II 

110TH CONGRESS 

1ST SESSION S. 455 

To amend the Internal Revenue Code of 1986 to provide tax relief to active 

duty military personnel and employers who assist them, and for other 

purposes. 

IN THE SENATE OF THE UNITED STATES 

JANUARY 31, 2007 

Mr. KERRY introduced the following bill; which was read twice and referred 

to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

tax relief to active duty military personnel and employers 

who assist them, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Active Duty Military 

5 Tax Relief Act of 2007’’. 


bajohnson on PROD1PC61 with BILLS
2 

•S 455 IS

1 SEC. 2. CREDIT FOR INCOME DIFFERENTIAL FOR EMPLOY2 MENT OF ACTIVATED MILITARY RESERVIST 

3 AND REPLACEMENT PERSONNEL. 

4 (a) IN GENERAL.—Subpart B of part IV of sub5 chapter A of chapter 1 of the Internal Revenue Code of 

6 1986 (relating to foreign tax credit, etc.) is amended by 

7 adding at the end the following new section: 

8 ‘‘SEC. 30C. EMPLOYER WAGE CREDIT FOR ACTIVATED MILI9 TARY RESERVISTS. 

10 ‘‘(a) GENERAL RULE.—There shall be allowed as a 

11 credit against the tax imposed by this chapter for the tax12 able year an amount equal to the sum of— 

13 ‘‘(1) in the case of an eligible small business 

14 employer, the employment credit with respect to all 

15 qualified employees and qualified replacement em16 ployees of the taxpayer, plus 

17 ‘‘(2) the self-employment credit of a qualified 

18 self-employed taxpayer. 

19 ‘‘(b) EMPLOYMENT CREDIT.—For purposes of this 

20 section— 

21 ‘‘(1) QUALIFIED EMPLOYEES.— 

22 ‘‘(A) IN GENERAL.—The employment cred23 it with respect to a qualified employee of the 

24 taxpayer for any taxable year is equal to 40 

25 percent of so much of the excess (if any) paid 

26 by the taxpayer to such qualified employee of— 


bajohnson on PROD1PC61 with BILLS
3 

•S 455 IS

1 ‘‘(i) the qualified employee’s average 

2 daily qualified compensation for the tax3 able year, over 

4 ‘‘(ii) the average daily military pay 

5 and allowances received by the qualified 

6 employee during the taxable year while 

7 participating in qualified reserve compo8 nent duty to the exclusion of the qualified 

9 employee’s normal employment duties, 

10 for the aggregate number of days the qualified 

11 employee participates in qualified reserve com12 ponent duty during the taxable year (including 

13 time spent in a travel status) as does not ex14 ceed $25,000. The employment credit, with re15 spect to all qualified employees, is equal to the 

16 sum of the employment credits for each quali17 fied employee under this subsection. 

18 ‘‘(B) AVERAGE DAILY QUALIFIED COM19 PENSATION AND AVERAGE DAILY MILITARY PAY

20 AND ALLOWANCES.—As used with respect to a 

21 qualified employee— 

22 ‘‘(i) the term ‘average daily qualified 

23 compensation’ means the qualified com24 pensation of the qualified employee for the 

25 taxable year divided by 365, and 


bajohnson on PROD1PC61 with BILLS
4 

•S 455 IS

1 ‘‘(ii) the term ‘average daily military 

2 pay and allowances’ means— 

3 ‘‘(I) the amount paid to the 

4 qualified employee during the taxable 

5 year as military pay and allowances 

6 on account of the qualified employee’s 

7 participation in qualified reserve com8 ponent duty, divided by 

9 ‘‘(II) the total number of days 

10 the qualified employee participates in 

11 qualified reserve component duty, in12 cluding time spent in travel status. 

13 ‘‘(C) QUALIFIED COMPENSATION.—When 

14 used with respect to the compensation paid to 

15 a qualified employee for any period during 

16 which the qualified employee participates in 

17 qualified reserve component duty, the term 

18 ‘qualified compensation’ means— 

19 ‘‘(i) compensation which is normally 

20 contingent on the qualified employee’s 

21 presence for work and which would be de22 ductible from the taxpayer’s gross income 

23 under section 162(a)(1) if the qualified 

24 employee were present and receiving such 

25 compensation, 


bajohnson on PROD1PC61 with BILLS
5 

•S 455 IS

1 ‘‘(ii) compensation which is not char2 acterized by the taxpayer as vacation or 

3 holiday pay, or as sick leave or pay, or as 

4 any other form of pay for a nonspecific 

5 leave of absence, and with respect to which 

6 the number of days the qualified employee 

7 participates in qualified reserve component 

8 duty does not result in any reduction in 

9 the amount of vacation time, sick leave, or 

10 other nonspecific leave previously credited 

11 to or earned by the qualified employee, and 

12 ‘‘(iii) group health plan costs (if any) 

13 with respect to the qualified employee. 

14 ‘‘(D) QUALIFIED EMPLOYEE.—The term 

15 ‘qualified employee’ means a person who— 

16 ‘‘(i) has been an employee of the tax17 payer for the 91-day period immediately 

18 preceding the period during which the em19 ployee participates in qualified reserve 

20 component duty, and 

21 ‘‘(ii) is a member of the Ready Re22 serve of a reserve component of an Armed 

23 Force of the United States as defined in 

24 sections 10142 and 10101 of title 10, 

25 United States Code. 


bajohnson on PROD1PC61 with BILLS
6 

•S 455 IS

1 ‘‘(2) QUALIFIED REPLACEMENT EMPLOYEES.— 

2 ‘‘(A) IN GENERAL.—The employment cred3 it with respect to a qualified replacement em4 ployee of the taxpayer for any taxable year is 

5 equal to 40 percent of so much of the individ6 ual’s qualified compensation attributable to 

7 service rendered as a qualified replacement em8 ployee as does not exceed $15,000. The employ9 ment credit, with respect to all qualified re10 placement employees, is equal to the sum of the 

11 employment credits for each qualified replace12 ment employee under this subsection. 

13 ‘‘(B) QUALIFIED COMPENSATION.—When 

14 used with respect to the compensation paid to 

15 a qualified replacement employee, the term 

16 ‘qualified compensation’ means— 

17 ‘‘(i) compensation which is normally 

18 contingent on the qualified replacement 

19 employee’s presence for work and which is 

20 deductible from the taxpayer’s gross in21 come under section 162(a)(1), 

22 ‘‘(ii) compensation which is not char23 acterized by the taxpayer as vacation or 

24 holiday pay, or as sick leave or pay, or as 


bajohnson on PROD1PC61 with BILLS
7 

•S 455 IS

1 any other form of pay for a nonspecific 

2 leave of absence, and 

3 ‘‘(iii) group health plan costs (if any) 

4 with respect to the qualified replacement 

5 employee. 

6 ‘‘(C) QUALIFIED REPLACEMENT EM7 PLOYEE.—The term ‘qualified replacement em8 ployee’ means an individual who is hired to re9 place a qualified employee or a qualified self10 employed taxpayer, but only with respect to the 

11 period during which such employee or taxpayer 

12 participates in qualified reserve component 

13 duty, including time spent in travel status, and, 

14 in the case of a qualified employee, is receiving 

15 qualified compensation (as defined in paragraph 

16 (1)(C)) for which an employment credit is al17 lowed as determined under paragraph (1). 

18 ‘‘(c) SELF-EMPLOYMENT CREDIT.—For purposes of 

19 this section— 

20 ‘‘(1) IN GENERAL.—The self-employment credit 

21 of a qualified self-employed taxpayer for any taxable 

22 year is equal to 40 percent of so much of the excess 

23 (if any) of— 


bajohnson on PROD1PC61 with BILLS
8 

•S 455 IS

1 ‘‘(A) the qualified self-employed taxpayer’s 

2 average daily qualified compensation for the 

3 taxable year, over 

4 ‘‘(B) the average daily military pay and al5 lowances received by the taxpayer during the 

6 taxable year while participating in qualified re7 serve component duty to the exclusion of the 

8 taxpayer’s normal self-employment duties, 

9 for the aggregate number of days the taxpayer par10 ticipates in qualified reserve component duty during 

11 the taxable year (including time spent in a travel 

12 status) as does not exceed $25,000. 

13 ‘‘(2) AVERAGE DAILY QUALIFIED COMPENSA14 TION AND AVERAGE DAILY MILITARY PAY AND AL15 LOWANCES.—As used with respect to a qualified 

16 self-employed taxpayer— 

17 ‘‘(A) the term ‘average daily qualified com18 pensation’ means the qualified compensation of 

19 the qualified self-employed taxpayer for the tax20 able year divided by 365 days, and 

21 ‘‘(B) the term ‘average daily military pay 

22 and allowances’ means— 

23 ‘‘(i) the amount paid to the taxpayer 

24 during the taxable year as military pay 

25 and allowances on account of the taxVerDate Aug 31 2005 03:16 Feb 03, 2007 Jkt 059200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S455.IS S455

bajohnson on PROD1PC61 with BILLS
9 

•S 455 IS

1 payer’s participation in qualified reserve 

2 component duty, divided by 

3 ‘‘(ii) the total number of days the tax4 payer participates in qualified reserve com5 ponent duty, including time spent in travel 

6 status. 

7 ‘‘(3) QUALIFIED COMPENSATION.—When used 

8 with respect to the compensation paid to a qualified 

9 self-employed taxpayer for any period during which 

10 the qualified self-employed taxpayer participates in 

11 qualified reserve component duty, the term ‘qualified 

12 compensation’ means— 

13 ‘‘(A) the self-employment income (as de14 fined in section 1402(b) of the taxpayer which 

15 is normally contingent on the taxpayer’s pres16 ence for work, 

17 ‘‘(B) compensation which is not character18 ized by the taxpayer as vacation or holiday pay, 

19 or as sick leave or pay, or as any other form 

20 of pay for a nonspecific leave of absence, and 

21 ‘‘(C) the amount paid for insurance which 

22 constitutes medical care for the taxpayer for 

23 such year (within the meaning of section 

24 162(l)). 


bajohnson on PROD1PC61 with BILLS
10 

•S 455 IS

1 ‘‘(4) QUALIFIED SELF-EMPLOYED TAXPAYER.— 

2 The term ‘qualified self-employed taxpayer’ means a 

3 taxpayer who— 

4 ‘‘(A) has net earnings from self-employ5 ment (as defined in section 1402(a)) for the 

6 taxable year, and 

7 ‘‘(B) is a member of the Ready Reserve of 

8 a reserve component of an Armed Force of the 

9 United States. 

10 ‘‘(d) COORDINATION WITH OTHER CREDITS.—The 

11 amount of credit otherwise allowable under this chapter 

12 with respect to compensation paid to any employee shall 

13 be reduced by the credit allowed by this section with re14 spect to such employee. 

15 ‘‘(e) LIMITATIONS.— 

16 ‘‘(1) APPLICATION WITH OTHER CREDITS.— 

17 The credit allowed under subsection (a) for any tax18 able year shall not exceed the excess (if any) of— 

19 ‘‘(A) the regular tax for the taxable year 

20 reduced by the sum of the credits allowable 

21 under subpart A and sections 27, 29, and 30, 

22 over 

23 ‘‘(B) the tentative minimum tax for the 

24 taxable year. 


bajohnson on PROD1PC61 with BILLS
11 

•S 455 IS

1 ‘‘(2) DISALLOWANCE FOR FAILURE TO COMPLY

2 WITH EMPLOYMENT OR REEMPLOYMENT RIGHTS OF

3 MEMBERS OF THE RESERVE COMPONENTS OF THE

4 ARMED FORCES OF THE UNITED STATES.—No credit 

5 shall be allowed under subsection (a) to a taxpayer 

6 for— 

7 ‘‘(A) any taxable year, beginning after the 

8 date of the enactment of this section, in which 

9 the taxpayer is under a final order, judgment, 

10 or other process issued or required by a district 

11 court of the United States under section 4323 

12 of title 38 of the United States Code with re13 spect to a violation of chapter 43 of such title, 

14 and 

15 ‘‘(B) the 2 succeeding taxable years. 

16 ‘‘(3) DISALLOWANCE WITH RESPECT TO PER17 SONS ORDERED TO ACTIVE DUTY FOR TRAINING.— 

18 No credit shall be allowed under subsection (a) to a 

19 taxpayer with respect to any period by taking into 

20 account any person who is called or ordered to active 

21 duty for any of the following types of duty: 

22 ‘‘(A) Active duty for training under any 

23 provision of title 10, United States Code. 


bajohnson on PROD1PC61 with BILLS
12 

•S 455 IS

1 ‘‘(B) Training at encampments, maneu2 vers, outdoor target practice, or other exercises 

3 under chapter 5 of title 32, United States Code. 

4 ‘‘(C) Full-time National Guard duty, as 

5 defined in section 101(d)(5) of title 10, United 

6 States Code. 

7 ‘‘(f) GENERAL DEFINITIONS AND SPECIAL RULES.— 

8 For purposes of this section— 

9 ‘‘(1) ELIGIBLE SMALL BUSINESS EMPLOYER.— 

10 ‘‘(A) IN GENERAL.—The term ‘eligible 

11 small business employer’ means, with respect to 

12 any taxable year, any employer which— 

13 ‘‘(i) employed an average of 100 or 

14 fewer employees on business days during 

15 such taxable year, and 

16 ‘‘(ii) under a written plan of the em17 ployer, provides the excess amount de18 scribed in subsection (b)(1)(A) to every 

19 qualified employee of the employer. 

20 ‘‘(B) CONTROLLED GROUPS.—For pur21 poses of subparagraph (A), all persons treated 

22 as a single employer under subsection (b), (c), 

23 (m), or (o) of section 414 shall be treated as a 

24 single employer. 


bajohnson on PROD1PC61 with BILLS
13 

•S 455 IS

1 ‘‘(2) MILITARY PAY AND ALLOWANCES.—The 

2 term ‘military pay’ means pay as that term is de3 fined in section 101(21) of title 37, United States 

4 Code, and the term ‘allowances’ means the allow5 ances payable to a member of the Armed Forces of 

6 the United States under chapter 7 of that title. 

7 ‘‘(3) QUALIFIED RESERVE COMPONENT

8 DUTY.—The term ‘qualified reserve component duty’ 

9 includes only active duty performed, as designated in 

10 the reservist’s military orders, in support of a con11 tingency operation as defined in section 101(a)(13) 

12 of title 10, United States Code. 

13 ‘‘(4) CARRYBACK AND CARRYFORWARD AL14 LOWED.— 

15 ‘‘(A) IN GENERAL.—If the credit allowable 

16 under subsection (a) for a taxable year exceeds 

17 the amount of the limitation under subsection 

18 (f)(1) for such taxable year (in this paragraph 

19 referred to as the ‘unused credit year’), such 

20 excess shall be a credit carryback to the taxable 

21 year preceding the unused credit year and a 

22 credit carryforward to each of the 20 taxable 

23 years following the unused credit year. 

24 ‘‘(B) RULES.—Rules similar to the rules of 

25 section 39 shall apply with respect to the credit 


bajohnson on PROD1PC61 with BILLS
14 

•S 455 IS

1 carryback and credit carryforward under sub2 paragraph (A). 

3 ‘‘(5) CERTAIN RULES TO APPLY.—Rules similar 

4 to the rules of subsections (c), (d), and (e) of section 

5 52 shall apply.’’. 

6 (b) NO DEDUCTION FOR COMPENSATION TAKEN

7 INTO ACCOUNT FOR CREDIT.—Section 280C(a) of the In8 ternal Revenue Code of 1986 (relating to rule for employ9 ment credits) is amended— 

10 (1) by inserting ‘‘or compensation’’ after ‘‘sala11 ries’’, and 

12 (2) by inserting ‘‘30C,’’ before ‘‘45A(a),’’. 

13 (c) CONFORMING AMENDMENT.—Section 55(c)(2) of 

14 the Internal Revenue Code of 1986 is amended by insert15 ing ‘‘30C(e)(1),’’ after ‘‘30(b)(3),’’. 

16 (d) CLERICAL AMENDMENT.—The table of sections 

17 for subpart B of part IV of subchapter A of chapter 1 

18 of the Internal Revenue Code of 1986 is amended by add19 ing at the end of 30A the following new item: 

‘‘Sec. 30C. Employer wage credit for activated military reservists.’’. 

20 (e) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to amounts paid in taxable years 

22 beginning after December 31, 2006. 

23 SEC. 3. DIFFERENTIAL WAGE PAYMENTS. 

24 (a) INCOME TAX WITHHOLDING ON DIFFERENTIAL

25 WAGE PAYMENTS.— 


bajohnson on PROD1PC61 with BILLS
15 

•S 455 IS

1 (1) IN GENERAL.—Section 3401 of the Internal 

2 Revenue Code of 1986 (relating to definitions) is 

3 amended by adding at the end the following new 

4 subsection: 

5 ‘‘(h) DIFFERENTIAL WAGE PAYMENTS TO ACTIVE

6 DUTY MEMBERS OF THE UNIFORMED SERVICES.— 

7 ‘‘(1) IN GENERAL.—For purposes of subsection 

8 (a), any differential wage payment shall be treated 

9 as a payment of wages by the employer to the em10 ployee. 

11 ‘‘(2) DIFFERENTIAL WAGE PAYMENT.—For 

12 purposes of paragraph (1), the term ‘differential 

13 wage payment’ means any payment which— 

14 ‘‘(A) is made by an employer to an indi15 vidual with respect to any period during which 

16 the individual is performing service in the uni17 formed services while on active duty for a pe18 riod of more than 30 days, and 

19 ‘‘(B) represents all or a portion of the 

20 wages the individual would have received from 

21 the employer if the individual were performing 

22 service for the employer.’’. 

23 (2) EFFECTIVE DATE.—The amendment made 

24 by this subsection shall apply to remuneration paid 

25 after December 31, 2007. 


bajohnson on PROD1PC61 with BILLS
16 

•S 455 IS

1 (b) TREATMENT OF DIFFERENTIAL WAGE PAY2 MENTS FOR RETIREMENT PLAN PURPOSES.— 

3 (1) PENSION PLANS.— 

4 (A) IN GENERAL.—Section 414(u) of the 

5 Internal Revenue Code of 1986 (relating to spe6 cial rules relating to veterans’ reemployment 

7 rights under USERRA) is amended by adding 

8 at the end the following new paragraph: 

9 ‘‘(11) TREATMENT OF DIFFERENTIAL WAGE

10 PAYMENTS.— 

11 ‘‘(A) IN GENERAL.—Except as provided in 

12 this paragraph, for purposes of applying this 

13 title to a retirement plan to which this sub14 section applies— 

15 ‘‘(i) an individual receiving a differen16 tial wage payment shall be treated as an 

17 employee of the employer making the pay18 ment, 

19 ‘‘(ii) the differential wage payment 

20 shall be treated as compensation, and 

21 ‘‘(iii) the plan shall not be treated as 

22 failing to meet the requirements of any 

23 provision described in paragraph (1)(C) by 

24 reason of any contribution or benefit which 

25 is based on the differential wage payment. 


bajohnson on PROD1PC61 with BILLS
17 

•S 455 IS

1 ‘‘(B) SPECIAL RULE FOR DISTRIBU2 TIONS.— 

3 ‘‘(i) IN GENERAL.—Notwithstanding 

4 subparagraph (A)(i), for purposes of sec5 tion 401(k)(2)(B)(i)(I), 403(b)(7)(A)(ii), 

6 403(b)(11)(A), or 457(d)(1)(A)(ii), an in7 dividual shall be treated as having been 

8 severed from employment during any pe9 riod the individual is performing service in 

10 the uniformed services described in section 

11 3401(h)(2)(A). 

12 ‘‘(ii) LIMITATION.—If an individual 

13 elects to receive a distribution by reason of 

14 clause (i), the plan shall provide that the 

15 individual may not make an elective defer16 ral or employee contribution during the 6- 

17 month period beginning on the date of the 

18 distribution. 

19 ‘‘(C) NONDISCRIMINATION REQUIRE20 MENT.—Subparagraph (A)(iii) shall apply only 

21 if all employees of an employer (as determined 

22 under subsections (b), (c), (m), and (o)) per23 forming service in the uniformed services de24 scribed in section 3401(h)(2)(A) are entitled to 

25 receive differential wage payments on reasonVerDate Aug 31 2005 03:16 Feb 03, 2007 Jkt 059200 PO 00000 Frm 00017 Fmt 6652 Sfmt 6201 E:\BILLS\S455.IS S455

bajohnson on PROD1PC61 with BILLS
18 

•S 455 IS

1 ably equivalent terms and, if eligible to partici2 pate in a retirement plan maintained by the 

3 employer, to make contributions based on the 

4 payments on reasonably equivalent terms. For 

5 purposes of applying this subparagraph, the 

6 provisions of paragraphs (3), (4), and (5), of 

7 section 410(b) shall apply. 

8 ‘‘(D) DIFFERENTIAL WAGE PAYMENT.— 

9 For purposes of this paragraph, the term ‘dif10 ferential wage payment’ has the meaning given 

11 such term by section 3401(h)(2).’’. 

12 (B) CONFORMING AMENDMENT.—The 

13 heading for section 414(u) of such Code is 

14 amended by inserting ‘‘AND TO DIFFERENTIAL

15 WAGE PAYMENTS TO MEMBERS ON ACTIVE

16 DUTY’’ after ‘‘USERRA’’. 

17 (2) DIFFERENTIAL WAGE PAYMENTS TREATED

18 AS COMPENSATION FOR INDIVIDUAL RETIREMENT

19 PLANS.—Section 219(f)(1) of the Internal Revenue 

20 Code of 1986 (defining compensation) is amended 

21 by adding at the end the following new sentence: 

22 ‘‘The term ‘compensation’ includes any differential 

23 wage payment (as defined in section 3401(h)(2)).’’. 


bajohnson on PROD1PC61 with BILLS
19 

•S 455 IS

1 (3) EFFECTIVE DATE.—The amendments made 

2 by this subsection shall apply to years beginning 

3 after December 31, 2007. 

4 (c) PROVISIONS RELATING TO PLAN AMEND5 MENTS.— 

6 (1) IN GENERAL.—If this subsection applies to 

7 any plan or annuity contract amendment— 

8 (A) such plan or contract shall be treated 

9 as being operated in accordance with the terms 

10 of the plan or contract during the period de11 scribed in paragraph (2)(B)(i), and 

12 (B) except as provided by the Secretary of 

13 the Treasury, such plan shall not fail to meet 

14 the requirements of the Internal Revenue Code 

15 of 1986 or the Employee Retirement Income 

16 Security Act of 1974 by reason of such amend17 ment. 

18 (2) AMENDMENTS TO WHICH SECTION AP19 PLIES.— 

20 (A) IN GENERAL.—This subsection shall 

21 apply to any amendment to any plan or annuity 

22 contract which is made— 

23 (i) pursuant to any amendment made 

24 by this section, and 


bajohnson on PROD1PC61 with BILLS
20 

•S 455 IS

1 (ii) on or before the last day of the 

2 first plan year beginning on or after Janu3 ary 1, 2009. 

4 (B) CONDITIONS.—This subsection shall 

5 not apply to any plan or annuity contract 

6 amendment unless— 

7 (i) during the period beginning on the 

8 date the amendment described in subpara9 graph (A)(i) takes effect and ending on the 

10 date described in subparagraph (A)(ii) (or, 

11 if earlier, the date the plan or contract 

12 amendment is adopted), the plan or con13 tract is operated as if such plan or con14 tract amendment were in effect, and 

15 (ii) such plan or contract amendment 

16 applies retroactively for such period. 

17 SEC. 4. CONTRIBUTIONS OF MILITARY DEATH GRATUITIES 

18 TO CERTAIN TAX-FAVORED ACCOUNTS. 

19 (a) ROTH IRAS.— 

20 (1) PROVISION IN EFFECT BEFORE PENSION

21 PROTECTION ACT.—Subsection (e) of section 408A 

22 of the Internal Revenue Code of 1986 (relating to 

23 qualified rollover contribution), as in effect before 

24 the amendments made by section 824 of the Pension 


bajohnson on PROD1PC61 with BILLS
21 

•S 455 IS

1 Protection Act of 2006, is amended to read as fol2 lows: 

3 ‘‘(e) QUALIFIED ROLLOVER CONTRIBUTION.—For 

4 purposes of this section— 

5 ‘‘(1) IN GENERAL.—The term ‘qualified rollover 

6 contribution’ means a rollover contribution to a Roth 

7 IRA from another such account, or from an indi8 vidual retirement plan, but only if such rollover con9 tribution meets the requirements of section 

10 408(d)(3). Such term includes a rollover contribu11 tion described in section 402A(c)(3)(A). For pur12 poses of section 408(d)(3)(B), there shall be dis13 regarded any qualified rollover contribution from an 

14 individual retirement plan (other than a Roth IRA) 

15 to a Roth IRA. 

16 ‘‘(2) MILITARY DEATH GRATUITY.— 

17 ‘‘(A) IN GENERAL.—The term ‘qualified 

18 rollover contribution’ includes a contribution to 

19 a Roth IRA maintained for the benefit of an in20 dividual to the extent that such contribution 

21 does not exceed the amount received by such in22 dividual under section 1477 of title 10, United 

23 States Code, or under section 1967 of title 38 

24 of such Code, if such contribution is made not 


bajohnson on PROD1PC61 with BILLS
22 

•S 455 IS

1 later than 1 year after the day on which such 

2 individual receives such amount. 

3 ‘‘(B) ANNUAL LIMIT ON NUMBER OF

4 ROLLOVERS NOT TO APPLY.—Section 

5 408(d)(3)(B) shall not apply with respect to 

6 amounts treated as a rollover by the subpara7 graph (A). 

8 ‘‘(C) APPLICATION OF SECTION 72.—For 

9 purposes of applying section 72 in the case of 

10 a distribution which is not a qualified distribu11 tion, the amount treated as a rollover by reason 

12 of subparagraph (A) shall be treated as invest13 ment in the contract.’’. 

14 (2) PROVISION IN EFFECT AFTER PENSION

15 PROTECTION ACT.—Subsection (e) of section 408A, 

16 as in effect after the amendments made by section 

17 824 of the Pension Protection Act of 2006, is 

18 amended to read as follows: 

19 ‘‘(e) QUALIFIED ROLLOVER CONTRIBUTION.—For 

20 purposes of this section— 

21 ‘‘(1) IN GENERAL.—The term ‘qualified rollover 

22 contribution’ means a rollover contribution— 

23 ‘‘(A) to a Roth IRA from another such ac24 count, 


bajohnson on PROD1PC61 with BILLS
23 

•S 455 IS

1 ‘‘(B) from an eligible retirement plan, but 

2 only if— 

3 ‘‘(i) in the case of an individual retire4 ment plan, such rollover contribution meets 

5 the requirements of section 408(d)(3), and 

6 ‘‘(ii) in the case of any eligible retire7 ment plan (as defined in section 

8 402(c)(8)(B) other than clauses (i) and (ii) 

9 thereof), such rollover contribution meets 

10 the requirements of section 402(c), 

11 403(b)(8), or 457(e)(16), as applicable. 

12 For purposes of section 408(d)(3)(B), there shall be 

13 disregarded any qualified rollover contribution from 

14 an individual retirement plan (other than a Roth 

15 IRA) to a Roth IRA. 

16 ‘‘(2) MILITARY DEATH GRATUITY.— 

17 ‘‘(A) IN GENERAL.—The term ‘qualified 

18 rollover contribution’ includes a contribution to 

19 a Roth IRA maintained for the benefit of an in20 dividual to the extent that such contribution 

21 does not exceed the amount received by such in22 dividual under section 1477 of title 10, United 

23 States Code, or under section 1967 of title 38 

24 of such Code, if such contribution is made not 


bajohnson on PROD1PC61 with BILLS
24 

•S 455 IS

1 later than 1 year after the day on which such 

2 individual receives such amount. 

3 ‘‘(B) ANNUAL LIMIT ON NUMBER OF

4 ROLLOVERS NOT TO APPLY.—Section 

5 408(d)(3)(B) shall not apply with respect to 

6 amounts treated as a rollover by the subpara7 graph (A). 

8 ‘‘(C) APPLICATION OF SECTION 72.—For 

9 purposes of applying section 72 in the case of 

10 a distribution which is not a qualified distribu11 tion, the amount treated as a rollover by reason 

12 of subparagraph (A) shall be treated as invest13 ment in the contract.’’. 

14 (b) HEALTH SAVINGS ACCOUNTS AND ARCHER

15 MSAS.—Sections 220(f)(5) and 223(f)(5) of the Internal 

16 Revenue Code of 1986 are each amended by adding at 

17 the end the following flush sentence: 

18 ‘‘For purposes of subparagraphs (A) and (B), rules 

19 similar to the rules of section 408A(e)(2) (relating 

20 to rollover treatment for contributions of military 

21 death gratuity) shall apply.’’. 

22 (c) EDUCATION SAVINGS ACCOUNTS.—Section 

23 530(d)(5) of the Internal Revenue Code of 1986 is amend24 ed by adding at the end the following new sentence: ‘‘For 

25 purposes of this paragraph, rules similar to the rules of 


bajohnson on PROD1PC61 with BILLS
25 

•S 455 IS

1 section 408A(e)(2) (relating to rollover treatment for con2 tributions of military death gratuity) shall apply.’’. 

3 (d) EFFECTIVE DATES.— 

4 (1) IN GENERAL.—Except as provided by para5 graphs (2) and (3), the amendments made by this 

6 section shall apply with respect to deaths from inju7 ries occurring on or after the date of the enactment 

8 of this Act. 

9 (2) APPLICATION OF AMENDMENTS TO DEATHS

10 FROM INJURIES OCCURRING ON OR AFTER OCTOBER

11 7, 2001, AND BEFORE ENACTMENT.—The amend12 ments made by this section shall apply to any con13 tribution made pursuant to section 408A(e)(2), 

14 220(f)(5), 223(f)(5), or 530(d)(5) of the Internal 

15 Revenue Code of 1986, as amended by this Act, with 

16 respect to amounts received under section 1477 of 

17 title 10, United States Code, or under section 1967 

18 of title 38 of such Code, for deaths from injuries oc19 curring on or after October 7, 2001, and before the 

20 date of the enactment of this Act if such contribu21 tion is made not later than 1 year after the date of 

22 the enactment of this Act. 

23 (3) PENSION PROTECTION ACT CHANGES.—Sec24 tion 408A(e)(1) of the Internal Revenue Code of 

25 1986 (as in effect after the amendments made by 


bajohnson on PROD1PC61 with BILLS
26 

•S 455 IS

1 subsection (a)(2)) shall apply to taxable years begin2 ning after December 31, 2007. 

3 SEC. 5. TEMPORARY INCREASE IN STANDARD DEDUCTION 

4 FOR ACTIVE DUTY MILITARY PERSONNEL. 

5 (a) IN GENERAL.—Paragraph (3) of section 63(c) of 

6 the Internal Revenue Code of 1986 (defining additional 

7 standard deduction for the aged and blind) is amended 

8 to read as follows: 

9 ‘‘(3) ADDITIONAL STANDARD DEDUCTION.—For 

10 the purposes of paragraph (1), the additional stand11 ard deduction is the sum of— 

12 ‘‘(A) the sum of each additional amount to 

13 which the taxpayer is entitled under subsection 

14 (f), plus 

15 ‘‘(B) in the case of a taxable year begin16 ning in 2007 or 2008, an additional amount of 

17 $1,000 for an individual for such taxable year 

18 if the individual who at any time during such 

19 taxable year is performing service in the uni20 formed services while on active duty for a pe21 riod of more than 30 days.’’. 

22 (b) CONFORMING AMENDMENTS.— 

23 (1) Section 3402(m)(3) of the the Internal Rev24 enue Code of 1986 is amended by striking ‘‘for the 

25 aged and blind’’. 


bajohnson on PROD1PC61 with BILLS
27 

•S 455 IS

1 (2) Section 6012(a)(1)(B) of such Code is 

2 amended by adding at the end the following new 

3 sentence: ‘‘The preceding sentence shall be applied 

4 without regard to section 63(c)(3)(B) and each of 

5 the amounts specified in subparagraph (A) shall be 

6 increased by the portion of any additional standard 

7 deduction to which the individual is entitled by rea8 son of section 63(c)(3)(B).’’. 

9 (c) EFFECTIVE DATE.—The amendments made by 

10 this section shall apply to taxable years beginning after 

11 December 31, 2006. 

12 SEC. 6. PERMANENT EXTENSION OF ELECTION TO INCLUDE 

13 COMBAT PAY AS EARNED INCOME FOR PUR14 POSES OF EARNED INCOME CREDIT. 

15 (a) IN GENERAL.—Section 32(c)(2)(B)(vi) of the In16 ternal Revenue Code of 1986, as amended by section 106 

17 of division A of the Tax Relief and Health Care Act of 

18 2006, is amended to read as follows: 

19 ‘‘(vi) a taxpayer may elect to treat 

20 amounts excluded from gross income by 

21 means of section 112 as earned income.’’. 

22 (b) EFFECTIVE DATE.—The amendments made by 

23 this section shall apply to taxable years beginning after 

24 December 31, 2007. 

Æ 


bajohnson on PROD1PC61 with BILLS