69–006

106TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 106–90

TAX RELIEF FOR PERSONNEL IN THE FEDERAL REPUBLIC

OF YUGOSLAVIA (SERBIA/MONTENEGRO) AND CERTAIN

OTHER AREAS

APRIL 13, 1999.—Committed to the Committee of the Whole House on the State of

the Union and ordered to be printed

Mr. ARCHER, from the Committee on Ways and Means,

submitted the following

REPORT

[To accompany H.R. 1376]

[Including cost estimate of the Congressional Budget Office]

The Committee on Ways and Means to whom was referred the

bill (H.R. 1376) to extend the tax benefits available with respect to

services performed in a combat zone to services performed in the

Federal Republic of Yugoslavia (Serbia/Montenegro) and certain

other areas, and for other purposes, having considered the same,

report favorably thereon with an amendment and recommend that

the bill as amended do pass.

CONTENTS

Page

I. Introduction ...................................................................................................... 2

A. Purpose and Summary ........................................................................ 2

B. Background and Need for Legislation ................................................ 2

C. Legislative History .............................................................................. 2

II. Explanation of the Bill ..................................................................................... 2

III. Vote of the Committee ..................................................................................... 8

IV. Budget Effects of the Bill ................................................................................. 8

A. Committee Estimates of Budgetary Effects ....................................... 8

B. Statement Regarding New Budget Authority and Tax Expenditures .................................................................................................... 10

C. Cost Estimate Prepared by the Congressional Budget Office .......... 10

V. Other Matters To Be Discussed Under Rules of the House .......................... 11

A. Committee Oversight Findings and Recommendations .................... 11

B. Summary of Findings and Recommendations of the Committee

on Government Reform ...................................................................... 11

C. Constitutional Authority Statement .................................................. 11

D. Information Relating to Unfunded Mandates ................................... 11

E. Applicability of House Rule XX15(c) .................................................. 12

F. Tax Complexity Analysis ..................................................................... 12
2

The amendment if as follows:

In section 1(b) insert ‘‘(above the 39th parallel)’’ after ‘‘the northern Ionian Sea’’.

I. INTRODUCTION

A. PURPOSE AND SUMMARY

The bill (H.R. 1376): (1) provides that service in a qualified hazardous duty area (Federal Republic of Yugoslavia (Serbia/Montenegro), Albania, the Adriatic Sea, and the Northern Ionian Sea) is to

be treated as if it were a combat zone; and (2) makes the suspension of time provisions of Code section 7508 applicable to personnel

serving as part of ‘‘Operation Allied Force’’ outside those areas.

B. BACKGROUND AND NEED FOR LEGISLATION

The bill is intended to treat service by United States Armed

Forces (and support) personnel in the Federal Republic of Yugoslavia (Serbia/Montenegro), Albania, the Adriatic Sea, and the

Northern Ionian Sea as if it were combat zone service for purposes

of the Internal Revenue Code. The bill also makes the suspension

of time provisions of Code section 7508 applicable to personnel

serving as part of Operation Allied Force ourside those areas.

C. LEGISLATIVE HISTORY

H.R. 1376 was introduced by Mr. Archer and others on April 13,

1999, and was marked up by the Committee on April 13, 1999. The

bill was ordered favorably reported (by voice vote) with amendment

on April 13, 1999.

II. EXPLANATION OF THE BILL

PRESENT LAW

General time limits for filing tax returns

Present law provides that individuals generally must file their

Federal income tax returns by April 15 of the year following the

close of a taxable year (sec. 6072). Present law also provides that

the Secretary may grant reasonable extensions of time for filing

such returns (sec. 6081). Treasury regulations provide an additional automatic two-month extension (until June 15 for calendaryear individuals) for United States citizens and residents in military or naval service on duty on April 15 of the following year (the

otherwise applicable due date of the return) outside the United

States (Treas. Reg. sec. 1.6081–5(a)(6)). No action is necessary to

apply for this extension, but taxpayers must indicate on their returns (when filed) that they are claiming this extension. Unlike

most extensions of time to file, this extension applies to both filing

returns and paying the tax due.

Treasury regulations also provide, upon application on the proper

form, an automatic four-month extension (until August 15 for calendar-year individuals) for any individual timely filing that form

and paying the amount of tax estimated to be due (Treas. Reg. sec.

1.6081–4).
3

1Two special rules apply to continuous hospitalization inside the United States. First, the suspension of time provisions based on continuous hospitalization inside the United States are applicable only to the hospitalized individual; they are not applicable to the spouse of such individual. Second, in no event do the suspension of time provisions based on continuous hospitalization inside the United States extend beyond five years from the date the individual returns to

the United States. These two special rules do not apply to continuous hospitalization outside

the United States.

In general, individuals must make quarterly estimated tax payments by April 15, June 15, September 15, and January 15 of the

following taxable year. Wage withholding is considered to be a payment of estimated taxes.

Suspension of time periods

In general, present law suspends the period of time for performing various acts under the Internal Revenue Code, such as filing

tax returns, paying taxes, or filing a claim for credit or refund of

tax, for any individual serving in the Armed Forces of the United

States in an area designated as a ‘‘combat zone’’ during the period

of combatant activities (sec. 7508). An individual who becomes a

prisoner of war is considered to continue in active service and is

therefore also eligible for these suspension of time provisions. The

suspension of time also applies to an individual serving in support

of such Armed Forces in the combat zone, such as Red Cross personnel, accredited correspondents, and civilian personnel acting

under the direction of the Armed Forces in support of those Forces.

The designation of a combat zone must be made by the President

in an Executive Order. The President must also designate the period of combatant activities in the combat zone (the starting date

and the termination date of combat).

The suspension of time encompasses the period of service in the

combat zone during the period of combatant activities in the zone,

as well as (1) any time of continuous qualified hospitalization resulting from injury received in the combat zone 1 or (2) time in

missing in action status, plus the next 180 days.

The suspension of time applies to the following acts:

(1) Filing any return of income, estate, or gift tax (except employment and withholding taxes);

(2) Payment of any income, estate, or gift tax (except employment and withholding taxes);

(3) Filing a petition with the Tax Court for redetermination

of a deficiency, or for review of a decision rendered by the Tax

Court;

(4) Allowance of a credit or refund of any tax;

(5) Filing a claim for credit or refund of any tax;

(6) Bringing suit upon any such claim for credit or refund;

(7) Assessment of any tax;

(8) Giving or making any notice or demand for the payment

of any tax, or with respect to any liability to the United States

in respect of any tax;

(9) Collection of the amount of any liability in respect of any

tax;

(10) Bringing suit by the United States in respect of any liability in respect of any tax; and
4

2This is defined as the highest rate of basic pay at the highest pay grade applicable for that

month to any enlisted member of the Armed Forces of the United States, plus, in the case of

an officer entitled to combat pay, the amount of combat pay payable to that officer for that

month. (sec. 112(c)(5)).

(11) Any other act required or permitted under the internal

revenue laws specified in regulations prescribed under section

7508 by the Secretary of the Treasury.

Individuals may, if they choose, perform any of these acts during

the period of suspension.

Spouses of qualifying individuals are entitled to the same suspension of time, except that the spouse is ineligible for this suspension for any taxable year beginning more than two years after the

date of termination of combatant activities in the combat zone.

Exclusion for combat zone compensation

Gross income does not include certain combat zone compensation

of members of the Armed Forces (sec. 112). If enlisted personnel

serve in a combat zone during any part of any month, military pay

for that month is excluded from gross income. In addition, if enlisted personnel are hospitalized as a result of injuries, wounds, or

disease incurred in a combat zone, military pay for that month is

also excluded from gross income; this exclusion is limited, however,

to hospitalization during any part of any month beginning not more

than two years after the end of combat in the zone. In the case of

commissioned officers, these exclusions from income are limited to

the maximum enlisted amount 2 of military pay.

Income tax withholding does not apply to military pay to the extent that an employee (whether enlisted personnel or commissioned

officer) is entitled to the exclusion from income for combat pay (sec.

3401(a)(1)).

Exemption from tax upon death in a combat zone

An individual in active service as a member of the Armed Forces

who dies while serving in a combat zone (or as a result of wounds,

disease, or injury received while serving in a combat zone) is not

subject to income tax for the year of death (as well as for any prior

taxable year ending on or after the first day the individual served

in the combat zone) (sec. 692). Special computational rules apply in

the case of joint returns. A reduction in estate taxes is also provided with respect to individuals dying under these circumstances

(sec. 2201).

Special rules permit the filing of a joint return where a spouse

is in missing status as a result of service in a combat zone (sec.

6013(f)(1)). Special rules for determining surviving spouse status

apply where the deceased spouse was in missing status as a result

of service in a combat zone (sec. 2(a)(3)).

Exemption from telephone excise tax

The telephone excise tax is not imposed on ‘‘any toll telephone

service’’ that originates in a combat zone (sec. 4253(d)).
5

3Letter dated December 12, 1995, from John T. Lyons, Assistant Commissioner (International), Internal Revenue Service, to Lt. Col. David M. Pronchick, Armed Forces Tax Counsel,

Department of Defense. 4 110 Stat. 827 (March 20, 1996).

Operation Desert Storm: Executive Order designating Persian Gulf

Area as a combat zone

On January 21, 1991, President Bush signed Executive Order

12744, designating the Persian Gulf Area as a combat zone. This

designation was retroactive to January 17, 1991, the date combat

commenced in that area, and continues in effect until terminated

by another Executive Order. An Executive Order terminating this

combat zone designation has not been issued. Thus, individuals

serving in the Persian Gulf Area are eligible for the suspension of

time provisions and military pay exclusions (among other provisions) described above, beginning on January 17, 1991.

The Executive Order specifies that the Persian Gulf Area is the

Persian Gulf, the Red Sea, the Gulf of Oman, part of the Arabian

Sea, the Gulf of Aden, and the entire land areas of Iraq, Kuwait,

Saudi Arabia, Oman, Bahrain, Qatar, and the United Arab Emirates.

Operation Desert Shield: Legislative extension of time

On January 30, 1991, President Bush signed Public Law 102–2.

This Act amended section 7508 by providing that any individual

who performs Desert Shield services (and the spouse of such an individual) is entitled to the benefits of the suspension of time provisions of section 7508. Desert Shield services are defined as services

in the Armed Forces of the United States (or in support of those

Armed Forces) if such services are performed in the area designated by the President as the ‘‘Persian Gulf Desert Shield area’’

and such services are performed during the period beginning August 2, 1990, and ending on the date on which any portion of the

area was designated by the President as a combat zone pursuant

to section 112 (which was January 17, 1991).

Operation Joint Endeavor: Administrative extension of time

On December 12, 1995, the Internal Revenue Service announced 3 that it was administratively extending the time to file

tax returns until December 15, 1996, for members of the Armed

Forces ‘‘departing ‘Operation Joint Endeavor’ ’’ on or after March 1,

1996. In addition, the IRS stated that the penalties for failure to

file tax returns and failure to pay taxes would not be assessed with

respect to these individuals. Also, the IRS stated that it would administratively place any balance due accounts into suspense status

and suspend examinations while the member is serving in ‘‘Operation Joint Endeavor.’’

Operation Joint Endeavor and Operation Able Sentry: Legislative

treatment as if a combat zone

Pursuant to Public Law 104–117,4 a qualified hazardous duty

area is treated in the same manner as if it were a combat zone for

purposes of the following provisions of the Code:
6

5Operation Joint Endeavor has been replaced by Operation Joint Forge. The IRS has stated

that personnel serving under Operation Joint Forge will be treated the same as personnel under

Operation Joint Endeavor because Joint Forge is ‘‘the substantive continuation’’ of Joint Endeavor. Letter dated July 17, 1998, from Tommy G. DeWeese, District Director for the International

District, Internal Revenue Service, to LTC Thomas K. Emswiler, Armed Forces Tax Council, Department of Defense. 6 In addition, persons other than Members of the Armed Forces are eligible for some of the

other seven provisions listed above, under specified circumstances. For example, civilian employees of the United States are eligible for the forgiveness of income tax provisions of section 692

if they die as a result of injuries sustained overseas in specified terroristic or military actions.

(1) the special rule for determining surviving spouse status

where the deceased spouse was in missing status as a result

of service in a combat zone (sec. 2(a)(3));

(2) the exclusions from income for combat pay (sec. 112);

(3) forgiveness of income taxes of members of the Armed

Forces dying in the combat zone or by reason of combat-zone

incurred wounds (sec. 692);

(4) the reduction in estate taxes for members of the Armed

Forces dying in the combat zone or by reason of combat-zone

incurred wounds (sec. 2201);

(5) the exemption from income tax withholding for military

pay for any month in which an employee is entitled to the exclusion from income (sec. 3401(a)(1));

(6) the exemption from the telephone excise tax for toll telephone service that originates in a combat zone (sec. 4253(d));

(7) the special rule permitting filing of a joint return where

a spouse is in missing status as a result of service in a combat

zone (sec. 6013(f)(1)); and

(8) the suspension of time provisions (sec. 7508).

A qualified hazardous duty area means Bosnia and Herzegovina,

Croatia, or Macedonia, if, as of the date of enactment, any member

of the Armed Forces is entitled to hostile fire/imminent danger pay

for services performed in such country. Members of the Armed

Forces are in Bosnia and Herzegovina and Croatia as part of ‘‘Operation Joint Endeavor’’ (the NATO operation).5 Members of the

Armed Forces are in Macedonia as part of ‘‘Operation Able Sentry’’

(the United Nations operation). In addition, persons other than

Members of the Armed Forces who are serving in support of these

operations of the Armed Forces are eligible for the suspension of

time provisions in section 7508 of the Code.6 This provision was effective on November 21, 1995 (the date the Dayton Accord was initialed).

Suspension of time provisions for other Operation Joint Endeavor

personnel

An individual who is performing services as part of Operation

Joint Endeavor outside the United States while deployed away

from the individual’s permanent duty station will qualify for the

suspension of time provisions in section 7508 of the Code during

the period that hostile fire/imminent danger pay is paid in Bosnia

and Herzegovina, Croatia, or Macedonia.

Announcement of Intention to Issue Executive Order Designating

Kosovo Area of Operations as a Combat Zone

On April 12, 1999, President Clinton announced his intention to

issue an Executive Order designating the Federal Republic of Yugo-
7

slavia (Serbia/Montenegro), Albania, the Adriatic Sea, and the

northern Ionian Sea (including all of their air spaces) as a combat

zone for purposes of the Internal Revenue Code.

REASONS FOR CHANGE

The Committee believes that it is appropriate to apply the special tax rules applicable to combat zones to service in the Federal

Republic of Yugoslavia (Serbia/Montenegro), Albania, the Adriatic

Sea, and the Northern Ionian Sea in the same manner as if those

areas were a combat zone. In addition, the Committee believes that

it is appropriate to provide that military personnel performing

services outside of those areas but still a part of Operation Allied

Force qualify for the suspension of time provisions in section 7508

of the Code during the period that hostile fire/imminent danger pay

is paid with respect to those areas, provided that those services are

performed both outside the United States and while deployed away

from that individual’s duty station.

EXPLANATION OF PROVISION

The bill contains two elements. First, the bill treats the Federal

Republic of Yugoslavia (Serbia/Montenegro), Albania, the Adriatic

Sea, and the northern Ionian Sea above the 39th parallel (including

all of their air spaces) as a qualified hazardous duty area. Consequently, military personnel serving in those areas are entitled to

relief under all eight of the hazardous duty area provisions listed

above. Several special rules apply to civilian personnel. Civilian

personnel serving in those areas in support of the Armed Forces

are entitled to the suspension of time provisions in section 7508 of

the Code. In addition, civilian employees of the United States serving in those areas are entitled to (a) the special rule for determining surviving spouse status where the deceased spouse was in

missing status as a result of service in a combat zone (sec. 2(a)(3));

(b) forgiveness of income taxes of employees dying in the combat

zone or by reason of combat-zone incurred wounds (sec. 692); and

(c) the special rule permitting filing of a joint return where a

spouse is in missing status as a result of service in a combat zone

(sec. 6013(f)(1)).

Second, the bill also provides that military personnel performing

services outside of those areas but still a part of Operation Allied

Force qualify for the suspension of time provisions in section 7508

of the Code during the period that hostile fire/imminent danger pay

is paid with respect to those areas, provided that those services are

performed both outside the United States and while deployed away

from that individual’s duty station.

Accordingly, the bill provides the same treatment for those serving in (or in support of) Operation Allied Force as is provided under

present law to those serving in (or in support of) Operation Joint

Endeavor.

EFFECTIVE DATE

The provision is effective on March 24, 1999 (the date on which

Operation Allied Force commenced).
8

III. VOTE OF THE COMMITTEE

In compliance with clause 3(b) of rule XIII of the Rules of the

House of Representatives, the following statement is made concerning the vote of the Committee in its consideration of the bill, H.R.

1376.

The bill, H.R. 1376, was ordered favorably reported by voice vote

on April 13, 1999, with a quorum present.

IV. BUDGET EFFECTS OF THE BILL

A. COMMITTEE ESTIMATE OF BUDGETARY EFFECTS

In compliance with clause 3(d)(2) of rule XIII of the Rules of the

House of Representatives, the following statement is made concerning the effects on the budget of the bill, H.R. 1376, as reported.

The bill is estimated to have the following effects on budget receipts for fiscal years 1999–2003:
9

ESTIMATED BUDGET EFFECTS OF H.R. 1376, RELATING TO TAX RELIEF FOR PERSONNEL IN YUGOSLAVIA, ALBANIA, THE ADRIATIC SEA, AND THE NORTHERN IONIAN

SEA, AS APPROVED BY THE COMMITTEE ON WAYS AND MEANS ON APRIL 13, 1999

[Fiscal years 1999–2009, in millions of dollars]

Provision Effective 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1999– 2004 1999– 2009

1. Designate ‘‘qualified hazardous duty area’’ to include Yugoslavia, Albania,

the Adriatic Sea, and the Northern Ionian Sea.

3/24/99 ¥22 ¥47 ¥23 ¥16 ¥10 ¥5 ¥1 (1) (1) (1) (1) ¥123 ¥125

2. Provide section 7508 suspensions to certain military personnel outside of

hazardous duty area.

3/24/99 Negligible Revenue Effect

Net total ................................................................................................. ............... ¥22 ¥47 ¥23 ¥16 ¥10 ¥5 ¥1 (1) (1) (1) (1) ¥123 ¥125

1 Loss of less than $500,000.

Note.—Details may not add to totals due to rounding.Source: Joint Committee on Taxation.
10

B. STATEMENT REGARDING NEW BUDGET AUTHORITY AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the

House of Representatives, the Committee states that the bill involves no new or increased budget authority. The bill involves increased tax expenditures for the income tax benefit provisions related to combat pay (for amounts, see Part IV.A., above).

C. COST ESTIMATE PREPARED BY THE CONGRESSIONAL BUDGET

OFFICE

In compliance with clause 3(c)(3) of rule XIII of the Rules of the

House of Representatives, requiring a cost estimate prepared by

the Congressional Budget Office (CBO), the following statement by

CBO is provided.

U.S. CONGRESS,

CONGRESSIONAL BUDGET OFFICE,

Washington, DC, April 13, 1999.

Hon. BILL ARCHER,

Chairman, Committee on Ways and Means,

House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for a bill to extend the tax benefits

available to services performed in a combat zone to services performed in the Federal Republic of Yugoslavia (Serbia/Montenegro)

and certain other areas, and for other purposes.

If you wish further details on this estimate, we will be pleased

to provide them. The CBO staff contact is Hester Grippando.

Sincerely,

BARRY B. ANDERSON

(For Dan L. Crippen, Director).

Enclosure.

H.R. —To extend the tax benefits available to services performed

in a combat zone to services performed in the Federal Republic

of Yugoslavia (Serbia/Montenegro) and certain other areas,

and for other purposes

This bill would provide tax benefits to the members of the Armed

Forces who are receiving special pay while subject to hostile fire or

imminent danger while serving in the Federal Republic of Yugoslavia, Albania, the Adriatic Sea, or the northern Ionic Sea. They

would receive the same tax benefits available to services performed

in a combat zone. The bill would also allow those service members

outside the United States who are deployed away from their permanent duty station as part of Operation Allied Force to delay filing income tax returns without penalty. The Joint Committee on

Taxation (JCT) has estimated that this bill would reduce governmental receipts by $22 million in fiscal year 1999, and by $123 million over the 1999–2009 period. The President currently has the

authority to declare the area designated by this bill a combat zone.

If the President does so before this bill is enacted, the revenue loss

of the bill would be negligible.
11

JCT has determined that this bill contains no private-sector or

intergovernmental mandates as defined in the Unfunded Mandates

Reform Act (UMRA) and would not affect the budgets of state,

local, or tribal governments.

The Balanced Budget and Emergency Deficit Control Act sets up

pay-as-you-go procedures for legislation affecting direct spending or

receipts. The net changes in governmental receipts that are subject

to pay-as-you-go procedures are shown in the following table. For

the purposes of enforcing pay-as-you-go procedures, only the effects

in the current year, the budget year, and the succeeding four years

are counted.

By fiscal years, in millions of dollars—

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Changes in receipts .......... ¥22 ¥47 ¥23 ¥16 ¥10 ¥5 ¥10000

This estimate was prepared by Hester Grippando and approved

by G. Thomas Woodward, Assistant Director for Tax Analysis.

V. OTHER MATTERS TO BE DISCUSSED UNDER THE

RULES OF THE HOUSE

A. COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS

With respect to clause 3(c)(1) of rule XIII of the Rules of the

House of Representatives (relating to oversight findings), the Committee advises that it was a result of the Committee’s oversight activities concerning the tax treatment of military (and support) personnel serving in ‘‘Operation Allied Force’’ that the Committee concluded that it is appropriate to enact the provisions contained in

the bill as reported.

B. SUMMARY OF FINDINGS AND RECOMMENDATIONS OF THE

COMMITTEE ON GOVERNMENT REFORM

With respect to clause 3(c)(4) of rule XIII of the Rules of the

House of Representatives, the Committee advises that no oversight

findings or recommendations have been submitted to this Committee by the Committee on Government Reform with respect to the

provisions contained in the bill.

C. CONSTITUTIONAL AUTHORITY STATEMENT

With respect to clause 3(d)(1) of rule XIII of the Rules of the

House of Representatives (relating to Constitutional Authority), the

Committee states that the Committee’s action in reporting this bill

is derived from Article I of the Constitution, Section 8 (‘‘The Congress shall have Power To lay and collect Taxes, Duties, Imposts

and Excises * * * ’’), and from the 16th Amendment to the Constitution.

D. INFORMATION RELATING TO UNFUNDED MANDATES

This information is provided in accordance with section 423 of

the Unfunded Mandates Act of 1995 (P.L. 104–4).
12

The Committee has determined that the bill does not involve any

Federal mandate on the private sector nor does it involve any Federal intergovernmental mandate on State, local, or tribal governments.

E. APPLICABILITY OF HOUSE RULE XXI5(B)

Rule XXI5(b) of the Rules of the House of Representatives provides, in part, that ‘‘No bill or joint resolution, amendment, or conference report carrying a Federal income tax rate increase shall be

considered as passed or agreed to unless determined by a vote of

not less than three-fifths of the Members.’’ The Committee has

carefully reviewed the provisions of the bill, and states that the

provisions of the bill do not involve any Federal income tax rate increase within the meaning of the rule.

F. TAX COMPLEXITY ANALYSIS

Section 4022(b) of the Internal Revenue Service Reform and Restructuring Act of 1998 (the ‘‘IRS Reform Act’’) requires the Joint

Committee on Taxation (in consultation with the Internal Revenue

Service and the Department of the Treasury) to provide a tax complexity analysis. The complexity analysis is required for all legislation reported by the Senate Committee on Finance, the House

Committee on Ways and Means, or any committee of conference if

the legislation includes a provision that directly or indirectly

amends the Internal Revenue Code (the ‘‘Code’’) and has widespread applicability to individuals or small businesses.

The staff of the Joint Committee on Taxation has determined

that a complexity analysis is not required under section 4022(b) of

the IRS Reform Act because the bill contains no provisions that

amend the Internal Revenue Code and that have widespread applicability to individuals or small businesses.

Æ