†
396
HR 2 EAS
(f) QUORUM.—A majority of the members of the Com-
mission shall constitute a quorum, but a lesser number of
members may hold hearings.
(g) CHAIRMAN AND VICE CHAIRMAN.—The President
shall select a Chairman and Vice Chairman from among
its members.
SEC. 603. DUTIES OF THE COMMISSION.
(a) STUDY.—The Commission shall conduct a thor-
ough study of all matters relating to a comprehensive re-
form of the Federal tax system, including the reform of the
Internal Revenue Code of 1986 and the implementation (if
appropriate) of other types of tax systems.
(b) RECOMMENDATIONS.—The Commission shall de-
velop recommendations on how to comprehensively reform
the Federal tax system in a manner that generates appro-
priate revenue for the Federal Government.
(c) REPORT.—Not later than 18 months after the date
on which all initial members of the commission have been
appointed pursuant to section 602(b), the Commission shall
submit a report to the President and Congress which shall
contain a detailed statement of the findings and conclusions
of the Commission, together with its recommendations for
such legislation and administrative actions as it considers
appropriate.
†
397
HR 2 EAS
SEC. 604. POWERS OF THE COMMISSION.
(a) HEARINGS.—The Commission may hold such hear-
ings, sit and act at such times and places, take such testi-
mony, and receive such evidence as the Commission con-
siders advisable to carry out this Act.
(b) INFORMATION FROM FEDERAL AGENCIES.—The
Commission may secure directly from any Federal depart-
ment or agency such information as the Commission con-
siders necessary to carry out this Act. Upon request of the
Chairman of the Commission, the head of such department
or agency shall furnish such information to the Commis-
sion.
(c) POSTAL SERVICES.—The Commission may use the
United States mails in the same manner and under the
same conditions as other departments and agencies of the
Federal Government.
(d) GIFTS.—The Commission may accept, use, and
dispose of gifts or donations of services or property.
SEC. 605. COMMISSION PERSONNEL MATTERS.
(a) COMPENSATION OF MEMBERS.—Each member of
the Commission who is not an officer or employee of the
Federal Government shall be compensated at a rate equal
to the daily equivalent of the annual rate of basic pay pre-
scribed for level IV of the Executive Schedule under section
5315 of title 5, United States Code, for each day (including
travel time) during which such member is engaged in the
†
398
HR 2 EAS
performance of the duties of the Commission. All members
of the Commission who are officers or employees of the
United States shall serve without compensation in addition
to that received for their services as officers or employees
of the United States.
(b) TRAVEL EXPENSES.—The members of the Commis-
sion shall be allowed travel expenses, including per diem
in lieu of subsistence, at rates authorized for employees of
agencies under subchapter I of chapter 57 of title 5, United
States Code, while away from their homes or regular places
of business in the performance of services for the Commis-
sion.
(c) STAFF.—
(1) IN GENERAL.—The Chairman of the Com-
mission may, without regard to the civil service laws
and regulations, appoint and terminate an executive
director and such other additional personnel as may
be necessary to enable the Commission to perform its
duties. The employment of an executive director shall
be subject to confirmation by the Commission.
(2) COMPENSATION.—The Chairman of the Com-
mission may fix the compensation of the executive di-
rector and other personnel without regard to chapter
51 and subchapter III of chapter 53 of title 5, United
States Code, relating to classification of positions and
†
399
HR 2 EAS
General Schedule pay rates, except that the rate of
pay for the executive director and other personnel
may not exceed the rate payable for level V of the Ex-
ecutive Schedule under section 5316 of such title.
(d) DETAIL OF GOVERNMENT EMPLOYEES.—Any Fed-
eral Government employee may be detailed to the Commis-
sion without reimbursement, and such detail shall be with-
out interruption or loss of civil service status or privilege.
(e) PROCUREMENT OF TEMPORARY AND INTERMIT-
TENT SERVICES.—The Chairman of the Commission may
procure temporary and intermittent services under section
3109(b) of title 5, United States Code, at rates for individ-
uals which do not exceed the daily equivalent of the annual
rate of basic pay prescribed for level V of the Executive
Schedule under section 5316 of such title.
SEC. 606. TERMINATION OF THE COMMISSION.
The Commission shall terminate 90 days after the date
on which the Commission submits its report under section
603.
SEC. 607. AUTHORIZATION OF APPROPRIATIONS.
There are authorized to be appropriated such sums as
are necessary to the Commission to carry out this Act.
†
400
HR 2 EAS
TITLE VII—REAL ESTATE
INVESTMENT TRUSTS
Subtitle A—REIT Corrections
SEC. 701. REVISIONS TO REIT ASSET TEST.
(a) EXPANSION OF STRAIGHT DEBT SAFE HARBOR.—
Section 856 (defining real estate investment trust) is
amended—
(1) in subsection (c) by striking paragraph (7),
and
(2) by adding at the end the following new sub-
section:
‘‘(m) SAFE
HARBOR
IN
APPLYING
SUBSECTION
(c)(4).—
‘‘(1) IN GENERAL.—In applying subclause (III)
of subsection (c)(4)(B)(iii), except as otherwise deter-
mined by the Secretary in regulations, the following
shall not be considered securities held by the trust:
‘‘(A) Straight debt securities of an issuer
which meet the requirements of paragraph (2).
‘‘(B) Any loan to an individual or an es-
tate.
‘‘(C) Any section 467 rental agreement (as
defined in section 467(d)), other than with a per-
son described in subsection (d)(2)(B).
†
401
HR 2 EAS
‘‘(D) Any obligation to pay rents from real
property (as defined in subsection (d)(1)).
‘‘(E) Any security issued by a State or any
political subdivision thereof, the District of Co-
lumbia, a foreign government or any political
subdivision thereof, or the Commonwealth of
Puerto Rico, but only if the determination of
any payment received or accrued under such se-
curity does not depend in whole or in part on
the profits of any entity not described in this
subparagraph or payments on any obligation
issued by such an entity.
‘‘(F) Any security issued by a real estate
investment trust.
‘‘(G) Any other arrangement as determined
by the Secretary.
‘‘(2) SPECIAL
RULES
RELATING
TO
STRAIGHT
DEBT SECURITIES.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1)(A), securities meet the requirements of
this paragraph if such securities are straight
debt, as defined in section 1361(c)(5) (without
regard to subparagraph (B)(iii) thereof).
‘‘(B) SPECIAL RULES RELATING TO CERTAIN
CONTINGENCIES.—For purposes of subparagraph
†
402
HR 2 EAS
(A), any interest or principal shall not be treat-
ed as failing to satisfy section 1361(c)(5)(B)(i)
solely by reason of the fact that the time of pay-
ment of such interest or principal is subject to
a contingency, but only if—
‘‘(i) any such contingency does not
have the effect of changing the effective yield
to maturity, as determined under section
1272, other than a change in the annual
yield to maturity which either—
‘‘(I) does not exceed the greater of
1⁄4 of 1 percent or 5 percent of the an-
nual yield to maturity, or
‘‘(II) results solely from a default
or the exercise of a prepayment right
by the issuer of the debt, or
‘‘(ii) neither the aggregate issue price
nor the aggregate face amount of the issuer’s
debt instruments held by the trust,
exceeds $1,000,000 and not more than 12 months
of unaccrued interest can be required to be pre-
paid thereunder.
‘‘(C) SPECIAL
RULES
RELATING
TO
COR-
PORATE OR PARTNERSHIP ISSUERS.—In the case
of an issuer which is a corporation or a partner-
†
403
HR 2 EAS
ship, securities that otherwise would be described
in paragraph (1)(A) shall be considered not to be
so described if the trust holding such securities
and any of its controlled taxable REIT subsidi-
aries (as defined in subsection (d)(8)(A)(iv))
hold any securities of the issuer which—
‘‘(i) are not described in paragraph (1)
(prior to the application of paragraph
(1)(C)), and
‘‘(ii) have an aggregate value greater
than 1 percent of the issuer’s outstanding
securities.
‘‘(3) LOOK-THROUGH RULE FOR PARTNERSHIP
SECURITIES.—
‘‘(A) IN GENERAL.—For purposes of apply-
ing subclause (III) of subsection (c)(4)(B)(iii)—
‘‘(i) a trust’s interest as a partner in
a partnership (as defined in section
7701(a)(2)) shall not be considered a secu-
rity, and
‘‘(ii) the trust shall be deemed to own
its proportionate share of each of the assets
of the partnership.
‘‘(B) DETERMINATION OF TRUST’S INTER-
EST IN PARTNERSHIP ASSETS.—For purposes of
†
404
HR 2 EAS
subparagraph (A), with respect to any taxable
year beginning after the date of the enactment of
this subparagraph—
‘‘(i) the trust’s interest in the partner-
ship assets shall be the trust’s proportionate
interest in any securities issued by the part-
nership (determined without regard to sub-
paragraph (A)(i) and paragraph (4), but
not including securities described in para-
graph (1)), and
‘‘(ii) the value of any debt instrument
shall be the adjusted issue price thereof, as
defined in section 1272(a)(4).
‘‘(4) CERTAIN PARTNERSHIP DEBT INSTRUMENTS
NOT TREATED AS A SECURITY.—For purposes of ap-
plying subclause (III) of subsection (c)(4)(B)(iii)—
‘‘(A) any debt instrument issued by a part-
nership and not described in paragraph (1) shall
not be considered a security to the extent of the
trust’s interest as a partner in the partnership,
and
‘‘(B) any debt instrument issued by a part-
nership and not described in paragraph (1) shall
not be considered a security if at least 75 percent
of the partnership’s gross income (excluding
†
405
HR 2 EAS
gross income from prohibited transactions) is de-
rived from sources referred to in subsection
(c)(3).
‘‘(5) SECRETARIAL GUIDANCE.—The Secretary is
authorized to provide guidance (including through the
issuance of a written determination, as defined in sec-
tion 6110(b)) that an arrangement shall not be con-
sidered a security held by the trust for purposes of ap-
plying subclause (III) of subsection (c)(4)(B)(iii) not-
withstanding that such arrangement otherwise could
be considered a security under subparagraph (F) of
subsection (c)(5).’’.
SEC. 702. CLARIFICATION OF APPLICATION OF LIMITED
RENTAL EXCEPTION.
Subparagraph (A) of section 856(d)(8) (relating to
special rules for taxable REIT subsidiaries) is amended to
read as follows:
‘‘(A) LIMITED RENTAL EXCEPTION.—
‘‘(i) IN
GENERAL.—The requirements
of this subparagraph are met with respect
to any property if at least 90 percent of the
leased space of the property is rented to per-
sons other than taxable REIT subsidiaries
of such trust and other than persons de-
scribed in paragraph (2)(B).
†
406
HR 2 EAS
‘‘(ii) RENTS MUST BE SUBSTANTIALLY
COMPARABLE.—Clause (i) shall apply only
to the extent that the amounts paid to the
trust as rents from real property (as defined
in paragraph (1) without regard to para-
graph (2)(B)) from such property are sub-
stantially comparable to such rents paid by
the other tenants of the trust’s property for
comparable space.
‘‘(iii) TIMES FOR TESTING RENT COM-
PARABILITY.—The 
substantial 
com-
parability requirement of clause (ii) shall be
treated as met with respect to a lease to a
taxable REIT subsidiary of the trust if such
requirement is met under the terms of the
lease—
‘‘(I) at the time such lease is en-
tered into,
‘‘(II) at the time of each extension
of the lease, including a failure to exer-
cise a right to terminate, and
‘‘(III) at the time of any modi-
fication of the lease between the trust
and the taxable REIT subsidiary if the
†
407
HR 2 EAS
rent under such lease is effectively in-
creased pursuant to such modification.
With respect to subclause (III), if the tax-
able REIT subsidiary of the trust is a con-
trolled taxable REIT subsidiary of the trust,
the term ‘rents from real property’ shall not
in any event include rent under such lease
to the extent of the increase in such rent on
account of such modification.
‘‘(iv) 
CONTROLLED
TAXABLE
REIT
SUBSIDIARY.—For purposes of clause (iii),
the term ‘controlled taxable REIT sub-
sidiary’ means, with respect to any real es-
tate investment trust, any taxable REIT
subsidiary of such trust if such trust owns
directly or indirectly—
‘‘(I) stock possessing more than 50
percent of the total voting power of the
outstanding stock of such subsidiary,
or
‘‘(II) stock having a value of more
than 50 percent of the total value of the
outstanding stock of such subsidiary.
‘‘(v) 
CONTINUING
QUALIFICATION
BASED ON THIRD PARTY ACTIONS.—If the
†
408
HR 2 EAS
requirements of clause (i) are met at a time
referred to in clause (iii), such requirements
shall continue to be treated as met so long
as there is no increase in the space leased
to any taxable REIT subsidiary of such
trust or to any person described in para-
graph (2)(B).
‘‘(vi) CORRECTION PERIOD.—If there is
an increase referred to in clause (v) during
any calendar quarter with respect to any
property, the requirements of clause (iii)
shall be treated as met during the quarter
and the succeeding quarter if such require-
ments are met at the close of such suc-
ceeding quarter.’’.
SEC. 703. DELETION OF CUSTOMARY SERVICES EXCEPTION.
Subparagraph (B) of section 857(b)(7) (relating to re-
determined rents) is amended by striking clause (ii) and
by redesignating clauses (iii), (iv), (v), (vi), and (vii) as
clauses (ii), (iii), (iv), (v), and (vi), respectively.
SEC. 704. CONFORMITY WITH GENERAL HEDGING DEFINI-
TION.
(a) 
DEFINITION.—Subparagraph 
(G) 
of 
section
856(c)(5) (relating to treatment of certain hedging instru-
ments) is amended to read as follows:
†
409
HR 2 EAS
‘‘(G) TREATMENT OF CERTAIN HEDGING IN-
STRUMENTS.—Except to the extent provided by
regulations, any income of a real estate invest-
ment trust from a hedging transaction (as de-
fined 
in 
clause 
(ii) 
or 
(iii) 
of 
section
1221(b)(2)(A)) which is clearly identified pursu-
ant to section 1221(a)(7), including gain from
the sale or disposition of such a transaction,
shall not constitute gross income under para-
graph (2) to the extent that the transaction
hedges any indebtedness incurred or to be in-
curred by the trust to acquire or carry real estate
assets.’’.
SEC. 705. CONFORMITY WITH REGULATED INVESTMENT
COMPANY RULES.
Clause (i) of section 857(b)(5)(A) (relating to imposi-
tion of tax in case of failure to meet certain requirements)
is amended by striking ‘‘90 percent’’ and inserting ‘‘95 per-
cent’’.
SEC. 706. PROHIBITED TRANSACTIONS PROVISIONS.
(a) EXPANSION OF PROHIBITED TRANSACTION SAFE
HARBOR.—Section 857(b)(6) (relating to income from pro-
hibited transactions) is amended by redesignating subpara-
graphs (D) and (E) as subparagraphs (E) and (F), respec-
†
410
HR 2 EAS
tively, and by inserting after subparagraph (C) the fol-
lowing new subparagraph:
‘‘(D) CERTAIN SALES NOT TO CONSTITUTE
PROHIBITED
TRANSACTIONS.—For purposes of
this part, the term ‘prohibited transaction’ does
not include a sale of property which is a real es-
tate asset (as defined in section 856(c)(5)(B))
if—
‘‘(i) the trust held the property for not
less than 4 years in connection with the
trade or business of producing timber,
‘‘(ii) the aggregate expenditures made
by the trust, or a partner of the trust, dur-
ing the 4-year period preceding the date of
sale which—
‘‘(I) are includible in the basis of
the property (other than timberland
acquisition expenditures), and
‘‘(II) are directly related to oper-
ation of the property for the produc-
tion of timber or for the preservation of
the property for use as timberland,
do not exceed 30 percent of the net selling
price of the property,
†
411
HR 2 EAS
‘‘(iii) the aggregate expenditures made
by the trust, or a partner of the trust, dur-
ing the 4-year period preceding the date of
sale which—
‘‘(I) are includible in the basis of
the property (other than timberland
acquisition expenditures), and
‘‘(II) are not directly related to
operation of the property for the pro-
duction of timber, or for the preserva-
tion of the property for use as
timberland,
do not exceed 5 percent of the net selling
price of the property,
‘‘(iv)(I) during the taxable year the
trust does not make more than 7 sales of
property (other than sales of foreclosure
property or sales to which section 1033 ap-
plies), or
‘‘(II) the aggregate adjusted bases (as
determined for purposes of computing earn-
ings and profits) of property (other than
sales of foreclosure property or sales to
which section 1033 applies) sold during the
taxable year does not exceed 10 percent of
†
412
HR 2 EAS
the aggregate bases (as so determined) of all
of the assets of the trust as of the beginning
of the taxable year,
‘‘(v) in the case that the requirement of
clause (iv)(I) is not satisfied, substantially
all of the marketing expenditures with re-
spect to the property were made through an
independent contractor (as defined in sec-
tion 856(d)(3)) from whom the trust itself
does not derive or receive any income, and
‘‘(vi) the sales price of the property
sold by the trust to its taxable REIT sub-
sidiary is not based in whole or in part on
the income or profits of the subsidiary or
the income or profits that the subsidiary de-
rives from the sale or operation of such
property.’’.
SEC. 707. EFFECTIVE DATES.
(a) IN GENERAL.—Except as provided in subsection
(b), the amendments made by this title shall apply to tax-
able years beginning after December 31, 2000.
(b) SECTIONS 703 THROUGH 706.—The amendments
made by sections 703, 704, 705 and 706 shall apply to tax-
able years beginning after the date of the enactment of this
Act.
†
413
HR 2 EAS
Subtitle B—REIT Savings
Provisions
SEC. 711. REVISIONS TO REIT PROVISIONS.
(a) RULES OF APPLICATION FOR FAILURE TO SATISFY
SECTION 856(c)(4).—Section 856(c) (relating to definition
of real estate investment trust), as amended by section 701,
is amended by inserting after paragraph (6) the following
new paragraph:
‘‘(7) RULES OF APPLICATION FOR FAILURE TO
SATISFY PARAGRAPH (4).—
‘‘(A) DE MINIMIS FAILURE.—A corporation,
trust, or association that fails to meet the re-
quirements of paragraph (4)(B)(iii) for a par-
ticular quarter shall nevertheless be considered to
have satisfied the requirements of such para-
graph for such quarter if—
‘‘(i) such failure is due to the owner-
ship of assets the total value of which does
not exceed the lesser of—
‘‘(I) 1 percent of the total value of
the trust’s assets at the end of the quar-
ter for which such measurement is
done, and
‘‘(II) $10,000,000, and
†
414
HR 2 EAS
‘‘(ii)(I) the corporation, trust, or asso-
ciation, following the identification of such
failure, disposes of assets in order to meet
the requirements of such paragraph within
6 months after the last day of the quarter
in which the corporation, trust or associa-
tion’s identification of the failure to satisfy
the requirements of such paragraph oc-
curred or such other time period prescribed
by the Secretary and in the manner pre-
scribed by the Secretary, or
‘‘(II) the requirements of such para-
graph are otherwise met within the time pe-
riod specified in subclause (I).
‘‘(B) FAILURES
EXCEEDING
DE
MINIMIS
AMOUNT.—A corporation, trust, or association
that fails to meet the requirements of paragraph
(4) for a particular quarter shall nevertheless be
considered to have satisfied the requirements of
such paragraph for such quarter if—
‘‘(i) such failure involves the ownership
of assets the total value of which exceeds the
de minimis standard described in subpara-
graph (A)(i) at the end of the quarter for
which such measurement is done,
†
415
HR 2 EAS
‘‘(ii) following the corporation, trust,
or association’s identification of the failure
to satisfy the requirements of such para-
graph for a particular quarter, a descrip-
tion of each asset that causes the corpora-
tion, trust, or association to fail to satisfy
the requirements of such paragraph at the
close of such quarter of any taxable year is
set forth in a schedule for such quarter filed
in accordance with regulations prescribed
by the Secretary,
‘‘(iii) the failure to meet the require-
ments of such paragraph for a particular
quarter is due to reasonable cause and not
due to willful neglect,
‘‘(iv) the corporation, trust, or associa-
tion pays a tax computed under subpara-
graph (C), and
‘‘(v)(I) the corporation, trust, or asso-
ciation disposes of the assets set forth on the
schedule specified in clause (ii) within 6
months after the last day of the quarter in
which the corporation, trust or association’s
identification of the failure to satisfy the re-
quirements of such paragraph occurred or
†
416
HR 2 EAS
such other time period prescribed by the
Secretary and in the manner prescribed by
the Secretary, or
‘‘(II) the requirements of such para-
graph are otherwise met within the time pe-
riod specified in subclause (I).
‘‘(C) TAX.—For purposes of subparagraph
(B)(iv)—
‘‘(i) TAX IMPOSED.—If a corporation,
trust, or association elects the application of
this subparagraph, there is hereby imposed
a tax on the failure described in subpara-
graph (B) of such corporation, trust, or as-
sociation. Such tax shall be paid by the cor-
poration, trust, or association.
‘‘(ii) TAX COMPUTED.—The amount of
the tax imposed by clause (i) shall be the
greater of—
‘‘(I) $50,000, or
‘‘(II) 
the 
amount 
determined
(pursuant to regulations promulgated
by the Secretary) by multiplying the
net income generated by the assets de-
scribed in the schedule specified in sub-
paragraph (B)(ii) for the period speci-
†
417
HR 2 EAS
fied in clause (iii) by the highest rate
of tax specified in section 11.
‘‘(iii) PERIOD.—For purposes of clause
(ii)(II), the period described in this clause
is the period beginning on the first date
that the failure to satisfy the requirements
of such paragraph (4) occurs as a result of
the ownership of such assets and ending on
the earlier of the date on which the trust
disposes of such assets or the end of the first
quarter when there is no longer a failure to
satisfy such paragraph (4).
‘‘(iv) ADMINISTRATIVE
PROVISIONS.—
For purposes of subtitle F, the taxes im-
posed by this subparagraph shall be treated
as excise taxes with respect to which the de-
ficiency procedures of such subtitle apply.’’.
(b) MODIFICATION OF RULES OF APPLICATION FOR
FAILURE TO SATISFY SECTIONS 856(c)(2) OR 856(c)(3).—
Paragraph (6) of section 856(c) (relating to definition of
real estate investment trust) is amended by striking sub-
paragraphs (A) and (B), by redesignating subparagraph
(C) as subparagraph (B), and by inserting before subpara-
graph (B) (as so redesignated) the following new subpara-
graph:
†
418
HR 2 EAS
‘‘(A) following the corporation, trust, or as-
sociation’s identification of the failure to meet
the requirements of paragraph (2) or (3), or of
both such paragraphs, for any taxable year, a
description of each item of its gross income de-
scribed in such paragraphs is set forth in a
schedule for such taxable year filed in accordance
with regulations prescribed by the Secretary,
and’’.
(c) REASONABLE CAUSE EXCEPTION TO LOSS
OF
REIT STATUS IF FAILURE TO SATISFY REQUIREMENTS.—
Subsection (g) of section 856 (relating to termination of
election) is amended—
(1) in paragraph (1) by inserting before the pe-
riod at the end of the first sentence the following: ‘‘un-
less paragraph (5) applies’’, and
(2) by adding at the end the following new para-
graph:
‘‘(5) ENTITIES
TO
WHICH
PARAGRAPH
AP-
PLIES.—This paragraph applies to a corporation,
trust, or association—
‘‘(A) which is not a real estate investment
trust to which the provisions of this part apply
for the taxable year due to one or more failures
to comply with one or more of the provisions of
†
419
HR 2 EAS
this part (other than subsection (c)(6) or (c)(7)
of section 856),
‘‘(B) such failures are due to reasonable
cause and not due to willful neglect, and
‘‘(C) if such corporation, trust, or associa-
tion pays (as prescribed by the Secretary in reg-
ulations and in the same manner as tax) a pen-
alty of $50,000 for each failure to satisfy a pro-
vision of this part due to reasonable cause and
not willful neglect.’’.
(d) DEDUCTION OF TAX PAID FROM AMOUNT RE-
QUIRED TO BE DISTRIBUTED.—Subparagraph (E) of sec-
tion 857(b)(2) is amended by striking ‘‘(7)’’ and inserting
‘‘(7) of this subsection, section 856(c)(7)(B)(iii), and section
856(g)(1).’’.
(e) EXPANSION
OF DEFICIENCY DIVIDEND PROCE-
DURE.—Subsection (e) of section 860 is amended by strik-
ing ‘‘or’’ at the end of paragraph (2), by striking the period
at the end of paragraph (3) and inserting ‘‘; or’’, and by
adding at the end the following new paragraph:
‘‘(4) a statement by the taxpayer attached to its
amendment or supplement to a return of tax for the
relevant tax year.’’.
†
420
HR 2 EAS
(f) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after date
of enactment.
TITLE VIII—EXTENSIONS OF
CERTAIN EXPIRING PROVISIONS
Subtitle A—Extensions of Expiring
Provisions
SEC. 801. PARITY IN THE APPLICATION OF CERTAIN LIMITS
TO MENTAL HEALTH BENEFITS.
(a) IN GENERAL.—Subsection (f) of section 9812 is
amended by striking ‘‘2003’’ and inserting ‘‘2004’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to plan years beginning after Decem-
ber 31, 2002.
SEC. 802. ALLOWANCE OF NONREFUNDABLE PERSONAL
CREDITS AGAINST REGULAR AND MINIMUM
TAX LIABILITY.
(a) IN GENERAL.—Paragraph (2) of section 26(a) is
amended—
(1) by striking ‘‘RULE FOR 2000, 2001, 2002, AND
2003.—’’ and inserting ‘‘RULE FOR 2000, 2001, 2002,
2003, AND 2004.—’’, and
(2) by striking ‘‘during 2000, 2001, 2002, or
2003,’’ and inserting ‘‘during 2000, 2001, 2002, 2003,
or 2004’’.
†
421
HR 2 EAS
(b) CONFORMING AMENDMENTS.—
(1) Section 904(h) is amended by striking ‘‘dur-
ing 2000, 2001, 2002, or 2003’’ and inserting ‘‘during
2000, 2001, 2002, 2003, or 2004’’.
(2) The amendments made by sections 201(b),
202(f), and 618(b) of the Economic Growth and Tax
Relief Reconciliation Act of 2001 shall not apply to
taxable years beginning during 2004.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2002.
SEC. 803. CREDIT FOR ELECTRICITY PRODUCED FROM CER-
TAIN RENEWABLE RESOURCES.
(a) IN GENERAL.—Subparagraphs (A), (B), and (C)
of section 45(c)(3) are each amended by striking ‘‘2004’’
and inserting ‘‘2005’’.
(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) shall apply to facilities placed in service after
December 31, 2002.
SEC. 804. WORK OPPORTUNITY CREDIT.
(a) IN
GENERAL.—Subparagraph (B) of section
51(c)(4) is amended by striking ‘‘2003’’ and inserting
‘‘2004’’.
†
422
HR 2 EAS
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to individuals who begin work for
the employer after December 31, 2002.
SEC. 805. WELFARE-TO-WORK CREDIT.
(a) IN GENERAL.—Subsection (f) of section 51A is
amended by striking ‘‘2003’’ and inserting ‘‘2004’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to individuals who begin work for
the employer after December 31, 2002.
SEC. 806. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLE-
TION FOR OIL AND NATURAL GAS PRODUCED
FROM MARGINAL PROPERTIES.
(a) IN
GENERAL.—Subparagraph (H) of section
613A(c)(6) is amended by striking ‘‘2004’’ and inserting
‘‘2005’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 2002.
SEC. 807. QUALIFIED ZONE ACADEMY BONDS.
(a) IN GENERAL.—Paragraph (1) of section 1397E(e)
is amended by striking ‘‘2000, 2001, 2002, and 2003’’ and
inserting ‘‘2000, 2001, 2002, 2003, and 2004’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to obligations issued after the date
of the enactment of this Act.
†
423
HR 2 EAS
SEC. 808. COVER OVER OF TAX ON DISTILLED SPIRITS.
(a) IN GENERAL.—Paragraph (1) of section 7652(f) is
amended by striking ‘‘January 1, 2004’’ and inserting
‘‘January 1, 2005’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to articles brought into the United
States after December 31, 2002.
SEC. 809. DEDUCTION FOR CORPORATE DONATIONS OF
COMPUTER TECHNOLOGY.
(a) EXTENSION OF DEDUCTION.—Section 170(e)(6)(G)
(relating to termination) is amended by striking ‘‘December
31, 2003’’ and inserting ‘‘December 31, 2004’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to contributions made after December
31, 2002.
SEC. 810. CREDIT FOR QUALIFIED ELECTRIC VEHICLES.
(a) IN GENERAL.—Section 30 is amended—
(1) in subsection (b)(2)—
(A) by striking ‘‘December 31, 2003,’’ and
inserting ‘‘December 31, 2004,’’, and
(B) in subparagraphs (A), (B), and (C), by
striking ‘‘2004’’, ‘‘2005’’, and ‘‘2006’’, respec-
tively, and inserting ‘‘2005’’, ‘‘2006’’, and
‘‘2007’’, respectively.
(2) in subsection (e), by striking ‘‘December 31,
2006’’ and inserting ‘‘December 31, 2007’’.
†
424
HR 2 EAS
(b) CONFORMING AMENDMENTS.—Clause (iii) of sec-
tion 280F(a)(1)(C) is amended by striking ‘‘2007’’ and in-
serting ‘‘2008’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to property placed in service after De-
cember 31, 2002.
SEC. 811. DEDUCTION FOR CLEAN-FUEL VEHICLES AND
CERTAIN REFUELING PROPERTY.
(a) IN GENERAL.—Section 179A is amended—
(1) in subsection (b)(1)(B)—
(A) by striking ‘‘December 31, 2003,’’ and
inserting ‘‘December 31, 2004,’’, and
(B) in clauses (i), (ii), and (iii), by striking
‘‘2004’’, ‘‘2005’’, and ‘‘2006’’, respectively, and
inserting ‘‘2005’’, ‘‘2006’’, and ‘‘2007’’, respec-
tively, and
(2) in subsection (f), by striking ‘‘December 31,
2006’’ and inserting ‘‘December 31, 2007’’.
(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) shall apply to property placed in service after
December 31, 2002.
†
425
HR 2 EAS
SEC. 812. DEDUCTION FOR CERTAIN EXPENSES OF SCHOOL
TEACHERS.
(a) IN
GENERAL.—Subparagraph (D) of section
62(a)(2) is amended by striking ‘‘during 2002 or 2003’’ and
inserting ‘‘during 2002, 2003, or 2004’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 2002.
SEC. 813. AVAILABILITY OF MEDICAL SAVINGS ACCOUNTS.
(a) IN GENERAL.—Paragraphs (2) and (3)(B) of sec-
tion 220(i) (defining cut-off year) are each amended by
striking ‘‘2003’’ each place it appears and inserting
‘‘2004’’.
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 220(j) is amended
by striking ‘‘1998, 1999, 2001, or 2002’’ each place it
appears and inserting ‘‘1998, 1999, 2001, 2002, or
2003’’.
(2) Subparagraph (A) of section 220(j)(4) is
amended by striking ‘‘and 2002’’ and inserting
‘‘2002, and 2003’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on January 1, 2003.
†
426
HR 2 EAS
SEC. 814. EXPENSING OF ENVIRONMENTAL REMEDIATION
COSTS.
(a) EXTENSION OF TERMINATION DATE.—Subsection
(h) of section 198 is amended by striking ‘‘2003’’ and in-
serting ‘‘2004’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to expenditures paid or incurred after
December 31, 2002.
TITLE IX—IMPROVING TAX EQ-
UITY 
FOR 
MILITARY 
PER-
SONNEL
SEC. 900. SHORT TITLE.
This title may be cited as the ‘‘Armed Forces Tax Fair-
ness Act of 2003’’.
SEC. 901. 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 redesignating paragraph (9) as paragraph
(10) and by inserting after paragraph (8) the following new
paragraph:
‘‘(9) MEMBERS OF UNIFORMED SERVICES AND
FOREIGN SERVICE.—
†
427
HR 2 EAS
‘‘(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 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
†
428
HR 2 EAS
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, as in effect on the date of the enact-
ment of this paragraph.
‘‘(iv) EXTENDED DUTY.—The term ‘ex-
tended duty’ means any period of active
duty pursuant to a call or order to such
duty for a period in excess of 90 days or for
an indefinite 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.’’.
†
429
HR 2 EAS
(b) EFFECTIVE DATE; SPECIAL RULE.—
(1) EFFECTIVE DATE.—The amendments made
by this section shall take effect as if included in the
amendments made by section 312 of the Taxpayer Re-
lief Act of 1997.
(2) WAIVER OF LIMITATIONS.—If refund or cred-
it of any overpayment of tax resulting from the
amendments made by this section is prevented at any
time before the close of the 1-year period beginning on
the date of the enactment of this Act by the operation
of any law or rule of law (including res judicata),
such refund or credit may nevertheless be made or al-
lowed if claim therefor is filed before the close of such
period.
SEC. 902. 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
†
430
HR 2 EAS
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. 903. 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
paragraph:
‘‘(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—
†
431
HR 2 EAS
‘‘(1) IN GENERAL.—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 Development
Act of 1966 (42 U.S.C. 3374) (as in effect on the date
of the enactment of this subsection) to offset the ad-
verse effects on housing values as a result of a mili-
tary base realignment or closure.
‘‘(2) LIMITATION.—With respect to any property,
such term shall not include any payment referred to
in paragraph (1) to the extent that the sum of all of
such payments related to such property exceeds the
maximum amount described in clause (1) of sub-
section (c) of such section (as in effect on such date).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to payments made after the date of the
enactment of this Act.
SEC. 904. 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-
†
432
HR 2 EAS
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.
†
433
HR 2 EAS
SEC. 905. 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, 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. 906. 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 (as in effect
on the date of the enactment of this paragraph) for
any individual described in paragraph (1)(A).’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 134(b)(3)(A), as amended by section
102, is amended by inserting ‘‘and paragraph (4)’’
after ‘‘subparagraphs (B) and (C)’’.
(2) Section 3121(a)(18) is amended by striking
‘‘or 129’’ and inserting ‘‘, 129, or 134(b)(4)’’.
†
439
HR 2 EAS
‘‘(ii) each designation and identifica-
tion described in paragraph (2) which has
been made with respect to such organization
is determined to be erroneous pursuant to
the law or Executive order under which
such designation or identification was
made, and
‘‘(iii) the erroneous designations and
identifications result in an overpayment of
income tax for any taxable year by such or-
ganization,
credit or refund (with interest) with respect to
such overpayment shall be made.
‘‘(B) WAIVER OF LIMITATIONS.—If the cred-
it or refund of any overpayment of tax described
in subparagraph (A)(iii) is prevented at any
time by the operation of any law or rule of law
(including res judicata), such credit or refund
may nevertheless be allowed or made if the claim
therefor is filed before the close of the 1-year pe-
riod beginning on the date of the last determina-
tion described in subparagraph (A)(ii).
‘‘(7) NOTICE OF SUSPENSIONS.—If the tax ex-
emption of any organization is suspended under this
subsection, the Internal Revenue Service shall update