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[House Report 108-23]
[From the U.S. Government Publishing Office]

108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     108-23
======================================================================
 
                 ARMED FORCES TAX FAIRNESS ACT OF 2003

                                _______
                                

 March 5, 2003.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Thomas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                        [To accompany H.R. 878]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 878) 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, having considered the same, 
report favorably thereon with an amendment and recommend that 
the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. Summary and Background..........................................16
          A. Purpose and Summary.................................    16
          B. Background and Need for Legislation.................    16
          C. Legislative History.................................    16
 II. Explanation of the Bill.........................................17
     Title I. Improving Tax Equity for Military Personnel............17
          A. Exclusion of Gain on Sale of a Principal Residence 
              by a Member of the Uniformed Services, the Foreign 
              Service or the Peace Corps. (sec. 101 of the bill 
              and sec. 121 of the Code)..........................    17
          B. Exclusion from Gross Income of Certain Death 
              Gratuity Payments (sec. 102 of the bill and sec. 
              134 of the Code)...................................    18
          C. Exclusion for Amounts Received Under Department of 
              Defense Homeowners Assistance Program (sec. 103 of 
              the bill and sec. 132 of the Code).................    19
          D. Expansion of Combat Zone Filing Rules to Contingency 
              Operations (sec. 104 of the bill and sec. 7508 of 
              the Code)..........................................    20
          E. Modification of Membership Requirement for Exemption 
              from Tax for Certain Veterans' Organizations (sec. 
              105 of the bill and sec. 501(c)(19) of the Code)...    22
          F. Clarification of Treatment of Certain Dependent Care 
              Assistance Programs Provided to Members of the 
              Uniformed Services of the United States (sec. 106 
              of the bill and sec. 134 of the Code)..............    23
          G. Treatment of Service Academy Appointments as 
              Scholarships for Purposes of Qualified Tuition 
              Programs and Coverdell Education Savings Accounts 
              (sec. 107 of the bill and secs. 529 and 530 of the 
              Code)..............................................    24
          H. Suspension of Tax-Exempt Status of Terrorist 
              Organizations (sec. 108 of the bill and sec. 501 of 
              the Code)..........................................    25
          I. Above-the-Line Deduction for Overnight Travel 
              Expenses of National Guard and Reserve Members 
              (sec. 109 of the bill and sec. 162 of the Code)....    27
     Title II. Miscellaneous Provisions..............................28
          A. Extension of Certain Tax Relief Provisions to 
              Astronauts (sec. 201 of the bill and secs. 101, 
              692, and 2201 of the Code).........................    28
          B. Coordinate Farmers Income Averaging and the 
              Alternative Minimum Tax (sec. 202 of the bill and 
              sec. 55 of the Code)...............................    32
          C. Capital Gains Treatment to Apply to Outright Sales 
              of Timber by Landowner (sec. 203 of the bill and 
              sec. 631(b) of the Code)...........................    32
          D. Special Rules for Livestock Sold on Account of 
              Weather-Related Conditions (sec. 204 of the bill 
              and secs. 1033 and 451 of the Code)................    33
          E. Simplification of Excise Tax Imposed on Bows and 
              Arrows (sec. 205 of the bill and sec. 4161 of the 
              Code)..............................................    35
          F. Repeal Excise Tax on Fishing Tackle Boxes (sec. 206 
              of the bill and sec. 4162 of the Code).............    36
          G. Btu-Based Rate for Diesel/Water Emulsion Fuel (sec. 
              207 of the bill and secs. 408 and 6427 of the Code)    36
          H. Expand Human Clinical Trials Expenses Qualifying for 
              the Orphan Drug Tax Credit (sec. 208 of the bill 
              and sec. 280C of the Code).........................    37
          I. Consumer Options under the Refundable Credit for 
              Health Insurance Costs of Eligible Individuals 
              (sec. 209 of the bill and sec. 35 of the Code).....    38
          J. Modify At-Risk Rules for Publicly Traded Nonrecourse 
              Debt (sec. 210 of the bill and sec. 465(b)(6) of 
              the Code)..........................................    42
          K. Exclusion of Certain Horse-Racing Gambling Winnings 
              from the Income of Nonresident Noncitizen 
              Individuals (sec. 211 of the bill and sec. 872(b) 
              of the Code).......................................    43
          L. Payment of Dividends on Stock of Cooperatives 
              Without Reducing Patronage Dividends (sec. 212 of 
              the bill and sec. 1388 of the Code)................    44
          M. Pilot Project for Forest Conservation Activities 
              (sec. 213 of the bill).............................    46
          N. No Impact on Social Security Trust Funds Under Title 
              II of the Social Security Act (sec. 214 of the 
              bill)..............................................    50
     Title III. Revenue Provisions...................................50
          A. Modification of the Tax Treatment of Citizenship 
              Relinquishment and Residency Termination (sec. 301 
              of the bill and secs. 877, 2107, 2501, and 6039G of 
              the Code)..........................................    50
          B. Add Vaccines Against Hepatitis A to the List of 
              Taxable Vaccines (sec. 302 of the bill and sec. 
              4132 of the Code)..................................    56
III. Votes of the Committee..........................................57
 IV. Budget Effects of the Bill......................................61
          A. Committee Estimate of Budgetary Effects.............    61
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................    64
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    64
          D. Macroeconomic Impact Analysis.......................    67
  V. Other Matters to be Discussed Under the Rules of the House......67
          A. Committee Oversight Findings and Recommendations....    67
          B. Statement of General Performance Goals and 
              Objectives.........................................    67
          C. Constitutional Authority Statement..................    67
          D. Information Relating to Unfunded Mandates...........    68
          E. Applicability of House Rule XXI 5(b)................    68
          F. Tax Complexity Analysis.............................    68
 VI. Changes in Existing Law Made by the Bill, as Reported...........68
VII. Additional Views................................................95

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.

  (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.
  (c) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; references; table of contents.

                         TITLE I--ARMED FORCES

Sec. 101. Special rule for members of uniformed services and foreign 
service and peace corps volunteers and employees in determining 
exclusion of gain from sale of principal residence.
Sec. 102. Restoration of full exclusion from gross income of death 
gratuity payment.
Sec. 103. Exclusion for amounts received under Department of Defense 
homeowners assistance program.
Sec. 104. Expansion of combat zone filing rules to contingency 
operations.
Sec. 105. Modification of membership requirement for exemption from tax 
for certain veterans' organizations.
Sec. 106. Clarification of the treatment of certain dependent care 
assistance programs.
Sec. 107. Clarification relating to exception from additional tax on 
certain distributions from qualified tuition programs, etc., on account 
of attendance at military academy.
Sec. 108. Suspension of tax-exempt status of terrorist organizations.
Sec. 109. Above-the-line deduction for overnight travel expenses of 
national guard and reserve members.

                   TITLE II--MISCELLANEOUS PROVISIONS

Sec. 201. Tax relief and assistance for families of astronauts who lose 
their lives on a space mission.
Sec. 202. Income averaging for farmers not to increase alternative 
minimum tax.
Sec. 203. Capital gain treatment under section 631(b) to apply to 
outright sales by landowners.
Sec. 204. Special rules for livestock sold on account of weather-
related conditions.
Sec. 205. Simplification of excise tax imposed on bows and arrows.
Sec. 206. Repeal of excise tax on fishing tackle boxes.
Sec. 207. Reduced motor fuel excise tax on certain mixtures of diesel 
fuel.
Sec. 208. Expansion of human clinical trials qualifying for orphan drug 
credit.
Sec. 209. Health insurance costs of eligible individuals.
Sec. 210. Treatment under at-risk rules of publicly traded nonrecourse 
debt.
Sec. 211. Exclusion of income derived from certain wagers on horse 
races from gross income of nonresident alien individuals.
Sec. 212. Payment of dividends on stock of cooperatives without 
reducing patronage dividends.
Sec. 213. Pilot project for forest conservation activities.
Sec. 214. Protection of social security.

                     TITLE III--REVENUE PROVISIONS

Sec. 301. Individual expatriation to avoid tax.
Sec. 302. Vaccine tax to apply to hepatitis A vaccine.

                         TITLE I--ARMED FORCES

SEC. 101. SPECIAL RULE FOR MEMBERS OF UNIFORMED SERVICES AND FOREIGN 
                    SERVICE AND PEACE CORPS VOLUNTEERS AND EMPLOYEES IN 
                    DETERMINING EXCLUSION OF GAIN FROM SALE OF 
                    PRINCIPAL RESIDENCE.

  (a) In General.--Subsection (d) of section 121 (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 and 
        peace corps volunteers and employees.--
                  ``(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 or as a 
                Peace Corps volunteer or an employee of the Peace 
                Corps.
                  ``(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.
                          ``(v) Rules relating to the peace corps.--
                                  ``(I) Extended duty.--In the case of 
                                a Peace Corps volunteer, the term 
                                `extended duty' means any period of 
                                active duty assigned to a Peace Corps 
                                volunteer under the Peace Corps Act for 
                                a period in excess of 180 days or for 
                                an indefinite period.
                                  ``(II) Peace corps volunteer.--The 
                                term `Peace Corps volunteer' means an 
                                individual enrolled as a volunteer or 
                                volunteer leader under the Peace Corps 
                                Act.
                                  ``(III) Employee of the peace 
                                corps.--The term `employee of the Peace 
                                Corps' means a person employed in the 
                                Peace Corps under section 7 of the 
                                Peace Corps Act.
                                  ``(IV) References to peace corps 
                                act.--References in this clause to the 
                                Peace Corps Act mean references to the 
                                Peace Corps Act (22 U.S.C. 2501 et 
                                seq.) as in effect on the date of the 
                                enactment of this clause.
                  ``(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. 102. 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. 103. 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. 104. 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 insection 
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. 105. 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. 106. 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. 107. 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. 108. SUSPENSION OF TAX-EXEMPT STATUS OF TERRORIST ORGANIZATIONS.

  (a) In General.--Section 501 (relating to exemption from tax on 
corporations, certain trusts, etc.) is amended by redesignating 
subsection (p) as subsection (q) and by inserting after subsection (o) 
the following new subsection:
  ``(p) Suspension of Tax-Exempt Status of Terrorist Organizations.--
          ``(1) In general.--The exemption from tax under subsection 
        (a) with respect to any organization described in paragraph 
        (2), and the eligibility of any organization described in 
        paragraph (2) to apply for recognition of exemption under 
        subsection (a), shall be suspended during the period described 
        in paragraph (3).
          ``(2) Terrorist organizations.--An organization is described 
        in this paragraph if such organization is designated or 
        otherwise individually identified--
                  ``(A) under section 212(a)(3)(B)(vi)(II) or 219 of 
                the Immigration and Nationality Act as a terrorist 
                organization or foreign terrorist organization,
                  ``(B) in or pursuant to an Executive order which is 
                related to terrorism and issued under the authority of 
                the International Emergency Economic Powers Act or 
                section 5 of the United Nations Participation Act of 
                1945 for the purpose of imposing on such organization 
                an economic or other sanction, or
                  ``(C) in or pursuant to an Executive order issued 
                under the authority of any Federal law if--
                          ``(i) the organization is designated or 
                        otherwise individually identified in or 
                        pursuant to such Executive order as supporting 
                        or engaging in terrorist activity (as defined 
                        in section 212(a)(3)(B) of the Immigration and 
                        Nationality Act) or supporting terrorism (as 
                        defined in section 140(d)(2) of the Foreign 
                        Relations Authorization Act, Fiscal Years 1988 
                        and 1989); and
                          ``(ii) such Executive order refers to this 
                        subsection.
          ``(3) Period of suspension.--With respect to any organization 
        described in paragraph (2), the period of suspension--
                  ``(A) begins on the later of--
                          ``(i) the date of the first publication of a 
                        designation or identification described in 
                        paragraph (2) with respect to such 
                        organization, or
                          ``(ii) the date of the enactment of this 
                        subsection, and
                  ``(B) ends on the first date that all designations 
                and identifications described in paragraph (2) with 
                respect to such organization are rescinded pursuant to 
                the law or Executive order under which such designation 
                or identification was made.
          ``(4) Denial of deduction.--No deduction shall be allowed 
        under section 170, 545(b)(2), 556(b)(2), 642(c), 2055, 
        2106(a)(2), or 2522 for any contribution to an organization 
        described in paragraph (2) during the period described in 
        paragraph (3).
          ``(5) Denial of administrative or judicial challenge of 
        suspension or denial of deduction.--Notwithstanding section 
        7428 or any other provision of law, no organization or other 
        person may challenge a suspension under paragraph (1), a 
        designation or identification described in paragraph (2), the 
        period of suspension described in paragraph (3), or a denial of 
        a deduction under paragraph (4) in any administrative or 
        judicial proceeding relating to the Federal tax liability of 
        such organization or other person.
          ``(6) Erroneous designation.--
                  ``(A) In general.--If--
                          ``(i) the tax exemption of any organization 
                        described in paragraph (2) is suspended under 
                        paragraph (1),
                          ``(ii) each designation and identification 
                        described in paragraph (2) which has been made 
                        with respect to such organization is determined 
                        to be erroneous pursuant to the law or 
                        Executive order under which such designation or 
                        identification was made, and
                          ``(iii) the erroneous designations and 
                        identifications result in an overpayment of 
                        income tax for any taxable year by such 
                        organization,
                credit or refund (with interest) with respect to such 
                overpayment shall be made.
                  ``(B) Waiver of limitations.--If the credit or refund 
                of any overpayment of tax described in subparagraph 
                (A)(iii) is prevented at any time by the operation of 
                any law or rule of law (including res judicata), such 
                credit or refund may nevertheless be allowed or made if 
                the claim therefor is filed before the close of the 1-
                year period beginning on the date of the last 
                determination described in subparagraph (A)(ii).
          ``(7) Notice of Suspensions.--If the tax exemption of any 
        organization is suspended under this subsection, the Internal 
        Revenue Service shall update the listings of tax-exempt 
        organizations and shall publish appropriate notice to taxpayers 
        of such suspension and of the fact that contributions to such 
        organization are not deductible during the period of such 
        suspension.''.
  (b) Effective Date.--The amendments made by this section shall apply 
to designations made before, on, or after the date of the enactment of 
this Act.

SEC. 109. 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, not in excess of $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.

                   TITLE II--MISCELLANEOUS PROVISIONS

SEC. 201. 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. 202. INCOME AVERAGING FOR FARMERS NOT TO INCREASE ALTERNATIVE 
                    MINIMUM TAX.

  (a) In General.--Subsection (c) of section 55 (defining regular tax) 
is amended by redesignating paragraph (2) as paragraph (3) and by 
inserting after paragraph (1) the following new paragraph:
          ``(2) Coordination with income averaging for farmers.--Solely 
        for purposes of this section, section 1301 (relating to 
        averaging of farm income) shall not apply in computing the 
        regular tax.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to taxable years beginning after December 31, 2002.

SEC. 203. CAPITAL GAIN TREATMENT UNDER SECTION 631(B) TO APPLY TO 
                    OUTRIGHT SALES BY LANDOWNERS.

  (a) In General.--The first sentence of section 631(b) (relating to 
disposal of timber with a retained economic interest) is amended by 
striking ``retains an economic interest in such timber'' and inserting 
``either retains an economic interest in such timber or makes an 
outright sale of such timber''.
  (b) Conforming Amendments.--
          (1) The third sentence of section 631(b) is amended by 
        striking ``The date of disposal'' and inserting ``In the case 
        of disposal of timber with a retained economic interest, the 
        date of disposal''.
          (2) The heading for section 631(b) is amended by striking 
        ``With a Retained Economic Interest''.
  (c) Effective Date.--The amendments made by this section shall apply 
to sales after the date of the enactment of this Act.

SEC. 204. SPECIAL RULES FOR LIVESTOCK SOLD ON ACCOUNT OF WEATHER-
                    RELATED CONDITIONS.

  (a) Rules for Replacement of Involuntarily Converted Livestock.--
Subsection (e) of section 1033 (relating to involuntary conversions) is 
amended--
          (1) by striking ``Conditions.--For purposes'' and inserting 
        ``Conditions.--
          ``(1) In general.--For purposes'', and
          (2) by adding at the end the following new paragraph:
          ``(2) Extension of replacement period.--
                  ``(A) In general.--In the case of drought, flood, or 
                other weather-related conditions described in paragraph 
                (1) which result in the area being designated as 
                eligible for assistance by the Federal Government, 
                subsection (a)(2)(B) shall be applied with respect to 
                any converted property by substituting `4 years' for `2 
                years'.
                  ``(B) Further extension by secretary.--The Secretary 
                may extend on a regional basis the period for 
                replacement under this section (after the application 
                of subparagraph (A)) for such additional time as the 
                Secretary determines appropriate if the weather-related 
                conditions which resulted in such application continue 
                for more than 3 years.''.
  (b) Income Inclusion Rules.--Subsection (e) of section 451 (relating 
to special rule for proceeds from livestock sold on account of drought, 
flood, or other weather-related conditions) is amended by adding at the 
end the following new paragraph:
          ``(3) Special election rules.--If section 1033(e)(2) applies 
        to a sale or exchange of livestock described in paragraph (1), 
        the election under paragraph (1) shall be deemed valid if made 
        during the replacement period described in such section.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to any taxable year with respect to which the due date (without regard 
to extensions) for the return is after December 31, 2002.

SEC. 205. SIMPLIFICATION OF EXCISE TAX IMPOSED ON BOWS AND ARROWS.

  (a) Bows.--Paragraph (1) of section 4161(b) (relating to bows) is 
amended to read as follows:
          ``(1) Bows.--
                  ``(A) In general.--There is hereby imposed on the 
                sale by the manufacturer, producer, or importer of any 
                bow which has a draw weight of 30 pounds or more, a tax 
                equal to 11 percent of the price for which so sold.
                  ``(B) Archery equipment.--There is hereby imposed on 
                the sale by the manufacturer, producer, or importer--
                          ``(i) of any part or accessory suitable for 
                        inclusion in or attachment to a bow described 
                        in subparagraph (A), and
                          ``(ii) of any quiver or broadhead suitable 
                        for use with an arrow described in paragraph 
                        (3),
                a tax equal to 11 percent of the price for which so 
                sold.''.
  (b) Arrows.--Subsection (b) of section 4161 (relating to bows and 
arrows, etc.) is amended by redesignating paragraph (3) as paragraph 
(4) and inserting after paragraph (2) the following:
          ``(3) Arrows.--
                  ``(A) In general.--There is hereby imposed on the 
                sale by the manufacturer, producer, or importer of any 
                arrow, a tax equal to 12 percent of the price for which 
                so sold.
                  ``(B) Exception.--The tax imposed by subparagraph (A) 
                on an arrow shall not apply if the arrow contains an 
                arrow shaft subject to the tax imposed by paragraph 
                (2).
                  ``(C) Arrow.--For purposes of this paragraph, the 
                term `arrow' means any shaft described in paragraph (2) 
                to which additional components are attached.''.
  (c) Conforming Amendment.--The heading of section 4161(b)(2) is 
amended by striking ``Arrows.--'' and inserting ``Arrow components.--
''.
  (d) Effective Date.--The amendments made by this section shall apply 
to articles sold by the manufacturer, producer, or importer after the 
90th day after the date of the enactment of this Act.

SEC. 206. REPEAL OF EXCISE TAX ON FISHING TACKLE BOXES.

  (a) Repeal.--Paragraph (6) of section 4162(a) (defining sport fishing 
equipment) is amended by striking subparagraph (C) and by redesignating 
subparagraphs (D) through (J) as subparagraphs (C) through (I), 
respectively.
  (b) Effective Date.--The amendment made by this section shall take 
effect 30 days after the date of the enactment of this Act.

SEC. 207. REDUCED MOTOR FUEL EXCISE TAX ON CERTAIN MIXTURES OF DIESEL 
                    FUEL.

  (a) In General.--Clause (iii) of section 4081(a)(2)(A) is amended by 
inserting before the period ``(19.7 cents per gallon in the case of a 
diesel-water fuel emulsion at least 14 percent of which is water)''.
  (b) Refunds for Tax-Paid Purchases.--
          (1) In general.--Section 6427 (relating to fuels not used for 
        taxable purchases) is amended by redesignating subsections (m) 
        through (p) as subsections (n) through (q), respectively, and 
        by inserting after subsection (l) the following new subsection:
  ``(m) Diesel Fuel Used To Produce Emulsion.--
          ``(1) In general.--Except as provided in subsection (k), if 
        any diesel fuel on which tax was imposed by section 4081 at the 
        regular tax rate is used by any person in producing an emulsion 
        described in section 4081(a)(2)(A) which is sold or used in 
        such person's trade or business, the Secretary shall pay 
        (without interest) to such person an amount equal to the excess 
        of the regular tax rate over the incentive tax rate with 
        respect to such fuel.
          ``(2) Definitions.--For purposes of paragraph (1)--
                  ``(A) Regular tax rate.--The term `regular tax rate' 
                means the aggregate rate of tax imposed by section 4081 
                determined without regard to the parenthetical in 
                section 4081(a)(2)(A).
                  ``(B) Incentive tax rate.--The term `incentive tax 
                rate' means the aggregate rate of tax imposed by 
                section 4081 determined with regard to the 
                parenthetical in section 4081(a)(2)(A).''.
  (c) Effective Date.--The amendments made by this section shall take 
effect on October 1, 2003.

SEC. 208. EXPANSION OF HUMAN CLINICAL TRIALS QUALIFYING FOR ORPHAN DRUG 
                    CREDIT.

  (a) In General.--Paragraph (2) of section 45C(b) (relating to 
qualified clinical testing expenses) is amended by adding at the end 
the following new subparagraph:
                  ``(C) Treatment of certain expenses incurred before 
                designation.--For purposes of subparagraph (A)(ii)(I), 
                if a drug is designated under section 526 of the 
                Federal Food, Drug, and Cosmetic Act not later than the 
                due date (including extensions) for filing the return 
                of tax under this subtitle for the taxable year in 
                which the application for such designation of such drug 
                was filed, such drug shall be treated as having been 
                designated on the date that such application was 
                filed.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to expenses incurred after the date of the enactment of this Act.

SEC. 209. HEALTH INSURANCE COSTS OF ELIGIBLE INDIVIDUALS.

  (a) Consumer Options.--Paragraph (2) of section 35(e) is amended by 
inserting at the end the following new subparagraph:
                  ``(C) Waiver by eligible individuals.--With respect 
                to any month which ends before January 1, 2005, this 
                paragraph shall not apply with respect to any eligible 
                individual and such individual's qualifying family 
                members if such eligible individual elects to waive the 
                application of this paragraph with respect to such 
                month.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to months beginning after the date of the enactment of this Act.

SEC. 210. TREATMENT UNDER AT-RISK RULES OF PUBLICLY TRADED NONRECOURSE 
                    DEBT.

  (a) In General.--Subparagraph (A) of section 465(b)(6) (relating to 
qualified nonrecourse financing treated as amount at risk) is amended 
by striking ``share of'' and all that follows and inserting ``share 
of--
                          ``(i) any qualified nonrecourse financing 
                        which is secured by real property used in such 
                        activity, and
                          ``(ii) any other financing which--
                                  ``(I) would (but for subparagraph 
                                (B)(ii)) be qualified nonrecourse 
                                financing,
                                  ``(II) is qualified publicly traded 
                                debt, and
                                  ``(III) is not borrowed by the 
                                taxpayer from a person described in 
                                subclause (I), (II), or (III) of 
                                section 49(a)(1)(D)(iv).''.
  (b) Qualified Publicly Traded Debt.--Paragraph (6) of section 465(b) 
is amended by adding at the end the following new subparagraph:
                  ``(F) Qualified publicly traded debt.--For purposes 
                of subparagraph (A), the term `qualified publicly 
                traded debt' means any debt instrument which is readily 
                tradable on an established securities market. Such term 
                shall not include any debt instrument which has a yield 
                to maturity which equals or exceeds the limitation in 
                section 163(i)(1)(B).''.
  (c) Effective Date.--The amendments made by this section shall apply 
to debt instruments issued after the date of the enactment of this Act.

SEC. 211. EXCLUSION OF INCOME DERIVED FROM CERTAIN WAGERS ON HORSE 
                    RACES FROM GROSS INCOME OF NONRESIDENT ALIEN 
                    INDIVIDUALS.

  (a) In General.--Subsection (b) of section 872 (relating to 
exclusions) is amended by redesignating paragraphs (5), (6), and (7) as 
paragraphs (6), (7), and (8), respectively, and inserting after 
paragraph (4) the following new paragraph:
          ``(5) Income derived from wagering transactions in certain 
        parimutuel pools.--Gross income derived by a nonresident alien 
        individual from a legal wagering transaction initiated outside 
        the United States in a parimutuel pool with respect to a live 
        horse race in the United States.''.
  (b) Conforming Amendment.--Section 883(a)(4) is amended by striking 
``(5), (6), and (7)'' and inserting ``(6), (7), and (8)''.
  (c) Effective Date.--The amendments made by this section shall apply 
to proceeds from wagering transactions after September 30, 2003.

SEC. 212. PAYMENT OF DIVIDENDS ON STOCK OF COOPERATIVES WITHOUT 
                    REDUCING PATRONAGE DIVIDENDS.

  (a) In General.--Subsection (a) of section 1388 (relating to 
patronage dividend defined) is amended by adding at the end the 
following: ``For purposes of paragraph (3), net earnings shall not be 
reduced by amounts paid during the year as dividends on capital stock 
or other proprietary capital interests of the organization to the 
extent that the articles of incorporation or bylaws of such 
organization or other contract with patrons provide that such dividends 
are in addition to amounts otherwise payable to patrons which are 
derived from business done with or for patrons during the taxable 
year.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to distributions in taxable years beginning after the date of the 
enactment of this Act.

SEC. 213. PILOT PROJECT FOR FOREST CONSERVATION ACTIVITIES.

  (a) Tax-Exempt Bond Financing.--
          (1) In General.--For purposes of the Internal Revenue Code of 
        1986, any qualified forest conservation bond shall be treated 
        as an exempt facility bond under section 142 of such Code.
          (2) Qualified forest conservation bond.--For purposes of this 
        section, the term ``qualified forest conservation bond'' means 
        any bond issued as part of an issue if--
                  (A) 95 percent or more of the net proceeds (as 
                defined in section 150(a)(3) of such Code) of such 
                issue are to be used for qualified project costs,
                  (B) such bond is an obligation of the State of 
                Washington or any political subdivision thereof and is 
                issued for the Evergreen Forest Trust, and
                  (C) such bond is issued before October 1, 2004.
          (3) Limitation on aggregate amount issued.--The maximum 
        aggregate face amount of bonds which may be issued under this 
        section shall not exceed $250,000,000.
          (4) Qualified project costs.--For purposes of this 
        subsection, the term ``qualified project costs'' means the sum 
        of--
                  (A) the cost of acquisition by the Evergreen Forest 
                Trust from an unrelated person of forests and forest 
                land--
                          (i) which are located in the State of 
                        Washington, and
                          (ii) which at the time of acquisition or 
                        immediately thereafter are subject to a 
                        conservation restriction described in 
                        subsection (c)(2),
                  (B) capitalized interest on the qualified forest 
                conservation bonds for the 3-year period beginning on 
                the date of issuance of such bonds, and
                  (C) credit enhancement fees which constitute 
                qualified guarantee fees (within the meaning of section 
                148 of such Code).
          (5) Special rules.--In applying the Internal Revenue Code of 
        1986 to any qualified forest conservation bond, the following 
        modifications shall apply:
                  (A) Section 146 of such Code (relating to volume cap) 
                shall not apply.
                  (B) For purposes of section 147(b) of such Code 
                (relating to maturity may not exceed 120 percent of 
                economic life), the land and standing timber acquired 
                with proceeds of qualified forest conservation bonds 
                shall have an economic life of 35 years.
                  (C) Subsections (c) and (d) of section 147 of such 
                Code (relating to limitations on acquisition of land 
                and existing property) shall not apply.
                  (D) Section 57(a)(5) of such Code (relating to tax-
                exempt interest) shall not apply to interest on 
                qualified forest conservation bonds.
          (6) Treatment of current refunding bonds.--Paragraphs (2)(C) 
        and (3) shall not apply to any bond (or series of bonds) issued 
        to refund a qualified forest conservation bond issued before 
        October 1, 2004, if--
                  (A) the average maturity date of the issue of which 
                the refunding bond is a part is not later than the 
                average maturity date of the bonds to be refunded by 
                such issue,
                  (B) the amount of the refunding bond does not exceed 
                the outstanding amount of the refunded bond, and
                  (C) the net proceeds of the refunding bond are used 
                to redeem the refunded bond not later than 90 days 
                after the date of the issuance of the refunding bond.
        For purposes of subparagraph (A), average maturity shall be 
        determined in accordance with section 147(b)(2)(A) of such 
        Code.
          (7) Effective date.--This subsection shall apply to 
        obligations issued after the date of the enactment of this Act.
  (b) Items From Qualified Harvesting Activities Not Subject to Tax or 
Taken Into Account.--
          (1) In general.--Income, gains, deductions, losses, or 
        credits from a qualified harvesting activity conducted by the 
        Evergreen Forest Trust shall not be subject to tax or taken 
        into account under subtitle A of the Internal Revenue Code of 
        1986.
          (2) Qualified harvesting activity.--For purposes of paragraph 
        (1)--
                  (A) In general.--The term ``qualified harvesting 
                activity'' means the sale, lease, or harvesting, of 
                standing timber--
                          (i) on land owned by the Evergreen Forest 
                        Trust which was acquired with proceeds of 
                        qualified forest conservation bonds, and
                          (ii) pursuant to a qualified conservation 
                        plan adopted by the Evergreen Forest Trust.
                  (B) Exceptions.--
                          (i) Cessation as qualified organization.--The 
                        term ``qualified harvesting activity'' shall 
                        not include any sale, lease, or harvesting 
                        during any period that the Evergreen Forest 
                        Trust is not a qualified organization.
                          (ii) Exceeding limits on harvesting.--The 
                        term ``qualified harvesting activity'' shall 
                        not include any sale, lease, or harvesting of 
                        standing timber on land acquired with proceeds 
                        of qualified forest conservation bonds to the 
                        extent that--
                                  (I) the average annual area of timber 
                                harvested from such land exceeds 2.5 
                                percent of the total area of such land, 
                                or
                                  (II) the quantity of timber removed 
                                from such land exceeds the quantity 
                                which can be removed from such land 
                                annually in perpetuity on a sustained-
                                yield basis with respect to such land.
                        The limitations under subclauses (I) and (II) 
                        shall not apply to salvage or sanitation 
                        harvesting of timber stands which are 
                        substantially damaged by fire, windthrow, or 
                        other catastrophe, or which are in imminent 
                        danger from insect or disease attack.
          (3) Termination.--This subsection shall not apply to any 
        qualified harvesting activity occurring after the date on which 
        there is no outstanding qualified forest conservation bond or 
        any such bond ceases to be a tax-exempt bond.
          (4) Partial recapture of benefits if harvesting limit 
        exceeded.--If, as of the date that this subsection ceases to 
        apply under paragraph (3), the average annual area of timber 
        harvested from the land exceeds the requirement of paragraph 
        (2)(B)(ii)(I), the tax imposed by chapter 1 of the Internal 
        Revenue Code of 1986 shall be increased, under rules prescribed 
        by the Secretary, by the sum of the tax benefit attributable to 
        such excess and interest at the underpayment rate under section 
        6621 for the period of the underpayment.
  (c) Definitions.--For purposes of this section--
          (1) Qualified conservation plan.--The term ``qualified 
        conservation plan'' means a multiple land use program or plan 
        which--
                  (A) is designed and administered primarily for the 
                purposes of protecting and enhancing wildlife and fish, 
                timber, scenic attributes, recreation, and soil and 
                water quality of the forest and forest land,
                  (B) mandates that conservation of forest and forest 
                land is the single-most significant use of the forest 
                and forest land,
                  (C) requires that timber harvesting be consistent 
                with--
                          (i) restoring and maintaining reference 
                        conditions for the Westside Douglas Fir forest 
                        type,
                          (ii) restoring and maintaining a 
                        representative sample of young, mid, and late 
                        successional forest age classes,
                          (iii) maintaining or restoring the resources' 
                        ecological health for purposes of preventing 
                        damage from fire, insect, or disease,
                          (iv) maintaining or enhancing wildlife or 
                        fish habitat,
                          (v) enhancing research opportunities in 
                        sustainable renewable resource uses, or
                          (vi) preserving or protecting open space.
          (2) Conservation restriction.--The conservation restriction 
        described in this paragraph is a restriction which--
                  (A) is granted in perpetuity to an unrelated person 
                which is described in section 170(h)(3) of such Code 
                and which, in the case of a nongovernmental unit, is 
                organized and operated for conservation purposes,
                  (B) meets the requirements of clause (ii) or 
                (iii)(II) of section 170(h)(4)(A) of such Code,
                  (C) obligates the Evergreen Forest Trust to pay the 
                costs incurred by the holder of the conservation 
                restriction in monitoring compliance with such 
                restriction, and
                  (D) requires an increasing level of conservation 
                benefits to be provided whenever circumstances allow 
                it.
          (3) Qualified organization.--The term ``qualified 
        organization'' means an organization--
                  (A) which is a nonprofit organization organized and 
                operated exclusively for charitable, scientific, or 
                educational purposes including but not limited to 
                acquiring, protecting, restoring, managing, and 
                developing forest lands and other renewable resources 
                for the long-term charitable, educational, scientific, 
                and public benefit of the State of Washington,
                  (B) more than half of the value of the property of 
                which consists of forests and forest land acquired with 
                the proceeds from qualified forest conservation bonds,
                  (C) which periodically conducts educational programs 
                designed to inform the public of environmentally 
                sensitive forestry management and conservation 
                techniques,
                  (D) which has a board of directors that at all times 
                is comprised of 9 members--
                          (i) at least 2 of whom represent the holders 
                        of the conservation restriction described in 
                        paragraph (2), and
                          (ii) at least 2 of whom are public officials,
                  (E) of which not more than one-third of the members 
                of the board of directors is comprised of individuals 
                who are or were at any time within 5 years before the 
                beginning of a term of membership on the board, an 
                employee of, independent contractor with respect to, 
                officer of, director of, or held a material financial 
                interest in, a commercial forest products enterprise 
                with which the Evergreen Forest Trust has a contractual 
                or other financial arrangement,
                  (F) the bylaws of which require at least two-thirds 
                of the members of the board of directors to vote 
                affirmatively to approve the qualified conservation 
                program and any change thereto, and
                  (G) upon dissolution, is required to dedicate its 
                assets to--
                          (i) an organization described in section 
                        501(c)(3) of such Code which is organized and 
                        operated for conservation purposes, or
                          (ii) a governmental unit described in section 
                        170(c)(1) of such Code.
          (4) Evergreen forest trust.--The term ``Evergreen Forest 
        Trust'' means a nonprofit corporation known as the Evergreen 
        Forest Trust which was incorporated on February 25, 2000, under 
        chapter 24.03 of the Revised Code of Washington and which, on 
        May 11, 2001, was recognized as an organization described in 
        section 501(c)(3) of the Internal Revenue Code of 1986.
          (5) Unrelated person.--The term ``unrelated person'' means a 
        person who is not a related person.
          (6) Related person.--A person shall be treated as related to 
        another person if--
                  (A) such person bears a relationship to such other 
                person described in section 267(b) (determined without 
                regard to paragraph (9) thereof), or 707(b)(1), of such 
                Code, determined by substituting ``25 percent'' for 
                ``50 percent'' each place it occurs therein, and
                  (B) in the case such other person is a nonprofit 
                organization, if such person controls directly or 
                indirectly more than 25 percent of the governing body 
                of such organization.

SEC. 214. 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 title (other than 
this section) and title I of this Act had not been enacted.

                     TITLE III--REVENUE PROVISIONS

SEC. 301. INDIVIDUAL EXPATRIATION TO AVOID TAX.

  (a) Expatriation To Avoid Tax.--
          (1) In general.--Subsection (a) of section 877 (relating to 
        treatment of expatriates) is amended to read as follows:
  ``(a) Treatment of Expatriates.--
          ``(1) In general.--Every nonresident alien individual to whom 
        this section applies and who, within the 10-year period 
        immediately preceding the close of the taxable year, lost 
        United States citizenship shall be taxable for such taxable 
        year in the manner provided in subsection (b) if the tax 
        imposed pursuant to such subsection (after any reduction in 
        such tax under the last sentence of such subsection) exceeds 
        the tax which, without regard to this section, is imposed 
        pursuant to section 871.
          ``(2) Individuals subject to this section.--This section 
        shall apply to any individual if--
                  ``(A) the average annual net income tax (as defined 
                in section 38(c)(1)) of such individual for the period 
                of 5 taxable years ending before the date of the loss 
                of United States citizenship is greater than $122,000,
                  ``(B) the net worth of the individual as of such date 
                is $2,000,000 or more, or
                  ``(C) such individual fails to certify under penalty 
                of perjury that he has met the requirements of this 
                title for the 5 preceding taxable years or fails to 
                submit such evidence of such compliance as the 
                Secretary may require.
        In the case of the loss of United States citizenship in any 
        calendar year after 2003, such $122,000 amount shall be 
        increased by an amount equal to such dollar amount multiplied 
        by the cost-of-living adjustment determined under section 
        1(f)(3) for such calendar year by substituting `2002' for 
        `1992' in subparagraph (B) thereof. Any increase under the 
        preceding sentence shall be rounded to the nearest multiple of 
        $1,000.''.
          (2) Revision of exceptions from alternative tax.--Subsection 
        (c) of section 877 (relating to tax avoidance not presumed in 
        certain cases) is amended to read as follows:
  ``(c) Exceptions.--
          ``(1) In general.--Subparagraphs (A) and (B) of subsection 
        (a)(2) shall not apply to an individual described in paragraph 
        (2) or (3).
          ``(2) Dual citizens.--
                  ``(A) In general.--An individual is described in this 
                paragraph if--
                          ``(i) the individual became at birth a 
                        citizen of the United States and a citizen of 
                        another country and continues to be a citizen 
                        of such other country, and
                          ``(ii) the individual has had no substantial 
                        contacts with the United States.
                  ``(B) Substantial contacts.--An individual shall be 
                treated as having no substantial contacts with the 
                United States only if the individual--
                          ``(i) was never a resident of the United 
                        States (as defined in section 7701(b)),
                          ``(ii) has never held a United States 
                        passport, and
                          ``(iii) was not present in the United States 
                        for more than 30 days during any calendar year 
                        which is 1 of the 10 calendar years preceding 
                        the individual's loss of United States 
                        citizenship.
          ``(3) Certain minors.--An individual is described in this 
        paragraph if--
                  ``(A) the individual became at birth a citizen of the 
                United States,
                  ``(B) neither parent of such individual was a citizen 
                of the United States at the time of such birth,
                  ``(C) the individual's loss of United States 
                citizenship occurs before such individual attains age 
                18 \1/2\, and
                  ``(D) the individual was not present in the United 
                States for more than 30 days during any calendar year 
                which is 1 of the 10 calendar years preceding the 
                individual's loss of United States citizenship.''.
          (3) Conforming amendment.--Section 2107(a) is amended to read 
        as follows:
  ``(a) Treatment of Expatriates.--A tax computed in accordance with 
the table contained in section 2001 is hereby imposed on the transfer 
of the taxable estate, determined as provided in section 2106, of every 
decedent nonresident not a citizen of the United States if the date of 
death occurs during a taxable year with respect to which the decedent 
is subject to tax under section 877(b).''.
  (b) Special Rules for Determining When an Individual is no Longer a 
United States Citizen or Long-Term Resident.--Section 7701 (relating to 
definitions) is amended by redesignating subsection (n) as subsection 
(o) and by inserting after subsection (m) the following new subsection:
  ``(n) Special Rules for Determining When an Individual is no Longer a 
United States Citizen or Long-Term Resident.--An individual who would 
not (but for this subsection) be treated as a citizen or resident of 
the United States shall continue to be treated as a citizen or resident 
of the United States until such individual--
          ``(1) gives notice of an expatriating act or termination of 
        residency (with the requisite intent to relinquish citizenship 
        or terminate residency) to the Secretary of State or the 
        Secretary of Homeland Security, and
          ``(2) provides a statement in accordance with section 
        6039G.''.
  (c) Physical Presence in the United States for More Than 30 Days.--
Section 877 (relating to expatriation to avoid tax) is amended by 
adding at the end the following new subsection:
  ``(g) Physical Presence.--This section shall not apply to any 
individual for any taxable year during the 10-year period referred to 
in subsection (a) in which such individual is present in the United 
States for more than 30 days in the calendar year ending in such 
taxable year, and such individual shall be treated for purposes of this 
title as a citizen or resident of the United States for such taxable 
year.''.
  (d) Transfers Subject to Gift Tax.--Subsection (a) of section 2501 
(relating to taxable transfers) is amended by adding at the end the 
following:
          ``(6) Transfers of certain stock.--
                  ``(A) In general.--Paragraph (3) shall not apply to 
                the transfer of stock described in subparagraph (B) by 
                any individual to whom section 877(b) applies, and 
                section 2511(a) shall be applied without regard to 
                whether such stock is property which is situated within 
                the United States.
                  ``(B) Valuation.--For purposes of subparagraph (A), 
                the value of stock shall be determined as provided in 
                section 2103, except that--
                          ``(i) if the donor owned (within the meaning 
                        of section 958(a)) at the time of such transfer 
                        10 percent or more of the total combined voting 
                        power of all classes of stock entitled to vote 
                        of a foreign corporation, and
                          ``(ii) if such donor owned (within the 
                        meaning of section 958(a)), or is considered to 
                        have owned (by applying the ownership rules of 
                        section 958(b)), at the time of such transfer, 
                        more than 50 percent of--
                                  ``(I) the total combined voting power 
                                of all classes of stock entitled to 
                                vote of such corporation, or
                                  ``(II) the total value of the stock 
                                of such corporation,then that 
                                proportion of the fair market value of 
                                the stock of such foreign corporation 
                                owned (within the meaning of section 
                                958(a)) by such donor at the time of 
                                such transfer, which the fair market 
                                value of any assets owned by such 
                                foreign corporation and situated in the 
                                United States, at the time of such 
                                transfer, bears to the total fair 
                                market value of all assets owned by 
                                such foreign corporation at the time of 
                                such transfer, shall be included in the 
                                value of such property.
                For purposes of the preceding sentence, a donor shall 
                be treated as owning stock of a foreign corporation at 
                the time of such transfer if, at such time, by trust or 
                otherwise, within the meaning of sections 2035 to 2038, 
                inclusive, he owned such stock.''.
  (e) Enhanced Information Reporting From Individuals Losing United 
States Citizenship.--
          (1) In general.--Subsection (a) of section 6039G is amended 
        to read as follows:
  ``(a) In General.--Notwithstanding any other provision of law, any 
individual to whom section 877(b) applies for any taxable year shall 
provide a statement for such taxable year which includes the 
information described in subsection (b).''.
          (2) Information to be provided.--Subsection (b) of section 
        6039G is amended to read as follows:
  ``(b) Information To Be Provided.--Information required under 
subsection (a) shall include--
          ``(1) the taxpayer's TIN,
          ``(2) the mailing address of such individual's principal 
        foreign residence,
          ``(3) the foreign country, in which such individual is 
        residing,
          ``(4) the foreign country of which such individual is a 
        citizen,
          ``(5) information detailing the assets and liabilities of 
        such individual,
          ``(6) the number of days that the individual was present in 
        the United States during the taxable year, and
          ``(7) such other information as the Secretary may 
        prescribe.''.
          (3) Increase in penalty.--Subsection (d) of section 6039G is 
        amended to read as follows:
  ``(d) Penalty.--If--
          ``(1) an individual is required to file a statement under 
        subsection (a) for any taxable year, and
          ``(2) fails to file such a statement with the Secretary on or 
        before the date such statement is required to be filed or fails 
        to include all the information required to be shown on the 
        statement or includes incorrect information,
such individual shall pay a penalty of $5,000 unless it is shown that 
such failure is due to reasonable cause and not to willful neglect.''.
          (4) Conforming amendment.--Section 6039G is amended by 
        striking subsections (c), (f), and (g) and by redesignating 
        subsections (d) and (e) as subsection (c) and (d), 
        respectively.
  (f) Effective Date.--The amendments made by this section shall apply 
to individuals who expatriate after February 27, 2003.

SEC. 302. VACCINE TAX TO APPLY TO HEPATITIS A VACCINE.

  (a) In General.--Paragraph (1) of section 4132(a) (defining taxable 
vaccine) is amended by redesignating subparagraphs (I), (J), (K), and 
(L) as subparagraphs (J), (K), (L), and (M), respectively, and by 
inserting after subparagraph (H) the following new subparagraph:
                  ``(I) Any vaccine against hepatitis A.''
  (b) Effective Date.--
          (1) Sales, etc.--The amendments made by subsection (a) shall 
        apply to sales and uses on or after the first day of the first 
        month which begins more than 4 weeks after the date of the 
        enactment of this Act.
          (2) Deliveries.--For purposes of paragraph (1) and section 
        4131 of the Internal Revenue Code of 1986, in the case of sales 
        on or before the effective date described in such paragraph for 
        which delivery is made after such date, the delivery date shall 
        be considered the sale date.

                       I. SUMMARY AND BACKGROUND

                         A. Purpose and Summary

    The bill, H.R. 878, as amended, provides needed tax relief 
to the Armed Forces and makes other necessary changes to the 
tax laws.
    The bill provides net tax reductions of over $402 million 
over fiscal years 2003-2008.

                 B. Background and Need for Legislation

    The Committee believes that consideration should be paid to 
the men and women who are leading America's response and 
serving our country. These men and women include: (1) members 
of the Armed Forces deployed overseas; (2) members of the 
National Guard protecting our borders and airports; and (3) 
Foreign Service officers serving in dangerous diplomatic posts.
    The Committee believes that in addition to receiving our 
thoughts and thanks, these individuals deserve to be treated 
appropriately under the tax laws. The modest sensible 
provisions included in this legislation are the result of a 
bipartisan effort to correct the tax treatment of those 
individuals serving their country in the uniformed services, 
reserves and Foreign Service.
    The bill also contains various other provisions to reduce 
complexity and eliminate inequitable effects in the tax law.
    The bill also contains two provisions that raise revenue to 
offset the cost of the other provisions. In the case of the 
provision to modify the treatment of certain individual 
expatriates, the provision seems especially fitting to offset 
the improved tax treatment of the men and women serving their 
country. The provision relating to individual expatriates 
replaces the present law subjective test with a more 
administrable objective test. The provision relating to 
vaccines extends the protection of the Vaccine Injury 
Compensation Program to families of Hepatitis A vaccine 
recipients.

                         C. Legislative History

    The House Committee on Ways and Means marked up the Armed 
Forces Tax Fairness Act of 2003 on February 27, 2003, and 
ordered the bill, as amended, favorably reported by voice vote.

                      II. EXPLANATION OF THE BILL

          TITLE I. IMPROVING TAX EQUITY FOR MILITARY PERSONNEL

 A. Exclusion of Gain on Sale of a Principal Residence by a Member of 
     the Uniformed Services, the Foreign Service or the Peace Corps

(Sec. 101 of the bill and sec. 121 of the Code)

                              PRESENT LAW

    Under present law, an individual taxpayer may exclude up to 
$250,000 ($500,000, if married filing a joint return) of gain 
realized on the sale or exchange of a principal residence. To 
be eligible for the exclusion, the taxpayer must have owned and 
used the residence as a principal residence for at least two of 
the five years ending on the sale or exchange. A taxpayer who 
fails to meet these requirements by reason of a change of place 
of employment, health, or, to the extent provided under 
regulations, unforeseen circumstances is able to exclude an 
amount equal to the fraction of the $250,000 ($500,000, if 
married filing a joint return) that is equal to the fraction of 
the two years that the ownership and use requirements are met. 
There are no special rules relating to members of the uniformed 
services or the Foreign Service of the United States.

                           REASONS FOR CHANGE

    The Committee believes that members of the uniformed 
services, the Foreign Service of the United States, or the 
Peace Corps who would otherwise qualify for the exclusion of 
the gain on the sale of a principal residence should not be 
deprived the exclusion because of service to their country. The 
Committee believes that it is unfair that members of the 
uniform services and Foreign Service of the United States are 
unable to avail themselves of the exclusion due to relocations 
required by service to their country.

                        EXPLANATION OF PROVISION

    Under the bill, 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, the Foreign Service of the United States, or as Peace 
Corps volunteers or employees. The uniformed services include: 
(1) the Armed forces (the Army, Navy, Air Force, Marine Corps, 
and Coast Guard); (2) the commissioned corps of the National 
Oceanic and Atmospheric Administration; and (3) the 
commissioned corps of the Public Health Service. If the 
election is made, the five-year period ending on the date of 
the sale or exchange of a principal residence does not include 
any period up to five years during which the taxpayer or the 
taxpayer's spouse is on qualified official extended duty as a 
member of the uniformed services, in Foreign Service of the 
United States, or on active duty assigned to a Peace Corps 
volunteer under the Peace Corps Act\1\ or an employee of the 
Peace Corps. For these purposes, qualified official extended 
duty is any period of extended duty by a member of the 
uniformed services, or the Foreign Service 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 duty pursuant to a call or order to 
such duty for a period in excess of 180 days or for an 
indefinite period. Active duty for Peace Corps volunteers means 
a period in excess of 180 days or for an indefinite period. The 
election may be made with respect to only one property for a 
suspension period.
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    \1\ 22 U.S.C. 2501 et. seq.
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                             EFFECTIVE DATE

    The provision is effective for sales or exchanges after May 
6, 1997.

   B. Exclusion from Gross Income of Certain Death Gratuity Payments

(Sec. 102 of the bill and sec. 134 of the Code)

                              PRESENT LAW

    Present law provides that qualified military benefits are 
not included in gross income. 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. Qualified military benefits include certain death 
gratuities. The amount of death gratuity was increased to 
$6,000 but the amount of the exclusion was not increased to 
take into account this change.

                           REASONS FOR CHANGE

    The Committee believes that the amount of the exclusion for 
death gratuities provided to military personnel should be 
conformed to the present-law levels of such death gratuities.

                        EXPLANATION OF PROVISION

    The bill extends the exclusion from gross income to any 
adjustment to the amount of the death gratuity payable under 
Chapter 75 of Title 10 of the United States Code that is 
pursuant to a provision of law enacted before December 31, 
1991, with respect to the death of certain members of the Armed 
services on active duty, inactive duty training, or engaged in 
authorized travel. Therefore the amount of the exclusion is 
increased to $6,000.

                             EFFECTIVE DATE

    The provision is effective with respect to deaths occurring 
after September 10, 2001.

     C. Exclusion for Amounts Received Under Department of Defense 
                     Homeowners Assistance Program

(Sec. 103 of the bill and sec. 132 of the Code)

                              PRESENT LAW

HAP payment

    The Department of Defense Homeowners Assistance Program 
(``HAP'') provides payments to certain employees and members of 
the Armed Forces to offset the adverse effects on housing 
values that result from military base realignment or closure. 
The payments are authorized under the provisions of Title 42 
U.S.C. section 3374.
    In general, under HAP eligible individuals either (1) 
receive a cash payment as compensation for losses that may be 
or have been sustained in a private sale, in an amount not to 
exceed the difference between (a) 95 percent of the fair market 
value of their property prior to public announcement of 
intention to close all or part of the military base or 
installation and (b) the fair market value of such property at 
the time of the sale, or (2) as the purchase price for their 
property, an amount not to exceed 90 percent of the prior fair 
market value as is determined by the Secretary of Defense, or 
the amount of the outstanding mortgages.

Tax treatment

    Unless specifically excluded, gross income for Federal 
income tax purposes includes all income from whatever source 
derived. Amounts received under HAP are received in connection 
with the performance of services. These amounts are includible 
in gross income as compensation for services to the extent such 
payments exceed the fair market value of the property 
relinquished in exchange for such payments. Additionally, such 
payments are wages for Federal Insurance Contributions Act 
(``FICA'') tax purposes (including Medicare).

                           REASONS FOR CHANGE

    The Committee believes that the exclusion from gross income 
and FICA taxes is necessary to provide full compensation for 
the losses in home values incurred as a result of military base 
realignment or closure.

                        EXPLANATION OF PROVISION

    The bill generally exempts from gross income amounts 
received under the HAP (as in effect on the date of enactment 
of this bill). Amounts received under the program also are not 
considered wages for FICA tax purposes (including Medicare). 
The excludable amount is limited to the reduction in the fair 
market value of property.

                             EFFECTIVE DATE

    The provision is effective for payments made after the date 
of enactment.

   D. Expansion of Combat Zone Filing Rules to Contingency Operations

(Sec. 104 of the bill and sec. 7508 of the Code)

                              PRESENT LAW

General time limits for filing tax returns

    Individuals generally must file their Federal income tax 
returns by April 15 of the year following the close of a 
taxable year. The Secretary may grant reasonable extensions of 
time for filing such returns. Treasury regulations provide an 
additional automatic two-month extension (until June 15 for 
calendar-year 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. 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.
    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, the period of time for performing various acts 
under the 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. 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 \2\ or (2) time in missing in action status, plus the next 
180 days.
---------------------------------------------------------------------------
     \2\ Two 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.
---------------------------------------------------------------------------
    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
          (11) Any other act required or permitted under the 
        internal revenue laws specified 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.

                           REASONS FOR CHANGE

    The Committee believes that military personnel deployed 
outside the United States away from their permanent duty 
station while participating in a contingency operation should 
be entitled to utilize the same suspension of time provisions 
as military personnel deployed in a combat zone.

                        EXPLANATION OF PROVISION

    The bill applies the special suspension of time period 
rules to persons 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 or that becomes a contingency operation. 
A contingency operation is defined \3\ as a military operation 
that is designated by the Secretary of Defense as an operation 
in which members of the Armed Forces are or may become involved 
in military actions, operations, or hostilities against an 
enemy of the United States or against an opposing military 
force, or results in the call or order to (or retention on) 
active duty of members of the uniformed services during a war 
or a national emergency declared by the President or Congress.
---------------------------------------------------------------------------
    \3\ The definition is done by cross-reference to 10 U.S.C. 101.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision applies to any period for performing an act 
that has not expired before the date of enactment.

 E. Modification of Membership Requirement for Exemption From Tax for 
                    Certain Veterans' Organizations

(Sec. 105 of the bill and sec. 501(c)(19) of the Code)

                              PRESENT LAW

    Under present law, a veterans' organization as described in 
section 501(c)(19) of the Code generally is exempt from 
taxation. The Code defines such an organization as a post or 
organization of past or present members of the Armed Forces of 
the United States: (1) that is organized in the United States 
or any of its possessions; (2) no part of the net earnings of 
which inures to the benefit of any private shareholder or 
individual; and (3) that meets certain membership requirements. 
The membership requirements are that (1) at least 75 percent of 
the organization's members are past or present members of the 
Armed Forces of the United States, and (2) substantially all of 
the remaining members are cadets or are spouses, widows, or 
widowers of past or present members of the Armed Forces of the 
United States or of cadets. No more than 2.5 percent of an 
organization's total members may consist of individuals who are 
not veterans, cadets, or spouses, widows, or widowers of such 
individuals.
    Contributions to an organization described in section 
501(c)(19) may be deductible for Federal income or gift tax 
purposes if the organization is a post or organization of war 
veterans.

                           REASONS FOR CHANGE

    As the membership of veterans' organizations changes due to 
aging and the deaths of members, veterans' organizations that 
currently qualify for tax exemption under section 501(c)(19) 
may cease to qualify for exempt status under that section, even 
though the membership, apart from changes due to deaths, 
remains the same. The Committee believes that a limited 
expansion of the membership of veterans' organizations will 
enable certain of such organizations to retain exempt status, 
which might otherwise be in jeopardy, and will not unduly 
expand the membership base beyond persons with a close 
connection to members of the Armed Forces or cadets.

                        EXPLANATION OF PROVISION

    The bill 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. The bill does not change the 
requirement that 75 percent of the organization's members must 
be past or present members of the Armed Forces of the United 
States.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after the date of enactment.

  F. Clarification of Treatment of Certain Dependent Care Assistance 
 Programs Provided to Members of the Uniformed Services of the United 
                                 States

(Sec. 106 of the bill and sec. 134 of the Code)

                              PRESENT LAW

    Present law provides that qualified military benefits are 
not included in gross income. 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.

                           REASONS FOR CHANGE

    The Committee believes that it is important to remove any 
uncertainty regarding the tax treatment of dependent care 
assistance provided to members of the uniformed services.

                        EXPLANATION OF PROVISION

    The bill clarifies that dependent care assistance provided 
under a dependent care assistance program (as in effect on the 
date of enactment of this bill) 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 subject to the present-
law rules. The uniformed services include: (1) the Armed Forces 
(the Army, Navy, Air Force, Marine Corps, and Coast Guard); (2) 
the commissioned corps of the National Oceanic and Atmospheric 
Administration; and (3) the commissioned corps of the Public 
Health Service. Amounts received under the program also are not 
considered wages for Federal Insurance Contributions Act tax 
purposes (including Medicare).

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2002. No inference is intended as to the tax 
treatment of such amounts for prior taxable years.

   G. Treatment of Service Academy Appointments as Scholarships for 
Purposes of Qualified Tuition Programs and Coverdell Education Savings 
                                Accounts

(Sec. 107 of the bill and secs. 529 and 530 of the Code)

                              PRESENT LAW

    The Code provides tax-exempt status to qualified tuition 
programs, meaning programs established and maintained by a 
State or agency or instrumentality thereof or by one or more 
eligible educational institutions under which a person (1) may 
purchase tuition credits or certificates on behalf of a 
designated beneficiary which entitle the beneficiary to the 
waiver or payment of qualified higher education expenses of the 
beneficiary, or (2) in the case of a program established by and 
maintained by a State or agency or instrumentality thereof, may 
make contributions to an account which is established for the 
purpose of meeting the qualified higher education expenses of 
the designated beneficiary of the account. Contributions to 
qualified tuition programs may be made only in cash. Qualified 
tuition programs must have adequate safeguards to prevent 
contributions on behalf of a designated beneficiary in excess 
of amounts necessary to provide for the qualified higher 
education expenses of the beneficiary.
    The Code provides tax-exempt status to Coverdell education 
savings accounts (``ESAs''), meaning certain trusts or 
custodial accounts which are created or organized in the United 
States exclusively for the purpose of paying the qualified 
education expenses of a designated beneficiary. Contributions 
to ESAs may be made only in cash. Annual contributions to ESAs 
may not exceed $2,000 per beneficiary (except in cases 
involving certain tax-free rollovers) and may not be made after 
the designated beneficiary reaches age 18.
    Earnings on contributions to an ESA or qualified tuition 
program generally are subject to tax when withdrawn. However, 
distributions from an ESA or qualified tuition program are 
excludable from the gross income of the distributee to the 
extent that the total distribution does not exceed the 
qualified education expenses incurred by the beneficiary during 
the year the distribution is made.
    If the qualified education expenses of the beneficiary for 
the year are less than the total amount of the distribution 
from an ESA or qualified tuition program, then the qualified 
education expenses are deemed to be paid from a pro-rata share 
of both the principal and earnings components of the 
distribution. In such a case, only a portion of the earnings is 
excludable (i.e., the portion of the earnings based on the 
ratio that the qualified education expenses bear to the total 
amount of the distribution) and the remaining portion of the 
earnings is includible in the beneficiary's gross income.
    The earnings portion of a distribution from an ESA or 
qualified tuition program that is includible in income is 
generally subject to an additional 10 percent tax. The 10 
percent additional tax does not apply if a distribution is made 
on account of the death or disability of the designated 
beneficiary, or on account of a scholarship received by the 
designated beneficiary (to the extent it does not exceed the 
amount of the scholarship).
    Service obligations are required of recipients of 
appointments to 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. Because of these service obligations, 
appointments to the Academies are not considered scholarships 
for purposes of the waiver of the additional 10 percent tax on 
withdrawals from ESAs and qualified tuition programs that are 
not used for qualified education purposes.

                           REASONS FOR CHANGE

    The Committee believes that it is appropriate to treat 
appointments to a United States Service Academy in a manner 
similar to the treatment of qualified scholarships. 
Accordingly, the Committee believes that it is appropriate to 
waive the additional 10 percent tax on withdrawals from ESAs 
and qualified tuition programs that are not used for qualified 
education purposes because the designated beneficiary received 
an appointment to a United States Service Academy.
    The Committee believes that imposing an additional tax on 
earnings from educational savings accounts and qualified 
tuition plans is inappropriate in the case of individuals who 
choose to serve their country as a member of the military and 
who, as a part of that service, obtain their education at one 
of the Service Academies.

                        EXPLANATION OF PROVISION

    The bill permits penalty-free withdrawals from Coverdell 
education savings accounts and qualified tuition programs made 
on account of the attendance of the 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.
    The amount of funds that can be withdrawn penalty free is 
limited to the costs of advanced education as defined in 10 
United States Code section 2005(e)(3) (as in effect on the date 
of the enactment of the bill) at such Academies.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2002.

     H. Suspension of Tax-Exempt Status of Terrorist Organizations

(Sec. 108 of the bill and sec. 501 of the Code)

                              PRESENT LAW

    Under present law, the Internal Revenue Service generally 
issues a letter revoking recognition of an organization's tax-
exempt status only after (1) conducting an examination of the 
organization, (2) issuing a letter to the organization 
proposing revocation, and (3) allowingthe organization to 
exhaust the administrative appeal rights that follow the issuance of 
the proposed revocation letter. In the case of an organization 
described in section 501(c)(3), the revocation letter immediately is 
subject to judicial review under the declaratory judgment procedures of 
section 7428. To sustain a revocation of tax-exempt status under 
section 7428, the IRS must demonstrate that the organization is no 
longer entitled to exemption. There is no procedure under present law 
for the IRS to suspend the tax-exempt status of an organization.
    To combat terrorism, the Federal government has designated 
a number of organizations as terrorist organizations or 
supporters of terrorism under the Immigration and Nationality 
Act, the International Emergency Economic Powers Act, and the 
United Nations Participation Act of 1945.

                           REASONS FOR CHANGE

    An organization that has been designated or otherwise 
identified by the Federal government as a terrorist 
organization pursuant to certain authority should not be exempt 
from federal income tax and contributions to such organizations 
should not be deductible for Federal income tax purposes. The 
Committee believes that the Federal government's designation or 
identification of an organization as a terrorist organization 
is ground for suspension of tax-exempt status, and that in such 
cases a separate investigation of the organization by the 
Internal Revenue Service is not necessary. Further, because a 
terrorist organization may challenge the Federal government's 
designation or identification of the organization under the law 
authorizing the designation or identification, recourse to the 
declaratory judgment procedures of the Internal Revenue Code to 
challenge the suspension of tax-exemption is not appropriate.

                        EXPLANATION OF PROVISION

    The bill suspends the tax-exempt status of an organization 
that is exempt from tax under section 501(a) for any period 
during which the organization is designated or identified by 
U.S. Federal authorities as a terrorist organization or 
supporter of terrorism. The bill also makes such an 
organization ineligible to apply for tax exemption under 
section 501(a). The period of suspension runs from the date the 
organization is first designated or identified (or from the 
date of enactment of the bill, whichever is later) to the date 
when all designations or identifications with respect to the 
organization have been rescinded pursuant to the law or 
Executive order under which the designation or identification 
was made.
    The bill describes a terrorist organization as an 
organization that has been designated or otherwise individually 
identified (1) as a terrorist organization or foreign terrorist 
organization under the authority of section 
212(a)(3)(B)(vi)(II) or section 219 of the Immigration and 
Nationality Act; (2) in or pursuant to an Executive order that 
is related to terrorism and issued under the authority of the 
International Emergency Economic Powers Act or section 5 of the 
United Nations Participation Act for the purpose of imposing on 
such organization an economic or other sanction; or (3) in or 
pursuant to an Executive order that refers to the bill and is 
issued under the authority of any Federal law if the 
organization is designated or otherwise individually identified 
in or pursuant to such Executive order as supporting or 
engaging in terrorist activity (as defined in section 
212(a)(3)(B) of the Immigration and Nationality Act) or 
supporting terrorism (as defined in section 140(d)(2) of the 
Foreign Relations Authorization Act, Fiscal Years 1988 and 
1989). During the period of suspension, no deduction is allowed 
under the bill for any contribution to a terrorist organization 
under section 170, 545(b)(2), 556(b)(2), 642(c), 2055, 
2106(a)(2), or 2522.
    No organization or other person may challenge, under 
section 7428 or any other provision of law, in any 
administrative or judicial proceeding relating to the Federal 
tax liability of such organization or other person, the 
suspension of tax-exemption, the ineligibility to apply for 
tax-exemption, a designation or identification described above, 
the timing of the period of suspension, or a denial of 
deduction described above. The suspended organization may 
maintain other suits or administrative actions against the 
agency or agencies that designated or identified the 
organization, for the purpose of challenging such designation 
or identification (but not the suspension of tax-exempt status 
under this provision).
    If the tax-exemption of an organization is suspended and 
each designation and identification that has been made with 
respect to the organization is determined to be erroneous 
pursuant to the law or Executive order making the designation 
or identification, and such erroneous designation results in an 
overpayment of income tax for any taxable year with respect to 
such organization, a credit or refund (with interest) with 
respect to such overpayment shall be made. If the operation of 
any law or rule of law (including res judicata) prevents the 
credit or refund at any time, the credit or refund may 
nevertheless be allowed or made if the claim for such credit or 
refund is filed before the close of the one-year period 
beginning on the date that the last remaining designation or 
identification with respect to the organization is determined 
to be erroneous.
    The bill directs the IRS to update the listings of tax-
exempt organizations to take account of organizations that have 
had their exemption suspended and to publish notice to 
taxpayers of the suspension of an organization's tax-exemption 
and the fact that contributions to such organization are not 
deductible during the period of suspension.

                             EFFECTIVE DATE

    The bill is effective for designations made before, on, or 
after the date of enactment.

 I. Above-the-Line Deduction for Overnight Travel Expenses of National 
                       Guard and Reserve Members

(Sec. 109 of the bill and sec. 162 of the Code)

                              PRESENT LAW

    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. These overnight travel expenses are combined 
with other miscellaneous itemized deductions on Schedule A of 
the individual's income tax return and are deductible only to 
the extent that the aggregate of these deductions exceeds two 
percent of the taxpayer's adjusted gross income. No deduction 
is generally permitted for commuting expenses to and from drill 
meetings.

                           REASONS FOR CHANGE

    The Committee believes that all National Guard and Reserve 
members incurring unreimbursed overnight expenses to attend 
National Guard and Reserve meetings should be able to deduct 
these expenses from their income, not just those who itemize 
their deductions. Accordingly, the Committee provides an above-
the-line deduction for a portion of these expenses.

                        EXPLANATION OF PROVISION

    The bill provides an above-the-line deduction for the 
overnight transportation, meals, and lodging expenses of 
National Guard and Reserve members who must travel away from 
home more than 100 miles (and stay overnight) to attend 
National Guard and Reserve meetings. Accordingly, these 
individuals incurring these expenses can deduct them from gross 
income regardless of whether they itemize their deductions. The 
amount of the expenses that may be deducted may not exceed $500 
for any period during which the individual is more than 100 
miles from home in connection with such services.

                             EFFECTIVE DATE

    The provision is effective with respect to amounts paid or 
incurred after December 31, 2002.

                   TITLE II. MISCELLANEOUS PROVISIONS

      A. Extension of Certain Tax Relief Provisions to Astronauts

(Sec. 201 of the bill and secs. 101, 692, and 2201 of the Code)

                              PRESENT LAW

In general

    The Victims of Terrorism Tax Relief Act of 2001, (the 
``Victims Bill'') provided certain income and estate tax relief 
to individuals who die from wounds or injury incurred as a 
result of the terrorist attacks against the United States on 
September 11, 2001, and April 19, 1995 (the bombing of the 
Alfred P. Murrah Federal Building in Oklahoma City) or as a 
result of illness incurred due to an attack involving anthrax 
that occurred on or after September 11, 2001, and before 
January 1, 2002.

Income tax relief

    The Victims Bill extended relief similar to the present-law 
treatment of military or civilian employees of the United 
States who die as a result of terrorist or military activity 
outside the United States to individuals who die as a result of 
wounds or injury which were incurred as a result of the 
terrorist attacks that occurred on September 11, 2001, or April 
19, 1995, and individuals who die as a result of illness 
incurred due to an attack involving anthrax that occurs on or 
after September 11, 2001, and before January 1, 2002. Under the 
Victims Bill, such individuals generally are exempt from income 
tax for the year of death and for prior taxable years beginning 
with the taxable year prior to the taxable year in which the 
wounds or injury occurred.\4\ The exemption applies to these 
individuals whether killed in an attack (e.g., in the case of 
the September 11, 2001, attack in one of the four airplanes or 
on the ground) or in rescue or recovery operations.
---------------------------------------------------------------------------
    \4\ Present law does not provide relief from self-employment tax 
liability.
---------------------------------------------------------------------------
    Present law provides a minimum tax relief benefit of 
$10,000 to each eligible individual regardless of the income 
tax liability of the individual for the eligible tax years. If 
an eligible individual's income tax for years eligible for the 
exclusion under the provision is less than $10,000, the 
individual is treated as having made a tax payment for such 
individual's last taxable year in an amount equal to the excess 
of $10,000 over the amount of tax not imposed under the 
provision.
    Subject to rules prescribed by the Secretary, the exemption 
from tax does not apply to the tax attributable to (1) deferred 
compensation which would have been payable after death if the 
individual had died other than as a specified terrorist victim, 
or (2) amounts payable in the taxable year which would not have 
been payable in such taxable year but for an action taken after 
September 11, 2001. Thus, for example, the exemption does not 
apply to amounts payable from a qualified plan or individual 
retirement arrangement to the beneficiary or estate of the 
individual. Similarly, amounts payable only as death or 
survivor's benefits pursuant to deferred compensation 
preexisting arrangements that would have been paid if the death 
had occurred for another reason are not covered by the 
exemption. In addition, if the individual's employer makes 
adjustments to a plan or arrangement to accelerate the vesting 
of restricted property or the payment of nonqualified deferred 
compensation after the date of the particular attack, the 
exemption does not apply to income received as a result of that 
action.\5\ Also, if the individual's beneficiary cashed in 
savings bonds of the decedent, the exemption does not apply. On 
the other hand, the exemption does apply, for example, to a 
final paycheck of the individual or dividends on stock held by 
the individual when paid to another person or the individual's 
estate after the date of death but before the end of the 
taxable year of the decedent (determined without regard to the 
death). The exemption also applies to payments of an 
individual's accrued vacation and accrued sick leave.
---------------------------------------------------------------------------
    \5\ Such amounts may, however, be excludable from gross income 
under the death benefit exclusion provided in section 102 of the 
Victims Bill.
---------------------------------------------------------------------------
    The tax relief does not apply to any individual identified 
by the Attorney General to have been a participant or 
conspirator in any terrorist attack to which the provision 
applies, or a representative of such individual.

Exclusion of death benefits

    The Victims Bill generally provides an exclusion from gross 
income for amounts received if such amounts are paid by an 
employer (whether in a single sum or otherwise \6\) by reason 
of the death of an employee who dies as a result of wounds or 
injury which were incurred as a result of the terrorist attacks 
that occurred on September 11, 2001, or April 19, 1995, or as a 
result of illness incurred due to an attack involving anthrax 
that occurs on or after September 11, 2001, and before January 
1, 2002. Subject to rules prescribed by the Secretary, the 
exclusion does not apply to amounts that would have been 
payable if the individual had died for a reason other than the 
attack. The exclusion does apply, however, to death benefits 
provided under a qualified plan that satisfy the incidental 
benefit rule.
---------------------------------------------------------------------------
    \6\ Thus, for example, payments made over a period of years could 
qualify for the exclusion.
---------------------------------------------------------------------------
    For purposes of the exclusion, self-employed individuals 
are treated as employees. Thus, for example, payments by a 
partnership to the surviving spouse of a partner who died as a 
result of the September 11, 2001, attacks may be excludable 
under the provision.
    The tax relief does not apply to any individual identified 
by the Attorney General to have been a participant or 
conspirator in any terrorist attack to which the provision 
applies, or a representative of such individual.

Estate tax relief

    Present law provides a reduction in Federal estate tax for 
taxable estates of U.S. citizens or residents who are active 
members of the U.S. Armed Forces and who are killed in action 
while serving in a combat zone (sec. 2201). This provision also 
applies to active service members who die as a result of 
wounds, disease, or injury suffered while serving in a combat 
zone by reason of a hazard to which the service member was 
subjected as an incident of such service.
    In general, the effect of section 2201 is to replace the 
Federal estate tax that would otherwise be imposed with a 
Federal estate tax equal to 125 percent of the maximum State 
death tax credit determined under section 2011(b). Credits 
against the tax, including the unified credit of section 2010 
and the State death tax credit of section 2011, then apply to 
reduce (or eliminate) the amount of the estate tax payable.
    Generally, the reduction in Federal estate taxes under 
section 2201 is equal in amount to the ``additional estate 
tax.'' The additional estate tax is the difference between the 
Federal estate tax imposed by section 2001 and 125 percent of 
the maximum State death tax credit determined under section 
2011(b) as in effect prior to its repeal by the Economic Growth 
and Tax Relief Reconciliation Act of 2001.
    The Victims Bill generally treats individuals who die from 
wounds or injury incurred as a result of the terrorist attacks 
that occurred on September 11, 2001, or April 19, 1995, or as a 
result of illness incurred due to an attack involving anthrax 
that occurred on or after September 11, 2001, and before 
January 1, 2002, in the same manner as if they were active 
members of the U.S. Armed Forces killed in action while serving 
in a combat zone or dying as a result of wounds or injury 
suffered while serving in a combat zone for purposes of section 
2201. Consequently, the estates of these individuals are 
eligible for the reduction in Federal estate tax provided by 
section 2201. The tax relief does not apply to any individual 
identified by the Attorney General to have been a participant 
or conspirator in any terrorist attack to which the provision 
applies, or a representative of such individual.
    The Victims bill also changes the general operation of 
section 2201, as it applies to both the estates of service 
members who qualify for special estate tax treatment under 
present and prior law and to the estates of individuals who 
qualify for the special treatment only under the Act. Under the 
Victims bill, the Federal estate tax is determined in the same 
manner for all estates that are eligible for Federal estate tax 
reduction under section 2201. In addition, the executor of an 
estate that is eligible for special estate tax treatment under 
section 2201 may elect not to have section 2201 apply to the 
estate. Thus, in the event that an estate may receive more 
favorable treatment without the application of section 2201 in 
the year of death than it would under section 2201, the 
executor may elect not to apply the provisions of section 2201, 
and the estate tax owed (if any) would be determined pursuant 
to the generally applicable rules.
    Under the Victims bill, section 2201 no longer reduces 
Federal estate tax by the amount of the additional estate tax. 
Instead, the Victims bill provides that the Federal estate tax 
liability of eligible estates is determined under section 2001 
(or section 2101, in the case of decedents who were neither 
residents nor citizens of the United States), using a rate 
schedule that is equal to 125 percent of the pre-EGTRRA maximum 
State death tax credit amount. This rate schedule is used to 
compute the tax under section 2001(b) or section 2101(b) (i.e., 
both the tentative tax under section 2001(b)(1) and section 
2101(b), and the hypothetical gift tax under section 2001(b)(2) 
are computed using this rate schedule). As a result of this 
provision, the estate tax is unified with the gift tax for 
purposes of section 2201 so that a single graduated (but 
reduced) rate schedule applies to transfers made by the 
individual at death, based upon the cumulative taxable 
transfers made both during lifetime and at death.
    In addition, while the Victims bill provides an alternative 
reduced rate table for purposes of determining the tax under 
section 2001(b) or section 2101(b), the amount of the unified 
credit nevertheless is determined as if section 2201 did not 
apply, based upon the unified credit as in effect on the date 
of death. For example, in the case of victims of the September 
11, 2001, terrorist attack, the applicable unified credit 
amount under section 2010(c) would be determined by reference 
to the actual section 2001(c) rate table.

                           REASONS FOR CHANGE

    The Committee wishes to honor the bravery of individuals 
who lost their lives in the space shuttle Columbia disaster by 
providing these tax relief measures to those individuals and 
their families.

                        EXPLANATION OF PROVISION

    The bill extends the exclusion from income tax, the 
exclusion for death benefits, and the estate tax relief 
available under the Victims of Terrorism Tax Relief Act of 2001 
to astronauts who lose their lives on a space mission 
(including the individuals who lost their lives in the space 
shuttle Columbia disaster).

                             EFFECTIVE DATE

    The provision is generally effective for qualified 
individuals whose lives are lost in the line of duty after 
December 31, 2002.

 B. Coordinate Farmers Income Averaging and the Alternative Minimum Tax

(Sec. 202 of the bill and sec. 55 of the Code)

                              PRESENT LAW

    An individual taxpayer engaged in a farming business as 
defined by section 263A(e)(4) may elect to compute his or her 
current year tax liability by averaging, over the prior three-
year period, all or a portion of his or her taxable income from 
the trade or business of farming. The averaging election is not 
coordinated with the alternative minimum tax. Thus, some 
farmers may become subject to the alternative minimum tax 
solely as a result of the averaging election.

                           REASONS FOR CHANGE

    The Committee believes that farmer income averaging should 
be coordinated with the alternative minimum tax so that a 
farmer's alternative minimum tax liability is not increased 
solely because he or she elects income averaging.

                        DESCRIPTION OF PROPOSAL

    The bill coordinates farmers income averaging with the 
alternative minimum tax. Under the bill, a farmer would owe 
alternative minimum tax only to the extent he or she would owe 
alternative minimum tax had averaging not been elected. This 
result is achieved by excluding the impact of the election to 
average farm income from the calculation of both regular tax 
and tentative minimum tax, solely for the purpose of 
determining alternative minimum tax.

                             EFFECTIVE DATE

    The bill is effective for taxable years beginning after 
December 31, 2002.

  C. Capital Gains Treatment to Apply to Outright Sales of Timber by 
                               Landowner

(Sec. 203 of the bill and sec. 631(b) of the Code)

                              PRESENT LAW

    Under present law, a taxpayer disposing of timber held for 
more than one year is eligible for capital gains treatment in 
three situations. First, if the taxpayer sells or exchanges 
timber that is a capital asset (sec. 1221) or property used in 
the trade or business (sec. 1231), the gain generally is long-
term capital gain; however, if the timber is held for sale to 
customers in the taxpayer's business, the gain will be ordinary 
income. Second, if the taxpayer disposes of the timber with a 
retained economic interest, the gain is eligible for capital 
gain treatment (sec. 631(b)). Third, if the taxpayer cuts 
standing timber, the taxpayer may elect to treat the cutting as 
a sale or exchange eligible for capital gains treatment (sec. 
631(a)).

                           REASONS FOR CHANGE

    The Committee believes that the requirement that the owner 
of timber retain an economic interest in the timber in order to 
obtain capital gain treatment under section 631(b) results in 
poor timber management because the buyer, when cutting and 
removing timber, has no incentive toprotect young or other 
uncut trees because the buyer only pays for the timber that is cut and 
removed. Therefore, the Committee bill eliminates this requirement and 
provides for capital gain treatment under section 631(b) in the case of 
outright sales of timber.

                        EXPLANATION OF PROVISION

    Under the bill, in the case of a sale of timber by the 
owner of the land from which the timber is cut, the requirement 
that a taxpayer retain an economic interest in the timber in 
order to treat gains as capital gain under section 631(b) does 
not apply. Outright sales of timber by the landowner will 
qualify for capital gains treatment in the same manner as sales 
with a retained economic interest qualify under present law, 
except that the usual tax rules relating to the timing of the 
income from the sale of the timber will apply (rather than the 
special rule of section 631(b) treating the disposal as 
occurring on the date the timber is cut).

                             EFFECTIVE DATE

    The provision is effective for sales of timber after the 
date of enactment.

   D. Special Rules for Livestock Sold on Account of Weather-Related 
                               Conditions

(Sec. 204 of the bill and secs. 1033 and 451 of the Code)

                              PRESENT LAW

    Generally, a taxpayer recognizes gain to the extent the 
sales price (and any other consideration received) exceeds the 
seller's basis in the property. The recognized gain is subject 
to current income tax unless the gain is deferred or not 
recognized under a special tax provision.
    Under section 1033, gain realized by a taxpayer from an 
involuntary conversion of property is deferred to the extent 
the taxpayer purchases property similar or related in service 
or use to the converted property within the applicable period. 
The taxpayer's basis in the replacement property generally is 
the same as the taxpayer's basis in the converted property, 
decreased by the amount of any money or loss recognized on the 
conversion, and increased by the amount of any gain recognized 
on the conversion.
    The applicable period for the taxpayer to replace the 
converted property begins with the date of the disposition of 
the converted property (or if earlier, the earliest date of the 
threat or imminence of requisition or condemnation of the 
converted property) and ends two years after the close of the 
first taxable year in which any part of the gain upon 
conversion is realized (the ``replacement period''). Special 
rules extend the replacement period for certain real property 
and principal residences damaged by a Presidentially declared 
disaster to three years and four years, respectively, after the 
close of the first taxable year in which gain is realized.
    Section 1033(e) provides that the sale of livestock (other 
than poultry) that is held for draft, breeding, or dairy 
purposes in excess of the number of livestock that would have 
been sold but for drought, flood, or other weather-related 
conditions is treated as an involuntary conversion. 
Consequently, gain from the sale of such livestock could be 
deferred by reinvesting the proceeds of the sale in similar 
property within a two-year period.
    In general, cash-method taxpayers report income in the year 
it is actually or constructively received. However, section 
451(e) provides that a cash-method taxpayer whose principal 
trade or business is farming who is forced to sell livestock 
due to drought, flood, or other weather-related conditions may 
elect to include income from the sale of the livestock in the 
taxable year following the taxable year of the sale. This 
elective deferral of income is available only if the taxpayer 
establishes that, under the taxpayer's usual business 
practices, the sale would not have occurred but for drought, 
flood, or weather-related conditions that resulted in the area 
being designated as eligible for Federal assistance. This 
exception is generally intended to put taxpayers who receive an 
unusually high amount of income in one year in the position 
they would have been in absent the weather-related condition.

                           REASONS FOR CHANGE

    The Committee is aware of situations in which cattlemen 
sold livestock in excess of the their usual business practice 
as a result of weather-related conditions, but have been unable 
to purchase replacement property because the weather-related 
conditions have continued. The Committee believes it is 
appropriate to extend the time period for cattlemen to purchase 
replacement property in such situations.

                        EXPLANATION OF PROVISION

    The provision extends the applicable period for a taxpayer 
to replace livestock sold on account of drought, flood, or 
other weather-related conditions from two years to four years 
after the close of the first taxable year in which any part of 
the gain on conversion is realized. The extension is only 
available if the taxpayer establishes that, under the 
taxpayer's usual business practices, the sale would not have 
occurred but for drought, flood, or weather-related conditions 
that resulted in the area being designated as eligible for 
Federal assistance. In addition, the Secretary of the Treasury 
is granted authority to further extend the replacement period 
on a regional basis should the weather-related conditions 
continue longer than 3 years. Also, for property eligible for 
the provision's extended replacement period, the provision 
provides that the taxpayer can make an election under section 
451(e) until the period for reinvestment of such property under 
section 1033 expires.

                             EFFECTIVE DATE

    The provision is effective for any taxable year with 
respect to which the due date (without regard to extensions) 
for the return is after December 31, 2002.

       E. Simplification of Excise Tax Imposed on Bows and Arrows

(Sec. 205 of the bill and sec. 4161 of the Code)

                              PRESENT LAW

    The Code imposes an excise tax of 11 percent on the sale by 
a manufacturer, producer or importer of any bow with a draw 
rate of 10 pounds or more.\7\ An excise tax of 12.4 percent is 
imposed on the sale by a manufacturer or importer of any shaft, 
point, nock, or vane designed for use as part of an arrow which 
after its assembly (1) is over 18 inches long, or (2) is 
designed for use with a taxable bow (if shorter than 18 
inches).\8\ No tax is imposed on finished arrows. An 11-percent 
excise tax also is imposed on any part of an accessory for 
taxable bows and on quivers for use with arrows (1) over 18 
inches long or (2) designed for use with a taxable bow (if 
shorter than 18 inches).\9\
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    \7\ Sec. 4161(b)(1)(A).
    \8\ Sec. 4161(b)(2).
    \9\ Sec. 4161(b)(1)(B).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Under present law, foreign manufacturers and importers of 
arrows avoid the 12.4 percent excise tax paid by domestic 
manufacturers because the tax is placed on arrow components 
rather than finished arrows. As a result, arrows assembled 
outside of the United States have a price advantage over 
domestically manufactured arrows. The Committee believes it is 
appropriate to close this loophole. The Committee also believes 
that adjusting the minimum draw weight for taxable bows from 
ten pounds to 30 pounds will better target the excise tax to 
actual hunting use by eliminating the excise tax on 
instructional (``youth'') bows.

                        EXPLANATION OF PROVISION

    The bill increases the minimum draw weight for a taxable 
bow from 10 pounds to 30 pounds. The bill also imposes an 
excise tax of 12 percent on arrows generally. An arrow for this 
purpose is defined as an arrow shaft to which additional 
components are attached. The present law 12.4-percent excise 
tax on certain arrow components is unchanged by the proposal. 
The bill provides that the 12-percent excise tax on arrows will 
not apply if the arrow contains an arrow shaft that was subject 
to the tax on arrow components. Finally, the bill subjects 
certain broadheads (a type of arrow point) to an excise tax 
equal to 11 percent of the sales price instead of 12.4 percent.

                             EFFECTIVE DATE

    The provision is effective for articles sold by the 
manufacturer, producer, or importer 90 days after the date of 
enactment.

              F. Repeal Excise Tax on Fishing Tackle Boxes

(Sec. 206 of the bill and sec. 4162 of the Code)

                              Present Law

    Under present law, a 10-percent manufacturer's excise tax 
is imposed on specified sport fishing equipment. Examples of 
taxable equipment include fishing rods and poles, fishing 
reels, artificial bait, fishing lures, line and hooks, and 
fishing tackle boxes. Revenues from the excise tax on sport 
fishing equipment are deposited in the Sport Fishing Account of 
the AquaticResources Trust Fund. Monies in the fund are spent, 
subject to an existing permanent appropriation, to support Federal-
State sport fish enhancement and safety programs.

                           REASONS FOR CHANGE

    The Committee observes that fishing ``tackle boxes'' are 
little different in design and appearance from ``tool boxes,'' 
yet the former are subject to a Federal excise tax at a rate of 
10-percent, while the latter are not subject to Federal excise 
tax. This excise tax can create a sufficiently large price 
difference that some fishermen will choose to use a ``tool 
box'' to hold their hooks and lures rather than a traditional 
``tackle box.'' The Committee finds that such a distortion of 
consumer choice places an inappropriate burden on the 
manufacturers and purchasers of traditional tackle boxes, 
particularly in comparison to the modest amount of revenue 
raised by the present-law provision, and that this burden 
warrants repeal of the tax. The Committee also believes that 
elimination of the excise tax on tackle boxes will provide some 
modest simplification of the tax system for both taxpayers and 
the Internal Revenue Service.

                        EXPLANATION OF PROVISION

    The excise tax on fishing tackle boxes is repealed.

                             EFFECTIVE DATE

    The provision is effective beginning 30 days after the date 
of enactment.

            G. Btu-Based Rate for Diesel/Water Emulsion Fuel

(Sec. 207 of the bill and secs. 4081 and 6427 of the Code)

                              PRESENT LAW

    A 24.3 cents per gallon excise tax is imposed on diesel 
fuel to finance the Highway Trust Fund. Gasoline and most 
special motor fuels are subject to tax at 18.3 cents per gallon 
for the Trust Fund. The statutory rate for certain special 
motor fuels is determined on an energy equivalent basis, as 
follows:

Liquefied petroleum gas (propane)...........      13.6 cents per gallon
Liquefied natural gas.......................      11.9 cents per gallon
Methanol derived from petroleum or natural        9.15 cents per gallon
 gas........................................
Compressed natural gas......................        48.54 cents per MCF

    No special tax rate is provided for diesel fuel blended in 
a water emulsion fuel.

                           REASONS FOR CHANGE

    The Highway Trust Fund taxes are structured to reflect use 
of the highway system. Because diesel/water emulsion fuels have 
fewer Btu's, larger quantities must be purchased to travel the 
same number of miles as regular diesel fuel. A Btu-based tax 
rate better correlates highway use and tax paid, and is 
consistent with the present law principle of taxing special 
motor fuels based on their energy content. The Committee 
further understands that the diesel fuel/water emulsion fuel 
may reduce air pollutants relative to regular diesel fuel and 
believes that the Btu-based rate, by removing a tax 
disadvantage to use of the fuel, will be beneficial to the 
environment.

                        EXPLANATION OF PROVISION

    A special tax rate of 19.7 cents per gallon is provided for 
diesel fuel blended with water into a diesel/water emulsion 
fuel to reflect the reduced Btu content per gallon resulting 
from the water. Emulsion fuels eligible for the special rate 
must consist of not more than 86 percent diesel fuel (and other 
minor chemical additives to enhance combustion) and at least 14 
percent water.

                             EFFECTIVE DATE

    The provision applies to fuels removed after September 30, 
2003.

H. Expand Human Clinical Trials Expenses Qualifying for the Orphan Drug 
                               Tax Credit

(Sec. 208 of the bill and sec. 280C of the Code)

                              PRESENT LAW

    Taxpayers may claim a 50-percent orphan drug tax credit for 
expenses related to human clinical testing of drugs for the 
treatment of certain rare diseases and conditions, generally 
those that afflict less than 200,000 persons in the United 
States. Qualifying expenses are those paid or incurred by the 
taxpayer after the date on which the drug is designated as a 
potential treatment for a rare disease or disorder by the Food 
and Drug Administration (``FDA'') in accordance with section 
526 of the Federal Food, Drug, and Cosmetic Act.

                           REASONS FOR CHANGE

    The Committee understands that approval for human clinical 
testing and designation as a potential treatment for a rare 
disease or disorder require separate reviews within the FDA. As 
a result, in some cases, a taxpayer may be permitted to begin 
human clinical testing prior to a drug being designated as a 
potential treatment for a rare disease or disorder. If the 
taxpayer delays human clinical testing in order to obtain the 
benefits of the orphan drug tax credit, which currently may be 
claimed only for expenses incurred after the drug is designated 
as a potential treatment for a rare disease or disorder, 
valuable time will have been lost and Congress's original 
intent in enacting the orphan drug tax credit will have been 
partially thwarted. Because taxpayers generally seek 
designation of a potential drug as a treatment for a rare 
disease or disorder at the time they seek approval to 
clinically test such drugs, the Committee believes it is 
appropriate to make such expenses related to human clinical 
testing that the taxpayer incurs prior to FDA designation 
eligible for the orphan drug tax credit to help speed cures to 
such insidious diseases.
    The Committee also observed that the staff of the Joint 
Committee on Taxation recommended this change as part of its 
2001 simplification study.\10\
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    \10\ Joint Committee on Taxation, Study of the Overall State of the 
Federal Tax System and Recommendations for Simplification, Pursuant to 
Section 8022(3)(b) of the Internal Revenue Code of 1986, Vol. II (JCS-
3-01), April 2001, p. 310.
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                        EXPLANATION OF PROVISION

    The bill expands qualifying expenses to include those 
expenses related to human clinical testing incurred after the 
date on which the taxpayer files an application with the FDA 
for designation of the drug under section 526 of the Federal 
Food, Drug, and Cosmetic Act as a potential treatment for a 
rare disease or disorder. As under present law, the credit may 
only be claimed for such expenses related to drugs designated 
as a potential treatment for a rare disease or disorder by the 
FDA in accordance with section 526 of such Act.

                             EFFECTIVE DATE

    The provision is effective for expenditures paid or 
incurred after the date of enactment.

 I. Consumer Options Under the Refundable Credit for Health Insurance 
                     Costs of Eligible Individuals

(Sec. 209 of the bill and sec. 35 of the Code)

                              PRESENT LAW

Refundable health insurance credit: in general

    In the case of taxpayers who are eligible individuals, a 
refundable tax credit is provided for 65 percent of the 
taxpayer's expenses for qualified health insurance of the 
taxpayer and qualifying family members for each eligible 
coverage month beginning in the taxable year. The credit is 
available only with respect to amounts paid by the taxpayer. 
The credit is available in taxable years beginning after 
December 31, 2002.
    Qualifying family members are the taxpayer's spouse and any 
dependent of the taxpayer with respect to whom the taxpayer is 
entitled to claim a dependency exemption.\11\ Any individual 
who has other specified coverage is not a qualifying family 
member.
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    \11\ Present and prior law allows the custodial parent to release 
the right to claim the dependency exemption for a child to the 
noncustodial parent. In addition, if certain requirements are met, the 
parents may decide by agreement that the noncustodial parent is 
entitled to the dependency exemption with respect to a child. In such 
cases, the provision treats the child as the dependent of the custodial 
parent for purposes of the credit.
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Persons eligible for the credit

    Eligibility for the credit is determined on a monthly 
basis. In general, an eligible coverage month is any month if, 
as of the first day of the month, the taxpayer (1) is an 
eligible individual, (2) is covered by qualified health 
insurance, (3) does not have other specified coverage, and (4) 
is not imprisoned under Federal, State, or local authority. In 
the case of a joint return, the eligibility requirements are 
met if at least one spouse satisfies the requirements. An 
eligible month must begin more than 90 days after the date of 
enactment of the Trade Act of 2002.\12\
---------------------------------------------------------------------------
    \12\ The date of enactment is August 6, 2002.
---------------------------------------------------------------------------
    An eligible individual is (1) an eligible TAA recipient, 
(2) an eligible alternative TAA recipient, and (3) an eligible 
PBGC pension recipient.
    An individual is an eligible TAA recipient during any month 
if the individual (1) is receiving for any day of such month a 
trade adjustment allowance \13\ or who would be eligible to 
receive such an allowance but for the requirement that the 
individual exhaust unemployment benefits before being eligible 
to receive an allowance and (2) with respect to such allowance, 
is covered under a certification issued under subchapter A or D 
of chapter 2 of title II of the Trade Act of 1974. An 
individual is treated as an eligible TAA recipient during the 
first month that such individual would otherwise cease to be an 
eligible TAA recipient.
---------------------------------------------------------------------------
    \13\ Part I of subchapter B, or subchapter D, of chapter 2 of title 
II of the Trade Act of 1974.
---------------------------------------------------------------------------
    An individual is an eligible alternative TAA recipient 
during any month if the individual (1) is a worker described in 
section 246(a)(3)(B) of the Trade Act of 1974 who is 
participating in the program established under section 
246(a)(1) of such Act, and (2) is receiving a benefit for such 
month under section 246(a)(2) of such Act. An individual is 
treated as an eligible alternative TAA recipient during the 
first month that such individual would otherwise cease to be an 
eligible TAA recipient.
    An individual is a PBGC pension recipient for any month if 
he or she (1) is age 55 or over as of the first day of the 
month, and (2) is receiving a benefit any portion of which is 
paid by the Pension Benefit Guaranty Corporation (the 
``PBGC'').
    An otherwise eligible taxpayer is not eligible for the 
credit for a month if, as of the first day of the month the 
individual has other specified coverage. Other specified 
coverage is (1) coverage under any insurance which constitutes 
medical care (except for insurance substantially all of the 
coverage of which is for excepted benefits) \14\ if at least 50 
percent of the cost of the coverage is paid by an employer \15\ 
(or former employer) of the individual or his or her spouse or 
(2) coverage under certain governmental health programs.\16\ A 
rule aggregating plans of the same employer applies in 
determining whether the employer pays at least 50 percent of 
the cost of coverage. A person is not an eligible individual if 
he or she may be claimed as a dependent on another person's tax 
return. A special rule applies with respect to alternative TAA 
recipients.
---------------------------------------------------------------------------
    \14\ Excepted benefits are: (1) coverage only for accident or 
disability income or any combination thereof; (2) coverage issued as a 
supplement to liability insurance; (3) liability insurance, including 
general liability insurance and automobile liability insurance; (4) 
worker's compensation or similar insurance; (5) automobile medical 
payment insurance; (6) credit-only insurance; (7) coverage for on-site 
medical clinics; (8) other insurance coverage similar to the coverages 
in (1)-(7) specified in regulations under which benefits for medical 
care are secondary or incidental to other insurance benefits; (9) 
limited scope dental or vision benefits; (10) benefits for long-term 
care, nursing home care, home health care, community-based care, or any 
combination thereof; and (11) other benefits similar to those in (9) 
and (10) as specified in regulations; (12) coverage only for a 
specified disease or illness; (13) hospital indemnity or other fixed 
indemnity insurance; and (14) Medicare supplemental insurance.
    \15\ An amount is considered paid by the employer if it is 
excludable from income. Thus, for example, amounts paid for health 
coverage on a salary reduction basis under an employer plan are 
considered paid by the employer.
    \16\ Specifically, an individual is not eligible for the credit if, 
as of the first day of the month, the individual is (1) entitled to 
benefits under Medicare Part A, enrolled in Medicare Part B, or 
enrolled in Medicaid or SCHIP, (2) enrolled in a health benefits plan 
under the Federal Employees Health Benefit Plan, or (3) entitled to 
receive benefits under chapter 55 of title 10 of the United States Code 
(relating to military personnel). An individual is not considered to be 
enrolled in Medicaid solely by reason of receiving immunizations.
---------------------------------------------------------------------------

Qualified health insurance

    Qualified health insurance eligible for the credit is: (1) 
COBRA continuation coverage; (2) State based continuation 
coverage provided by the State under a State law that requires 
such coverage; (3) coverage offered through a qualified State 
high risk pool; (4) coverage under a health insurance program 
offered to State employees or a comparable program; (5) 
coverage through an arrangement entered into by a State and a 
group health plan, an issuer of health insurance coverage, an 
administrator, or an employer; (6) coverage offered through a 
State arrangement with a private sector health care coverage 
purchasing pool; (7) coverage under a State-operated health 
plan that does not receive any Federal financial participation; 
(8) coverage under a group health plan that is available 
through the employment of the eligible individual's spouse; and 
(9) coverage under individual health insurance if the eligible 
individual was covered under individual health insurance during 
the entire 30-day period that ends on the date the individual 
became separated from the employment which qualified the 
individual for the TAA allowance, the benefit for an eligible 
alternative TAA recipient, or a pension benefit from the PBGC, 
whichever applies.\17\
---------------------------------------------------------------------------
    \17\ For this purpose, ``individual health insurance'' means any 
insurance which constitutes medical care offered to individuals other 
than in connection with a group health plan. Such term does not include 
Federal- or State-based health insurance coverage.
---------------------------------------------------------------------------
    Qualified health insurance does not include any State-based 
coverage (i.e., coverage described in (2)-(8) in the preceding 
paragraph), unless the State has elected to have such coverage 
treated as qualified health insurance and such coverage meets 
certain requirements. Such State coverage must provide that 
each qualifying individual is guaranteed enrollment if the 
individual pays the premium for enrollment or provides a 
qualified health insurance costs eligibility certificate and 
pays the remainder of the premium. In addition, the State-based 
coverage cannot impose any pre-existing condition limitation 
with respect to qualifying individuals. State-based coverage 
cannot require a qualifying individual to pay a premium or 
contribution that is greater than the premium or contribution 
for a similarly situated individual who is not a qualified 
individual. Finally, benefits under the State-based coverage 
must be the same as (or substantially similar to) benefits 
provided to similarly situated individuals who are not 
qualifying individuals. A qualifying individual is an eligible 
individual who seeks to enroll in the State-based coverage and 
who has aggregate periods of creditable coverage \18\ of three 
months or longer, does not have other specified coverage, and 
who is not imprisoned. A qualifying individual also includes 
qualified family members of such an eligible individual.
---------------------------------------------------------------------------
    \18\ Creditable coverage is determined under the Health Care 
Portability and Accountability Act (Code sec. 9801(c)).
---------------------------------------------------------------------------
    Qualified health insurance does not include coverage under 
a flexible spending or similar arrangement or any insurance if 
substantially all of the coverage is of excepted benefits.

Other rules

    Amounts taken into account in determining the credit may 
not be taken into account in determining the amount allowable 
under the itemized deduction for medical expenses or the 
deduction for health insurance expenses of self-employed 
individuals. Amounts distributed from a medical savings account 
are not eligible for the credit. The amount of the credit 
available through filing a tax return is reduced by any credit 
received on an advance basis. Married taxpayers filing separate 
returns are eligible for the credit; however, if both spouses 
are eligible individuals and the spouses file a separate 
return, then the spouse of the taxpayer is not a qualifying 
family member.
    The Secretary of the Treasury is authorized to prescribe 
such regulations and other guidance as may be necessary or 
appropriate to carry out the provision.

Advance payment of refundable health insurance credit; reporting 
        requirements

    The credit is to be payable on an advance basis (i.e., 
prior to the filing of the taxpayer's return) pursuant to a 
program to be established by the Secretary of the Treasury no 
later than August 1, 2003. The disclosure of return information 
of certified individuals to providers of health insurance 
information is permitted to the extent necessary to carry out 
the advance payment mechanism. Any person who receives payments 
during a calendar year for qualified health insurance and 
claims a reimbursement for an advance credit amount is required 
to file an information return with respect to each individual 
from whom such payments were received or for whom such a 
reimbursement is claimed.

                           REASONS FOR CHANGE

    The laws of most States do not impose the requirements 
necessary for State-based coverage to qualify as qualified 
health insurance eligible for the refundable health insurance 
tax credit. Otherwise eligible individuals in some State pools 
are not able to receive the tax credit unless the States 
affirmatively change their requirements. Given the relatively 
small number of individuals otherwise eligible for the heath 
insurance tax credit in any particular State, the Committee 
believes that it is unlikely that States will affirmatively 
change their laws. Therefore, few individuals are able to 
access the tax credit for State-based coverage.

                        EXPLANATION OF PROVISION

    The bill allows State-based coverage to meet the definition 
of qualified health insurance eligible for the refundable 
health insurance tax credit if the eligible individual elects 
to waive the requirements for State-based coverage, including 
the requirements that the State-based coverage would otherwise 
have to meet with respect to guaranteed issue, preexisting 
conditions, premiums, and similar benefits.

                             EFFECTIVE DATE

    The provision is effective for eligible coverage months 
beginning after the date of enactment and before January 1, 
2005.

      J. Modify At-Risk Rules for Publicly Traded Nonrecourse Debt

(Sec. 210 of the bill and sec. 465(b)(6) of the Code)

                              PRESENT LAW

    Present law provides an at-risk limitation on losses from 
business and income-producing activities, applicable to 
individuals and certain closely held corporations.\19\ Under 
the at-risk rules, a taxpayer generally is not considered at 
risk with respect to borrowed amounts if the taxpayer is not 
personally liable for repayment of the debt (e.g., nonrecourse 
loans), and in certain other circumstances.
---------------------------------------------------------------------------
    \19\ Sec. 465.
---------------------------------------------------------------------------
    In the case of the activity of holding real property, 
however, an exception is provided for qualified nonrecourse 
financing that is secured by real property used in the 
activity.\20\ The qualified nonrecourse financing rules 
require, among other things, that the financing be borrowed by 
the taxpayer from a qualified person or from certain 
governmental entities. For this purpose, a qualified person is 
one that is actively and regularly engaged in the business of 
lending money (and that is not a related person with respect to 
the taxpayer, is not a person from whom the taxpayer acquired 
the property or a related person, and is not a person that 
receives a fee with respect to the taxpayer's investment or a 
related person.\21\ A related person is one with certain types 
of relationships to the taxpayer defined by statute.\22\ The 
qualified nonrecourse financing rules also require that the 
financing be secured by real property used in the activity.\23\
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    \20\ Sec. 465(b)(6).
    \21\ Sec. 49(a)(1)(D)(iv).
    \22\ Sec. 465(b)(3)(C).
    \23\ Sec. 465(b)(6)(A).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee understands that the rule requiring that the 
financing be borrowed from a person that is actively and 
regularly engaged in the business of lending money hinders the 
use of publicly traded debt in real estate financing to which 
the at-risk rules apply, because absent restrictions on sale of 
the debt, the holders of publicly traded debt could be persons 
other than those who are actively and regularly engaged in the 
business of lending money (even though such persons are not 
related persons). In addition, the Committee understands that 
publicly traded debt may often be debt that is not mortgage 
debt and is not otherwise secured by real property used in the 
real estate activity. Nevertheless, the Committee is aware that 
seller financing and related-party financing can give rise to 
deduction shifting and overvaluation problems that the at-risk 
rules are designed to address. Thus, the Committee bill 
provides that qualified nonrecourse financing in the case of 
the activity of holding real property can include certain 
publicly traded debt that is not borrowed from a person who is 
actively and regularly engaged in the business of lending 
money, and that is not secured by property used in the real 
estate activity, so long as the present-law prohibitions 
against seller financing and related party financing continue 
to apply. In addition, to address concerns about shifting 
deductions among taxpayers through the use of relatively risky 
debt with a relatively high yield, which may tend to resemble 
an equity investment, the yield on the publicly traded debt 
under the provision is limited in the same manner as the yield 
under high-yield debt obligations under present law.

                        EXPLANATION OF PROVISION

    The bill modifies the rules relating to qualified 
nonrecourse financing to provide that, in the case of an 
activity of holding real property, a taxpayer is considered at 
risk with respect to the taxpayer's share of certain financing 
that is not borrowed from a person that is regularly engaged in 
the business of lending money, and that is not secured by real 
property used in the activity, if the financing is qualified 
publicly traded debt.
    The financing may not be borrowed from a person that is a 
related person with respect to the taxpayer, that is a person 
from whom the taxpayer acquired the property or a related 
person, or that is a person that receives a fee with respect to 
the taxpayer's investment or a related person.
    Qualified publicly traded debt generally means any debt 
instrument that is readily tradable on an established 
securities market. However, qualified publicly traded debt does 
not include any debt instrument, the yield to maturity on which 
equals or exceeds the applicable Federal rate of interest for 
the calendar month in which it is issued, plus 5 percentage 
points. The applicable Federal rate is the rate determined 
under section 1274(d) with respect to the termof the debt 
instrument. Under the bill, it is intended that ``readily tradable on 
an established securities market'' have the same meaning as under 
section 453(f)(5).

                             EFFECTIVE DATE

    The provision is effective for debt instruments issued 
after the date of enactment.

K. Exclusion of Certain Horse-Racing Gambling Winnings From the Income 
                 of Nonresident Noncitizen Individuals

(Sec. 211 of the bill and sec. 872(b) of the Code)

                              PRESENT LAW

    Under section 871, certain items of gross income received 
by a nonresident noncitizen from sources within the United 
States are subject to a flat 30-percent withholding tax. 
Gambling winnings received by a nonresident noncitizen from 
wagers placed in the United States are U.S.-source and thus 
generally are subject to this withholding tax, unless exempted 
by treaty. Currently, several U.S. income tax treaties exempt 
U.S.-source gambling winnings of residents of the other treaty 
country from U.S. withholding tax. In addition, no withholding 
tax is imposed under section 871 on the non-business gambling 
income of a nonresident noncitizen from wagers on the following 
games (except to the extent that the Secretary determines that 
collection of the tax would be administratively feasible): 
blackjack, baccarat, craps, roulette, and big-6 wheel. Various 
other (non-gambling-related) items of income of a nonresident 
noncitizen are excluded from gross income under section 872(b) 
and are thereby exempt from the 30-percent withholding tax, 
without any authority for the Secretary to impose the tax by 
regulation. In cases in which a withholding tax on gambling 
winnings applies, section 1441(a) of the Code requires the 
party making the winning payout to withhold the appropriate 
amount and makes that party responsible for amounts not 
withheld.
    With respect to gambling winnings of a nonresident 
noncitizen resulting from a wager initiated outside the United 
States on a pari-mutuel \24\ event taking place within the 
United States, the source of the winnings, and thus the 
applicability of the 30-percent U.S. withholding tax, depends 
on the type of wagering pool from which the winnings are paid. 
If the payout is made from a separate foreign pool, maintained 
completely in a foreign jurisdiction (e.g., a pool maintained 
by a racetrack or off-track betting parlor that is showing in a 
foreign country a simulcast of a horse race taking place in the 
United States), then the winnings paid to a nonresident 
noncitizen generally would not be subject to withholding tax, 
because the amounts received generally would not be from 
sources within the United States. However, if the payout is 
made from a ``merged'' or ``commingled'' pool, in which betting 
pools in the United States and the foreign country are combined 
for a particular event, then the portion of the payout 
attributable to wagers placed in the United States could be 
subject to withholding tax. The party making the payment, in 
this case a racetrack or off-track betting parlor in a foreign 
country, would be responsible for withholding the tax.
---------------------------------------------------------------------------
    \24\ In pari-mutuel wagering (common in horse racing), odds and 
payouts are determined by the aggregate bets placed. The money wagered 
in placed into a pool, the party maintaining the pool takes a 
percentage of the total, and the bettors effectively bet against each 
other. Pari-mutuel wagering may be contrasted with fixed-odds wagering 
(common in sports wagering), in which odds (or perhaps a point spread) 
are agreed to by the bettor and the party taking the bet and are not 
affected by the bets placed by other bettors.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee recognizes that there is significant interest 
in American horse racing around the world. Because of the 
barriers in present law, the wagers of nonresident noncitizens 
generally are not placed in U.S. pari-mutuel wagering pools. 
Thus, while the domestic horse industry is ``exporting'' their 
product via simulcasting of their races, they are doing so to a 
market effectively limited by the 30 percent withholding rule. 
Specifically, the host track is deprived of the 2-3 percent 
fees on additional amounts that would be wagered if nonresident 
noncitizens could participate in larger and more stable pools. 
These funds increase the purses for horse owners and support 
the seven million jobs directly and indirectly supported by the 
domestic horse industry. Passage of this legislation will 
increase horse industry revenue and the jobs it supports. 
Accordingly, the Committee believes the structure of present 
law, which discourages nonresident noncitizens from placing 
wagers on U.S. horse races, is an impediment to the continued 
growth of this domestic industry.

                        EXPLANATION OF PROVISION

    The bill provides an exclusion from gross income under 
section 872(b) for winnings paid to a nonresident noncitizen 
resulting from a legal wager initiated outside the United 
States in a pari-mutuel pool on a live horse race in the United 
States, regardless of whether the pool is a separate foreign 
pool or a merged U.S.-foreign pool.

                             EFFECTIVE DATE

    The provision applies to proceeds from wagering 
transactions after September 30, 2003.

   L. Payment of Dividends on Stock of Cooperatives Without Reducing 
                          Patronage Dividends

(Sec. 212 of the bill and sec. 1388 of the Code)

                              PRESENT LAW

    Under present law, cooperatives generally are treated 
similarly to pass-through entities in that a cooperative is not 
subject to corporate income tax to the extent the cooperative 
timely pays patronage dividends. In general, patronage 
dividends are comprised of amounts that are paid to patrons (1) 
on the basis of the quantity or value of business done with or 
for patrons, (2) under a valid enforceable written obligation 
to the patron that was in existence before the cooperative 
received such amounts, and (3) which are determined by 
reference to the net earnings of the cooperative from business 
done with or for patrons.
    Treasury Regulations provide that net earnings are reduced 
by dividends paid on capital stock or other proprietary capital 
interests (referred to as the ``dividend allocation 
rule'').\25\ The effect of this rule is to reduce the amount of 
earnings that a cooperative can treat as patronage income and, 
thus, the amount that the cooperative can deduct as patronage 
dividends.
---------------------------------------------------------------------------
    \25\ Treas. Reg. sec. 1.1388-1(a)(1).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that the dividend allocation rule 
should not apply to the extent that the organizational 
documents of a cooperative provide that capital stock dividends 
do not reduce the amounts owed to patrons as patronage 
dividends. To the extent that capital stock dividends are in 
addition to amounts paid under the cooperative's organizational 
documents to patrons as patronage dividends, the Committee 
believes that those capital stock dividends are not being paid 
from earnings from patronage business.
    In addition, the Committee believes cooperatives should be 
able to raise needed equity capital by issuance of capital 
stock without dividends paid on such capital stock causing 
taxation of the cooperative on a portion of its patronage 
income.

                        EXPLANATION OF PROVISION

    The bill provides a special rule for dividends on capital 
stock of a cooperative. To the extent provided in 
organizational documents of the cooperative, dividends on 
capital stock do not reduce patronage income.

                             EFFECTIVE DATE

    The provision is effective for distributions made in 
taxable years beginning after the date of enactment.

          M. Pilot Project for Forest Conservation Activities

(Sec. 213 of the bill)

                              PRESENT LAW

Tax-exempt bonds

            In general
    Interest on debt incurred by States or local governments is 
excluded from income if the proceeds of the borrowing are used 
to carry out governmental functions of those entities or the 
debt is repaid with governmental funds (section 103). Interest 
on bonds that nominally are issued by States or local 
governments, but the proceeds of which are used (directly or 
indirectly) by a private person and payment of which is derived 
from funds of such a private person is taxable unless the 
purpose of the borrowing is approved specifically in the Code 
or in a non-Code provision of a revenue Act. These bonds are 
called ``private activity bonds.'' The term ``private person'' 
includes the Federal Government and all other individuals and 
entities other than States or local governments.
            Private activities eligible for financing with tax-exempt 
                    private activity bonds
    Present law includes several exceptions permitting States 
or local governments to act as conduits providing tax-exempt 
financing for private activities. Both capital expenditures and 
limited working capital expenditures of charitable 
organizations described in section 501(c)(3) of the Code may be 
financed with tax-exempt bonds (``qualified 501(c)(3) bonds'').
    States or local governments may issue tax-exempt ``exempt-
facility bonds'' to finance property for certain private 
businesses. Business facilities eligible for this financing 
include transportation (airports, ports, local mass commuting, 
and high speed intercity rail facilities); privately owned and/
or privately operated public works facilities (sewage, solid 
waste disposal, local district heating or cooling, and 
hazardous waste disposal facilities); privately owned and/or 
operated low-income rental housing; \26\ and certain private 
facilities for the local furnishing of electricity or gas. A 
further provision allows tax-exempt financing for 
``environmental enhancements of hydro-electric generating 
facilities.'' Tax-exempt financing also is authorized for 
capital expenditures for small manufacturing facilities and 
land and equipment for first-time farmers (``qualified small-
issue bonds''), local redevelopment activities (``qualified 
redevelopment bonds''), and eligible empowerment zone and 
enterprise community businesses. Tax-exempt private activity 
bonds also may be issued to finance limited non-business 
purposes: certain student loans and mortgage loans for owner-
occupied housing (``qualified mortgage bonds'' and ``qualified 
veterans'' mortgage bonds'').
---------------------------------------------------------------------------
    \26\ Residential rental projects must satisfy low-income tenant 
occupancy requirements for a minimum period of 15 years.
---------------------------------------------------------------------------
    With the exception of qualified 501(c)(3) bonds, private 
activity bonds may not be issued to finance working capital 
requirements of private businesses. In most cases, the 
aggregate volume of tax-exempt private activity bonds that may 
be issued in a State is restricted by annual volume limits.
    Several additional restrictions apply to the issuance of 
tax-exempt bonds. First, private activity bonds (other than 
qualified 501(c)(3) bonds) may not be advance refunded. 
Governmental bonds and qualified 501(c)(3) bonds may be advance 
refunded one time. An advance refunding occurs when the 
refunded bonds are not retired within 90 days of issuance of 
the refunding bonds.
    Issuance of private activity bonds is subject to 
restrictions on use of proceeds for the acquisition of land and 
existing property, use of proceeds to finance certain specified 
facilities (e.g., airplanes, skyboxes, other luxury boxes, 
health club facilities, gambling facilities, and liquor stores) 
and use of proceeds to pay costs of issuance (e.g., bond 
counsel and underwriter fees). Additionally, the term of the 
bonds generally may not exceed 120 percent of the economic life 
of the property being financed and certain public approval 
requirements (similar to requirements that typically apply 
under State law to issuance of governmental debt) apply 
underFederal law to issuance of private activity bonds. Present and 
prior law precludes substantial users of property financed with private 
activity bonds from owning the bonds to prevent their deducting tax-
exempt interest paid to themselves. Finally, owners of most private-
activity-bond-financed property are subject to special ``change-in-
use'' penalties if the use of the bond-financed property changes to a 
use that is not eligible for tax-exempt financing while the bonds are 
outstanding.

Taxation of income from timber harvesting

    In general, gross income for Federal income tax purposes 
means all income from whatever source derived, including gross 
income derived from a trade or business. An organization exempt 
from taxation generally is subject to tax on its unrelated 
business taxable income, generally defined to mean gross income 
(less deductions) derived from a trade or business, the conduct 
of which is not substantially related to the exercise or 
performance of the organization's exempt purposes or functions, 
that is regularly carried on by the organization. Special 
unrelated trade or business income rules applicable to the 
cutting of timber are contained in sections 512(b)(5) and 631. 
Under these rules, the determination of whether income derived 
from the cutting of timber constitutes unrelated trade or 
business income depends upon a variety of factors.

                           REASONS FOR CHANGE

    Many forests have a higher fair market value as land to be 
developed for residential purposes than as working forests or 
as forests dedicated to conservation purposes. These increased 
fair market values oftentimes make it difficult or impossible 
for nonprofit conservation organizations or governments to 
acquire forests so that they can be used and managed consistent 
with long-term conservation purposes. The Committee believes 
that it is appropriate to provide certain tax incentives to 
further the goal of permanently setting aside working forests 
for qualified conservation purposes. The Committee believes 
that providing tax-exempt financing to nonprofit organizations 
for the purpose of acquiring forests and forest lands to be 
dedicated to qualified conservation purposes will increase 
their ability to purchase such properties from commercial 
owners and operators, and that providing limited exclusions 
from income tax to such nonprofit organizations will enable 
them to conduct charitable and conservation activities as they 
make debt service payments on the bonds.

                        EXPLANATION OF PROVISION

Exempt facility bonds

    The bill permits the Evergreen Forest Trust \27\ to acquire 
forest and forest land in the State of Washington using up to 
$250 million of tax-exempt bonds. The bill creates a new 
category of tax-exempt bonds, the qualified forest conservation 
bond. A qualified forest conservation bond means any bond 
issued as part of an issue if: (1) 95 percent or more of the 
net proceeds of such issue are to be used for qualified project 
costs; (2) such bond is an obligation of the State of 
Washington or any political subdivision thereof and is issued 
for the Evergreen Forest Trust; and (3) such bond is issued 
before October 1, 2004.
---------------------------------------------------------------------------
    \27\ The Evergreen Forest Trust is a nonprofit corporation 
incorporated on February 25, 2000, under chapter 24.03 of the Revised 
Code of Washington, recognized as an organization described under 
section 501(c)(3) on May 11, 2001.
---------------------------------------------------------------------------
    Qualified project costs include the cost of acquisition by 
the Evergreen Forest Trust, from an unrelated person, of forest 
and forest land that are located in the State of Washington and 
that, at the time of acquisition or immediately thereafter, are 
subject to a conservation restriction. Qualified project costs 
also include interest on the qualified forest conservation 
bonds for the three-year period beginning on the date of 
issuance of such bonds, and credit enhancement fees that 
constitute qualified guarantee fees.
    Subject to the following exceptions and modifications, 
issuance of these tax-exempt bonds is subject to the general 
rules applicable to issuance of exempt-facility private 
activity bonds:
          (1) Issuance of the bonds is not subject to the 
        aggregate annual State private activity bond volume 
        limits (section 146);
          (2) The restrictions on acquisition of land and 
        existing property do not apply (section 147(c) and 
        (d));
          (3) For purposes of section 147(b) (relating to the 
        rule that maturity may not exceed 120 percent of 
        economic life) the land and standing timber acquired 
        with the proceeds of the bonds is treated as having an 
        economic life of 35 years; and
          (4) Interest on the bonds is not a preference item 
        for purposes of the alternative minimum tax preference 
        for private activity bond interest (section 57(a)(5)).
    Qualified forest conservation bonds may be currently 
refunded if certain circumstances are met, but may not be 
advance refunded.

Exclusion of certain income from income tax

    Under the bill, income, gains, deductions, losses, or 
credits from a qualified harvesting activity conducted by the 
Evergreen Forest Trust are not subject to tax or taken into 
account for Federal income tax purposes. A qualified harvesting 
activity means the sale, lease, or harvesting of standing 
timber on land acquired by the trust with the qualified forest 
conservation bond proceeds and pursuant to a qualified 
conservation plan. The exclusion of income derived from a 
qualified harvesting activity generally applies so long as the 
trust retains its status as a nonprofit entity organized and 
operated for charitable and conservation purposes, and the 
qualified forest conservation bonds are outstanding and qualify 
as section 142 bonds.
    Timber cutting and the sale or lease of timber is not a 
qualified harvesting activity during any period the trust fails 
to satisfy certain organizational requirements (i.e., it ceases 
to be a qualified organization). Further, timber cutting and 
the sale or lease of timber is not a qualified harvesting 
activity to the extent the timber cutting exceeds certain 
prescribed limits. For this purpose, the average annual area of 
timber harvested cannot exceed 2.5 percent of the total area of 
the land acquired with the qualified forest conservation bonds, 
and the quantity of timberremoved from the land cannot violate 
sustained-yield principles (i.e., the removal of timber cannot diminish 
the forest's timber yield potential on an ongoing basis). Certain 
deviations from these restrictions are permitted to protect the forest 
from catastrophic danger.
    A qualified conservation plan means a multiple use plan (a) 
designed and administered primarily for specific conservation 
purposes, including the protection of wildlife, fish, timber, 
scenic attributes, recreation, and soil and water quality of 
the forest and forest land, (b) mandates that forest 
conservation is the single-most significant use of the forest 
and land, and (c) requires that timber harvesting be consistent 
with restoring and maintaining the forest to its historic 
condition as to types and ages of trees, preventing damage from 
fire, insect and disease, promoting certain forestry management 
research, and protecting or preserving wildlife, fish, and open 
space.
    The Evergreen Forest Trust remains a qualified organization 
so long as (a) it is a nonprofit entity organized and operated 
exclusively for charitable purposes, specifically with respect 
to forest lands and other renewable resources, (b) more than 
one half of the value of property of which consists of forest 
and forest lands acquired with the qualified forest 
conservation bonds, (c) it periodically conducts public 
education programs, (d) its board satisfies certain board 
composition requirements designed to ensure that it represents 
public conservation interests, (e) a supermajority vote is 
required to approve and amend the trust's qualified 
conservation plan, and (f) upon dissolution, the trust's assets 
must be dedicated to a qualified conservation organization 
exempt from tax under section 501(c)(3) or a governmental unit.
    Once the qualified forest conservation bonds are no longer 
outstanding (or cease to qualify as section 142 bonds), the 
trust is liable for a recapture of tax benefits (plus interest) 
it derived from the bill's special exclusion rules, to the 
extent the trust's harvesting activities exceeded the 2.5 
percent average annual area limitation.

                             EFFECTIVE DATE

    The provision is effective for obligations issued after the 
date of enactment.

   N. No Impact on Social Security Trust Funds Under Title II of the 
                          Social Security Act

(Sec. 214 of the bill)

                              PRESENT LAW

    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.

                        EXPLANATION OF PROVISION

    The bill provides that any amounts to be transferred to any 
trust fund under Title II of the Social Security Act are 
determined as if this bill has not been enacted. This will 
ensure that the income and balances of those Social Security 
trust funds are not reduced as a result of this bill.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                     TITLE III. REVENUE PROVISIONS

A. Modification of the Tax Treatment of Citizenship Relinquishment and 
                         Residency Termination

(Sec. 301 of the bill and secs. 877, 2107, 2501, and 6039G of the Code)

                              PRESENT LAW

    Since 1966, special tax rules have applied to a U.S. 
citizen who relinquishes U.S. citizenship with a principal 
purpose of avoiding U.S. taxes. These rules are referred to as 
the ``alternative tax regime.'' In 1996, several significant 
changes were made to the alternative tax regime. These 
amendments followed press reports and Congressional hearings 
indicating that a small number of very wealthy individuals had 
relinquished their U.S. citizenship to avoid U.S. income, 
estate, and gift taxes, while nevertheless maintaining 
significant contacts with the United States.
    Under present law, the alternative tax regime applies both 
to U.S. citizens who relinquish citizenship and long-term 
residents who terminate residency with a principal purpose of 
avoiding U.S. taxes. A U.S. citizen who relinquishes 
citizenship or a long-term resident who terminates residency is 
treated as having done so with a principal purpose of tax 
avoidance (and, thus, generally is subject to the alternative 
tax regime) if: (1) the individual's average annual U.S. 
Federal income tax liability for the five taxable years 
preceding citizenship relinquishment or residency termination 
exceeds $100,000; or (2) the individual's net worth on the date 
of citizenship relinquishment or residency termination equals 
or exceeds $500,000. These amounts are adjusted annually for 
inflation. Certain categories of individuals may avoid being 
deemed to have a tax avoidance purpose for relinquishing 
citizenship or terminating residency by submitting a ruling 
request to the IRS regarding whether the individual 
relinquished citizenship or terminated residency principally 
for tax reasons.
    Under present law, the Immigration and Nationality Act 
governs the determination of when a U.S. citizen is treated for 
U.S. Federal tax purposes as having relinquished citizenship. 
Similarly, an individual's U.S. residency is considered 
terminated for U.S. Federal tax purposes when the individual 
ceases to be a lawful permanent resident under the immigration 
law (or is treated as a resident of another country under a tax 
treaty and does not waive the benefits of such treaty). In view 
of this reliance on immigration-law status, it is possible in 
many instances for a U.S. citizen or resident to convert his or 
her Federal tax status to that of a nonresident noncitizen 
without notifying the IRS.
    Under the alternative tax regime, a former citizen or long-
term resident is subject to an alternative method of income 
taxation for 10 years following citizenship relinquishment or 
residency termination. For the 10-year period, the individual 
is subject to tax only on U.S.-source income at the rates 
applicable to U.S. citizens, rather than the rates applicable 
to noncitizens who are nonresidents. However, for this purpose, 
U.S.-source income has a broader scope than it does for normal 
U.S. Federal tax purposes and includes, for example, gain from 
thesale of U.S. corporate stock or debt obligations. The 
alternative tax regime applies only if it results in a higher U.S. tax 
liability than the liability that would result if the individual were 
taxed as a noncitizen who is a nonresident.
    In addition, the alternative tax regime includes special 
estate and gift tax rules. Under present law, estates of 
nonresident noncitizens are subject to U.S. estate tax on U.S.-
situated property. For these purposes, stock in a foreign 
corporation generally is not treated as U.S.-situated property, 
even if the foreign corporation itself owns U.S.-situated 
property. However, a special estate tax rule (sec. 2107) 
applies to former citizens and former long-term residents who 
are subject to the alternative tax regime. Under this rule, 
certain closely-held foreign stock owned by the former citizen 
or former long-term resident is includible in his or her gross 
estate to the extent that the foreign corporation owns U.S.-
situated assets, if the former citizen or former long-term 
resident dies within 10 years of citizenship relinquishment or 
residency termination. This rule prevents former citizens and 
former long-term residents who are subject to the alternative 
tax regime from avoiding U.S. estate tax through the expedient 
of transferring U.S.-situated assets to a foreign corporation 
(subject to income tax on any appreciation under section 367). 
In addition, under the alternative tax regime, the individual 
is subject to gift tax on gifts of U.S.-situated intangibles, 
such as U.S. stock, made during the 10 years following 
citizenship relinquishment or residency termination.
    Anti-abuse rules are provided to prevent circumvention of 
the alternative tax regime through conversion of U.S.-source 
income or property to foreign-source income or property. Thus, 
the alternative tax regime applies to foreign property acquired 
in nonrecognition transactions. Amounts earned by former 
citizens and former long-term residents through controlled 
foreign corporations are subject to the alternative tax regime. 
The 10-year liability period is suspended during any time at 
which a former citizen's or former long-term resident's risk of 
loss with respect to property subject to the alternative tax 
regime is substantially diminished, among other measures.
    Individuals subject to the alternative tax regime are 
required to provide certain tax information, including tax 
identification numbers, upon relinquishment of citizenship or 
termination of residency. The penalty for failure to provide 
the required tax information is the greater of $1,000 or five 
percent of the tax imposed under the alternative tax regime for 
the year. In addition, the U.S. Department of State and other 
governmental agencies are required to provide this information 
to the IRS.
    Under present law, U.S. citizens who relinquish citizenship 
and long-term residents who terminate residency generally are 
required to provide information about their assets held at the 
time of their citizenship relinquishment or residency 
termination. If the collective fair market value of the former 
citizen's or former long-term resident's assets exceeds 
$500,000, then detailed information about the individual's 
assets must be provided. However, this information generally is 
required to be provided only once.
    Former citizens and former long-term residents who are 
subject to the alternative tax regime also are required to file 
annual income tax returns, but only in the event that they owe 
U.S. Federal income tax. If a tax return is required, the 
former citizen or former long-term resident is required to 
provide the IRS with a statement setting forth (generally by 
category) all items of U.S.-source and foreign-source gross 
income, but no detailed information with respect to all assets 
held by the individual.

                           REASONS FOR CHANGE

    One of the major difficulties in administering the present-
law alternative tax regime is that the IRS is required to 
determine the subjective intent of taxpayers who relinquish 
citizenship or terminate residency. The present-law presumption 
of a tax-avoidance purpose in cases in which objective income 
tax liability or net worth thresholds are exceeded mitigates 
this problem to some extent. However, the present-law rules 
still require the IRS to make subjective determinations of 
intent in cases involving taxpayers who fall below these 
thresholds, as well for certain taxpayers who exceed these 
thresholds but are nevertheless allowed to seek a ruling from 
the IRS to the effect that they did not have a principal 
purpose of tax avoidance. The Committee believes that the 
replacement of the subjective determination of tax avoidance as 
a principal purpose for citizenship relinquishment or residency 
termination with objective rules will result in easier 
administration of the tax regime for individuals who relinquish 
their citizenship or terminate residency.\28\
---------------------------------------------------------------------------
    \28\ These provisions reflect recommendations contained in Joint 
Committee on Taxation, Review of the Present Law Tax and Immigration 
Treatment of Relinquishment of Citizenship and Termination of Long-Term 
Residency, (JCS-2-03), February 2003.
---------------------------------------------------------------------------
    Although individuals who relinquish their citizenship or 
terminate their residency are required to provide tax 
information statements (e.g., IRS Form 8854), difficulties have 
been encountered in enforcing this requirement, and in many 
cases the IRS does not receive timely information that it needs 
to administer the alternative tax regime. In these cases, an 
individual may become a non-resident non-citizen of the United 
States for Federal tax purposes--and enjoy reductions in U.S. 
taxes from such tax status--despite failing to provide the tax 
information statements necessary for the IRS to monitor and 
enforce compliance with the alternative tax regime. Thus, the 
Committee believes that the tax benefits of citizenship 
relinquishment or residency termination should be denied unless 
and until the information necessary for the IRS to enforce the 
alternative tax regime is provided.
    Individuals who relinquish citizenship or terminate 
residency for tax reasons often do not want to fully sever 
their ties with the United States. In other words, they hope to 
retain some of the benefits of citizenship or residency without 
being subject to the U.S. tax system as a citizen or U.S. 
resident. These individuals generally may continue to spend 
significant amounts of time in the United States following 
citizenship relinquishment or residency termination--
approximately four months every year--without being treated as 
a U.S. resident. The Committee believes that provisions in the 
bill that impose full U.S. taxation if the individual is 
present in the United States for more than 30 days in a 
calendar year will substantially reduce the incentives to 
relinquish citizenship or terminate residency for individuals 
who desire to maintain significant ties to the United States.
    The Committee is concerned that the present-law estate and 
gift tax rules under the alternative tax regime do not 
adequately address opportunities for avoidance of tax on the 
valueof assets held by a foreign corporation whose stock the 
individual transfers. Thus, the Committee bill imposes gift tax under 
the alternative tax regime in the case of gifts of certain stock of a 
closely held foreign corporation.
    The Committee believes that the present-law information-
reporting and return-filing provisions under the alternative 
tax regime fail to provide the IRS sufficient information to 
enable it to monitor effectively the compliance of former 
citizens and former long-term residents. The Committee bill 
consequently adds a reporting requirement and a penalty for 
failure to comply with the reporting requirement.

                        EXPLANATION OF PROVISION

In general

    The provision provides: (1) objective standards for 
determining whether former citizens or former long-term 
residents are subject to the alternative tax regime; (2) tax-
based (instead of immigration-based) rules for determining when 
an individual is no longer a U.S. citizen or long-term resident 
for U.S. Federal tax purposes; (3) the imposition of full U.S. 
taxation for individuals who are subject to the alternative tax 
regime and who return to the United States for extended 
periods; (4) imposition of U.S. gift tax on gifts of stock of 
certain closely-held foreign corporations that hold U.S.-
situated property; and (5) an annual return-filing requirement 
for individuals who are subject to the alternative tax regime, 
for each of the 10 years following citizenship relinquishment 
or residency termination.

Objective rules for the alternative tax regime

    The provision replaces the subjective determination of tax 
avoidance as a principal purpose for citizenship relinquishment 
or residency termination under present law with objective 
rules.\29\ Under the provision, a former citizen or former 
long-term resident would be subject to the alternative tax 
regime for a 10-year period following citizenship 
relinquishment or residency termination, unless the former 
citizen or former long-term resident: (1) establishes that his 
or her average annual net income tax liability for the five 
preceding years does not exceed $122,000 (adjusted for 
inflation after 2003) and his or her net worth does not exceed 
$2 million, or alternatively satisfies limited, objective 
exceptions for dual citizens and minors who have had no 
substantial contact with the United States; and (2) certifies 
under penalties of perjury that he or she has complied with all 
U.S. Federal tax obligations for the preceding five years and 
provides such evidence of compliance as the Secretary of the 
Treasury may require.
---------------------------------------------------------------------------
    \29\ Section 877(a).
---------------------------------------------------------------------------
    The monetary thresholds under the provision replace the 
present-law inquiry into the taxpayer's intent. In addition, 
the provision eliminates the present-law process of IRS ruling 
requests.
    The alternative tax regime does not apply to a former 
citizen who is a dual citizen or a minor with no substantial 
contacts with the United States prior to relinquishing 
citizenship. These exceptions for dual citizens and minors 
retain the present-law definitions of such individuals found in 
sections 877(c)(2)(A) and 877(c)(2)(C). If a former citizen or 
former long-term resident exceeds the monetary thresholds, that 
person is excluded from the alternative tax regime if he or she 
falls within one of the specified exceptions (provided that the 
requirement of certification and proof of compliance with 
Federal tax obligations is met). These exceptions provide 
relief to individuals who have never had any substantial 
connections with the United States, as measured by certain 
objective criteria, and eliminate IRS inquiries as to the 
subjective intent of such taxpayers.
    In order to be excepted from the application of the 
alternative tax regime under the provision, whether by reason 
of falling below the net worth and income tax liability 
thresholds or qualifying for the dual-citizen or minor 
exceptions, the former citizen or former long-term resident 
also is required to certify, under penalties of perjury, that 
he or she has complied with all U.S. Federal tax obligations 
for the five years preceding the relinquishment of citizenship 
or termination of residency and to provide such documentation 
as the Secretary of the Treasury may require evidencing such 
compliance (e.g., tax returns, proof of tax payments). Until 
such time, the individual remains subject to the alternative 
tax regime. It is intended that the IRS should continue to 
verify that the information submitted was accurate, and it is 
intended that the IRS should randomly audit such persons to 
assess compliance.

Termination of U.S. citizen or long-term resident status for U.S. 
        Federal income tax purposes

    Under the provision, an individual continues to be treated 
as a U.S. citizen or long-term resident for U.S. Federal tax 
purposes, including for purposes of section 7701(b)(10), until 
the individual: (1) gives notice of an expatriating act or 
termination of residency (with the requisite intent to 
relinquish citizenship or terminate residency) to the Secretary 
of State or the Secretary of Homeland Security, respectively; 
and (2) files a complete and accurate tax information statement 
with the IRS.

Sanction for individuals subject to the individual tax regime who 
        return to the United States for extended periods

    The provision provides that a former citizen or former 
long-term resident who is subject to the alternative tax regime 
and who is present in the United States for more than 30 days 
in any calendar year during the 10-year period following 
citizenship relinquishment or residency termination is treated 
as a U.S. resident for that calendar year and thus is subject 
to U.S. Federal income tax on a worldwide basis.
    Similarly, if an individual subject to the alternative tax 
regime is present in the United States for more than 30 days in 
any year during the 10-year period following citizenship 
relinquishment or residency termination, and the individual 
dies during that year, he or she is treated as U.S. resident, 
and the individual's worldwide estate is subject to U.S. estate 
tax. Likewise, if an individual subject to the alternative tax 
regime is present in the United States for more than 30 days in 
any year during the 10-year period following citizenship 
relinquishment or residency termination, the individual is 
subject to U.S. gift tax on any transfer of his or her 
worldwide assets by gift during that year.
    For purposes of these rules, an individual is treated as 
present in the United States on any day if such individual is 
physically present in the United States at any time during that 
day, with no exceptions. The present-law exceptions from being 
treated as present in the United States for residency purposes 
\30\ do not apply for this purpose.
---------------------------------------------------------------------------
    \30\ Sections 7701(b)(3)(D), 7701(b)(5) and 7701(b)(7)(B)-(D).
---------------------------------------------------------------------------

Imposition of gift tax with respect to stock of certain closely held 
        foreign corporations

    The provision provides that gifts of stock of certain 
closely-held foreign corporations by a former citizen or former 
long-term resident who is subject to the alternative tax regime 
are subject to gift tax, if the gift is made within the 10-year 
period after citizenship relinquishment or residency 
termination. The gift tax rule applies if: (1) the former 
citizen or former long-term resident, before making the gift, 
directly or indirectly owns 10 percent or more of the total 
combined voting power of all classes of stock entitled to vote 
of the foreign corporation; and (2) directly or indirectly, is 
considered to own more than 50 percent of (a) the total 
combined voting power of all classes of stock entitled to vote 
in the foreign corporation, or (b) the total value of the stock 
of such corporation. If this stock ownership test is met, then 
taxable gifts of the former citizen or former long-term 
resident include that proportion of the fair market value of 
the foreign stock transferred by the individual, at the time of 
the gift, which the fair market value of any assets owned by 
such foreign corporation and situated in the United States (at 
the time of gift) bears to the total fair market value of all 
assets owned by such foreign corporation (at the time of gift).
    This gift tax rule applies to a former citizen or former 
long-term resident who is subject to the alternative tax regime 
and who owns stock in a foreign corporation at the time of the 
gift, regardless of how such stock was acquired (e.g., whether 
issued originally to the donor, purchased, or received as a 
gift or bequest).

Annual return

    The provision requires former citizens and former long-term 
residents to file an annual return for each year following 
citizenship relinquishment or residency termination in which 
they are subject to the alternative tax regime. The annual 
return is required even if no U.S. Federal income tax is due. 
The annual return requires certain information, including 
information on the permanent home of the individual, the 
individual's country of residency, the number of days the 
individual was present in the United States for the year, and 
detailed information about the individual's income and assets 
that are subject to the alternative tax regime.
    Former citizens and former long-term residents who are 
subject to the alternative tax regime are required to provide 
annual income and balance sheet information on their U.S. 
assets, as well as foreign assets that are subject to U.S. tax 
under the alternative tax regime. This requirement includes 
information relating to foreign stock potentially subject to 
the special estate tax rule of section 2107(b) and the gift tax 
rules of this provision.
    If the individual fails to file the statement in a timely 
manner or fails correctly to include all the required 
information, the individual is required to pay a penalty of 
$5,000. The $5,000 penalty does not apply if it is shown that 
the failure is due to reasonable cause and not to willful 
neglect.

                             EFFECTIVE DATE

    The provisions apply to individuals who relinquish 
citizenship or terminate long-term residency after February 27, 
2003.

  B. Add Vaccines Against Hepatitis A to the List of Taxable Vaccines

(Sec. 302 of the bill and sec. 4132 of the Code)

                              PRESENT LAW

    A manufacturer's excise tax is imposed at the rate of 75 
cents per dose \31\ on the following vaccines routinely 
recommended for administration to children: diphtheria, 
pertussis, tetanus, measles, mumps, rubella, polio, HIB 
(haemophilus influenza type B), hepatitis B, varicella (chicken 
pox), rotavirus gastroenteritis, and streptococcus pneumoniae. 
The tax applied to any vaccine that is a combination of vaccine 
components equals 75 cents times the number of components in 
the combined vaccine.
---------------------------------------------------------------------------
    \31\ Sec. 4131
---------------------------------------------------------------------------
    Amounts equal to net revenues from this excise tax are 
deposited in the Vaccine Injury Compensation Trust Fund to 
finance compensation awards under the Federal Vaccine Injury 
Compensation Program for individuals who suffer certain 
injuries following administration of the taxable vaccines. This 
program provides a substitute Federal, ``no fault'' insurance 
system for the State-law tort and private liability insurance 
systems otherwise applicable to vaccine manufacturers. All 
persons immunized after September 30, 1988, with covered 
vaccines must pursue compensation under this Federal program 
before bringing civil tort actions under State law.

                           REASONS FOR CHANGE

    The Committee is aware that the Centers for Disease Control 
and Prevention have recommended that children in 17 highly 
endemic States be inoculated with a hepatitis A vaccine. The 
population of children in the effected States exceeds 20 
million. Several of the effected States mandate childhood 
vaccination against hepatitis A. The Committee is aware that 
the Advisory Commission on Childhood Vaccines has recommended 
that the vaccine excise tax be extended to cover vaccines 
against hepatitis A. For these reasons, the Committee believes 
it is appropriate to include vaccines against hepatitis A as 
part of the Vaccine Injury Compensation Program. Making the 
hepatitis A vaccine taxable is a first step.\32\ In the 
unfortunate event of an injury related to this vaccine, 
families of injured children are eligible for the no-fault 
arbitration system established under the Vaccine Injury 
Compensation Program rather than going to Federal Court to seek 
compensatory redress.
---------------------------------------------------------------------------
    \32\ The Committee recognizes that, to become covered under the 
Vaccine Injury Compensation Program, the Secretary of Health and Human 
Services also must list the hepatitis A vaccine on the Vaccine Injury 
Table.
---------------------------------------------------------------------------

                        EXPLANATION OF PROVISION

    The bill adds any vaccine against hepatitis A to the list 
of taxable vaccines. The bill also makes a conforming amendment 
to the trust fund expenditure purposes.

                             EFFECTIVE DATE

    The provision is effective for vaccines sold beginning on 
the first day of the first month beginning more than four weeks 
after the date of enactment.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 878.

                       MOTION TO REPORT THE BILL

    The bill, H.R. 878, as amended, was ordered favorably 
reported by voice vote (with a quorum being present).

                          VOTES ON AMENDMENTS

    A roll call vote was conducted on the following amendments 
to the Chairman's amendment in the nature of a substitute.
    An amendment by Mrs. Johnson, which would strengthen 
current law by providing an objective test to determine if a 
U.S. citizen renounced their citizenship or a long-term 
resident terminated their residency for tax avoidance reasons, 
was agreed to by a roll call vote of 40 yeas to 0 nays. The 
vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................        X   ........  .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................        X   ........  .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................        X   ........  .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................        X   ........  .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................        X   ........  .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................        X   ........  .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................        X   ........  .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................        X   ........  .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................        X   ........  .........  Mr. McNulty......  ........  ........  .........
Mr. Johnson....................        X   ........  .........  Mr. Jefferson....        X   ........  .........
Ms. Dunn.......................        X   ........  .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................        X   ........  .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................        X   ........  .........  Mr. Doggett......        X   ........  .........
Mr. English....................        X   ........  .........  Mr. Pomeroy......        X   ........  .........
Mr. Hayworth...................        X   ........  .........  Mr. Sandlin......        X   ........  .........
Mr. Weller.....................        X   ........  .........  Ms. Tubbs Jones..        X   ........  .........
Mr. Hulshof....................        X   ........  .........
Mr. McInnis....................        X   ........  .........
Mr. Lewis (KY).................        X   ........  .........
Mr. Foley......................        X   ........  .........
Mr. Brady......................        X   ........  .........
Mr. Ryan.......................        X   ........  .........
Mr. Cantor.....................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Herger, which would allow payment of 
dividends on stock of cooperatives without reducing patronage 
dividends, was agreed to by a roll call vote of 22 yeas to 16 
nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......  ........        X   .........
Mr. Crane......................        X   ........  .........  Mr. Stark........  ........        X   .........
Mr. Shaw.......................  ........  ........  .........  Mr. Matsui.......  ........        X   .........
Mrs. Johnson...................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Houghton...................        X   ........  .........  Mr. Cardin.......  ........        X   .........
Mr. Herger.....................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. McCrery....................        X   ........  .........  Mr. Kleczka......  ........        X   .........
Mr. Camp.......................        X   ........  .........  Mr. Lewis (GA)...  ........        X   .........
Mr. Ramstad....................  ........  ........  .........  Mr. Neal.........  ........        X   .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......  ........  ........  .........
Mr. Johnson....................        X   ........  .........  Mr. Jefferson....  ........        X   .........
Ms. Dunn.......................        X   ........  .........  Mr. Tanner.......  ........        X   .........
Mr. Collins....................        X   ........  .........  Mr. Becerra......  ........        X   .........
Mr. Portman....................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. English....................        X   ........  .........  Mr. Pomeroy......        X   ........  .........
Mr. Hayworth...................        X   ........  .........  Mr. Sandlin......  ........        X   .........
Mr. Weller.....................        X   ........  .........  Ms. Tubbs Jones..  ........        X   .........
Mr. Hulshof....................        X   ........  .........
Mr. McInnis....................        X   ........  .........
Mr. Lewis (KY).................        X   ........  .........
Mr. Foley......................        X   ........  .........
Mr. Brady......................        X   ........  .........
Mr. Ryan.......................        X   ........  .........
Mr. Cantor.....................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. McCrery, which would permit an 
individual to access a 65-percent health care tax credit 
through state-arranged pooling options, by allowing them to 
waive pre-existing conditions and guaranteed issue 
requirements, was agreed to by a roll call vote of 23 yeas to 
15 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......  ........        X   .........
Mr. Crane......................        X   ........  .........  Mr. Stark........  ........        X   .........
Mr. Shaw.......................        X   ........  .........  Mr. Matsui.......  ........        X   .........
Mrs. Johnson...................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Houghton...................        X   ........  .........  Mr. Cardin.......  ........        X   .........
Mr. Herger.....................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. McCrery....................        X   ........  .........  Mr. Kleczka......  ........        X   .........
Mr. Camp.......................        X   ........  .........  Mr. Lewis (GA)...  ........        X   .........
Mr. Ramstad....................  ........  ........  .........  Mr. Neal.........  ........        X   .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......  ........        X   .........
Mr. Johnson....................        X   ........  .........  Mr. Jefferson....  ........  ........  .........
Ms. Dunn.......................        X   ........  .........  Mr. Tanner.......  ........        X   .........
Mr. Collins....................        X   ........  .........  Mr. Becerra......  ........        X   .........
Mr. Portman....................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. English....................        X   ........  .........  Mr. Pomeroy......        X   ........  .........
Mr. Hayworth...................        X   ........  .........  Mr. Sandlin......  ........  ........  .........
Mr. Weller.....................        X   ........  .........  Ms. Tubbs Jones..  ........        X   .........
Mr. Hulshof....................        X   ........  .........
Mr. McInnis....................        X   ........  .........
Mr. Lewis (KY).................        X   ........  .........
Mr. Foley......................        X   ........  .........
Mr. Brady......................        X   ........  .........
Mr. Ryan.......................        X   ........  .........
Mr. Cantor.....................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. McCrery, which would correct a flaw in 
the tax code that prevents non-resident aliens from placing 
wagers on U.S. horse races as part of a merged pool of wagers, 
was agreed to by a roll call vote of 20 yeas to 18 nays. The 
vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......  ........        X   .........
Mr. Crane......................        X   ........  .........  Mr. Stark........  ........        X   .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......  ........        X   .........
Mrs. Johnson...................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Houghton...................        X   ........  .........  Mr. Cardin.......  ........        X   .........
Mr. Herger.....................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. McCrery....................        X   ........  .........  Mr. Kleczka......  ........        X   .........
Mr. Camp.......................        X   ........  .........  Mr. Lewis (GA)...  ........        X   .........
Mr. Ramstad....................  ........  ........  .........  Mr. Neal.........  ........        X   .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......  ........        X   .........
Mr. Johnson....................        X   ........  .........  Mr. Jefferson....  ........        X   .........
Ms. Dunn.......................        X   ........  .........  Mr. Tanner.......  ........        X   .........
Mr. Collins....................        X   ........  .........  Mr. Becerra......  ........  ........  .........
Mr. Portman....................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. English....................        X   ........  .........  Mr. Pomeroy......  ........        X   .........
Mr. Hayworth...................        X   ........  .........  Mr. Sandlin......  ........        X   .........
Mr. Weller.....................        X   ........  .........  Ms. Tubbs Jones..  ........        X   .........
Mr. Hulshof....................        X   ........  .........
Mr. McInnis....................        X   ........  .........
Mr. Lewis (KY).................        X   ........  .........
Mr. Foley......................        X   ........  .........
Mr. Brady......................        X   ........  .........
Mr. Ryan.......................        X   ........  .........
Mr. Cantor.....................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    An ammendment by Mr. McDcDermott, which would add Peace 
Corps personnel to the list of members who could use a special 
rule to determine the exclusion of gain from the sale of a 
principal residence, was agreed to by a roll call vote of 24 
yeas to 12 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......  ........  ........  .........
Mrs. Johnson...................        X   ........  .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........  ........  .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................        X   ........  .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................        X   ........  .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................        X   ........  .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......  ........  ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......  ........  ........  .........
Mr. Portman....................        X   ........  .........  Mr. Doggett......        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Sandlin......        X   ........  .........
Mr. Weller.....................  ........        X   .........  Ms. Tubbs Jones..        X   ........  .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................        X   ........  .........
Mr. Lewis (KY).................        X   ........  .........
Mr. Foley......................        X   ........  .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................        X   ........  .........
Mr. Cantor.....................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    Mr. Neal offered an amendment that would add a new section 
to disregard for U.S. tax purposes corporate expatriation 
transactions completed after September 11, 2001. Corporations 
that completed expatriation transactions on or before September 
11, 2001, would be taxed as U.S. corporations beginning after 
December 31, 2003. This amendment was defeated by a roll call 
vote of 15 yeas to 19 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......  ........  ........  .........
Mrs. Johnson...................  ........  ........  .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................        X   ........  .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........  ........  .........  Mr. McDermott....  ........  ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................        X   ........  .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....  ........  ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......  ........  ........  .........
Mr. Portman....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Sandlin......  ........  ........  .........
Mr. Weller.....................  ........        X   .........  Ms. Tubbs Jones..        X   ........  .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................        X   ........  .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
Mr. Cantor.....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Neal that would add a new section to 
disregard for U.S. tax purposes corporate expatriation 
transactions completed after September 11, 2001, was defeated 
by a roll call vote of 14 yeas to 21 nays. The vote was as 
follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......  ........  ........
Mrs. Johnson...................        X   ........  .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........  ........  .........  Mr. McDermott....  ........  ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................        X   ........  .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....  ........  ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......  ........  ........  .........
Mr. Portman....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Sandlin......  ........  ........  .........
Mr. Weller.....................  ........        X   .........  Ms. Tubbs Jones..        X   ........  .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
Mr. Cantor.....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFECTS OF THE BILL

               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of the rule XIII of the 
Rules of the House of Representatives, the following statement 
is made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 878 as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2003-2008:

           ESTIMATED BUDGET EFFECTS OF H.R. 878, THE ``ARMED FORCES TAX FAIRNESS ACT OF 2003,'' AS REPORTED BY THE COMMITTEE ON WAYS AND MEANS
                                                    [Fiscal years 2003-2008, in millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                Provision                             Effective                2003       2004       2005       2006       2007       2008      2003-08
--------------------------------------------------------------------------------------------------------------------------------------------------------
Improving tax equity for Military
 Personnel:
    1. Exclusion of gain on sale of a     soea 5/6/97.....................        -66        -13        -14        -14        -15        -16        -140
     principal residence by a member of
     the uniformed services, the foreign
     service, or the Peace Corp.
    2. Exclusion from gross income of     doa 9/10/01.....................         -1         -1         -1         -1         -1         -1          -6
     certain death gratuity payments.
    3. Exclusion for amounts received     pma DOE.........................        [1]         -2         -2         -2         -2         -2         -11
     under Department of Defense
     Homeowners Assistance Program.
    4. Expansion of combat zone filing    (\2\)...........................         -9      (\1\)      (\1\)      (\1\)      (\1\)         -1         -11
     rules to contingency operations.
    5. modification of membership         tyba DOE........................         -1         -1         -1         -1         -2         -2          -8
     requirement for exemption from tax
     for certain veterans' organizations.
    6. Clarification of treatment of      tyba 12/31/02...................                                No Revenue Effect
     certain dependent care assistance
     programs provided to members of the
     uniformed services of the United
     States.
    7. Treatment of service academy       tyba 12/31/02...................      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)          -1
     appointments as scholarships for
     purposes of qualified tuition
     programs and Coverdell Education
     Savings Accounts.
    8. Suspension of tax-exempt status    (\3\)...........................                            Negligible Revenue Effect
     of designated terrorist
     organizations.
    9. Above-the-line deduction of up to  apoia 12/31/02..................         -4        -19        -19        -19        -19        -19         -96
     $500 for overnight travel expenses
     of National Guard and reserve
     members traveling more than 100
     miles from home.
                                                                           -----------------------------------------------------------------------------
      Total of Improving Tax Equity for   ................................        -81        -36        -37        -37        -39        -41        -273
       Military Personnel.
                                                                           =============================================================================
Miscellaneous Provisions:
    1. Tax relief and assistance for      (\4\)...........................      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)       (\1\)
     families of astronauts who lose
     their lives on a space mission.
    2. Coordinate farmers income          tyba 12/31/02...................      (\1\)         -2         -2         -2         -3         -4         -13
     averaging and the alternative
     minimum tax.
    3. Capital gain treatment under       sota DOE........................                            Negligible Revenue Effect
     section 631(b) to apply to outright
     sales by landowners.
    4. Special rules for livestock sold   trda 12/31/02...................  .........  .........        -18         -7         -4         -3         -32
     on account of weather-related
     conditions--Increase reinvestment
     period from 2 to 4 years for
     involuntary conversion of livestock
     due to result of drought, floor, or
     other weather-related conditions.
    5. Simplification of excise taxes     asbmpoi 90da DOE................         -1         -1         -1         -1         -1         -1          -4
     imposed on bows and arrows.
    6. Repeal excise tax on fishing       30da DOE........................         -1         -3         -3         -3         -3         -3         -17
     tackle boxes.
    7. Btu-based rate for diesel/water    fra 9/30/03.....................      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)       (\1\)
     emulsion fuel.
    8. Expand of human clinical trials    epoia DOE.......................         -6        -15        -16        -16        -17        -18         -88
     expenses qualifying for the orphan
     drug tax credit.
    9. Consumer options under the         before 1/1/05...................         -4        -40        -13  .........  .........  .........         -57
     refundable credit for health
     insurance costs of eligible
     individuals.
    10. Modify at-risk rules publicly     diia DOE........................         -1         -2         -3         -5         -6         -8         -25
     traded nonrecourse debt.
    11. Exclusion of certain horse-       wta 9/30/03.....................  .........         -1         -2         -2         -2         -2         -10
     racing gambling winnings from the
     income of nonresident noncitizen
     individuals.
    12. Payment of dividends on stock of  dmi tyba DOE....................      (\1\)      (\1\)      (\1\)         -1         -1         -1          -3
     cooperatives without reducing
     patronage dividends.
    13. Pilot project for forest          oia DOE.........................         14         12        -18        -18        -13        -10         -34
     conservation activities.
    14. No impact on Social Security      DOE.............................                                No Revenue Effect
     Trust Funds.
                                                                           -----------------------------------------------------------------------------
      Total of Miscellaneous Provisions.  ................................          1        -52        -76        -55        -50        -50        -283
                                                                           =============================================================================
Revenue Provisions:
    1. Modification of the tax treatment  (\5\)...........................          3         16         18         21         24         28         110
     of citizenship relinquishment and
     residency termination.
    2. Add Hepatitis A to the list of     (\6\)...........................          3          8          9          9          9          9          45
     taxable vaccines.
                                                                           -----------------------------------------------------------------------------
      Total of Revenue Provisions.......  ................................          6         24         27         30         33         37         155
      Net total.........................  ................................        -74        -64        -86        -62        -56        -54       -401
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Loss of less than $500,000
\2\ The provision applies to any period for performing an act that has not expired before the date of enactment.
\3\ Effective for organizations that are designated or identified as a terrorist organization before, on, or after the date of enactment.
\4\ Generally effective for qualified individuals whose lives are lost in the line of duty after December 31, 2002.
\5\ Effective for individuals who relinquish citizenship or terminate long-term residency after February 27, 2003.
\6\ Effective for vaccines sold beginning on the first day of the first month beginning more than four weeks after the date of enactment.

Legend for ``Effective'' column: apola=amounts paid or incurred after; asbmpoi=articles sold by the manufacturer, producer, or importer; diia=debt
  instruments issued after; dmi=distributions made in; doa=deaths occurring after; DOE=date of enactment; ecmba=eligible coverage months beginning
  after; epola=expenditures paid or incurred after; fra=fuel removed after; oia=obligations issued after; pma=payments made after; soea=sales or
  exchanges after; sota=sales of timber after; trda=tax returns due after; tyba=taxable years beginning after; wta=wagering transactions after; 30da=30
  days after; 90da=90 days after.

Note.--Details may not add to totals due to rounding.

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

    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 
Committee further states that the revenue reducing income tax 
provisions involve increased tax expenditures. (See amounts in 
table in 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 CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, March 5, 2003.
Hon. William ``Bill'' M. Thomas,
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 H.R. 878, the Armed 
Forces Tax Fairness Act of 2003.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Annie 
Bartsch.
            Sincerely,
                                       Douglas Holtz-Eakin,
                                                          Director.
    Enclosure.

H.R. 878--Armed Forces Tax Fairness Act of 2003

    Summary: H.R. 878, the Armed Forces Tax Fairness Act of 
2003, would raise the exclusion for death gratuity payments for 
the military and provide military and foreign service 
homeowners with relief from capital gains taxes. In addition, 
the bill would provide individual taxpayers serving in the 
National Guard and Reserve with a deduction for up to $500 
dollars of certain overnight travel expenses, including meals 
and overnight lodging, incurred while attending National Guard 
and Reserve meetings. The bill contains several miscellaneous 
provisions that would also reduce revenues. In addition, the 
bill would raise revenue by modifying the tax treatment of 
individuals who expatriate and by adding Hepatitis A to the 
list of taxable vaccines. H.R. 878 would increase on-budget 
federal outlays and reduce off-budget outlays by the same 
amounts by requiring a new general fund payment to the Social 
Security trust funds to replace any loss of payroll taxes that 
would result from the bill.
    The Joint Committee on Taxation (JCT) estimates that 
enacting the bill would reduce revenues by $74 million in 2003, 
by $401 million over the 2003-2008 period, and by $615 million 
over the 2003-2013 period. CBO estimates that the bill would 
have no effect on total direct spending, but it would both 
increase on-budget direct spending and decrease off-budget 
direct spending by $5 million over the 2003-2008 period, and by 
$10 million over the 2003-2013 period.
    JCT has determined that the bill contains no 
intergovernmental mandates as defined in the Unfunded Mandates 
Reform Act (UMRA), and would not affect the budgets of state, 
local, or tribal governments. JCT has also determined that the 
provision revising the alternative tax regime for individuals 
who expatriate contains a private-sector mandate. The total 
cost of complying with the mandate would not exceed the 
threshold established by UMRA ($117 million in 2003, adjusted 
annually for inflation).
    Estimated Cost to the Federal Government: The estimated 
budgetary impact of H.R. 878 is shown in the following table.

----------------------------------------------------------------------------------------------------------------
                                                                   By fiscal year, in millions of dollars
                                                           -----------------------------------------------------
                                                              2003     2004     2005     2006     2007     2008
----------------------------------------------------------------------------------------------------------------
                                               CHANGES IN REVENUES

Tax relief from capital gains for military and foreign          -66      -13      -14      -14      -15      -16
 service homeowners.......................................
Above-the-line deduction for up to $500 of overnight             -4      -19      -19      -19      -19      -19
 travel expenses..........................................
Other tax relief for military personnel...................      -11       -4       -4       -4       -5       -6
Expansion of human clinical trials expenses qualifying for       -6      -15      -16      -16      -17      -18
 orphan drug tax credit...................................
Modification of tax treatment of individuals who                  3       16       18       21       24       28
 expatriate...............................................
Add Hepatitis A to the list of taxable vaccines...........        3        8        9        9        9        9
Other provisions..........................................        7      -37      -60      -39      -33      -32
                                                           -----------------------------------------------------
Total changes:
    On-budget.............................................      -74      -63      -85      -61      -55      -53
    Off-budget............................................      (*)       -1       -1       -1       -1       -1
                                                           -----------------------------------------------------
          Total...........................................      -74      -64      -86      -62      -56      -54
                                                           =====================================================
                                           CHANGES IN DIRECT SPENDING

On-budget.................................................      (*)        1        1        1        1        1
Off-budget................................................      (*)       -1       -1       -1       -1       -1
                                                           -----------------------------------------------------
    Total.................................................        0        0        0        0        0        0
----------------------------------------------------------------------------------------------------------------
Sources. CBO and the Joint Committee on Taxation.
*=Change of less than $500,000.
Details do not add to totals due to rounding.

Basis of Estimate

            Revenues
    All estimates were provided by JCT. A number of provisions 
would reduce revenues if enacted, and two would increase 
revenues. All together, the bill's provisions would 
reducerevenues by $74 million in 2003, by $401 million over the 2003-
2008 period, and by $615 million over the 2003-2013 period.
    H.R. 878 contains nine provisions intended to provide tax 
relief for military personnel, seven of which would reduce 
federal receipts. Most of the reduction in revenues would occur 
from the provisions providing military and foreign service 
homeowners relief from taxation of capital gains and reservists 
with a deduction allowance for up to $500 of travel expenses. 
The deduction for qualifying travel expenses would be ``above 
the line.'' Such deductions are statutorily allowed 
subtractions from gross income that are used to compute 
adjusted gross income and may be taken by both taxpayers who 
itemize their deductions and those who do not. Other tax relief 
for military personnel includes provisions that would raise the 
exclusion for death gratuity payments for individuals in the 
military, provide an exclusion for amounts received under the 
Department of Defense (DOD) Homeowners Assistance Program, 
expand combat zone filing rules to include contingency 
operations, extend section 501(c)(19) membership to certain 
relatives of military personnel, and permit service academy 
appointments to be treated as scholarships for certain 
purposes. As estimated by JCT, all of these provisions together 
would reduce revenues by $81 million in 2003, by $273 million 
over the 2003-2008 period, and by $482 million over the 2003-
2013 period. A small portion of those reductions would apply to 
off-budget receipts. The exclusion for amounts received under 
the Homeowners Assistance Program would reduce off-budget 
receipts by $5 million over the 2003-2008 period and by $10 
million over the 2003-2013 period.
    In addition to the above provisions intended to provide tax 
relief for military personnel, H.R. 878 contains fourteen other 
miscellaneous provisions that would also affect federal 
receipts. Of these, the provision expanding human clinical 
trials that qualify for the orphan drug tax credit would have 
the largest effect on revenues. JCT estimates that, together, 
these miscellaneous provisions would decrease revenues by $283 
million over the 2003-2008 period and by $552 million over the 
2003-2013 period.
    Two other provisions contained in H.R. 878 would both 
increase revenues. JCT estimates that these provisions, which 
would modify the tax treatment of individuals who expatriate 
and add Hepatitis A to the list of taxable vaccines, would 
increase revenues by $6 million in 2003, by $155 million over 
the 2003-2008 period, and by $419 million over the 2003-2013 
period.

Direct spending

    Section 214 of the bill would require that amounts 
transferred to the Social Security trust funds be determined as 
if H.R. 878 were not enacted. The Treasury Department transfers 
the estimated amount of payroll tax collections to the trust 
funds as the withholding payments are received. CBO and JCT 
estimate that providing an exclusion for amounts received under 
the Department of Defense Homeowners Assistance Program would 
reduce Social Security revenues by $1 million in each of the 
years from 2004 through 2013. Therefore, CBO estimates that 
comparable amounts would be transferred to the Social Security 
trust funds during those years as a result of section 214. 
Those transfers would be recorded as on-budget outlays and off-
budget receipts.
    Effect on revenues and direct spending: The overall effect 
of H.R. 878 on on-budget revenues and direct spending is shown 
in the table below.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         By fiscal year, in millions of dollars
                                                               -----------------------------------------------------------------------------------------
                                                                 2003    2004    2005    2006    2007    2008    2009    2010    2011     2012     2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in receipts...........................................     -74     -63     -85     -61     -55     -53     -51     -48     -38      -35      -38
Changes in outlays............................................       0       1       1       1       1       1       1       1       1        1        1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources: CBO and the Joint Committee on Taxation.

    Estimated impact on State, Local and Tribal Governments: 
JCT has determined that the bill contains no intergovernmental 
mandates as defined in UMRA, and would not affect the budgets 
of state, local, or tribal governments.
    Estimated impact on the private sector: JCT has determined 
that the provision revising the alternative tax regime for 
individuals who expatriate contains a private-sector mandate. 
The total cost of complying with the mandate would not exceed 
the threshold established by UMRA ($117 million in 2003, 
adjusted annually for inflation).
    Previous CBO estimate: On February 10, 2003, CBO 
transmitted a cost estimate for the Armed Forces Tax Fairness 
Act of 2003, as ordered reported by the Senate Committee on 
Finance. That version of the bill would reduce increase 
revenues by $6 million over the 2003-2013 period, whereas the 
Committee on Ways and Means' version of the bill has an 
estimated revenue loss of $615 million over the same period. A 
major difference is the inclusion of additional revenue-
reducing provisions in the Ways and Means' version. Another 
significant difference is the inclusion of several revenue-
raising provisions in the Finance Committee's version, namely 
the extension of IRS user fees and imposition of a mark-to-
market tax on individuals who expatriate. The Ways and Means' 
version imposes a more limited penalty for expatriation.
    Estimate prepared by: Annie Bartsch.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis.

                    D. Macroeconomic Impact Analysis

    In compliance with clause 3(h)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made by the Joint Committee on Taxation with respect to the 
provisions of the bill amending the Internal Revenue Code of 
1986: the effects of the bill on economic activity are so small 
as to be incalculable within the context of a model of the 
aggregate economy.

     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 review concerning the tax burden on military 
personnel that the Committee concluded that it is appropriate 
and timely to enact the revenue provision included in the bill 
as reported.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of the 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).
    The Committee has determined that the bill contains one 
Federal mandate on the private sector--the revisions to the 
alternative tax regime for individuals who expatriate. The 
costs required to comply with the private sector mandate 
generally are no greater than the aggregate estimated budget 
effects of the provision as reflected in Part IV.A., above. 
Benefits from the provision include improved administration of 
the tax laws and a more accurate measurement of income for 
Federal income tax purposes. The Committee has determined that 
the bill does not impose a Federal intergovernmental mandate on 
State, local, or tribal governments.

                E. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' 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 increases 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 House Committee on Ways and 
Means, the Senate Committee on Finance, or any committee of 
conference if the legislation includes a provision that 
directly or indirectly amends the Internal Revenue 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.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                     INTERNAL REVENUE CODE OF 1986

Subtitle A--Income Taxes

           *       *       *       *       *       *       *

CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *

Subchapter A--Determination of Tax Liability

           *       *       *       *       *       *       *

PART I--TAX ON INDIVIDUALS

           *       *       *       *       *       *       *

SEC. 5. CROSS REFERENCES RELATING TO TAX ON INDIVIDUALS.

  (a) * * *
  (b) Special Limitations on Tax.--
          (1) For limitation on tax in case of income of 
        members of Armed Forces, astronauts, and victims of 
        certain terrorist attacks on death, see section 692.

           *       *       *       *       *       *       *

PART IV--CREDITS AGAINST TAX

           *       *       *       *       *       *       *

Subpart C--Refundable Credits

           *       *       *       *       *       *       *

SEC. 35. HEALTH INSURANCE COSTS OF ELIGIBLE INDIVIDUALS.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Qualified Health Insurance.--For purposes of this 
section--
          (1) * * *
          (2) Requirements for state-based coverage.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Waiver by eligible individuals.--With 
                respect to any month which ends before January 
                1, 2005, this paragraph shall not apply with 
                respect to any eligible individual and such 
                individual's qualifying family members if such 
                eligible individual elects to waive the 
                application of this paragraph with respect to 
                such month.

           *       *       *       *       *       *       *

Subpart D--Business Related Credits

           *       *       *       *       *       *       *

SEC. 45C. CLINICAL TESTING EXPENSES FOR CERTAIN DRUGS FOR RARE DISEASES 
                    OR CONDITIONS.

  (a) * * *
  (b) Qualified Clinical Testing Expenses.--For purposes of 
this section--
          (1) * * *
          (2) Clinical testing.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Treatment of certain expenses incurred 
                before designation.--For purposes of 
                subparagraph (A)(ii)(I), if a drug is 
                designated under section 526 of the Federal 
                Food, Drug, and Cosmetic Act not later than the 
                due date (including extensions) for filing the 
                return of tax under this subtitle for the 
                taxable year in which the application for such 
                designation of such drug was filed, such drug 
                shall be treated as having been designated on 
                the date that such application was filed.

           *       *       *       *       *       *       *

PART VI--MINIMUM TAX FOR TAX PREFERENCES

           *       *       *       *       *       *       *

SEC. 55. ALTERNATIVE MINIMUM TAX IMPOSED.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Regular Tax.--
          (1) * * *
          (2) Coordination with income averaging for farmers.--
        Solely for purposes of this section, section 1301 
        (relating to averaging of farm income) shall not apply 
        in computing the regular tax.
          [(2)] (3) Cross references.--
          For provisions providing that certain credits are not 
        allowable against the tax imposed by this section, see sections 
        26(a), 29(b)(6), 30(b)(3) and 38(c).

           *       *       *       *       *       *       *

Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *

  PART I--DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE 
INCOME, ETC.

           *       *       *       *       *       *       *

SEC. 62. ADJUSTED GROSS INCOME DEFINED.

  (a) General Rule.--For purposes of this subtitle, the term 
``adjusted gross income'' means, in the case of an individual, 
gross income minus the following deductions:
          (1) * * *
          (2) Certain trade and business deductions of 
        employees.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (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, not in excess of 
                $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.

           *       *       *       *       *       *       *

PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

           *       *       *       *       *       *       *

SEC. 101. CERTAIN DEATH BENEFITS.

  (a) * * *

           *       *       *       *       *       *       *

  (i) Certain Employee Death Benefits Payable by Reason of 
Death of Certain Terrorist Victims or Astronauts.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Relief with respect to astronauts.--The 
        provisions of this subsection shall apply to any 
        astronaut whose death occurs while on a space mission.

           *       *       *       *       *       *       *

SEC. 121. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Special Rules.--
          (1) * * *

           *       *       *       *       *       *       *

          (10) Members of uniformed services and foreign 
        service and peace corps volunteers and employees.--
                  (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 or as a 
                Peace Corps volunteer or an employee of the 
                Peace Corps.
                  (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.
                          (v) Rules relating to the peace 
                        corps.--
                                  (I) Extended duty.--In the 
                                case of a Peace Corps 
                                volunteer, the term ``extended 
                                duty'' means any period of 
                                active duty assigned to a Peace 
                                Corps volunteer under the Peace 
                                Corps Act for a period in 
                                excess of 180 days or for an 
                                indefinite period.
                                  (II) Peace corps volunteer.--
                                The term ``Peace Corps 
                                volunteer'' means an individual 
                                enrolled as a volunteer or 
                                volunteer leader under the 
                                Peace Corps Act.
                                  (III) Employee of the peace 
                                corps.--The term ``employee of 
                                the Peace Corps'' means a 
                                person employed in the Peace 
                                Corps under section 7 of the 
                                Peace Corps Act.
                                  (IV) References to peace 
                                corps act.--References in this 
                                clause to the Peace Corps Act 
                                mean references to the Peace 
                                Corps Act (22 U.S.C. 2501 et 
                                seq.) as in effect on the date 
                                of the enactment of this 
                                clause.
                  (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.

           *       *       *       *       *       *       *

SEC. 132. CERTAIN FRINGE BENEFITS.

  (a) Exclusion from Gross Income.--Gross income shall not 
include any fringe benefit which qualifies as a--
          (1) * * *

           *       *       *       *       *       *       *

          (6) qualified moving expense reimbursement, [or]
          (7) qualified retirement planning services[.], or
          (8) qualified military base realignment and closure 
        fringe.

           *       *       *       *       *       *       *

  (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).
  [(n)] (o) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section.

           *       *       *       *       *       *       *

SEC. 134. CERTAIN MILITARY BENEFITS.

  (a) * * *
  (b) Qualified Military Benefit.--For purposes of this 
section--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Limitations on modifications.--
                  (A) In general.--Except as provided in 
                [subparagraph (B)] subparagraphs (B) and (C) 
                and paragraph (4), no modification or 
                adjustment of any qualified military benefit 
                after September 9, 1986, shall be taken into 
                account.

           *       *       *       *       *       *       *

                  (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.
          (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).

           *       *       *       *       *       *       *

PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

           *       *       *       *       *       *       *

SEC. 162. TRADE OR BUSINESS EXPENSES.

  (a) * * *

           *       *       *       *       *       *       *

  (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.
  [(p)] (q) Cross References.--
          (1) For special rule relating to expenses in connection with 
        subdividing real property for sale, see section 1237.

           *       *       *       *       *       *       *

Subchapter E--Accounting Periods and Methods of Accounting

           *       *       *       *       *       *       *

PART II--METHODS OF ACCOUNTING

           *       *       *       *       *       *       *

Subpart B--Taxable Year for Which Items of Gross Income Included

           *       *       *       *       *       *       *

SEC. 451. GENERAL RULE FOR TAXABLE YEAR OF INCLUSION.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Special Rule for Proceeds from Livestock Sold on Account 
of Drought, Flood, or Other Weather-Related Conditions
          (1) * * *

           *       *       *       *       *       *       *

          (3) Special election rules.--If section 1033(e)(2) 
        applies to a sale or exchange of livestock described in 
        paragraph (1), the election under paragraph (1) shall 
        be deemed valid if made during the replacement period 
        described in such section.

           *       *       *       *       *       *       *

Subpart C--Taxable Year for Which Deductions Taken

           *       *       *       *       *       *       *

SEC. 465. DEDUCTIONS LIMITED TO AMOUNT AT RISK.

  (a) * * *
  (b) Amounts Considered at Risk.--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Qualified nonrecourse financing treated as amount 
        at risk.--For purposes of this section--
                  (A) In general.--Notwithstanding any other 
                provision of this subsection, in the case of an 
                activity of holding real property, a taxpayer 
                shall be considered at risk with respect to the 
                taxpayer's [share of any qualified nonrecourse 
                financing which is secured by real property 
                used in such activity.] share of--
                          (i) any qualified nonrecourse 
                        financing which is secured by real 
                        property used in such activity, and
                          (ii) any other financing which--
                                  (I) would (but for 
                                subparagraph (B)(ii)) be 
                                qualified nonrecourse 
                                financing,
                                  (II) is qualified publicly 
                                traded debt, and
                                  (III) is not borrowed by the 
                                taxpayer from a person 
                                described in subclause (I), 
                                (II), or (III) of section 
                                49(a)(1)(D)(iv).

           *       *       *       *       *       *       *

                  (F) Qualified publicly traded debt.--For 
                purposes of subparagraph (A), the term 
                ``qualified publicly traded debt'' means any 
                debt instrument which is readily tradable on an 
                established securities market. Such term shall 
                not include any debt instrument which has a 
                yield to maturity which equals or exceeds the 
                limitation in section 163(i)(1)(B).

           *       *       *       *       *       *       *

Subchapter F--Exempt Organizations

           *       *       *       *       *       *       *

PART I--GENERAL RULE

           *       *       *       *       *       *       *

SEC. 501. EXEMPTION FROM TAX ON CORPORATIONS, CERTAIN TRUSTS, ETC.

  (a) * * *

           *       *       *       *       *       *       *

  (c) List of Exempt Organizations.--The following 
organizations are referred to in subsection (a):
          (1) * * *

           *       *       *       *       *       *       *

          (19) A post or organization of past or present 
        members of the Armed Forces of the United States, or an 
        auxiliary unit or society of, or a trust or foundation 
        for, any such post or organization--
                  (A) * * *
                  (B) at least 75 percent of the members of 
                which are past or present members of the Armed 
                Forces of the United States and substantially 
                all of the other members of which are 
                individuals who are cadets or are spouses, 
                widows, [or widowers], widowers, ancestors, or 
                lineal descendants of past or present members 
                of the Armed Forces of the United States or of 
                cadets, and

           *       *       *       *       *       *       *

  (p) Suspension of Tax-Exempt Status of Terrorist 
Organizations.--
          (1) In general.--The exemption from tax under 
        subsection (a) with respect to any organization 
        described in paragraph (2), and the eligibility of any 
        organization described in paragraph (2) to apply for 
        recognition of exemption under subsection (a), shall be 
        suspended during the period described in paragraph (3).
          (2) Terrorist organizations.--An organization is 
        described in this paragraph if such organization is 
        designated or otherwise individually identified--
                  (A) under section 212(a)(3)(B)(vi)(II) or 219 
                of the Immigration and Nationality Act as a 
                terrorist organization or foreign terrorist 
                organization,
                  (B) in or pursuant to an Executive order 
                which is related to terrorism and issued under 
                the authority of the International Emergency 
                Economic Powers Act or section 5 of the United 
                Nations Participation Act of 1945 for the 
                purpose of imposing on such organization an 
                economic or other sanction, or
                  (C) in or pursuant to an Executive order 
                issued under the authority of any Federal law 
                if--
                          (i) the organization is designated or 
                        otherwise individually identified in or 
                        pursuant to such Executive order as 
                        supporting or engaging in terrorist 
                        activity (as defined in section 
                        212(a)(3)(B) of the Immigration and 
                        Nationality Act) or supporting 
                        terrorism (as defined in section 
                        140(d)(2) of the Foreign Relations 
                        Authorization Act, Fiscal Years 1988 
                        and 1989); and
                          (ii) such Executive order refers to 
                        this subsection.
          (3) Period of suspension.--With respect to any 
        organization described in paragraph (2), the period of 
        suspension--
                  (A) begins on the later of--
                          (i) the date of the first publication 
                        of a designation or identification 
                        described in paragraph (2) with respect 
                        to such organization, or
                          (ii) the date of the enactment of 
                        this subsection, and
                  (B) ends on the first date that all 
                designations and identifications described in 
                paragraph (2) with respect to such organization 
                are rescinded pursuant to the law or Executive 
                order under which such designation or 
                identification was made.
          (4) Denial of deduction.--No deduction shall be 
        allowed under section 170, 545(b)(2), 556(b)(2), 
        642(c), 2055, 2106(a)(2), or 2522 for any contribution 
        to an organization described in paragraph (2) during 
        the period described in paragraph (3).
          (5) Denial of administrative or judicial challenge of 
        suspension or denial of deduction.--Notwithstanding 
        section 7428 or any other provision of law, no 
        organization or other person may challenge a suspension 
        under paragraph (1), a designation or identification 
        described in paragraph (2), the period of suspension 
        described in paragraph (3), or a denial of a deduction 
        under paragraph (4) in any administrative or judicial 
        proceeding relating to the Federal tax liability of 
        such organization or other person.
          (6) Erroneous designation.--
                  (A) In general.--If--
                          (i) the tax exemption of any 
                        organization described in paragraph (2) 
                        is suspended under paragraph (1),
                          (ii) each designation and 
                        identification described in paragraph 
                        (2) which has been made with respect to 
                        such organization is determined to be 
                        erroneous pursuant to the law or 
                        Executive order under which such 
                        designation or identification was made, 
                        and
                          (iii) the erroneous designations and 
                        identifications result in an 
                        overpayment of income tax for any 
                        taxable year by such organization,
                credit or refund (with interest) with respect 
                to such overpayment shall be made.
                  (B) Waiver of limitations.--If the credit or 
                refund of any overpayment of tax described in 
                subparagraph (A)(iii) is prevented at any time 
                by the operation of any law or rule of law 
                (including res judicata), such credit or refund 
                may nevertheless be allowed or made if the 
                claim therefor is filed before the close of the 
                1-year period beginning on the date of the last 
                determination described in subparagraph 
                (A)(ii).
          (7) Notice of Suspensions.--If the tax exemption of 
        any organization is suspended under this subsection, 
        the Internal Revenue Service shall update the listings 
        of tax-exempt organizations and shall publish 
        appropriate notice to taxpayers of such suspension and 
        of the fact that contributions to such organization are 
        not deductible during the period of such suspension.
  [(p)] (q) Cross Reference.--
          For nonexemption of Communist-controlled organizations, see 
        section 11(b) of the Internal Security Act of 1950 (64 Stat. 
        997; 50 U.S.C. 790(b)).

           *       *       *       *       *       *       *

PART VIII--HIGHER EDUCATION SAVINGS ENTITIES

           *       *       *       *       *       *       *

SEC. 530. COVERDELL EDUCATION SAVINGS ACCOUNTS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Tax Treatment of Distributions.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Additional tax for distributions not used for 
        educational expenses.--
                  (A) * * *
                  (B) Exceptions.--Subparagraph (A) shall not 
                apply if the payment or distribution is--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) made on account of a 
                        scholarship, allowance, or payment 
                        described in section 25A(g)(2) received 
                        by the account holder to the extent the 
                        amount of the payment or distribution 
                        does not exceed the amount of the 
                        scholarship, allowance, or payment, 
                        [or]
                          (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
                          [(iv)] (5) an amount which is 
                        includible in gross income solely by 
                        application of paragraph (2)(C)(i)(II) 
                        for the taxable year.

           *       *       *       *       *       *       *

Subchapter I--Natural Resources

           *       *       *       *       *       *       *

PART III--SALES AND EXCHANGES

           *       *       *       *       *       *       *

SEC. 631. GAIN OR LOSS IN THE CASE OF TIMBER, COAL, OR DOMESTIC IRON 
                    ORE.

  (a) * * *
  (b) Disposal of Timber [With a Retained Economic Interest].--
In the case of the disposal of timber held for more than 1 year 
before such disposal, by the owner thereof under any form or 
type of contract by virtue of which such owner [retains an 
economic interest in such timber] either retains an economic 
interest in such timber or makes an outright sale of such 
timber, the difference between the amount realized from the 
disposal of such timber and the adjusted depletion basis 
thereof, shall be considered as though it were a gain or loss, 
as the case may be, on the sale of such timber. In determining 
the gross income, the adjusted gross income, or the taxable 
income of the lessee, the deductions allowable with respect to 
rents and royalties shall be determined without regard to the 
provisions of this subsection. [The date of disposal] In the 
case of disposal of timber with a retained economic interest, 
the date of disposal of such timber shall be deemed to be the 
date such timber is cut, but if payment is made to the owner 
under the contract before such timber is cut the owner may 
elect to treat the date of such payment as the date of disposal 
of such timber. For purposes of this subsection, the term 
``owner'' means any person who owns an interest in such timber, 
including a sublessor and a holder of a contract to cut timber.

           *       *       *       *       *       *       *

Subchapter J--Estates, Trusts, Beneficiaries, and Decedents

           *       *       *       *       *       *       *

                PART II--INCOME IN RESPECT OF DECEDENTS

          Sec. 691. Recipients of income in respect of decedents.
          Sec. 692. Income taxes of members of Armed Forces, astronauts, 
                  and victims of certain terrorist attacks on death.

           *       *       *       *       *       *       *

SEC. 692. INCOME TAXES OF MEMBERS OF ARMED FORCES, ASTRONAUTS, AND 
                    VICTIMS OF CERTAIN TERRORIST ATTACKS ON DEATH.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Individuals Dying as a Result of Certain Attacks.--
          (1) * * *

           *       *       *       *       *       *       *

          (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.

           *       *       *       *       *       *       *

 Subchapter N--Tax Based on Income from Sources Within or Without the 
United States

           *       *       *       *       *       *       *

PART II--NONRESIDENT ALIENS AND FOREIGN CORPORATIONS

           *       *       *       *       *       *       *

Subpart A--Nonresident Alien Individuals

           *       *       *       *       *       *       *

SEC. 872. GROSS INCOME.

  (a) * * *
  (b) Exclusions.--The following items shall not be included in 
gross income of a nonresident alien individual, and shall be 
exempt from taxation under this subtitle:
          (1) * * *

           *       *       *       *       *       *       *

          (5) Income derived from wagering transactions in 
        certain parimutuel pools.--Gross income derived by a 
        nonresident alien individual from a legal wagering 
        transaction initiated outside the United States in a 
        parimutuel pool with respect to a live horse race in 
        the United States.
          [(5)] (6) Certain rental income.--Income to which 
        paragraphs (1) and (2) apply shall include income which 
        is derived from the rental on a full or bareboat basis 
        of a ship or ships or aircraft, as the case may be.
          [(6)] (7) Application to different types of 
        transportation.--The Secretary may provide that this 
        subsection be applied separately with respect to income 
        from different types of transportation.
          [(7)] (8) Treatment of possessions.--To the extent 
        provided in regulations, a possession of the United 
        States shall be treated as a foreign country for 
        purposes of this subsection.

           *       *       *       *       *       *       *

SEC. 877. EXPATRIATION TO AVOID TAX.

  [(a) Treatment of Expatriates.--
          [(1) In general.--Every nonresident alien individual 
        who, within the 10-year period immediately preceding 
        the close of the taxable year, lost United States 
        citizenship, unless such loss did not have for one of 
        its principal purposes the avoidance of taxes under 
        this subtitle or subtitle B, shall be taxable for such 
        taxable year in the manner provided in subsection (b) 
        if the tax imposed pursuant to such subsection (after 
        any reduction in such tax under the last sentence of 
        such subsection) exceeds the tax which, without regard 
        to this section, is imposed pursuant to section 871.
          [(2) Certain individuals treated as having tax 
        avoidance purpose.--For purposes of paragraph (1), an 
        individual shall be treated as having a principal 
        purpose to avoid such taxes if--
                  [(A) the average annual net income tax (as 
                defined in section 38(c)(1) of such individual 
                for the period of 5 taxable years ending before 
                the date of the loss of United States 
                citizenship is greater than $100,000, or
                  [(B) the net worth of the individual as of 
                such date is $500,000 or more.
        In the case of the loss of United States citizenship in 
        any calendar year after 1996, such $100,000 and 
        $500,000 amounts shall be increased by an amount equal 
        to such dollar amount multiplied by the cost-of-living 
        adjustment determined under section 1(f)(3) for such 
        calendar year by substituting ``1994'' for ``1992'' in 
        subparagraph (B) thereof. Any increase under the 
        preceding sentence shall be rounded to the nearest 
        multiple of $1,000.]
  (a) Treatment of Expatriates.--
          (1) In general.--Every nonresident alien individual 
        to whom this section applies and who, within the 10-
        year period immediately preceding the close of the 
        taxable year, lost United States citizenship shall be 
        taxable for such taxable year in the manner provided in 
        subsection (b) if the tax imposed pursuant to such 
        subsection (after any reduction in such tax under the 
        last sentence of such subsection) exceeds the tax 
        which, without regard to this section, is imposed 
        pursuant to section 871.
          (2) Individuals subject to this section.--This 
        section shall apply to any individual if--
                  (A) the average annual net income tax (as 
                defined in section 38(c)(1)) of such individual 
                for the period of 5 taxable years ending before 
                the date of the loss of United States 
                citizenship is greater than $122,000,
                  (B) the net worth of the individual as of 
                such date is $2,000,000 or more, or
                  (C) such individual fails to certify under 
                penalty of perjury that he has met the 
                requirements of this title for the 5 preceding 
                taxable years or fails to submit such evidence 
                of such compliance as the Secretary may 
                require.
        In the case of the loss of United States citizenship in 
        any calendar year after 2003, such $122,000 amount 
        shall be increased by an amount equal to such dollar 
        amount multiplied by the cost-of-living adjustment 
        determined under section 1(f)(3) for such calendar year 
        by substituting ``2002'' for ``1992'' in subparagraph 
        (B) thereof. Any increase under the preceding sentence 
        shall be rounded to the nearest multiple of $1,000.

           *       *       *       *       *       *       *

  [(c) Tax Avoidance not Presumed in Certain Cases.--
          [(1) In general.--Subsection (a)(2) shall not apply 
        to an individual if--
                  [(A) such individual is described in a 
                subparagraph of paragraph (2) of this 
                subsection, and
                  [(B) within the 1-year period beginning on 
                the date of the loss of United States 
                citizenship, such individual submits a ruling 
                request for the Secretary's determination as to 
                whether such loss has for one of its principal 
                purposes the avoidance of taxes under this 
                subtitle or subtitle B.
          [(2) Individuals described.--
                  [(A) Dual citizenship, etc.--An individual is 
                described in this subparagraph if--
                          [(i) the individual became at birth a 
                        citizen of the United States and a 
                        citizen of another country and 
                        continues to be a citizen of such other 
                        country, or
                          [(ii) the individual becomes (not 
                        later than the close of a reasonable 
                        period after loss of United States 
                        citizenship) a citizen of the country 
                        in which--
                                  [(I) such individual was 
                                born,
                                  [(II) if such individual is 
                                married, such individual's 
                                spouse was born, or
                                  [(III) either of such 
                                individual's parents were born.
                  [(B) Long-term foreign residents.--An 
                individual is described in this subparagraph 
                if, for each year in the 10- year period ending 
                on the date of loss of United States 
                citizenship, the individual was present in the 
                United States for 30 days or less. The rule of 
                section 7701(b)(3)(D)(ii) shall apply for 
                purposes of this subparagraph.
                  [(C) Renunciation upon reaching age of 
                majority.--An individual is described in this 
                subparagraph if the individual's loss of United 
                States citizenship occurs before such 
                individual attains age 18-\1/2\.
                  [(D) Individuals specified in regulations.--
                An individual is described in this subparagraph 
                if the individual is described in a category of 
                individuals prescribed by regulation by the 
                Secretary.]
  (c) Exceptions.--
          (1) In general.--Subparagraphs (A) and (B) of 
        subsection (a)(2) shall not apply to an individual 
        described in paragraph (2) or (3).
          (2) Dual citizens.--
                  (A) In general.--An individual is described 
                in this paragraph if--
                          (i) the individual became at birth a 
                        citizen of the United States and a 
                        citizen of another country and 
                        continues to be a citizen of such other 
                        country, and
                          (ii) the individual has had no 
                        substantial contacts with the United 
                        States.
                  (B) Substantial contacts.--An individual 
                shall be treated as having no substantial 
                contacts with the United States only if the 
                individual--
                          (i) was never a resident of the 
                        United States (as defined in section 
                        7701(b)),
                          (ii) has never held a United States 
                        passport, and
                          (iii) was not present in the United 
                        States for more than 30 days during any 
                        calendar year which is 1 of the 10 
                        calendar years preceding the 
                        individual's loss of United States 
                        citizenship.
          (3) Certain minors.--An individual is described in 
        this paragraph if--
                  (A) the individual became at birth a citizen 
                of the United States,
                  (B) neither parent of such individual was a 
                citizen of the United States at the time of 
                such birth,
                  (C) the individual's loss of United States 
                citizenship occurs before such individual 
                attains age 18 \1/2\, and
                  (D) the individual was not present in the 
                United States for more than 30 days during any 
                calendar year which is 1 of the 10 calendar 
                years preceding the individual's loss of United 
                States citizenship.

           *       *       *       *       *       *       *

  (g) Physical Presence.--This section shall not apply to any 
individual for any taxable year during the 10-year period 
referred to in subsection (a) in which such individual is 
present in the United States for more than 30 days in the 
calendar year ending in such taxable year, and such individual 
shall be treated for purposes of this title as a citizen or 
resident of the United States for such taxable year.

           *       *       *       *       *       *       *

Subpart B--Foreign Corporations

           *       *       *       *       *       *       *

SEC. 883. EXCLUSIONS FROM GROSS INCOME.

  (a) Income of Foreign Corporations from Ships and Aircraft.--
The following items shall not be included in gross income of a 
foreign corporation, and shall be exempt from taxation under 
this subtitle:
          (1) * * *

           *       *       *       *       *       *       *

          (4) Special rules.--The rules of paragraphs [(5), 
        (6), and (7)] (6), (7), and (8) of section 872(b) shall 
        apply for purposes of this subsection.

           *       *       *       *       *       *       *

Subchapter O--Gain or Loss on Disposition of Property

           *       *       *       *       *       *       *

PART III--COMMON NONTAXABLE EXCHANGES

           *       *       *       *       *       *       *

SEC. 1033. INVOLUNTARY CONVERSIONS.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Livestock Sold on Account of Drought, Flood, or Other 
Weather-Related [Conditions.--For purposes] Conditions.--
          (1) In general.--For purposes of this subtitle, the 
        sale or exchange of livestock (other than poultry) held 
        by a taxpayer for draft, breeding, or dairy purposes in 
        excess of the number the taxpayer would sell if he 
        followed his usual business practices shall be treated 
        as an involuntary conversion to which this section 
        applies if such livestock are sold or exchanged by the 
        taxpayer solely on account of drought, flood, or other 
        weather-related conditions.
          (2) Extension of replacement period.--
                  (A) In general.--In the case of drought, 
                flood, or other weather-related conditions 
                described in paragraph (1) which result in the 
                area being designated as eligible for 
                assistance by the Federal Government, 
                subsection (a)(2)(B) shall be applied with 
                respect to any converted property by 
                substituting ``4 years'' for ``2 years''.
                  (B) Further extension by secretary.--The 
                Secretary may extend on a regional basis the 
                period for replacement under this section 
                (after the application of subparagraph (A)) for 
                such additional time as the Secretary 
                determines appropriate if the weather-related 
                conditions which resulted in such application 
                continue for more than 3 years.

           *       *       *       *       *       *       *

Subchapter T--Cooperatives and Their Patrons

           *       *       *       *       *       *       *

PART III--DEFINITIONS; SPECIAL RULES

           *       *       *       *       *       *       *

SEC. 1388. DEFINITIONS; SPECIAL RULES.

  (a) Patronage Dividend.--For purposes of this subchapter, the 
term ``patronage dividend'' means an amount paid to a patron by 
an organization to which part I of this subchapter applies--
          (1) * * *

           *       *       *       *       *       *       *

Such term does not include any amount paid to a patron to the 
extent that (A) such amount is out of earnings other than from 
business done with or for patrons, or (B) such amount is out of 
earnings from business done with or for other patrons to whom 
no amounts are paid, or to whom smaller amounts are paid, with 
respect to substantially identical transactions. For purposes 
of paragraph (3), net earnings shall not be reduced by amounts 
paid during the year as dividends on capital stock or other 
proprietary capital interests of the organization to the extent 
that the articles of incorporation or bylaws of such 
organization or other contract with patrons provide that such 
dividends are in addition to amounts otherwise payable to 
patrons which are derived from business done with or for 
patrons during the taxable year.

           *       *       *       *       *       *       *

Subtitle B--Estate and Gift Taxes

           *       *       *       *       *       *       *

CHAPTER 11--ESTATE TAX

           *       *       *       *       *       *       *

Subchapter B--Estates of Nonresidents Not Citizens

           *       *       *       *       *       *       *

SEC. 2107. EXPATRIATION TO AVOID TAX.

  [(a) Treatment of Expatriates.--
          [(1) Rate of tax.--A tax computed in accordance with 
        the table contained in section 2001 is hereby imposed 
        on the transfer of the taxable estate, determined as 
        provided in section 2106, of every decedent nonresident 
        not a citizen of the United States if, within the 10-
        year period ending with the date of death, such 
        decedent lost United States citizenship, unless such 
        loss did not have for one of its principal purposes the 
        avoidance of taxes under this subtitle or subtitle A--
          [(2) Certain individuals treated as having tax 
        avoidance purpose.--
                  [(A) In general.--For purposes of paragraph 
                (1), an individual shall be treated as having a 
                principal purpose to avoid such taxes if such 
                individual is so treated under section 
                877(a)(2).
                  [(B) Exception.--Subparagraph (A) shall not 
                apply to a decedent meeting the requirements of 
                section 877(c)(1).]
  (a) Treatment of Expatriates.--A tax computed in accordance 
with the table contained in section 2001 is hereby imposed on 
the transfer of the taxable estate, determined as provided in 
section 2106, of every decedent nonresident not a citizen of 
the United States if the date of death occurs during a taxable 
year with respect to which the decedent is subject to tax under 
section 877(b).

           *       *       *       *       *       *       *

                      Subchapter C--Miscellaneous

        Sec. 2201. Combat zone-related deaths of members of the Armed 
                  Forces, deaths of astronauts, and deaths of victims of 
                  certain terrorist attacks.
     * * * * * * *

SEC. 2201. COMBAT ZONE-RELATED DEATHS OF MEMBERS OF THE ARMED FORCES, 
                    DEATHS OF ASTRONAUTS, AND DEATHS OF VICTIMS OF 
                    CERTAIN TERRORIST ATTACKS.

  (a) * * *
  (b) Qualified Decedent.--For purposes of this section, the 
term ``qualified decedent'' means--
          (1) any citizen or resident of the United States 
        dying while in active service of the Armed Forces of 
        the United States, if such decedent--
                  (A) * * *
                  (B) died as a result of wounds, disease, or 
                injury suffered while serving in a combat zone 
                (as determined under section 112(c)), and while 
                in the line of duty, by reason of a hazard to 
                which such decedent was subjected as an 
                incident of such service, [and]
          (2) any specified terrorist victim (as defined in 
        section 692(d)(4))[.], and
          (3) any astronaut whose death occurs while on a space 
        mission.

           *       *       *       *       *       *       *

CHAPTER 12--GIFT TAX

           *       *       *       *       *       *       *

Subchapter A--Determination of Tax Liability

           *       *       *       *       *       *       *

SEC. 2501. IMPOSITION OF TAX.

  (a) Taxable Transfers.--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Transfers of certain stock.--
                  (A) In general.--Paragraph (3) shall not 
                apply to the transfer of stock described in 
                subparagraph (B) by any individual to whom 
                section 877(b) applies, and section 2511(a) 
                shall be applied without regard to whether such 
                stock is property which is situated within the 
                United States.
                  (B) Valuation.--For purposes of subparagraph 
                (A), the value of stock shall be determined as 
                provided in section 2103, except that--
                          (i) if the donor owned (within the 
                        meaning of section 958(a)) at the time 
                        of such transfer 10 percent or more of 
                        the total combined voting power of all 
                        classes of stock entitled to vote of a 
                        foreign corporation, and
                          (ii) if such donor owned (within the 
                        meaning of section 958(a)), or is 
                        considered to have owned (by applying 
                        the ownership rules of section 958(b)), 
                        at the time of such transfer, more than 
                        50 percent of--
                                  (I) the total combined voting 
                                power of all classes of stock 
                                entitled to vote of such 
                                corporation, or
                                  (II) the total value of the 
                                stock of such corporation,then 
                                that proportion of the fair 
                                market value of the stock of 
                                such foreign corporation owned 
                                (within the meaning of section 
                                958(a)) by such donor at the 
                                time of such transfer, which 
                                the fair market value of any 
                                assets owned by such foreign 
                                corporation and situated in the 
                                United States, at the time of 
                                such transfer, bears to the 
                                total fair market value of all 
                                assets owned by such foreign 
                                corporation at the time of such 
                                transfer, shall be included in 
                                the value of such property.
                For purposes of the preceding sentence, a donor 
                shall be treated as owning stock of a foreign 
                corporation at the time of such transfer if, at 
                such time, by trust or otherwise, within the 
                meaning of sections 2035 to 2038, inclusive, he 
                owned such stock.

           *       *       *       *       *       *       *

Subtitle C--Employment Taxes

           *       *       *       *       *       *       *

CHAPTER 21--FEDERAL INSURANCE CONTRIBUTIONS ACT

           *       *       *       *       *       *       *

Subchapter C--General Provisions

           *       *       *       *       *       *       *

SEC. 3121. DEFINITIONS.

  (a) Wages.--For purposes of this chapter, the term ``wages'' 
means all remuneration for employment, including the cash value 
of all remuneration (including benefits) paid in any medium 
other than cash; except that such term shall not include--
          (1) * * *

           *       *       *       *       *       *       *

          (18) any payment made, or benefit furnished, to or 
        for the benefit of an employee if at the time of such 
        payment or such furnishing it is reasonable to believe 
        that the employee will be able to exclude such payment 
        or benefit from income under section 127 [or 129], 129, 
        or 134(b)(4);

           *       *       *       *       *       *       *

CHAPTER 23--FEDERAL UNEMPLOYMENT TAX ACT

           *       *       *       *       *       *       *

SEC. 3306. DEFINITIONS.

  (a) * * *
  (b) Wages.--For purposes of this chapter, the term ``wages'' 
means all remuneration for employment, including the cash value 
of all remuneration (including benefits) paid in any medium 
other than cash; except that such term shall not include--
          (1) * * *

           *       *       *       *       *       *       *

          (13) any payment made, or benefit furnished, to or 
        for the benefit of an employee if at the time of such 
        payment or such furnishing it is reasonable to believe 
        that the employee will be able to exclude such payment 
        or benefit from income under section 127 [or 129], 129, 
        or 134(b)(4);

           *       *       *       *       *       *       *

CHAPTER 24--COLLECTION OF INCOME TAX AT SOURCE ON WAGES

           *       *       *       *       *       *       *

Subchapter A--Withholding from Wages

           *       *       *       *       *       *       *

SEC. 3401. DEFINITIONS.

  (a) Wages.--For purposes of this chapter, the term ``wages'' 
means all remuneration (other than fees paid to a public 
official) for services performed by an employee for his 
employer, including the cash value of all remuneration 
(including benefits) paid in any medium other than cash; except 
that such term shall not include remuneration paid--
          (1) * * *

           *       *       *       *       *       *       *

          (18) for any payment made, or benefit furnished, to 
        or for the benefit of an employee if at the time of 
        such payment or such furnishing it is reasonable to 
        believe that the employee will be able to exclude such 
        payment or benefit from income under section 127 [or 
        129], 129, or 134(b)(4);

           *       *       *       *       *       *       *

Subtitle D--Miscellaneous Excise Taxes

           *       *       *       *       *       *       *

CHAPTER 32--MANUFACTURERS EXCISE TAXES

           *       *       *       *       *       *       *

Subchapter A--Automotive and Related Items

           *       *       *       *       *       *       *

PART III--PETROLEUM PRODUCTS

           *       *       *       *       *       *       *

Subpart A--Gasoline and Diesel Fuel

           *       *       *       *       *       *       *

SEC. 4081. IMPOSITION OF TAX.

  (a) Tax Imposed.--
          (1) * * *
          (2) Rates of tax.--
                  (A) In general.--The rate of the tax imposed 
                by this section is--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) in the case of diesel fuel or 
                        kerosene, 24.3 cents per gallon (19.7 
                        cents per gallon in the case of a 
                        diesel-water fuel emulsion at least 14 
                        percent of which is water).

           *       *       *       *       *       *       *

Subchapter C--Certain Vaccines

           *       *       *       *       *       *       *

SEC. 4132. DEFINITIONS AND SPECIAL RULES.

  (a) Definitions Relating to Taxable Vaccines.--For purposes 
of this subchapter--
          (1) Taxable vaccine.--The term ``taxable vaccine'' 
        means any of the following vaccines which are 
        manufactured or produced in the United States or 
        entered into the United States for consumption, use, or 
        warehousing:
                  (A) * * *

           *       *       *       *       *       *       *

                  (I) Any vaccine against hepatitis A.
                  [(I)] (J) Any vaccine against hepatitis B.
                  [(J)] (K) Any vaccine against chicken pox.
                  [(K)] (L) Any vaccine against rotavirus 
                gastroenteritis.
                  [(L)] (M) Any conjugate vaccine against 
                streptococcus pneumoniae.

           *       *       *       *       *       *       *

Subchapter D--Recreational Equipment

           *       *       *       *       *       *       *

PART I--SPORTING GOODS

           *       *       *       *       *       *       *

SEC. 4161. IMPOSITION OF TAX.

  (a) * * *
  (b) Bows and Arrows, Etc.--
          [(1) Bows.--
                  [(A) In general.--There is hereby imposed on 
                the sale by the manufacturer, producer, or 
                importer of any bow which has a draw weight of 
                10 pounds or more, a tax equal to 11 percent of 
                the price for which so sold.
                  [(B) Parts and accessories.--There is hereby 
                imposed upon the sale by the manufacturer, 
                producer, or importer--
                          [(i) of any part of accessory 
                        suitable for inclusion in or attachment 
                        to a bow described in subparagraph (A), 
                        and
                          [(ii) of any quiver suitable for use 
                        with arrows described in paragraph (2), 
                        a tax equivalent to 11 percent of the 
                        price for which so sold.]
          (1) Bows.--
                  (A) In general.--There is hereby imposed on 
                the sale by the manufacturer, producer, or 
                importer of any bow which has a draw weight of 
                30 pounds or more, a tax equal to 11 percent of 
                the price for which so sold.
                  (B) Archery equipment.--There is hereby 
                imposed on the sale by the manufacturer, 
                producer, or importer--
                          (i) of any part or accessory suitable 
                        for inclusion in or attachment to a bow 
                        described in subparagraph (A), and
                          (ii) of any quiver or broadhead 
                        suitable for use with an arrow 
                        described in paragraph (3),
                a tax equal to 11 percent of the price for 
                which so sold.
          (2) [Arrows] Arrow components.--There is hereby 
        imposed on the sale by the manufacturer, producer, or 
        importer of any shaft, point, nock, or vane of a type 
        used in the manufacture of any arrow which after its 
        assembly--
                  (A) * * *

           *       *       *       *       *       *       *

          (3) Arrows.--
                  (A) In general.--There is hereby imposed on 
                the sale by the manufacturer, producer, or 
                importer of any arrow, a tax equal to 12 
                percent of the price for which so sold.
                  (B) Exception.--The tax imposed by 
                subparagraph (A) on an arrow shall not apply if 
                the arrow contains an arrow shaft subject to 
                the tax imposed by paragraph (2).
                  (C) Arrow.--For purposes of this paragraph, 
                the term ``arrow'' means any shaft described in 
                paragraph (2) to which additional components 
                are attached.
          [(3)] (4) Coordination with subsection (a).--No tax 
        shall be imposed under this subsection with respect to 
        any article taxable under subsection (a).

           *       *       *       *       *       *       *

SEC. 4162. DEFINITIONS; TREATMENT OF CERTAIN RESALES.

  (a) Sport Fishing Equipment Defined.--For purposes of this 
part, the term ``sport fishing equipment'' means--
          (1) * * *

           *       *       *       *       *       *       *

          (6) the following items of fishing supplies and 
        accessories--
                  (A) fish stringers,
                  (B) creels,
                  [(C) tackle boxes,]
                  [(D)] (C) bags, baskets, and other containers 
                designed to hold fish,
                  [(E)] (D) portable bait containers,
                  [(F)] (E) fishing vests,
                  [(G)] (F) landing nets,
                  [(H)] (G) gaff hooks,
                  [(I)] (H) fishing hook disgorgers, and
                  [(J)] (I) dressing for fishing lines and 
                artificial flies,

           *       *       *       *       *       *       *

Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *

CHAPTER 61--INFORMATION AND RETURNS

           *       *       *       *       *       *       *

Subchapter A--Returns and Records

           *       *       *       *       *       *       *

PART II--TAX RETURNS OR STATEMENTS

           *       *       *       *       *       *       *

Subpart B--Income Tax Returns

           *       *       *       *       *       *       *

SEC. 6013. JOINT RETURNS OF INCOME TAX BY HUSBAND AND WIFE.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Joint Return Where Individual is in Missing Status.--For 
purposes of this section and subtitle A--
          (1) * * *
          (2) Effect of election.--If the spouse of an 
        individual described in paragraph (1)(A) elects to file 
        a joint return under subsection (a) for a taxable year, 
        then, until such election is revoked--
                  (A) such election shall be valid even if such 
                individual died before the beginning of such 
                year, and
                  (B) except for purposes of section 692 
                (relating to income taxes of members of the 
                Armed Forces, astronauts, and victims of 
                certain terrorist attacks on death), the income 
                tax liability of such individual, his spouse, 
                and his estate shall be determined as if he 
                were alive throughout the taxable year.

           *       *       *       *       *       *       *

PART III--INFORMATION RETURNS

           *       *       *       *       *       *       *

Subpart A--Information Concerning Persons Subject to Special Provisions

           *       *       *       *       *       *       *

SEC. 6039G. INFORMATION ON INDIVIDUALS LOSING UNITED STATES 
                    CITIZENSHIP.

  [(a) In General.--Notwithstanding any other provision of law, 
any individual who loses United States citizenship (within the 
meaning of section 877(a) shall provide a statement which 
includes the information described in subsection (b). Such 
statement shall be--
          [(1) provided not later than the earliest date of any 
        act referred to in subsection (c), and
          [(2) provided to the person or court referred to in 
        subsection (c) with respect to such act.
  [(b) Information to be Provided.--Information required under 
subsection (a) shall include--
          [(1) the taxpayer's TIN,
          [(2) the mailing address of such individual's 
        principal foreign residence,
          [(3) the foreign country, in which such individual is 
        residing,
          [(4) the foreign country of which such individual is 
        a citizen.
          [(5) in the case of an individual having a net worth 
        of at least the dollar amount applicable under section 
        877(a)(2)(B), information detailing the assets and 
        liabilities of such individual, and
          [(6) such other information as the Secretary may 
        prescribe.
  [(c) Acts described.--For purposes of this section, the acts 
referred to in this subsection are--
          [(1) the individual's renunciation of 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)),
          [(2) the individual's furnishing 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)),
          [(3) the issuance by the United States Department of 
        State of a certificate of loss of nationality to the 
        individual, or
          [(4) the cancellation by a court of the United States 
        of a naturalized citizen's certificate of 
        naturalization.
  [(d) Penalty.--Any individual failing to provide a statement 
required under subsection (a) shall be subject to a penalty for 
each year (of the 10-year period beginning on the date of loss 
of United States citizenship) during any portion of which such 
failure continues in an amount equal to the greater of--
          [(1) 5 percent of the tax required to be paid under 
        section 877 for the taxable year ending during such 
        year, or
          [(2) $1,000,unless it is shown that such failure is 
        due to reasonable cause and not to willful neglect.]
  (a) In General.--Notwithstanding any other provision of law, 
any individual to whom section 877(b) applies for any taxable 
year shall provide a statement for such taxable year which 
includes the information described in subsection (b).
  (b) Information To Be Provided.--Information required under 
subsection (a) shall include--
          (1) the taxpayer's TIN,
          (2) the mailing address of such individual's 
        principal foreign residence,
          (3) the foreign country, in which such individual is 
        residing,
          (4) the foreign country of which such individual is a 
        citizen,
          (5) information detailing the assets and liabilities 
        of such individual,
          (6) the number of days that the individual was 
        present in the United States during the taxable year, 
        and
          (7) such other information as the Secretary may 
        prescribe.
  (c) Penalty.--If--
          (1) an individual is required to file a statement 
        under subsection (a) for any taxable year, and
          (2) fails to file such a statement with the Secretary 
        on or before the date such statement is required to be 
        filed or fails to include all the information required 
        to be shown on the statement or includes incorrect 
        information,
such individual shall pay a penalty of $5,000 unless it is 
shown that such failure is due to reasonable cause and not to 
willful neglect.
  [(e)] (d) Information to be Provided to Secretary.--
Notwithstanding any other provision of law--
          (1) * * *

           *       *       *       *       *       *       *

  [(f) Reporting by Long-Term Lawful Permanent Residents who 
Cease to be Taxed as Residents.--In lieu of applying the last 
sentence of subsection (a), any individual who is required to 
provide a statement under this section by reason of section 
877(e)(1) shall provide such statement with the return of tax 
imposed by chapter 1 for the taxable year during which the 
event described in such section occurs.
  [(g) Exemption.--The Secretary may by regulations exempt any 
class of individuals from the requirements of this section if 
he determines that applying this section to such individuals is 
not necessary to carry out the purposes of this section.]

           *       *       *       *       *       *       *

CHAPTER 65--ABATEMENTS, CREDITS, AND REFUNDS

           *       *       *       *       *       *       *

Subchapter B--Rules of Special Application

           *       *       *       *       *       *       *

SEC. 6427. FUELS NOT USED FOR TAXABLE PURPOSES.

  (a) * * *

           *       *       *       *       *       *       *

  (m) Diesel Fuel Used To Produce Emulsion.--
          (1) In general.--Except as provided in subsection 
        (k), if any diesel fuel on which tax was imposed by 
        section 4081 at the regular tax rate is used by any 
        person in producing an emulsion described in section 
        4081(a)(2)(A) which is sold or used in such person's 
        trade or business, the Secretary shall pay (without 
        interest) to such person an amount equal to the excess 
        of the regular tax rate over the incentive tax rate 
        with respect to such fuel.
          (2) Definitions.--For purposes of paragraph (1)--
                  (A) Regular tax rate.--The term ``regular tax 
                rate'' means the aggregate rate of tax imposed 
                by section 4081 determined without regard to 
                the parenthetical in section 4081(a)(2)(A).
                  (B) Incentive tax rate.--The term ``incentive 
                tax rate'' means the aggregate rate of tax 
                imposed by section 4081 determined with regard 
                to the parenthetical in section 4081(a)(2)(A).
  [(m)] (n) Regulations.--The Secretary may by regulations 
prescribe the conditions, not inconsistent with the provisions 
of this section, under which payments may be made under this 
section.
  [(n)] (o) Payments for Taxes Imposed by Section 4041(d).--For 
purposes of subsections (a), (b), and (c), the taxes imposed by 
section 4041(d) shall be treated as imposed by section 4041(a).
  [(o)] (p) Gasohol Used in Noncommercial Aviation.--Except as 
provided in subsection (k), if--
          (1) * * *

           *       *       *       *       *       *       *

  [(p)] (q) Cross references.--
          (1) * * *
     * * * * * * *

                  CHAPTER 77--MISCELLANEOUS PROVISIONS

        Sec. 7501. Liability for taxes withheld or collected.
     * * * * * * *
        Sec. 7508. Time for performing certain acts postponed by reason 
                  of service in combat zone or contingency operation.
     * * * * * * *

SEC. 7508. TIME FOR PERFORMING CERTAIN ACTS POSTPONED BY REASON OF 
                    SERVICE IN COMBAT ZONE OR CONTINGENCY OPERATION.

  (a) Time to be Disregarded.--In the case of an individual 
serving in the Armed Forces of the United States, or serving in 
support of such Armed Forces, in an area designated by the 
President of the United States by Executive order as a ``combat 
zone'' for purposes of section 112 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, at any time 
during the period designated by the President by Executive 
order as the period of combatant activities in such zone for 
purposes of such section or at any time during the period of 
such contingency operation, or hospitalized as a result of 
injury received while serving in such an area or operation 
during such time, the period of service in such area or 
operation, plus the period of continuous qualified 
hospitalization attributable to such injury, and the next 180 
days thereafter, shall be disregarded in determining, under the 
internal revenue laws, in respect of any tax liability 
(including any interest, penalty, additional amount, or 
addition to the tax) of such individual--
          (1) * * *

           *       *       *       *       *       *       *

  (d) Missing Status.--The period of service in the area or 
contingency operation referred to in subsection (a) shall 
include the period during which an individual entitled to 
benefits under subsection (a) is in a missing status, within 
the meaning of section 6013(f)(3).

           *       *       *       *       *       *       *

CHAPTER 79--DEFINITIONS

           *       *       *       *       *       *       *

SEC. 7701. DEFINITIONS.

  (a) * * *

           *       *       *       *       *       *       *

  (n) Special Rules for Determining When an Individual is no 
Longer a United States Citizen or Long-Term Resident.--An 
individual who would not (but for this subsection) be treated 
as a citizen or resident of the United States shall continue to 
be treated as a citizen or resident of the United States until 
such individual--
          (1) gives notice of an expatriating act or 
        termination of residency (with the requisite intent to 
        relinquish citizenship or terminate residency) to the 
        Secretary of State or the Secretary of Homeland 
        Security, and
          (2) provides a statement in accordance with section 
        6039G.
  [(n)] (o) Cross References.--
          (1) * * *
                         VII. ADDITIONAL VIEWS

    We support immediate enactment of the Armed Services Tax 
Fairness Act of 2003. H.R. 878 would provide important tax 
relief to the men and women serving in our military and show 
our support for their personal sacrifices in defense of our 
Nation.
    This legislation should have been approved by the Congress 
and sent to the President for signature last year. However, it 
was not completed then because of the Republicans' refusal to 
support the Senate's provision to address individual 
expatriates leaving the country to avoid taxes.
    As the Committee on Ways and Means considered the 
legislation this year, unfortunately, we found that it had been 
designated as the ``2003 tax Christmas tree'' where Members 
could add-on whatever unrelated tax provisions they wanted. 
This is just plain irresponsible and an insult to our Armed 
Forces.
    H.R. 878, as introduced and presented to the Committee for 
approval, was a noncontroversial, bipartisan bill. Its sole 
purpose and goal was to provide tax relief to men and women in 
the uniformed services serving abroad. We do not agree with the 
Committee Chairman's decision to throw out the bipartisan 
spirit and support for the bill--just to give his Republican 
Members a chance in 2003 to put forward any tax amendment, even 
if totally unrelated to military tax relief. This decision puts 
real tax relief for the men and women of our Armed Services at 
great risk. These games are being played at the very time our 
Armed Forces may be asked to sacrifice their lives in order to 
defend our Nation.
    A much better approach to consideration of this bill would 
have been to pass H.R. 878 without amendment or to pass the 
bill as approved by the Senate Finance Committee earlier this 
year. The Democrats' substitute amendment would have 
accomplished this goal. Had our amendment been adopted, 
significant tax relief for our military could have moved 
quickly through the Senate and to the President for signature.
    We were not alone in our concern that the Armed Services 
Tax Fairness Act should not be used as a special interest 
``gameboard.'' Even the Republican House Budget Committee 
Chairman joined us in calling repeatedly for the Committee to 
refrain from offering totally extraneous amendments that could 
delay tax relief to the men and women serving our Country. 
Together we argued that it was critically important that we do 
not jeopardize tax relief for members of the Armed Services who 
potentially could be fighting in Iraq within a month.
    Our calls for restraint were ignored. More than $300 
million in unrelated, special interest tax breaks were added to 
the bill by the Republicans. Among those offered and approved 
were (1) a tax break for foreigners who place bets outside the 
United States on U.S. horse races, (2) a special tax rate on 
fuel that is a blend of diesel fuel and water benefitting the 
few companies that manufacture such fuels, (3) a tax break to 
benefit manufacturers of fishing tackle boxes, (4) a tax break 
to benefit landowners who sell timber from their land, (5) an 
extension of the time allowed for ranchers to utilize a tax 
break for the weather-related sale of livestock, and (6) a tax 
break for several varieties of archery bows. While some may 
believe in the merits of one or more of these amendments, the 
Armed Services Tax Fairness Act is not the proper place or time 
for their consideration.
    One particularly offensive amendment, which was described 
when offered as a ``technical correction'' to the health tax 
credit provisions included in the Trade Act of 2002, is nothing 
more than a thinly-veiled attempt to gut the few consumer 
protections that were included in that legislation. The 
practical effect of this amendment is to negate a carefully 
constructed compromise reached during the conference 
negotiation on the Trade Act which specified the coverage 
options available for individuals who are eligible for the 
Trade Adjustment Assistance (TAA) health tax credit and 
required insurance companies and other sponsors of coverage 
under specified state pooling arrangements to (1) issue a 
policy without exclusions for pre-existing conditions, (2) 
limit the premium to what would be charged to other similarly 
situated individuals, and (3) to offer benefits to TAA-
eligibles that are substantially similar to those offered to 
other individuals. These protections, which would substantially 
limit the ability of insurance companies to turn down 
applicants or otherwise seek to cover only the healthiest 
individuals, are critical if persons with any type of current 
or potential health condition are to be able to actually use 
the tax credit toward the purchase of meaningful coverage. 
Under the guise of consumer choice, this amendment overrides 
these important federal protections. All Republican members of 
the Committee voted for these safeguards just seven months ago.
    Further, the bill, as passed the Committee, includes $662 
million less tax relief than the similar Senate Finance 
Committee-passed bill for National Guard and Reserve members 
who have to travel more than 100 miles from home. The 
Committee's bill caps the deduction for overnight travel 
expenses at $500. The Senate Finance Committee's bill covers 
all such expenses.
    We strongly believe that tax relief for the military needs 
to move forward, but do not believe it was appropriate to use 
this vehicle, H.R. 878, to enact provisions unrelated to 
Americans serving overseas. The Committee should have approved 
legislation identical to that reported by the Senate Finance 
Committee. If we had done that, the bill could have been on the 
President's desk in a short period of time and tax relief for 
our Armed Services a reality.

                                   Charles B. Rangel.
                                   Jerry Kleczka.
                                   Xavier Becerra.
                                   Jim McDermott.
                                   Stephanie Tubbs Jones.
                                   Michael R. McNulty.
                                   Robert T. Matsui.
                                   Ben Cardin.
                                   Pete Stark.
                                   John Lewis.
                                   Sander Levin.
                                   Richard Neal.
                                   William J. Jefferson.
                                   Lloyd Doggett.
                                   Max Sandlin.
                                   John S. Tanner.

                                
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