SEC. 2. SPECIAL RULE FOR MEMBERS OF UNIFORMED 
SERVICES IN DETERMINING EXCLUSION OF 
GAIN FROM SALE OF PRINCIPAL RESIDENCE. 
(a) IN GENERAL.—Subsection (d) of section 121 of 
the Internal Revenue Code of 1986 (relating to exclusion 
of gain from sale of principal residence) is amended by 
adding at the end the following new paragraph: 
‘‘(9) MEMBERS OF UNIFORMED SERVICES.—
‘‘(A) IN GENERAL.—At the election of an 
individual with respect to a property, the run-
ning of the 5-year period described in sub-
section (a) with respect to such property shall 
be suspended during any period that such indi-
vidual or such individual’s spouse is serving on 
qualified official extended duty as a member of 
the uniformed services. 
‘‘(B) MAXIMUM PERIOD OF SUSPENSION.—
The 5-year period described in subsection (a) 
shall not be extended more than 5 years by rea-
son of subparagraph (A). 
‘‘(C)
QUALIFIED
OFFICIAL
EXTENDED 
DUTY.—For purposes of this paragraph— 
‘‘(i) IN GENERAL.—The term ‘quali-
fied official extended duty’ means any ex-
tended duty while serving at a duty station 
which is at least 250 miles from such prop-
erty or while residing under Government 
orders in Government quarters. 
‘‘(ii)
UNIFORMED
SERVICES.—The 
term ‘uniformed services’ has the meaning 
given such term by section 101(a)(5) of 
title 10, United States Code, as in effect 
on the date of the enactment of this para-
graph. 
‘‘(iii) EXTENDED
DUTY.—The term 
‘extended duty’ means any period of active 
duty pursuant to a call or order to such 
duty for a period in excess of 180 days or 
for an indefinite period. 
‘‘(D) SPECIAL RULES RELATING TO ELEC-
TION.—
‘‘(i) ELECTION LIMITED TO 1 PROP-
ERTY AT A TIME.—An election under sub-
paragraph (A) with respect to any property 
may not be made if such an election is in 
effect with respect to any other property. 
‘‘(ii) REVOCATION OF ELECTION.—An 
election under subparagraph (A) may be 
revoked at any time.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to elections made after the date
of the enactment of this Act for suspended periods under 
section 121(d)(9) of the Internal Revenue Code of 1986 
(as added by this section) beginning after such date.
SEC. 3. RESTORATION OF FULL EXCLUSION FROM GROSS 
INCOME OF DEATH GRATUITY PAYMENT. 
(a) IN GENERAL.—Subsection (b)(3) of section 134 
of the Internal Revenue Code of 1986 (relating to certain 
military benefits) is amended by adding at the end the 
following new subparagraph: 
‘‘(C) EXCEPTION
FOR
DEATH
GRATUITY 
ADJUSTMENTS MADE BY LAW.—Subparagraph 
(A) shall not apply to any adjustment to the 
amount of death gratuity payable under chapter 
75 of title 10, United States Code, which is 
pursuant to a provision of law enacted before 
December 31, 1991.’’. 
(b) CONFORMING AMENDMENT.—Subparagraph (A) 
of section 134(b)(3) of such Code is amended by striking 
‘‘subparagraph (B)’’ and inserting ‘‘subparagraphs (B) 
and (C)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply with respect to deaths occurring 
after September 10, 2001.
SECTION 1. SHORT TITLE; ETC. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Armed Forces Tax Fairness Act of 2002’’. 
(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. 
(c) TABLE OF CONTENTS.—The table of contents for 
this Act is as follows:
Sec. 1. Short title; etc. 
TITLE I—IMPROVING TAX EQUITY FOR MILITARY PERSONNEL 
Sec. 101. Exclusion from gross income of certain death gratuity payments. 
Sec. 102. Exclusion of gain from sale of a principal residence by a member of 
the uniformed services or the Foreign Service. 
Sec. 103. Exclusion for amounts received under Department of Defense Home-
owners Assistance Program. 
Sec. 104. Expansion of combat zone filing rules to contingency operations. 
Sec. 105. Above-the-line deduction for overnight travel expenses of National Guard 
and Reserve members. 
Sec. 106. Modification of membership requirement for exemption from tax for cer-
tain veterans’ organizations. 
Sec. 107. Clarification of treatment of certain dependent care assistance pro-
grams. 
TITLE II—OTHER PROVISIONS 
Sec. 201. Revision of tax rules on expatriation. 
Sec. 202. Extension of IRS user fees.
TITLE I—IMPROVING TAX EQ-
UITY 
FOR 
MILITARY 
PER-
SONNEL 
SEC. 101. EXCLUSION FROM GROSS INCOME OF CERTAIN 
DEATH GRATUITY PAYMENTS. 
(a) IN GENERAL.—Subsection (b)(3) of section 134 (re-
lating to certain military benefits) is amended by adding 
at the end the following new subparagraph: 
‘‘(C) EXCEPTION FOR DEATH GRATUITY AD-
JUSTMENTS MADE BY LAW.—Subparagraph (A) 
shall not apply to any adjustment to the amount 
of death gratuity payable under chapter 75 of 
title 10, United States Code, which is pursuant 
to a provision of law enacted after September 9, 
1986.’’. 
(b) CONFORMING AMENDMENT.—Subparagraph (A) of 
section 134(b)(3) is amended by striking ‘‘subparagraph 
(B)’’ and inserting ‘‘subparagraphs (B) and (C)’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply with respect to deaths occurring after 
September 10, 2001.
SEC. 102. EXCLUSION OF GAIN FROM SALE OF A PRINCIPAL 
RESIDENCE BY A MEMBER OF THE UNI-
FORMED SERVICES OR THE FOREIGN SERV-
ICE. 
(a) IN GENERAL.—Subsection (d) of section 121 (relat-
ing to exclusion of gain from sale of principal residence) 
is amended by adding at the end the following new para-
graph: 
‘‘(9) MEMBERS OF UNIFORMED SERVICES AND 
FOREIGN SERVICE.—
‘‘(A) IN GENERAL.—At the election of an 
individual with respect to a property, the run-
ning of the 5-year period described in subsection 
(a) with respect to such property shall be sus-
pended during any period that such individual 
or such individual’s spouse is serving on quali-
fied official extended duty as a member of the 
uniformed services or of the Foreign Service of 
the United States. 
‘‘(B) MAXIMUM PERIOD OF SUSPENSION.—
The 5-year period described in subsection (a) 
shall not be extended more than 10 years by rea-
son of subparagraph (A). 
‘‘(C) 
QUALIFIED
OFFICIAL
EXTENDED 
DUTY.—For purposes of this paragraph—
‘‘(i) IN GENERAL.—The term ‘qualified 
official extended duty’ means any extended 
duty while serving at a duty station which 
is at least 50 miles from such property or 
while residing under Government orders in 
Government quarters. 
‘‘(ii) 
UNIFORMED
SERVICES.—The 
term ‘uniformed services’ has the meaning 
given such term by section 101(a)(5) of title 
10, United States Code, as in effect on the 
date of the enactment of this paragraph. 
‘‘(iii) FOREIGN
SERVICE
OF
THE 
UNITED STATES.—The term ‘member of the 
Foreign Service of the United States’ has 
the meaning given the term ‘member of the 
Service’ by paragraph (1), (2), (3), (4), or 
(5) of section 103 of the Foreign Service Act 
of 1980. 
‘‘(iv) EXTENDED DUTY.—The term ‘ex-
tended duty’ means any period of duty pur-
suant to a call or order to such duty for a 
period in excess of 90 days or for an indefi-
nite period. 
‘‘(D) SPECIAL RULES RELATING TO ELEC-
TION.—
‘‘(i) ELECTION
LIMITED
TO
PROP-
ERTY AT A TIME.—An election under sub-
paragraph (A) with respect to any property 
may not be made if such an election is in 
effect with respect to any other property. 
‘‘(ii) REVOCATION OF ELECTION.—An 
election under subparagraph (A) may be re-
voked at any time.’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to elections made with respect to sales 
and exchanges occurring after the date of the enactment of 
this Act. 
SEC. 103. EXCLUSION FOR AMOUNTS RECEIVED UNDER DE-
PARTMENT OF DEFENSE HOMEOWNERS AS-
SISTANCE PROGRAM. 
(a) IN GENERAL.—Section 132(a) (relating to the ex-
clusion from gross income of certain fringe benefits) is 
amended by striking ‘‘or’’ at the end of paragraph (6), by 
striking the period at the end of paragraph (7) and insert-
ing ‘‘, or’’ and by adding at the end the following new para-
graph:
‘‘(8) qualified military base realignment and clo-
sure fringe.’’. 
(b) QUALIFIED MILITARY BASE REALIGNMENT AND 
CLOSURE FRINGE.—Section 132 is amended by redesig-
nating subsection (n) as subsection (o) and by inserting 
after subsection (m) the following new subsection: 
‘‘(n) QUALIFIED MILITARY BASE REALIGNMENT AND 
CLOSURE FRINGE.—For purposes of this section, the term 
‘qualified military base realignment and closure fringe’ 
means 1 or more payments under the authority of section 
1013 of the Demonstration Cities and Metropolitan Devel-
opment Act of 1966 (42 U.S.C. 3374) to offset the adverse 
effects on housing values as a result of a military base re-
alignment or closure.’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to payments made after the date of the 
enactment of this Act. 
SEC. 104. EXPANSION OF COMBAT ZONE FILING RULES TO 
CONTINGENCY OPERATIONS. 
(a) IN GENERAL.—Section 7508(a) (relating to time 
for performing certain acts postponed by reason of service 
in combat zone) is amended—
(1) by inserting ‘‘or when deployed outside the 
United States away from the individual’s permanent 
duty station while participating in an operation des-
ignated by the Secretary of Defense as a contingency 
operation (as defined in section 101(a)(13) of title 10, 
United States Code) or which became such a contin-
gency operation by operation of law’’ after ‘‘section 
112’’, 
(2) by inserting in the first sentence ‘‘or at any 
time during the period of such contingency operation’’ 
after ‘‘for purposes of such section’’, 
(3) by inserting ‘‘or operation’’ after ‘‘such an 
area’’, and 
(4) by inserting ‘‘or operation’’ after ‘‘such 
area’’. 
(b) CONFORMING AMENDMENTS.—
(1) Section 7508(d) is amended by inserting ‘‘or 
contingency operation’’ after ‘‘area’’. 
(2) The heading for section 7508 is amended by 
inserting ‘‘OR CONTINGENCY OPERATION’’ after 
‘‘COMBAT ZONE’’. 
(3) The item relating to section 7508 in the table 
of sections for chapter 77 is amended by inserting ‘‘or 
contingency operation’’ after ‘‘combat zone’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to any period for performing an act 
which has not expired before the date of the enactment of 
this Act.
SEC. 105. ABOVE-THE-LINE DEDUCTION FOR OVERNIGHT 
TRAVEL EXPENSES OF NATIONAL GUARD AND 
RESERVE MEMBERS. 
(a) DEDUCTION ALLOWED.—Section 162 (relating to 
certain trade or business expenses) is amended by redesig-
nating subsection (p) as subsection (q) and inserting after 
subsection (o) the following new subsection: 
‘‘(p) TREATMENT OF EXPENSES OF MEMBERS OF RE-
SERVE COMPONENT OF ARMED FORCES OF THE UNITED 
STATES.—For purposes of subsection (a)(2), in the case of 
an individual who performs services as a member of a re-
serve component of the Armed Forces of the United States 
at any time during the taxable year, such individual shall 
be deemed to be away from home in the pursuit of a trade 
or business for any period during which such individual 
is away from home in connection with such service.’’. 
(b) DEDUCTION ALLOWED WHETHER OR NOT TAX-
PAYER ELECTS TO ITEMIZE.—Section 62(a)(2) (relating to 
certain trade and business deductions of employees) is 
amended by adding at the end the following new subpara-
graph: 
‘‘(E) CERTAIN EXPENSES OF MEMBERS OF 
RESERVE COMPONENTS OF THE ARMED FORCES 
OF
THE
UNITED
STATES.—The deductions al-
lowed by section 162 which consist of expenses, 
in amounts not in excess of the rates for travel
expenses (including per diem in lieu of subsist-
ence) authorized for employees of agencies under 
subchapter I of chapter 57 of title 5, United 
States Code, paid or incurred by the taxpayer in 
connection with the performance of services by 
such taxpayer as a member of a reserve compo-
nent of the Armed Forces of the United States.’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to amounts paid or incurred in taxable 
years beginning after December 31, 2001. 
SEC. 106. MODIFICATION OF MEMBERSHIP REQUIREMENT 
FOR EXEMPTION FROM TAX FOR CERTAIN 
VETERANS’ ORGANIZATIONS. 
(a) IN
GENERAL.—Subparagraph (B) of section 
501(c)(19) (relating to list of exempt organizations) is 
amended by striking ‘‘or widowers’’ and inserting ‘‘, wid-
owers, or ancestors or lineal descendants’’. 
(b) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after the date 
of the enactment of this Act. 
SEC. 107. CLARIFICATION OF THE TREATMENT OF CERTAIN 
DEPENDENT CARE ASSISTANCE PROGRAMS. 
(a) IN GENERAL.—Section 134(b) (defining qualified 
military benefit) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(4) CLARIFICATION
OF
CERTAIN
BENEFITS.—
For purposes of paragraph (1), such term includes 
any dependent care assistance program for any indi-
vidual described in paragraph (1)(A).’’. 
(b) CONFORMING AMENDMENTS.—
(1) Section 134(b)(3)(A) is amended by inserting 
‘‘and paragraph (4)’’ after ‘‘subparagraph (B)’’. 
(2) Section 3121(a)(18) is amended by striking 
‘‘or 129’’ and inserting ‘‘, 129, or 134(b)(4)’’. 
(3) Section 3306(b)(13) is amended by striking 
‘‘or 129’’ and inserting ‘‘, 129, or 134(b)(4)’’. 
(4) Section 3401(a)(18) is amended by striking 
‘‘or 129’’ and inserting ‘‘, 129, or 134(b)(4)’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2001. 
(d) NO INFERENCE.—No inference may be drawn from 
the amendments made by this section with respect to the 
tax treatment of any amounts under the program described 
in section 134(b)(4) of the Internal Revenue Code of 1986 
(as added by this section) for any taxable year beginning 
before January 1, 2002.
TITLE II—OTHER PROVISIONS 
SEC. 201. 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—
‘‘(1) MARK TO MARKET.—Except as provided in 
subsections (d) and (f), all property of a covered expa-
triate to whom this section applies shall be treated as 
sold on the day before the expatriation date for its 
fair market value. 
‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the 
case of any sale under paragraph (1)— 
‘‘(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. 
‘‘(3) EXCLUSION FOR CERTAIN GAIN.—
‘‘(A) IN GENERAL.—The amount which, but 
for this paragraph, would be includible in the 
gross income of any individual by reason of this 
section shall be reduced (but not below zero) by 
$600,000. For purposes of this paragraph, allo-
cable expatriation gain taken into account under 
subsection (f)(2) shall be treated in the same 
manner as an amount required to be includible 
in gross income. 
‘‘(B) COST-OF-LIVING ADJUSTMENT.—
‘‘(i) IN GENERAL.—In the case of an 
expatriation date occurring in any calendar 
year after 2002, the $600,000 amount under 
subparagraph (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 
such calendar year, determined by sub-
stituting ‘calendar year 2001’ for ‘cal-
endar year 1992’ in subparagraph (B) 
thereof. 
‘‘(ii) 
ROUNDING
RULES.—If 
any 
amount after adjustment under clause (i) is 
not a multiple of $1,000, such amount shall 
be rounded to the next lower multiple of 
$1,000. 
‘‘(4) ELECTION TO CONTINUE TO BE TAXED AS 
UNITED STATES CITIZEN.—
‘‘(A) IN GENERAL.—If a covered expatriate 
elects the application of this paragraph—
‘‘(i) this section (other than this para-
graph and subsection (i)) shall not apply to 
the expatriate, but 
‘‘(ii) in the case of property to which 
this section would apply but for such elec-
tion, the expatriate shall be subject to tax 
under this title in the same manner as if 
the individual were a United States citizen. 
‘‘(B) REQUIREMENTS.—Subparagraph (A) 
shall not apply to an individual unless the indi-
vidual—
‘‘(i) provides security for payment of 
tax in such form and manner, and in such 
amount, as the Secretary may require,
‘‘(ii) consents to the waiver of any 
right of the individual under any treaty of 
the United States which would preclude as-
sessment or collection of any tax which may 
be imposed by reason of this paragraph, 
and 
‘‘(iii) complies with such other require-
ments as the Secretary may prescribe. 
‘‘(C) ELECTION.—An election under sub-
paragraph (A) shall apply to all property to 
which this section would apply but for the elec-
tion and, once made, shall be irrevocable. Such 
election shall also apply to property the basis of 
which is determined in whole or in part by ref-
erence to the property with respect to which the 
election was made. 
‘‘(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 
payment of the additional tax attributable to such 
property shall be postponed 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 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 POSTPONEMENT.—No tax 
may be postponed 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 secu-
rity provided with respect to the property fails to 
meet the requirements of paragraph (4), unless the 
taxpayer corrects such failure within the time speci-
fied by the Secretary). 
‘‘(4) SECURITY.—
‘‘(A) IN
GENERAL.—No election may be 
made under paragraph (1) with respect to any