part 
II of subchapter N of chapter 1 is amended by inserting after the item 
relating to section 877 the following new item:

``Sec. 877A. Tax responsibilities of expatriation.''.

    (g) Effective <<NOTE: 26 USC 2801 note.>> Date.--
            (1) In general.--Except as provided in this subsection, the 
        amendments made by this section shall apply to any individual 
        whose expatriation date (as so defined) is on or after the date 
        of the enactment of this Act.
            (2) Gifts and bequests.--Chapter <<NOTE: Applicability.>> 15 
        of the Internal Revenue Code of 1986 (as added by subsection 
        (b)) shall apply to covered gifts and bequests (as defined in 
        section 2801 of such Code, as so added) received on or after the 
        date of the enactment of this Act from transferors (or from the 
        estates of transferors) whose expatriation date is on or after 
        such date of enactment.
SEC. 302. CERTAIN DOMESTICALLY CONTROLLED FOREIGN PERSONS 
                        PERFORMING SERVICES UNDER CONTRACT WITH 
                        UNITED STATES GOVERNMENT TREATED AS 
                        AMERICAN EMPLOYERS.

    (a) FICA Taxes.--Section 3121 <<NOTE: 26 USC 3121.>> (relating to 
definitions) is amended by adding at the end the following new 
subsection:

    ``(z) Treatment of Certain Foreign Persons as American Employers.--
            ``(1) In general.--If any employee of a foreign person is 
        performing services in connection with a contract between the 
        United States Government (or any instrumentality thereof) and 
        any member of any domestically controlled group of entities 
        which includes such foreign person, such foreign person shall be 
        treated for purposes of this chapter as an American employer 
        with respect to such services performed by such employee.
            ``(2) Domestically controlled group of entities.--For 
        purposes of this subsection--
                    ``(A) In general.--The term `domestically controlled 
                group of entities' means a controlled group of entities 
                the common parent of which is a domestic corporation.
                    ``(B) Controlled group of entities.--The term 
                `controlled group of entities' means a controlled group 
                of corporations as defined in section 1563(a)(1), except 
                that--
                          ``(i) `more than 50 percent' shall be 
                      substituted for `at least 80 percent' each place 
                      it appears therein, and
                          ``(ii) the determination shall be made without 
                      regard to subsections (a)(4) and (b)(2) of section 
                      1563.
                A partnership or any other entity (other than a 
                corporation) shall be treated as a member of a 
                controlled group of entities if such entity is 
                controlled (within the meaning of section 954(d)(3)) by 
                members of such group (including any entity treated as a 
                member of such group by reason of this sentence).
            ``(3) Liability of common parent.--In the case of a foreign 
        person who is a member of any domestically controlled group of 
        entities, the common parent of such group shall be jointly and 
        severally liable for any tax under this chapter for which such 
        foreign person is liable by reason of this subsection, and

[[Page 122 STAT. 1648]]

        for any penalty imposed on such person by this title with 
        respect to any failure to pay such tax or to file any return or 
        statement with respect to such tax or wages subject to such tax. 
        No deduction shall be allowed under this title for any liability 
        imposed by the preceding sentence.
            ``(4) Provisions preventing double taxation.--
                    ``(A) Agreements.--Paragraph (1) shall not apply to 
                any services which are covered by an agreement under 
                subsection (l).
                    ``(B) Equivalent foreign taxation.--Paragraph (1) 
                shall not apply to any services if the employer 
                establishes to the satisfaction of the Secretary that 
                the remuneration paid by such employer for such services 
                is subject to a tax imposed by a foreign country which 
                is substantially equivalent to the taxes imposed by this 
                chapter.
            ``(5) Cross reference.--For relief from taxes in cases 
        covered by certain international agreements, see sections 
        3101(c) and 3111(c).''.

    (b) Social Security Benefits.--Subsection (e) of section 210 of the 
Social Security Act (42 U.S.C. 410(e)) is amended--
            (1) by striking ``(e) The term'' and inserting ``(e)(1) The 
        term'',
            (2) by redesignating clauses (1) through (6) as clauses (A) 
        through (F), respectively, and
            (3) by adding at the end the following new paragraph:

    ``(2)(A) If any employee of a foreign person is performing services 
in connection with a contract between the United States Government (or 
any instrumentality thereof) and any member of any domestically 
controlled group of entities which includes such foreign person, such 
foreign person shall be treated as an American employer with respect to 
such services performed by such employee.
    ``(B) For purposes of this paragraph--
            ``(i) The term `domestically controlled group of entities' 
        means a controlled group of entities the common parent of which 
        is a domestic corporation.
            ``(ii) The term `controlled group of entities' means a 
        controlled group of corporations as defined in section 
        1563(a)(1) of the Internal Revenue Code of 1986, except that--
                    ``(I) `more than 50 percent' shall be substituted 
                for `at least 80 percent' each place it appears therein, 
                and
                    ``(II) the determination shall be made without 
                regard to subsections (a)(4) and (b)(2) of section 1563 
                of such Code.
        A partnership or any other entity (other than a corporation) 
        shall be treated as a member of a controlled group of entities 
        if such entity is controlled (within the meaning of section 
        954(d)(3) of such Code) by members of such group (including any 
        entity treated as a member of such group by reason of this 
        sentence).

    ``(C) Subparagraph (A) shall not apply to any services to which 
paragraph (1) of section 3121(z) of the Internal Revenue Code of 1986 
does not apply by reason of paragraph (4) of such section.''.
    (c) Effective <<NOTE: 26 USC 3121 note.>> Date.--The amendment made 
by this section shall apply to services performed in calendar months 
beginning more than 30 days after the date of the enactment of this Act.

[[Page 122 STAT. 1649]]

SEC. 303. INCREASE IN MINIMUM PENALTY ON FAILURE TO FILE A RETURN 
                        OF TAX.

    (a) In General.--Subsection (a) of section <<NOTE: 26 USC 
6651.>> 6651 is amended by striking ``$100'' in the last sentence and 
inserting ``$135''.

    (b) Effective <<NOTE: 26 USC 6651 note.>> Date.--The amendment made 
by this section shall apply to returns required to be filed after 
December 31, 2008.

 TITLE IV--PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL HEALTH 
                                BENEFITS

SEC. 401. PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL 
                        HEALTH BENEFITS.

    (a) Internal Revenue Code of 1986.--Subsection (f) of section 9812 
is amended--
            (1) by striking ``and'' at the end of paragraph (2), and
            (2) by striking paragraph (3) and inserting the following 
        new paragraphs:
            ``(3) on or after January 1, 2008, and before the date of 
        the enactment of the Heroes Earnings Assistance and Relief Tax 
        Act of 2008, and
            ``(4) after December 31, 2008.''.

    (b) Employee Retirement Income Security Act of 1974.--Subsection (f) 
of section 712 of the Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1185a(f)) is amended by striking ``services furnished after 
December 31, 2007'' and inserting ``services furnished--
            ``(1) on or after January 1, 2008, and before the date of 
        the enactment of the Heroes Earnings Assistance and Relief Tax 
        Act of 2008, and
            ``(2) after December 31, 2008.''.

[[Page 122 STAT. 1650]]

    (c) Public Health Service Act.--Subsection (f) of section 2705 of 
the Public Health Service Act (42 U.S.C. 300gg-5(f)) is amended by 
striking ``services furnished after December 31, 2007'' and inserting 
``services furnished--
            ``(1) on or after January 1, 2008, and before the date of 
        the enactment of the Heroes Earnings Assistance and Relief Tax 
        Act of 2008, and
            ``(2) after December 31, 2008.''.

    Approved June 17, 2008.

LEGISLATIVE HISTORY--H.R. 6081:
---------------------------------------------------------------------------

CONGRESSIONAL RECORD, Vol. 154 (2008):
            May 20, considered and passed House.
            May 22, considered and passed Senate.

                                  <all>