II 

110TH CONGRESS 

1ST SESSION S. 1593 

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

protections to military personnel, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

JUNE 12, 2007 

Mr. BAUCUS (for himself, Mr. GRASSLEY, Mr. ROCKEFELLER, Mr. CONRAD, 

Mr. BINGAMAN, Ms. SNOWE, Mr. KERRY, Mrs. LINCOLN, Mr. SMITH, 

Mr. SCHUMER, Ms. STABENOW, Ms. CANTWELL, Mr. ROBERTS, and Mr. 

SALAZAR) 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 and protections to military personnel, 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 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Defenders of Freedom Tax Relief Act of 2007’’. 

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment 

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1 to, or repeal of, a section or other provision, the reference 

2 shall be considered to be made to a section or other provi3 sion of the Internal Revenue Code of 1986. 

4 (c) TABLE OF CONTENTS.—The table of contents for 

5 this Act is as follows: 

Sec. 1. Short title. 

Sec. 2. Extension of statute of limitations to file claims for refunds relating to 

disability determinations by Department of Veterans Affairs. 

Sec. 3. Permanent extension of election to treat combat pay as earned income 

for purposes of earned income credit. 

Sec. 4. Treatment of differential military pay as wages. 

Sec. 5. Permanent extension of penalty-free withdrawals from retirement plans 

by individual called to active duty. 

Sec. 6. State payments to service members treated as qualified military benefits. 

Sec. 7. Permanent extension of disclosure authority to Department of Veterans 

Affairs. 

Sec. 8. Three-year extension of qualified mortgage bond program rules for veterans. 

Sec. 9. Permanent exclusion of gain from sale of a principal residence by certain employees of the intelligence community. 

Sec. 10. Contributions of military death gratuities to Roth IRAs. 

Sec. 11. Credit for employer differential wage payments to employees who are 

active duty members of the uniformed services. 

Sec. 12. Revision of tax rules on expatriation of individuals. 

6 SEC. 2. EXTENSION OF STATUTE OF LIMITATIONS TO FILE 

7 CLAIMS FOR REFUNDS RELATING TO DIS8 ABILITY DETERMINATIONS BY DEPARTMENT 

9 OF VETERANS AFFAIRS. 

10 (a) IN GENERAL.—Subsection (d) of section 6511 

11 (relating to special rules applicable to income taxes) is 

12 amended by adding at the end the following new para13 graph: 

14 ‘‘(8) SPECIAL RULES WHEN UNIFORMED SERV15 ICES RETIRED PAY IS REDUCED AS A RESULT OF

16 AWARD OF DISABILITY COMPENSATION.— 

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1 ‘‘(A) PERIOD OF LIMITATION ON FILING

2 CLAIM.—If the claim for credit or refund re3 lates to an overpayment of tax imposed by sub4 title A on account of— 

5 ‘‘(i) the reduction of uniformed serv6 ices retired pay computed under section 

7 1406 or 1407 of title 10, United States 

8 Code, or 

9 ‘‘(ii) the waiver of such pay under sec10 tion 5305 of title 38 of such Code, 

11 as a result of an award of compensation under 

12 title 38 of such Code pursuant to a determina13 tion by the Secretary of Veterans Affairs, the 3- 

14 year period of limitation prescribed in sub15 section (a) shall be extended, for purposes of 

16 permitting a credit or refund based upon the 

17 amount of such reduction or waiver, until the 

18 end of the 1-year period beginning on the date 

19 of such determination. 

20 ‘‘(B) LIMITATION TO 5 TAXABLE YEARS.— 

21 Subparagraph (A) shall not apply with respect 

22 to any taxable year which began more than 5 

23 years before the date of such determination.’’. 

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1 (b) EFFECTIVE DATE.—The amendment made by 

2 subsection (a) shall apply to claims for credit or refund 

3 filed after the date of the enactment of this Act. 

4 (c) TRANSITION RULES.—In the case of a determina5 tion described in paragraph (8) of section 6511(d) of the 

6 Internal Revenue Code of 1986 (as added by this section) 

7 which is made by the Secretary of Veterans Affairs after 

8 December 31, 2000, and on or before the date of the en9 actment of this Act, such paragraph— 

10 (1) shall not apply with respect to any taxable 

11 year which began before January 1, 2001, and 

12 (2) shall be applied by substituting ‘‘the date of 

13 the enactment of the Defenders of Freedom Tax Re14 lief Act of 2007’’ for ‘‘the date of such determina15 tion’’ in subparagraph (A) thereof. 

16 SEC. 3. PERMANENT EXTENSION OF ELECTION TO TREAT 

17 COMBAT PAY AS EARNED INCOME FOR PUR18 POSES OF EARNED INCOME CREDIT. 

19 (a) IN GENERAL.—Clause (vi) of section 32(c)(2)(B) 

20 (defining earned income) is amended to read as follows: 

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

22 amounts excluded from gross income by 

23 reason of section 112 as earned income.’’. 

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1 (b) EFFECTIVE DATE.—The amendment made by 

2 this section shall apply to taxable years ending after De3 cember 31, 2007. 

4 SEC. 4. TREATMENT OF DIFFERENTIAL MILITARY PAY AS 

5 WAGES. 

6 (a) INCOME TAX WITHHOLDING ON DIFFERENTIAL

7 WAGE PAYMENTS.— 

8 (1) IN GENERAL.—Section 3401 (relating to 

9 definitions) is amended by adding at the end the fol10 lowing new subsection: 

11 ‘‘(h) DIFFERENTIAL WAGE PAYMENTS TO ACTIVE

12 DUTY MEMBERS OF THE UNIFORMED SERVICES.— 

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

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

15 as a payment of wages by the employer to the em16 ployee. 

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

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

19 wage payment’ means any payment which— 

20 ‘‘(A) is made by an employer to an indi21 vidual with respect to any period during which 

22 the individual is performing service in the uni23 formed services while on active duty for a pe24 riod of more than 30 days, and 

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

2 wages the individual would have received from 

3 the employer if the individual were performing 

4 service for the employer.’’. 

5 (2) EFFECTIVE DATE.—The amendment made 

6 by this subsection shall apply to remuneration paid 

7 after December 31, 2007. 

8 (b) TREATMENT OF DIFFERENTIAL WAGE PAY9 MENTS FOR RETIREMENT PLAN PURPOSES.— 

10 (1) PENSION PLANS.— 

11 (A) IN GENERAL.—Section 414(u) (relat12 ing to special rules relating to veterans’ reem13 ployment rights under USERRA) is amended 

14 by adding at the end the following new para15 graph: 

16 ‘‘(11) TREATMENT OF DIFFERENTIAL WAGE

17 PAYMENTS.— 

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

19 this paragraph, for purposes of applying this 

20 title to a retirement plan to which this sub21 section applies— 

22 ‘‘(i) an individual receiving a differen23 tial wage payment shall be treated as an 

24 employee of the employer making the pay25 ment, 

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1 ‘‘(ii) the differential wage payment 

2 shall be treated as compensation, and 

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

4 failing to meet the requirements of any 

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

6 reason of any contribution or benefit which 

7 is based on the differential wage payment. 

8 ‘‘(B) SPECIAL RULE FOR DISTRIBU9 TIONS.— 

10 ‘‘(i) IN GENERAL.—Notwithstanding 

11 subparagraph (A)(i), for purposes of sec12 tion 401(k)(2)(B)(i)(I), 403(b)(7)(A)(ii), 

13 403(b)(11)(A), or 457(d)(1)(A)(ii), an in14 dividual shall be treated as having been 

15 severed from employment during any pe16 riod the individual is performing service in 

17 the uniformed services described in section 

18 3401(h)(2)(A). 

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

20 elects to receive a distribution by reason of 

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

22 individual may not make an elective defer23 ral or employee contribution during the 6- 

24 month period beginning on the date of the 

25 distribution. 

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1 ‘‘(C) NONDISCRIMINATION REQUIRE2 MENT.—Subparagraph (A)(iii) shall apply only 

3 if all employees of an employer (as determined 

4 under subsections (b), (c), (m), and (o)) per5 forming service in the uniformed services de6 scribed in section 3401(h)(2)(A) are entitled to 

7 receive differential wage payments on reason8 ably equivalent terms and, if eligible to partici9 pate in a retirement plan maintained by the 

10 employer, to make contributions based on the 

11 payments on reasonably equivalent terms. For 

12 purposes of applying this subparagraph, the 

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

14 section 410(b) shall apply. 

15 ‘‘(D) DIFFERENTIAL WAGE PAYMENT.— 

16 For purposes of this paragraph, the term ‘dif17 ferential wage payment’ has the meaning given 

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

19 (B) CONFORMING AMENDMENT.—The 

20 heading for section 414(u) is amended by in21 serting ‘‘AND TO DIFFERENTIAL WAGE PAY22 MENTS TO MEMBERS ON ACTIVE DUTY’’ after 

23 ‘‘USERRA’’. 

24 (2) DIFFERENTIAL WAGE PAYMENTS TREATED

25 AS COMPENSATION FOR INDIVIDUAL RETIREMENT

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1 PLANS.—Section 219(f)(1) (defining compensation) 

2 is amended by adding at the end the following new 

3 sentence: ‘‘The term ‘compensation’ includes any dif4 ferential wage payment (as defined in section 

5 3401(h)(2)).’’. 

6 (3) EFFECTIVE DATE.—The amendments made 

7 by this subsection shall apply to years beginning 

8 after December 31, 2007. 

9 (c) PROVISIONS RELATING TO PLAN AMEND10 MENTS.— 

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

12 any plan or annuity contract amendment— 

13 (A) such plan or contract shall be treated 

14 as being operated in accordance with the terms 

15 of the plan or contract during the period de16 scribed in paragraph (2)(B)(i), and 

17 (B) except as provided by the Secretary of 

18 the Treasury, such plan shall not fail to meet 

19 the requirements of the Internal Revenue Code 

20 of 1986 or the Employee Retirement Income 

21 Security Act of 1974 by reason of such amend22 ment. 

23 (2) AMENDMENTS TO WHICH SECTION AP24 PLIES.— 

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1 (A) IN GENERAL.—This subsection shall 

2 apply to any amendment to any plan or annuity 

3 contract which is made— 

4 (i) pursuant to any amendment made 

5 by this section, and 

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

7 first plan year beginning on or after Janu8 ary 1, 2009. 

9 (B) CONDITIONS.—This subsection shall 

10 not apply to any plan or annuity contract 

11 amendment unless— 

12 (i) during the period beginning on the 

13 date the amendment described in subpara14 graph (A)(i) takes effect and ending on the 

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

16 if earlier, the date the plan or contract 

17 amendment is adopted), the plan or con18 tract is operated as if such plan or con19 tract amendment were in effect, and 

20 (ii) such plan or contract amendment 

21 applies retroactively for such period. 

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1 SEC. 5. PERMANENT EXTENSION OF PENALTY-FREE WITH2 DRAWALS FROM RETIREMENT PLANS BY IN3 DIVIDUAL CALLED TO ACTIVE DUTY. 

4 Clause (iv) of section 72(t)(2)(G) (relating to dis5 tributions from retirement plans to individuals called to 

6 active duty) is amended by striking all after ‘‘September 

7 11, 2001’’ and inserting a period. 

8 SEC. 6. STATE PAYMENTS TO SERVICE MEMBERS TREATED 

9 AS QUALIFIED MILITARY BENEFITS. 

10 (a) IN GENERAL.—Section 134(b) (defining qualified 

11 military benefit) is amended by adding at the end the fol12 lowing new paragraph: 

13 ‘‘(6) CERTAIN STATE PAYMENTS.—The term 

14 ‘qualified military benefit’ includes any bonus pay15 ment by a State or political subdivision thereof to 

16 any member or former member of the uniformed 

17 services of the United States or any dependent of 

18 such member only by reason of such member’s serv19 ice in an combat zone (as defined in section 

20 112(c)(2), determined without regard to the par21 enthetical).’’. 

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

23 this section shall apply to payments made before, on, or 

24 after the date of the enactment of this Act. 

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1 SEC. 7. PERMANENT EXTENSION OF DISCLOSURE AUTHOR2 ITY TO DEPARTMENT OF VETERANS AFFAIRS. 

3 Section 6103(l)(7)(D) (relating to program to which 

4 rule applies) is amended by striking the last sentence. 

5 SEC. 8. THREE-YEAR EXTENSION OF QUALIFIED MORT6 GAGE BOND PROGRAM RULES FOR VET7 ERANS. 

8 Section 143(d)(2)(D) (relating to exception) is 

9 amended by striking ‘‘January 1, 2008’’ and inserting 

10 ‘‘January 1, 2011’’. 

11 SEC. 9. PERMANENT EXCLUSION OF GAIN FROM SALE OF A 

12 PRINCIPAL RESIDENCE BY CERTAIN EMPLOY13 EES OF THE INTELLIGENCE COMMUNITY. 

14 (a) IN GENERAL.—Section 417(e) of division A of the 

15 Tax Relief and Health Care Act of 2006 is amended by 

16 striking ‘‘and before January 1, 2011’’. 

17 (b) DUTY STATION MAY BE OUTSIDE UNITED

18 STATES.— 

19 (1) IN GENERAL.—Section 121(d)(9)(C) (defin20 ing qualified official extended duty) is amended by 

21 striking clause (vi). 

22 (2) EFFECTIVE DATE.—The amendment made 

23 by this subsection shall apply to sales or exchanges 

24 after the date of the enactment of this Act. 

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1 SEC. 10. CONTRIBUTIONS OF MILITARY DEATH GRATUITIES 

2 TO ROTH IRAS. 

3 (a) PROVISION IN EFFECT BEFORE PENSION PRO4 TECTION ACT.—Subsection (e) of section 408A (relating 

5 to qualified rollover contribution), as in effect before the 

6 amendments made by section 824 of the Pension Protec7 tion Act of 2006, is amended to read as follows: 

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

9 purposes of this section— 

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

11 contribution’ means a rollover contribution to a Roth 

12 IRA from another such account, or from an indi13 vidual retirement plan, but only if such rollover con14 tribution meets the requirements of section 

15 408(d)(3). Such term includes a rollover contribu16 tion described in section 402A(c)(3)(A). For pur17 poses of section 408(d)(3)(B), there shall be dis18 regarded any qualified rollover contribution from an 

19 individual retirement plan (other than a Roth IRA) 

20 to a Roth IRA. 

21 ‘‘(2) MILITARY DEATH GRATUITY.— 

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

23 rollover contribution’ includes a contribution to 

24 a Roth IRA maintained for the benefit of an in25 dividual to the extent that such contribution 

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1 dividual under section 1477 of title 10, United 

2 States Code, or under section 1967 of title 38 

3 of such Code, if such contribution is made not 

4 later than 1 year after the day on which such 

5 individual receives such amount. 

6 ‘‘(B) ANNUAL LIMIT ON NUMBER OF

7 ROLLOVERS NOT TO APPLY.—Section 

8 408(d)(3)(B) shall not apply with respect to 

9 amounts treated as a rollover by the subpara10 graph (A). 

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

12 purposes of applying section 72 in the case of 

13 a distribution which is not a qualified distribu14 tion, the amount treated as a rollover by reason 

15 of subparagraph (A) shall be treated as invest16 ment in the contract.’’. 

17 (b) PROVISION IN EFFECT AFTER PENSION PROTEC18 TION ACT.—Subsection (e) of section 408A, as in effect 

19 after the amendments made by section 824 of the Pension 

20 Protection Act of 2006, is amended to read as follows: 

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

22 purposes of this section— 

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

24 contribution’ means a rollover contribution— 

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1 ‘‘(A) to a Roth IRA from another such ac2 count, 

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

4 only if— 

5 ‘‘(i) in the case of an individual retire6 ment plan, such rollover contribution meets 

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

8 ‘‘(ii) in the case of any eligible retire9 ment plan (as defined in section 

10 402(c)(8)(B) other than clauses (i) and (ii) 

11 thereof), such rollover contribution meets 

12 the requirements of section 402(c), 

13 403(b)(8), or 457(e)(16), as applicable. 

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

15 disregarded any qualified rollover contribution from 

16 an individual retirement plan (other than a Roth 

17 IRA) to a Roth IRA. 

18 ‘‘(2) MILITARY DEATH GRATUITY.— 

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

20 rollover contribution’ includes a contribution to 

21 a Roth IRA maintained for the benefit of an in22 dividual to the extent that such contribution 

23 does not exceed the amount received by such in24 dividual under section 1477 of title 10, United 

25 States Code, or under section 1967 of title 38 

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1 of such Code, if such contribution is made not 

2 later than 1 year after the day on which such 

3 individual receives such amount. 

4 ‘‘(B) ANNUAL LIMIT ON NUMBER OF

5 ROLLOVERS NOT TO APPLY.—Section 

6 408(d)(3)(B) shall not apply with respect to 

7 amounts treated as a rollover by the subpara8 graph (A). 

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

10 purposes of applying section 72 in the case of 

11 a distribution which is not a qualified distribu12 tion, the amount treated as a rollover by reason 

13 of subparagraph (A) shall be treated as invest14 ment in the contract.’’. 

15 (c) EFFECTIVE DATES.— 

16 (1) IN GENERAL.—Except as provided by para17 graphs (2) and (3), the amendments made by this 

18 section shall apply with respect to deaths from inju19 ries occurring on or after the date of the enactment 

20 of this Act. 

21 (2) APPLICATION OF AMENDMENTS TO DEATHS

22 FROM INJURIES OCCURRING ON OR AFTER OCTOBER

23 7, 2001, AND BEFORE ENACTMENT.—The amend24 ments made by this section shall apply to any con25 tribution made pursuant to section 408A(e)(2) of 

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1 the Internal Revenue Code of 1986, as amended by 

2 this Act, with respect to amounts received under sec3 tion 1477 of title 10, United States Code, or under 

4 section 1967 of title 38 of such Code, for deaths 

5 from injuries occurring on or after October 7, 2001, 

6 and before the date of the enactment of this Act if 

7 such contribution is made not later than 1 year after 

8 the date of the enactment of this Act. 

9 (3) PENSION PROTECTION ACT CHANGES.—Sec10 tion 408A(e)(1) of the Internal Revenue Code of 

11 1986 (as in effect after the amendments made by 

12 subsection (b)) shall apply to taxable years begin13 ning after December 31, 2007. 

14 SEC. 11. CREDIT FOR EMPLOYER DIFFERENTIAL WAGE 

15 PAYMENTS TO EMPLOYEES WHO ARE ACTIVE 

16 DUTY MEMBERS OF THE UNIFORMED SERV17 ICES. 

18 (a) IN GENERAL.—Subpart D of part IV of sub19 chapter A of chapter 1 (relating to business credits) is 

20 amended by adding at the end the following new section: 

21 ‘‘SEC. 45O. EMPLOYER WAGE CREDIT FOR EMPLOYEES WHO 

22 ARE ACTIVE DUTY MEMBERS OF THE UNI23 FORMED SERVICES. 

24 ‘‘(a) GENERAL RULE.—For purposes of section 38, 

25 in the case of an eligible small business employer, the difmstockstill on PROD1PC66 with BILLS

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1 ferential wage payment credit for any taxable year is an 

2 amount equal to 20 percent of the sum of the eligible dif3 ferential wage payments for each of the qualified employ4 ees of the taxpayer during such taxable year. 

5 ‘‘(b) DEFINITIONS.—For purposes of this section— 

6 ‘‘(1) ELIGIBLE DIFFERENTIAL WAGE PAY7 MENTS.—The term ‘eligible differential wage pay8 ments’ means, with respect to each qualified em9 ployee, so much of the differential wage payments 

10 (as defined in section 3401(h)(2)) paid to such em11 ployee for the taxable year as does not exceed 

12 $20,000. 

13 ‘‘(2) QUALIFIED EMPLOYEE.—The term ‘quali14 fied employee’ means a person who has been an em15 ployee of the taxpayer for the 91-day period imme16 diately preceding the period for which any differen17 tial wage payment is made. 

18 ‘‘(3) ELIGIBLE SMALL BUSINESS EMPLOYER.— 

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

20 small business employer’ means, with respect to 

21 any taxable year, any employer which— 

22 ‘‘(i) employed an average of less that 

23 50 employees on business days during such 

24 taxable year, and 

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1 ‘‘(ii) under a written plan of the em2 ployer, provides eligible differential wage 

3 payments to every qualified employee of 

4 the employer. 

5 ‘‘(B) CONTROLLED GROUPS.—For pur6 poses of subparagraph (A), all persons treated 

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

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

9 single employer. 

10 ‘‘(c) 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 determined under this section 

14 with respect to such employee. 

15 ‘‘(d) DISALLOWANCE FOR FAILURE TO COMPLY

16 WITH EMPLOYMENT OR REEMPLOYMENT RIGHTS OF

17 MEMBERS OF THE RESERVE COMPONENTS OF THE

18 ARMED FORCES OF THE UNITED STATES.—No credit 

19 shall be allowed under subsection (a) to a taxpayer for— 

20 ‘‘(1) any taxable year, beginning after the date 

21 of the enactment of this section, in which the tax22 payer is under a final order, judgment, or other 

23 process issued or required by a district court of the 

24 United States under section 4323 of title 38 of the 

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1 United States Code with respect to a violation of 

2 chapter 43 of such title, and 

3 ‘‘(2) the 2 succeeding taxable years. 

4 ‘‘(e) CERTAIN RULES TO APPLY.—For purposes of 

5 this section, rules similar to the rules of subsections (c), 

6 (d), and (e) of section 52 shall apply. 

7 ‘‘(f) TERMINATION.—This section shall not apply to 

8 any payments made after December 31, 2009.’’. 

9 (b) CREDIT TREATED AS PART OF GENERAL BUSI10 NESS CREDIT.—Section 38(b) (relating to general busi11 ness credit) is amended by striking ‘‘plus’’ at the end of 

12 paragraph (30), by striking the period at the end of para13 graph (31) and inserting ‘‘, plus’’, and by adding at the 

14 end of following new paragraph: 

15 ‘‘(32) the differential wage payment credit de16 termined under section 45O(a).’’. 

17 (c) NO DEDUCTION FOR COMPENSATION TAKEN

18 INTO ACCOUNT FOR CREDIT.—Section 280C(a) (relating 

19 to rule for employment credits) is amended by inserting 

20 ‘‘45O(a),’’ after ‘‘45A(a),’’. 

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

22 for subpart D of part IV of subchapter A of chapter 1 

23 is amended by adding at the end the following new item: 

‘‘Sec. 45O. Employer wage credit for employees who are active duty members 

of the uniformed services.’’. 

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

2 this section shall apply to amounts paid after the date of 

3 the enactment of this Act. 

4 SEC. 12. REVISION OF TAX RULES ON EXPATRIATION OF IN5 DIVIDUALS. 

6 (a) IN GENERAL.—Subpart A of part II of sub7 chapter N of chapter 1 is amended by inserting after sec8 tion 877 the following new section: 

9 ‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION. 

10 ‘‘(a) GENERAL RULES.—For purposes of this sub11 title— 

12 ‘‘(1) MARK TO MARKET.—Except as provided in 

13 subsections (d) and (f), all property of a covered ex14 patriate to whom this section applies shall be treated 

15 as sold on the day before the expatriation date for 

16 its fair market value. 

17 ‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the 

18 case of any sale under paragraph (1)— 

19 ‘‘(A) notwithstanding any other provision 

20 of this title, any gain arising from such sale 

21 shall be taken into account for the taxable year 

22 of the sale, and 

23 ‘‘(B) any loss arising from such sale shall 

24 be taken into account for the taxable year of 

25 the sale to the extent otherwise provided by this 

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1 title, except that section 1091 shall not apply to 

2 any such loss. 

3 Proper adjustment shall be made in the amount of 

4 any gain or loss subsequently realized for gain or 

5 loss taken into account under the preceding sen6 tence. 

7 ‘‘(3) EXCLUSION FOR CERTAIN GAIN.— 

8 ‘‘(A) IN GENERAL.—The amount which, 

9 but for this paragraph, would be includible in 

10 the gross income of any individual by reason of 

11 this section shall be reduced (but not below 

12 zero) by $600,000. For purposes of this para13 graph, allocable expatriation gain taken into ac14 count under subsection (f)(2) shall be treated in 

15 the same manner as an amount required to be 

16 includible in gross income. 

17 ‘‘(B) COST-OF-LIVING ADJUSTMENT.— 

18 ‘‘(i) IN GENERAL.—In the case of an 

19 expatriation date occurring in any calendar 

20 year after 2007, the $600,000 amount 

21 under subparagraph (A) shall be increased 

22 by an amount equal to— 

23 ‘‘(I) such dollar amount, multi24 plied by 

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1 ‘‘(II) the cost-of-living adjust2 ment determined under section 1(f)(3) 

3 for such calendar year, determined by 

4 substituting ‘calendar year 2006’ for 

5 ‘calendar year 1992’ in subparagraph 

6 (B) thereof. 

7 ‘‘(ii) ROUNDING RULES.—If any 

8 amount after adjustment under clause (i) 

9 is not a multiple of $1,000, such amount 

10 shall be rounded to the next lower multiple 

11 of $1,000. 

12 ‘‘(4) ELECTION TO CONTINUE TO BE TAXED AS

13 UNITED STATES CITIZEN.— 

14 ‘‘(A) IN GENERAL.—If a covered expatriate 

15 elects the application of this paragraph— 

16 ‘‘(i) this section (other than this para17 graph and subsection (i)) shall not apply to 

18 the expatriate, but 

19 ‘‘(ii) in the case of property to which 

20 this section would apply but for such elec21 tion, the expatriate shall be subject to tax 

22 under this title in the same manner as if 

23 the individual were a United States citizen. 

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1 ‘‘(B) REQUIREMENTS.—Subparagraph (A) 

2 shall not apply to an individual unless the indi3 vidual— 

4 ‘‘(i) provides security for payment of 

5 tax in such form and manner, and in such 

6 amount, as the Secretary may require, 

7 ‘‘(ii) consents to the waiver of any 

8 right of the individual under any treaty of 

9 the United States which would preclude as10 sessment or collection of any tax which 

11 may be imposed by reason of this para12 graph, and 

13 ‘‘(iii) complies with such other re14 quirements as the Secretary may prescribe. 

15 ‘‘(C) ELECTION.—An election under sub16 paragraph (A) shall apply to all property to 

17 which this section would apply but for the elec18 tion and, once made, shall be irrevocable. Such 

19 election shall also apply to property the basis of 

20 which is determined in whole or in part by ref21 erence to the property with respect to which the 

22 election was made. 

23 ‘‘(b) ELECTION TO DEFER TAX.— 

24 ‘‘(1) IN GENERAL.—If the taxpayer elects the 

25 application of this subsection with respect to any 

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•S 1593 IS

1 property treated as sold by reason of subsection (a), 

2 the payment of the additional tax attributable to 

3 such property shall be postponed until the due date 

4 of the return for the taxable year in which such 

5 property is disposed of (or, in the case of property 

6 disposed of in a transaction in which gain is not rec7 ognized in whole or in part, until such other date as 

8 the Secretary may prescribe). 

9 ‘‘(2) DETERMINATION OF TAX WITH RESPECT

10 TO PROPERTY.—For purposes of paragraph (1), the 

11 additional tax attributable to any property is an 

12 amount which bears the same ratio to the additional 

13 tax imposed by this chapter for the taxable year 

14 solely by reason of subsection (a) as the gain taken 

15 into account under subsection (a) with respect to 

16 such property bears to the total gain taken into ac17 count under subsection (a) with respect to all prop18 erty to which subsection (a) applies. 

19 ‘‘(3) TERMINATION OF POSTPONEMENT.—No 

20 tax may be postponed under this subsection later 

21 than the due date for the return of tax imposed by 

22 this chapter for the taxable year which includes the 

23 date of death of the expatriate (or, if earlier, the 

24 time that the security provided with respect to the 

25 property fails to meet the requirements of paragraph 

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•S 1593 IS

1 (4), unless the taxpayer corrects such failure within 

2 the time specified by the Secretary). 

3 ‘‘(4) SECURITY.— 

4 ‘‘(A) IN GENERAL.—No election may be 

5 made under paragraph (1) with respect to any 

6 property unless adequate security is provided to 

7 the Secretary with respect to such property. 

8 ‘‘(B) ADEQUATE SECURITY.—For purposes 

9 of subparagraph (A), security with respect to 

10 any property shall be treated as adequate secu11 rity if— 

12 ‘‘(i) it is a bond in an amount equal 

13 to the deferred tax amount under para14 graph (2) for the property, or 

15 ‘‘(ii) the taxpayer otherwise estab16 lishes to the satisfaction of the Secretary 

17 that the security is adequate. 

18 ‘‘(5) WAIVER OF CERTAIN RIGHTS.—No elec19 tion may be made under paragraph (1) unless the 

20 taxpayer consents to the waiver of any right under 

21 any treaty of the United States which would pre22 clude assessment or collection of any tax imposed by 

23 reason of this section. 

24 ‘‘(6) ELECTIONS.—An election under paragraph 

25 (1) shall only apply to property described in the elecmstockstill on PROD1PC66 with BILLS

27 

•S 1593 IS

1 tion and, once made, is irrevocable. An election may 

2 be made under paragraph (1) with respect to an in3 terest in a trust with respect to which gain is re4 quired to be recognized under subsection (f)(1). 

5 ‘‘(7) INTEREST.—For purposes of section 

6 6601— 

7 ‘‘(A) the last date for the payment of tax 

8 shall be determined without regard to the elec9 tion under this subsection, and 

10 ‘‘(B) section 6621(a)(2) shall be applied by 

11 substituting ‘5 percentage points’ for ‘3 per12 centage points’ in subparagraph (B) thereof. 

13 ‘‘(c) COVERED EXPATRIATE.—For purposes of this 

14 section— 

15 ‘‘(1) IN GENERAL.—Except as provided in para16 graph (2), the term ‘covered expatriate’ means an 

17 expatriate. 

18 ‘‘(2) EXCEPTIONS.—An individual shall not be 

19 treated as a covered expatriate if— 

20 ‘‘(A) the individual— 

21 ‘‘(i) became at birth a citizen of the 

22 United States and a citizen of another 

23 country and, as of the expatriation date, 

24 continues to be a citizen of, and is taxed 

25 as a resident of, such other country, and 

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•S 1593 IS

1 ‘‘(ii) has not been a resident of the 

2 United States (as defined in section 

3 7701(b)(1)(A)(ii)) during the 5 taxable 

4 years ending with the taxable year during 

5 which the expatriation date occurs, or 

6 ‘‘(B)(i) the individual’s relinquishment of 

7 United States citizenship occurs before such individual attains age 181 8 ⁄2, and 

9 ‘‘(ii) the individual has been a resident of 

10 the United States (as so defined) for not more 

11 than 5 taxable years before the date of relin12 quishment. 

13 ‘‘(d) EXEMPT PROPERTY; SPECIAL RULES FOR PEN14 SION PLANS.— 

15 ‘‘(1) EXEMPT PROPERTY.—This section shall 

16 not apply to the following: 

17 ‘‘(A) UNITED STATES REAL PROPERTY IN18 TERESTS.—Any United States real property in19 terest (as defined in section 897(c)(1)), other 

20 than stock of a United States real property 

21 holding corporation which does not, on the day 

22 before the expatriation date, meet the require23 ments of section 897(c)(2). 

24 ‘‘(B) SPECIFIED PROPERTY.—Any prop25 erty or interest in property not described in 

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•S 1593 IS

1 subparagraph (A) which the Secretary specifies 

2 in regulations. 

3 ‘‘(2) SPECIAL RULES FOR CERTAIN RETIRE4 MENT PLANS.— 

5 ‘‘(A) IN GENERAL.—If a covered expatriate 

6 holds on the day before the expatriation date 

7 any interest in a retirement plan to which this 

8 paragraph applies— 

9 ‘‘(i) such interest shall not be treated 

10 as sold for purposes of subsection (a)(1), 

11 but 

12 ‘‘(ii) an amount equal to the present 

13 value of the expatriate’s nonforfeitable ac14 crued benefit shall be treated as having 

15 been received by such individual on such 

16 date as a distribution under the plan. 

17 ‘‘(B) TREATMENT OF SUBSEQUENT DIS18 TRIBUTIONS.—In the case of any distribution 

19 on or after the expatriation date to or on behalf 

20 of the covered expatriate from a plan from 

21 which the expatriate was treated as receiving a 

22 distribution under subparagraph (A), the 

23 amount otherwise includible in gross income by 

24 reason of the subsequent distribution shall be 

25 reduced by the excess of the amount includible 

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•S 1593 IS

1 in gross income under subparagraph (A) over 

2 any portion of such amount to which this sub3 paragraph previously applied. 

4 ‘‘(C) TREATMENT OF SUBSEQUENT DIS5 TRIBUTIONS BY PLAN.—For purposes of this 

6 title, a retirement plan to which this paragraph 

7 applies, and any person acting on the plan’s be8 half, shall treat any subsequent distribution de9 scribed in subparagraph (B) in the same man10 ner as such distribution would be treated with11 out regard to this paragraph. 

12 ‘‘(D) APPLICABLE PLANS.—This para13 graph shall apply to— 

14 ‘‘(i) any qualified retirement plan (as 

15 defined in section 4974(c)), 

16 ‘‘(ii) an eligible deferred compensation 

17 plan (as defined in section 457(b)) of an 

18 eligible employer described in section 

19 457(e)(1)(A), and 

20 ‘‘(iii) to the extent provided in regula21 tions, any foreign pension plan or similar 

22 retirement arrangements or programs. 

23 ‘‘(e) DEFINITIONS.—For purposes of this section— 

24 ‘‘(1) EXPATRIATE.—The term ‘expatriate’ 

25 means— 

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•S 1593 IS

1 ‘‘(A) any United States citizen who relin2 quishes citizenship, and 

3 ‘‘(B) any long-term resident of the United 

4 States who— 

5 ‘‘(i) ceases to be a lawful permanent 

6 resident of the United States (within the 

7 meaning of section 7701(b)(6)), or 

8 ‘‘(ii) commences to be treated as a 

9 resident of a foreign country under the 

10 provisions of a tax treaty between the 

11 United States and the foreign country and 

12 who does not waive the benefits of such 

13 treaty applicable to residents of the foreign 

14 country. 

15 ‘‘(2) EXPATRIATION DATE.—The term ‘expa16 triation date’ means— 

17 ‘‘(A) the date an individual relinquishes 

18 United States citizenship, or 

19 ‘‘(B) in the case of a long-term resident of 

20 the United States, the date of the event de21 scribed in clause (i) or (ii) of paragraph (1)(B). 

22 ‘‘(3) RELINQUISHMENT OF CITIZENSHIP.—A 

23 citizen shall be treated as relinquishing United 

24 States citizenship on the earliest of— 

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•S 1593 IS

1 ‘‘(A) the date the individual renounces 

2 such individual’s United States nationality be3 fore a diplomatic or consular officer of the 

4 United States pursuant to paragraph (5) of sec5 tion 349(a) of the Immigration and Nationality 

6 Act (8 U.S.C. 1481(a)(5)), 

7 ‘‘(B) the date the individual furnishes to 

8 the United States Department of State a signed 

9 statement of voluntary relinquishment of 

10 United States nationality confirming the per11 formance of an act of expatriation specified in 

12 paragraph (1), (2), (3), or (4) of section 349(a) 

13 of the Immigration and Nationality Act (8 

14 U.S.C. 1481(a)(1)–(4)), 

15 ‘‘(C) the date the United States Depart16 ment of State issues to the individual a certifi17 cate of loss of nationality, or 

18 ‘‘(D) the date a court of the United States 

19 cancels a naturalized citizen’s certificate of nat20 uralization. 

21 Subparagraph (A) or (B) shall not apply to any indi22 vidual unless the renunciation or voluntary relin23 quishment is subsequently approved by the issuance 

24 to the individual of a certificate of loss of nationality 

25 by the United States Department of State. 

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•S 1593 IS

1 ‘‘(4) LONG-TERM RESIDENT.—The term ‘long2 term resident’ has the meaning given to such term 

3 by section 877(e)(2). 

4 ‘‘(f) SPECIAL RULES APPLICABLE TO BENE5 FICIARIES’ INTERESTS IN TRUST.— 

6 ‘‘(1) IN GENERAL.—Except as provided in para7 graph (2), if an individual is determined under para8 graph (3) to hold an interest in a trust on the day 

9 before the expatriation date— 

10 ‘‘(A) the individual shall not be treated as 

11 having sold such interest, 

12 ‘‘(B) such interest shall be treated as a 

13 separate share in the trust, and 

14 ‘‘(C)(i) such separate share shall be treat15 ed as a separate trust consisting of the assets 

16 allocable to such share, 

17 ‘‘(ii) the separate trust shall be treated as 

18 having sold its assets on the day before the ex19 patriation date for their fair market value and 

20 as having distributed all of its assets to the in21 dividual as of such time, and 

22 ‘‘(iii) the individual shall be treated as hav23 ing recontributed the assets to the separate 

24 trust. 

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•S 1593 IS

1 Subsection (a)(2) shall apply to any income, gain, or 

2 loss of the individual arising from a distribution de3 scribed in subparagraph (C)(ii). In determining the 

4 amount of such distribution, proper adjustments 

5 shall be made for liabilities of the trust allocable to 

6 an individual’s share in the trust. 

7 ‘‘(2) SPECIAL RULES FOR INTERESTS IN QUALI8 FIED TRUSTS.— 

9 ‘‘(A) IN GENERAL.—If the trust interest 

10 described in paragraph (1) is an interest in a 

11 qualified trust— 

12 ‘‘(i) paragraph (1) and subsection (a) 

13 shall not apply, and 

14 ‘‘(ii) in addition to any other tax im15 posed by this title, there is hereby imposed 

16 on each distribution with respect to such 

17 interest a tax in the amount determined 

18 under subparagraph (B). 

19 ‘‘(B) AMOUNT OF TAX.—The amount of 

20 tax under subparagraph (A)(ii) shall be equal to 

21 the lesser of— 

22 ‘‘(i) the highest rate of tax imposed by 

23 section 1(e) for the taxable year which in24 cludes the day before the expatriation date, 

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•S 1593 IS

1 multiplied by the amount of the distribu2 tion, or 

3 ‘‘(ii) the balance in the deferred tax 

4 account immediately before the distribution 

5 determined without regard to any increases 

6 under subparagraph (C)(ii) after the 30th 

7 day preceding the distribution. 

8 ‘‘(C) DEFERRED TAX ACCOUNT.—For pur9 poses of subparagraph (B)(ii)— 

10 ‘‘(i) OPENING BALANCE.—The open11 ing balance in a deferred tax account with 

12 respect to any trust interest is an amount 

13 equal to the tax which would have been im14 posed on the allocable expatriation gain 

15 with respect to the trust interest if such 

16 gain had been included in gross income 

17 under subsection (a). 

18 ‘‘(ii) INCREASE FOR INTEREST.—The 

19 balance in the deferred tax account shall 

20 be increased by the amount of interest de21 termined (on the balance in the account at 

22 the time the interest accrues), for periods 

23 after the 90th day after the expatriation 

24 date, by using the rates and method appli25 cable under section 6621 for underpaymstockstill on PROD1PC66 with BILLS

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•S 1593 IS

1 ments of tax for such periods, except that 

2 section 6621(a)(2) shall be applied by sub3 stituting ‘5 percentage points’ for ‘3 per4 centage points’ in subparagraph (B) there5 of. 

6 ‘‘(iii) DECREASE FOR TAXES PRE7 VIOUSLY PAID.—The balance in the tax de8 ferred account shall be reduced— 

9 ‘‘(I) by the amount of taxes im10 posed by subparagraph (A) on any 

11 distribution to the person holding the 

12 trust interest, and 

13 ‘‘(II) in the case of a person 

14 holding a nonvested interest, to the 

15 extent provided in regulations, by the 

16 amount of taxes imposed by subpara17 graph (A) on distributions from the 

18 trust with respect to nonvested inter19 ests not held by such person. 

20 ‘‘(D) ALLOCABLE EXPATRIATION GAIN.— 

21 For purposes of this paragraph, the allocable 

22 expatriation gain with respect to any bene23 ficiary’s interest in a trust is the amount of 

24 gain which would be allocable to such bene25 ficiary’s vested and nonvested interests in the 

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•S 1593 IS

1 trust if the beneficiary held directly all assets 

2 allocable to such interests. 

3 ‘‘(E) TAX DEDUCTED AND WITHHELD.— 

4 ‘‘(i) IN GENERAL.—The tax imposed 

5 by subparagraph (A)(ii) shall be deducted 

6 and withheld by the trustees from the dis7 tribution to which it relates. 

8 ‘‘(ii) EXCEPTION WHERE FAILURE TO

9 WAIVE TREATY RIGHTS.—If an amount 

10 may not be deducted and withheld under 

11 clause (i) by reason of the distributee fail12 ing to waive any treaty right with respect 

13 to such distribution— 

14 ‘‘(I) the tax imposed by subpara15 graph (A)(ii) shall be imposed on the 

16 trust and each trustee shall be person17 ally liable for the amount of such tax, 

18 and 

19 ‘‘(II) any other beneficiary of the 

20 trust shall be entitled to recover from 

21 the distributee the amount of such tax 

22 imposed on the other beneficiary. 

23 ‘‘(F) DISPOSITION.—If a trust ceases to be 

24 a qualified trust at any time, a covered expa25 triate disposes of an interest in a qualified 

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•S 1593 IS

1 trust, or a covered expatriate holding an inter2 est in a qualified trust dies, then, in lieu of the 

3 tax imposed by subparagraph (A)(ii), there is 

4 hereby imposed a tax equal to the lesser of— 

5 ‘‘(i) the tax determined under para6 graph (1) as if the day before the expatria7 tion date were the date of such cessation, 

8 disposition, or death, whichever is applica9 ble, or 

10 ‘‘(ii) the balance in the tax deferred 

11 account immediately before such date. 

12 Such tax shall be imposed on the trust and 

13 each trustee shall be personally liable for the 

14 amount of such tax and any other beneficiary 

15 of the trust shall be entitled to recover from the 

16 covered expatriate or the estate the amount of 

17 such tax imposed on the other beneficiary. 

18 ‘‘(G) DEFINITIONS AND SPECIAL RULES.— 

19 For purposes of this paragraph— 

20 ‘‘(i) QUALIFIED TRUST.—The term 

21 ‘qualified trust’ means a trust which is de22 scribed in section 7701(a)(30)(E). 

23 ‘‘(ii) VESTED INTEREST.—The term 

24 ‘vested interest’ means any interest which, 

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•S 1593 IS

1 as of the day before the expatriation date, 

2 is vested in the beneficiary. 

3 ‘‘(iii) NONVESTED INTEREST.—The 

4 term ‘nonvested interest’ means, with re5 spect to any beneficiary, any interest in a 

6 trust which is not a vested interest. Such 

7 interest shall be determined by assuming 

8 the maximum exercise of discretion in 

9 favor of the beneficiary and the occurrence 

10 of all contingencies in favor of the bene11 ficiary. 

12 ‘‘(iv) ADJUSTMENTS.—The Secretary 

13 may provide for such adjustments to the 

14 bases of assets in a trust or a deferred tax 

15 account, and the timing of such adjust16 ments, in order to ensure that gain is 

17 taxed only once. 

18 ‘‘(v) COORDINATION WITH RETIRE19 MENT PLAN RULES.—This subsection shall 

20 not apply to an interest in a trust which 

21 is part of a retirement plan to which sub22 section (d)(2) applies. 

23 ‘‘(3) DETERMINATION OF BENEFICIARIES’ IN24 TEREST IN TRUST.— 

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•S 1593 IS

1 ‘‘(A) DETERMINATIONS UNDER PARA2 GRAPH (1).—For purposes of paragraph (1), a 

3 beneficiary’s interest in a trust shall be based 

4 upon all relevant facts and circumstances, in5 cluding the terms of the trust instrument and 

6 any letter of wishes or similar document, histor7 ical patterns of trust distributions, and the ex8 istence of and functions performed by a trust 

9 protector or any similar adviser. 

10 ‘‘(B) OTHER DETERMINATIONS.—For pur11 poses of this section— 

12 ‘‘(i) CONSTRUCTIVE OWNERSHIP.—If 

13 a beneficiary of a trust is a corporation, 

14 partnership, trust, or estate, the share15 holders, partners, or beneficiaries shall be 

16 deemed to be the trust beneficiaries for 

17 purposes of this section. 

18 ‘‘(ii) TAXPAYER RETURN POSITION.— 

19 A taxpayer shall clearly indicate on its in20 come tax return— 

21 ‘‘(I) the methodology used to de22 termine that taxpayer’s trust interest 

23 under this section, and 

24 ‘‘(II) if the taxpayer knows (or 

25 has reason to know) that any other 

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•S 1593 IS

1 beneficiary of such trust is using a 

2 different methodology to determine 

3 such beneficiary’s trust interest under 

4 this section. 

5 ‘‘(g) TERMINATION OF DEFERRALS, ETC.—In the 

6 case of any covered expatriate, notwithstanding any other 

7 provision of this title— 

8 ‘‘(1) any period during which recognition of in9 come or gain is deferred shall terminate on the day 

10 before the expatriation date, and 

11 ‘‘(2) any extension of time for payment of tax 

12 shall cease to apply on the day before the expatria13 tion date and the unpaid portion of such tax shall 

14 be due and payable at the time and in the manner 

15 prescribed by the Secretary. 

16 ‘‘(h) IMPOSITION OF TENTATIVE TAX.— 

17 ‘‘(1) IN GENERAL.—If an individual is required 

18 to include any amount in gross income under sub19 section (a) for any taxable year, there is hereby im20 posed, immediately before the expatriation date, a 

21 tax in an amount equal to the amount of tax which 

22 would be imposed if the taxable year were a short 

23 taxable year ending on the expatriation date. 

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•S 1593 IS

1 ‘‘(2) DUE DATE.—The due date for any tax im2 posed by paragraph (1) shall be the 90th day after 

3 the expatriation date. 

4 ‘‘(3) TREATMENT OF TAX.—Any tax paid under 

5 paragraph (1) shall be treated as a payment of the 

6 tax imposed by this chapter for the taxable year to 

7 which subsection (a) applies. 

8 ‘‘(4) DEFERRAL OF TAX.—The provisions of 

9 subsection (b) shall apply to the tax imposed by this 

10 subsection to the extent attributable to gain includ11 ible in gross income by reason of this section. 

12 ‘‘(i) SPECIAL LIENS FOR DEFERRED TAX

13 AMOUNTS.— 

14 ‘‘(1) IMPOSITION OF LIEN.— 

15 ‘‘(A) IN GENERAL.—If a covered expatriate 

16 makes an election under subsection (a)(4) or 

17 (b) which results in the deferral of any tax im18 posed by reason of subsection (a), the deferred 

19 amount (including any interest, additional 

20 amount, addition to tax, assessable penalty, and 

21 costs attributable to the deferred amount) shall 

22 be a lien in favor of the United States on all 

23 property of the expatriate located in the United 

24 States (without regard to whether this section 

25 applies to the property). 

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•S 1593 IS

1 ‘‘(B) DEFERRED AMOUNT.—For purposes 

2 of this subsection, the deferred amount is the 

3 amount of the increase in the covered expatri4 ate’s income tax which, but for the election 

5 under subsection (a)(4) or (b), would have oc6 curred by reason of this section for the taxable 

7 year including the expatriation date. 

8 ‘‘(2) PERIOD OF LIEN.—The lien imposed by 

9 this subsection shall arise on the expatriation date 

10 and continue until— 

11 ‘‘(A) the liability for tax by reason of this 

12 section is satisfied or has become unenforceable 

13 by reason of lapse of time, or 

14 ‘‘(B) it is established to the satisfaction of 

15 the Secretary that no further tax liability may 

16 arise by reason of this section. 

17 ‘‘(3) CERTAIN RULES APPLY.—The rules set 

18 forth in paragraphs (1), (3), and (4) of section 

19 6324A(d) shall apply with respect to the lien im20 posed by this subsection as if it were a lien imposed 

21 by section 6324A. 

22 ‘‘(j) REGULATIONS.—The Secretary shall prescribe 

23 such regulations as may be necessary or appropriate to 

24 carry out the purposes of this section.’’. 

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•S 1593 IS

1 (b) INCLUSION IN INCOME OF GIFTS AND BEQUESTS

2 RECEIVED BY UNITED STATES CITIZENS AND RESIDENTS

3 FROM EXPATRIATES.—Section 102 (relating to gifts, etc. 

4 not included in gross income) is amended by adding at 

5 the end the following new subsection: 

6 ‘‘(d) GIFTS AND INHERITANCES FROM COVERED EX7 PATRIATES.— 

8 ‘‘(1) TREATMENT OF GIFTS AND INHERIT9 ANCES.— 

10 ‘‘(A) IN GENERAL.—Subsection (a) shall 

11 not exclude from gross income the value of any 

12 property acquired by gift, bequest, devise, or in13 heritance from a covered expatriate after the 

14 expatriation date. 

15 ‘‘(B) DETERMINATION OF BASIS.—Not16 withstanding sections 1015 or 1022, the basis 

17 of any property described in subparagraph (A) 

18 in the hands of the donee or the person acquir19 ing such property from the decedent shall be 

20 equal to the fair market value of the property 

21 at the time of the gift, bequest, devise, or inher22 itance. 

23 ‘‘(2) EXCEPTIONS FOR TRANSFERS OTHERWISE

24 SUBJECT TO ESTATE OR GIFT TAX.—Paragraph (1) 

25 shall not apply to any property if either— 

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•S 1593 IS

1 ‘‘(A) the gift, bequest, devise, or inherit2 ance is— 

3 ‘‘(i) shown on a timely filed return of 

4 tax imposed by chapter 12 as a taxable gift 

5 by the covered expatriate, or 

6 ‘‘(ii) included in the gross estate of 

7 the covered expatriate for purposes of 

8 chapter 11 and shown on a timely filed re9 turn of tax imposed by chapter 11 of the 

10 estate of the covered expatriate, or 

11 ‘‘(B) no such return was timely filed but 

12 no such return would have been required to be 

13 filed even if the covered expatriate were a cit14 izen or long-term resident of the United States. 

15 ‘‘(3) DEFINITIONS.—For purposes of this sub16 section, any term used in this subsection which is 

17 also used in section 877A shall have the same mean18 ing as when used in section 877A.’’. 

19 (c) DEFINITION OF TERMINATION OF UNITED

20 STATES CITIZENSHIP.—Section 7701(a) is amended by 

21 adding at the end the following new paragraph: 

22 ‘‘(50) TERMINATION OF UNITED STATES CITI23 ZENSHIP.— 

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•S 1593 IS

1 ‘‘(A) IN GENERAL.—An individual shall 

2 not cease to be treated as a United States cit3 izen before the date on which— 

4 ‘‘(i) the individual’s citizenship is 

5 treated as relinquished under section 

6 877A(e)(3), and 

7 ‘‘(ii) the individual provides a state8 ment in accordance with section 6039G (if 

9 such a statement is otherwise required). 

10 ‘‘(B) DUAL CITIZENS.—Under regulations 

11 prescribed by the Secretary, subparagraph (A) 

12 shall not apply to an individual who became at 

13 birth a citizen of the United States and a cit14 izen of another country.’’. 

15 (d) INELIGIBILITY FOR VISA OR ADMISSION TO

16 UNITED STATES.— 

17 (1) IN GENERAL.—Section 212(a)(10)(E) of the 

18 Immigration and Nationality Act (8 U.S.C. 

19 1182(a)(10)(E)) is amended to read as follows: 

20 ‘‘(E) FORMER CITIZENS NOT IN COMPLI21 ANCE WITH EXPATRIATION REVENUE PROVI22 SIONS.—Any alien who is a former citizen of 

23 the United States who relinquishes United 

24 States citizenship (within the meaning of sec25 tion 877A(e)(3) of the Internal Revenue Code 

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•S 1593 IS

1 of 1986) and who is not in compliance with sec2 tion 877A of such Code (relating to expatria3 tion) is inadmissible.’’. 

4 (2) AVAILABILITY OF INFORMATION.— 

5 (A) IN GENERAL.—Section 6103(l) (relat6 ing to disclosure of returns and return informa7 tion for purposes other than tax administration) 

8 is amended by adding at the end the following 

9 new paragraph: 

10 ‘‘(21) DISCLOSURE TO DENY VISA OR ADMIS11 SION TO CERTAIN EXPATRIATES.—Upon written re12 quest of the Attorney General or the Attorney Gen13 eral’s delegate, the Secretary shall disclose whether 

14 an individual is in compliance with section 877A 

15 (and if not in compliance, any items of noncompli16 ance) to officers and employees of the Federal agen17 cy responsible for administering section 

18 212(a)(10)(E) of the Immigration and Nationality 

19 Act solely for the purpose of, and to the extent nec20 essary in, administering such section 

21 212(a)(10)(E).’’. 

22 (B) SAFEGUARDS.—Section 6103(p)(4) 

23 (relating to safeguards) is amended by striking 

24 ‘‘or (20)’’ each place it appears and inserting 

25 ‘‘(20), or (21)’’. 

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•S 1593 IS

1 (3) EFFECTIVE DATES.—The amendments 

2 made by this subsection shall apply to individuals 

3 who relinquish United States citizenship on or after 

4 the date of the enactment of this Act. 

5 (e) CONFORMING AMENDMENTS.— 

6 (1) Section 877 is amended by adding at the 

7 end the following new subsection: 

8 ‘‘(h) APPLICATION.—This section shall not apply to 

9 an expatriate (as defined in section 877A(e)) whose expa10 triation date (as so defined) occurs on or after the date 

11 of the enactment of this subsection.’’. 

12 (2) Section 2107 is amended by adding at the 

13 end the following new subsection: 

14 ‘‘(f) APPLICATION.—This section shall not apply to 

15 any expatriate subject to section 877A.’’. 

16 (3) Section 2501(a)(3) is amended by adding at 

17 the end the following new subparagraph: 

18 ‘‘(C) APPLICATION.—This paragraph shall 

19 not apply to any expatriate subject to section 

20 877A.’’. 

21 (4) Section 6039G(a) is amended by inserting 

22 ‘‘or 877A’’ after ‘‘section 877(b)’’. 

23 (5) The second sentence of section 6039G(d) is 

24 amended by inserting ‘‘or who relinquishes United 

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49 

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1 States citizenship (within the meaning of section 

2 877A(e)(3))’’ after ‘‘section 877(a))’’. 

3 (6) Section 7701(n) is amended by adding at 

4 the end the following new paragraph: 

5 ‘‘(3) APPLICATION.—This subsection shall not 

6 apply to any expatriate subject to section 877A.’’. 

7 (f) CLERICAL AMENDMENT.—The table of sections 

8 for subpart A of part II of subchapter N of chapter 1 

9 is amended by inserting after the item relating to section 

10 877 the following new item: 

‘‘Sec. 877A. Tax responsibilities of expatriation.’’. 

11 (g) EFFECTIVE DATE.— 

12 (1) IN GENERAL.—Except as provided in this 

13 subsection, the amendments made by this section 

14 shall apply to expatriates (within the meaning of 

15 section 877A(e) of the Internal Revenue Code of 

16 1986, as added by this section) whose expatriation 

17 date (as so defined) occurs on or after the date of 

18 the enactment of this Act. 

19 (2) GIFTS AND BEQUESTS.—Section 102(d) of 

20 the Internal Revenue Code of 1986 (as added by 

21 subsection (b)) shall apply to gifts and bequests re22 ceived on or after the date of the enactment of this 

23 Act, from an individual or the estate of an individual 

24 whose expatriation date (as so defined) occurs after 

25 such date. 

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50 

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1 (3) DUE DATE FOR TENTATIVE TAX.—The due 

2 date under section 877A(h)(2) of the Internal Rev3 enue Code of 1986, as added by this section, shall 

4 in no event occur before the 90th day after the date 

5 of the enactment of this Act. 

Æ 

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