To amend the Internal Revenue Code of 1986 to provide a special rule for members of the uniformed services 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.

SECTION 1. SHORT TITLE; REFERENCES.

    (a) Short Title.--This Act may be cited as the ``Armed Forces Tax 
Fairness Act of 2003''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

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 referred to 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 on 
                qualified official extended duty as a member of the 
                uniformed services or of the Foreign Service.
                    ``(B) Maximum period of suspension.--Such 5-year 
                period 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.--Paragraph (3) of section 134(b) (relating to 
qualified military benefit) 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.--Section 134(b)(3)(A) 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.--Subsection (a) of section 132 (relating to 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 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.--
            ``(1) In general.--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) (as in effect on the date of the enactment of 
        this subsection).
            ``(2) Limitation.--With respect to any property, such term 
        shall not include any payment referred to in paragraph (1) to 
        the extent that the sum of all such payments related to such 
        property exceeds the amount described in clause (1) of 
        subsection (c) of such section (as in effect on such date).''.
    (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.--Subsection (a) of section 7508 (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) is amended by inserting ``or 
        contingency operation'' after ``area''.
            (2) The heading for section 7508 is amended by inserting 
        ``or contingency operation'' after ``combat zone''.
            (3) The item relating to section 7508 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) (relating 
to list of exempt organizations) is amended by striking ``or widowers'' 
and inserting ``, widowers, 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.--Subsection (b) of section 134 (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) (as amended by section 102) is 
        further amended by inserting ``and paragraph (4)'' after 
        ``subparagraphs (B) and (C)''.
            (2) Section 3121(a)(18) is amended by striking ``or 129'' 
        and inserting ``, 129, or 134(b)(4)''.
            (3) Section 3306(b)(13) is amended by striking ``or 129'' 
        and inserting ``, 129, or 134(b)(4)''.
            (4) Section 3401(a)(18) 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, 2002.

SEC. 8. CLARIFICATION RELATING TO EXCEPTION FROM ADDITIONAL TAX ON 
              CERTAIN DISTRIBUTIONS FROM QUALIFIED TUITION PROGRAMS, 
              ETC., ON ACCOUNT OF ATTENDANCE AT MILITARY ACADEMY.

    (a) In General.--Subparagraph (B) of section 530(d)(4) (relating to 
exceptions from additional tax for distributions not used for 
educational purposes) is amended by striking ``or'' at the end of 
clause (iii), by redesignating clause (iv) as clause (v), and by 
inserting after clause (iii) the following new clause:
                            ``(iv) made on account of the attendance of 
                        the designated beneficiary 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, to the 
                        extent that the amount of the payment or 
                        distribution does not exceed the costs of 
                        advanced education (as defined by section 
                        2005(e)(3) of title 10, United States Code, as 
                        in effect on the date of the enactment of this 
                        section) attributable to such attendance, or''.
    (b) Effective Date.--The amendment made by this section shall take 
effect for taxable years beginning after December 31, 2002.

SEC. 9. ABOVE-THE-LINE DEDUCTION FOR OVERNIGHT TRAVEL EXPENSES OF 
              NATIONAL GUARD AND RESERVE MEMBERS.

    (a) Deduction Allowed.--Section 162 (relating to certain trade or 
business expenses) is amended by redesignating subsection (p) as 
subsection (q) and inserting after subsection (o) the following new 
subsection:
    ``(p) Treatment of Expenses of Members of Reserve Component of 
Armed Forces of the United States.--For purposes of subsection (a)(2), 
in the case of an individual who performs services as a member of a 
reserve component of the Armed Forces of the United States at any time 
during the taxable year, such individual shall be deemed to be away 
from home in the pursuit of a trade or business for any period during 
which such individual is away from home in connection with such 
services.''.
    (b) Deduction Allowed Whether or Not Taxpayer Elects To Itemize.--
Paragraph (2) of section 62(a) (relating to certain trade and business 
deductions of employees) is amended by adding at the end the following 
new subparagraph:
                    ``(E) Certain expenses of members of reserve 
                components of the armed forces of the united states.--
                The deductions allowed by section 162 which consist of 
                expenses, determined at a rate not in excess of the 
                rates for travel expenses (including per diem in lieu 
                of subsistence) authorized for employees of agencies 
                under subchapter I of chapter 57 of title 5, United 
                States Code, and not in excess of $1,500, paid or 
                incurred by the taxpayer in connection with the 
                performance of services by such taxpayer as a member of 
                a reserve component of the Armed Forces of the United 
                States for any period during which such individual is 
                more than 100 miles away from home in connection with 
                such services.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred in taxable years beginning after 
December 31, 2002.

SEC. 10. TAX RELIEF AND ASSISTANCE FOR FAMILIES OF ASTRONAUTS WHO LOSE 
              THEIR LIVES ON A SPACE MISSION.

    (a) Income Tax Relief.--
            (1) In general.--Subsection (d) of section 692 (relating to 
        income taxes of members of Armed Forces and victims of certain 
        terrorist attacks on death) is amended by adding at the end the 
        following new paragraph:
            ``(5) Relief with respect to astronauts.--The provisions of 
        this subsection shall apply to any astronaut whose death occurs 
        while on a space mission, except that paragraph (3)(B) shall be 
        applied by using the date of the death of the astronaut rather 
        than September 11, 2001.''.
            (2) Conforming amendments.--
                    (A) Section 5(b)(1) is amended by inserting ``, 
                astronauts,'' after ``Forces''.
                    (B) Section 6013(f)(2)(B) is amended by inserting 
                ``, astronauts,'' after ``Forces''.
            (3) Clerical amendments.--
                    (A) The heading of section 692 is amended by 
                inserting ``, astronauts,'' after ``forces''.
                    (B) The item relating to section 692 in the table 
                of sections for part II of subchapter J of chapter 1 is 
                amended by inserting ``, astronauts,'' after 
                ``Forces''.
            (4) Effective date.--The amendments made by this subsection 
        shall apply with respect to any astronaut whose death occurs 
        after December 31, 2002.
    (b) Death Benefit Relief.--
            (1) In general.--Subsection (i) of section 101 (relating to 
        certain death benefits) is amended by adding at the end the 
        following new paragraph:
            ``(4) Relief with respect to astronauts.--The provisions of 
        this subsection shall apply to any astronaut whose death occurs 
        while on a space mission.''.
            (2) Clerical amendment.--The heading for subsection (i) of 
        section 101 is amended by inserting ``or Astronauts'' after 
        ``Victims''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to amounts paid after December 31, 2002, with 
        respect to deaths occurring after such date.
    (c) Estate Tax Relief.--
            (1) In general.--Subsection (b) of section 2201 (defining 
        qualified decedent) is amended by striking ``and'' at the end 
        of paragraph (1)(B), by striking the period at the end of 
        paragraph (2) and inserting ``, and'', and by adding at the end 
        the following new paragraph:
            ``(3) any astronaut whose death occurs while on a space 
        mission.''.
            (2) Clerical amendments.--
                    (A) The heading of section 2201 is amended by 
                inserting ``, deaths of astronauts,'' after ``forces''.
                    (B) The item relating to section 2201 in the table 
                of sections for subchapter C of chapter 11 is amended 
                by inserting ``, deaths of astronauts,'' after 
                ``Forces''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to estates of decedents dying after December 31, 
        2002.

SEC. 11. 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 (other than this 
section) had not been enacted.

            Passed the House of Representatives April 9, 2003.

            Attest:

                                                 JEFF TRANDAHL,

                                                                 Clerk.

Summary: Armed Forces Tax Fairness Act of 2003 - Amends the Internal Revenue Code to authorize a member of the uniformed services or the Foreign Service on qualified official extended duty , to extend for five years the five-year period utilized in determining full exclusion of gain from the sale of a principal residence. Includes among the uniformed services: (1) the armed forces. (2) the commissioned corps of the National Oceanic and Atmospheric Administration. And (3) the commissioned corps of the Public Health Service. Makes such provisions effective as if included in section 312 of the Taxpayer Relief Act of 1997. States that if a refund or credit resulting from this section is prevented before the close of the one-year period beginning on the date of the enactment of this Act by the operation of any law or rule of law , such refund or credit may be allowed if claimed before the close of such period. Excludes from gross income as a qualified military benefit the amount of the death gratuity payable under chapter 75 of title 10 of the United States Code, effective with respect to deaths occurring after September 10, 2001. Exempts amounts received under the Homeowners Assistance Program from inclusion as gross income. Extends combat zone filing rules to contingency operations. Includes ancestors or lineal descendants of past or present members of the armed forces or of cadets as qualifying members of veterans' organizations for purposes of such organizations' tax-exempt status determination. Includes dependent care assistance provided under a dependent care assistance program for a member of the uniformed services by reason of such member's status or service as an income-excludable qualified military benefit. 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. Provides a deduction 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 away from home and stay overnight as part of their official duties. Provides tax relief for families of the Columbia Space Shuttle by making the tax relief provisions applicable to terrorist attack victims applicable to the Columbia Space Shuttle. Provides that amounts transferred to any trust fund under title II of the Social Security Act shall be determined as if this Act had not enacted.