To amend the Internal Revenue Code of 1986 to provide a special rule for members of the uniformed services and Foreign Service in determining the exclusion of gain from the sale of a principal residence and to restore the tax exempt status of death gratuity payments to members of the uniformed services, and for other purposes.

Summary: Armed Forces Tax Fairness Act of 2002 - (Sec. 2) Amends the Internal Revenue Code (the Code) to suspend, for members of the uniformed services or of the Foreign Service serving on "qualified official extended duty" (any extended duty while serving at a duty station which is at least 150 miles from the principal residence or while residing under Government orders in Government quarters), the five-year period utilized in determining exclusion of gain from the sale of such residence. Limits the extension of such period to not more than five years.(Sec. 3) Restores in full the tax-exempt status of death gratuity payments to members of the armed services.(Sec. 4) Excludes from gross income any fringe benefit qualifying as a "qualified military base realignment and closure fringe."(Sec. 5) Expands the applicability of rules concerning time for the performance of certain acts under the Code (filing, payment, and etc.) which may be postponed because of service in a combat zone to include service away from a service member's permanent duty station while participating in an operation designated by the Secretary of Defense as a contingency operation.(Sec. 6) Permits ancestors and lineal descendants of past or present members of the armed forces to be taken into account in determining whether a veterans' organization is exempt from tax.(Sec. 7) Includes dependent care assistance within the definition of a qualified military benefit which shall be excluded from gross income, thus excluding such assistance from gross income for uniformed service members and former members.(Sec. 8) Exempts distributions from an education individual retirement account from the ten percent additional tax for non-educational use: (1) if made for an account holder at the United States Military Academy, the United States Naval Academy, the United States Air Force Academy, the United States Coast Guard Academy, or the United States Merchant Marine Academy; and (2) to the extent that the distribution does not exceed the costs of advanced education.(Sec. 9) Suspends the tax-exempt status of a designated terrorist organization (as defined by this Act). Denies: (1) deductions for contributions made to such an organization; and (2) administrative or judicial challenge to such suspension or denial. Provides for refund or credit in a case of erroneous designation.(Sec. 10) Provides a business or trade deduction of up to $1,500 for itemizers and non-itemizers for unreimbursed overnight travel, meals, and lodging expenses of National Guard and Reserve members who must travel more than 100 miles from home and stay overnight as part of their official duties.(Sec. 11) Directs the Internal Revenue Service (IRS) to establish user fees for ruling letters, opinion letters, determination letters, and similar requests. Exempts certain pension plan requests. Sets forth average fee determination provisions.(Sec. 12) Authorizes the IRS to enter into partial payment installment agreements with taxpayers.Requires review of such agreements at least every two years.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Armed Forces Tax Fairness Act of 
2002''.

SEC. 2. SPECIAL RULE FOR MEMBERS OF UNIFORMED SERVICES AND FOREIGN 
              SERVICE IN DETERMINING EXCLUSION OF GAIN FROM SALE OF 
              PRINCIPAL RESIDENCE.

    (a) In General.--Subsection (d) of section 121 of the Internal 
Revenue Code of 1986 (relating to exclusion of gain from sale of 
principal residence) is amended by adding at the end the following new 
paragraph:
            ``(10) Members of uniformed services and foreign service.--
                    ``(A) In general.--At the election of an individual 
                with respect to a property, the running of the 5-year 
                period described in subsection (a) with respect to such 
                property shall be suspended during any period that such 
                individual or such individual's spouse is serving on 
                qualified official extended duty as a member of the 
                uniformed services or of the Foreign Service.
                    ``(B) Maximum period of suspension.--The 5-year 
                period described in subsection (a) shall not be 
                extended more than 5 years by reason of subparagraph 
                (A).
                    ``(C) Qualified official extended duty.--For 
                purposes of this paragraph--
                            ``(i) In general.--The term `qualified 
                        official extended duty' means any extended duty 
                        while serving at a duty station which is at 
                        least 150 miles from such property or while 
                        residing under Government orders in Government 
                        quarters.
                            ``(ii) Uniformed services.--The term 
                        `uniformed services' has the meaning given such 
                        term by section 101(a)(5) of title 10, United 
                        States Code, as in effect on the date of the 
                        enactment of this paragraph.
                            ``(iii) Foreign service.--The term `member 
                        of the Foreign Service' has the meaning given 
                        the term `member of the Service' by paragraph 
                        (1), (2), (3), (4), or (5) of section 103 of 
                        the Foreign Service Act of 1980, as in effect 
                        on the date of the enactment of this paragraph.
                            ``(iv) Extended duty.--The term `extended 
                        duty' means any period of active duty pursuant 
                        to a call or order to such duty for a period in 
                        excess of 180 days or for an indefinite period.
                    ``(D) Special rules relating to election.--
                            ``(i) Election limited to 1 property at a 
                        time.--An election under subparagraph (A) with 
                        respect to any property may not be made if such 
                        an election is in effect with respect to any 
                        other property.
                            ``(ii) Revocation of election.--An election 
                        under subparagraph (A) may be revoked at any 
                        time.''.
    (b) Effective Date; Special Rule.--
            (1) Effective date.--The amendment made by this section 
        shall take effect as if included in the amendments made by 
        section 312 of the Taxpayer Relief Act of 1997.
            (2) Waiver of limitations.--If refund or credit of any 
        overpayment of tax resulting from the amendment made by this 
        section is prevented at any time before the close of the 1-year 
        period beginning on the date of the enactment of this Act by 
        the operation of any law or rule of law (including res 
        judicata), such refund or credit may nevertheless be made or 
        allowed if claim therefor is filed before the close of such 
        period.

SEC. 3. RESTORATION OF FULL EXCLUSION FROM GROSS INCOME OF DEATH 
              GRATUITY PAYMENT.

    (a) In General.--Subsection (b)(3) of section 134 of the Internal 
Revenue Code of 1986 (relating to certain military benefits) is amended 
by adding at the end the following new subparagraph:
                    ``(C) Exception for death gratuity adjustments made 
                by law.--Subparagraph (A) shall not apply to any 
                adjustment to the amount of death gratuity payable 
                under chapter 75 of title 10, United States Code, which 
                is pursuant to a provision of law enacted before 
                December 31, 1991.''.
    (b) Conforming Amendment.--Subparagraph (A) of section 134(b)(3) of 
such Code is amended by striking ``subparagraph (B)'' and inserting 
``subparagraphs (B) and (C)''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to deaths occurring after September 10, 2001.

SEC. 4. EXCLUSION FOR AMOUNTS RECEIVED UNDER DEPARTMENT OF DEFENSE 
              HOMEOWNERS ASSISTANCE PROGRAM.

    (a) In General.--Section 132(a) of the Internal Revenue Code of 
1986 (relating to the exclusion from gross income of certain fringe 
benefits) is amended by striking ``or'' at the end of paragraph (6), by 
striking the period at the end of paragraph (7) and inserting ``, or'' 
and by adding at the end the following new paragraph:
            ``(8) qualified military base realignment and closure 
        fringe.''.
    (b) Qualified Military Base Realignment and Closure Fringe.--
Section 132 of such Code is amended by redesignating subsection (n) as 
subsection (o) and by inserting after subsection (m) the following new 
subsection:
    ``(n) Qualified Military Base Realignment and Closure Fringe.--For 
purposes of this section, the term `qualified military base realignment 
and closure fringe' means 1 or more payments under the authority of 
section 1013 of the Demonstration Cities and Metropolitan Development 
Act of 1966 (42 U.S.C. 3374) to offset the adverse effects on housing 
values as a result of a military base realignment or closure.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to payments made after the date of the enactment of this Act.

SEC. 5. EXPANSION OF COMBAT ZONE FILING RULES TO CONTINGENCY 
              OPERATIONS.

    (a) In General.--Section 7508(a) of the Internal Revenue Code of 
1986 (relating to time for performing certain acts postponed by reason 
of service in combat zone) is amended--
            (1) by inserting ``or when deployed outside the United 
        States away from the individual's permanent duty station while 
        participating in an operation designated by the Secretary of 
        Defense as a contingency operation (as defined in section 
        101(a)(13) of title 10, United States Code) or which became 
        such a contingency operation by operation of law'' after 
        ``section 112'',
            (2) by inserting in the first sentence ``or at any time 
        during the period of such contingency operation'' after ``for 
        purposes of such section'',
            (3) by inserting ``or operation'' after ``such an area'', 
        and
            (4) by inserting ``or operation'' after ``such area''.
    (b) Conforming Amendments.--
            (1) Section 7508(d) of such Code is amended by inserting 
        ``or contingency operation'' after ``area''.
            (2) The heading for section 7508 of such Code is amended by 
        inserting ``or contingency operation'' after ``combat zone''.
            (3) The item relating to section 7508 of such Code in the 
        table of sections for chapter 77 is amended by inserting ``or 
        contingency operation'' after ``combat zone''.
    (c) Effective Date.--The amendments made by this section shall 
apply to any period for performing an act which has not expired before 
the date of the enactment of this Act.

SEC. 6. MODIFICATION OF MEMBERSHIP REQUIREMENT FOR EXEMPTION FROM TAX 
              FOR CERTAIN VETERANS' ORGANIZATIONS.

    (a) In General.--Subparagraph (B) of section 501(c)(19) of the 
Internal Revenue Code of 1986 (relating to list of exempt 
organizations) is amended by striking ``or widowers'' and inserting ``, 
widowers, or ancestors or lineal descendants''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 7. CLARIFICATION OF THE TREATMENT OF CERTAIN DEPENDENT CARE 
              ASSISTANCE PROGRAMS.

    (a) In General.--Section 134(b) of the Internal Revenue Code of 
1986 (defining qualified military benefit) is amended by adding at the 
end the following new paragraph:
            ``(4) Clarification of certain benefits.--For purposes of 
        paragraph (1), such term includes any dependent care assistance 
        program (as in effect on the date of the enactment of this 
        paragraph) for any individual described in paragraph (1)(A).''.
    (b) Conforming Amendments.--
            (1) Section 134(b)(3)(A) of such Code (as amended by 
        section 3) is further amended by inserting ``and paragraph 
        (4)'' after ``subparagraphs (B) and (C)''.
            (2) Section 3121(a)(18) of such Code is amended by striking 
        ``or 129'' and inserting ``, 129, or 134(b)(4)''.
            (3) Section 3306(b)(13) of such Code is amended by striking 
        ``or 129'' and inserting ``, 129, or 134(b)(4)''.
            (4) Section 3401(a)(18) of such Code is amended by striking 
        ``or 129'' and inserting ``, 129, or 134(b)(4)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.
    (d) No Inference.--No inference may be drawn from the amendments 
made by this section with respect to the tax treatment of any amounts 
under the program described in section 134(b)(4) of the Internal 
Revenue Code of 1986 (as added by this section) for any taxable year 
beginning before January 1, 2002.

SEC. 8. PROTECTION OF SOCIAL SECURITY.

    The amounts transferred to any trust fund under title II of the 
Social Security Act shall be determined as if this Act had not been 
enacted.

            Passed the House of Representatives October 9, 2002.

            Attest:

                                                                 Clerk.
107th CONGRESS

  2d Session

                               H. R. 5557

_______________________________________________________________________

                                 AN ACT

 To amend the Internal Revenue Code of 1986 to provide a special rule 
     for members of the uniformed services and Foreign Service in 
    determining the exclusion of gain from the sale of a principal 
   residence and to restore the tax exempt status of death gratuity 
 payments to members of the uniformed services, and for other purposes.