153
sales or exchanges, plus $3,000 ($1,500 in the case
of a married individual filing a separate return).
‘‘(2) CAPITAL LOSS CARRYOVERS.—Under regu-
lations prescribed by the Secretary, any loss not al-
lowed by reason of paragraph (1) shall be carried
over to the following taxable year and treated as a
capital loss incurred in such year. There shall be no
limit on the number of years that a capital loss can
be carried forward.
‘‘(3) CAPITAL ASSETS.—Under regulations pre-
scribed by the Secretary, the principles of the Inter-
nal Revenue Code of 1986 (including, without limi-
tation, sections 1234 (relating to options), 1234A
(relating to gains or losses from certain termi-
nations), 1253 (relating to franchises and trade-
marks) and 1258 (gain from certain financial trans-
actions) shall apply for purposes of determining
what is a capital asset and whether an event is to
be treated as a sale or exchange of capital assets, ex-
cept to the extent inconsistent with principles of this
chapter.
‘‘(4) RECAPTURE.—If a taxpayer claimed de-
preciation, amortization or other cost recovery de-
ductions under the Internal Revenue Code of 1986
with respect to property which is subsequently sold
154
or exchanged in a transaction that is not treated as
transaction of a business entity, the amount of gain
on the exchange of such property which is treated as
gain from the sale or exchange of a capital asset
shall be reduced (but not below zero) by the amount
of such deductions claimed with respect to the prop-
erty.
‘‘Subchapter D—Rules for Exclusions from
Gross Income
‘‘Sec. 91. Interest on tax-exempt bonds.
‘‘Sec. 92. Combat pay.
‘‘Sec. 93. Qualified military benefits.
‘‘Sec. 94. Qualified foster care payments.
‘‘Sec. 95. Compensation for injury and sickness.
‘‘Sec. 96. Meals or lodging for convenience of employer.
‘‘Sec. 97. Certain fringe benefits.
‘‘SEC. 91. INTEREST ON TAX-EXEMPT BONDS.
‘‘(a) EXCLUSION.—Except as provided in subsection
(b), gross income does not include interest on any State
or local bond.
‘‘(b) EXCEPTIONS.—Subsection (a) shall not apply
to—
‘‘(1) PRIVATE ACTIVITY BOND WHICH IS NOT A
QUALIFIED BOND.—Any private activity bond which
is not a qualified bond (within the meaning of para-
graph (3) of subsection (c)).
‘‘(2) ARBITRAGE BOND.—Any arbitrage bond.
155
‘‘(3) BOND NOT IN REGISTERED FORM, ETC.—
Any bond unless such bond meets the applicable re-
quirements set forth in regulations.
‘‘(c) DEFINITIONS—For purposes of this section—
‘‘(1) STATE OR LOCAL BOND.—‘State or local
bond’ means an obligation of a State or political
subdivision thereof.
‘‘(2) STATE.—‘State’ includes the District of
Columbia and any possession of the United States.
‘‘(3) 
QUALIFIED
BOND.—‘Qualified 
bond’
means any private activity bond if—
‘‘(A) IN GENERAL.—Such bond is—
‘‘(i) an exempt facility bond,
‘‘(ii) a qualified mortgage bond,
‘‘(iii) a qualified veterans’ mortgage
bond,
‘‘(iv) a qualified small issue bond,
‘‘(v) a qualified student loan bond,
‘‘(vi) a qualified 253(c)(3) bond.
‘‘(B) VOLUME CAP.—Such bond is issued
as part of an issue which meets the applicable
volume cap requirements set forth in regula-
tions.
156
‘‘(C) OTHER REQUIREMENTS.—Such bond
meets the applicable requirements set forth in
regulations.
‘‘(d) REGULATIONS.—
‘‘(1) STATUTORY
REGULATIONS.—The Sec-
retary shall publish as regulations governing the ap-
plication of this section the text of part IV of sub-
chapter B of chapter 1 of the Internal Revenue Code
of 1986 (sections 141 through 149) with only such
changes as are required to conform cross references.
‘‘(2) OTHER
REGULATIONS.—The Secretary
shall have the authority to promulgate such other
regulations as he deems necessary or proper to im-
plement this section, except that no such regulations
shall conflict with the regulations mandated by para-
graph (1) except as provided in this subtitle.
‘‘SEC. 92. COMBAT PAY.
‘‘(a) ENLISTED PERSONNEL.—Gross income does not
include compensation received for active service as a mem-
ber below the grade of commissioned officer in the Armed
Forces of the United States for any month during any
part of which such member—
‘‘(1) served in a combat zone, or
‘‘(2) was hospitalized as a result of wounds, dis-
ease, or injury incurred while serving in a combat
157
zone; but this paragraph shall not apply for any
month beginning more than 2 years after the date
of the termination of combatant activities in such
zone.
‘‘(b) COMMISSIONED OFFICERS.—Gross income does
not include so much of the compensation as does not ex-
ceed $500 received for active service as a commissioned
officer in the Armed Forces of the United States for any
month during any part of which such officer—
‘‘(1) served in a combat zone, or
‘‘(2) was hospitalized as a result of wounds, dis-
ease, or injury incurred while serving in a combat
zone; but this paragraph shall not apply for any
month beginning more than 2 years after the date
of the termination of combatant activities in such
zone.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) ‘Commissioned officer’ does not include a
commissioned warrant officer.
‘‘(2) ‘Combat zone’ means any area which the
President of the United States by Executive Order
designates, for purposes of this section or cor-
responding provisions of prior income tax laws, an
area in which Armed Forces of the United States
158
are or have (after June 24, 1950) engaged in com-
bat.
‘‘(3) Service is performed in a combat zone only
if performed on or after the date designated by the
President by Executive Order as the date of the
commencing of combatant activities in such zone,
and on or before the date designated by the Presi-
dent by Executive Order as the date of the termi-
nation of combatant activities in such zone; except
that June 25, 1950, shall be considered the date of
the commencing of combatant activities in the com-
bat zone designated in Executive Order 10195.
‘‘(4) The term ‘compensation’ does not include
pensions and retirement pay.
‘‘SEC. 93. QUALIFIED MILITARY BENEFIT.
‘‘(a) IN
GENERAL.—‘Qualified military benefit’
means any allowance or in-kind benefit (other than per-
sonal use of a vehicle) which—
‘‘(1) is received by any member or former mem-
ber of the uniformed service of the United States or
any dependent of such member by reason of such
member’s status or service as a member of such uni-
formed services, and
‘‘(2) was excludable from gross income on Sep-
tember 9, 1986, under any provision of law, regula-
159
tion, or administrative practice which was in effect
on such date (other than a provision of this title).
‘‘(b) NO OTHER BENEFIT TO BE EXCLUDABLE AS
PROVIDED BY THIS TITLE.—Notwithstanding any other
provision of law, no benefit shall be treated as a qualified
military benefit unless such benefit—
‘‘(1) is a benefit described in subsection (a), or
‘‘(2) is excludable from gross income under this
title without regard to any provision of law which is
not contained in this title and which is not contained
in a revenue Act.
‘‘(c) LIMITATIONS ON MODIFICATIONS.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), no modification or adjustment of any
qualified military benefit after September 9, 1986,
shall be taken into account.
‘‘(2) EXCEPTION FOR CERTAIN ADJUSTMENTS
TO CASH BENEFITS.—Paragraph (1) shall not apply
to any adjustment to any qualified military benefit
payable in cash which—
‘‘(A) is pursuant to a provision of law or
regulation (as in effect on September 9, 1986),
and
160
‘‘(B) is determined by reference to any
fluctuation in cost, price, currency, or other
similar index.
‘‘SEC. 94. QUALIFIED FOSTER CARE PAYMENTS.
‘‘(a) QUALIFIED
FOSTER
CARE
PAYMENT
DE-
FINED.—
‘‘(1) IN GENERAL.—‘Qualified foster care pay-
ment’ means any amount—
‘‘(A) which is paid by a state or political
subdivision thereof or by a placement agency
which is described in section 253(c)(3) and ex-
empt from tax under section 253(a), and
‘‘(B) which is—
‘‘(i) paid to the foster care provider
for caring for a qualified foster individual
in the foster care provider’s home, or
‘‘(ii) a difficulty of care payment.
‘‘(2) QUALIFIED FOSTER INDIVIDUAL.—‘Quali-
fied foster individual’ means any individual who is
living in a foster family home in which such indi-
vidual was placed by—
‘‘(A) an agency of a State or a political
subdivision thereof, or
‘‘(B) in the case of an individual who has
not attained age 19, an organization which is li-
161
censed by a State (or political subdivision there-
of) as a placement agency and which is de-
scribed in section 253(c)(3) and exempt from
tax under section 253(a).
‘‘(3) LIMITATION BASED ON NUMBER OF INDI-
VIDUALS OVER THE AGE OF 18.—In the case of any
foster home in which there is a qualified foster care
individual who has attained age 19, foster care pay-
ments (other than difficulty of care payments) for
any period to which such payments relate shall not
be excludable from gross income under subsection
(a) to the extent such payments are made for more
than 5 such qualified foster individuals.
‘‘(b) DIFFICULTY OF CARE PAYMENTS.—For pur-
poses of this section—
‘‘(1) DIFFICULTY OF CARE PAYMENTS.—‘Dif-
ficulty of care payments’ means payments to individ-
uals 
which 
are 
not 
described 
in 
subsection
(a)(1)(B)(i), and which—
‘‘(A) are compensation for providing the
additional care of a qualified foster individual
which is—
‘‘(i) required by reason of a physical,
mental, or emotional handicap of such in-
dividual with respect to which the State
162
has determined that there is a need for ad-
ditional compensation, and
‘‘(ii) provided in the home of the fos-
ter care provider, and
‘‘(B) are designated by the payor as com-
pensation described in subparagraph (A).
‘‘(2) LIMITATION BASED ON NUMBER OF INDI-
VIDUALS.—In the case of any foster home, difficulty
of care payments for any period to which such pay-
ments relate shall not be excludable from gross in-
come under subsection (a) to the extent such pay-
ments are made for more than—
‘‘(A) 10 qualified foster individuals who
have not attained age 19, and
‘‘(B) 5 qualified foster individuals not de-
scribed in subparagraph (A).
‘‘SEC. 95. COMPENSATION FOR INJURIES OR SICKNESS.
‘‘(a) IN GENERAL.—Gross income does not include—
‘‘(1) amounts received under workers’ com-
pensation acts as compensation for personal injuries
or sickness;
‘‘(2) the amount of any damages received
(whether by suit or agreement and whether as lump
sums or as periodic payments) on account of per-
sonal injuries or sickness;
163
‘‘(3) amounts received through accident or
health insurance for medical care;
‘‘(4) amounts received through accident or
health insurance for personal injuries or sickness
(other than for medical care), but only to the extent
such amounts (A) are not attributable to contribu-
tions by the employer which were not includible in
the gross income of the employee, and are (B) not
paid by the employer;
‘‘(5) amounts received as pension, annuity, or
similar allowance for personal injuries or sickness re-
sulting from active service in the armed forces of
any country or in the Coast and Geodetic Survey or
the Public Health Service, or as a disability annuity
payable under the provisions of section 808 of the
Foreign Service Act of 1980; and
‘‘(6) amounts received by an individual as dis-
ability income attributable to injuries incurred as a
direct result of a violent attack which the Secretary
of State determines to be a terrorist attack and
which occurred while such individual was an em-
ployee of the United States engaged in the perform-
ance of his official duties outside the United States.
164
Paragraph (2) shall not apply to any punitive dam-
ages in connection with a case not involving physical
injury or physical sickness.
‘‘(b) TERMINATION OF APPLICATION OF SUBSECTION
(a)(4) IN CERTAIN CASES.—
‘‘(1) IN GENERAL.—Subsection (a)(4) shall not
apply in the case of an individual who is not de-
scribed in paragraph (2).
‘‘(2) INDIVIDUALS
TO
WHOM
SUBSECTION
(a)(4) CONTINUES TO APPLY.—An individual is de-
scribed in this paragraph if—
‘‘(A) on or before September 24, 1975, he
was entitled to receive any amount described in
subsection (a)(4),
‘‘(B) on September 24, 1975, he was a
member of any organization (or reserve compo-
nent thereof) referred to in subsection (a)(4) or
under a binding written commitment to become
such a member,
‘‘(C) he receives an amount described in
subsection (a)(4) by reason of a combat-related
injury, or
‘‘(D) on application therefore, he would be
entitled to receive disability compensation from
the Veterans’ Administration.
165
‘‘(3) SPECIAL RULES FOR COMBAT-RELATED IN-
JURIES.—For purposes of this subsection, the term
‘combat-related injury’ means personal injury or
sickness—
‘‘(A) which is incurred—
‘‘(i) as a direct result of armed con-
flict,
‘‘(ii) while engaged in extrahazardous
service, or
‘‘(iii) under conditions simulating war;
or
‘‘(B) which is caused by an instrumentality
of war.
In the case of an individual who is not described in
subparagraph (A) or (B) of paragraph (2), except as
provided in paragraph (4), the only amounts taken
into account under subsection (a)(4) shall be the
amounts which he receives by reason of a combat-
related injury.
‘‘(4) AMOUNT
EXCLUDED
TO
BE
NOT
LESS
THAN
VETERANS’ DISABILITY
COMPENSATION.—In
the case of any individual described in paragraph
(2), the amounts excludable under subsection (a)(4)
for any period with respect to any individual shall
not be less than the maximum amount which such
166
individual, on application therefor, would be entitled
to receive as disability compensation from the Vet-
erans’ Administration.
‘‘SEC. 96. MEALS OR LODGING FURNISHED FOR THE CON-
VENIENCE OF THE EMPLOYER.
‘‘(a) MEALS
AND LODGING FURNISHED
TO EM-
PLOYEE, HIS SPOUSE, AND HIS DEPENDENTS, PURSU-
ANT TO EMPLOYMENT.—There shall be excluded from
gross income of an employee the value of any meals or
lodging furnished to him, his spouse, or any of his depend-
ents by or on behalf of his employer for the convenience
of the employer, but only if—
‘‘(1) in the case of meals, the meals are fur-
nished on the business premises of the employer, or
‘‘(2) in the case of lodging, the employee is re-
quired to accept such lodging on the business prem-
ises of his employer as a condition of his employ-
ment.
‘‘(b) SPECIAL RULES.—For the purposes of sub-
section (a)—
‘‘(1) PROVISIONS OF EMPLOYMENT CONTRACT
OR STATE STATUTE NOT TO BE DETERMINATIVE.—
In determining whether meals or lodging are fur-
nished for the convenience of the employer, the pro-
visions of an employment contract or of a State stat-
167
ute fixing terms of employment shall not be deter-
minative of whether the meals or lodging are in-
tended as compensation.
‘‘(2) CERTAIN FACTORS NOT TAKEN INTO AC-
COUNT WITH RESPECT TO MEALS.—In determining
whether meals are furnished for the convenience of
the employer, the fact that a charge is made for
such meals, and the fact that the employee may ac-
cept or decline such meals, shall not be taken into
account.
‘‘(3) CERTAIN FIXED CHARGES FOR MEALS.—
‘‘(A) IN GENERAL.—If—
‘‘(i) an employee is required to pay on
a periodic basis a fixed charge for his
meals, and
‘‘(ii) such meals are furnished by the
employer for the convenience of the em-
ployer,
there shall be excluded from the employee’s
gross income an amount equal to such fixed
charge.
‘‘(B) APPLICATION
OF
SUBPARAGRAPH
(A).—Subparagraph (A) shall apply—
168
‘‘(i) whether the employee pays the fixed charge
out of his stated compensation or out of his own
funds, and
‘‘(ii) only if the employee is required to make
the payment whether he accepts or declines the
meals.
‘‘(c) EMPLOYEES LIVING IN CERTAIN CAMPS.—
‘‘(1) IN GENERAL.—In the case of an individual
who is furnished lodging in a camp located in a for-
eign country by or on behalf of his employer, such
camp shall be considered to be part of the business
premises of the employer.
‘‘(2) CAMP.—For purposes of this section, a
camp constitutes lodging which is—
‘‘(A) provided by or on behalf of the em-
ployer for the convenience of the employer be-
cause the place at which such individual renders
services is in a remote area where satisfactory
housing is not available on the open market,
‘‘(B) located, as near as practicable, in the
vicinity of the place at which such individual
renders services, and
‘‘(C) furnished in a common area (or en-
clave) which is not available to the public and
174
‘‘(B) revenue derived from such facility
normally equals or exceeds the direct operating
costs of such facility.
The preceding sentence shall apply with respect to
any highly compensated employee only if access to
the facility is available on substantially the same
terms to each member of a group of employees
which is defined under a reasonable classification set
up by the employer which does not discriminate in
favor of highly compensated employees.
‘‘(3) ON-PREMISES GYMS AND OTHER ATHLETIC
FACILITIES.—
‘‘(A) IN
GENERAL.—De minimis fringe
benefits include the provision of on-premises
athletic facility by an employer to its employees.
‘‘(B) ON-PREMISES ATHLETIC FACILITY.—
For purposes of this paragraph, ‘on-premises
athletic facility’ means any gym or other ath-
letic facility—
‘‘(i) which is located on the premises
of the employer,
‘‘(ii) which is operated by the em-
ployer, and