IB 
Union Calendar No. 16
108TH CONGRESS 
1ST SESSION 
H. R. 878
[Report No. 108–23] 
To amend the Internal Revenue Code of 1986 to provide a special rule 
for members of the uniformed services and Foreign Service in deter-
mining the exclusion of gain from the sale of a principal residence 
and to restore the tax exempt status of death gratuity payments to 
members of the uniformed services, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
FEBRUARY 25, 2003
Mr. THOMAS (for himself, Mr. HOUGHTON, Mr. CAMP, Mr. LEWIS of Ken-
tucky, Mr. HAYWORTH, Mr. SAM JOHNSON of Texas, Mr. HERGER, Mr. 
RAMSTAD, Mr. CANTOR, Mr. ENGLISH, and Mr. CRANE) introduced the 
following bill; which was referred to the Committee on Ways and Means 
MARCH 5, 2003
Additional sponsors: Mr. PORTMAN, Mr. MCINNIS, Mr. MCCRERY, Mr. JONES 
of North Carolina, Mr. COLE, Mr. SIMMONS, Mr. WILSON of South Caro-
lina, Mr. REYNOLDS, Mr. CRENSHAW, Mr. HEFLEY, Mr. BRADLEY of 
New Hampshire, Mr. GILLMOR, Mr. ROYCE, Mr. MCCOTTER, and Mr. 
DUNCAN
MARCH 5, 2003
Reported with an amendment, committed to the Committee of the Whole 
House on the State of the Union, and ordered to be printed 
[Strike out all after the enacting clause and insert the part printed in italic] 
[For text of introduced bill, see copy of bill as introduced on February 25, 2003] 
A BILL 
To amend the Internal Revenue Code of 1986 to provide
a special rule for members of the uniformed services 
and Foreign Service in determining the exclusion of gain 
from the sale of a principal residence and to restore 
the tax exempt status of death gratuity payments to 
members of the uniformed services, and for other pur-
poses.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CON-
TENTS. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Armed Forces Tax Fairness Act of 2003’’. 
(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 of this 
Act is as follows:
Sec. 1. Short title; references; table of contents. 
TITLE I—ARMED FORCES 
Sec. 101. Special rule for members of uniformed services and foreign service and 
peace corps volunteers and employees in determining exclusion 
of gain from sale of principal residence. 
Sec. 102. Restoration of full exclusion from gross income of death gratuity pay-
ment. 
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. Modification of membership requirement for exemption from tax for cer-
tain veterans’ organizations.
Sec. 106. Clarification of the treatment of certain dependent care assistance pro-
grams. 
Sec. 107. Clarification relating to exception from additional tax on certain dis-
tributions from qualified tuition programs, etc., on account of 
attendance at military academy. 
Sec. 108. Suspension of tax-exempt status of terrorist organizations. 
Sec. 109. Above-the-line deduction for overnight travel expenses of national guard 
and reserve members. 
TITLE II—MISCELLANEOUS PROVISIONS 
Sec. 201. Tax relief and assistance for families of astronauts who lose their lives 
on a space mission. 
Sec. 202. Income averaging for farmers not to increase alternative minimum tax. 
Sec. 203. Capital gain treatment under section 631(b) to apply to outright sales 
by landowners. 
Sec. 204. Special rules for livestock sold on account of weather-related conditions. 
Sec. 205. Simplification of excise tax imposed on bows and arrows. 
Sec. 206. Repeal of excise tax on fishing tackle boxes. 
Sec. 207. Reduced motor fuel excise tax on certain mixtures of diesel fuel. 
Sec. 208. Expansion of human clinical trials qualifying for orphan drug credit. 
Sec. 209. Health insurance costs of eligible individuals. 
Sec. 210. Treatment under at-risk rules of publicly traded nonrecourse debt. 
Sec. 211. Exclusion of income derived from certain wagers on horse races from 
gross income of nonresident alien individuals. 
Sec. 212. Payment of dividends on stock of cooperatives without reducing patron-
age dividends. 
Sec. 213. Pilot project for forest conservation activities. 
Sec. 214. Protection of social security. 
TITLE III—REVENUE PROVISIONS 
Sec. 301. Individual expatriation to avoid tax. 
Sec. 302. Vaccine tax to apply to hepatitis A vaccine.
TITLE I—ARMED FORCES 
SEC. 101. SPECIAL RULE FOR MEMBERS OF UNIFORMED 
SERVICES AND FOREIGN SERVICE AND PEACE 
CORPS VOLUNTEERS AND EMPLOYEES IN DE-
TERMINING EXCLUSION OF GAIN FROM SALE 
OF PRINCIPAL RESIDENCE. 
(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:
‘‘(10) MEMBERS OF UNIFORMED SERVICES AND 
FOREIGN
SERVICE
AND
PEACE
CORPS
VOLUNTEERS 
AND EMPLOYEES.—
‘‘(A) IN GENERAL.—At the election of an 
individual with respect to a property, the run-
ning of the 5-year period referred to in sub-
sections (a) and (c)(1)(B) and paragraph (7) of 
this subsection with respect to such property 
shall be suspended during any period that such 
individual or such individual’s spouse is serving 
on qualified official extended duty as a member 
of the uniformed services or of the Foreign Serv-
ice or as a Peace Corps volunteer or an employee 
of the Peace Corps. 
‘‘(B) MAXIMUM PERIOD OF SUSPENSION.—
Such 5-year period shall not be extended more 
than 5 years by reason 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 150 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.—The term 
‘member of the Foreign Service’ 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 180 days or 
for an indefinite period. 
‘‘(v) RULES RELATING TO THE PEACE 
CORPS.—
‘‘(I) EXTENDED
DUTY.—In the 
case of a Peace Corps volunteer, the 
term ‘extended duty’ means any period 
of active duty assigned to a Peace 
Corps volunteer under the Peace Corps
Act for a period in excess of 180 days 
or for an indefinite period. 
‘‘(II) 
PEACE
CORPS
VOLUN-
TEER.—The term ‘Peace Corps volun-
teer’ means an individual enrolled as a 
volunteer or volunteer leader under the 
Peace Corps Act. 
‘‘(III) EMPLOYEE OF THE PEACE 
CORPS.—The term ‘employee of the 
Peace Corps’ means a person employed 
in the Peace Corps under section 7 of 
the Peace Corps Act. 
‘‘(IV) REFERENCES
TO
PEACE 
CORPS ACT.—References in this clause 
to the Peace Corps Act mean references 
to the Peace Corps Act (22 U.S.C. 2501 
et seq.) as in effect on the date of the 
enactment of this clause. 
‘‘(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; SPECIAL RULE.—
(1) EFFECTIVE DATE.—The amendment 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 
amendment 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. 102. RESTORATION OF FULL EXCLUSION FROM GROSS 
INCOME OF DEATH GRATUITY PAYMENT. 
(a) IN GENERAL.—Paragraph (3) of section 134(b) 
(relating to qualified military benefit) is amended by add-
ing 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 before December 31, 
1991.’’.
(b) CONFORMING AMENDMENT.—Section 134(b)(3)(A) 
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. 103. EXCLUSION FOR AMOUNTS RECEIVED UNDER DE-
PARTMENT OF DEFENSE HOMEOWNERS AS-
SISTANCE PROGRAM. 
(a) IN GENERAL.—Subsection (a) of section 132 (relat-
ing to 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 inserting ‘‘, 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.—
‘‘(1) IN GENERAL.—For purposes of this section, 
the term ‘qualified military base realignment and clo-
sure fringe’ means 1 or more payments under the au-
thority 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 enact-
ment of this subsection). 
‘‘(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 
such payments related to such property exceeds the 
amount described in clause (1) of subsection (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. 104. EXPANSION OF COMBAT ZONE FILING RULES TO 
CONTINGENCY OPERATIONS. 
(a) IN GENERAL.—Subsection (a) of section 7508 (re-
lating to time for performing certain acts postponed by rea-
son 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. 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. 106. CLARIFICATION OF THE TREATMENT OF CERTAIN 
DEPENDENT CARE ASSISTANCE PROGRAMS. 
(a) IN GENERAL.—Subsection (b) of section 134 (de-
fining qualified military benefit) is amended by adding at 
the end the following 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 further 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)’’. 
(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, 2002. 
SEC. 107. CLARIFICATION RELATING TO EXCEPTION FROM 
ADDITIONAL TAX ON CERTAIN DISTRIBU-
TIONS FROM QUALIFIED TUITION PROGRAMS, 
ETC., ON ACCOUNT OF ATTENDANCE AT MILI-
TARY ACADEMY. 
(a) IN
GENERAL.—Subparagraph (B) of section 
530(d)(4) (relating to exceptions from additional tax for 
distributions not used for educational purposes) is amended 
by striking ‘‘or’’ at the end of clause (iii), by redesignating 
clause (iv) as clause (v), and by inserting after clause (iii) 
the following new clause: 
‘‘(iv) made on account of the attend-
ance of the designated beneficiary at the
United 
States 
Military 
Academy, 
the 
United States Naval Academy, the United 
States Air Force Academy, the United 
States Coast Guard Academy, or the United 
States Merchant Marine Academy, to the
extent that the amount of the payment or 
distribution does not exceed the costs of ad-
vanced education (as defined by section 
2005(e)(3) of title 10, United States Code, 
as in effect on the date of the enactment of 
this section) attributable to such attendance, 
or’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall take effect for taxable years beginning after De-
cember 31, 2002. 
SEC. 108. SUSPENSION OF TAX-EXEMPT STATUS OF TER-
RORIST ORGANIZATIONS. 
(a) IN GENERAL.—Section 501 (relating to exemption 
from tax on corporations, certain trusts, etc.) is amended 
by redesignating subsection (p) as subsection (q) and by in-
serting after subsection (o) the following new subsection: 
‘‘(p) SUSPENSION OF TAX-EXEMPT STATUS OF TER-
RORIST ORGANIZATIONS.—
‘‘(1) IN
GENERAL.—The exemption from tax 
under subsection (a) with respect to any organization
described in paragraph (2), and the eligibility of any 
organization described in paragraph (2) to apply for 
recognition of exemption under subsection (a), shall 
be suspended during the period described in para-
graph (3). 
‘‘(2) TERRORIST ORGANIZATIONS.—An organiza-
tion is described in this paragraph if such organiza-
tion is designated or otherwise individually identi-
fied— 
‘‘(A) under section 212(a)(3)(B)(vi)(II) or 
219 of the Immigration and Nationality Act as 
a terrorist organization or foreign terrorist orga-
nization, 
‘‘(B) in or pursuant to an Executive order 
which is related to terrorism and issued under 
the authority of the International Emergency 
Economic Powers Act or section 5 of the United 
Nations Participation Act of 1945 for the pur-
pose of imposing on such organization an eco-
nomic or other sanction, or 
‘‘(C) in or pursuant to an Executive order 
issued under the authority of any Federal law 
if—
‘‘(i) the organization is designated or 
otherwise individually identified in or pur-
suant to such Executive order as supporting 
or engaging in terrorist activity (as defined 
in section 212(a)(3)(B) of the Immigration 
and Nationality Act) or supporting ter-
rorism (as defined in section 140(d)(2) of 
the Foreign Relations Authorization Act, 
Fiscal Years 1988 and 1989); and 
‘‘(ii) such Executive order refers to this 
subsection. 
‘‘(3) PERIOD OF SUSPENSION.—With respect to 
any organization described in paragraph (2), the pe-
riod of suspension—
‘‘(A) begins on the later of—
‘‘(i) the date of the first publication of 
a designation or identification described in 
paragraph (2) with respect to such organi-
zation, or 
‘‘(ii) the date of the enactment of this 
subsection, and 
‘‘(B) ends on the first date that all designa-
tions and identifications described in paragraph 
(2) with respect to such organization are re-
scinded pursuant to the law or Executive order 
under which such designation or identification 
was made.
‘‘(4) DENIAL
OF
DEDUCTION.—No deduction 
shall be allowed under section 170, 545(b)(2), 
556(b)(2), 642(c), 2055, 2106(a)(2), or 2522 for any 
contribution to an organization described in para-
graph (2) during the period described in paragraph 
(3). 
‘‘(5) DENIAL OF ADMINISTRATIVE OR JUDICIAL 
CHALLENGE OF SUSPENSION OR DENIAL OF DEDUC-
TION.—Notwithstanding section 7428 or any other 
provision of law, no organization or other person may 
challenge a suspension under paragraph (1), a des-
ignation or identification described in paragraph (2), 
the period of suspension described in paragraph (3), 
or a denial of a deduction under paragraph (4) in 
any administrative or judicial proceeding relating to 
the Federal tax liability of such organization or other 
person. 
‘‘(6) ERRONEOUS DESIGNATION.—
‘‘(A) IN GENERAL.—If—
‘‘(i) the tax exemption of any organi-
zation described in paragraph (2) is sus-
pended under paragraph (1), 
‘‘(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 
the listings of tax-exempt organizations and shall 
publish appropriate notice to taxpayers of such sus-
pension and of the fact that contributions to such or-
(A) the average maturity date of the issue 
of which the refunding bond is a part is not later 
than the average maturity date of the bonds to 
be refunded by such issue, 
(B) the amount of the refunding bond does 
not exceed the outstanding amount of the re-
funded bond, and 
(C) the net proceeds of the refunding bond 
are used to redeem the refunded bond not later 
than 90 days after the date of the issuance of the 
refunding bond. 
For purposes of subparagraph (A), average maturity 
shall be determined in accordance with section 
147(b)(2)(A) of such Code. 
(7) EFFECTIVE
DATE.—This subsection shall 
apply to obligations issued after the date of the enact-
ment of this Act. 
(b) ITEMS FROM QUALIFIED HARVESTING ACTIVITIES 
NOT SUBJECT TO TAX OR TAKEN INTO ACCOUNT.—
(1) IN
GENERAL.—Income, gains, deductions, 
losses, or credits from a qualified harvesting activity 
conducted by the Evergreen Forest Trust shall not be 
subject to tax or taken into account under subtitle A 
of the Internal Revenue Code of 1986.