141 
uting entity and gain will be recognized 
only to the extent that the cash and such 
fair market value exceeds the taxpayer’s 
basis in the distributing entity, and 
‘‘(iv) the taxpayer’s remaining basis 
shall be allocated among the distributed 
equity interests in controlled entities in ac-
cordance with the relative fair market val-
ues of such interests. 
‘‘(C) DISTRIBUTION
OF
BUSINESS
PROP-
ERTY.—Under regulations prescribed by the 
Secretary, rules similar to those that applied to 
partnerships under the Internal Revenue Code 
of 1986 shall apply in lieu of subparagraph (A) 
to distributions that include property used in a 
trade or business if such property is contributed 
to a new business entity within 180 days of the 
distribution. 
‘‘(2) TRANSITION RULES.—See subsections (b) 
and (d) of section 73 for transition rules relating to 
partnerships and proprietorships. 
‘‘(d) DEFINITIONS AND SPECIAL RULES.— 
‘‘(1) CERTAIN RULES OF APPLICATION.— 
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‘‘(A) PRINCIPLES APPLICABLE TO INTER-
NAL REVENUE CODE.—This section shall be ap-
plied without regard to— 
‘‘(i) continuity of business interest, 
‘‘(ii) continuity of ownership interest, 
‘‘(iii) requirements of section 355 of 
the Internal Revenue Code of 1986 for 
spin-offs, split-offs and split-ups, 
‘‘(iv) business purposes for a cor-
porate reorganization or restructuring (ex-
cept if the transaction is potentially abu-
sive), and 
‘‘(v) except as provided in paragraph 
(3), rules treating dividends as returns of 
capital because of the absence of earnings 
and profits. 
‘‘(B) CONSTRUCTIVE RECEIPT.—If a tax-
payer is given the choice of receiving cash or an 
equity interest in a business entity, the tax-
payer will be treated for purposes of this sec-
tion as if he received the cash and purchased 
the equity interest. 
‘‘(C) DEBT
VERSUS
EQUITY.—The prin-
ciples distinguishing debt and equity that ap-
plied prior to the adopt of the Simplified USA 
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Tax generally shall apply for purposes of apply-
ing this section. An investment in a business 
entity shall not be considered debt unless— 
‘‘(i) it is reflected in the books and 
records of the business entity as debt, and 
‘‘(ii) there is written evidence of the 
investment that treats such investment as 
indebtedness. 
‘‘(2) CONTROL.—For purposes of this section, 
‘control’ of a business entity means— 
‘‘(A) ownership of more than 50% of the 
voting power held by equity holders of such en-
tity, or 
‘‘(B) ownership of rights to more than 
50% of the periodic distributions that the busi-
ness entity may make to its equity holders and 
50% of the distributions if the business entity 
were liquidated. 
‘‘(3) REGULATIONS.— 
‘‘(A) SIGNIFICANT DOWNSIZING AND PAR-
TIAL LIQUIDATIONS.—The Secretary is author-
ized to issue regulations under which distribu-
tions resulting from a significant downsizing of 
a business entity will be treated in part as re-
turn of equity holders’ capital. 
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144 
‘‘(B) ASSUMPTION AND RELEASE OF LI-
ABILITY.—The Secretary shall prescribe regula-
tions 
addressing 
the 
consequences 
of 
a 
distributee’s assumption of the liabilities of the 
distributor. 
‘‘SEC. 76. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL 
RESIDENCE. 
‘‘(a) EXCLUSION.—Gross income shall not include 
gain from the sale or exchange of property if, during the 
5-year period ending on the date of the sale or exchange, 
such property has been owned and used by the taxpayer 
as the taxpayer’s principal residence for periods aggre-
gating 2 years or more. 
‘‘(b) LIMITATIONS.— 
‘‘(1) IN GENERAL.—The amount of gain ex-
cluded from gross income under subsection (a) with 
respect to any sale or exchange shall not exceed 
$250,000. 
‘‘(2) $500,000 LIMITATION FOR CERTAIN JOINT 
RETURNS.—Paragraph (1) shall be applied by sub-
stituting ‘$500,000’ for ‘$250,000’ if— 
‘‘(A) a husband and wife make a joint re-
turn for the taxable year of the sale or ex-
change of the property, 
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‘‘(B) either spouse meets the ownership re-
quirements of subsection (a) with respect to 
such property, 
‘‘(C) both spouses meet the use require-
ments of subsection (a) with respect to such 
property, and 
‘‘(D) neither spouse is ineligible for the 
benefits of subsection (a) with respect to such 
property by reason of paragraph (3). 
‘‘(3) APPLICATION
TO
ONLY
SALE
OR
EX-
CHANGE EVERY 2 YEARS.— 
‘‘(A) IN
GENERAL.—Subsection (a) shall 
not apply to any sale or exchange by the tax-
payer if, during the 2-year period ending on the 
date of such sale or exchange, there was any 
other sale or exchange by the taxpayer to which 
subsection (a) applied. 
‘‘(B) PRE-MAY 7, 1997, SALES NOT TAKEN 
INTO
ACCOUNT.—Subparagraph (A) shall be 
applied without regard to any sale or exchange 
before May 7, 1997. 
‘‘(c) EXCLUSION FOR TAXPAYERS FAILING TO MEET 
CERTAIN REQUIREMENTS.— 
‘‘(1) IN GENERAL.—In the case of a sale or ex-
change to which this subsection applies, the owner-
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146 
ship and use requirements of subsection (a) shall not 
apply and subsection (b)(3) shall not apply; but the 
amount of gain excluded from gross income under 
subsection (a) with respect to such sale or exchange 
shall not exceed— 
‘‘(A) the amount which bears the same 
ratio to the amount which would be so excluded 
under this section if such requirements had 
been met, as 
‘‘(B) the shorter of— 
‘‘(i) the aggregate periods, during the 
5-year period ending on the date of such 
sale or exchange, such property has been 
owned and used by the taxpayer as the 
taxpayer’s principal residence, or 
‘‘(ii) the period after the date of the 
most recent prior sale or exchange by the 
taxpayer to which subsection (a) applied 
and before the date of such sale or ex-
change, 
bears to 2 years. 
‘‘(2) SALES AND EXCHANGES TO WHICH SUB-
SECTION APPLIES.—This subsection shall apply to 
any sale or exchange if— 
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149 
‘‘(B) the use requirements of subsection 
(a) shall be applied to the house or apartment 
which the taxpayer was entitled to occupy as 
such stockholder. 
‘‘(5) INVOLUNTARY
CONVERSIONS.—For pur-
poses of this section, the destruction, theft, seizure, 
requisition, or condemnation of property shall be 
treated as the sale of such property. 
‘‘(6) DETERMINATION OF USE DURING PERIODS 
OF OUT-OF-RESIDENCE CARE.—In the case of a tax-
payer who— 
‘‘(A) becomes physically or mentally in-
capable of self-care, and 
‘‘(B) owns property and uses such property 
as the taxpayer’s principal residence during the 
5-year period described in subsection (a) for pe-
riods aggregating at least 1 year, then the tax-
payer shall be treated as using such property as 
the taxpayer’s principal residence during any 
time during such 5-year period in which the 
taxpayer owns the property and resides in any 
facility (including a nursing home) licensed by 
a State or political subdivision to care for an in-
dividual in the taxpayer’s condition. 
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150 
‘‘(7) SALES OF REMAINDER INTERESTS.—For 
purposes of this section— 
‘‘(A) IN GENERAL.—At the election of the 
taxpayer, this section shall not fail to apply to 
the sale or exchange of an interest in a prin-
cipal residence by reason of such interest being 
a remainder interest in such residence, but this 
section shall not apply to any other interest in 
such residence which is sold or exchanged sepa-
rately. 
‘‘(B) EXCEPTION FOR SALES TO RELATED 
PARTIES.—Subparagraph (A) shall not apply to 
any sale to, or exchange with, a related party 
(as defined in section 171). 
‘‘(e) DENIAL OF EXCLUSION FOR EXPATRIATES.— 
This section shall not apply to any sale or exchange by 
an individual if rules relating to expatriation to avoid tax 
apply to such individual. 
‘‘(f) ELECTION TO HAVE SECTION NOT APPLY.— 
This section shall not apply to any sale or exchange with 
respect to which the taxpayer elects not to have this sec-
tion apply. 
‘‘(g) RESIDENCES ACQUIRED IN ROLLOVERS UNDER 
SECTION 1034.—For purposes of this section, in the case 
of property the acquisition of which by the taxpayer re-
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151 
sulted under section 1034 of the Internal Revenue Code 
of 1986 (as in effect on the day before the date of the 
enactment of the Taxpayer Relief Act of 1997) in the non-
recognition of any part of the gain realized on the sale 
or exchange of another residence, in determining the pe-
riod for which the taxpayer has owned and used such 
property as the taxpayer’s principal residence, there shall 
be included the aggregate periods for which such other 
residence (and each prior residence taken into account in 
determining the holding period of such property) had been 
so owned and used. 
‘‘SEC. 77. OTHER NONRECOGNITION TRANSACTIONS. 
‘‘(a) INVOLUNTARY CONVERSIONS.—Under regula-
tions prescribed by the Secretary, the involuntary conver-
sion of property held by an individual shall not result in 
gross income to the individual to the extent that the indi-
vidual receives property in exchange for the involuntarily 
converted property. To the extent that income is not rec-
ognized under this subsection, the taxpayer’s basis in the 
converted property shall carry over to the new property. 
‘‘(b) CERTAIN REACQUISITIONS
OF REAL PROP-
ERTY.—Under regulations prescribed by the Secretary, 
gross income shall not be recognized in the case of certain 
reacquisitions of real property. The regulations shall adopt 
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152 
principles similar to those under section 1038 of the Inter-
nal Revenue Code of 1986. 
‘‘(c) TRANSFERS OF PROPERTY BETWEEN SPOUSES 
OR INCIDENT TO DIVORCE.— 
‘‘(1) GENERAL RULE.—Gross income shall not 
be recognized on the transfer of property from an 
individual to (or in trust for the benefit of)— 
‘‘(A) a spouse, or 
‘‘(B) a former spouse, but only if the 
transfer is incident to divorce. 
‘‘(2) TRANSFER
TREATED
AS
A
GIFT.—Any 
transfer described in paragraph (1) shall be treated 
as a gift. 
‘‘(d) CERTAIN EXCHANGES
OF INSURANCE POLI-
CIES.—Under regulations prescribed by the Secretary, 
gross income shall not be recognized on the exchange of 
insurance policies or another life insurance policy or an 
annuity contract or the exchange of annuity contracts. 
The regulations shall adopt principles similar to those 
under section 1035 of the Internal Revenue Code of 1986. 
‘‘(e) CERTAIN EXCHANGES OF UNITED STATES OB-
LIGATIONS.—When so provided by regulations promul-
gated by the Secretary in connection with the issue of obli-
gations of the United States, no gain or loss shall be rec-
ognized on the surrender to the United States of obliga-
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153 
tions of the United States issued under chapter 31 of title 
31 in exchange solely for other obligations issued under 
such chapter. 
‘‘SEC. 78. WASH SALES AND STRADDLES. 
‘‘(a) LOSSES FROM WASH SALES OF STOCK OR SE-
CURITIES.—Under regulations prescribed by the Sec-
retary, no loss shall be recognized on the wash sale of 
stock or securities. The regulations shall adopt principles 
similar to those under section 1091 of the Internal Rev-
enue Code of 1986. 
‘‘(b) STRADDLES.—Under regulations prescribed by 
the Secretary, the loss that can be taken into account from 
1 or more straddle positions shall be limited. The regula-
tions shall adopt principles similar to those under section 
1038 of the Internal Revenue Code of 1986. 
‘‘SEC. 79. LIMITATION ON LOSSES FROM CAPITAL TRANS-
ACTIONS. 
‘‘(a) NO LOSS ON PERSONAL USE PROPERTY.—No 
loss shall be recognized on the sale or exchange of personal 
use property (as defined in section 210(b)(3)(B)). 
‘‘(b) LIMITATION ON NET CAPITAL LOSS.— 
‘‘(1) IN GENERAL.—Losses from sales or ex-
changes of capital assets in a taxable year shall be 
allowed only to the extent of the gains from such 
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154 
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 
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155 
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. 
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‘‘(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. 
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‘‘(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 
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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 
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159 
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-
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160 
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 
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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 
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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; 
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‘‘(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. 
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165 
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. 
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166 
‘‘(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 
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167 
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-
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168 
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— 
‘‘(i) whether the employee pays the 
fixed charge out of his stated compensation 
or out of his own funds, and 
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169 
‘‘(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 
which normally accommodates 10 or more em-
ployees. 
‘‘(d) LODGING
FURNISHED
BY
CERTAIN
EDU-
CATIONAL INSTITUTIONS TO EMPLOYEES.— 
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170 
‘‘(1) IN GENERAL.—In the case of an employee 
of an educational institution, gross income shall not 
include the value of qualified campus lodging fur-
nished to such employee during the taxable year. 
‘‘(2) EXCEPTION
IN
CASES
OF
INADEQUATE 
RENT.—Paragraph (1) shall not apply to the extent 
of the excess of— 
‘‘(A) the lesser of— 
‘‘(i) 5 percent of the appraised value 
of the qualified campus lodging, or 
‘‘(ii) the average of the rentals paid 
by individuals (other than employees or 
students of the educational institution) 
during such calendar year for lodging pro-
vided by the educational institution which 
is comparable to the qualified campus lodg-
ing provided to the employee, over 
‘‘(B) the rent paid by the employee for the 
qualified campus lodging during such calendar 
year. 
The appraised value under subparagraph (A)(i) shall 
be determined as of the close of the calendar year 
in which the taxable year begins, or, in the case of 
a rental period not greater than 1 year, at any time 
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171 
during the calendar year in which such period be-
gins. 
‘‘(3) QUALIFIED CAMPUS LODGING.—For pur-
poses of this subsection, the term ‘qualified campus 
lodging’ means lodging to which subsection (a) does 
not apply and which is— 
‘‘(A) located on, or in the proximity of, a 
campus of the educational institution, and 
‘‘(B) furnished to the employee, his spouse, 
and any of his dependents by or on behalf of 
such institution for use as a residence. 
‘‘(4) EDUCATIONAL
INSTITUTION.—For pur-
poses of this paragraph, the term ‘educational insti-
tution’ means an eligible educational institution as 
defined in section 8(b)(2)(B). 
‘‘SEC. 97. CERTAIN FRINGE BENEFITS. 
‘‘(a) PURPOSE.—This section includes definitions and 
rules applicable to the exclusion from gross income for cer-
tain fringe benefits. 
‘‘(b) NO-ADDITIONAL-COST SERVICE DEFINED.— 
‘No-additional-cost service’ means any service provided by 
an employer to an employee for use by such employee if— 
‘‘(1) such service is offered for sale to cus-
tomers in the ordinary course of the line of business 
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172 
of the employer in which the employee is performing 
services, and 
‘‘(2) the employer incurs no substantial addi-
tional cost (including forgone revenue) in providing 
such service to the employee (determined without re-
gard to any amount paid by the employee for such 
service). 
‘‘(c) QUALIFIED EMPLOYEE DISCOUNT DEFINED.— 
‘‘(1) QUALIFIED
EMPLOYEE
DISCOUNT.—The 
term ‘qualified employee discount’ means any em-
ployee discount with respect to qualified property or 
services to the extent such discount does not ex-
ceed— 
‘‘(A) in the case of property, the gross 
profit percentage of the price at which the prop-
erty is being offered by the employer to cus-
tomers, or 
‘‘(B) in the case of services, 20 percent of 
the price at which the services are being offered 
by the employer to customers. 
‘‘(2) GROSS PROFIT PERCENTAGE.— 
‘‘(A) IN GENERAL.—‘Gross profit percent-
age’ means the percent which— 
‘‘(i) the excess of the aggregate sales 
price of property sold by the employer to 
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173 
customers over the aggregate cost of such 
property to the employer, is of 
‘‘(ii) the aggregate sales price of such 
property. 
‘‘(B) DETERMINATION OF GROSS PROFIT 
PERCENTAGE.—Gross profit percentage shall be 
determined on the basis of— 
‘‘(i) all property offered to customers 
in the ordinary course of the line of busi-
ness of the employer in which the employee 
is performing services (or a reasonable 
classification of property selected by the 
employer), and 
‘‘(ii) the employer’s experience during a 
representative period. 
‘‘(3) EMPLOYEE
DISCOUNT
DEFINED.—‘Em-
ployee discount’ means the amount by which— 
‘‘(A) the price at which the property or 
services are provided by the employer to an em-
ployee for use by such employee, is less than 
‘‘(B) the price at which such property or 
services are being offered by the employer to 
customers. 
‘‘(4) QUALIFIED
PROPERTY
OR
SERVICES.— 
‘Qualified property or services’ means any property 
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