I 
110TH CONGRESS 
2D SESSION 
H. R. 6081 
To amend the Internal Revenue Code of 1986 to provide benefits for military 
personnel, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
MAY 16, 2008 
Mr. RANGEL (for himself, Mr. STARK, Mr. MCDERMOTT, Mr. LEWIS of Geor-
gia, Mr. NEAL of Massachusetts, Mr. POMEROY, Mrs. JONES of Ohio, 
Mr. LARSON of Connecticut, Mr. EMANUEL, Mr. BLUMENAUER, Mr. 
KIND, Ms. BERKLEY, Mr. CROWLEY, Mr. VAN HOLLEN, Mr. MEEK of 
Florida, Mr. ALTMIRE, Mrs. BOYDA of Kansas, Mr. COHEN, Ms. 
DELAURO, Mr. ELLSWORTH, Mr. LOEBSACK, Ms. TSONGAS, and Mr. 
WELCH of Vermont) 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 
benefits for military personnel, and for other purposes. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE, ETC. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Heroes Earnings Assistance and Relief Tax Act of 
2008’’. 
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(b) REFERENCE.—Except as otherwise expressly pro-
vided, whenever in this Act an amendment or repeal is 
expressed in terms of an amendment to, or repeal of, a 
section or other provision, the reference shall be consid-
ered to be made to a section or other provision of the In-
ternal Revenue Code of 1986. 
(c) TABLE OF CONTENTS.—The table of contents for 
this Act is as follows: 
Sec. 1. Short title, etc. 
TITLE I—BENEFITS FOR MILITARY 
Sec. 101. Recovery rebate provided to military families. 
Sec. 102. Election to include combat pay as earned income for purposes of 
earned income tax credit. 
Sec. 103. Modification of mortgage revenue bonds for veterans. 
Sec. 104. Survivor and disability payments with respect to qualified military 
service. 
Sec. 105. Treatment of differential military pay as wages. 
Sec. 106. Special period of limitation when uniformed services retired pay is re-
duced as a result of award of disability compensation. 
Sec. 107. Distributions from retirement plans to individuals called to active 
duty. 
Sec. 108. Authority to disclose return information for certain veterans pro-
grams made permanent. 
Sec. 109. Contributions of military death gratuities to Roth IRAs and Edu-
cation Savings Accounts. 
Sec. 110. Suspension of 5-year period during service with the Peace Corps. 
Sec. 111. Credit for employer differential wage payments to employees who are 
active duty members of the uniformed services. 
Sec. 112. State payments to service members treated as qualified military bene-
fits. 
Sec. 113. Permanent exclusion of gain from sale of a principal residence by cer-
tain employees of the intelligence community. 
Sec. 114. Special disposition rules for unused benefits in health flexible spend-
ing arrangements of individuals called to active duty. 
Sec. 115. Technical correction related to exclusion of certain property tax re-
bates and other benefits provided to volunteer firefighters and 
emergency medical responders. 
TITLE II—IMPROVEMENTS IN SUPPLEMENTAL SECURITY INCOME 
Sec. 201. Treatment of uniformed service cash remuneration as earned income. 
Sec. 202. State annuities for certain veterans to be disregarded in determining 
supplemental security income benefits. 
Sec. 203. Exclusion of AmeriCorps benefits for purposes of determining supple-
mental security income eligibility and benefit amounts. 
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Sec. 204. Effective date. 
TITLE III—REVENUE PROVISIONS 
Sec. 301. Revision of tax rules on expatriation. 
Sec. 302. Certain domestically controlled foreign persons performing services 
under contract with United States Government treated as 
American employers. 
Sec. 303. Increase in minimum penalty on failure to file a return of tax. 
TITLE IV—PARITY IN THE APPLICATION OF CERTAIN LIMITS TO 
MENTAL HEALTH BENEFITS 
Sec. 401. Parity in the application of certain limits to mental health benefits. 
TITLE I—BENEFITS FOR 
MILITARY 
SEC. 101. RECOVERY REBATE PROVIDED TO MILITARY 
FAMILIES. 
(a) IN GENERAL.—Subsection (h) of section 6428 of 
the Internal Revenue Code of 1986 (relating to identifica-
tion number requirement) is amended by adding at the 
end the following new paragraph: 
‘‘(3) SPECIAL
RULE
FOR
MEMBERS
OF
THE 
ARMED FORCES.—For purposes of this subsection, 
in the case of a joint return where at least 1 spouse 
has a valid identification number and is a member 
of the Armed Forces of the United States at any 
time during the taxable year, the other spouse shall 
be deemed to have a valid identification number.’’. 
(b) SPECIAL RULE FOR ATINS.—Paragraph (2) of 
section 6428(h) of such Code (defining valid identification 
number) is amended by adding at the end the following 
new sentence: ‘‘Notwithstanding the preceding 2 sen-
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tences, a valid identification number shall include a tem-
porary taxpayer identification number issued for a child 
by the Internal Revenue Service on account of adoption.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall take effect as if included in the amend-
ments made by section 101 of the Economic Stimulus Act 
of 2008. 
SEC. 102. ELECTION TO INCLUDE COMBAT PAY AS EARNED 
INCOME FOR PURPOSES OF EARNED INCOME 
TAX CREDIT. 
(a) IN GENERAL.—Clause (vi) of section 32(c)(2)(B) 
(defining earned income) is amended to read as follows: 
‘‘(vi) a taxpayer may elect to treat 
amounts excluded from gross income by 
reason of section 112 as earned income.’’. 
(b) CONFORMING AMENDMENT.—Paragraph (4) of 
section 6428(e) is amended by striking ‘‘except that—’’ 
and all that follows through ‘‘(B) such term shall’’ and 
inserting ‘‘except that such term shall’’. 
(c) SUNSET NOT APPLICABLE.—Section 105 of the 
Working Families Tax Relief Act of 2004 (relating to ap-
plication of EGTRRA sunset to this title) shall not apply 
to section 104(b) of such Act. 
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(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after De-
cember 31, 2007. 
SEC. 103. MODIFICATION OF MORTGAGE REVENUE BONDS 
FOR VETERANS. 
(a) QUALIFIED MORTGAGE BONDS USED TO FI-
NANCE RESIDENCES FOR VETERANS WITHOUT REGARD 
TO FIRST-TIME HOMEBUYER REQUIREMENT.—Subpara-
graph (D) of section 143(d)(2) (relating to exceptions) is 
amended by striking ‘‘and before January 1, 2008’’. 
(b) INCREASE IN BOND LIMITATION FOR ALASKA, 
OREGON, 
AND
WISCONSIN.—Clause (ii) of section 
143(l)(3)(B) (relating to State veterans limit) is amended 
by striking ‘‘$25,000,000’’ each place it appears and in-
serting ‘‘$100,000,000’’. 
(c) DEFINITION
OF QUALIFIED VETERAN.—Para-
graph (4) of section 143(l) (defining qualified veteran) is 
amended to read as follows: 
‘‘(4) QUALIFIED
VETERAN.—For purposes of 
this subsection, the term ‘qualified veteran’ means 
any veteran who— 
‘‘(A) served on active duty, and 
‘‘(B) applied for the financing before the 
date 25 years after the last date on which such 
veteran left active service.’’. 
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(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to bonds issued after December 
31, 2007. 
SEC. 104. SURVIVOR AND DISABILITY PAYMENTS WITH RE-
SPECT TO QUALIFIED MILITARY SERVICE. 
(a) PLAN
QUALIFICATION
REQUIREMENT
FOR 
DEATH BENEFITS UNDER USERRA-QUALIFIED ACTIVE 
MILITARY SERVICE.—Subsection (a) of section 401 (relat-
ing to requirements for qualification) is amended by in-
serting after paragraph (36) the following new paragraph: 
‘‘(37) DEATH BENEFITS UNDER USERRA-QUALI-
FIED ACTIVE MILITARY SERVICE.—A trust shall not 
constitute a qualified trust unless the plan provides 
that, in the case of a participant who dies while per-
forming qualified military service (as defined in sec-
tion 414(u)), the survivors of the participant are en-
titled to any additional benefits (other than benefit 
accruals relating to the period of qualified military 
service) provided under the plan had the participant 
resumed and then terminated employment on ac-
count of death.’’. 
(b) TREATMENT IN THE CASE OF DEATH OR DIS-
ABILITY RESULTING FROM ACTIVE MILITARY SERVICE 
FOR BENEFIT ACCRUAL PURPOSES.—Subsection (u) of 
section 414 (relating to special rules relating to veterans’ 
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length of continuous service with the em-
ployer.’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Section 404(a)(2) is amended by striking 
‘‘and (31)’’ and inserting ‘‘(31), and (37)’’. 
(2) Section 403(b) is amended by adding at the 
end the following new paragraph: 
‘‘(14) DEATH BENEFITS UNDER USERRA-QUALI-
FIED ACTIVE MILITARY SERVICE.—This subsection 
shall not apply to an annuity contract unless such 
contract 
meets 
the 
requirements 
of 
section 
401(a)(37).’’. 
(3) Section 457(g) is amended by adding at the 
end the following new paragraph: 
‘‘(4) DEATH BENEFITS UNDER USERRA-QUALI-
FIED ACTIVE MILITARY SERVICE.—A plan described 
in paragraph (1) shall not be treated as an eligible 
deferred compensation plan unless such plan meets 
the requirements of section 401(a)(37).’’. 
(d) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by 
this section shall apply with respect to deaths and 
disabilities occurring on or after January 1, 2007. 
(2) PROVISIONS
RELATING
TO
PLAN
AMEND-
MENTS.— 
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(A) IN
GENERAL.—If this subparagraph 
applies to any plan or contract amendment, 
such plan or contract shall be treated as being 
operated in accordance with the terms of the 
plan during the period described in subpara-
graph (B)(iii). 
(B) AMENDMENTS
TO
WHICH
SUBPARA-
GRAPH (A) APPLIES.— 
(i) IN GENERAL.—Subparagraph (A) 
shall apply to any amendment to any plan 
or annuity contract which is made— 
(I) pursuant to the amendments 
made by subsection (a) or pursuant to 
any regulation issued by the Secretary 
of the Treasury under subsection (a), 
and 
(II) on or before the last day of 
the first plan year beginning on or 
after January 1, 2010. 
In the case of a governmental plan (as de-
fined in section 414(d) of the Internal Rev-
enue Code of 1986), this clause shall be 
applied by substituting ‘‘2012’’ for ‘‘2010’’ 
in subclause (II). 
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(ii) 
CONDITIONS.—This 
paragraph 
shall not apply to any amendment unless— 
(I) the plan or contract is oper-
ated as if such plan or contract 
amendment were in effect for the pe-
riod described in clause (iii), and 
(II) such plan or contract amend-
ment applies retroactively for such pe-
riod. 
(iii) PERIOD DESCRIBED.—The period 
described in this clause is the period— 
(I) beginning on the effective 
date specified by the plan, and 
(II) ending on the date described 
in clause (i)(II) (or, if earlier, the 
date the plan or contract amendment 
is adopted). 
SEC. 105. TREATMENT OF DIFFERENTIAL MILITARY PAY AS 
WAGES. 
(a) INCOME TAX WITHHOLDING ON DIFFERENTIAL 
WAGE PAYMENTS.— 
(1) IN
GENERAL.—Section 3401 (relating to 
definitions) is amended by adding at the end the fol-
lowing new subsection: 
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‘‘(h) DIFFERENTIAL WAGE PAYMENTS TO ACTIVE 
DUTY MEMBERS OF THE UNIFORMED SERVICES.— 
‘‘(1) IN GENERAL.—For purposes of subsection 
(a), any differential wage payment shall be treated 
as a payment of wages by the employer to the em-
ployee. 
‘‘(2) DIFFERENTIAL
WAGE
PAYMENT.—For 
purposes of paragraph (1), the term ‘differential 
wage payment’ means any payment which— 
‘‘(A) is made by an employer to an indi-
vidual with respect to any period during which 
the individual is performing service in the uni-
formed services (as defined in chapter 43 of 
title 38, United States Code) while on active 
duty for a period of more than 30 days, and 
‘‘(B) represents all or a portion of the 
wages the individual would have received from 
the employer if the individual were performing 
service for the employer.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by this subsection shall apply to remuneration paid 
after December 31, 2008. 
(b) TREATMENT
OF DIFFERENTIAL WAGE PAY-
MENTS FOR RETIREMENT PLAN PURPOSES.— 
(1) PENSION PLANS.— 
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(A) IN GENERAL.—Section 414(u) (relat-
ing to special rules relating to veterans’ reem-
ployment rights under USERRA), as amended 
by section 103(b), is amended by adding at the 
end the following new paragraph: 
‘‘(12) TREATMENT
OF
DIFFERENTIAL
WAGE 
PAYMENTS.— 
‘‘(A) IN GENERAL.—Except as provided in 
this paragraph, for purposes of applying this 
title to a retirement plan to which this sub-
section applies— 
‘‘(i) an individual receiving a differen-
tial wage payment shall be treated as an 
employee of the employer making the pay-
ment, 
‘‘(ii) the differential wage payment 
shall be treated as compensation, and 
‘‘(iii) the plan shall not be treated as 
failing to meet the requirements of any 
provision described in paragraph (1)(C) by 
reason of any contribution or benefit which 
is based on the differential wage payment. 
‘‘(B) 
SPECIAL
RULE
FOR
DISTRIBU-
TIONS.— 
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‘‘(i) IN
GENERAL.—Notwithstanding 
subparagraph (A)(i), for purposes of sec-
tion 401(k)(2)(B)(i)(I), 403(b)(7)(A)(ii), 
403(b)(11)(A), or 457(d)(1)(A)(ii), an in-
dividual shall be treated as having been 
severed from employment during any pe-
riod the individual is performing service in 
the uniformed services described in section 
3401(h)(2)(A). 
‘‘(ii) LIMITATION.—If an individual 
elects to receive a distribution by reason of 
clause (i), the plan shall provide that the 
individual may not make an elective defer-
ral or employee contribution during the 6- 
month period beginning on the date of the 
distribution. 
‘‘(C) 
NONDISCRIMINATION
REQUIRE-
MENT.—Subparagraph (A)(iii) shall apply only 
if all employees of an employer (as determined 
under subsections (b), (c), (m), and (o)) per-
forming service in the uniformed services de-
scribed in section 3401(h)(2)(A) are entitled to 
receive differential wage payments on reason-
ably equivalent terms and, if eligible to partici-
pate in a retirement plan maintained by the 
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employer, to make contributions based on the 
payments on reasonably equivalent terms. For 
purposes of applying this subparagraph, the 
provisions of paragraphs (3), (4), and (5) of 
section 410(b) shall apply. 
‘‘(D) DIFFERENTIAL
WAGE
PAYMENT.— 
For purposes of this paragraph, the term ‘dif-
ferential wage payment’ has the meaning given 
such term by section 3401(h)(2).’’. 
(B) 
CONFORMING
AMENDMENT.—The 
heading for section 414(u) is amended by in-
serting ‘‘AND TO DIFFERENTIAL WAGE PAY-
MENTS TO MEMBERS ON ACTIVE DUTY’’ after 
‘‘USERRA’’. 
(2) DIFFERENTIAL WAGE PAYMENTS TREATED 
AS
COMPENSATION
FOR
INDIVIDUAL
RETIREMENT 
PLANS.—Section 219(f)(1) (defining compensation) 
is amended by adding at the end the following new 
sentence: ‘‘The term compensation includes any dif-
ferential wage payment (as defined in section 
3401(h)(2)).’’. 
(3) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to years beginning 
after December 31, 2008. 
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(c) PROVISIONS
RELATING
TO
PLAN
AMEND-
MENTS.— 
(1) IN GENERAL.—If this subsection applies to 
any plan or annuity contract amendment, such plan 
or contract shall be treated as being operated in ac-
cordance with the terms of the plan or contract dur-
ing the period described in paragraph (2)(B)(i). 
(2) AMENDMENTS
TO
WHICH
SECTION
AP-
PLIES.— 
(A) IN
GENERAL.—This subsection shall 
apply to any amendment to any plan or annuity 
contract which is made— 
(i) pursuant to any amendment made 
by subsection (b)(1), and 
(ii) on or before the last day of the 
first plan year beginning on or after Janu-
ary 1, 2010. 
In the case of a governmental plan (as defined 
in section 414(d) of the Internal Revenue Code 
of 1986), this subparagraph shall be applied by 
substituting ‘‘2012’’ for ‘‘2010’’ in clause (ii). 
(B) CONDITIONS.—This subsection shall 
not apply to any plan or annuity contract 
amendment unless— 
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(i) during the period beginning on the 
date the amendment described in subpara-
graph (A)(i) takes effect and ending on the 
date described in subparagraph (A)(ii) (or, 
if earlier, the date the plan or contract 
amendment is adopted), the plan or con-
tract is operated as if such plan or con-
tract amendment were in effect, and 
(ii) such plan or contract amendment 
applies retroactively for such period. 
SEC. 106. SPECIAL PERIOD OF LIMITATION WHEN UNI-
FORMED SERVICES RETIRED PAY IS RE-
DUCED AS A RESULT OF AWARD OF DIS-
ABILITY COMPENSATION. 
(a) IN GENERAL.—Subsection (d) of section 6511 
(relating to special rules applicable to income taxes) is 
amended by adding at the end the following new para-
graph: 
‘‘(8) SPECIAL RULES WHEN UNIFORMED SERV-
ICES RETIRED PAY IS REDUCED AS A RESULT OF 
AWARD OF DISABILITY COMPENSATION.— 
‘‘(A) PERIOD OF LIMITATION ON FILING 
CLAIM.—If the claim for credit or refund re-
lates to an overpayment of tax imposed by sub-
title A on account of— 
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‘‘(i) the reduction of uniformed serv-
ices retired pay computed under section 
1406 or 1407 of title 10, United States 
Code, or 
‘‘(ii) the waiver of such pay under sec-
tion 5305 of title 38 of such Code, 
as a result of an award of compensation under 
title 38 of such Code pursuant to a determina-
tion by the Secretary of Veterans Affairs, the 3- 
year period of limitation prescribed in sub-
section (a) shall be extended, for purposes of 
permitting a credit or refund based upon the 
amount of such reduction or waiver, until the 
end of the 1-year period beginning on the date 
of such determination. 
‘‘(B) LIMITATION TO 5 TAXABLE YEARS.— 
Subparagraph (A) shall not apply with respect 
to any taxable year which began more than 5 
years before the date of such determination.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to claims for credit or refund 
filed after the date of the enactment of this Act. 
(c) TRANSITION RULES.—In the case of a determina-
tion described in paragraph (8) of section 6511(d) of the 
Internal Revenue Code of 1986 (as added by this section) 
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which is made by the Secretary of Veterans Affairs after 
December 31, 2000, and before the date of the enactment 
of this Act, such paragraph— 
(1) shall not apply with respect to any taxable 
year which began before January 1, 2001, and 
(2) shall be applied by substituting for ‘‘the 
date of such determination’’ in subparagraph (A) 
thereof. 
SEC. 107. DISTRIBUTIONS FROM RETIREMENT PLANS TO 
INDIVIDUALS CALLED TO ACTIVE DUTY. 
(a) IN GENERAL.—Clause (iv) of section 72(t)(2)(G) 
is amended by striking ‘‘, and before December 31, 2007’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to individuals ordered or called to 
active duty on or after December 31, 2007. 
SEC. 108. AUTHORITY TO DISCLOSE RETURN INFORMATION 
FOR CERTAIN VETERANS PROGRAMS MADE 
PERMANENT. 
(a) IN GENERAL.—Paragraph (7) of section 6103(l) 
is amended by striking the last sentence thereof. 
(b) 
CONFORMING
AMENDMENT.—Section 
6103(l)(7)(D)(viii)(III) is amended by striking ‘‘sections 
1710(a)(1)(I), 1710(a)(2), 1710(b), and 1712(a)(2)(B)’’ 
and inserting ‘‘sections 1710(a)(2)(G), 1710(a)(3), and 
1710(b)’’. 
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(c) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to requests made after Sep-
tember 30, 2008. 
SEC. 109. CONTRIBUTIONS OF MILITARY DEATH GRATU-
ITIES TO ROTH IRAS AND EDUCATION SAV-
INGS ACCOUNTS. 
(a) PROVISION IN EFFECT BEFORE PENSION PRO-
TECTION ACT.—Subsection (e) of section 408A (relating 
to qualified rollover contribution), as in effect before the 
amendments made by section 824 of the Pension Protec-
tion Act of 2006, is amended to read as follows: 
‘‘(e) QUALIFIED ROLLOVER CONTRIBUTION.—For 
purposes of this section— 
‘‘(1) IN GENERAL.—The term ‘qualified rollover 
contribution’ means a rollover contribution to a Roth 
IRA from another such account, or from an indi-
vidual retirement plan, but only if such rollover con-
tribution 
meets 
the 
requirements 
of 
section 
408(d)(3). Such term includes a rollover contribu-
tion described in section 402A(c)(3)(A). For pur-
poses of section 408(d)(3)(B), there shall be dis-
regarded any qualified rollover contribution from an 
individual retirement plan (other than a Roth IRA) 
to a Roth IRA. 
‘‘(2) MILITARY DEATH GRATUITY.— 
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‘‘(A) IN
GENERAL.—The term ‘qualified 
rollover contribution’ includes a contribution to 
a Roth IRA maintained for the benefit of an in-
dividual made before the end of the 1-year pe-
riod beginning on the date on which such indi-
vidual receives an amount under section 1477 
of title 10, United States Code, or section 1967 
of title 38 of such Code, with respect to a per-
son, to the extent that such contribution does 
not exceed— 
‘‘(i) the sum of the amounts received 
during such period by such individual 
under such sections with respect to such 
person, reduced by 
‘‘(ii) the amounts so received which 
were contributed to a Coverdell education 
savings account under section 530(d)(9). 
‘‘(B) ANNUAL
LIMIT
ON
NUMBER
OF 
ROLLOVERS
NOT
TO
APPLY.—Section 
408(d)(3)(B) shall not apply with respect to 
amounts treated as a rollover by subparagraph 
(A). 
‘‘(C) APPLICATION OF SECTION 72.—For 
purposes of applying section 72 in the case of 
a distribution which is not a qualified distribu-
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tion, the amount treated as a rollover by reason 
of subparagraph (A) shall be treated as invest-
ment in the contract.’’. 
(b) PROVISION IN EFFECT AFTER PENSION PROTEC-
TION ACT.—Subsection (e) of section 408A, as in effect 
after the amendments made by section 824 of the Pension 
Protection Act of 2006, is amended to read as follows: 
‘‘(e) QUALIFIED ROLLOVER CONTRIBUTION.—For 
purposes of this section— 
‘‘(1) IN GENERAL.—The term ‘qualified rollover 
contribution’ means a rollover contribution— 
‘‘(A) to a Roth IRA from another such ac-
count, 
‘‘(B) from an eligible retirement plan, but 
only if— 
‘‘(i) in the case of an individual retire-
ment plan, such rollover contribution meets 
the requirements of section 408(d)(3), and 
‘‘(ii) in the case of any eligible retire-
ment 
plan 
(as 
defined 
in 
section 
402(c)(8)(B) other than clauses (i) and (ii) 
thereof), such rollover contribution meets 
the 
requirements 
of 
section 
402(c), 
403(b)(8), or 457(e)(16), as applicable. 
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For purposes of section 408(d)(3)(B), there 
shall be disregarded any qualified rollover con-
tribution from an individual retirement plan 
(other than a Roth IRA) to a Roth IRA. 
‘‘(2) MILITARY DEATH GRATUITY.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
rollover contribution’ includes a contribution to 
a Roth IRA maintained for the benefit of an in-
dividual made before the end of the 1-year pe-
riod beginning on the date on which such indi-
vidual receives an amount under section 1477 
of title 10, United States Code, or section 1967 
of title 38 of such Code, with respect to a per-
son, to the extent that such contribution does 
not exceed— 
‘‘(i) the sum of the amounts received 
during such period by such individual 
under such sections with respect to such 
person, reduced by 
‘‘(ii) the amounts so received which 
were contributed to a Coverdell education 
savings account under section 530(d)(9). 
‘‘(B) ANNUAL
LIMIT
ON
NUMBER
OF 
ROLLOVERS
NOT
TO
APPLY.—Section 
408(d)(3)(B) shall not apply with respect to 
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amounts treated as a rollover by the subpara-
graph (A). 
‘‘(C) APPLICATION OF SECTION 72.—For 
purposes of applying section 72 in the case of 
a distribution which is not a qualified distribu-
tion, the amount treated as a rollover by reason 
of subparagraph (A) shall be treated as invest-
ment in the contract.’’. 
(c) EDUCATION SAVINGS ACCOUNTS.—Subsection 
(d) of section 530 is amended by adding at the end the 
following new paragraph: 
‘‘(9) MILITARY DEATH GRATUITY.— 
‘‘(A) IN GENERAL.—For purposes of this 
section, the term ‘rollover contribution’ includes 
a contribution to a Coverdell education savings 
account made before the end of the 1-year pe-
riod beginning on the date on which the con-
tributor receives an amount under section 1477 
of title 10, United States Code, or section 1967 
of title 38 of such Code, with respect to a per-
son, to the extent that such contribution does 
not exceed— 
‘‘(i) the sum of the amounts received 
during such period by such contributor 
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under such sections with respect to such 
person, reduced by 
‘‘(ii) the amounts so received which 
were contributed to a Roth IRA under sec-
tion 408A(e)(2) or to another Coverdell 
education savings account. 
‘‘(B) ANNUAL
LIMIT
ON
NUMBER
OF 
ROLLOVERS NOT TO APPLY.—The last sentence 
of paragraph (5) shall not apply with respect to 
amounts treated as a rollover by the subpara-
graph (A). 
‘‘(C) APPLICATION OF SECTION 72.—For 
purposes of applying section 72 in the case of 
a distribution which is includible in gross in-
come under paragraph (1), the amount treated 
as a rollover by reason of subparagraph (A) 
shall be treated as investment in the contract.’’. 
(d) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as provided by para-
graphs (2) and (3), the amendments made by this 
section shall apply with respect to deaths from inju-
ries occurring on or after the date of the enactment 
of this Act. 
(2) APPLICATION OF AMENDMENTS TO DEATHS 
FROM INJURIES OCCURRING ON OR AFTER OCTOBER 
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7, 2001, AND
BEFORE
ENACTMENT.—The amend-
ments made by this section shall apply to any con-
tribution made pursuant to section 408A(e)(2) or 
530(d)(5) of the Internal Revenue Code of 1986, as 
amended by this Act, with respect to amounts re-
ceived under section 1477 of title 10, United States 
Code, or under section 1967 of title 38 of such 
Code, for deaths from injuries occurring on or after 
October 7, 2001, and before the date of the enact-
ment of this Act if such contribution is made not 
later than 1 year after the date of the enactment of 
this Act. 
(3) PENSION PROTECTION ACT CHANGES.—Sec-
tion 408A(e)(1) of the Internal Revenue Code of 
1986 (as in effect after the amendments made by 
subsection (b)) shall apply to taxable years begin-
ning after December 31, 2007. 
SEC. 110. SUSPENSION OF 5-YEAR PERIOD DURING SERV-
ICE WITH THE PEACE CORPS. 
(a) IN GENERAL.—Subsection (d) of section 121 (re-
lating to special rules) is amended by adding at the end 
the following new paragraph: 
‘‘(12) PEACE CORPS.— 
‘‘(A) IN GENERAL.—At the election of an 
individual with respect to a property, the run-
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ning of the 5-year period described in sub-
sections (a) and (c)(1)(B) and paragraph (7) of 
this subsection with respect to such property 
shall be suspended during any period that such 
individual or such individual’s spouse is serving 
outside the United States— 
‘‘(i) on qualified official extended duty 
(as defined in paragraph (9)(C)) as an em-
ployee of the Peace Corps, or 
‘‘(ii) as an enrolled volunteer or volun-
teer leader under section 5 or 6 (as the 
case may be) of the Peace Corps Act (22 
U.S.C. 2504, 2505). 
‘‘(B) APPLICABLE RULES.—For purposes 
of subparagraph (A), rules similar to the rules 
of subparagraphs (B) and (D) shall apply.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to taxable years beginning after 
December 31, 2007. 
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SEC. 111. CREDIT FOR EMPLOYER DIFFERENTIAL WAGE 
PAYMENTS TO EMPLOYEES WHO ARE ACTIVE 
DUTY MEMBERS OF THE UNIFORMED SERV-
ICES. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business credits) is 
amended by adding at the end the following new section: 
‘‘SEC. 45O. EMPLOYER WAGE CREDIT FOR EMPLOYEES WHO 
ARE ACTIVE DUTY MEMBERS OF THE UNI-
FORMED SERVICES. 
‘‘(a) GENERAL RULE.—For purposes of section 38, 
in the case of an eligible small business employer, the dif-
ferential wage payment credit for any taxable year is an 
amount equal to 20 percent of the sum of the eligible dif-
ferential wage payments for each of the qualified employ-
ees of the taxpayer during such taxable year. 
‘‘(b) DEFINITIONS.—For purposes of this section— 
‘‘(1) ELIGIBLE
DIFFERENTIAL
WAGE
PAY-
MENTS.—The term ‘eligible differential wage pay-
ments’ means, with respect to each qualified em-
ployee, so much of the differential wage payments 
(as defined in section 3401(h)(2)) paid to such em-
ployee for the taxable year as does not exceed 
$20,000. 
‘‘(2) QUALIFIED EMPLOYEE.—The term ‘quali-
fied employee’ means a person who has been an em-
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ployee of the taxpayer for the 91-day period imme-
diately preceding the period for which any differen-
tial wage payment is made. 
‘‘(3) ELIGIBLE SMALL BUSINESS EMPLOYER.— 
‘‘(A) IN
GENERAL.—The term ‘eligible 
small business employer’ means, with respect to 
any taxable year, any employer which— 
‘‘(i) employed an average of less than 
50 employees on business days during such 
taxable year, and 
‘‘(ii) under a written plan of the em-
ployer, provides eligible differential wage 
payments to every qualified employee of 
the employer. 
‘‘(B) CONTROLLED
GROUPS.—For pur-
poses of subparagraph (A), all persons treated 
as a single employer under subsection (b), (c), 
(m), or (o) of section 414 shall be treated as a 
single employer. 
‘‘(c) COORDINATION WITH OTHER CREDITS.—The 
amount of credit otherwise allowable under this chapter 
with respect to compensation paid to any employee shall 
be reduced by the credit determined under this section 
with respect to such employee. 
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‘‘(d) DISALLOWANCE
FOR FAILURE TO COMPLY 
WITH EMPLOYMENT
OR REEMPLOYMENT RIGHTS
OF 
MEMBERS
OF
THE RESERVE COMPONENTS
OF
THE 
ARMED FORCES OF THE UNITED STATES.—No credit 
shall be allowed under subsection (a) to a taxpayer for— 
‘‘(1) any taxable year, beginning after the date 
of the enactment of this section, in which the tax-
payer is under a final order, judgment, or other 
process issued or required by a district court of the 
United States under section 4323 of title 38 of the 
United States Code with respect to a violation of 
chapter 43 of such title, and 
‘‘(2) the 2 succeeding taxable years. 
‘‘(e) CERTAIN RULES TO APPLY.—For purposes of 
this section, rules similar to the rules of subsections (c), 
(d), and (e) of section 52 shall apply. 
‘‘(f) TERMINATION.—This section shall not apply to 
any payments made after December 31, 2009.’’. 
(b) CREDIT TREATED AS PART OF GENERAL BUSI-
NESS CREDIT.—Section 38(b) (relating to general busi-
ness credit) is amended by striking ‘‘plus’’ at the end of 
paragraph (30), by striking the period at the end of para-
graph (31) and inserting ‘‘, plus’’, and by adding at the 
end of following new paragraph: 
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‘‘(32) the differential wage payment credit de-
termined under section 45O(a).’’. 
(c) NO DEDUCTION
FOR COMPENSATION TAKEN 
INTO ACCOUNT FOR CREDIT.—Section 280C(a) (relating 
to rule for employment credits) is amended by inserting 
‘‘45O(a),’’ after ‘‘45A(a),’’. 
(d) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
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.’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to amounts paid after the date of 
the enactment of this Act. 
SEC. 112. STATE PAYMENTS TO SERVICE MEMBERS TREAT-
ED AS QUALIFIED MILITARY BENEFITS. 
(a) IN GENERAL.—Section 134(b) (defining qualified 
military benefit) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(6) CERTAIN
STATE
PAYMENTS.—The term 
‘qualified military benefit’ includes any bonus pay-
ment by a State or political subdivision thereof to 
any member or former member of the uniformed 
services of the United States or any dependent of 
such member only by reason of such member’s serv-
ice in an combat zone (as defined in section 
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112(c)(2), determined without regard to the par-
enthetical).’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to payments made before, on, or 
after the date of the enactment of this Act. 
SEC. 113. PERMANENT EXCLUSION OF GAIN FROM SALE OF 
A PRINCIPAL RESIDENCE BY CERTAIN EM-
PLOYEES OF THE INTELLIGENCE COMMU-
NITY. 
(a) IN GENERAL.—Paragraph (9) of section 121(d) 
is amended by striking subparagraph (E). 
(b) DUTY
STATION
MAY
BE
INSIDE
UNITED 
STATES.—Section 121(d)(9)(C) (defining qualified official 
extended duty) is amended by striking clause (vi). 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to sales or exchanges after the date 
of the enactment of this Act. 
SEC. 114. SPECIAL DISPOSITION RULES FOR UNUSED BENE-
FITS IN HEALTH FLEXIBLE SPENDING AR-
RANGEMENTS OF INDIVIDUALS CALLED TO 
ACTIVE DUTY. 
(a) IN GENERAL.—Section 125 (relating to cafeteria 
plans) is amended by redesignating subsections (h) and 
(i) as subsection (i) and (j), respectively, and by inserting 
after subsection (g) the following new subsection: 
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‘‘(h) SPECIAL RULE
FOR UNUSED BENEFITS
IN 
HEALTH FLEXIBLE SPENDING ARRANGEMENTS OF INDI-
VIDUALS CALLED TO ACTIVE DUTY.— 
‘‘(1) IN GENERAL.—For purposes of this title, 
a plan or other arrangement shall not fail to be 
treated as a cafeteria plan or health flexible spend-
ing arrangement merely because such arrangement 
provides for qualified reservist distributions. 
‘‘(2) QUALIFIED
RESERVIST
DISTRIBUTION.— 
For purposes of this subsection, the term ‘qualified 
reservist distribution’ means, any distribution to an 
individual of all or a portion of the balance in the 
employee’s account under such arrangement if— 
‘‘(A) such individual was (by reason of 
being a member of a reserve component (as de-
fined in section 101 of title 37, United States 
Code)) ordered or called to active duty for a pe-
riod in excess of 179 days or for an indefinite 
period, and 
‘‘(B) such distribution is made during the 
period beginning on the date of such order or 
call and ending on the last date that reimburse-
ments could otherwise be made under such ar-
rangement for the plan year which includes the 
date of such order or call.’’. 
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(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to distributions made after the 
date of the enactment of this Act. 
SEC. 115. TECHNICAL CORRECTION RELATED TO EXCLU-
SION OF CERTAIN PROPERTY TAX REBATES 
AND OTHER BENEFITS PROVIDED TO VOLUN-
TEER FIREFIGHTERS AND EMERGENCY MED-
ICAL RESPONDERS. 
(a) SOCIAL SECURITY TAXES.— 
(1) Section 3121(a) (relating to definition of 
wages) is amended by striking ‘‘or’’ at the end of 
paragraph (21), by striking the period at the end of 
paragraph (22) and inserting ‘‘; or’’, and by insert-
ing after paragraph (22) the following new para-
graph: 
‘‘(23) any benefit or payment which is exclud-
ible from the gross income of the employee under 
section 139B(b).’’. 
(2) Section 209(a) of the Social Security Act is 
amended by striking ‘‘or’’ at the end of paragraph 
(18), by striking the period at the end of paragraph 
(19) and inserting ‘‘; or’’, and by inserting after 
paragraph (19) the following new paragraph: 
‘‘(20) Any benefit or payment which is exclud-
ible from the gross income of the employee under 
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section 139B(b) of the Internal Revenue Code of 
1986).’’. 
(b) UNEMPLOYMENT TAXES.—Section 3306(b) (re-
lating to definition of wages) is amended by striking ‘‘or’’ 
at the end of paragraph (18), by striking the period at 
the end of paragraph (19) and inserting ‘‘; or’’, and by 
inserting after paragraph (19) the following new para-
graph: 
‘‘(20) any benefit or payment which is exclud-
ible from the gross income of the employee under 
section 139B(b).’’. 
(c) WAGE WITHHOLDING.—Section 3401(a) (defin-
ing wages) is amended by striking ‘‘or’’ at the end of para-
graph (21), by striking the period at the end of paragraph 
(22) and inserting ‘‘; or’’, and by inserting after para-
graph (22) the following new paragraph: 
‘‘(23) for any benefit or payment which is ex-
cludible from the gross income of the employee 
under section 139B(b).’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall take effect as if included in section 5 
of the Mortgage Forgiveness Debt Relief Act of 2007. 
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TITLE 
II—IMPROVEMENTS 
IN 
SUPPLEMENTAL 
SECURITY 
INCOME 
SEC. 201. TREATMENT OF UNIFORMED SERVICE CASH RE-
MUNERATION AS EARNED INCOME. 
(a) IN GENERAL.—Section 1612(a)(1)(A) of the So-
cial Security Act (42 U.S.C. 1382a(a)(1)(A)) is amended 
by inserting ‘‘(and, in the case of cash remuneration paid 
for service as a member of a uniformed service (other than 
payments described in paragraph (2)(H) of this subsection 
or subsection (b)(20)), without regard to the limitations 
contained in section 209(d))’’ before the semicolon. 
(b) CERTAIN HOUSING PAYMENTS TREATED AS IN- 
KIND SUPPORT AND MAINTENANCE.—Section 1612(a)(2) 
of such Act (42 U.S.C. 1382a(a)(2)) is amended— 
(1) by striking ‘‘and’’ at the end of subpara-
graph (F); 
(2) by striking the period at the end of sub-
paragraph (G) and inserting ‘‘; and’’; and 
(3) by adding at the end the following: 
‘‘(H) payments to or on behalf of a mem-
ber of a uniformed service for housing of the 
member (and his or her dependents, if any) on 
a facility of a uniformed service, including pay-
ments provided under section 403 of title 37, 
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United States Code, for housing that is ac-
quired or constructed under subchapter IV of 
chapter 169 of title 10 of such Code, or any re-
lated provision of law, and any such payments 
shall be treated as support and maintenance in 
kind subject to subparagraph (A) of this para-
graph.’’. 
SEC. 202. STATE ANNUITIES FOR CERTAIN VETERANS TO 
BE DISREGARDED IN DETERMINING SUPPLE-
MENTAL SECURITY INCOME BENEFITS. 
(a) INCOME DISREGARD.—Section 1612(b) of the So-
cial Security Act (42 U.S.C. 1382a(b)) is amended— 
(1) by striking ‘‘and’’ at the end of paragraph 
(22); 
(2) by striking the period at the end of para-
graph (23) and inserting ‘‘; and’’; and 
(3) by adding at the end the following: 
‘‘(24) any annuity paid by a State to the indi-
vidual (or such spouse) on the basis of the individ-
ual’s being a veteran (as defined in section 101 of 
title 38, United States Code), and blind, disabled, or 
aged.’’. 
(b) RESOURCE DISREGARD.—Section 1613(a) of 
such Act (42 U.S.C. 1382b(a)) is amended— 
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(1) by striking ‘‘and’’ at the end of paragraph 
(14); 
(2) by striking the period at the end of para-
graph (15) and inserting ‘‘; and’’; and 
(3) by inserting after paragraph (15) the fol-
lowing: 
‘‘(16) for the month of receipt and every month 
thereafter, any annuity paid by a State to the indi-
vidual (or such spouse) on the basis of the individ-
ual’s being a veteran (as defined in section 101 of 
title 38, United States Code), and blind, disabled, or 
aged.’’. 
SEC. 203. EXCLUSION OF AMERICORPS BENEFITS FOR PUR-
POSES OF DETERMINING SUPPLEMENTAL SE-
CURITY INCOME ELIGIBILITY AND BENEFIT 
AMOUNTS. 
Section 1612(b) of the Social Security Act (42 U.S.C. 
1382a(b)), as amended by section 202(a) of this Act, is 
amended— 
(1) in paragraph (23), by striking ‘‘and’’ at the 
end; 
(2) in paragraph (24), by striking the period 
and inserting ‘‘; and’’; and 
(3) by adding at the end the following: 
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‘‘(25) any benefit (whether cash or in-kind) 
conferred upon (or paid on behalf of) a participant 
in an AmeriCorps position approved by the Corpora-
tion for National and Community Service under sec-
tion 123 of the National and Community Service Act 
of 1990 (42 U.S.C. 12573).’’. 
SEC. 204. EFFECTIVE DATE. 
The amendments made by this title shall be effective 
with respect to benefits payable for months beginning 
after 60 days after the date of the enactment of this Act. 
TITLE III—REVENUE 
PROVISIONS 
SEC. 301. REVISION OF TAX RULES ON EXPATRIATION. 
(a) IN GENERAL.—Subpart A of part II of sub-
chapter N of chapter 1 is amended by inserting after sec-
tion 877 the following new section: 
‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION. 
‘‘(a) GENERAL RULES.—For purposes of this sub-
title— 
‘‘(1) MARK TO MARKET.—All property of a cov-
ered expatriate shall be treated as sold on the day 
before the expatriation date for its fair market 
value. 
‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the 
case of any sale under paragraph (1)— 
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‘‘(A) notwithstanding any other provision 
of this title, any gain arising from such sale 
shall be taken into account for the taxable year 
of the sale, and 
‘‘(B) any loss arising from such sale shall 
be taken into account for the taxable year of 
the sale to the extent otherwise provided by this 
title, except that section 1091 shall not apply to 
any such loss. 
Proper adjustment shall be made in the amount of 
any gain or loss subsequently realized for gain or 
loss taken into account under the preceding sen-
tence, determined without regard to paragraph (3). 
‘‘(3) EXCLUSION FOR CERTAIN GAIN.— 
‘‘(A) IN
GENERAL.—The amount which 
would (but for this paragraph) be includible in 
the gross income of any individual by reason of 
paragraph (1) shall be reduced (but not below 
zero) by $600,000. 
‘‘(B) ADJUSTMENT FOR INFLATION.— 
‘‘(i) IN GENERAL.—In the case of any 
taxable year beginning in a calendar year 
after 2008, the dollar amount in subpara-
graph (A) shall be increased by an amount 
equal to— 
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‘‘(I) such dollar amount, multi-
plied by 
‘‘(II) the cost-of-living adjust-
ment determined under section 1(f)(3) 
for the calendar year in which the tax-
able year begins, by substituting ‘cal-
endar year 2007’ for ‘calendar year 
1992’ in subparagraph (B) thereof. 
‘‘(ii) ROUNDING.—If any amount as 
adjusted under clause (i) is not a multiple 
of $1,000, such amount shall be rounded 
to the nearest multiple of $1,000. 
‘‘(b) ELECTION TO DEFER TAX.— 
‘‘(1) IN GENERAL.—If the taxpayer elects the 
application of this subsection with respect to any 
property treated as sold by reason of subsection (a), 
the time for payment of the additional tax attrib-
utable to such property shall be extended until the 
due date of the return for the taxable year in which 
such property is disposed of (or, in the case of prop-
erty disposed of in a transaction in which gain is not 
recognized in whole or in part, until such other date 
as the Secretary may prescribe). 
‘‘(2) DETERMINATION OF TAX WITH RESPECT 
TO PROPERTY.—For purposes of paragraph (1), the 
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additional tax attributable to any property is an 
amount which bears the same ratio to the additional 
tax imposed by this chapter for the taxable year 
solely by reason of subsection (a) as the gain taken 
into account under subsection (a) with respect to 
such property bears to the total gain taken into ac-
count under subsection (a) with respect to all prop-
erty to which subsection (a) applies. 
‘‘(3) TERMINATION OF EXTENSION.—The due 
date for payment of tax may not be extended under 
this subsection later than the due date for the re-
turn of tax imposed by this chapter for the taxable 
year which includes the date of death of the expa-
triate (or, if earlier, the time that the security pro-
vided with respect to the property fails to meet the 
requirements of paragraph (4), unless the taxpayer 
corrects such failure within the time specified by the 
Secretary). 
‘‘(4) SECURITY.— 
‘‘(A) IN GENERAL.—No election may be 
made under paragraph (1) with respect to any 
property unless adequate security is provided 
with respect to such property. 
‘‘(B) ADEQUATE SECURITY.—For purposes 
of subparagraph (A), security with respect to 
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any property shall be treated as adequate secu-
rity if— 
‘‘(i) it is a bond which is furnished to, 
and accepted by, the Secretary, which is 
conditioned on the payment of tax (and in-
terest thereon), and which meets the re-
quirements of section 6325, or 
‘‘(ii) it is another form of security for 
such payment (including letters of credit) 
that meets such requirements as the Sec-
retary may prescribe. 
‘‘(5) WAIVER OF CERTAIN RIGHTS.—No elec-
tion may be made under paragraph (1) unless the 
taxpayer makes an irrevocable waiver of any right 
under any treaty of the United States which would 
preclude assessment or collection of any tax imposed 
by reason of this section. 
‘‘(6) ELECTIONS.—An election under paragraph 
(1) shall only apply to property described in the elec-
tion and, once made, is irrevocable. 
‘‘(7) INTEREST.—For purposes of section 6601, 
the last date for the payment of tax shall be deter-
mined without regard to the election under this sub-
section. 
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‘‘(c) EXCEPTION
FOR CERTAIN PROPERTY.—Sub-
section (a) shall not apply to— 
‘‘(1) any deferred compensation item (as de-
fined in subsection (d)(4)), 
‘‘(2) any specified tax deferred account (as de-
fined in subsection (e)(2)), and 
‘‘(3) any interest in a nongrantor trust (as de-
fined in subsection (f)(3)). 
‘‘(d) TREATMENT
OF DEFERRED COMPENSATION 
ITEMS.— 
‘‘(1) WITHHOLDING
ON
ELIGIBLE
DEFERRED 
COMPENSATION ITEMS.— 
‘‘(A) IN GENERAL.—In the case of any eli-
gible deferred compensation item, the payor 
shall deduct and withhold from any taxable 
payment to a covered expatriate with respect to 
such item a tax equal to 30 percent thereof. 
‘‘(B) TAXABLE PAYMENT.—For purposes 
of subparagraph (A), the term ‘taxable pay-
ment’ means with respect to a covered expa-
triate any payment to the extent it would be in-
cludible in the gross income of the covered ex-
patriate if such expatriate continued to be sub-
ject to tax as a citizen or resident of the United 
States. A deferred compensation item shall be 
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taken into account as a payment under the pre-
ceding sentence when such item would be so in-
cludible. 
‘‘(2) 
OTHER
DEFERRED
COMPENSATION 
ITEMS.—In the case of any deferred compensation 
item which is not an eligible deferred compensation 
item— 
‘‘(A)(i) with respect to any deferred com-
pensation item to which clause (ii) does not 
apply, an amount equal to the present value of 
the covered expatriate’s accrued benefit shall be 
treated as having been received by such indi-
vidual on the day before the expatriation date 
as a distribution under the plan, and 
‘‘(ii) with respect to any deferred com-
pensation item referred to in paragraph (4)(D), 
the rights of the covered expatriate to such item 
shall be treated as becoming transferable and 
not subject to a substantial risk of forfeiture on 
the day before the expatriation date, 
‘‘(B) no early distribution tax shall apply 
by reason of such treatment, and 
‘‘(C) appropriate adjustments shall be 
made to subsequent distributions from the plan 
to reflect such treatment. 
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‘‘(B) any interest in a foreign pension plan 
or similar retirement arrangement or program, 
‘‘(C) any item of deferred compensation, 
and 
‘‘(D) any property, or right to property, 
which the individual is entitled to receive in 
connection with the performance of services to 
the extent not previously taken into account 
under section 83 or in accordance with section 
83. 
‘‘(5) EXCEPTION.—Paragraphs (1) and (2) 
shall not apply to any deferred compensation item to 
the extent attributable to services performed outside 
the United States while the covered expatriate was 
not a citizen or resident of the United States. 
‘‘(6) SPECIAL RULES.— 
‘‘(A) 
APPLICATION
OF
WITHHOLDING 
RULES.—Rules similar to the rules of sub-
chapter B of chapter 3 shall apply for purposes 
of this subsection. 
‘‘(B) APPLICATION
OF
TAX.—Any item 
subject to the withholding tax imposed under 
paragraph (1) shall be subject to tax under sec-
tion 871. 
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‘‘(C) COORDINATION WITH OTHER WITH-
HOLDING REQUIREMENTS.—Any item subject to 
withholding under paragraph (1) shall not be 
subject to withholding under section 1441 or 
chapter 24. 
‘‘(e) TREATMENT OF SPECIFIED TAX DEFERRED AC-
COUNTS.— 
‘‘(1) ACCOUNT TREATED AS DISTRIBUTED.—In 
the case of any interest in a specified tax deferred 
account held by a covered expatriate on the day be-
fore the expatriation date— 
‘‘(A) the covered expatriate shall be treat-
ed as receiving a distribution of his entire inter-
est in such account on the day before the expa-
triation date, 
‘‘(B) no early distribution tax shall apply 
by reason of such treatment, and 
‘‘(C) appropriate adjustments shall be 
made to subsequent distributions from the ac-
count to reflect such treatment. 
‘‘(2) SPECIFIED
TAX
DEFERRED
ACCOUNT.— 
For purposes of paragraph (1), the term ‘specified 
tax deferred account’ means an individual retirement 
plan (as defined in section 7701(a)(37)) other than 
any arrangement described in subsection (k) or (p) 
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of section 408, a qualified tuition program (as de-
fined in section 529), a Coverdell education savings 
account (as defined in section 530), a health savings 
account (as defined in section 223), and an Archer 
MSA (as defined in section 220). 
‘‘(f) SPECIAL RULES FOR NONGRANTOR TRUSTS.— 
‘‘(1) IN GENERAL.—In the case of a distribu-
tion (directly or indirectly) of any property from a 
nongrantor trust to a covered expatriate— 
‘‘(A) the trustee shall deduct and withhold 
from such distribution an amount equal to 30 
percent of the taxable portion of the distribu-
tion, and 
‘‘(B) if the fair market value of such prop-
erty exceeds its adjusted basis in the hands of 
the trust, gain shall be recognized to the trust 
as if such property were sold to the expatriate 
at its fair market value. 
‘‘(2) TAXABLE PORTION.—For purposes of this 
subsection, the term ‘taxable portion’ means, with 
respect to any distribution, that portion of the dis-
tribution which would be includible in the gross in-
come of the covered expatriate if such expatriate 
continued to be subject to tax as a citizen or resi-
dent of the United States. 
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‘‘(3) NONGRANTOR
TRUST.—For purposes of 
this subsection, the term ‘nongrantor trust’ means 
the portion of any trust that the individual is not 
considered the owner of under subpart E of part I 
of subchapter J. The determination under the pre-
ceding sentence shall be made immediately before 
the expatriation date. 
‘‘(4) SPECIAL
RULES
RELATING
TO
WITH-
HOLDING.—For purposes of this subsection— 
‘‘(A) rules similar to the rules of sub-
section (d)(6) shall apply, and 
‘‘(B) the covered expatriate shall be treat-
ed as having waived any right to claim any re-
duction under any treaty with the United 
States in withholding on any distribution to 
which paragraph (1)(A) applies unless the cov-
ered expatriate agrees to such other treatment 
as the Secretary determines appropriate. 
‘‘(5) 
APPLICATION.—This 
subsection 
shall 
apply to a nongrantor trust only if the covered expa-
triate was a beneficiary of the trust on the day be-
fore the expatriation date. 
‘‘(g) DEFINITIONS AND SPECIAL RULES RELATING 
TO EXPATRIATION.—For purposes of this section— 
‘‘(1) COVERED EXPATRIATE.— 
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‘‘(A) IN GENERAL.—The term ‘covered ex-
patriate’ means an expatriate who meets the re-
quirements of subparagraph (A), (B), or (C) of 
section 877(a)(2). 
‘‘(B) EXCEPTIONS.—An individual shall 
not be treated as meeting the requirements of 
subparagraph (A) or (B) of section 877(a)(2) 
if— 
‘‘(i) the individual— 
‘‘(I) became at birth a citizen of 
the United States and a citizen of an-
other country and, as of the expatria-
tion date, continues to be a citizen of, 
and is taxed as a resident of, such 
other country, and 
‘‘(II) has been a resident of the 
United States (as defined in section 
7701(b)(1)(A)(ii)) for not more than 
10 taxable years during the 15-tax-
able year period ending with the tax-
able year during which the expatria-
tion date occurs, or 
‘‘(ii)(I) the individual’s relinquishment 
of United States citizenship occurs before 
such individual attains age 181⁄2, and 
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‘‘(II) the individual has been a resi-
dent of the United States (as so defined) 
for not more than 10 taxable years before 
the date of relinquishment. 
‘‘(C) COVERED
EXPATRIATES
ALSO
SUB-
JECT TO TAX AS CITIZENS OR RESIDENTS.—In 
the case of any covered expatriate who is sub-
ject to tax as a citizen or resident of the United 
States for any period beginning after the expa-
triation date, such individual shall not be treat-
ed as a covered expatriate during such period 
for purposes of subsections (d)(1) and (f) and 
section 2801. 
‘‘(2) 
EXPATRIATE.—The 
term 
‘expatriate’ 
means— 
‘‘(A) any United States citizen who relin-
quishes his citizenship, and 
‘‘(B) any long-term resident of the United 
States who ceases to be a lawful permanent 
resident of the United States (within the mean-
ing of section 7701(b)(6)). 
‘‘(3) EXPATRIATION
DATE.—The term ‘expa-
triation date’ means— 
‘‘(A) the date an individual relinquishes 
United States citizenship, or 
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‘‘(D) the date a court of the United States 
cancels a naturalized citizen’s certificate of nat-
uralization. 
Subparagraph (A) or (B) shall not apply to any indi-
vidual unless the renunciation or voluntary relin-
quishment is subsequently approved by the issuance 
to the individual of a certificate of loss of nationality 
by the United States Department of State. 
‘‘(5) LONG-TERM RESIDENT.—The term ‘long- 
term resident’ has the meaning given to such term 
by section 877(e)(2). 
‘‘(6) EARLY
DISTRIBUTION
TAX.—The term 
‘early distribution tax’ means any increase in tax im-
posed under section 72(t), 220(e)(4), 223(f)(4), 
409A(a)(1)(B), 529(c)(6), or 530(d)(4). 
‘‘(h) OTHER RULES.— 
‘‘(1) TERMINATION OF DEFERRALS, ETC.—In 
the case of any covered expatriate, notwithstanding 
any other provision of this title— 
‘‘(A) any time period for acquiring prop-
erty which would result in the reduction in the 
amount of gain recognized with respect to prop-
erty disposed of by the taxpayer shall terminate 
on the day before the expatriation date, and 
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‘‘(B) any extension of time for payment of 
tax shall cease to apply on the day before the 
expatriation date and the unpaid portion of 
such tax shall be due and payable at the time 
and in the manner prescribed by the Secretary. 
‘‘(2) STEP-UP IN BASIS.—Solely for purposes of 
determining any tax imposed by reason of subsection 
(a), property which was held by an individual on the 
date the individual first became a resident of the 
United States (within the meaning of section 
7701(b)) shall be treated as having a basis on such 
date of not less than the fair market value of such 
property on such date. The preceding sentence shall 
not apply if the individual elects not to have such 
sentence apply. Such an election, once made, shall 
be irrevocable. 
‘‘(3) COORDINATION WITH SECTION 684.—If the 
expatriation of any individual would result in the 
recognition of gain under section 684, this section 
shall be applied after the application of section 684. 
‘‘(i) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary or appropriate to 
carry out the purposes of this section.’’. 
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(b) TAX ON GIFTS AND BEQUESTS RECEIVED BY 
UNITED STATES CITIZENS AND RESIDENTS FROM EXPA-
TRIATES.— 
(1) IN GENERAL.—Subtitle B (relating to estate 
and gift taxes) is amended by inserting after chapter 
14 the following new chapter: 
‘‘CHAPTER 15—GIFTS AND BEQUESTS 
FROM EXPATRIATES 
‘‘Sec. 2801. Imposition of tax. 
‘‘SEC. 2801. IMPOSITION OF TAX. 
‘‘(a) IN GENERAL.—If, during any calendar year, any 
United States citizen or resident receives any covered gift 
or bequest, there is hereby imposed a tax equal to the 
product of— 
‘‘(1) the highest rate of tax specified in the 
table contained in section 2001(c) as in effect on the 
date of such receipt (or, if greater, the highest rate 
of tax specified in the table applicable under section 
2502(a) as in effect on the date), and 
‘‘(2) the value of such covered gift or bequest. 
‘‘(b) TAX TO BE PAID BY RECIPIENT.—The tax im-
posed by subsection (a) on any covered gift or bequest 
shall be paid by the person receiving such gift or bequest. 
‘‘(c) EXCEPTION FOR CERTAIN GIFTS.—Subsection 
(a) shall apply only to the extent that the value of covered 
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gifts and bequests received by any person during the cal-
endar year exceeds the dollar amount in effect under sec-
tion 2503(b) for such calendar year. 
‘‘(d) TAX REDUCED BY FOREIGN GIFT OR ESTATE 
TAX.—The tax imposed by subsection (a) on any covered 
gift or bequest shall be reduced by the amount of any gift 
or estate tax paid to a foreign country with respect to such 
covered gift or bequest. 
‘‘(e) COVERED GIFT OR BEQUEST.— 
‘‘(1) IN GENERAL.—For purposes of this chap-
ter, the term ‘covered gift or bequest’ means— 
‘‘(A) any property acquired by gift directly 
or indirectly from an individual who, at the 
time of such acquisition, is a covered expatriate, 
and 
‘‘(B) any property acquired directly or in-
directly by reason of the death of an individual 
who, immediately before such death, was a cov-
ered expatriate. 
‘‘(2) EXCEPTIONS FOR TRANSFERS OTHERWISE 
SUBJECT TO ESTATE OR GIFT TAX.—Such term shall 
not include— 
‘‘(A) any property shown on a timely filed 
return of tax imposed by chapter 12 which is a 
taxable gift by the covered expatriate, and 
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‘‘(B) any property included in the gross es-
tate of the covered expatriate for purposes of 
chapter 11 and shown on a timely filed return 
of tax imposed by chapter 11 of the estate of 
the covered expatriate. 
‘‘(3) EXCEPTIONS FOR TRANSFERS TO SPOUSE 
OR CHARITY.—Such term shall not include any prop-
erty with respect to which a deduction would be al-
lowed under section 2055, 2056, 2522, or 2523, 
whichever is appropriate, if the decedent or donor 
were a United States person. 
‘‘(4) TRANSFERS IN TRUST.— 
‘‘(A) DOMESTIC TRUSTS.—In the case of a 
covered gift or bequest made to a domestic 
trust— 
‘‘(i) subsection (a) shall apply in the 
same manner as if such trust were a 
United States citizen, and 
‘‘(ii) the tax imposed by subsection (a) 
on such gift or bequest shall be paid by 
such trust. 
‘‘(B) FOREIGN TRUSTS.— 
‘‘(i) IN GENERAL.—In the case of a 
covered gift or bequest made to a foreign 
trust, subsection (a) shall apply to any dis-
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tribution attributable to such gift or be-
quest from such trust (whether from in-
come or corpus) to a United States citizen 
or resident in the same manner as if such 
distribution were a covered gift or bequest. 
‘‘(ii) DEDUCTION FOR TAX PAID BY 
RECIPIENT.—There shall be allowed as a 
deduction under section 164 the amount of 
tax imposed by this section which is paid 
or accrued by a United States citizen or 
resident by reason of a distribution from a 
foreign trust, but only to the extent such 
tax is imposed on the portion of such dis-
tribution which is included in the gross in-
come of such citizen or resident. 
‘‘(iii) ELECTION TO BE TREATED AS 
DOMESTIC TRUST.—Solely for purposes of 
this section, a foreign trust may elect to be 
treated as a domestic trust. Such an elec-
tion may be revoked with the consent of 
the Secretary. 
‘‘(f) COVERED EXPATRIATE.—For purposes of this 
section, the term ‘covered expatriate’ has the meaning 
given to such term by section 877A(g)(1).’’. 
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(2) CLERICAL
AMENDMENT.—The table of 
chapters for subtitle B is amended by inserting after 
the item relating to chapter 14 the following new 
item: 
‘‘CHAPTER 15. GIFTS AND BEQUESTS FROM EXPATRIATES.’’. 
(c) DEFINITION
OF
TERMINATION
OF
UNITED 
STATES CITIZENSHIP.— 
(1) IN GENERAL.—Section 7701(a) is amended 
by adding at the end the following new paragraph: 
‘‘(50) TERMINATION OF UNITED STATES CITI-
ZENSHIP.— 
‘‘(A) IN
GENERAL.—An individual shall 
not cease to be treated as a United States cit-
izen before the date on which the individual’s 
citizenship is treated as relinquished under sec-
tion 877A(g)(4). 
‘‘(B) DUAL CITIZENS.—Under regulations 
prescribed by the Secretary, subparagraph (A) 
shall not apply to an individual who became at 
birth a citizen of the United States and a cit-
izen of another country.’’. 
(2) CONFORMING AMENDMENTS.— 
(A) Paragraph (1) of section 877(e) is 
amended to read as follows: 
‘‘(1) IN GENERAL.—Any long-term resident of 
the United States who ceases to be a lawful perma-
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nent resident of the United States (within the mean-
ing of section 7701(b)(6)) shall be treated for pur-
poses of this section and sections 2107, 2501, and 
6039G in the same manner as if such resident were 
a citizen of the United States who lost United States 
citizenship on the date of such cessation or com-
mencement.’’. 
(B) Paragraph (6) of section 7701(b) is 
amended by adding at the end the following 
flush sentence: 
‘‘An individual shall cease to be treated as a lawful 
permanent resident of the United States if such in-
dividual commences to be treated as a resident of a 
foreign country under the provisions of a tax treaty 
between the United States and the foreign country, 
does not waive the benefits of such treaty applicable 
to residents of the foreign country, and notifies the 
Secretary of the commencement of such treatment.’’. 
(C) Section 7701 is amended by striking 
subsection (n) and by redesignating subsections 
(o) and (p) as subsections (n) and (o), respec-
tively. 
(d) TERMINATION OF SECTION 877.—Section 877 is 
amended by adding at the end the following new sub-
section: 
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‘‘(h) TERMINATION.—This section shall not apply to 
any individual whose expatriation date (as defined in sec-
tion 877A(g)(3)) is on or after the date of the enactment 
of this subsection.’’. 
(e) INFORMATION
RETURNS.—Section 6039G is 
amended— 
(1) by inserting ‘‘or 877A’’ after ‘‘section 
877(b)’’ in subsection (a), and 
(2) by inserting ‘‘or 877A’’ after ‘‘section 
877(a)’’ in subsection (d). 
(f) CLERICAL AMENDMENT.—The table of sections 
for subpart A of part II of subchapter N of chapter 1 
is amended by inserting after the item relating to section 
877 the following new item: 
‘‘Sec. 877A. Tax responsibilities of expatriation.’’. 
(g) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in this 
subsection, the amendments made by this section 
shall apply to any individual whose expatriation date 
(as so defined) is on or after the date of the enact-
ment of this Act. 
(2) GIFTS AND BEQUESTS.—Chapter 15 of the 
Internal Revenue Code of 1986 (as added by sub-
section (b)) shall apply to covered gifts and bequests 
(as defined in section 2801 of such Code, as so 
added) received on or after the date of the enact-
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ment of this Act from transferors (or from the es-
tates of transferors) whose expatriation date is on or 
after such date of enactment. 
SEC. 302. CERTAIN DOMESTICALLY CONTROLLED FOREIGN 
PERSONS PERFORMING SERVICES UNDER 
CONTRACT WITH UNITED STATES GOVERN-
MENT TREATED AS AMERICAN EMPLOYERS. 
(a) FICA TAXES.—Section 3121 (relating to defini-
tions) is amended by adding at the end the following new 
subsection: 
‘‘(z) TREATMENT OF CERTAIN FOREIGN PERSONS AS 
AMERICAN EMPLOYERS.— 
‘‘(1) IN GENERAL.—If any employee of a for-
eign person is performing services in connection with 
a contract between the United States Government 
(or any instrumentality thereof) and any member of 
any domestically controlled group of entities which 
includes such foreign person, such foreign person 
shall be treated for purposes of this chapter as an 
American employer with respect to such services per-
formed by such employee. 
‘‘(2) DOMESTICALLY CONTROLLED GROUP OF 
ENTITIES.—For purposes of this subsection— 
‘‘(A) IN
GENERAL.—The term ‘domesti-
cally controlled group of entities’ means a con-
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trolled group of entities the common parent of 
which is a domestic corporation. 
‘‘(B) CONTROLLED GROUP OF ENTITIES.— 
The term ‘controlled group of entities’ means a 
controlled group of corporations as defined in 
section 1563(a)(1), except that— 
‘‘(i) ‘more than 50 percent’ shall be 
substituted for ‘at least 80 percent’ each 
place it appears therein, and 
‘‘(ii) the determination shall be made 
without regard to subsections (a)(4) and 
(b)(2) of section 1563. 
A partnership or any other entity (other than a 
corporation) shall be treated as a member of a 
controlled group of entities if such entity is con-
trolled 
(within 
the 
meaning 
of 
section 
954(d)(3)) by members of such group (includ-
ing any entity treated as a member of such 
group by reason of this sentence). 
‘‘(3) LIABILITY OF COMMON PARENT.—In the 
case of a foreign person who is a member of any do-
mestically controlled group of entities, the common 
parent of such group shall be jointly and severally 
liable for any tax under this chapter for which such 
foreign person is liable by reason of this subsection, 
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and for any penalty imposed on such person by this 
title with respect to any failure to pay such tax or 
to file any return or statement with respect to such 
tax or wages subject to such tax. No deduction shall 
be allowed under this title for any liability imposed 
by the preceding sentence. 
‘‘(4) COORDINATION.—Paragraph (1) shall not 
apply to any services which are covered by an agree-
ment under subsection (l). 
‘‘(5) CROSS REFERENCE.—For relief from taxes 
in cases covered by certain international agreements, 
see sections 3101(c) and 3111(c).’’. 
(b) SOCIAL SECURITY BENEFITS.—Subsection (e) of 
section 210 of the Social Security Act (42 U.S.C. 410(e)) 
is amended— 
(1) by striking ‘‘(e) The term’’ and inserting 
‘‘(e)(1) The term’’, 
(2) by redesignating clauses (1) through (6) as 
clauses (A) through (F), respectively, and 
(3) by adding at the end the following new 
paragraph: 
‘‘(2)(A) If any employee of a foreign person is per-
forming services in connection with a contract between the 
United States Government (or any instrumentality there-
of) and any member of any domestically controlled group 
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of entities which includes such foreign person, such foreign 
person shall be treated as an American employer with re-
spect to such services performed by such employee. 
‘‘(B) For purposes of this paragraph— 
‘‘(i) The term ‘domestically controlled group of 
entities’ means a controlled group of entities the 
common parent of which is a domestic corporation. 
‘‘(ii) The term ‘controlled group of entities’ 
means a controlled group of corporations as defined 
in section 1563(a)(1) of the Internal Revenue Code 
of 1986, except that— 
‘‘(I) ‘more than 50 percent’ shall be sub-
stituted for ‘at least 80 percent’ each place it 
appears therein, and 
‘‘(II) the determination shall be made 
without regard to subsections (a)(4) and (b)(2) 
of section 1563 of such Code. 
A partnership or any other entity (other than a cor-
poration) shall be treated as a member of a con-
trolled group of entities if such entity is controlled 
(within the meaning of section 954(d)(3) of such 
Code) by members of such group (including any en-
tity treated as a member of such group by reason of 
this sentence).’’. 
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(c) EFFECTIVE DATE.—The amendment made by 
this section shall apply to services performed after the 
date of the enactment of this Act. 
SEC. 303. INCREASE IN MINIMUM PENALTY ON FAILURE TO 
FILE A RETURN OF TAX. 
(a) IN GENERAL.—Subsection (a) of section 6651 is 
amended by striking ‘‘$100’’ in the last sentence and in-
serting ‘‘$125’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to returns required to be filed after 
December 31, 2008. 
TITLE IV—PARITY IN THE APPLI-
CATION OF CERTAIN LIMITS 
TO MENTAL HEALTH BENE-
FITS 
SEC. 401. PARITY IN THE APPLICATION OF CERTAIN LIMITS 
TO MENTAL HEALTH BENEFITS. 
Subsection (f) of section 9812 is amended— 
(1) by striking ‘‘and’’ at the end of paragraph 
(2), and 
(2) by striking paragraph (3) and inserting the 
following new paragraphs: 
‘‘(3) on or after January 1, 2008, and before 
the date of the enactment of the Heroes Earnings 
Assistance and Relief Tax Act of 2008, and 
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‘‘(4) after December 31, 2008.’’. 
Æ 
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