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.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Armed Forces Tax Fairness Act of 2003’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
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 (re-
lating 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.—
‘‘(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.
‘‘(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 ‘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) 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.—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
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.—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. 4. EXCLUSION FOR AMOUNTS RECEIVED UNDER DE-
PARTMENT OF DEFENSE HOMEOWNERS AS-
SISTANCE PROGRAM.
(a) IN GENERAL.—Subsection (a) of section 132 (re-
lating 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
closure 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 sec-
tion, 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 en-
actment of this subsection).
‘‘(2) LIMITATION.—With respect to any prop-
erty, such term shall not include any payment re-
ferred 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 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. 5. EXPANSION OF COMBAT ZONE FILING RULES TO
CONTINGENCY OPERATIONS.
(a) IN GENERAL.—Subsection (a) of section 7508
(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) 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’’.