COMPARISON OF THE PROVISIONS OF H. R. 1307, THE

“ARMED FORCES TAX FAIRNESS ACT OF 2003,”

AS PASSED BY THE HOUSE AND THE SENATE

Prepared by the Staff

of the

JOINT COMMITTEE ON TAXATION

April 1, 2003

JCX-23-03
1

INTRODUCTION

This document,1 prepared by the staff of the Joint Committee on Taxation, provides a description of the provisions of 

H.R. 1307, the “Armed Forces Tax Fairness Act of 2003,” as passed by the House of Representatives on March 20, 2003, and by the 

Senate on March 27, 2003.

 

1

 This document may be cited as follows: Joint Committee on Taxation, Comparison of the Provisions of H. R. 1307, the 

“Armed Forces Tax Fairness Act of 2003,” as passed by the House and the Senate (JCX-23-03), April 1, 2003.
2

ITEM PRESENT LAW HOUSE BILL SENATE AMENDMENT

I. IMPROVING TAX EQUITY 

FOR MILITARY PERSONNEL

A. Exclusion from Gross Income 

of Certain Death Gratuity 

Payments (sec. 3 of the House bill 

and sec. 102 of the Senate 

amendment)

Qualified military benefits 

(including certain death gratuities) 

are excludable from gross income 

subject to certain restrictions. 

Generally, other than certain costof-living adjustments, no 

modification or adjustment of any 

qualified military benefit after 

September 9, 1986, is taken into 

account for purposes of this 

exclusion.

Extends the exclusion for certain 

death gratuities to any adjustment 

to the amount of the death gratuity 

payable pursuant to a provision of 

law enacted before December 31, 

1991.

Effective date.–Deaths occurring 

after September 10, 2001.

Extends the exclusion for certain 

death gratuities to any adjustment 

to the amount of death gratuities 

payable (including but not limited 

to any adjustment to the amount of 

the death gratuity payable pursuant 

to a provision of law enacted 

before December 31, 1991).

Effective date.–Same as House bill.

B. Exclusion of Gain on Sale of a 

Principal Residence by a 

Member of the Uniformed 

Services (sec. 2 of the House bill 

and sec. 101 of the Senate 

amendment)

An individual may elect to exclude 

up to $250,000 ($500,000 for joint 

returns) of gain from the sale or 

exchange of a principal residence. 

A five-year test period for 

ownership and use of the property 

is generally applied to determine 

eligibility for the exclusion. There 

are no special rules with respect to 

the sale or exchange of a principal 

residence for members of the 

uniformed services, or the Foreign 

Service of the U.S.

An individual may elect to suspend 

for a maximum of five years the 

five-year test period for ownership 

and use during certain absences 

due to service in the uniformed 

services.

Such absences must be with 

respect to any period of extended 

duty by a member of the uniformed 

services of the United States while 

serving at a place of duty at least 

150 miles away from the 

taxpayer’s principal residence or 

under orders compelling residence 

in Government furnished quarters. 

Extended duty is defined as any 

period of active duty pursuant to a 

call or order to such duty for a 

Same as House bill with the 

following modifications:

1. Allows a maximum 10-year 

suspension;

2. Reduces 150 miles to 50 

miles;

3. Reduces 180 days to 90 days; 

and 

4. Extends the provision to 

members of the Foreign Service of 

the United States.

Effective date.–Same as the House 

bill.
3

ITEM PRESENT LAW HOUSE BILL SENATE AMENDMENT

period in excess of 180 days or for 

an indefinite period.

H.R. 1308 as passed by the House 

extends identical relief to members 

of the Foreign Service as the 

provision in the Senate amendment

Effective date.–Sales or exchanges 

after May 6, 1997.

C. Exclusion for Amounts 

Received Under Department of 

Defense Homeowners Assistance 

Program (sec. 4 of the House bill 

and sec. 103 of the Senate 

amendment)

Amounts received under the 

Department of Defense 

Homeowners Assistance Program 

are includible in gross income as 

compensation for services. Such 

amounts are wages for FICA tax 

purposes (including Medicare).

Amounts received under the 

Program (as in effect on the date of 

enactment) are excludable from 

income and not considered wages 

for FICA tax purposes (including 

Medicare).

Effective date.–Payments made 

after the date of enactment.

Same as House bill.

D. Expansion of Combat Zone 

Filing Rules to Contingency 

Operations (sec. 5 of the House 

bill and sec. 104 of the Senate 

amendment)

In general, the period of time for 

performing certain acts under the 

Internal Revenue Code, such as 

filing tax returns, paying taxes, or 

filing a claim for credit or refund of 

tax, is suspended 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.

Applies the combat zone rules to 

any contingency operation or 

operation that becomes a 

contingency operation.

Effective date.–Applies to any 

period for performing an act that 

has not expired before the date of 

enactment.

Same as House bill.
4

ITEM PRESENT LAW HOUSE BILL SENATE AMENDMENT

E. Above-the-Line Deduction for 

Overnight Travel Expenses of 

National Guard and Reserve 

Members (sec. 9 of the House bill 

and sec. 109 of the Senate 

amendment)

National Guard and Reserve 

members may claim itemized 

deductions for their 

nonreimbursable expenses for 

transportation, meals, and lodging 

when they must travel away from 

home (and stay overnight) to attend 

National Guard and Reserve 

meetings. 

Provides an above-the-line 

deduction for the overnight 

transportation, meals, and lodging 

expenses up to $1,500 per year for 

National Guard and Reserve 

members who must travel away 

from home more than 100 miles 

(and stay overnight) to perform 

services as a National Guard or 

Reserve member.

Effective date.–Amounts paid or 

incurred in taxable years beginning 

after December 31, 2002.

Same as the House bill except the 

otherwise allowable deduction is: 

(1) not subject to the $1,500 cap; 

and (2) limited by the Federal 

government per diem rates.

F. Modification of Membership 

Requirement for Exemption 

From Tax for Certain Veteran’s 

Organizations (sec. 6 of the 

House bill and sec. 105 of the 

Senate amendment)

A veterans’ organization as 

described in section 501(c)(19) of 

the Code generally is exempt from 

Federal income tax.

In order to qualify for the 

exemption (1) at least 75 percent of 

the organization’s members must 

be past or present members of the 

Armed Forces of the United States, 

and (2) “substantially all” of the 

remaining members must be cadets 

or spouses, widows, or widowers of 

past or present members of the 

Armed Forces of the United States 

or of cadets. 

Permits ancestors or lineal 

descendants of past or present 

members of the Armed Forces of 

the United States or of cadets to 

qualify as members for purposes of 

the “substantially all” test. 

Effective date.–Taxable years 

beginning after the date of 

enactment.

Same as House bill.
5

ITEM PRESENT LAW HOUSE BILL SENATE AMENDMENT

G. Clarification of Treatment of 

Certain Dependent Care 

Assistance Programs Provided to 

Members of the Uniformed 

Services of the United States 

(sec. 7 of the House bill and 

sec. 106 of the Senate 

amendment)

Qualified military benefits are 

excludable from gross income 

subject to certain restrictions. 

Generally, a qualified military 

benefit is any allowance or in-kind 

benefit (other than personal use of 

a vehicle) which: (1) is received by 

any member or former member of 

the uniformed services of the 

United States or any dependent of 

such member by reason of such 

member’s status or service as a 

member of such uniformed 

services; and (2) was excludable 

from gross income on September 9, 

1986, under any provision of law, 

regulation, or administrative 

practice which was in effect on 

such date. Generally, other than 

certain cost-of-living adjustments, 

no modification or adjustment of 

any qualified military benefit after 

September 9, 1986, is taken into 

account for purposes of this 

exclusion from gross income.

There may be some confusion 

regarding the treatment of 

dependent care assistance as 

qualified military benefits.

Clarifies that dependent care 

assistance provided under a 

dependent care assistance program 

(as in effect on the date of 

enactment) for a member of the 

uniformed services by reason of 

such member’s status or service as 

a member of the uniformed 

services is excludable from gross 

income as a qualified military 

benefit. For these purposes, the 

amount of dependent care 

assistance excludable as a qualified 

military benefit is not limited to the 

amount of benefit excludable on 

September 9, 1986.

Effective date.–Taxable years 

beginning after December 31, 

2002. No inference is intended as 

to the tax treatment of such 

amounts for prior taxable years.

Same as House bill.
6

ITEM PRESENT LAW HOUSE BILL SENATE AMENDMENT

H. Treatment of Service 

Academy Appointments for 

purposes of Qualified Tuition 

Programs and Coverdell 

Education Savings Accounts (sec. 

8 of the House bill and sec. 107 of 

the Senate amendment)

Withdrawals from qualified tuition 

programs and Coverdell education 

savings accounts for qualified 

education expenses are excludable 

from gross income. Withdrawals 

that are not for qualified education 

expenses are includible in gross 

income (except to the extent 

attributable to nondeductible 

contributions) and, unless an 

exception applies, are subject to an 

additional 10-percent tax penalty.

The House bill permits penalty free 

withdrawals from qualified tuition 

programs and Coverdell education 

savings accounts made on account 

of attendance of the beneficiary at 

a U.S. service academy. The 

amount of funds that can be 

withdrawn penalty free with 

respect to any academic period is 

limited to the costs of advance 

education (as defined under 10 

US.C. 2005(e)(3) as in effect on 

the date of enactment) at the 

Academy attended by the 

designated beneficiary for the same 

academic period.

Effective date.–Taxable years 

beginning after December 31, 

2002.

Same as House bill.
7

ITEM PRESENT LAW HOUSE BILL SENATE AMENDMENT

I. Suspension of Tax-Exempt 

Status of Terrorist Organizations 

(sec. 108 of the Senate 

amendment)

The IRS can revoke the tax-exempt 

status of an organization only after 

certain administrative steps are 

taken. There is no procedure for 

the IRS to suspend the tax-exempt 

status of a tax-exempt organization.

No provision. However, 

H.R. 1308 as passed by the House 

provides identical treatment to the 

provision in the Senate 

amendment.

Suspends the tax-exempt status of 

an organization for any period for 

which the organization is 

designated or identified by 

appropriate Federal authority as a 

terrorist organization or as 

supporting or engaging in 

terrorism.

Effective date.–Date of enactment.

J. Tax Relief for Astronauts (sec. 

110 of the Senate amendment)

Certain income and estate tax relief 

is provided for victims of the 

terrorist attacks on September 11, 

2001, and April 19, 1995, or the 

anthrax attack of 2001.

No provision. However, 

H.R. 1308 as passed by the House 

provides relief similar to the Senate

amendment.

Extends similar tax relief to 

astronauts who lose their lives in 

the line of duty. 

Effective date.–Individuals who 

lose their lives after December 31, 

2002.

II. OTHER PROVISIONS

A. Impose Mark-to-Market Tax 

on Individuals Who Expatriate 

(sec. 203 of the Senate 

amendment)

In general, an individual who 

relinquishes U.S. citizenship or 

terminates U.S. residency with a 

principal purpose of avoiding U.S. 

taxes is subject to an alternative tax 

regime for income tax purposes for 

the 10 taxable years ending after 

expatriation or residency 

termination. The alternative tax 

regime generally expands the 

category of income that is 

considered taxable U.S.-source 

No provision. Generally subjects certain U.S. 

citizens who relinquish U.S. 

citizenship and certain long-term 

U.S. residents who terminate U.S. 

residency to tax on the net 

unrealized gain in their property as 

if such property were sold for fair 

market value on the day before the 

expatriation or residency 

termination (a so-called “mark-tomarket” approach), without regard 

to the individual’s purpose for 
8

ITEM PRESENT LAW HOUSE BILL SENATE AMENDMENT

income, and imposes gain 

recognition on certain transactions 

that otherwise might convert U.S.-

source income into foreign-source 

income. Special rules apply to 

such individuals for estate and gift 

tax purposes. A special 

immigration rule denies certain 

former citizens re-entry into the 

United States if the Attorney 

General determines that their 

expatriation was tax-motivated.

expatriation or residency 

termination. Exceptions apply if 

the deemed gain is below a certain 

amount, or if the individual falls 

within certain categories. Special 

rules are provided for interests in 

trusts, qualified retirement plans 

and foreign pension plans. The bill 

generally requires a U.S. taxpayer 

who receives a gift or inheritance 

from an expatriate to recognize the 

value of the property as gross 

income. In addition, the bill 

conforms the present-law 

immigration rule to the mark-to-

market tax regime.

Effective date.–Generally effective 

for U.S. citizens who relinquish 

citizenship or long-term residents 

who terminate their U.S. residency 

on or after February 5, 2003. The 

gift and inheritance provision is 

effective for gifts and inheritances 

received from expatriates on or 

after February 5, 2003, whose 

expatriation or residency 

termination occurs on or after that 

date. The immigration provision is 

effective on or after date of 

enactment.
9

ITEM PRESENT LAW HOUSE BILL SENATE AMENDMENT

B. Extension of IRS User Fees 

(sec. 201 of the Senate 

amendment)

The IRS provides written responses 

to questions of individuals, 

corporations, and organizations 

relating to their tax status or the 

effects of particular transactions for 

tax purposes. The IRS generally 

charges a fee for requests for a 

letter ruling, determination letter, 

opinion letter, or other similar 

ruling or determination. Public 

Law 104-117 extended the 

statutory authorization for these 

user fees through September 30, 

2003.

No provision. Extends the statutory authorization 

for these user fees through 

September 30, 2013. Also moves 

the statutory authorization for these 

fees into the Internal Revenue 

Code.

Effective date.–Requests made 

after the date of enactment.

C. Authorize IRS to Enter into 

Installment Agreements that 

Provide for Partial Payment (sec. 

202 of the Senate amendment)

The IRS is authorized to enter into 

written agreements with any 

taxpayer under which the taxpayer 

is allowed to pay taxes owed, as 

well as interest and penalties, in 

installment payments if the IRS 

determines that doing so will 

facilitate collection of the amounts 

owed. Since the issuance in 1998 

of a memorandum by the IRS Chief 

Counsel, the IRS has taken the 

position that partial payment 

installment agreements are not 

permitted.

No provision. Clarifies that the IRS is authorized 

to enter into installment agreements 

with taxpayers that do not provide 

for full payment of the taxpayer’s 

liability over the life of the 

agreement. The provision also 

requires the IRS to review partial 

payment installment agreements at 

least every two years. 

Effective date.–Installment 

agreements entered into on or after 

the date of enactment.
10

ITEM PRESENT LAW HOUSE BILL SENATE AMENDMENT

D. Protection of Social Security 

(sec. 10 of the House bill)

Present law provides for the 

transfer of Social Security taxes 

and certain self-employment taxes 

to the Social Security trust funds. 

In addition, the income tax 

collected with respect to a portion 

of Social Security benefits included 

in gross income is transferred to the 

Social Security trust funds.

The House bill provides that any 

amounts to be transferred to any 

trust fund under Title II of the 

Social Security Act are determined 

as if the House bill had not been 

enacted. This will ensure that the 

income and balances of those 

Social Security trust funds are not 

reduced as a result of the House 

bill.

No provision.