H. Res. 884 
In the House of Representatives, U. S., 
December 18, 2007. 
Resolved, That upon the adoption of this resolution the 
House shall be considered to have taken from the Speaker’s 
table the bill, H.R. 3997, with the Senate amendments there-
to, and to have: (1) concurred in the Senate amendment to 
the title of the bill; and (2) concurred in the Senate amend-
ment to the text of the bill with the following amendment: 
In lieu of the matter proposed to be inserted by the 
amendment of the Senate to the text of the bill, insert the 
following: 
SECTION 1. SHORT TITLE, ETC. 
(a) SHORT TITLE.—This Act may be cited as the ‘‘He-
roes Earnings Assistance and Relief Tax Act of 2007’’. 
(b) REFERENCE.—Except as otherwise expressly pro-
vided, whenever in this Act an amendment or repeal is ex-
pressed in terms of an amendment to, or repeal of, a section 
or other provision, the reference shall be considered to be 
made to a section or other provision of the Internal Revenue 
Code of 1986.
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(c) TABLE OF CONTENTS.—The table of contents for 
this Act is as follows: 
Sec. 1. Short title, etc. 
TITLE I—BENEFITS FOR MILITARY AND VOLUNTEER 
FIREFIGHTERS 
Sec. 101. Election to include combat pay as earned income for purposes of earned 
income tax credit. 
Sec. 102. Modification of mortgage revenue bonds for veterans. 
Sec. 103. Survivor and disability payments with respect to qualified military 
service. 
Sec. 104. Treatment of differential military pay as wages. 
Sec. 105. Extension of exclusion from income for benefits provided to volunteer 
firefighters and emergency medical responders. 
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. Disclosure of return information relating to veterans programs made 
permanent. 
Sec. 109. Contributions of military death gratuities to Roth IRAs and Education 
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 spending 
arrangements of individuals called to active duty. 
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. 
Sec. 204. Effective date. 
TITLE III—REVENUE PROVISIONS 
Sec. 301. Increase in penalty for failure to file partnership returns. 
Sec. 302. Increase in penalty for failure to file S corporation returns. 
Sec. 303. Increase in minimum penalty on failure to file a return of tax. 
Sec. 304. Increase in information return penalties. 
Sec. 305. Revision of tax rules on expatriation. 
TITLE IV—TAX TECHNICAL CORRECTIONS 
Sec. 401. Short title. 
Sec. 402. Amendment related to the Tax Relief and Health Care Act of 2006. 
Sec. 403. Amendments related to title XII of the Pension Protection Act of 2006.
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Sec. 404. Amendments related to the Tax Increase Prevention and Reconciliation 
Act of 2005. 
Sec. 405. Amendments related to the Safe, Accountable, Flexible, Efficient Trans-
portation Equity Act: A Legacy for Users. 
Sec. 406. Amendments related to the Energy Policy Act of 2005. 
Sec. 407. Amendments related to the American Jobs Creation Act of 2004. 
Sec. 408. Amendments related to the Economic Growth and Tax Relief Reconcili-
ation Act of 2001. 
Sec. 409. Amendments related to the Tax Relief Extension Act of 1999. 
Sec. 410. Amendment related to the Internal Revenue Service Restructuring and 
Reform Act of 1998. 
Sec. 411. Clerical corrections. 
TITLE V—PARITY IN APPLICATION OF CERTAIN LIMITS TO MENTAL 
HEALTH BENEFITS 
Sec. 501. Parity in application of certain limits to mental health benefits. 
TITLE I—BENEFITS FOR MILI-
TARY AND VOLUNTEER FIRE-
FIGHTERS 
SEC. 101. 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 rea-
son of section 112 as earned income.’’. 
(b) SUNSET NOT APPLICABLE.—Section 105 of the 
Working Families Tax Relief Act of 2004 (relating to appli-
cation of EGTRRA sunset to this title) shall not apply to 
section 104(b) of such Act.
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(c) EFFECTIVE DATE.—The amendment made by this 
section shall apply to taxable years ending after December 
31, 2007. 
SEC. 102. MODIFICATION OF MORTGAGE REVENUE BONDS 
FOR VETERANS. 
(a) QUALIFIED MORTGAGE BONDS USED TO FINANCE 
RESIDENCES FOR VETERANS WITHOUT REGARD TO FIRST- 
TIME HOMEBUYER REQUIREMENT.—Subparagraph (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, OR-
EGON, 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 inserting 
‘‘$100,000,000’’. 
(c) DEFINITION OF QUALIFIED VETERAN.—Paragraph 
(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. 103. 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 (relating to re-
quirements for qualification) is amended by inserting 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 enti-
tled to any additional benefits (other than benefit ac-
cruals relating to the period of qualified military 
service) provided under the plan had the participant 
resumed and then terminated employment on account 
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’ reemploy-
ment rights under USERRA) is amended by redesignating
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paragraphs (9) and (10) as paragraphs (10) and (11), re-
spectively, and by inserting after paragraph (8) the fol-
lowing new paragraph: 
‘‘(9) TREATMENT IN THE CASE OF DEATH OR 
DISABILITY RESULTING FROM ACTIVE MILITARY SERV-
ICE.— 
‘‘(A) IN
GENERAL.—For benefit accrual 
purposes, an employer sponsoring a retirement 
plan may treat an individual who dies or be-
comes disabled (as defined under the terms of the 
plan) while performing qualified military service 
with respect to the employer maintaining the 
plan as if the individual has resumed employ-
ment in accordance with the individual’s reem-
ployment rights under chapter 43 of title 38, 
United States Code, on the day preceding death 
or disability (as the case may be) and termi-
nated employment on the actual date of death or 
disability. In the case of any such treatment, 
and subject to subparagraphs (B) and (C), any 
full or partial compliance by such plan with re-
spect to the benefit accrual requirements of para-
graph (8) with respect to such individual shall 
be treated for purposes of paragraph (1) as if
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such compliance were required under such chap-
ter 43. 
‘‘(B) NONDISCRIMINATION REQUIREMENT.— 
Subparagraph (A) shall apply only if all indi-
viduals performing qualified military service 
with respect to the employer maintaining the 
plan (as determined under subsections (b), (c), 
(m), and (o)) who die or became disabled as a 
result of performing qualified military service 
prior to reemployment by the employer are cred-
ited with service and benefits on reasonably 
equivalent terms. 
‘‘(C) DETERMINATION OF BENEFITS.—The 
amount of employee contributions and the 
amount of elective deferrals of an individual 
treated as reemployed under subparagraph (A) 
for purposes of applying paragraph (8)(C) shall 
be determined on the basis of the individual’s av-
erage actual employee contributions or elective 
deferrals for the lesser of— 
‘‘(i) the 12-month period of service 
with the employer immediately prior to 
qualified military service, or 
‘‘(ii) if service with the employer is less 
than such 12-month period, the actual
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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 ap-
plies to any plan or contract amendment, such 
plan or contract shall be treated as being oper-
ated in accordance with the terms of the plan 
during the period described in subparagraph 
(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, 2009. 
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 ap-
plied by substituting ‘‘2011’’ for ‘‘2009’’ 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. 104. TREATMENT OF DIFFERENTIAL MILITARY PAY AS 
WAGES. 
(a) INCOME TAX WITHHOLDING ON DIFFERENTIAL 
WAGE PAYMENTS.— 
(1) IN GENERAL.—Section 3401 (relating to defi-
nitions) is amended by adding at the end the fol-
lowing new subsection:
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401(k)(2)(B)(i)(I), 
403(b)(7)(A)(ii), 
403(b)(11)(A), or 457(d)(1)(A)(ii), an indi-
vidual shall be treated as having been sev-
ered from employment during any period 
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 REQUIREMENT.— 
Subparagraph (A)(iii) shall apply only if all 
employees of an employer (as determined under 
subsections (b), (c), (m), and (o)) performing 
service in the uniformed services described in sec-
tion 3401(h)(2)(A) are entitled to receive dif-
ferential wage payments on reasonably equiva-
lent terms and, if eligible to participate in a re-
tirement plan maintained by the employer, to 
make contributions based on the payments on 
reasonably equivalent terms. For purposes of ap-
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plying 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 ‘differential 
wage payment’ has the meaning given such term 
by section 3401(h)(2).’’. 
(B) CONFORMING AMENDMENT.—The head-
ing for section 414(u) is amended by inserting 
‘‘AND
TO DIFFERENTIAL WAGE PAYMENTS
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 sen-
tence: ‘‘The term compensation includes any differen-
tial 
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, 2007. 
(c) PROVISIONS RELATING TO PLAN AMENDMENTS.— 
(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-
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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 annu-
ity 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 January 1, 
2009. 
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 ‘‘2011’’ for ‘‘2009’’ in clause (ii). 
(B) CONDITIONS.—This subsection shall not 
apply to any plan or annuity contract amend-
ment unless— 
(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-
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tract is operated as if such plan or contract 
amendment were in effect, and 
(ii) such plan or contract amendment 
applies retroactively for such period. 
SEC. 105. EXTENSION OF EXCLUSION FROM INCOME FOR 
BENEFITS PROVIDED TO VOLUNTEER FIRE-
FIGHTERS AND EMERGENCY MEDICAL RE-
SPONDERS. 
Subsection (d) of section 139B (relating to termi-
nation), as added to the Internal Revenue Code of 1986 by 
section 5 of the Mortgage Forgiveness Debt Relief Act of 
2007, is amended by striking ‘‘December 31, 2010’’ and in-
serting ‘‘December 31, 2015’’. 
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 (re-
lating to special rules applicable to income taxes) is amend-
ed by adding at the end the following new paragraph: 
‘‘(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 relates
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to an overpayment of tax imposed by subtitle A 
on account of— 
‘‘(i) the reduction of uniformed services 
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 subsection 
(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 determina-
tion. 
‘‘(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 sub-
section (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
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Internal Revenue Code of 1986 (as added by this section) 
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 IN-
DIVIDUALS 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. DISCLOSURE OF RETURN INFORMATION RELAT-
ING TO VETERANS PROGRAMS MADE PERMA-
NENT. 
(a) IN
GENERAL.—Subparagraph (D) of section 
6103(l)(7) (relating to disclosure of return information to 
Federal, State, and local agencies administering certain 
programs under the Social Security Act, the Food Stamp 
Act of 1977, or title 38, United States Code or certain hous-
ing assistance programs) is amended by striking the last 
sentence.
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(b) 
TECHNICAL
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)’’. 
SEC. 109. CONTRIBUTIONS OF MILITARY DEATH GRATU-
ITIES TO ROTH IRAS AND EDUCATION SAV-
INGS ACCOUNTS. 
(a) PROVISION IN EFFECT BEFORE PENSION PROTEC-
TION ACT.—Subsection (e) of section 408A (relating to 
qualified rollover contribution), as in effect before the 
amendments made by section 824 of the Pension Protection 
Act of 2006, is amended to read as follows: 
‘‘(e) QUALIFIED ROLLOVER CONTRIBUTION.—For pur-
poses 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 contribution described 
in section 402A(c)(3)(A). For purposes of section 
408(d)(3)(B), there shall be disregarded any qualified 
rollover contribution from an individual retirement 
plan (other than a Roth IRA) to a Roth IRA.
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‘‘(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 period 
beginning on the date on which such individual 
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 person, 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 ROLL-
OVERS
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-
tion, the amount treated as a rollover by reason
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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 Protec-
tion Act of 2006, is amended to read as follows: 
‘‘(e) QUALIFIED ROLLOVER CONTRIBUTION.—For pur-
poses 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. 
For purposes of section 408(d)(3)(B), there shall 
be disregarded any qualified rollover contribu-
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tion 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 period 
beginning on the date on which such individual 
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 person, 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 ROLL-
OVERS
NOT
TO
APPLY.—Section 408(d)(3)(B) 
shall not apply with respect to amounts treated 
as a rollover by the subparagraph (A). 
‘‘(C) APPLICATION
OF
SECTION
72.—For 
purposes of applying section 72 in the case of a
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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 period 
beginning on the date on which the contributor 
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 person, to the 
extent that such contribution does not exceed— 
‘‘(i) the sum of the amounts received 
during such period by such contributor 
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 edu-
cation savings account.
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‘‘(B) ANNUAL LIMIT ON NUMBER OF ROLL-
OVERS
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 income 
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 sec-
tion shall apply with respect to deaths from injuries 
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 7, 
2001, AND
BEFORE
ENACTMENT.—The amendments 
made by this section shall apply to any contribution 
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 received under sec-
tion 1477 of title 10, United States Code, or under
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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 enactment 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 beginning after De-
cember 31, 2007. 
SEC. 110. SUSPENSION OF 5-YEAR PERIOD DURING SERVICE 
WITH THE PEACE CORPS. 
(a) IN GENERAL.—Subsection (d) of section 121 (relat-
ing 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-
ning of the 5-year period described in subsections 
(a) and (c)(1)(B) and paragraph (7) of this sub-
section with respect to such property shall be sus-
pended during any period that such individual 
or such individual’s spouse is serving outside the 
United States—
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‘‘(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 sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 2007. 
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 subchapter 
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 differen-
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tial wage payment credit for any taxable year is an amount 
equal to 20 percent of the sum of the eligible differential 
wage payments for each of the qualified employees 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 employee, 
so much of the differential wage payments (as defined 
in section 3401(h)(2)) paid to such employee 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-
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
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payments to every qualified employee of the 
employer. 
‘‘(B) CONTROLLED GROUPS.—For purposes 
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 em-
ployer. 
‘‘(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. 
‘‘(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 taxpayer 
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.
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‘‘(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 business 
credit) is amended by striking ‘‘plus’’ at the end of para-
graph (30), by striking the period at the end of paragraph 
(31) and inserting ‘‘, plus’’, and by adding at the end of 
following new paragraph: 
‘‘(32) the differential wage payment credit deter-
mined 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 amend-
ed 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.
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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 serv-
ices of the United States or any dependent of such 
member only by reason of such member’s service in an 
combat zone (as defined in section 112(c)(2), deter-
mined without regard to the parenthetical).’’. 
(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.—Section 417(e) of division A of the 
Tax Relief and Health Care Act of 2006 is amended by 
striking ‘‘and before January 1, 2011’’. 
(b) DUTY
STATION
MAY
BE
INSIDE
UNITED 
STATES.—Section 121(d)(9)(C) (defining qualified official 
extended duty) is amended by striking clause (vi).
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(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to sales or exchanges after December 31, 
2010. 
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: 
‘‘(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 spending ar-
rangement merely because such arrangement provides 
for qualified reservist distributions. 
‘‘(2) QUALIFIED RESERVIST DISTRIBUTION.—For 
purposes of this subsection, the term ‘qualified reserv-
ist distribution’ means, any distribution to an indi-
vidual of all or a portion of the balance in the em-
ployee’s account under such arrangement if—
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‘‘(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.’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to distributions made after the date of 
the enactment of this Act. 
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 Social 
Security Act (42 U.S.C. 1382a(a)(1)(A)) is amended by in-
serting ‘‘(and, in the case of cash remuneration paid for 
service as a member of a uniformed service (other than pay-
ments described in paragraph (2)(H) of this subsection or
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subsection (b)(20)), without regard to the limitations con-
tained 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 subpara-
graph (G) and inserting ‘‘; and’’; and 
(3) by adding at the end the following: 
‘‘(H) payments to or on behalf of a member 
of a uniformed service for housing of the member 
(and his or her dependents, if any) on a facility 
of a uniformed service, including payments pro-
vided under section 403 of title 37, United States 
Code, for housing that is acquired or constructed 
under subchapter IV of chapter 169 of title 10 of 
such Code, or any related provision of law, and 
any such payments shall be treated as support 
and maintenance in kind subject to subpara-
graph (A) of this paragraph.’’.
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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— 
(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-
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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: 
‘‘(25) any benefit (whether cash or in-kind) con-
ferred upon (or paid on behalf of) a
participant in 
an AmeriCorps position approved by the Corporation 
for
National and Community Service under section 
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.
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TITLE III—REVENUE 
PROVISIONS 
SEC. 301. INCREASE IN PENALTY FOR FAILURE TO FILE 
PARTNERSHIP RETURNS. 
(a) INCREASE IN PENALTY AMOUNT.—Paragraph (1) 
of section 6698(b) (relating to amount per month), as 
amended by section 8 of the Mortgage Forgiveness Debt Re-
lief Act of 2007, is amended by striking ‘‘$85’’ and inserting 
‘‘$100’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall take effect as if included in the amendments 
made by section 8 of the Mortgage Forgiveness Debt Relief 
Act of 2007. 
SEC. 302. INCREASE IN PENALTY FOR FAILURE TO FILE S 
CORPORATION RETURNS. 
(a) IN GENERAL.—Paragraph (1) of section 6699(b) 
(relating to amount per month), as added to the Internal 
Revenue Code of 1986 by section 9 of the Mortgage Forgive-
ness Debt Relief Act of 2007, is amended by striking ‘‘$85’’ 
and inserting ‘‘$100’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall take effect as if included in the amendments 
made by section 9 of the Mortgage Forgiveness Debt Relief 
Act of 2007.
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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 insert-
ing ‘‘$225’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to returns the due date for the filing 
of which (including extensions) is after December 31, 2007. 
SEC. 304. INCREASE IN INFORMATION RETURN PENALTIES. 
(a) FAILURE TO FILE CORRECT INFORMATION RE-
TURNS.— 
(1) IN GENERAL.—Subsections (a)(1), (b)(1)(A), 
and (b)(2)(A) of section 6721 are each amended by 
striking ‘‘$50’’ and inserting ‘‘$100’’. 
(2) AGGREGATE
ANNUAL
LIMITATION.—Sub-
sections (a)(1), (d)(1)(A), and (e)(3)(A) of section 
6721 are each amended by striking ‘‘$250,000’’ and 
inserting ‘‘$1,500,000’’. 
(b) REDUCTION WHERE CORRECTION WITHIN 30 
DAYS.— 
(1) IN GENERAL.—Subparagraph (A) of section 
6721(b)(1) is amended by striking ‘‘$15’’ and insert-
ing ‘‘$50’’. 
(2) AGGREGATE
ANNUAL
LIMITATION.—Sub-
sections (b)(1)(B) and (d)(1)(B) of section 6721 are
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each amended by striking ‘‘$75,000’’ and inserting 
‘‘$500,000’’. 
(c) REDUCTION WHERE CORRECTION ON OR BEFORE 
AUGUST 1.— 
(1) IN GENERAL.—Subparagraph (A) of section 
6721(b)(2) is amended by striking ‘‘$30’’ and insert-
ing ‘‘$75’’. 
(2) AGGREGATE
ANNUAL
LIMITATION.—Sub-
sections (b)(2)(B) and (d)(1)(C) of section 6721are 
each amended by striking ‘‘$150,000’’ and inserting 
‘‘$1,000,000’’. 
(d) AGGREGATE ANNUAL LIMITATIONS FOR PERSONS 
WITH GROSS RECEIPTS OF NOT MORE THAN $5,000,000.— 
Paragraph (1) of section 6721(d) is amended— 
(1) by striking ‘‘$100,000’’ in subparagraph (A) 
and inserting ‘‘$500,000’’, 
(2) by striking ‘‘$25,000’’ in subparagraph (B) 
and inserting ‘‘$100,000’’, and 
(3) by striking ‘‘$50,000’’ in subparagraph (C) 
and inserting ‘‘$250,000’’. 
(e) PENALTY IN CASE OF INTENTIONAL DISREGARD.— 
Paragraph (2) of section 6721(e) is amended by striking 
‘‘$100’’ and inserting ‘‘$250’’. 
(f) FAILURE TO FURNISH CORRECT PAYEE STATE-
MENTS.—
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(1) IN GENERAL.—Subsection (a) of section 6722 
is amended by striking ‘‘$50’’ and inserting ‘‘$100’’. 
(2) AGGREGATE
ANNUAL
LIMITATION.—Sub-
sections (a) and (c)(2)(A) of section 6722 are each 
amended by striking ‘‘$100,000’’ and inserting 
‘‘$500,000’’. 
(3) PENALTY
IN
CASE
OF
INTENTIONAL
DIS-
REGARD.—Paragraph (1) of section 6722(c) is 
amended by striking ‘‘$100’’ and inserting ‘‘$250’’. 
(g) FAILURE TO COMPLY WITH OTHER INFORMATION 
REPORTING REQUIREMENTS.—Section 6723 is amended— 
(1) by striking ‘‘$50’’ and inserting ‘‘$100’’, and 
(2) by striking ‘‘$100,000’’ and inserting 
‘‘$500,000’’. 
(h) EFFECTIVE DATE.—The amendments made by this 
section shall apply with respect to information returns re-
quired to be filed on or after January 1, 2008. 
SEC. 305. REVISION OF TAX RULES ON EXPATRIATION. 
(a) IN GENERAL.—Subpart A of part II of subchapter 
N of chapter 1 is amended by inserting after section 877 
the following new section: 
‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION. 
‘‘(a) GENERAL RULES.—For purposes of this sub-
title—
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‘‘(1) MARK TO MARKET.—All property of a cov-
ered expatriate shall be treated as sold on the day be-
fore the expatriation date for its fair market value. 
‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the 
case of any sale under paragraph (1)— 
‘‘(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 sentence, de-
termined 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.—
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‘‘(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— 
‘‘(I) such dollar amount, multi-
plied by 
‘‘(II) the cost-of-living adjustment 
determined under section 1(f)(3) for 
the calendar year in which the taxable 
year begins, by substituting ‘calendar 
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 ap-
plication of this subsection with respect to any prop-
erty treated as sold by reason of subsection (a), the 
time for payment of the additional tax attributable 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 property disposed of
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in a transaction in which gain is not recognized in 
whole or in part, until such other date as the Sec-
retary may prescribe). 
‘‘(2) DETERMINATION OF TAX WITH RESPECT TO 
PROPERTY.—For purposes of paragraph (1), the addi-
tional tax attributable to any property is an amount 
which bears the same ratio to the additional tax im-
posed by this chapter for the taxable year solely by 
reason of subsection (a) as the gain taken into ac-
count under subsection (a) with respect to such prop-
erty bears to the total gain taken into account under 
subsection (a) with respect to all property 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 return 
of tax imposed by this chapter for the taxable year 
which includes the date of death of the expatriate (or, 
if earlier, the time that the security provided with re-
spect to the property fails to meet the requirements of 
paragraph (4), unless the taxpayer corrects such fail-
ure within the time specified by the Secretary). 
‘‘(4) SECURITY.— 
‘‘(A) IN
GENERAL.—No election may be 
made under paragraph (1) with respect to any
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property unless adequate security is provided 
with respect to such property. 
‘‘(B) ADEQUATE SECURITY.—For purposes 
of subparagraph (A), security with respect to 
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 require-
ments 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 election 
may be made under paragraph (1) unless the tax-
payer 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.
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‘‘(C) appropriate adjustments shall be made 
to subsequent distributions from the plan to re-
flect such treatment. 
‘‘(3) 
ELIGIBLE
DEFERRED
COMPENSATION 
ITEMS.—For purposes of this subsection, the term ‘eli-
gible deferred compensation item’ means any deferred 
compensation item with respect to which— 
‘‘(A) the payor of such item is— 
‘‘(i) a United States person, or 
‘‘(ii) a person who is not a United 
States person but who elects to be treated as 
a United States person for purposes of 
paragraph (1) and meets such requirements 
as the Secretary may provide to ensure that 
the payor will meet the requirements of 
paragraph (1), and 
‘‘(B) the covered expatriate— 
‘‘(i) notifies the payor of his status as 
a covered expatriate, and 
‘‘(ii) makes an irrevocable waiver of 
any right to claim any reduction under any 
treaty with the United States in with-
holding on such item.
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‘‘(4) DEFERRED COMPENSATION ITEM.—For pur-
poses of this subsection, the term ‘deferred compensa-
tion item’ means— 
‘‘(A) any interest in a plan or arrangement 
described in section 219(g)(5), 
‘‘(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 con-
nection 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 which 
is 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 subchapter 
B of chapter 3 shall apply for purposes of this 
subsection.
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‘‘(B) APPLICATION OF TAX.—Any item sub-
ject to the withholding tax imposed under para-
graph (1) shall be subject to tax under section 
871. 
‘‘(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 ac-
count held by a covered expatriate on the day before 
the expatriation date— 
‘‘(A) the covered expatriate shall be treated 
as receiving a distribution of his entire interest 
in such account on the day before the expatria-
tion 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 account to 
reflect such treatment.
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‘‘(2) SPECIFIED TAX DEFERRED ACCOUNT.—For 
purposes of paragraph (1), the term ‘specified tax de-
ferred account’ means an individual retirement plan 
(as defined in section 7701(a)(37)) other than any ar-
rangement described in subsection (k) or (p) of section 
408, a qualified tuition program (as defined in sec-
tion 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 de-
fined in section 220). 
‘‘(f) SPECIAL RULES FOR NONGRANTOR TRUSTS.— 
‘‘(1) IN GENERAL.—In the case of a distribution 
(directly or indirectly) of any property from a non-
grantor 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 distribution, 
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 re-
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spect to any distribution, that portion of the distribu-
tion which would be includible in the gross income of 
the covered expatriate if such expatriate continued to 
be subject to tax as a citizen or resident of the United 
States. 
‘‘(3) NONGRANTOR TRUST.—For purposes of this 
subsection, the term ‘nongrantor trust’ means the por-
tion 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 preceding 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 subsection 
(d)(6) shall apply, and 
‘‘(B) the covered expatriate shall be treated 
as having waived any right to claim any reduc-
tion under any treaty with the United States in 
withholding on any distribution to which para-
graph (1)(A) applies unless the covered expa-
triate agrees to such other treatment as the Sec-
retary determines appropriate. 
‘‘(5) APPLICATION.—This subsection shall apply 
to a nongrantor trust only if the covered expatriate
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was a beneficiary of the trust on the day before the 
expatriation date. 
‘‘(g) DEFINITIONS AND SPECIAL RULES RELATING TO 
EXPATRIATION.—For purposes of this section— 
‘‘(1) COVERED EXPATRIATE.— 
‘‘(A) IN GENERAL.—The term ‘covered expa-
triate’ 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-taxable 
year period ending with the taxable
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year during which the expatriation 
date occurs, or 
‘‘(ii)(I) the individual’s relinquishment 
of United States citizenship occurs before 
such individual attains age 181⁄2, and 
‘‘(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 SUBJECT 
TO
TAX
AS
CITIZENS
OR
RESIDENTS.—In the 
case of any covered expatriate who is subject to 
tax as a citizen or resident of the United States 
for any period beginning after the expatriation 
date, such individual shall not be treated as a 
covered expatriate during such period for pur-
poses 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 resi-
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dent of the United States (within the meaning of 
section 7701(b)(6)). 
‘‘(3) EXPATRIATION DATE.—The term ‘expatria-
tion date’ means— 
‘‘(A) the date an individual relinquishes 
United States citizenship, or 
‘‘(B) in the case of a long-term resident of 
the United States, the date on which the indi-
vidual ceases to be a lawful permanent resident 
of the United States (within the meaning of sec-
tion 7701(b)(6)). 
‘‘(4) RELINQUISHMENT OF CITIZENSHIP.—A cit-
izen shall be treated as relinquishing his United 
States citizenship on the earliest of— 
‘‘(A) the date the individual renounces his 
United States nationality before a diplomatic or 
consular officer of the United States pursuant to 
paragraph (5) of section 349(a) of the Immigra-
tion and Nationality Act (8 U.S.C. 1481(a)(5)), 
‘‘(B) the date the individual furnishes to the 
United States Department of State a signed 
statement of voluntary relinquishment of United 
States nationality confirming the performance of 
an act of expatriation specified in paragraph 
(1), (2), (3), or (4) of section 349(a) of the Im-
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migration and Nationality Act (8 U.S.C. 
1481(a)(1)–(4)), 
‘‘(C) the date the United States Department 
of State issues to the individual a certificate of 
loss of nationality, or 
‘‘(D) the date a court of the United States 
cancels a naturalized citizen’s certificate of natu-
ralization. 
Subparagraph (A) or (B) shall not apply to any in-
dividual 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—
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‘‘(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 
‘‘(B) any extension of time for payment of 
tax shall cease to apply on the day before the ex-
patriation 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.
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‘‘(i) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary or appropriate to 
carry out the purposes of this section.’’. 
(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 prod-
uct 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.
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‘‘(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 gifts 
and bequests received by any person during the calendar 
year exceeds the dollar amount in effect under section 
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 chapter, 
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.