19–008

108TH CONGRESS REPORT " HOUSE OF REPRESENTATIVES ! 1st Session 108–25

PROVIDING FOR CONSIDERATION OF H.R. 878, ARMED 

FORCES TAX FAIRNESS ACT OF 2003

MARCH 5, 2003.—Referred to the House Calendar and ordered to be printed 

Mrs. MYRICK, from the Committee on Rules, 

submitted the following 

R E P O R T 

[To accompany H. Res. 126]

The Committee on Rules, having had under consideration House 

Resolution 126, by a record vote of 6 to 4, report the same to the 

House with the recommendation that the resolution be adopted. 

SUMMARY OF PROVISIONS OF THE RESOLUTION

The resolution provides for the consideration of H.R. 878, the 

Armed Forces Tax Fairness Act of 2003, under a closed rule. The 

rule provides one hour of debate in the House equally divided and 

controlled by the chairman and ranking minority member of the 

Committee on Ways and Means. The rule waives all points of order 

against consideration of the bill. 

The rule provides that the amendment recommended by the 

Committee on Ways and Means now printed in the bill, modified 

by the amendment printed in this report, shall be considered as 

adopted. Finally, the rule provides one motion to recommit with or 

without instructions. 

The waiver of all points of order against consideration of the bill 

includes a waiver of clause 4(a)(1) of rule XIII (requiring a threeday layover of the committee report). The waiver is needed because 

the Committee on Ways and Means report (H. Rept. 108–23) was 

not filed until Wednesday, March 5, 2003 and the bill may be considered in the House as early as Thursday, March 6, 2003. 

COMMITTEE VOTES

Pursuant to clause 3(b) of House rule XIII the results of each 

record vote on an amendment or motion to report, together with 

the names of those voting for and against, are printed below: 

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Rules Committee record vote No. 7

Date: March 5, 2003. 

Measure: H.R. 878, Armed Forces Tax Fairness Act of 2003. 

Motion by: Mr. Frost. 

Summary of motion: To make in order the amendment offered by Representative Rangel which provides $851 million in tax relief for 

the National Guard and Reserves over the next 10 years. Includes 

an exclusion of gain from the sale of a principal residence by a 

member of the uniformed services or the foreign service. Exempts 

from gross income certain death gratuity payments. Includes taxfree treatment for amounts received under the DOD homeowners 

assistance program. Expands combat zone filing rules to contingency operations. Modifies the membership requirement for exemption from tax for certain veterans’ organizations. Clarifies the treatment of certain dependent care assistance programs. Suspends taxexempt status of terrorist organizations. Provides capital gains relief for sales of principal residences for members of the military. 

Extend IRS user fees. Provides for partial payment of tax liability 

installment agreements. Denies certain tax benefits to individuals 

when they renounce their US citizenship for tax purposes. 

Results: Defeated 4 to 6. 

Vote by Members: Goss—Nay; Linder—Nay; Myrick—Nay; Sessions—Nay; Reynolds—Nay; Frost—Yea; Slaughter—Yea; McGovern—Yea; Hastings (FL)—Yea; Dreier—Nay. 

Rules Committee record vote No. 8

Date: March 5, 2003. 

Measure: H.R. 878, Armed Forces Tax Fairness Act of 2003. 

Motion by: Mr. Frost. 

Summary of motion: To make in order the amendment offered by 

Representatives Frost and Hefley which extends to civilian employees of the DOD serving in combat zones the tax treatment given 

to members of the Armed Forces serving in the same combat zones. 

Ensures that additional estate tax will not apply to civilian employees in case of death. Provides that no tax on telephone calls originating in a combat zone will apply to civilian employee phone calls. 

Results: Defeated 4 to 6. 

Vote by Members: Goss—Nay; Linder—Nay; Myrick—Nay; Sessions—Nay; Reynolds—Nay; Frost—Yea; Slaughter—Yea; McGovern—Yea; Hastings (FL)—Yea; Dreier—Nay. 

Rules Committee record vote No. 9

Date: March 5, 2003. 

Measure: H.R. 878, Armed Forces Tax Fairness Act of 2003. 

Motion by: Mr. Frost. 

Summary of motion: To make in order the amendment offered by 

Representative Frost which allows the INS to conduct citizenship 

interviews and other ceremonies for military personnel stationed 

abroad. Reduces from three years to two years the amount of military service required for citizenship and exempt non-citizen personnel from paying fees related to naturalization. 

Results: Defeated 4 to 6. 

Vote by Members: Goss—Nay; Linder—Nay; Myrick—Nay; Sessions—Nay; Reynolds—Nay; Frost—Yea; Slaughter—Yea; McGovern—Yea; Hastings (FL)—Yea; Dreier—Nay.

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Rules Committee record vote No. 10

Date: March 5, 2003. 

Measure: H.R. 878, Armed Forces Tax Fairness Act of 2003. 

Motion by: Mr. Frost. 

Summary of motion: To make in order the amendment offered by Representative Frost which removes the $500 cap on the amount 

of overnight travel expenses that can be deducted by the National 

Guard and Reserves. 

Vote by Members: Goss—Nay; Linder—Nay; Myrick—Nay; Sessions—Nay; Reynolds—Nay; Frost—Yea; Slaughter—Yea; McGovern—Yea; Hastings (FL)—Yea; Dreier—Nay. 

Rules Committee record vote No. 11

Date: March 5, 2003. 

Measure: H.R. 878, Armed Forces Tax Fairness Act of 2003. 

Motion by: Mrs. Slaughter. 

Summary of motion: To make in order the amendment offered by 

Delegate Bordallo which reconciles the discrepancy in the Internal 

Revenue Code between coordination of withholding taxes for members of the Armed Forces on temporary duty for more than 30 days 

in a U.S. Territory with those duty stationed therein. 

Results: Defeated 4 to 6. 

Vote by Members: Goss—Nay; Linder—Nay; Myrick—Nay; Sessions—Nay; Reynolds—Nay; Frost—Yea; Slaughter—Yea; McGovern—Yea; Hastings (FL)—Yea; Dreier—Nay. 

Rules Committee record vote No. 12

Date: March 5, 2003. 

Measure: H.R. 878, Armed Forces Tax Fairness Act of 2003. 

Motion by: Mr. McGovern. 

Summary of motion: To make in order the amendment offered by 

Representative McGovern which denies tax benefits to former 

American companies that reincorporate offshore to avoid U.S. income taxes. Applies to any corporate expatriation transaction completed after September 11, 2001. Applies to any corporate expatriation transaction prior to September 11, 2001, but only with respect 

to taxable years beginning after December 31, 2003. 

Results: Defeated 4 to 6.

Vote by Members: Goss—Nay; Linder—Nay; Myrick—Nay; Sessions—Nay; Reynolds—Nay; Frost—Yea; Slaughter—Yea; McGovern—Yea; Hastings (FL)—Yea; Dreier—Nay. 

Rules Committee record vote No. 13

Date: March 5, 2003. 

Measure: H.R. 878, Armed Forces Tax Fairness Act of 2003. 

Motion by: Mr. McGovern. 

Summary of motion: To make in order the amendment offered by 

Representative McGovern which requires the President to report to 

Congress specific information relating to certain possible costs and 

consequences of the use of United States Armed Forces against 

Iraq. 

Results: Defeated 4 to 6. 

Vote by Members: Goss—Nay; Linder—Nay; Myrick—Nay; Sessions—Nay; Reynolds—Nay; Frost—Yea; Slaughter—Yea; McGovern—Yea; Hastings (FL)—Yea; Dreier—Nay. 

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Rules Committee record vote No. 14

Date: March 5, 2003. 

Measure: H.R. 878, Armed Forces Tax Fairness Act of 2003. 

Motion by: Mr. Hastings of Florida. 

Summary of motion: To make in order the amendment offered by 

Representative Jefferson which allows that in addition to the exclusion from gross income allowed under Tax Code section 112 (combat zone compensation), for reservists and or their spouse to exclude up to $30,000 of income, provided the section 112 compensation does not exceed $40,000. Extends the benefits of section 112 

to civilian employees of the DOD. 

Results: Defeated 4 to 6. 

Vote by Members: Goss—Nay; Linder—Nay; Myrick—Nay; Sessions—Nay; Reynolds—Nay; Frost—Yea; Slaughter—Yea; McGovern—Yea; Hastings (FL)—Yea; Dreier—Nay. 

Rules Committee record vote No. 15

Date: March 5, 2003. 

Measure: H.R. 878, Armed Forces Tax Fairness Act of 2003. 

Motion by: Mr. Goss. 

Summary of motion: To report the resolution. 

Results: Agreed to 6 to 4. 

Vote by Members: Goss—Yea; Linder—Yea; Myrick—Yea; Sessions—Yea; Reynolds—Yea; Frost—Nay; Slaughter—Nay; McGovern—Nay; Hastings (FL)—Nay; Dreier—Yea.

SUMMARY OF AMENDMENT CONSIDERED AS ADOPTED

(Summary derived from information provided by amendment 

sponsors.) 

McInnis/Johnson (CT)/Houghton—Provides a two-year moratorium on corporate inversions where the corporation has done little 

more than change its corporate residence for tax purposes. Provides 

that modifications made in the underlying bill to the orphan drug 

tax credit will expire after December 31, 2010. Provides that it is 

the sense of Congress that the tax laws of the United States are 

overly complex and burdensome and that tax reform is needed to 

address the issue of corporate expatriation. 

TEXT OF AMENDMENT CONSIDERED AS ADOPTED

Redesignate section 302 as section 304 and insert after section 

301 the following new sections (and conform the table of contents 

accordingly): 

SEC. 302. TAX TREATMENT OF CORPORATE EXPATRIATION. 

(a) IN GENERAL.—Subchapter C of chapter 80 (relating to provisions affecting more than one subtitle) is amended by adding at the 

end the following new section: 

‘‘SEC. 7874. TAX TREATMENT OF CORPORATE EXPATRIATION. 

‘‘(a) INVERTED CORPORATIONS TREATED AS DOMESTIC CORPORATIONS.—

‘‘(1) IN GENERAL.—If a foreign incorporated entity is treated 

as an inverted domestic corporation, then, notwithstanding section 7701(a)(4), such entity shall be treated for purposes of this 

title as a domestic corporation. 

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‘‘(2) INVERTED DOMESTIC CORPORATION.—For purposes of this 

section, a foreign incorporated entity shall be treated as an inverted domestic corporation if, pursuant to a plan (or a series 

of related transactions)—

‘‘(A) the entity completes after March 4, 2003, the direct 

or indirect acquisition of substantially all of the properties 

held directly or indirectly by a domestic corporation or substantially all of the properties constituting a trade or business of a domestic partnership, 

‘‘(B) after the acquisition at least 80 percent of the stock 

(by vote or value) of the entity is held—

‘‘(i) in the case of an acquisition with respect to a domestic corporation, by former shareholders of the domestic corporation by reason of holding stock in the 

domestic corporation, or 

‘‘(ii) in the case of an acquisition with respect to a 

domestic partnership, by former partners of the domestic partnership by reason of holding a capital or 

profits interest in the domestic partnership, and 

‘‘(C) the expanded affiliated group which after the acquisition includes the entity does not have substantial business activities in the foreign country in which or under the 

law of which the entity is created or organized when compared to the total business activities of such expanded affiliated group. 

‘‘(3) TERMINATION.—This subsection shall not apply to any 

acquisition completed after December 31, 2004. 

‘‘(b) DEFINITIONS AND SPECIAL RULES.—For purposes of this section—

‘‘(1) FOREIGN INCORPORATED ENTITY.—The term ‘foreign incorporated entity’ means any entity which is, or but for subsection (a) would be, treated as a foreign corporation for purposes of this title. 

‘‘(2) EXPANDED AFFILIATED GROUP.—The term ‘expanded affiliated group’ means an affiliated group as defined in section 

1504(a) but without regard to paragraphs (2), (3), and (4) of 

section 1504(b), except that section 1504(a) shall be applied by 

substituting ‘more than 50 percent’ for ‘at least 80 percent’

each place it appears. 

‘‘(3) CERTAIN STOCK DISREGARDED.—There shall not be taken 

into account in determining ownership under subsection 

(a)(3)(B)—

‘‘(i) stock held by members of the expanded affiliated 

group which includes the foreign incorporated entity, 

or 

‘‘(ii) stock of such foreign incorporated entity which 

is sold in a public offering related to the acquisition 

described in subsection (a)(3)(A). 

‘‘(4) PLAN DEEMED IN CERTAIN CASES.—If a foreign incorporated entity acquires directly or indirectly substantially all 

of the properties of a domestic corporation or partnership during the 4-year period beginning on the date which is 2 years 

before the ownership requirements of subsection (a)(3)(B) are 

met, such actions shall be treated as pursuant to a plan. 

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‘‘(5) CERTAIN TRANSFERS DISREGARDED.—The transfer of 

properties or liabilities (including by contribution or distribution) shall be disregarded if such transfers are part of a plan 

a principal purpose of which is to avoid the purposes of this 

section. 

‘‘(6) SPECIAL RULE FOR RELATED PARTNERSHIPS.—For purposes of applying subsection (a)(3)(B) to the acquisition of a domestic partnership, except as provided in regulations, all partnerships which are under common control (within the meaning 

of section 482) shall be treated as 1 partnership. 

‘‘(7) REGULATIONS.—The Secretary shall prescribe such regulations as may be appropriate to determine whether a corporation is an inverted domestic corporation, including regulations—

‘‘(A) to treat warrants, options, contracts to acquire 

stock, convertible debt interests, and other similar interests as stock, and 

‘‘(B) to treat stock as not stock. 

‘‘(c) SPECIAL RULE FOR TREATIES.—Nothing in section 894 or 

7852(d) or in any other provision of law shall be construed as permitting an exemption, by reason of any treaty obligation of the 

United States heretofore or hereafter entered into, from the provisions of this section. 

‘‘(d) REGULATIONS.—The Secretary shall provide such regulations 

as are necessary to carry out this section, including regulations 

providing for such adjustments to the application of this section as 

are necessary to prevent the avoidance of the purposes of this section, including the avoidance of such purposes through—

‘‘(1) the use of related persons, pass-through or other noncorporate entities, or other intermediaries, or 

‘‘(2) transactions designed to have persons cease to be (or not 

become) members of expanded affiliated groups or related persons.’’. 

(b) CONFORMING AMENDMENT.—The table of sections for subchapter C of chapter 80 is amended by adding at the end the following new item:

‘‘Sec. 7874. Tax treatment of corporate expatriation.’’

(c) EFFECTIVE DATE.—The amendments made by this section 

shall apply to taxable years ending after March 4, 2003. 

SEC. 303. EXPRESSING THE SENSE OF THE CONGRESS THAT TAX REFORM IS NEEDED TO ADDRESS THE ISSUE OF CORPORATE EXPATRIATION. 

(a) FINDINGS.—The Congress finds that—

(1) the tax laws of the United States are overly complex; 

(2) the tax laws of the United States are among the most 

burdensome and uncompetitive in the world; 

(3) the tax laws of the United States make it difficult for domestically-owned United States companies to compete abroad 

and in the United States; 

(4) a domestically-owned corporation is disadvantaged compared to a United States subsidiary of a foreign-owned corporation; and 

(5) international competitiveness is forcing many United 

States corporations to make a choice they do not want to 

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make—go out of business, sell the business to a foreign competitor, or become a subsidiary of a foreign corporation (i.e., engage in an inversion transaction). 

(b) SENSE OF CONGRESS.—It is the sense of Congress that passage of legislation to fix the underlying problems with our tax laws 

is essential and should occur as soon as possible, so United States 

corporations will not face the current pressures to engage in inversion transactions. 

Subparagraph (C) of section 45C(b)(2) of the Internal Revenue 

Code of 1986 (as proposed to be added by section 208 of the bill) 

is amended by adding at the end the following new sentence: ‘‘The 

preceding sentence shall not apply with respect to any expense incurred after December 31, 2010.’’.

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