In the Senate of the United States,
December 12, 2007.
Resolved, That the bill from the House of Representa-
tives (H.R. 3997) entitled ‘‘An Act to amend the Internal
Revenue Code of 1986 to provide earnings assistance and tax
relief to members of the uniformed services, volunteer fire-
fighters, and Peace Corps volunteers, and for other pur-
poses.’’, do pass with the following
AMENDMENTS:
Strike out all after the enacting clause and insert:
SECTION 1. SHORT TITLE; ETC.
(a) SHORT TITLE.—This Act may be cited as the ‘‘De-
fenders of Freedom Tax Relief Act of 2007’’.
(b) AMENDMENT OF 1986 CODE.—Except as otherwise
expressly provided, whenever in this Act an amendment or
repeal is expressed in terms of an amendment to, or repeal
of, a section or other provision, the reference shall be consid-
ered to be made to a section or other provision of the Inter-
nal 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—TAX RELIEF AND PROTECTIONS FOR MILITARY
PERSONNEL
Sec. 101. Permanent extension of qualified mortgage bond program rules for vet-
erans.
Sec. 102. Exclusion of certain amounts from income for purposes of eligibility for
certain housing provisions.
Sec. 103. Permanent extension of election to treat combat pay as earned income
for purposes of earned income credit.
Sec. 104. Extension of statute of limitations to file claims for refunds relating to
disability determinations by Department of Veterans Affairs.
Sec. 105. Credit for employer differential wage payments to employees who are
active duty members of the uniformed services.
Sec. 106. Permanent extension of penalty-free withdrawals from retirement plans
by individual called to active duty.
Sec. 107. State payments to service members treated as qualified military bene-
fits.
Sec. 108. Survivor and disability payments with respect to qualified military
service.
Sec. 109. Treatment of differential military pay as wages.
Sec. 110. Disclosure of return information relating to veterans programs made
permanent.
Sec. 111. Contributions of military death gratuities to Roth IRAs and Education
Savings Accounts.
TITLE II—CERTAIN HOUSING BENEFITS FOR INTELLIGENCE
COMMUNITY AND PEACE CORPS VOLUNTEERS
Sec. 201. Permanent exclusion of gain from sale of a principal residence by cer-
tain employees of the intelligence community.
Sec. 202. Suspension of 5-year period during service with the Peace Corps.
TITLE III—REVENUE PROVISIONS
Sec. 301. Revision of tax rules on expatriation.
Sec. 302. Special enrollment option by employer health plans for members of uni-
form services who lose health care coverage.
Sec. 303. Increase in minimum penalty on failure to file a return of tax.
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HR 3997 EAS
TITLE I—TAX RELIEF AND PRO-
TECTIONS 
FOR 
MILITARY
PERSONNEL
SEC. 101. PERMANENT EXTENSION OF QUALIFIED MORT-
GAGE BOND PROGRAM RULES FOR VET-
ERANS.
(a) IN GENERAL.—Section 143(d)(2)(D) (relating to
exception) is amended by striking ‘‘in the case of bonds
issued after the date of the enactment of this subparagraph
and before January 1, 2008,’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to bonds issued after December 31, 2007.
SEC. 102. EXCLUSION OF CERTAIN AMOUNTS FROM INCOME
FOR PURPOSES OF ELIGIBILITY FOR CERTAIN
HOUSING PROVISIONS.
(a) IN GENERAL.—The last sentence of 142(d)(2)(B)
(relating to income of individuals; area median gross in-
come) is amended to read as follows ‘‘For purposes of deter-
mining income under this subparagraph, subsections (g)
and (h) of section 7872 shall not apply and any payments
to a member of the Armed Forces under section 403 of title
37, United States Code, as a basic pay allowance for hous-
ing, shall be disregarded.’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to—
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HR 3997 EAS
(1) housing credit dollar amounts allocated after
the date of the enactment of this Act, and
(2) buildings placed in service after such date to
the extent paragraph (1) of section 42(h) of the Inter-
nal Revenue Code of 1986 does not apply to such
building by reason of paragraph (4) thereof, but only
with respect to bonds issued after such date.
SEC. 103. PERMANENT EXTENSION OF ELECTION TO TREAT
COMBAT PAY AS EARNED INCOME FOR PUR-
POSES OF EARNED INCOME 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) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years ending after December
31, 2007.
SEC. 104. EXTENSION OF STATUTE OF LIMITATIONS TO
FILE CLAIMS FOR REFUNDS RELATING TO
DISABILITY DETERMINATIONS BY DEPART-
MENT OF VETERANS AFFAIRS.
(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:
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HR 3997 EAS
‘‘(i) employed an average of less that
50 employees on business days during such
taxable year, and
‘‘(ii) under a written plan of the em-
ployer, provides eligible differential wage
payments to every qualified employee of the
employer.
‘‘(B) CONTROLLED GROUPS.—For 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
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HR 3997 EAS
issued or required by a district court of the United
States under section 4323 of title 38 of the United
States Code with respect to a violation of chapter 43
of such title, and
‘‘(2) the 2 succeeding taxable years.
‘‘(e) CERTAIN RULES TO APPLY.—For purposes of this
section, rules similar to the rules of subsections (c), (d), and
(e) of section 52 shall apply.
‘‘(f) TERMINATION.—This section shall not apply to
any payments made after December 31, 2009.’’.
(b) CREDIT TREATED AS PART OF GENERAL BUSI-
NESS CREDIT.—Section 38(b) (relating to general 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:
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‘‘Sec. 45O. Employer wage credit for employees who are active duty members of
the uniformed services.’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to amounts paid after the date of the
enactment of this Act.
SEC. 106. PERMANENT EXTENSION OF PENALTY-FREE WITH-
DRAWALS FROM RETIREMENT PLANS BY INDI-
VIDUAL CALLED TO ACTIVE DUTY.
Clause (iv) of section 72(t)(2)(G) (relating to distribu-
tions from retirement plans to individuals called to active
duty) is amended by striking all after ‘‘September 11,
2001’’ and inserting a period.
SEC. 107. 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).’’.
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(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. 108. 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-
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HR 3997 EAS
ment rights under USERRA) is amended by redesignating
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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HR 3997 EAS
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