107TH CONGRESS
2D SESSION
H. R. 5557
AN ACT
To amend the Internal Revenue Code of 1986 to
provide a special rule for members of the uni-
formed 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.
107TH CONGRESS
2D SESSION
H. R. 5557
AN ACT
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.
This Act may be cited as the ‘‘Armed Forces Tax
Fairness Act of 2002’’.
SEC. 2. SPECIAL RULE FOR MEMBERS OF UNIFORMED
SERVICES AND FOREIGN SERVICE IN DETER-
MINING 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:
‘‘(10) 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 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 or of the Foreign Serv-
ice.
‘‘(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 150 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) 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
enactment of this paragraph.
‘‘(iv) 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; 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
Relief Act of 1997.
(2) WAIVER
OF
LIMITATIONS.—If refund or
credit 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 oper-
ation of any law or rule of law (including res judi-
cata), such refund or credit may nevertheless be
made or allowed if claim therefor is filed before the
close of such period.
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.
SEC. 4. EXCLUSION FOR AMOUNTS RECEIVED UNDER DE-
PARTMENT OF DEFENSE HOMEOWNERS AS-
SISTANCE PROGRAM.
(a) IN GENERAL.—Section 132(a) of the Internal
Revenue Code of 1986 (relating to the exclusion 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 inserting ‘‘, or’’
and by adding at the end the following new paragraph:
‘‘(8) qualified military base realignment and
closure fringe.’’.
(b) QUALIFIED MILITARY BASE REALIGNMENT AND
CLOSURE FRINGE.—Section 132 of such Code is amended
by redesignating subsection (n) as subsection (o) and by
inserting after subsection (m) the following new sub-
section:
‘‘(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 Metropoli-
tan Development Act of 1966 (42 U.S.C. 3374) to offset
the adverse effects on housing values as a result of a mili-
tary base realignment 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. 5. EXPANSION OF COMBAT ZONE FILING RULES TO
CONTINGENCY OPERATIONS.
(a) IN GENERAL.—Section 7508(a) of the Internal
Revenue Code of 1986 (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 contin-
gency operation (as defined in section 101(a)(13) of
title 10, United States Code) or which became such
a contingency 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 oper-
ation’’ 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) of such Code is amended
by inserting ‘‘or contingency operation’’ after
‘‘area’’.
(2) The heading for section 7508 of such Code
is amended by inserting ‘‘OR CONTINGENCY OP-
ERATION’’ after ‘‘COMBAT ZONE’’.
(3) The item relating to section 7508 of such
Code 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. 6. MODIFICATION OF MEMBERSHIP REQUIREMENT
FOR EXEMPTION FROM TAX FOR CERTAIN
VETERANS’ ORGANIZATIONS.
(a) IN GENERAL.—Subparagraph (B) of section
501(c)(19) of the Internal Revenue Code of 1986 (relating
to list of exempt organizations) is amended by striking ‘‘or
widowers’’ and inserting ‘‘, widowers, 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. 7. CLARIFICATION OF THE TREATMENT OF CERTAIN
DEPENDENT CARE ASSISTANCE PROGRAMS.
(a) IN GENERAL.—Section 134(b) of the Internal
Revenue Code of 1986 (defining qualified military benefit)
is amended by adding at the end the following new para-
graph:
‘‘(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) of such Code (as
amended by section 3) is further amended by insert-
ing ‘‘and paragraph (4)’’ after ‘‘subparagraphs (B)
and (C)’’.
(2) Section 3121(a)(18) of such Code is amend-
ed by striking ‘‘or 129’’ and inserting ‘‘, 129, or
134(b)(4)’’.
(3) Section 3306(b)(13) of such Code is amend-
ed by striking ‘‘or 129’’ and inserting ‘‘, 129, or
134(b)(4)’’.
(4) Section 3401(a)(18) of such Code is amend-
ed 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
December 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.
SEC. 8. PROTECTION OF SOCIAL SECURITY.
The amounts transferred to any trust fund under
title II of the Social Security Act shall be determined as
if this Act had not been enacted.
Passed the House of Representatives October 7,
2002.
Attest:
Clerk.