I 

108TH CONGRESS 

1ST SESSION H. R. 878

To amend the Internal Revenue Code of 1986 to provide a special rule 

for members of the uniformed services and Foreign Service in determining the exclusion of gain from the sale of a principal residence 

and to restore the tax exempt status of death gratuity payments to 

members of the uniformed services, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

FEBRUARY 25, 2003

Mr. THOMAS (for himself, Mr. HOUGHTON, Mr. CAMP, Mr. LEWIS of Kentucky, Mr. HAYWORTH, Mr. SAM JOHNSON of Texas, Mr. HERGER, Mr. 

RAMSTAD, Mr. CANTOR, Mr. ENGLISH, and Mr. CRANE) introduced the 

following bill; which was referred to the Committee on Ways and Means 

A BILL

To amend the Internal Revenue Code of 1986 to provide 

a special rule for members of the uniformed services 

and Foreign Service in determining the exclusion of gain 

from the sale of a principal residence and to restore 

the tax exempt status of death gratuity payments to 

members of the uniformed services, and for other purposes.

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

2 This Act may be cited as the ‘‘Armed Forces Tax 

3 Fairness Act of 2003’’. 

4 SEC. 2. SPECIAL RULE FOR MEMBERS OF UNIFORMED 

5 SERVICES AND FOREIGN SERVICE IN DETER6 MINING EXCLUSION OF GAIN FROM SALE OF 

7 PRINCIPAL RESIDENCE. 

8 (a) IN GENERAL.—Subsection (d) of section 121 of 

9 the Internal Revenue Code of 1986 (relating to exclusion 

10 of gain from sale of principal residence) is amended by 

11 adding at the end the following new paragraph: 

12 ‘‘(10) MEMBERS OF UNIFORMED SERVICES AND

13 FOREIGN SERVICE.—

14 ‘‘(A) IN GENERAL.—At the election of an 

15 individual with respect to a property, the run16 ning of the 5-year period referred to in sub17 section (a) with respect to such property shall 

18 be suspended during any period that such indi19 vidual or such individual’s spouse is serving on 

20 qualified official extended duty as a member of 

21 the uniformed services or of the Foreign Serv22 ice. 

23 ‘‘(B) MAXIMUM PERIOD OF SUSPENSION.—

24 Such 5-year period shall not be extended more 

25 than 5 years by reason of subparagraph (A). 
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1 ‘‘(C) QUALIFIED OFFICIAL EXTENDED

2 DUTY.—For purposes of this paragraph— 

3 ‘‘(i) IN GENERAL.—The term ‘quali4 fied official extended duty’ means any ex5 tended duty while serving at a duty station 

6 which is at least 150 miles from such prop7 erty or while residing under Government 

8 orders in Government quarters. 

9 ‘‘(ii) UNIFORMED SERVICES.—The 

10 term ‘uniformed services’ has the meaning 

11 given such term by section 101(a)(5) of 

12 title 10, United States Code, as in effect 

13 on the date of the enactment of this para14 graph. 

15 ‘‘(iii) FOREIGN SERVICE.—The term 

16 ‘member of the Foreign Service’ has the 

17 meaning given the term ‘member of the 

18 Service’ by paragraph (1), (2), (3), (4), or 

19 (5) of section 103 of the Foreign Service 

20 Act of 1980, as in effect on the date of the 

21 enactment of this paragraph. 

22 ‘‘(iv) EXTENDED DUTY.—The term 

23 ‘extended duty’ means any period of active 

24 duty pursuant to a call or order to such 
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1 duty for a period in excess of 180 days or 

2 for an indefinite period. 

3 ‘‘(D) SPECIAL RULES RELATING TO ELEC4 TION.—

5 ‘‘(i) ELECTION LIMITED TO 1 PROP6 ERTY AT A TIME.—An election under sub7 paragraph (A) with respect to any property 

8 may not be made if such an election is in 

9 effect with respect to any other property. 

10 ‘‘(ii) REVOCATION OF ELECTION.—An 

11 election under subparagraph (A) may be 

12 revoked at any time.’’. 

13 (b) EFFECTIVE DATE; SPECIAL RULE.—

14 (1) EFFECTIVE DATE.—The amendment made 

15 by this section shall take effect as if included in the 

16 amendments made by section 312 of the Taxpayer 

17 Relief Act of 1997. 

18 (2) WAIVER OF LIMITATIONS.—If refund or 

19 credit of any overpayment of tax resulting from the 

20 amendment made by this section is prevented at any 

21 time before the close of the 1-year period beginning 

22 on the date of the enactment of this Act by the oper23 ation of any law or rule of law (including res judi24 cata), such refund or credit may nevertheless be 
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1 made or allowed if claim therefor is filed before the 

2 close of such period.

3 SEC. 3. RESTORATION OF FULL EXCLUSION FROM GROSS 

4 INCOME OF DEATH GRATUITY PAYMENT. 

5 (a) IN GENERAL.—Subsection (b)(3) of section 134 

6 of the Internal Revenue Code of 1986 (relating to certain 

7 military benefits) is amended by adding at the end the 

8 following new subparagraph: 

9 ‘‘(C) EXCEPTION FOR DEATH GRATUITY

10 ADJUSTMENTS MADE BY LAW.—Subparagraph 

11 (A) shall not apply to any adjustment to the 

12 amount of death gratuity payable under chapter 

13 75 of title 10, United States Code, which is 

14 pursuant to a provision of law enacted before 

15 December 31, 1991.’’. 

16 (b) CONFORMING AMENDMENT.—Subparagraph (A) 

17 of section 134(b)(3) of such Code is amended by striking 

18 ‘‘subparagraph (B)’’ and inserting ‘‘subparagraphs (B) 

19 and (C)’’. 

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

21 this section shall apply with respect to deaths occurring 

22 after September 10, 2001.
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1 SEC. 4. EXCLUSION FOR AMOUNTS RECEIVED UNDER DE2 PARTMENT OF DEFENSE HOMEOWNERS AS3 SISTANCE PROGRAM. 

4 (a) IN GENERAL.—Section 132(a) of the Internal 

5 Revenue Code of 1986 (relating to the exclusion from 

6 gross income of certain fringe benefits) is amended by 

7 striking ‘‘or’’ at the end of paragraph (6), by striking the 

8 period at the end of paragraph (7) and inserting ‘‘, or’’ 

9 and by adding at the end the following new paragraph: 

10 ‘‘(8) qualified military base realignment and 

11 closure fringe.’’. 

12 (b) QUALIFIED MILITARY BASE REALIGNMENT AND

13 CLOSURE FRINGE.—Section 132 of such Code is amended 

14 by redesignating subsection (n) as subsection (o) and by 

15 inserting after subsection (m) the following new sub16 section: 

17 ‘‘(n) QUALIFIED MILITARY BASE REALIGNMENT AND

18 CLOSURE FRINGE.—

19 ‘‘(1) IN GENERAL.—For purposes of this sec20 tion, the term ‘qualified military base realignment 

21 and closure fringe’ means 1 or more payments under 

22 the authority of section 1013 of the Demonstration 

23 Cities and Metropolitan Development Act of 1966 

24 (42 U.S.C. 3374) (as in effect on the date of the en25 actment of this subsection). 
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1 ‘‘(2) LIMITATION.—With respect to any prop2 erty, such term shall not include any payment re3 ferred to in paragraph (1) to the extent that the 

4 sum of all such payments related to such property 

5 exceeds the amount described in subsection (c)(1) of 

6 such section (as in effect on such date).’’. 

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

8 this section shall apply to payments made after the date 

9 of the enactment of this Act. 

10 SEC. 5. EXPANSION OF COMBAT ZONE FILING RULES TO 

11 CONTINGENCY OPERATIONS. 

12 (a) IN GENERAL.—Section 7508(a) of the Internal 

13 Revenue Code of 1986 (relating to time for performing 

14 certain acts postponed by reason of service in combat 

15 zone) is amended—

16 (1) by inserting ‘‘or when deployed outside the 

17 United States away from the individual’s permanent 

18 duty station while participating in an operation des19 ignated by the Secretary of Defense as a contin20 gency operation (as defined in section 101(a)(13) of 

21 title 10, United States Code) or which became such 

22 a contingency operation by operation of law’’ after 

23 ‘‘section 112’’, 
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1 (2) by inserting in the first sentence ‘‘or at any 

2 time during the period of such contingency oper3 ation’’ after ‘‘for purposes of such section’’, 

4 (3) by inserting ‘‘or operation’’ after ‘‘such an 

5 area’’, and 

6 (4) by inserting ‘‘or operation’’ after ‘‘such 

7 area’’. 

8 (b) CONFORMING AMENDMENTS.—

9 (1) Section 7508(d) of such Code is amended 

10 by inserting ‘‘or contingency operation’’ after 

11 ‘‘area’’. 

12 (2) The heading for section 7508 of such Code 

13 is amended by inserting ‘‘OR CONTINGENCY OP14 ERATION’’ after ‘‘COMBAT ZONE’’. 

15 (3) The item relating to section 7508 of such 

16 Code in the table of sections for chapter 77 is 

17 amended by inserting ‘‘or contingency operation’’ 

18 after ‘‘combat zone’’. 

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

20 this section shall apply to any period for performing an 

21 act which has not expired before the date of the enactment 

22 of this Act. 
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1 SEC. 6. MODIFICATION OF MEMBERSHIP REQUIREMENT 

2 FOR EXEMPTION FROM TAX FOR CERTAIN 

3 VETERANS’ ORGANIZATIONS. 

4 (a) IN GENERAL.—Subparagraph (B) of section 

5 501(c)(19) of the Internal Revenue Code of 1986 (relating 

6 to list of exempt organizations) is amended by striking ‘‘or 

7 widowers’’ and inserting ‘‘, widowers, ancestors, or lineal 

8 descendants’’. 

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

10 this section shall apply to taxable years beginning after 

11 the date of the enactment of this Act. 

12 SEC. 7. CLARIFICATION OF THE TREATMENT OF CERTAIN 

13 DEPENDENT CARE ASSISTANCE PROGRAMS. 

14 (a) IN GENERAL.—Section 134(b) of the Internal 

15 Revenue Code of 1986 (defining qualified military benefit) 

16 is amended by adding at the end the following new para17 graph: 

18 ‘‘(4) CLARIFICATION OF CERTAIN BENEFITS.—

19 For purposes of paragraph (1), such term includes 

20 any dependent care assistance program (as in effect 

21 on the date of the enactment of this paragraph) for 

22 any individual described in paragraph (1)(A).’’. 

23 (b) CONFORMING AMENDMENTS.—

24 (1) Section 134(b)(3)(A) of such Code (as 

25 amended by section 3) is further amended by insert-
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1 ing ‘‘and paragraph (4)’’ after ‘‘subparagraphs (B) 

2 and (C)’’. 

3 (2) Section 3121(a)(18) of such Code is amend4 ed by striking ‘‘or 129’’ and inserting ‘‘, 129, or 

5 134(b)(4)’’. 

6 (3) Section 3306(b)(13) of such Code is amend7 ed by striking ‘‘or 129’’ and inserting ‘‘, 129, or 

8 134(b)(4)’’. 

9 (4) Section 3401(a)(18) of such Code is amend10 ed by striking ‘‘or 129’’ and inserting ‘‘, 129, or 

11 134(b)(4)’’. 

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

13 this section shall apply to taxable years beginning after 

14 December 31, 2002. 

15 SEC. 8. CLARIFICATION RELATING TO EXCEPTION FROM 

16 ADDITIONAL TAX ON CERTAIN DISTRIBU17 TIONS FROM QUALIFIED TUITION PRO18 GRAMS, ETC., ON ACCOUNT OF ATTENDANCE 

19 AT MILITARY ACADEMY. 

20 (a) IN GENERAL.—Subparagraph (B) of section 

21 530(d)(4) of the Internal Revenue Code of 1986 (relating 

22 to exceptions from additional tax for distributions not 

23 used for educational purposes) is amended by striking 

24 ‘‘or’’ at the end of clause (iii), by redesignating clause (iv)
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1 as clause (v), and by inserting after clause (iii) the fol2 lowing new clause: 

3 ‘‘(iv) made on account of the attend4 ance of the account holder at the United 

5 States Military Academy, the United 

6 States Naval Academy, the United States 

7 Air Force Academy, the United States 

8 Coast Guard Academy, or the United 

9 States Merchant Marine Academy, to the 

10 extent that the amount of the payment or 

11 distribution does not exceed the costs of 

12 advanced education (as defined by section 

13 2005(e)(3) of title 10, United States Code, 

14 as in effect on the date of the enactment 

15 of this section) attributable to such attend16 ance, or’’. 

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

18 this section shall take effect for taxable years beginning 

19 after December 31, 2002. 

20 SEC. 9. SUSPENSION OF TAX-EXEMPT STATUS OF TER21 RORIST ORGANIZATIONS. 

22 (a) IN GENERAL.—Section 501 of the Internal Rev23 enue Code of 1986 (relating to exemption from tax on cor24 porations, certain trusts, etc.) is amended by redesig-
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1 nating subsection (p) as subsection (q) and by inserting 

2 after subsection (o) the following new subsection: 

3 ‘‘(p) SUSPENSION OF TAX-EXEMPT STATUS OF TER4 RORIST ORGANIZATIONS.—

5 ‘‘(1) IN GENERAL.—The exemption from tax 

6 under subsection (a) with respect to any organiza7 tion described in paragraph (2), and the eligibility of 

8 any organization described in paragraph (2) to apply 

9 for recognition of exemption under subsection (a), 

10 shall be suspended during the period described in 

11 paragraph (3). 

12 ‘‘(2) TERRORIST ORGANIZATIONS.—An organi13 zation is described in this paragraph if such organi14 zation is designated or otherwise individually identi15 fied— 

16 ‘‘(A) under section 212(a)(3)(B)(vi)(II) or 

17 219 of the Immigration and Nationality Act as 

18 a terrorist organization or foreign terrorist or19 ganization, 

20 ‘‘(B) in or pursuant to an Executive order 

21 which is related to terrorism and issued under 

22 the authority of the International Emergency 

23 Economic Powers Act or section 5 of the 

24 United Nations Participation Act of 1945 for 
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1 the purpose of imposing on such organization 

2 an economic or other sanction, or 

3 ‘‘(C) in or pursuant to an Executive order 

4 issued under the authority of any Federal law 

5 if—

6 ‘‘(i) the organization is designated or 

7 otherwise individually identified in or pur8 suant to such Executive order as sup9 porting or engaging in terrorist activity (as 

10 defined in section 212(a)(3)(B) of the Im11 migration and Nationality Act) or sup12 porting terrorism (as defined in section 

13 140(d)(2) of the Foreign Relations Author14 ization Act, Fiscal Years 1988 and 1989); 

15 and 

16 ‘‘(ii) such Executive order refers to 

17 this subsection. 

18 ‘‘(3) PERIOD OF SUSPENSION.—With respect to 

19 any organization described in paragraph (2), the pe20 riod of suspension—

21 ‘‘(A) begins on the later of—

22 ‘‘(i) the date of the first publication of 

23 a designation or identification described in 

24 paragraph (2) with respect to such organi25 zation, or 
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1 ‘‘(ii) the date of the enactment of this 

2 subsection, and 

3 ‘‘(B) ends on the first date that all des4 ignations and identifications described in para5 graph (2) with respect to such organization are 

6 rescinded pursuant to the law or Executive 

7 order under which such designation or identi8 fication was made. 

9 ‘‘(4) DENIAL OF DEDUCTION.—No deduction 

10 shall be allowed under section 170, 545(b)(2), 

11 556(b)(2), 642(c), 2055, 2106(a)(2), or 2522 for 

12 any contribution to an organization described in 

13 paragraph (2) during the period described in para14 graph (3). 

15 ‘‘(5) DENIAL OF ADMINISTRATIVE OR JUDICIAL

16 CHALLENGE OF SUSPENSION OR DENIAL OF DEDUC17 TION.—Notwithstanding section 7428 or any other 

18 provision of law, no organization or other person 

19 may challenge a suspension under paragraph (1), a 

20 designation or identification described in paragraph 

21 (2), the period of suspension described in paragraph 

22 (3), or a denial of a deduction under paragraph (4) 

23 in any administrative or judicial proceeding relating 

24 to the Federal tax liability of such organization or 

25 other person. 
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1 ‘‘(6) ERRONEOUS DESIGNATION.—

2 ‘‘(A) IN GENERAL.—If—

3 ‘‘(i) the tax exemption of any organi4 zation described in paragraph (2) is sus5 pended under paragraph (1), 

6 ‘‘(ii) each designation and identifica7 tion described in paragraph (2) which has 

8 been made with respect to such organiza9 tion is determined to be erroneous pursu10 ant to the law or Executive order under 

11 which such designation or identification 

12 was made, and 

13 ‘‘(iii) the erroneous designations and 

14 identifications result in an overpayment of 

15 income tax for any taxable year by such 

16 organization, 

17 credit or refund (with interest) with respect to 

18 such overpayment shall be made. 

19 ‘‘(B) WAIVER OF LIMITATIONS.—If the 

20 credit or refund of any overpayment of tax de21 scribed in subparagraph (A)(iii) is prevented at 

22 any time by the operation of any law or rule of 

23 law (including res judicata), such credit or re24 fund may nevertheless be allowed or made if the 

25 claim therefor is filed before the close of the 1-
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1 year period beginning on the date of the last 

2 determination described in subparagraph 

3 (A)(ii). 

4 ‘‘(7) NOTICE OF SUSPENSIONS.—If the tax ex5 emption of any organization is suspended under this 

6 subsection, the Internal Revenue Service shall up7 date the listings of tax-exempt organizations and 

8 shall publish appropriate notice to taxpayers of such 

9 suspension and of the fact that contributions to such 

10 organization are not deductible during the period of 

11 such suspension.’’. 

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

13 this section shall apply to designations made before, on, 

14 or after the date of the enactment of this Act. 

15 SEC. 10. ABOVE-THE-LINE DEDUCTION FOR OVERNIGHT 

16 TRAVEL EXPENSES OF NATIONAL GUARD 

17 AND RESERVE MEMBERS. 

18 (a) DEDUCTION ALLOWED.—Section 162 of the In19 ternal Revenue Code of 1986 (relating to certain trade or 

20 business expenses) is amended by redesignating subsection 

21 (p) as subsection (q) and inserting after subsection (o) the 

22 following new subsection: 

23 ‘‘(p) TREATMENT OF EXPENSES OF MEMBERS OF

24 RESERVE COMPONENT OF ARMED FORCES OF THE

25 UNITED STATES.—For purposes of subsection (a)(2), in 
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1 the case of an individual who performs services as a mem2 ber of a reserve component of the Armed Forces of the 

3 United States at any time during the taxable year, such 

4 individual shall be deemed to be away from home in the 

5 pursuit of a trade or business for any period during which 

6 such individual is away from home in connection with such 

7 services.’’. 

8 (b) DEDUCTION ALLOWED WHETHER OR NOT TAX9 PAYER ELECTS TO ITEMIZE.—Section 62(a)(2) of such 

10 Code (relating to certain trade and business deductions 

11 of employees) is amended by adding at the end the fol12 lowing new subparagraph: 

13 ‘‘(E) CERTAIN EXPENSES OF MEMBERS OF

14 RESERVE COMPONENTS OF THE ARMED FORCES

15 OF THE UNITED STATES.—The deductions al16 lowed by section 162 which consist of expenses, 

17 not in excess of $500, paid or incurred by the 

18 taxpayer in connection with the performance of 

19 services by such taxpayer as a member of a re20 serve component of the Armed Forces of the 

21 United States for any period during which such 

22 individual is more than 100 miles away from 

23 home in connection with such services.’’. 
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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to amounts paid or incurred in tax3 able years beginning after December 31, 2002. 

4 SEC. 11. PROTECTION OF SOCIAL SECURITY. 

5 The amounts transferred to any trust fund under 

6 title II of the Social Security Act shall be determined as 

7 if this Act had not been enacted.

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