IB 

Union Calendar No. 16

108TH CONGRESS 

1ST SESSION H. R. 878

[Report No. 108–23] 

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 

MARCH 5, 2003

Additional sponsors: Mr. PORTMAN, Mr. MCINNIS, Mr. MCCRERY, Mr. JONES

of North Carolina, Mr. COLE, Mr. SIMMONS, Mr. WILSON of South Carolina, Mr. REYNOLDS, Mr. CRENSHAW, Mr. HEFLEY, Mr. BRADLEY of 

New Hampshire, Mr. GILLMOR, Mr. ROYCE, Mr. MCCOTTER, and Mr. 

DUNCAN

MARCH 5, 2003

Reported with an amendment, committed to the Committee of the Whole 

House on the State of the Union, and ordered to be printed 

[Strike out all after the enacting clause and insert the part printed in italic] 

[For text of introduced bill, see copy of bill as introduced on February 25, 2003] 

A BILL

To amend the Internal Revenue Code of 1986 to provide 
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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,

3 SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CON4 TENTS. 

5 (a) SHORT TITLE.—This Act may be cited as the 

6 ‘‘Armed Forces Tax Fairness Act of 2003’’. 

7 (b) AMENDMENT OF 1986 CODE.—Except as otherwise 

8 expressly provided, whenever in this Act an amendment or 

9 repeal is expressed in terms of an amendment to, or repeal 

10 of, a section or other provision, the reference shall be consid11 ered to be made to a section or other provision of the Inter12 nal Revenue Code of 1986. 

13 (c) TABLE OF CONTENTS.—The table of contents of this 

14 Act is as follows:

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

TITLE I—ARMED FORCES 

Sec. 101. Special rule for members of uniformed services and foreign service and 

peace corps volunteers and employees in determining exclusion 

of gain from sale of principal residence. 

Sec. 102. Restoration of full exclusion from gross income of death gratuity payment. 

Sec. 103. Exclusion for amounts received under Department of Defense homeowners assistance program. 

Sec. 104. Expansion of combat zone filing rules to contingency operations. 

Sec. 105. Modification of membership requirement for exemption from tax for certain veterans’ organizations. 
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Sec. 106. Clarification of the treatment of certain dependent care assistance programs. 

Sec. 107. Clarification relating to exception from additional tax on certain distributions from qualified tuition programs, etc., on account of 

attendance at military academy. 

Sec. 108. Suspension of tax-exempt status of terrorist organizations. 

Sec. 109. Above-the-line deduction for overnight travel expenses of national guard 

and reserve members. 

TITLE II—MISCELLANEOUS PROVISIONS 

Sec. 201. Tax relief and assistance for families of astronauts who lose their lives 

on a space mission. 

Sec. 202. Income averaging for farmers not to increase alternative minimum tax. 

Sec. 203. Capital gain treatment under section 631(b) to apply to outright sales 

by landowners. 

Sec. 204. Special rules for livestock sold on account of weather-related conditions. 

Sec. 205. Simplification of excise tax imposed on bows and arrows. 

Sec. 206. Repeal of excise tax on fishing tackle boxes. 

Sec. 207. Reduced motor fuel excise tax on certain mixtures of diesel fuel. 

Sec. 208. Expansion of human clinical trials qualifying for orphan drug credit. 

Sec. 209. Health insurance costs of eligible individuals. 

Sec. 210. Treatment under at-risk rules of publicly traded nonrecourse debt. 

Sec. 211. Exclusion of income derived from certain wagers on horse races from 

gross income of nonresident alien individuals. 

Sec. 212. Payment of dividends on stock of cooperatives without reducing patronage dividends. 

Sec. 213. Pilot project for forest conservation activities. 

Sec. 214. Protection of social security. 

TITLE III—REVENUE PROVISIONS 

Sec. 301. Individual expatriation to avoid tax. 

Sec. 302. Vaccine tax to apply to hepatitis A vaccine.

1 TITLE I—ARMED FORCES 

2 SEC. 101. SPECIAL RULE FOR MEMBERS OF UNIFORMED 

3 SERVICES AND FOREIGN SERVICE AND PEACE 

4 CORPS VOLUNTEERS AND EMPLOYEES IN DE5 TERMINING EXCLUSION OF GAIN FROM SALE 

6 OF PRINCIPAL RESIDENCE. 

7 (a) IN GENERAL.—Subsection (d) of section 121 (relat8 ing to exclusion of gain from sale of principal residence) 

9 is amended by adding at the end the following new para10 graph: 
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1 ‘‘(10) MEMBERS OF UNIFORMED SERVICES AND

2 FOREIGN SERVICE AND PEACE CORPS VOLUNTEERS

3 AND EMPLOYEES.—

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

5 individual with respect to a property, the run6 ning of the 5-year period referred to in sub7 sections (a) and (c)(1)(B) and paragraph (7) of 

8 this subsection with respect to such property 

9 shall be suspended during any period that such 

10 individual or such individual’s spouse is serving 

11 on qualified official extended duty as a member 

12 of the uniformed services or of the Foreign Serv13 ice or as a Peace Corps volunteer or an employee 

14 of the Peace Corps. 

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

16 Such 5-year period shall not be extended more 

17 than 5 years by reason of subparagraph (A). 

18 ‘‘(C) QUALIFIED OFFICIAL EXTENDED

19 DUTY.—For purposes of this paragraph— 

20 ‘‘(i) IN GENERAL.—The term ‘qualified 

21 official extended duty’ means any extended 

22 duty while serving at a duty station which 

23 is at least 150 miles from such property or 

24 while residing under Government orders in 

25 Government quarters. 
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1 ‘‘(ii) UNIFORMED SERVICES.—The 

2 term ‘uniformed services’ has the meaning 

3 given such term by section 101(a)(5) of title

4 10, United States Code, as in effect on the 

5 date of the enactment of this paragraph. 

6 ‘‘(iii) FOREIGN SERVICE.—The term 

7 ‘member of the Foreign Service’ has the 

8 meaning given the term ‘member of the 

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

10 (5) of section 103 of the Foreign Service Act 

11 of 1980, as in effect on the date of the enact12 ment of this paragraph. 

13 ‘‘(iv) EXTENDED DUTY.—The term ‘ex14 tended duty’ means any period of active 

15 duty pursuant to a call or order to such 

16 duty for a period in excess of 180 days or 

17 for an indefinite period. 

18 ‘‘(v) RULES RELATING TO THE PEACE

19 CORPS.—

20 ‘‘(I) EXTENDED DUTY.—In the 

21 case of a Peace Corps volunteer, the 

22 term ‘extended duty’ means any period 

23 of active duty assigned to a Peace 

24 Corps volunteer under the Peace Corps 
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1 Act for a period in excess of 180 days 

2 or for an indefinite period. 

3 ‘‘(II) PEACE CORPS VOLUN4 TEER.—The term ‘Peace Corps volun5 teer’ means an individual enrolled as a 

6 volunteer or volunteer leader under the 

7 Peace Corps Act. 

8 ‘‘(III) EMPLOYEE OF THE PEACE

9 CORPS.—The term ‘employee of the 

10 Peace Corps’ means a person employed 

11 in the Peace Corps under section 7 of 

12 the Peace Corps Act. 

13 ‘‘(IV) REFERENCES TO PEACE

14 CORPS ACT.—References in this clause 

15 to the Peace Corps Act mean references 

16 to the Peace Corps Act (22 U.S.C. 2501 

17 et seq.) as in effect on the date of the 

18 enactment of this clause. 

19 ‘‘(D) SPECIAL RULES RELATING TO ELEC20 TION.—

21 ‘‘(i) ELECTION LIMITED TO 1 PROP22 ERTY AT A TIME.—An election under sub23 paragraph (A) with respect to any property 

24 may not be made if such an election is in 

25 effect with respect to any other property. 
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1 ‘‘(ii) REVOCATION OF ELECTION.—An 

2 election under subparagraph (A) may be re3 voked at any time.’’. 

4 (b) EFFECTIVE DATE; SPECIAL RULE.—

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

6 this section shall take effect as if included in the 

7 amendments made by section 312 of the Taxpayer Re8 lief Act of 1997. 

9 (2) WAIVER OF LIMITATIONS.—If refund or cred10 it of any overpayment of tax resulting from the 

11 amendment made by this section is prevented at any 

12 time before the close of the 1-year period beginning on 

13 the date of the enactment of this Act by the operation 

14 of any law or rule of law (including res judicata), 

15 such refund or credit may nevertheless be made or al16 lowed if claim therefor is filed before the close of such 

17 period.

18 SEC. 102. RESTORATION OF FULL EXCLUSION FROM GROSS 

19 INCOME OF DEATH GRATUITY PAYMENT. 

20 (a) IN GENERAL.—Paragraph (3) of section 134(b) 

21 (relating to qualified military benefit) is amended by add22 ing at the end the following new subparagraph: 

23 ‘‘(C) EXCEPTION FOR DEATH GRATUITY AD24 JUSTMENTS MADE BY LAW.—Subparagraph (A) 

25 shall not apply to any adjustment to the amount 
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1 of death gratuity payable under chapter 75 of 

2 title 10, United States Code, which is pursuant 

3 to a provision of law enacted before December 31, 

4 1991.’’.

5 (b) CONFORMING AMENDMENT.—Section 134(b)(3)(A) 

6 is amended by striking ‘‘subparagraph (B)’’ and inserting 

7 ‘‘subparagraphs (B) and (C)’’. 

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

9 section shall apply with respect to deaths occurring after 

10 September 10, 2001. 

11 SEC. 103. EXCLUSION FOR AMOUNTS RECEIVED UNDER DE12 PARTMENT OF DEFENSE HOMEOWNERS AS13 SISTANCE PROGRAM. 

14 (a) IN GENERAL.—Subsection (a) of section 132 (relat15 ing to certain fringe benefits) is amended by striking ‘‘or’’ 

16 at the end of paragraph (6), by striking the period at the 

17 end of paragraph (7) and inserting ‘‘, or’’ and by adding 

18 at the end the following new paragraph: 

19 ‘‘(8) qualified military base realignment and clo20 sure fringe.’’. 

21 (b) QUALIFIED MILITARY BASE REALIGNMENT AND

22 CLOSURE FRINGE.—Section 132 is amended by redesig23 nating subsection (n) as subsection (o) and by inserting 

24 after subsection (m) the following new subsection: 
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1 ‘‘(n) QUALIFIED MILITARY BASE REALIGNMENT AND

2 CLOSURE FRINGE.—

3 ‘‘(1) IN GENERAL.—For purposes of this section, 

4 the term ‘qualified military base realignment and clo5 sure fringe’ means 1 or more payments under the au6 thority of section 1013 of the Demonstration Cities 

7 and Metropolitan Development Act of 1966 (42 

8 U.S.C. 3374) (as in effect on the date of the enact9 ment of this subsection). 

10 ‘‘(2) LIMITATION.—With respect to any property, 

11 such term shall not include any payment referred to 

12 in paragraph (1) to the extent that the sum of all 

13 such payments related to such property exceeds the 

14 amount described in clause (1) of subsection (c) of 

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

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

17 section shall apply to payments made after the date of the 

18 enactment of this Act. 

19 SEC. 104. EXPANSION OF COMBAT ZONE FILING RULES TO 

20 CONTINGENCY OPERATIONS. 

21 (a) IN GENERAL.—Subsection (a) of section 7508 (re22 lating to time for performing certain acts postponed by rea23 son of service in combat zone) is amended—

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

25 United States away from the individual’s permanent 
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1 duty station while participating in an operation des2 ignated by the Secretary of Defense as a contingency 

3 operation (as defined in section 101(a)(13) of title 10, 

4 United States Code) or which became such a contin5 gency operation by operation of law’’ after ‘‘section 

6 112’’, 

7 (2) by inserting in the first sentence ‘‘or at any 

8 time during the period of such contingency operation’’ 

9 after ‘‘for purposes of such section’’, 

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

11 area’’, and 

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

13 area’’. 

14 (b) CONFORMING AMENDMENTS.—

15 (1) Section 7508(d) is amended by inserting ‘‘or 

16 contingency operation’’ after ‘‘area’’. 

17 (2) The heading for section 7508 is amended by 

18 inserting ‘‘OR CONTINGENCY OPERATION’’ after 

19 ‘‘COMBAT ZONE’’. 

20 (3) The item relating to section 7508 in the table 

21 of sections for chapter 77 is amended by inserting ‘‘or 

22 contingency operation’’ after ‘‘combat zone’’. 

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

24 section shall apply to any period for performing an act 
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1 which has not expired before the date of the enactment of 

2 this Act. 

3 SEC. 105. MODIFICATION OF MEMBERSHIP REQUIREMENT 

4 FOR EXEMPTION FROM TAX FOR CERTAIN 

5 VETERANS’ ORGANIZATIONS. 

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

7 501(c)(19) (relating to list of exempt organizations) is 

8 amended by striking ‘‘or widowers’’ and inserting ‘‘, wid9 owers, ancestors, or lineal descendants’’. 

10 (b) EFFECTIVE DATE.—The amendments made by this 

11 section shall apply to taxable years beginning after the date 

12 of the enactment of this Act. 

13 SEC. 106. CLARIFICATION OF THE TREATMENT OF CERTAIN 

14 DEPENDENT CARE ASSISTANCE PROGRAMS. 

15 (a) IN GENERAL.—Subsection (b) of section 134 (de16 fining qualified military benefit) is amended by adding at 

17 the end the following new paragraph: 

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.—
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1 (1) Section 134(b)(3)(A) (as amended by section 

2 102) is further amended by inserting ‘‘and paragraph 

3 (4)’’ after ‘‘subparagraphs (B) and (C)’’. 

4 (2) Section 3121(a)(18) is amended by striking 

5 ‘‘or 129’’ and inserting ‘‘, 129, or 134(b)(4)’’. 

6 (3) Section 3306(b)(13) is amended by striking 

7 ‘‘or 129’’ and inserting ‘‘, 129, or 134(b)(4)’’. 

8 (4) Section 3401(a)(18) is amended by striking 

9 ‘‘or 129’’ and inserting ‘‘, 129, or 134(b)(4)’’. 

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

11 section shall apply to taxable years beginning after Decem12 ber 31, 2002. 

13 SEC. 107. CLARIFICATION RELATING TO EXCEPTION FROM 

14 ADDITIONAL TAX ON CERTAIN DISTRIBU15 TIONS FROM QUALIFIED TUITION PROGRAMS, 

16 ETC., ON ACCOUNT OF ATTENDANCE AT MILI17 TARY ACADEMY. 

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

19 530(d)(4) (relating to exceptions from additional tax for 

20 distributions not used for educational purposes) is amended 

21 by striking ‘‘or’’ at the end of clause (iii), by redesignating 

22 clause (iv) as clause (v), and by inserting after clause (iii) 

23 the following new clause: 

24 ‘‘(iv) made on account of the attend25 ance of the designated beneficiary at the 
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1 United States Military Academy, the 

2 United States Naval Academy, the United 

3 States Air Force Academy, the United 

4 States Coast Guard Academy, or the United 

5 States Merchant Marine Academy, to the

6 extent that the amount of the payment or 

7 distribution does not exceed the costs of ad8 vanced education (as defined by section 

9 2005(e)(3) of title 10, United States Code, 

10 as in effect on the date of the enactment of 

11 this section) attributable to such attendance, 

12 or’’. 

13 (b) EFFECTIVE DATE.—The amendment made by this 

14 section shall take effect for taxable years beginning after De15 cember 31, 2002. 

16 SEC. 108. SUSPENSION OF TAX-EXEMPT STATUS OF TER17 RORIST ORGANIZATIONS. 

18 (a) IN GENERAL.—Section 501 (relating to exemption 

19 from tax on corporations, certain trusts, etc.) is amended 

20 by redesignating subsection (p) as subsection (q) and by in21 serting after subsection (o) the following new subsection: 

22 ‘‘(p) SUSPENSION OF TAX-EXEMPT STATUS OF TER23 RORIST ORGANIZATIONS.—

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

25 under subsection (a) with respect to any organization 
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1 described in paragraph (2), and the eligibility of any 

2 organization described in paragraph (2) to apply for 

3 recognition of exemption under subsection (a), shall 

4 be suspended during the period described in para5 graph (3). 

6 ‘‘(2) TERRORIST ORGANIZATIONS.—An organiza7 tion is described in this paragraph if such organiza8 tion is designated or otherwise individually identi9 fied— 

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

11 219 of the Immigration and Nationality Act as 

12 a terrorist organization or foreign terrorist orga13 nization, 

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

15 which is related to terrorism and issued under 

16 the authority of the International Emergency 

17 Economic Powers Act or section 5 of the United 

18 Nations Participation Act of 1945 for the pur19 pose of imposing on such organization an eco20 nomic or other sanction, or 

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

22 issued under the authority of any Federal law 

23 if—

24 ‘‘(i) the organization is designated or 

25 otherwise individually identified in or pur-
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1 suant to such Executive order as supporting 

2 or engaging in terrorist activity (as defined 

3 in section 212(a)(3)(B) of the Immigration 

4 and Nationality Act) or supporting ter5 rorism (as defined in section 140(d)(2) of 

6 the Foreign Relations Authorization Act, 

7 Fiscal Years 1988 and 1989); and 

8 ‘‘(ii) such Executive order refers to this 

9 subsection. 

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

11 any organization described in paragraph (2), the pe12 riod of suspension—

13 ‘‘(A) begins on the later of—

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

15 a designation or identification described in 

16 paragraph (2) with respect to such organi17 zation, or 

18 ‘‘(ii) the date of the enactment of this 

19 subsection, and 

20 ‘‘(B) ends on the first date that all designa21 tions and identifications described in paragraph 

22 (2) with respect to such organization are re23 scinded pursuant to the law or Executive order 

24 under which such designation or identification 

25 was made. 
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1 ‘‘(4) DENIAL OF DEDUCTION.—No deduction 

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

3 556(b)(2), 642(c), 2055, 2106(a)(2), or 2522 for any 

4 contribution to an organization described in para5 graph (2) during the period described in paragraph 

6 (3). 

7 ‘‘(5) DENIAL OF ADMINISTRATIVE OR JUDICIAL

8 CHALLENGE OF SUSPENSION OR DENIAL OF DEDUC9 TION.—Notwithstanding section 7428 or any other 

10 provision of law, no organization or other person may 

11 challenge a suspension under paragraph (1), a des12 ignation or identification described in paragraph (2), 

13 the period of suspension described in paragraph (3), 

14 or a denial of a deduction under paragraph (4) in 

15 any administrative or judicial proceeding relating to 

16 the Federal tax liability of such organization or other 

17 person. 

18 ‘‘(6) ERRONEOUS DESIGNATION.—

19 ‘‘(A) IN GENERAL.—If—

20 ‘‘(i) the tax exemption of any organi21 zation described in paragraph (2) is sus22 pended under paragraph (1), 

23 ‘‘(ii) each designation and identifica24 tion described in paragraph (2) which has 

25 been made with respect to such organization 
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1 is determined to be erroneous pursuant to 

2 the law or Executive order under which 

3 such designation or identification was 

4 made, and 

5 ‘‘(iii) the erroneous designations and 

6 identifications result in an overpayment of 

7 income tax for any taxable year by such or8 ganization, 

9 credit or refund (with interest) with respect to 

10 such overpayment shall be made. 

11 ‘‘(B) WAIVER OF LIMITATIONS.—If the cred12 it or refund of any overpayment of tax described 

13 in subparagraph (A)(iii) is prevented at any 

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

15 (including res judicata), such credit or refund 

16 may nevertheless be allowed or made if the claim 

17 therefor is filed before the close of the 1-year pe18 riod beginning on the date of the last determina19 tion described in subparagraph (A)(ii). 

20 ‘‘(7) NOTICE OF SUSPENSIONS.—If the tax ex21 emption of any organization is suspended under this 

22 subsection, the Internal Revenue Service shall update 

23 the listings of tax-exempt organizations and shall 

24 publish appropriate notice to taxpayers of such sus25 pension and of the fact that contributions to such or-
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1 ganization are not deductible during the period of 

2 such suspension.’’.

3 (b) EFFECTIVE DATE.—The amendments made by this 

4 section shall apply to designations made before, on, or after 

5 the date of the enactment of this Act. 

6 SEC. 109. ABOVE-THE-LINE DEDUCTION FOR OVERNIGHT 

7 TRAVEL EXPENSES OF NATIONAL GUARD AND 

8 RESERVE MEMBERS. 

9 (a) DEDUCTION ALLOWED.—Section 162 (relating to 

10 certain trade or business expenses) is amended by redesig11 nating subsection (p) as subsection (q) and inserting after 

12 subsection (o) the following new subsection: 

13 ‘‘(p) TREATMENT OF EXPENSES OF MEMBERS OF RE14 SERVE COMPONENT OF ARMED FORCES OF THE UNITED

15 STATES.—For purposes of subsection (a)(2), in the case of 

16 an individual who performs services as a member of a re17 serve component of the Armed Forces of the United States 

18 at any time during the taxable year, such individual shall 

19 be deemed to be away from home in the pursuit of a trade 

20 or business for any period during which such individual 

21 is away from home in connection with such services.’’. 

22 (b) DEDUCTION ALLOWED WHETHER OR NOT TAX23 PAYER ELECTS TO ITEMIZE.—Paragraph (2) of section 

24 62(a) (relating to certain trade and business deductions of 
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1 employees) is amended by adding at the end the following 

2 new subparagraph: 

3 ‘‘(E) CERTAIN EXPENSES OF MEMBERS OF

4 RESERVE COMPONENTS OF THE ARMED FORCES

5 OF THE UNITED STATES.—The deductions al6 lowed by section 162 which consist of expenses, 

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

8 taxpayer in connection with the performance of 

9 services by such taxpayer as a member of a re10 serve component of the Armed Forces of the 

11 United States for any period during which such 

12 individual is more than 100 miles away from 

13 home in connection with such services.’’. 

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

15 section shall apply to amounts paid or incurred in taxable 

16 years beginning after December 31, 2002.

17 TITLE II—MISCELLANEOUS 

18 PROVISIONS

19 SEC. 201. TAX RELIEF AND ASSISTANCE FOR FAMILIES OF 

20 ASTRONAUTS WHO LOSE THEIR LIVES ON A 

21 SPACE MISSION. 

22 (a) INCOME TAX RELIEF.—

23 (1) IN GENERAL.—Subsection (d) of section 692 

24 (relating to income taxes of members of Armed Forces 

25 and victims of certain terrorist attacks on death) is 
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1 amended by adding at the end the following new 

2 paragraph: 

3 ‘‘(5) RELIEF WITH RESPECT TO ASTRONAUTS.—

4 The provisions of this subsection shall apply to any 

5 astronaut whose death occurs while on a space mis6 sion, except that paragraph (3)(B) shall be applied by 

7 using the date of the death of the astronaut rather 

8 than September 11, 2001.’’. 

9 (2) CONFORMING AMENDMENTS.—

10 (A) Section 5(b)(1) is amended by inserting 

11 ‘‘, astronauts,’’ after ‘‘Forces’’. 

12 (B) Section 6013(f)(2)(B) is amended by 

13 inserting ‘‘, astronauts,’’ after ‘‘Forces’’. 

14 (3) CLERICAL AMENDMENTS.—

15 (A) The heading of section 692 is amended 

16 by inserting ‘‘, ASTRONAUTS,’’ after 

17 ‘‘FORCES’’. 

18 (B) The item relating to section 692 in the 

19 table of sections for part II of subchapter J of 

20 chapter 1 is amended by inserting ‘‘, astro21 nauts,’’ after ‘‘Forces’’. 

22 (4) EFFECTIVE DATE.—The amendments made 

23 by this subsection shall apply with respect to any as24 tronaut whose death occurs after December 31, 2002. 

25 (b) DEATH BENEFIT RELIEF.—
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1 (1) IN GENERAL.—Subsection (i) of section 101 

2 (relating to certain death benefits) is amended by 

3 adding at the end the following new paragraph: 

4 ‘‘(4) RELIEF WITH RESPECT TO ASTRONAUTS.—

5 The provisions of this subsection shall apply to any 

6 astronaut whose death occurs while on a space mis7 sion.’’. 

8 (2) CLERICAL AMENDMENT.—The heading for 

9 subsection (i) of section 101 is amended by inserting 

10 ‘‘OR ASTRONAUTS’’ after ‘‘VICTIMS’’. 

11 (3) EFFECTIVE DATE.—The amendments made 

12 by this subsection shall apply to amounts paid after 

13 December 31, 2002, with respect to deaths occurring 

14 after such date. 

15 (c) ESTATE TAX RELIEF.—

16 (1) IN GENERAL.—Subsection (b) of section 2201 

17 (defining qualified decedent) is amended by striking 

18 ‘‘and’’ at the end of paragraph (1)(B), by striking the 

19 period at the end of paragraph (2) and inserting ‘‘, 

20 and’’, and by adding at the end the following new 

21 paragraph: 

22 ‘‘(3) any astronaut whose death occurs while on 

23 a space mission.’’. 

24 (2) CLERICAL AMENDMENTS.—
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1 (A) The heading of section 2201 is amended 

2 by inserting ‘‘, DEATHS OF ASTRONAUTS,’’ 

3 after ‘‘FORCES’’. 

4 (B) The item relating to section 2201 in the 

5 table of sections for subchapter C of chapter 11 

6 is amended by inserting ‘‘, deaths of astronauts,’’ 

7 after ‘‘Forces’’. 

8 (3) EFFECTIVE DATE.—The amendments made 

9 by this subsection shall apply to estates of decedents 

10 dying after December 31, 2002. 

11 SEC. 202. INCOME AVERAGING FOR FARMERS NOT TO IN12 CREASE ALTERNATIVE MINIMUM TAX. 

13 (a) IN GENERAL.—Subsection (c) of section 55 (defin14 ing regular tax) is amended by redesignating paragraph 

15 (2) as paragraph (3) and by inserting after paragraph (1) 

16 the following new paragraph: 

17 ‘‘(2) COORDINATION WITH INCOME AVERAGING

18 FOR FARMERS.—Solely for purposes of this section, 

19 section 1301 (relating to averaging of farm income) 

20 shall not apply in computing the regular tax.’’. 

21 (b) EFFECTIVE DATE.—The amendment made by sub22 section (a) shall apply to taxable years beginning after De23 cember 31, 2002.
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1 SEC. 203. CAPITAL GAIN TREATMENT UNDER SECTION 

2 631(b) TO APPLY TO OUTRIGHT SALES BY 

3 LANDOWNERS. 

4 (a) IN GENERAL.—The first sentence of section 631(b) 

5 (relating to disposal of timber with a retained economic in6 terest) is amended by striking ‘‘retains an economic interest 

7 in such timber’’ and inserting ‘‘either retains an economic 

8 interest in such timber or makes an outright sale of such 

9 timber’’. 

10 (b) CONFORMING AMENDMENTS.—

11 (1) The third sentence of section 631(b) is 

12 amended by striking ‘‘The date of disposal’’ and in13 serting ‘‘In the case of disposal of timber with a re14 tained economic interest, the date of disposal’’. 

15 (2) The heading for section 631(b) is amended by 

16 striking ‘‘WITH A RETAINED ECONOMIC INTEREST’’. 

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

18 section shall apply to sales after the date of the enactment 

19 of this Act.

20 SEC. 204. SPECIAL RULES FOR LIVESTOCK SOLD ON AC21 COUNT OF WEATHER-RELATED CONDITIONS. 

22 (a) RULES FOR REPLACEMENT OF INVOLUNTARILY

23 CONVERTED LIVESTOCK.—Subsection (e) of section 1033 

24 (relating to involuntary conversions) is amended—

25 (1) by striking ‘‘CONDITIONS.—For purposes’’ 

26 and inserting ‘‘CONDITIONS.—
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1 ‘‘(1) IN GENERAL.—For purposes’’, and 

2 (2) by adding at the end the following new para3 graph: 

4 ‘‘(2) EXTENSION OF REPLACEMENT PERIOD.—

5 ‘‘(A) IN GENERAL.—In the case of drought, 

6 flood, or other weather-related conditions de7 scribed in paragraph (1) which result in the 

8 area being designated as eligible for assistance 

9 by the Federal Government, subsection (a)(2)(B) 

10 shall be applied with respect to any converted 

11 property by substituting ‘4 years’ for ‘2 years’. 

12 ‘‘(B) FURTHER EXTENSION BY SEC13 RETARY.—The Secretary may extend on a re14 gional basis the period for replacement under 

15 this section (after the application of subpara16 graph (A)) for such additional time as the Sec17 retary determines appropriate if the weather-re18 lated conditions which resulted in such applica19 tion continue for more than 3 years.’’. 

20 (b) INCOME INCLUSION RULES.—Subsection (e) of sec21 tion 451 (relating to special rule for proceeds from livestock 

22 sold on account of drought, flood, or other weather-related 

23 conditions) is amended by adding at the end the following 

24 new paragraph: 
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1 ‘‘(3) SPECIAL ELECTION RULES.—If section 

2 1033(e)(2) applies to a sale or exchange of livestock 

3 described in paragraph (1), the election under para4 graph (1) shall be deemed valid if made during the 

5 replacement period described in such section.’’. 

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

7 section shall apply to any taxable year with respect to 

8 which the due date (without regard to extensions) for the 

9 return is after December 31, 2002.

10 SEC. 205. SIMPLIFICATION OF EXCISE TAX IMPOSED ON 

11 BOWS AND ARROWS. 

12 (a) BOWS.—Paragraph (1) of section 4161(b) (relating 

13 to bows) is amended to read as follows: 

14 ‘‘(1) BOWS.—

15 ‘‘(A) IN GENERAL.—There is hereby im16 posed on the sale by the manufacturer, producer, 

17 or importer of any bow which has a draw weight 

18 of 30 pounds or more, a tax equal to 11 percent 

19 of the price for which so sold. 

20 ‘‘(B) ARCHERY EQUIPMENT.—There is here21 by imposed on the sale by the manufacturer, pro22 ducer, or importer—

23 ‘‘(i) of any part or accessory suitable 

24 for inclusion in or attachment to a bow de25 scribed in subparagraph (A), and 
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1 ‘‘(ii) of any quiver or broadhead suit2 able for use with an arrow described in 

3 paragraph (3), 

4 a tax equal to 11 percent of the price for which 

5 so sold.’’. 

6 (b) ARROWS.—Subsection (b) of section 4161 (relating 

7 to bows and arrows, etc.) is amended by redesignating para8 graph (3) as paragraph (4) and inserting after paragraph 

9 (2) the following: 

10 ‘‘(3) ARROWS.—

11 ‘‘(A) IN GENERAL.—There is hereby im12 posed on the sale by the manufacturer, producer, 

13 or importer of any arrow, a tax equal to 12 per14 cent of the price for which so sold. 

15 ‘‘(B) EXCEPTION.—The tax imposed by sub16 paragraph (A) on an arrow shall not apply if 

17 the arrow contains an arrow shaft subject to the 

18 tax imposed by paragraph (2). 

19 ‘‘(C) ARROW.—For purposes of this para20 graph, the term ‘arrow’ means any shaft de21 scribed in paragraph (2) to which additional 

22 components are attached.’’. 

23 (c) CONFORMING AMENDMENT.—The heading of sec24 tion 4161(b)(2) is amended by striking ‘‘ARROWS.—’’ and 

25 inserting ‘‘ARROW COMPONENTS.—’’. 
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1 (d) EFFECTIVE DATE.—The amendments made by this 

2 section shall apply to articles sold by the manufacturer, 

3 producer, or importer after the 90th day after the date of 

4 the enactment of this Act.

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

6 BOXES. 

7 (a) REPEAL.—Paragraph (6) of section 4162(a) (de8 fining sport fishing equipment) is amended by striking sub9 paragraph (C) and by redesignating subparagraphs (D) 

10 through (J) as subparagraphs (C) through (I), respectively. 

11 (b) EFFECTIVE DATE.—The amendment made by this 

12 section shall take effect 30 days after the date of the enact13 ment of this Act.

14 SEC. 207. REDUCED MOTOR FUEL EXCISE TAX ON CERTAIN 

15 MIXTURES OF DIESEL FUEL. 

16 (a) IN GENERAL.—Clause (iii) of section 

17 4081(a)(2)(A) is amended by inserting before the period 

18 ‘‘(19.7 cents per gallon in the case of a diesel-water fuel 

19 emulsion at least 14 percent of which is water)’’. 

20 (b) REFUNDS FOR TAX-PAID PURCHASES.—

21 (1) IN GENERAL.—Section 6427 (relating to fuels 

22 not used for taxable purchases) is amended by redes23 ignating subsections (m) through (p) as subsections 

24 (n) through (q), respectively, and by inserting after 

25 subsection (l) the following new subsection:
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1 ‘‘(m) DIESEL FUEL USED TO PRODUCE EMULSION.—

2 ‘‘(1) IN GENERAL.—Except as provided in sub3 section (k), if any diesel fuel on which tax was im4 posed by section 4081 at the regular tax rate is used 

5 by any person in producing an emulsion described in 

6 section 4081(a)(2)(A) which is sold or used in such 

7 person’s trade or business, the Secretary shall pay 

8 (without interest) to such person an amount equal to 

9 the excess of the regular tax rate over the incentive 

10 tax rate with respect to such fuel. 

11 ‘‘(2) DEFINITIONS.—For purposes of paragraph 

12 (1)—

13 ‘‘(A) REGULAR TAX RATE.—The term ‘reg14 ular tax rate’ means the aggregate rate of tax 

15 imposed by section 4081 determined without re16 gard to the parenthetical in section 

17 4081(a)(2)(A). 

18 ‘‘(B) INCENTIVE TAX RATE.—The term ‘in19 centive tax rate’ means the aggregate rate of tax 

20 imposed by section 4081 determined with regard 

21 to the parenthetical in section 4081(a)(2)(A).’’. 

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

23 section shall take effect on October 1, 2003. 
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1 SEC. 208. EXPANSION OF HUMAN CLINICAL TRIALS QUALI2 FYING FOR ORPHAN DRUG CREDIT. 

3 (a) IN GENERAL.—Paragraph (2) of section 45C(b) 

4 (relating to qualified clinical testing expenses) is amended 

5 by adding at the end the following new subparagraph: 

6 ‘‘(C) TREATMENT OF CERTAIN EXPENSES

7 INCURRED BEFORE DESIGNATION.—For purposes 

8 of subparagraph (A)(ii)(I), if a drug is des9 ignated under section 526 of the Federal Food, 

10 Drug, and Cosmetic Act not later than the due 

11 date (including extensions) for filing the return 

12 of tax under this subtitle for the taxable year in 

13 which the application for such designation of 

14 such drug was filed, such drug shall be treated 

15 as having been designated on the date that such 

16 application was filed.’’. 

17 (b) EFFECTIVE DATE.—The amendment made by sub18 section (a) shall apply to expenses incurred after the date 

19 of the enactment of this Act. 

20 SEC. 209. HEALTH INSURANCE COSTS OF ELIGIBLE INDI21 VIDUALS. 

22 (a) CONSUMER OPTIONS.—Paragraph (2) of section 

23 35(e) is amended by inserting at the end the following new 

24 subparagraph: 

25 ‘‘(C) WAIVER BY ELIGIBLE INDIVIDUALS.—

26 With respect to any month which ends before 
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1 January 1, 2005, this paragraph shall not apply 

2 with respect to any eligible individual and such 

3 individual’s qualifying family members if such 

4 eligible individual elects to waive the application 

5 of this paragraph with respect to such month.’’. 

6 (b) EFFECTIVE DATE.—The amendment made by this 

7 section shall apply to months beginning after the date of 

8 the enactment of this Act.

9 SEC. 210. TREATMENT UNDER AT-RISK RULES OF PUBLICLY 

10 TRADED NONRECOURSE DEBT. 

11 (a) IN GENERAL.—Subparagraph (A) of section 

12 465(b)(6) (relating to qualified nonrecourse financing treat13 ed as amount at risk) is amended by striking ‘‘share of’’ 

14 and all that follows and inserting ‘‘share of—

15 ‘‘(i) any qualified nonrecourse financ16 ing which is secured by real property used 

17 in such activity, and 

18 ‘‘(ii) any other financing which—

19 ‘‘(I) would (but for subparagraph 

20 (B)(ii)) be qualified nonrecourse fi21 nancing, 

22 ‘‘(II) is qualified publicly traded 

23 debt, and 

24 ‘‘(III) is not borrowed by the tax25 payer from a person described in sub-
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1 clause (I), (II), or (III) of section 

2 49(a)(1)(D)(iv).’’. 

3 (b) QUALIFIED PUBLICLY TRADED DEBT.—Paragraph 

4 (6) of section 465(b) is amended by adding at the end the 

5 following new subparagraph: 

6 ‘‘(F) QUALIFIED PUBLICLY TRADED

7 DEBT.—For purposes of subparagraph (A), the 

8 term ‘qualified publicly traded debt’ means any 

9 debt instrument which is readily tradable on an 

10 established securities market. Such term shall not 

11 include any debt instrument which has a yield 

12 to maturity which equals or exceeds the limita13 tion in section 163(i)(1)(B).’’. 

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

15 section shall apply to debt instruments issued after the date 

16 of the enactment of this Act. 

17 SEC. 211. EXCLUSION OF INCOME DERIVED FROM CERTAIN 

18 WAGERS ON HORSE RACES FROM GROSS IN19 COME OF NONRESIDENT ALIEN INDIVIDUALS. 

20 (a) IN GENERAL.—Subsection (b) of section 872 (relat21 ing to exclusions) is amended by redesignating paragraphs 

22 (5), (6), and (7) as paragraphs (6), (7), and (8), respec23 tively, and inserting after paragraph (4) the following new 

24 paragraph: 
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1 ‘‘(5) INCOME DERIVED FROM WAGERING TRANS2 ACTIONS IN CERTAIN PARIMUTUEL POOLS.—Gross in3 come derived by a nonresident alien individual from 

4 a legal wagering transaction initiated outside the 

5 United States in a parimutuel pool with respect to a 

6 live horse race in the United States.’’. 

7 (b) CONFORMING AMENDMENT.—Section 883(a)(4) is 

8 amended by striking ‘‘(5), (6), and (7)’’ and inserting ‘‘(6), 

9 (7), and (8)’’. 

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

11 section shall apply to proceeds from wagering transactions 

12 after September 30, 2003. 

13 SEC. 212. PAYMENT OF DIVIDENDS ON STOCK OF COOPERA14 TIVES WITHOUT REDUCING PATRONAGE DIVI15 DENDS. 

16 (a) IN GENERAL.—Subsection (a) of section 1388 (re17 lating to patronage dividend defined) is amended by adding 

18 at the end the following: ‘‘For purposes of paragraph (3), 

19 net earnings shall not be reduced by amounts paid during 

20 the year as dividends on capital stock or other proprietary 

21 capital interests of the organization to the extent that the 

22 articles of incorporation or bylaws of such organization or 

23 other contract with patrons provide that such dividends are 

24 in addition to amounts otherwise payable to patrons which
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1 are derived from business done with or for patrons during 

2 the taxable year.’’. 

3 (b) EFFECTIVE DATE.—The amendment made by this 

4 section shall apply to distributions in taxable years begin5 ning after the date of the enactment of this Act. 

6 SEC. 213. PILOT PROJECT FOR FOREST CONSERVATION AC7 TIVITIES. 

8 (a) TAX-EXEMPT BOND FINANCING.—

9 (1) IN GENERAL.—For purposes of the Internal 

10 Revenue Code of 1986, any qualified forest conserva11 tion bond shall be treated as an exempt facility bond 

12 under section 142 of such Code. 

13 (2) QUALIFIED FOREST CONSERVATION BOND.—

14 For purposes of this section, the term ‘‘qualified forest 

15 conservation bond’’ means any bond issued as part of 

16 an issue if—

17 (A) 95 percent or more of the net proceeds 

18 (as defined in section 150(a)(3) of such Code) of 

19 such issue are to be used for qualified project 

20 costs, 

21 (B) such bond is an obligation of the State 

22 of Washington or any political subdivision there23 of and is issued for the Evergreen Forest Trust, 

24 and 
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1 (C) such bond is issued before October 1, 

2 2004. 

3 (3) LIMITATION ON AGGREGATE AMOUNT

4 ISSUED.—The maximum aggregate face amount of 

5 bonds which may be issued under this section shall 

6 not exceed $250,000,000. 

7 (4) QUALIFIED PROJECT COSTS.—For purposes 

8 of this subsection, the term ‘‘qualified project costs’’ 

9 means the sum of—

10 (A) the cost of acquisition by the Evergreen 

11 Forest Trust from an unrelated person of forests 

12 and forest land—

13 (i) which are located in the State of 

14 Washington, and 

15 (ii) which at the time of acquisition or 

16 immediately thereafter are subject to a con17 servation restriction described in subsection 

18 (c)(2), 

19 (B) capitalized interest on the qualified for20 est conservation bonds for the 3-year period be21 ginning on the date of issuance of such bonds, 

22 and 

23 (C) credit enhancement fees which constitute 

24 qualified guarantee fees (within the meaning of 

25 section 148 of such Code). 
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1 (5) SPECIAL RULES.—In applying the Internal 

2 Revenue Code of 1986 to any qualified forest con3 servation bond, the following modifications shall 

4 apply: 

5 (A) Section 146 of such Code (relating to 

6 volume cap) shall not apply. 

7 (B) For purposes of section 147(b) of such 

8 Code (relating to maturity may not exceed 120 

9 percent of economic life), the land and standing 

10 timber acquired with proceeds of qualified forest 

11 conservation bonds shall have an economic life of 

12 35 years. 

13 (C) Subsections (c) and (d) of section 147 

14 of such Code (relating to limitations on acquisi15 tion of land and existing property) shall not 

16 apply. 

17 (D) Section 57(a)(5) of such Code (relating 

18 to tax-exempt interest) shall not apply to interest 

19 on qualified forest conservation bonds. 

20 (6) TREATMENT OF CURRENT REFUNDING

21 BONDS.—Paragraphs (2)(C) and (3) shall not apply 

22 to any bond (or series of bonds) issued to refund a 

23 qualified forest conservation bond issued before Octo24 ber 1, 2004, if—
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1 (A) the average maturity date of the issue 

2 of which the refunding bond is a part is not later 

3 than the average maturity date of the bonds to 

4 be refunded by such issue, 

5 (B) the amount of the refunding bond does 

6 not exceed the outstanding amount of the re7 funded bond, and 

8 (C) the net proceeds of the refunding bond 

9 are used to redeem the refunded bond not later 

10 than 90 days after the date of the issuance of the 

11 refunding bond. 

12 For purposes of subparagraph (A), average maturity 

13 shall be determined in accordance with section 

14 147(b)(2)(A) of such Code. 

15 (7) EFFECTIVE DATE.—This subsection shall 

16 apply to obligations issued after the date of the enact17 ment of this Act. 

18 (b) ITEMS FROM QUALIFIED HARVESTING ACTIVITIES

19 NOT SUBJECT TO TAX OR TAKEN INTO ACCOUNT.—

20 (1) IN GENERAL.—Income, gains, deductions, 

21 losses, or credits from a qualified harvesting activity 

22 conducted by the Evergreen Forest Trust shall not be 

23 subject to tax or taken into account under subtitle A 

24 of the Internal Revenue Code of 1986. 
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1 (2) QUALIFIED HARVESTING ACTIVITY.—For 

2 purposes of paragraph (1)—

3 (A) IN GENERAL.—The term ‘‘qualified har4 vesting activity’’ means the sale, lease, or har5 vesting, of standing timber—

6 (i) on land owned by the Evergreen 

7 Forest Trust which was acquired with pro8 ceeds of qualified forest conservation bonds, 

9 and 

10 (ii) pursuant to a qualified conserva11 tion plan adopted by the Evergreen Forest 

12 Trust. 

13 (B) EXCEPTIONS.—

14 (i) CESSATION AS QUALIFIED ORGANI15 ZATION.—The term ‘‘qualified harvesting 

16 activity’’ shall not include any sale, lease, 

17 or harvesting during any period that the 

18 Evergreen Forest Trust is not a qualified 

19 organization. 

20 (ii) EXCEEDING LIMITS ON HAR21 VESTING.—The term ‘‘qualified harvesting 

22 activity’’ shall not include any sale, lease, 

23 or harvesting of standing timber on land 

24 acquired with proceeds of qualified forest 

25 conservation bonds to the extent that—
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1 (I) the average annual area of 

2 timber harvested from such land ex3 ceeds 2.5 percent of the total area of 

4 such land, or 

5 (II) the quantity of timber re6 moved from such land exceeds the 

7 quantity which can be removed from 

8 such land annually in perpetuity on a 

9 sustained-yield basis with respect to 

10 such land. 

11 The limitations under subclauses (I) and 

12 (II) shall not apply to salvage or sanitation 

13 harvesting of timber stands which are sub14 stantially damaged by fire, windthrow, or 

15 other catastrophe, or which are in imminent 

16 danger from insect or disease attack. 

17 (3) TERMINATION.—This subsection shall not 

18 apply to any qualified harvesting activity occurring 

19 after the date on which there is no outstanding quali20 fied forest conservation bond or any such bond ceases 

21 to be a tax-exempt bond. 

22 (4) PARTIAL RECAPTURE OF BENEFITS IF HAR23 VESTING LIMIT EXCEEDED.—If, as of the date that 

24 this subsection ceases to apply under paragraph (3), 

25 the average annual area of timber harvested from the 
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1 land exceeds the requirement of paragraph 

2 (2)(B)(ii)(I), the tax imposed by chapter 1 of the In3 ternal Revenue Code of 1986 shall be increased, under 

4 rules prescribed by the Secretary, by the sum of the 

5 tax benefit attributable to such excess and interest at 

6 the underpayment rate under section 6621 for the pe7 riod of the underpayment. 

8 (c) DEFINITIONS.—For purposes of this section—

9 (1) QUALIFIED CONSERVATION PLAN.—The term 

10 ‘‘qualified conservation plan’’ means a multiple land 

11 use program or plan which—

12 (A) is designed and administered primarily 

13 for the purposes of protecting and enhancing 

14 wildlife and fish, timber, scenic attributes, recre15 ation, and soil and water quality of the forest 

16 and forest land, 

17 (B) mandates that conservation of forest 

18 and forest land is the single-most significant use 

19 of the forest and forest land, 

20 (C) requires that timber harvesting be con21 sistent with—

22 (i) restoring and maintaining reference 

23 conditions for the Westside Douglas Fir for24 est type, 
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1 (ii) restoring and maintaining a rep2 resentative sample of young, mid, and late 

3 successional forest age classes, 

4 (iii) maintaining or restoring the re5 sources’ ecological health for purposes of 

6 preventing damage from fire, insect, or dis7 ease, 

8 (iv) maintaining or enhancing wildlife 

9 or fish habitat, 

10 (v) enhancing research opportunities 

11 in sustainable renewable resource uses, or 

12 (vi) preserving or protecting open 

13 space. 

14 (2) CONSERVATION RESTRICTION.—The conserva15 tion restriction described in this paragraph is a re16 striction which—

17 (A) is granted in perpetuity to an unrelated 

18 person which is described in section 170(h)(3) of 

19 such Code and which, in the case of a nongovern20 mental unit, is organized and operated for con21 servation purposes, 

22 (B) meets the requirements of clause (ii) or 

23 (iii)(II) of section 170(h)(4)(A) of such Code, 

24 (C) obligates the Evergreen Forest Trust to 

25 pay the costs incurred by the holder of the con-
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1 servation restriction in monitoring compliance 

2 with such restriction, and 

3 (D) requires an increasing level of conserva4 tion benefits to be provided whenever cir5 cumstances allow it. 

6 (3) QUALIFIED ORGANIZATION.—The term 

7 ‘‘qualified organization’’ means an organization—

8 (A) which is a nonprofit organization orga9 nized and operated exclusively for charitable, sci10 entific, or educational purposes including but 

11 not limited to acquiring, protecting, restoring, 

12 managing, and developing forest lands and other 

13 renewable resources for the long-term charitable, 

14 educational, scientific, and public benefit of the 

15 State of Washington, 

16 (B) more than half of the value of the prop17 erty of which consists of forests and forest land 

18 acquired with the proceeds from qualified forest 

19 conservation bonds, 

20 (C) which periodically conducts educational 

21 programs designed to inform the public of envi22 ronmentally sensitive forestry management and 

23 conservation techniques, 

24 (D) which has a board of directors that at 

25 all times is comprised of 9 members—
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1 (i) at least 2 of whom represent the 

2 holders of the conservation restriction de3 scribed in paragraph (2), and 

4 (ii) at least 2 of whom are public offi5 cials, 

6 (E) of which not more than one-third of the 

7 members of the board of directors is comprised of 

8 individuals who are or were at any time within 

9 5 years before the beginning of a term of mem10 bership on the board, an employee of, inde11 pendent contractor with respect to, officer of, di12 rector of, or held a material financial interest in, 

13 a commercial forest products enterprise with 

14 which the Evergreen Forest Trust has a contrac15 tual or other financial arrangement, 

16 (F) the bylaws of which require at least 

17 two-thirds of the members of the board of direc18 tors to vote affirmatively to approve the qualified 

19 conservation program and any change thereto, 

20 and 

21 (G) upon dissolution, is required to dedicate 

22 its assets to—

23 (i) an organization described in section 

24 501(c)(3) of such Code which is organized 

25 and operated for conservation purposes, or
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1 (ii) a governmental unit described in 

2 section 170(c)(1) of such Code. 

3 (4) EVERGREEN FOREST TRUST.—The term ‘‘Ev4 ergreen Forest Trust’’ means a nonprofit corporation 

5 known as the Evergreen Forest Trust which was in6 corporated on February 25, 2000, under chapter 

7 24.03 of the Revised Code of Washington and which, 

8 on May 11, 2001, was recognized as an organization 

9 described in section 501(c)(3) of the Internal Revenue 

10 Code of 1986. 

11 (5) UNRELATED PERSON.—The term ‘‘unrelated 

12 person’’ means a person who is not a related person. 

13 (6) RELATED PERSON.—A person shall be treat14 ed as related to another person if—

15 (A) such person bears a relationship to such 

16 other person described in section 267(b) (deter17 mined without regard to paragraph (9) thereof), 

18 or 707(b)(1), of such Code, determined by sub19 stituting ‘‘25 percent’’ for ‘‘50 percent’’ each 

20 place it occurs therein, and 

21 (B) in the case such other person is a non22 profit organization, if such person controls di23 rectly or indirectly more than 25 percent of the 

24 governing body of such organization. 
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1 SEC. 214. PROTECTION OF SOCIAL SECURITY. 

2 The amounts transferred to any trust fund under title 

3 II of the Social Security Act shall be determined as if this 

4 title (other than this section) and title I of this Act had 

5 not been enacted.

6 TITLE III—REVENUE 

7 PROVISIONS

8 SEC. 301. INDIVIDUAL EXPATRIATION TO AVOID TAX. 

9 (a) EXPATRIATION TO AVOID TAX.—

10 (1) IN GENERAL.—Subsection (a) of section 877 

11 (relating to treatment of expatriates) is amended to 

12 read as follows: 

13 ‘‘(a) TREATMENT OF EXPATRIATES.—

14 ‘‘(1) IN GENERAL.—Every nonresident alien in15 dividual to whom this section applies and who, with16 in the 10-year period immediately preceding the close 

17 of the taxable year, lost United States citizenship 

18 shall be taxable for such taxable year in the manner 

19 provided in subsection (b) if the tax imposed pursu20 ant to such subsection (after any reduction in such 

21 tax under the last sentence of such subsection) exceeds 

22 the tax which, without regard to this section, is im23 posed pursuant to section 871. 

24 ‘‘(2) INDIVIDUALS SUBJECT TO THIS SECTION.—

25 This section shall apply to any individual if—
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1 ‘‘(A) the average annual net income tax (as 

2 defined in section 38(c)(1)) of such individual 

3 for the period of 5 taxable years ending before 

4 the date of the loss of United States citizenship 

5 is greater than $122,000, 

6 ‘‘(B) the net worth of the individual as of 

7 such date is $2,000,000 or more, or 

8 ‘‘(C) such individual fails to certify under 

9 penalty of perjury that he has met the require10 ments of this title for the 5 preceding taxable 

11 years or fails to submit such evidence of such 

12 compliance as the Secretary may require. 

13 In the case of the loss of United States citizenship in 

14 any calendar year after 2003, such $122,000 amount 

15 shall be increased by an amount equal to such dollar 

16 amount multiplied by the cost-of-living adjustment 

17 determined under section 1(f)(3) for such calendar 

18 year by substituting ‘2002’ for ‘1992’ in subpara19 graph (B) thereof. Any increase under the preceding 

20 sentence shall be rounded to the nearest multiple of 

21 $1,000.’’. 

22 (2) REVISION OF EXCEPTIONS FROM ALTER23 NATIVE TAX.—Subsection (c) of section 877 (relating 

24 to tax avoidance not presumed in certain cases) is 

25 amended to read as follows: 
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1 ‘‘(c) EXCEPTIONS.—

2 ‘‘(1) IN GENERAL.—Subparagraphs (A) and (B) 

3 of subsection (a)(2) shall not apply to an individual 

4 described in paragraph (2) or (3). 

5 ‘‘(2) DUAL CITIZENS.—

6 ‘‘(A) IN GENERAL.—An individual is de7 scribed in this paragraph if—

8 ‘‘(i) the individual became at birth a 

9 citizen of the United States and a citizen of 

10 another country and continues to be a cit11 izen of such other country, and 

12 ‘‘(ii) the individual has had no sub13 stantial contacts with the United States. 

14 ‘‘(B) SUBSTANTIAL CONTACTS.—An indi15 vidual shall be treated as having no substantial 

16 contacts with the United States only if the indi17 vidual—

18 ‘‘(i) was never a resident of the United 

19 States (as defined in section 7701(b)), 

20 ‘‘(ii) has never held a United States 

21 passport, and 

22 ‘‘(iii) was not present in the United 

23 States for more than 30 days during any 

24 calendar year which is 1 of the 10 calendar
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1 years preceding the individual’s loss of 

2 United States citizenship. 

3 ‘‘(3) CERTAIN MINORS.—An individual is de4 scribed in this paragraph if—

5 ‘‘(A) the individual became at birth a cit6 izen of the United States, 

7 ‘‘(B) neither parent of such individual was 

8 a citizen of the United States at the time of such 

9 birth, 

10 ‘‘(C) the individual’s loss of United States 

11 citizenship occurs before such individual attains 

age 181 12 ⁄2, and 

13 ‘‘(D) the individual was not present in the 

14 United States for more than 30 days during any 

15 calendar year which is 1 of the 10 calendar 

16 years preceding the individual’s loss of United 

17 States citizenship.’’. 

18 (3) CONFORMING AMENDMENT.—Section 2107(a) 

19 is amended to read as follows: 

20 ‘‘(a) TREATMENT OF EXPATRIATES.—A tax computed 

21 in accordance with the table contained in section 2001 is 

22 hereby imposed on the transfer of the taxable estate, deter23 mined as provided in section 2106, of every decedent non24 resident not a citizen of the United States if the date of 
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1 death occurs during a taxable year with respect to which 

2 the decedent is subject to tax under section 877(b).’’. 

3 (b) SPECIAL RULES FOR DETERMINING WHEN AN IN4 DIVIDUAL IS NO LONGER A UNITED STATES CITIZEN OR

5 LONG-TERM RESIDENT.—Section 7701 (relating to defini6 tions) is amended by redesignating subsection (n) as sub7 section (o) and by inserting after subsection (m) the fol8 lowing new subsection: 

9 ‘‘(n) SPECIAL RULES FOR DETERMINING WHEN AN IN10 DIVIDUAL IS NO LONGER A UNITED STATES CITIZEN OR

11 LONG-TERM RESIDENT.—An individual who would not 

12 (but for this subsection) be treated as a citizen or resident 

13 of the United States shall continue to be treated as a citizen 

14 or resident of the United States until such individual—

15 ‘‘(1) gives notice of an expatriating act or termi16 nation of residency (with the requisite intent to relin17 quish citizenship or terminate residency) to the Sec18 retary of State or the Secretary of Homeland Secu19 rity, and 

20 ‘‘(2) provides a statement in accordance with 

21 section 6039G.’’. 

22 (c) PHYSICAL PRESENCE IN THE UNITED STATES FOR

23 MORE THAN 30 DAYS.—Section 877 (relating to expatria24 tion to avoid tax) is amended by adding at the end the 

25 following new subsection: 
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1 ‘‘(g) PHYSICAL PRESENCE.—This section shall not 

2 apply to any individual for any taxable year during the 

3 10-year period referred to in subsection (a) in which such 

4 individual is present in the United States for more than 

5 30 days in the calendar year ending in such taxable year, 

6 and such individual shall be treated for purposes of this 

7 title as a citizen or resident of the United States for such 

8 taxable year.’’. 

9 (d) TRANSFERS SUBJECT TO GIFT TAX.—Subsection 

10 (a) of section 2501 (relating to taxable transfers) is amend11 ed by adding at the end the following: 

12 ‘‘(6) TRANSFERS OF CERTAIN STOCK.—

13 ‘‘(A) IN GENERAL.—Paragraph (3) shall 

14 not apply to the transfer of stock described in 

15 subparagraph (B) by any individual to whom 

16 section 877(b) applies, and section 2511(a) shall 

17 be applied without regard to whether such stock 

18 is property which is situated within the United 

19 States. 

20 ‘‘(B) VALUATION.—For purposes of sub21 paragraph (A), the value of stock shall be deter22 mined as provided in section 2103, except that—

23 ‘‘(i) if the donor owned (within the 

24 meaning of section 958(a)) at the time of 

25 such transfer 10 percent or more of the total 
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1 combined voting power of all classes of stock 

2 entitled to vote of a foreign corporation, and 

3 ‘‘(ii) if such donor owned (within the 

4 meaning of section 958(a)), or is considered 

5 to have owned (by applying the ownership 

6 rules of section 958(b)), at the time of such 

7 transfer, more than 50 percent of—

8 ‘‘(I) the total combined voting 

9 power of all classes of stock entitled to 

10 vote of such corporation, or 

11 ‘‘(II) the total value of the stock of 

12 such corporation, then that proportion 

13 of the fair market value of the stock of 

14 such foreign corporation owned (within 

15 the meaning of section 958(a)) by such 

16 donor at the time of such transfer, 

17 which the fair market value of any as18 sets owned by such foreign corporation 

19 and situated in the United States, at 

20 the time of such transfer, bears to the 

21 total fair market value of all assets 

22 owned by such foreign corporation at 

23 the time of such transfer, shall be in24 cluded in the value of such property.
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1 For purposes of the preceding sentence, a 

2 donor shall be treated as owning stock of a 

3 foreign corporation at the time of such 

4 transfer if, at such time, by trust or other5 wise, within the meaning of sections 2035 to 

6 2038, inclusive, he owned such stock.’’.

7 (e) ENHANCED INFORMATION REPORTING FROM INDI8 VIDUALS LOSING UNITED STATES CITIZENSHIP.—

9 (1) IN GENERAL.—Subsection (a) of section 

10 6039G is amended to read as follows: 

11 ‘‘(a) IN GENERAL.—Notwithstanding any other provi12 sion of law, any individual to whom section 877(b) applies 

13 for any taxable year shall provide a statement for such tax14 able year which includes the information described in sub15 section (b).’’. 

16 (2) INFORMATION TO BE PROVIDED.—Subsection 

17 (b) of section 6039G is amended to read as follows: 

18 ‘‘(b) INFORMATION TO BE PROVIDED.—Information 

19 required under subsection (a) shall include—

20 ‘‘(1) the taxpayer’s TIN, 

21 ‘‘(2) the mailing address of such individual’s 

22 principal foreign residence, 

23 ‘‘(3) the foreign country, in which such indi24 vidual is residing, 
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1 ‘‘(4) the foreign country of which such individual 

2 is a citizen, 

3 ‘‘(5) information detailing the assets and liabil4 ities of such individual, 

5 ‘‘(6) the number of days that the individual was 

6 present in the United States during the taxable year, 

7 and 

8 ‘‘(7) such other information as the Secretary 

9 may prescribe.’’. 

10 (3) INCREASE IN PENALTY.—Subsection (d) of 

11 section 6039G is amended to read as follows: 

12 ‘‘(d) PENALTY.—If—

13 ‘‘(1) an individual is required to file a statement 

14 under subsection (a) for any taxable year, and 

15 ‘‘(2) fails to file such a statement with the Sec16 retary on or before the date such statement is required 

17 to be filed or fails to include all the information re18 quired to be shown on the statement or includes incor19 rect information, 

20 such individual shall pay a penalty of $5,000 unless it is 

21 shown that such failure is due to reasonable cause and not 

22 to willful neglect.’’. 

23 (4) CONFORMING AMENDMENT.—Section 6039G 

24 is amended by striking subsections (c), (f), and (g) 
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1 and by redesignating subsections (d) and (e) as sub2 section (c) and (d), respectively.

3 (f) EFFECTIVE DATE.—The amendments made by this 

4 section shall apply to individuals who expatriate after Feb5 ruary 27, 2003. 

6 SEC. 302. VACCINE TAX TO APPLY TO HEPATITIS A VAC7 CINE. 

8 (a) IN GENERAL.—Paragraph (1) of section 4132(a) 

9 (defining taxable vaccine) is amended by redesignating sub10 paragraphs (I), (J), (K), and (L) as subparagraphs (J), 

11 (K), (L), and (M), respectively, and by inserting after sub12 paragraph (H) the following new subparagraph: 

13 ‘‘(I) Any vaccine against hepatitis A.’’

14 (b) EFFECTIVE DATE.—

15 (1) SALES, ETC.—The amendments made by sub16 section (a) shall apply to sales and uses on or after 

17 the first day of the first month which begins more 

18 than 4 weeks after the date of the enactment of this 

19 Act. 

20 (2) DELIVERIES.—For purposes of paragraph 

21 (1) and section 4131 of the Internal Revenue Code of 

22 1986, in the case of sales on or before the effective date 

23 described in such paragraph for which delivery is 

24 made after such date, the delivery date shall be con25 sidered the sale date.
Union Calendar No. 16

108TH CONGRESS 

1ST SESSION H. R. 878

[Report No. 108–23] 

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. 

MARCH 5, 2003

Reported with an amendment, committed to the Committee of the Whole House on the State of the Union, 

and ordered to be printed