[110th Congress Public Law 245]
[From the U.S. Government Printing Office]
[DOCID: f:publ245.110]
[[Page 1623]]
HEROES EARNINGS ASSISTANCE AND RELIEF TAX ACT OF 2008
[[Page 122 STAT. 1624]]
Public Law 110-245
110th Congress
An Act
To amend the Internal Revenue Code of 1986 to provide benefits for
military personnel, and for other purposes. <<NOTE: June 17,
2008 - [H.R. 6081]>>
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress <<NOTE: Heroes Earnings Assistance
and Relief Tax Act of 2008.>> assembled,
SECTION 1. SHORT TITLE, ETC.
(a) Short <<NOTE: 26 USC 1 note.>> Title.--This Act may be cited as
the ``Heroes Earnings Assistance and Relief Tax Act of 2008''.
(b) Reference.--Except <<NOTE: 26 USC 1 et seq.>> 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 considered to be made to a section or
other provision of the Internal 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--BENEFITS FOR MILITARY
Sec. 101. Recovery rebate provided to military families.
Sec. 102. Election to include combat pay as earned income for purposes
of earned income tax credit.
Sec. 103. Modification of mortgage revenue bonds for veterans.
Sec. 104. Survivor and disability payments with respect to qualified
military service.
Sec. 105. Treatment of differential military pay as wages.
Sec. 106. Special period of limitation when uniformed services retired
pay is reduced as a result of award of disability
compensation.
Sec. 107. Distributions from retirement plans to individuals called to
active duty.
Sec. 108. Authority to disclose return information for certain veterans
programs made permanent.
Sec. 109. Contributions of military death gratuities to Roth IRAs and
Education Savings Accounts.
Sec. 110. Suspension of 5-year period during service with the Peace
Corps.
Sec. 111. Credit for employer differential wage payments to employees
who are active duty members of the uniformed services.
Sec. 112. State payments to service members treated as qualified
military benefits.
Sec. 113. Permanent exclusion of gain from sale of a principal residence
by certain employees of the intelligence community.
Sec. 114. Special disposition rules for unused benefits in health
flexible spending arrangements of individuals called to
active duty.
Sec. 115. Technical correction related to exclusion of certain property
tax rebates and other benefits provided to volunteer
firefighters and emergency medical responders.
TITLE II--IMPROVEMENTS IN SUPPLEMENTAL SECURITY INCOME
Sec. 201. Treatment of uniformed service cash remuneration as earned
income.
Sec. 202. State annuities for certain veterans to be disregarded in
determining supplemental security income benefits.
Sec. 203. Exclusion of AmeriCorps benefits for purposes of determining
supplemental security income eligibility and benefit amounts.
[[Page 122 STAT. 1625]]
Sec. 204. Effective date.
TITLE III--REVENUE PROVISIONS
Sec. 301. Revision of tax rules on expatriation.
Sec. 302. Certain domestically controlled foreign persons performing
services under contract with United States Government treated
as American employers.
Sec. 303. Increase in minimum penalty on failure to file a return of
tax.
TITLE IV--PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL HEALTH
BENEFITS
Sec. 401. Parity in the application of certain limits to mental health
benefits.
TITLE I--BENEFITS FOR MILITARY
SEC. 101. RECOVERY REBATE PROVIDED TO MILITARY FAMILIES.
(a) In General.--Subsection (h) of section 6428 <<NOTE: 26 USC
6428.>> (relating to identification number requirement) is amended by
adding at the end the following new paragraph:
``(3) Special rule for members of the armed forces.--
Paragraph (1) shall not apply to a joint return where at least 1
spouse was a member of the Armed Forces of the United States at
any time during the taxable year.''.
(b) Effective <<NOTE: 26 USC 6428 note.>> Date.--The amendments made
by this section shall take effect as if included in the amendments made
by section 101 of the Economic Stimulus Act of 2008.
SEC. 102. ELECTION TO INCLUDE COMBAT PAY AS EARNED INCOME FOR
PURPOSES OF EARNED INCOME TAX CREDIT.
(a) In General.--Clause (vi) of section 32(c)(2)(B) (defining earned
income) is amended to read as follows:
``(vi) a taxpayer may elect to treat amounts
excluded from gross income by reason of section
112 as earned income.''.
(b) Conforming Amendment.--Paragraph (4) of section 6428(e) is
amended by striking ``except that--'' and all that follows through ``(B)
such term shall'' and inserting ``except that such term shall''.
(c) Sunset Not Applicable.--Section <<NOTE: 26 USC 32 note.>> 105 of
the Working Families Tax Relief Act of 2004 (relating to application of
EGTRRA sunset to this title) shall not apply to section 104(b) of such
Act.
(d) Effective <<NOTE: 26 USC 32 note.>> Date.--The amendments made
by this section shall apply to taxable years ending after December 31,
2007.
SEC. 103. MODIFICATION OF MORTGAGE REVENUE BONDS FOR VETERANS.
(a) Qualified Mortgage Bonds Used To Finance Residences for Veterans
Without Regard to First-Time Homebuyer Requirement.--Subparagraph (D) of
section 143(d)(2) (relating to exceptions) is amended by striking ``and
before January 1, 2008''.
(b) Increase in Bond Limitation for Alaska, Oregon, and Wisconsin.--
Clause (ii) of section 143(l)(3)(B) (relating to State veterans limit)
is amended by striking ``$25,000,000'' each place it appears and
inserting ``$100,000,000''.
(c) Definition of Qualified Veteran.--Paragraph (4) of section
143(l) (defining qualified veteran) is amended to read as follows:
``(4) Qualified veteran.--For purposes of this subsection,
the term `qualified veteran' means any veteran who--
``(A) served on active duty, and
[[Page 122 STAT. 1626]]
``(B) applied for the financing before the date 25
years after the last date on which such veteran left
active service.''.
(d) Effective <<NOTE: 26 USC 143 note.>> Date.--The amendments made
by this section shall apply to bonds issued after December 31, 2007.
(e) Transition Rule.--In <<NOTE: Applicability. 26 USC 143
note.>> the case of any bond issued after December 31, 2007, and before
the date of the enactment of this Act, subparagraph (B) of section
143(l)(4) of the Internal Revenue Code of 1986, as amended by this
section, shall be applied by substituting ``30 years'' for ``25 years''.
SEC. 104. SURVIVOR AND DISABILITY PAYMENTS WITH RESPECT TO
QUALIFIED MILITARY SERVICE.
(a) Plan Qualification Requirement for Death Benefits Under USERRA-
Qualified Active Military Service.--Subsection (a) of section
401 <<NOTE: 26 USC 401.>> (relating to requirements for qualification)
is amended by inserting after paragraph (36) the following new
paragraph:
``(37) Death benefits under userra-qualified active military
service.--A trust shall not constitute a qualified trust unless
the plan provides that, in the case of a participant who dies
while performing qualified military service (as defined in
section 414(u)), the survivors of the participant are entitled
to any additional benefits (other than benefit accruals relating
to the period of qualified military service) provided under the
plan had the participant resumed and then terminated employment
on account of death.''.
(b) Treatment in the Case of Death or Disability Resulting From
Active Military Service for Benefit Accrual Purposes.--Subsection (u) of
section 414 (relating to special rules relating to veterans'
reemployment rights under USERRA) is amended by redesignating paragraphs
(9) and (10) as paragraphs (10) and (11), respectively, and by inserting
after paragraph (8) the following new paragraph:
``(9) Treatment in the case of death or disability resulting
from active military service.--
``(A) In general.--For benefit accrual purposes, an
employer sponsoring a retirement plan may treat an
individual who dies or becomes disabled (as defined
under the terms of the plan) while performing qualified
military service with respect to the employer
maintaining the plan as if the individual has resumed
employment in accordance with the individual's
reemployment rights under chapter 43 of title 38, United
States Code, on the day preceding death or disability
(as the case may be) and terminated employment on the
actual date of death or disability. In the case of any
such treatment, and subject to subparagraphs (B) and
(C), any full or partial compliance by such plan with
respect to the benefit accrual requirements of paragraph
(8) with respect to such individual shall be treated for
purposes of paragraph (1) as if such compliance were
required under such chapter 43.
``(B)
Nondiscrimination <<NOTE: Applicability.>> requirement.--
Subparagraph (A) shall apply only if all individuals
performing qualified military service with respect to
the employer maintaining the plan (as determined under
subsections (b), (c), (m), and (o)) who die or became
disabled as a
[[Page 122 STAT. 1627]]
result of performing qualified military service prior to
reemployment by the employer are credited with service
and benefits on reasonably equivalent terms.
``(C) Determination of benefits.--The amount of
employee contributions and the amount of elective
deferrals of an individual treated as reemployed under
subparagraph (A) for purposes of applying paragraph
(8)(C) shall be determined on the basis of the
individual's average actual employee contributions or
elective deferrals for the lesser of--
``(i) the 12-month period of service with the
employer immediately prior to qualified military
service, or
``(ii) if service with the employer is less
than such 12-month period, the actual length of
continuous service with the employer.''.
(c) Conforming Amendments.--
(1) Section 404(a)(2) <<NOTE: 26 USC 404.>> is amended by
striking ``and (31)'' and inserting ``(31), and (37)''.
(2) Section 403(b) is amended by adding at the end the
following new paragraph:
``(14) Death benefits under userra-qualified active military
service.--This subsection shall not apply to an annuity contract
unless such contract meets the requirements of section
401(a)(37).''.
(3) Section 457(g) is amended by adding at the end the
following new paragraph:
``(4) Death benefits under userra-qualified active military
service.--A plan described in paragraph (1) shall not be treated
as an eligible deferred compensation plan unless such plan meets
the requirements of section 401(a)(37).''.
(d) Effective <<NOTE: 26 USC 401 note.>> Date.--
(1) In general.--The amendments made by this section shall
apply with respect to deaths and disabilities occurring on or
after January 1, 2007.
(2) Provisions relating to plan amendments.--
(A) In general.--If this subparagraph applies to any
plan or contract amendment, such plan or contract shall
be treated as being operated in accordance with the
terms of the plan during the period described in
subparagraph (B)(iii).
(B) Amendments to which subparagraph (A) applies.--
(i) In general.--Subparagraph (A) shall apply
to any amendment to any plan or annuity contract
which is made--
(I) pursuant to the amendments made
by subsection (a) or pursuant to any
regulation issued by the Secretary of
the Treasury under subsection (a), and
(II) on or before the last day of
the first plan year beginning on or
after January 1, 2010.
In the case of a governmental plan (as defined in
section 414(d) of the Internal Revenue Code of
1986), this clause shall be applied by
substituting ``2012'' for ``2010'' in subclause
(II).
[[Page 122 STAT. 1628]]
(ii) Conditions.--This paragraph shall not
apply to any amendment unless--
(I) the plan or contract is operated
as if such plan or contract amendment
were in effect for the period described
in clause (iii), and
(II) such plan or contract amendment
applies retroactively for such period.
(iii) Period described.--The period described
in this clause is the period--
(I) beginning on the effective date
specified by the plan, and
(II) ending on the date described in
clause (i)(II) (or, if earlier, the date
the plan or contract amendment is
adopted).
SEC. 105. TREATMENT OF DIFFERENTIAL MILITARY PAY AS WAGES.
(a) Income Tax Withholding on Differential Wage Payments.--
(1) In <<NOTE: 26 USC 3401.>> general.--Section 3401
(relating to definitions) is amended by adding at the end the
following new subsection:
``(h) Differential Wage Payments to Active Duty Members of the
Uniformed Services.--
``(1) In general.--For purposes of subsection (a), any
differential wage payment shall be treated as a payment of wages
by the employer to the employee.
``(2) Differential wage payment.--For purposes of paragraph
(1), the term `differential wage payment' means any payment
which--
``(A) is made by an employer to an individual with
respect to any period during which the individual is
performing service in the uniformed services (as defined
in chapter 43 of title 38, United States Code) while on
active duty for a period of more than 30 days, and
``(B) represents all or a portion of the wages the
individual would have received from the employer if the
individual were performing service for the employer.''.
(2) Effective <<NOTE: 26 USC 3401 note.>> date.--The
amendment made by this subsection shall apply to remuneration
paid after December 31, 2008.
(b) Treatment of Differential Wage Payments for Retirement Plan
Purposes.--
(1) Pension plans.--
(A) In general.--Section 414(u) (relating to special
rules relating to veterans' reemployment rights under
USERRA), as amended by section 103(b), is amended by
adding at the end the following new paragraph:
``(12) Treatment of differential wage payments.--
``(A) In general.--Except as provided in this
paragraph, for purposes of applying this title to a
retirement plan to which this subsection applies--
``(i) an individual receiving a differential
wage payment shall be treated as an employee of
the employer making the payment,
``(ii) the differential wage payment shall be
treated as compensation, and
``(iii) the plan shall not be treated as
failing to meet the requirements of any provision
described in
[[Page 122 STAT. 1629]]
paragraph (1)(C) by reason of any contribution or
benefit which is based on the differential wage
payment.
``(B) Special rule for distributions.--
``(i) In general.--Notwithstanding
subparagraph (A)(i), for purposes of section
401(k)(2)(B)(i)(I), 403(b)(7)(A)(ii),
403(b)(11)(A), or 457(d)(1)(A)(ii), an individual
shall be treated as having been severed from
employment during any period the individual is
performing service in the uniformed services
described in section 3401(h)(2)(A).
``(ii) Limitation.--If an individual elects to
receive a distribution by reason of clause (i),
the plan shall provide that the individual may not
make an elective deferral or employee contribution
during the 6-month period beginning on the date of
the distribution.
``(C)
Nondiscrimination <<NOTE: Applicability.>> requirement.--
Subparagraph (A)(iii) shall apply only if all employees
of an employer (as determined under subsections (b),
(c), (m), and (o)) performing service in the uniformed
services described in section 3401(h)(2)(A) are entitled
to receive differential wage payments on reasonably
equivalent terms and, if eligible to participate in a
retirement plan maintained by the employer, to make
contributions based on the payments on reasonably
equivalent terms. For purposes of applying this
subparagraph, the provisions of paragraphs (3), (4), and
(5) of section 410(b) shall apply.
``(D) Differential wage payment.--For purposes of
this paragraph, the term `differential wage payment' has
the meaning given such term by section 3401(h)(2).''.
(B) Conforming amendment.--The heading for section
414(u) <<NOTE: 26 USC 414.>> is amended by inserting
``and to Differential Wage Payments to Members on Active
Duty'' after ``USERRA''.
(2) Differential wage payments treated as compensation for
individual retirement plans.--Section 219(f)(1) (defining
compensation) is amended by adding at the end the following new
sentence: ``The term compensation includes any differential wage
payment (as defined in section 3401(h)(2)).''.
(3) Effective <<NOTE: 26 USC 219 note.>> date.--The
amendments made by this subsection shall apply to years
beginning after December 31, 2008.
(c) Provisions <<NOTE: 26 USC 414 note.>> Relating to Plan
Amendments.--
(1) In general.--If this subsection applies to any plan or
annuity contract amendment, such plan or contract shall be
treated as being operated in accordance with the terms of the
plan or contract during the period described in paragraph
(2)(B)(i).
(2) Amendments to which section applies.--
(A) In general.--This subsection shall apply to any
amendment to any plan or annuity contract which is
made--
(i) pursuant to any amendment made by
subsection (b)(1), and
(ii) on or before the last day of the first
plan year beginning on or after January 1, 2010.
[[Page 122 STAT. 1630]]
In the case of a governmental plan (as defined in
section 414(d) of the Internal Revenue Code of 1986),
this subparagraph shall be applied by substituting
``2012'' for ``2010'' in clause (ii).
(B) Conditions.--This subsection shall not apply to
any plan or annuity contract amendment unless--
(i) during the period beginning on the date
the amendment described in subparagraph (A)(i)
takes effect and ending on the date described in
subparagraph (A)(ii) (or, if earlier, the date the
plan or contract amendment is adopted), the plan
or contract is operated as if such plan or
contract amendment were in effect, and
(ii) such plan or contract amendment applies
retroactively for such period.
SEC. 106. SPECIAL PERIOD OF LIMITATION WHEN UNIFORMED SERVICES
RETIRED PAY IS REDUCED AS A RESULT OF
AWARD OF DISABILITY COMPENSATION.
(a) In General.--Subsection (d) <<NOTE: 26 USC 6511.>> of section
6511 (relating to special rules applicable to income taxes) is amended
by adding at the end the following new paragraph:
``(8) Special rules when uniformed services retired pay is
reduced as a result of award of disability compensation.--
``(A) Period of limitation on filing claim.--If the
claim for credit or refund relates to an overpayment of
tax imposed by subtitle A on account of--
``(i) the reduction of uniformed services
retired pay computed under section 1406 or 1407 of
title 10, United States Code, or
``(ii) the waiver of such pay under section
5305 of title 38 of such Code,
as a result of an award of compensation under title 38
of such Code pursuant to a determination by the
Secretary of Veterans Affairs, the 3-year period of
limitation prescribed in subsection (a) shall be
extended, for purposes of permitting a credit or refund
based upon the amount of such reduction or waiver, until
the end of the 1-year period beginning on the date of
such determination.
``(B) Limitation to 5 taxable years.--Subparagraph
(A) shall not apply with respect to any taxable year
which began more than 5 years before the date of such
determination.''.
(b) Effective <<NOTE: 26 USC 6511 note.>> Date.--The amendment made
by subsection (a) shall apply to claims for credit or refund filed after
the date of the enactment of this Act note.
(c) Transition Rules.--In <<NOTE: Applicability. 26 USC 6511
note.>> the case of a determination described in paragraph (8) of
section 6511(d) of the Internal Revenue Code of 1986 (as added by this
section) which is made by the Secretary of Veterans Affairs after
December 31, 2000, and before the date of the enactment of this Act,
such paragraph--
(1) shall not apply with respect to any taxable year which
began before January 1, 2001, and
(2) shall be applied by substituting for ``the date of such
determination'' in subparagraph (A) thereof.
[[Page 122 STAT. 1631]]
SEC. 107. DISTRIBUTIONS FROM RETIREMENT PLANS TO INDIVIDUALS
CALLED TO ACTIVE DUTY.
(a) In General.--Clause (iv) of <<NOTE: 26 USC 72.>> section
72(t)(2)(G) is amended by striking ``, and before December 31, 2007''.
(b) Effective Date.--The <<NOTE: 26 USC 72 note.>> amendment made by
this section shall apply to individuals ordered or called to active duty
on or after December 31, 2007.
SEC. 108. AUTHORITY TO DISCLOSE RETURN INFORMATION FOR CERTAIN
VETERANS PROGRAMS MADE PERMANENT.
(a) In General.--Paragraph (7) of section 6103(l) is amended by
striking the last sentence thereof.
(b) Conforming Amendment.--Section 6103(l)(7)(D)(viii)(III) is
amended by striking ``sections 1710(a)(1)(I), 1710(a)(2), 1710(b), and
1712(a)(2)(B)'' and inserting ``sections 1710(a)(2)(G), 1710(a)(3), and
1710(b)''.
(c) Effective <<NOTE: 26 USC 6103 note.>> Date.--The amendment made
by subsection (a) shall apply to requests made after September 30, 2008.
SEC. 109. CONTRIBUTIONS OF MILITARY DEATH GRATUITIES TO ROTH IRAS
AND EDUCATION SAVINGS ACCOUNTS.
(a) Provision in Effect Before Pension Protection Act.--Subsection
(e) of section 408A (relating to qualified rollover contribution), as in
effect before the amendments made by section 824 of the Pension
Protection Act of 2006, is amended to read as follows:
``(e) Qualified Rollover Contribution.--For purposes of this
section--
``(1) In general.--The term `qualified rollover
contribution' means a rollover contribution to a Roth IRA from
another such account, or from an individual retirement plan, but
only if such rollover contribution meets the requirements of
section 408(d)(3). Such term includes a rollover contribution
described in section 402A(c)(3)(A). For purposes of section
408(d)(3)(B), there shall be disregarded any qualified rollover
contribution from an individual retirement plan (other than a
Roth IRA) to a Roth IRA.
``(2) Military death gratuity.--
``(A) In general.--The term `qualified rollover
contribution' includes a contribution to a Roth IRA
maintained for the benefit of an individual made before
the end of the 1-year period beginning on the date on
which such individual receives an amount under section
1477 of title 10, United States Code, or section 1967 of
title 38 of such Code, with respect to a person, to the
extent that such contribution does not exceed--
``(i) the sum of the amounts received during
such period by such individual under such sections
with respect to such person, reduced by
``(ii) the amounts so received which were
contributed to a Coverdell education savings
account under section 530(d)(9).
``(B) Annual limit on number of rollovers not to
apply.--Section 408(d)(3)(B) shall not apply with
respect to amounts treated as a rollover by subparagraph
(A).
``(C) Application of section 72.--For purposes of
applying section 72 in the case of a distribution which
[[Page 122 STAT. 1632]]
is not a qualified distribution, the amount treated as a
rollover by reason of subparagraph (A) shall be treated
as investment in the contract.''.
(b) Provision in Effect After Pension Protection Act.--Subsection
(e) of section 408A, <<NOTE: 26 USC 408.>> as in effect after the
amendments made by section 824 of the Pension Protection Act of 2006, is
amended to read as follows:
``(e) Qualified Rollover Contribution.--For purposes of this
section--
``(1) In general.--The term `qualified rollover
contribution' means a rollover contribution--
``(A) to a Roth IRA from another such account,
``(B) from an eligible retirement plan, but only
if--
``(i) in the case of an individual retirement
plan, such rollover contribution meets the
requirements of section 408(d)(3), and
``(ii) in the case of any eligible retirement
plan (as defined in section 402(c)(8)(B) other
than clauses (i) and (ii) thereof), such rollover
contribution meets the requirements of section
402(c), 403(b)(8), or 457(e)(16), as applicable.
For purposes of section 408(d)(3)(B), there shall be
disregarded any qualified rollover contribution from an
individual retirement plan (other than a Roth IRA) to a
Roth IRA.
``(2) Military death gratuity.--
``(A) In general.--The term `qualified rollover
contribution' includes a contribution to a Roth IRA
maintained for the benefit of an individual made before
the end of the 1-year period beginning on the date on
which such individual receives an amount under section
1477 of title 10, United States Code, or section 1967 of
title 38 of such Code, with respect to a person, to the
extent that such contribution does not exceed--
``(i) the sum of the amounts received during
such period by such individual under such sections
with respect to such person, reduced by
``(ii) the amounts so received which were
contributed to a Coverdell education savings
account under section 530(d)(9).
``(B) Annual limit on number of rollovers not to
apply.--Section 408(d)(3)(B) shall not apply with
respect to amounts treated as a rollover by the
subparagraph (A).
``(C) Application of section 72.--For purposes of
applying section 72 in the case of a distribution which
is not a qualified distribution, the amount treated as a
rollover by reason of subparagraph (A) shall be treated
as investment in the contract.''.
(c) Education Savings Accounts.--Subsection (d) of section 530 is
amended by adding at the end the following new paragraph:
``(9) Military death gratuity.--
``(A) In general.--For purposes of this section, the
term `rollover contribution' includes a contribution to
a Coverdell education savings account made before the
end of the 1-year period beginning on the date on which
the contributor receives an amount under section 1477 of
title 10, United States Code, or section 1967 of title
38 of such
[[Page 122 STAT. 1633]]
Code, with respect to a person, to the extent that such
contribution does not exceed--
``(i) the sum of the amounts received during
such period by such contributor under such
sections with respect to such person, reduced by
``(ii) the amounts so received which were
contributed to a Roth IRA under section 408A(e)(2)
or to another Coverdell education savings account.
``(B) Annual limit on number of rollovers not to
apply.--The last sentence of paragraph (5) shall not
apply with respect to amounts treated as a rollover by
the subparagraph (A).
``(C) Application of section 72.--For purposes of
applying section 72 in the case of a distribution which
is includible in gross income under paragraph (1), the
amount treated as a rollover by reason of subparagraph
(A) shall be treated as investment in the contract.''.
(d) Effective <<NOTE: 26 USC 408A note.>> Dates.--
(1) In general.--Except as provided by paragraphs (2) and
(3), the amendments made by this section shall apply with
respect to deaths from injuries occurring on or after the date
of the enactment of this Act.
(2) Application of amendments to deaths from injuries
occurring on or after october 7, 2001, and before enactment.--
The amendments made by this section shall apply to any
contribution made pursuant to section 408A(e)(2) or 530(d)(5) of
the Internal Revenue Code of 1986, as amended by this Act, with
respect to amounts received under section 1477 of title 10,
United States Code, or under section 1967 of title 38 of such
Code, for deaths from injuries occurring on or after October 7,
2001, and before the date of the enactment of this Act if such
contribution is made not later than 1 year after the date of the
enactment of this Act.
(3) Pension <<NOTE: Applicability.>> protection act
changes.--Section 408A(e)(1) of the Internal Revenue Code of
1986 (as in effect after the amendments made by subsection (b))
shall apply to taxable years beginning after December 31, 2007.
SEC. 110. SUSPENSION OF 5-YEAR PERIOD DURING SERVICE WITH THE
PEACE CORPS.
(a) In <<NOTE: 26 USC 121.>> General.--Subsection (d) of section 121
(relating to special rules) is amended by adding at the end the
following new paragraph:
``(12) Peace corps.--
``(A) In general.--At the election of an individual
with respect to a property, the running of the 5-year
period described in subsections (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
outside the United States--
``(i) on qualified official extended duty (as
defined in paragraph (9)(C)) as an employee of the
Peace Corps, or
``(ii) as an enrolled volunteer or volunteer
leader under section 5 or 6 (as the case may be)
of the Peace Corps Act (22 U.S.C. 2504, 2505).
[[Page 122 STAT. 1634]]
``(B) Applicable rules.--For purposes of
subparagraph (A), rules similar to the rules of
subparagraphs (B) and (D) shall apply.''.
(b) Effective <<NOTE: 26 USC 121 note.>> Date.--The amendment made
by subsection (a) shall apply to taxable years beginning after December
31, 2007.
SEC. 111. CREDIT FOR EMPLOYER DIFFERENTIAL WAGE PAYMENTS TO
EMPLOYEES WHO ARE ACTIVE DUTY MEMBERS OF
THE UNIFORMED SERVICES.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business credits) is amended by adding at the end the
following new section:
``SEC. 45P. EMPLOYER WAGE CREDIT FOR EMPLOYEES WHO ARE ACTIVE DUTY
MEMBERS OF THE UNIFORMED SERVICES.
``(a) General Rule.--For purposes of section 38, in the case of an
eligible small business employer, the differential wage payment credit
for any taxable year is an amount equal to 20 percent of the sum of the
eligible differential wage payments for each of the qualified employees
of the taxpayer during such taxable year.
``(b) Definitions.--For purposes of this section--
``(1) Eligible differential wage payments.--The term
`eligible differential wage payments' means, with respect to
each qualified employee, so much of the differential wage
payments (as defined in section 3401(h)(2)) paid to such
employee for the taxable year as does not exceed $20,000.
``(2) Qualified employee.--The term `qualified employee'
means a person who has been an employee of the taxpayer for the
91-day period immediately preceding the period for which any
differential wage payment is made.
``(3) Eligible small business employer.--
``(A) In general.--The term `eligible small business
employer' means, with respect to any taxable year, any
employer which--
``(i) employed an average of less than 50
employees on business days during such taxable
year, and
``(ii) under a written plan of the employer,
provides eligible differential wage payments to
every qualified employee of the employer.
``(B) Controlled groups.--For purposes of
subparagraph (A), all persons treated as a single
employer under subsection (b), (c), (m), or (o) of
section 414 shall be treated as a single employer.
``(c) Coordination With Other Credits.--The amount of credit
otherwise allowable under this chapter with respect to compensation paid
to any employee shall be reduced by the credit determined under this
section with respect to such employee.
``(d) Disallowance for Failure To Comply With Employment or
Reemployment Rights of Members of the Reserve Components of the Armed
Forces of the United States.--No credit shall be allowed under
subsection (a) to a taxpayer for--
``(1) any taxable year, beginning after the date of the
enactment of this section, in which the taxpayer is under a
final order, judgment, or other process issued or required by a
district court of the United States under section 4323 of title
38 of the United States Code with respect to a violation of
chapter 43 of such title, and
[[Page 122 STAT. 1635]]
``(2) the 2 succeeding taxable years.
``(e) Certain Rules to Apply.--For purposes of this section, rules
similar to the rules of subsections (c), (d), and (e) of section 52
shall apply.
``(f) Termination.--This section shall not apply to any payments
made after December 31, 2009.''.
(b) Credit Treated as Part of General Business Credit.--Section
38(b) (relating to general business credit) <<NOTE: 26 USC 38.>> is
amended by striking ``plus'' at the end of paragraph (31), by striking
the period at the end of paragraph (32) and inserting ``, plus'', and by
adding at the end of following new paragraph:
``(33) the differential wage payment credit determined under
section 45P(a).''.
(c) No Deduction for Compensation Taken Into Account for Credit.--
Section 280C(a) (relating to rule for employment credits) is amended by
inserting ``45P(a),'' after ``45A(a),''.
(d) Clerical Amendment.--The table of sections for subpart D of part
IV of subchapter A of chapter 1 is amended by adding at the end the
following new item:
``Sec. 45P. Employer wage credit for employees who are active duty
members of the uniformed services.''.
(e) Effective <<NOTE: 26 USC 38 note.>> Date.--The amendments made
by this section shall apply to amounts paid after the date of the
enactment of this Act.
SEC. 112. STATE PAYMENTS TO SERVICE MEMBERS TREATED AS QUALIFIED
MILITARY BENEFITS.
(a) In General.--Section 134(b) (defining qualified military
benefit) is amended by adding at the end the following new paragraph:
``(6) Certain state payments.--The term `qualified military
benefit' includes any bonus payment by a State or political
subdivision thereof to any member or former member of the
uniformed services of the United States or any dependent of such
member only by reason of such member's service in an combat zone
(as defined in section 112(c)(2), determined without regard to
the parenthetical).''.
(b) Effective <<NOTE: 26 USC 134 note.>> Date.--The amendment made
by this section shall apply to payments made before, on, or after the
date of the enactment of this Act.
SEC. 113. PERMANENT EXCLUSION OF GAIN FROM SALE OF A PRINCIPAL
RESIDENCE BY CERTAIN EMPLOYEES OF THE
INTELLIGENCE COMMUNITY.
(a) In General.--Paragraph (9) of section 121(d) is amended by
striking subparagraph (E).
(b) Duty Station May Be Inside United States.--Section 121(d)(9)(C)
(defining qualified official extended duty) is amended by striking
clause (vi).
(c) Effective <<NOTE: 26 USC 121 note.>> Date.--The amendments made
by this section shall apply to sales or exchanges after the date of the
enactment of this Act.
[[Page 122 STAT. 1636]]
SEC. 114. SPECIAL DISPOSITION RULES FOR UNUSED BENEFITS IN HEALTH
FLEXIBLE SPENDING ARRANGEMENTS OF
INDIVIDUALS CALLED TO ACTIVE DUTY.
(a) In General.--Section 125 <<NOTE: 26 USC 125.>> (relating to
cafeteria plans) is amended by redesignating subsections (h) and (i) as
subsection (i) and (j), respectively, and by inserting after subsection
(g) the following new subsection:
``(h) Special Rule for Unused Benefits in Health Flexible Spending
Arrangements of Individuals Called to Active Duty.--
``(1) In general.--For purposes of this title, a plan or
other arrangement shall not fail to be treated as a cafeteria
plan or health flexible spending arrangement merely because such
arrangement provides for qualified reservist distributions.
``(2) Qualified reservist distribution.--For purposes of
this subsection, the term `qualified reservist distribution'
means, any distribution to an individual of all or a portion of
the balance in the employee's account under such arrangement
if--
``(A) such individual was (by reason of being a
member of a reserve component (as defined in section 101
of title 37, United States Code)) ordered or called to
active duty for a period in excess of 179 days or for an
indefinite period, and
``(B) such distribution is made during the period
beginning on the date of such order or call and ending
on the last date that reimbursements could otherwise be
made under such arrangement for the plan year which
includes the date of such order or call.''.
(b) Effective <<NOTE: 26 USC 125 note.>> Date.--The amendment made
by this section shall apply to distributions made after the date of the
enactment of this Act.
SEC. 115. TECHNICAL CORRECTION RELATED TO EXCLUSION OF CERTAIN
PROPERTY TAX REBATES AND OTHER BENEFITS
PROVIDED TO VOLUNTEER FIREFIGHTERS AND
EMERGENCY MEDICAL RESPONDERS.
(a) Social Security Taxes.--
(1) Section 3121(a) (relating to definition of wages) is
amended by striking ``or'' at the end of paragraph (21), by
striking the period at the end of paragraph (22) and inserting
``; or'', and by inserting after paragraph (22) the following
new paragraph:
``(23) any benefit or payment which is excludable from the
gross income of the employee under section 139B(b).''.
(2) Section 209(a) of the Social Security Act <<NOTE: 42 USC
409.>> is amended by striking ``or'' at the end of paragraph
(18), by striking the period at the end of paragraph (19) and
inserting ``; or'', and by inserting after paragraph (19) the
following new paragraph:
``(20) Any benefit or payment which is excludable from the
gross income of the employee under section 139B(b) of the
Internal Revenue Code of 1986).''.
(b) Unemployment Taxes.--Section 3306(b) <<NOTE: 26 USC
3306.>> (relating to definition of wages) is amended by striking ``or''
at the end of paragraph (18), by striking the period at the end of
paragraph (19) and inserting ``; or'', and by inserting after paragraph
(19) the following new paragraph:
[[Page 122 STAT. 1637]]
``(20) any benefit or payment which is excludable from the
gross income of the employee under section 139B(b).''.
(c) Wage Withholding.--Section 3401(a) <<NOTE: 26 USC
3401.>> (defining wages) is amended by striking ``or'' at the end of
paragraph (21), by striking the period at the end of paragraph (22) and
inserting ``; or'', and by inserting after paragraph (22) the following
new paragraph:
``(23) for any benefit or payment which is excludable from
the gross income of the employee under section 139B(b).''.
(d) Effective <<NOTE: 26 USC 3121 note.>> Date.--The amendments made
by this section shall take effect as if included in section 5 of the
Mortgage Forgiveness Debt Relief Act of 2007.
TITLE II--IMPROVEMENTS IN SUPPLEMENTAL SECURITY INCOME
SEC. 201. TREATMENT OF UNIFORMED SERVICE CASH REMUNERATION AS
EARNED INCOME.
(a) In General.--Section 1612(a)(1)(A) of the Social Security Act
(42 U.S.C. 1382a(a)(1)(A)) is amended by inserting ``(and, in the case
of cash remuneration paid for service as a member of a uniformed service
(other than payments described in paragraph (2)(H) of this subsection or
subsection (b)(20)), without regard to the limitations contained in
section 209(d))'' before the semicolon.
(b) Certain Housing Payments Treated as In-Kind Support and
Maintenance.--Section 1612(a)(2) of such Act (42 U.S.C. 1382a(a)(2)) is
amended--
(1) by striking ``and'' at the end of subparagraph (F);
(2) by striking the period at the end of subparagraph (G)
and inserting ``; and''; and
(3) by adding at the end the following:
``(H) payments to or on behalf of a member of a
uniformed service for housing of the member (and his or
her dependents, if any) on a facility of a uniformed
service, including payments provided under section 403
of title 37, United States Code, for housing that is
acquired or constructed under subchapter IV of chapter
169 of title 10 of such Code, or any related provision
of law, and any such payments shall be treated as
support and maintenance in kind subject to subparagraph
(A) of this paragraph.''.
SEC. 202. STATE ANNUITIES FOR CERTAIN VETERANS TO BE DISREGARDED
IN DETERMINING SUPPLEMENTAL SECURITY
INCOME BENEFITS.
(a) Income Disregard.--Section 1612(b) of the Social Security Act
(42 U.S.C. 1382a(b)) is amended--
(1) by striking ``and'' at the end of paragraph (22);
(2) by striking the period at the end of paragraph (23) and
inserting ``; and''; and
(3) by adding at the end the following:
``(24) any annuity paid by a State to the individual (or
such spouse) on the basis of the individual's being a veteran
(as defined in section 101 of title 38, United States Code), and
blind, disabled, or aged.''.
(b) Resource Disregard.--Section 1613(a) of such Act (42 U.S.C.
1382b(a)) is amended--
[[Page 122 STAT. 1638]]
(1) by striking ``and'' at the end of paragraph (14);
(2) by striking the period at the end of paragraph (15) and
inserting ``; and''; and
(3) by inserting after paragraph (15) the following:
``(16) for the month of receipt and every month thereafter,
any annuity paid by a State to the individual (or such spouse)
on the basis of the individual's being a veteran (as defined in
section 101 of title 38, United States Code), and blind,
disabled, or aged.''.
SEC. 203. EXCLUSION OF AMERICORPS BENEFITS FOR PURPOSES OF
DETERMINING SUPPLEMENTAL SECURITY INCOME
ELIGIBILITY AND BENEFIT AMOUNTS.
Section 1612(b) of the Social Security Act (42 U.S.C. 1382a(b)), as
amended by section 202(a) of this Act, is amended--
(1) in paragraph (23), by striking ``and'' at the end;
(2) in paragraph (24), by striking the period and inserting
``; and''; and
(3) by adding at the end the following:
``(25) any benefit (whether cash or in-kind) conferred upon
(or paid on behalf of) a participant in an AmeriCorps position
approved by the Corporation for National and Community Service
under section 123 of the National and Community Service Act of
1990 (42 U.S.C. 12573).''.
SEC. 204. <<NOTE: 42 USC 1382a note.>> EFFECTIVE DATE.
The amendments made by this title shall be effective with respect to
benefits payable for months beginning after 60 days after the date of
the enactment of this Act.
TITLE III--REVENUE PROVISIONS
SEC. 301. 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 subtitle--
``(1) Mark to market.--All property of a covered expatriate
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, determined without regard to
paragraph (3).
``(3) Exclusion for certain gain.--
[[Page 122 STAT. 1639]]
``(A) In general.--The amount which would (but for
this paragraph) be includible in the gross income of any
individual by reason of paragraph (1) shall be reduced
(but not below zero) by $600,000.
``(B) Adjustment for inflation.--
``(i) In general.--In the case of any taxable
year beginning in a calendar year after 2008, the
dollar amount in subparagraph (A) shall be
increased by an amount equal to--
``(I) such dollar amount, multiplied
by
``(II) the cost-of-living adjustment
determined under section 1(f)(3) for the
calendar year in which the taxable year
begins, by substituting `calendar year
2007' for `calendar year 1992' in
subparagraph (B) thereof.
``(ii) Rounding.--If any amount as adjusted
under clause (i) is not a multiple of $1,000, such
amount shall be rounded to the nearest multiple of
$1,000.
``(b) Election To Defer Tax.--
``(1) In general.--If the taxpayer elects the application of
this subsection with respect to any property treated as sold by
reason of subsection (a), the time for payment of the additional
tax attributable to such property shall be extended 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 Secretary may prescribe).
``(2) Determination of tax with respect to property.--For
purposes of paragraph (1), the additional tax attributable to
any property is an amount which bears the same ratio to the
additional tax imposed by this chapter for the taxable year
solely by reason of subsection (a) as the gain taken into
account under subsection (a) with respect to such property bears
to the total gain taken into account under subsection (a) with
respect to all property to which subsection (a) applies.
``(3) Termination of extension.--The due date for payment of
tax may not be extended 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 security provided with
respect to the property fails to meet the requirements of
paragraph (4), unless the taxpayer corrects such failure within
the time specified by the Secretary).
``(4) Security.--
``(A) In general.--No election may be made under
paragraph (1) with respect to any property unless
adequate security is provided with respect to such
property.
``(B) Adequate security.--For purposes of
subparagraph (A), security with respect to any property
shall be treated as adequate security if--
``(i) it is a bond which is furnished to, and
accepted by, the Secretary, which is conditioned
on the payment of tax (and interest thereon), and
which meets the requirements of section 6325, or
``(ii) it is another form of security for such
payment (including letters of credit) that meets
such requirements as the Secretary may prescribe.
[[Page 122 STAT. 1640]]
``(5) Waiver of certain rights.--No election may be made
under paragraph (1) unless the taxpayer makes an irrevocable
waiver of any right under any treaty of the United States which
would preclude assessment or collection of any tax imposed by
reason of this section.
``(6) Elections.--An <<NOTE: Applicability.>> election under
paragraph (1) shall only apply to property described in the
election and, once made, is irrevocable.
``(7) Interest.--For purposes of section 6601, the last date
for the payment of tax shall be determined without regard to the
election under this subsection.
``(c) Exception for Certain Property.--Subsection (a) shall not
apply to--
``(1) any deferred compensation item (as defined in
subsection (d)(4)),
``(2) any specified tax deferred account (as defined in
subsection (e)(2)), and
``(3) any interest in a nongrantor trust (as defined in
subsection (f)(3)).
``(d) Treatment of Deferred Compensation Items.--
``(1) Withholding on eligible deferred compensation items.--
``(A) In general.--In the case of any eligible
deferred compensation item, the payor shall deduct and
withhold from any taxable payment to a covered
expatriate with respect to such item a tax equal to 30
percent thereof.
``(B) Taxable payment.--For purposes of subparagraph
(A), the term `taxable payment' means with respect to a
covered expatriate any payment to the extent it would be
includible in the gross income of the covered expatriate
if such expatriate continued to be subject to tax as a
citizen or resident of the United States. A deferred
compensation item shall be taken into account as a
payment under the preceding sentence when such item
would be so includible.
``(2) Other deferred compensation items.--In the case of any
deferred compensation item which is not an eligible deferred
compensation item--
``(A)(i) with respect to any deferred compensation
item to which clause (ii) does not apply, an amount
equal to the present value of the covered expatriate's
accrued benefit shall be treated as having been received
by such individual on the day before the expatriation
date as a distribution under the plan, and
``(ii) with respect to any deferred compensation
item referred to in paragraph (4)(D), the rights of the
covered expatriate to such item shall be treated as
becoming transferable and not subject to a substantial
risk of forfeiture on the day before the expatriation
date,
``(B) no early distribution tax shall apply by
reason of such treatment, and
``(C) appropriate adjustments shall be made to
subsequent distributions from the plan to reflect such
treatment.
``(3) Eligible deferred compensation items.--For purposes of
this subsection, the term `eligible deferred compensation item'
means any deferred compensation item with respect to which--
[[Page 122 STAT. 1641]]
``(A) the payor of such item is--
``(i) a United States person, or
``(ii) a person who is not a United States
person but who elects to be treated as a United
States person for purposes of paragraph (1) and
meets such requirements as the Secretary may
provide to ensure that the payor will meet the
requirements of paragraph (1), and
``(B) the covered expatriate--
``(i) notifies the payor of his status as a
covered expatriate, and
``(ii) makes an irrevocable waiver of any
right to claim any reduction under any treaty with
the United States in withholding on such item.
``(4) Deferred compensation item.--For purposes of this
subsection, the term `deferred compensation item' means--
``(A) any interest in a plan or arrangement
described in section 219(g)(5),
``(B) any interest in a foreign pension plan or
similar retirement arrangement or program,
``(C) any item of deferred compensation, and
``(D) any property, or right to property, which the
individual is entitled to receive in connection with the
performance of services to the extent not previously
taken into account under section 83 or in accordance
with section 83.
``(5) Exception.--Paragraphs (1) and (2) shall not apply to
any deferred compensation item to the extent attributable to
services performed outside the United States while the covered
expatriate was not a citizen or resident of the United States.
``(6) Special rules.--
``(A) Application of withholding rules.--Rules
similar to the rules of subchapter B of chapter 3 shall
apply for purposes of this subsection.
``(B) Application of tax.--Any item subject to the
withholding tax imposed under paragraph (1) shall be
subject to tax under section 871.
``(C) Coordination with other withholding
requirements.--Any item subject to withholding under
paragraph (1) shall not be subject to withholding under
section 1441 or chapter 24.
``(e) Treatment of Specified Tax Deferred Accounts.--
``(1) Account treated as distributed.--In the case of any
interest in a specified tax deferred account held by a covered
expatriate on the day before the expatriation date--
``(A) the covered expatriate shall be treated as
receiving a distribution of his entire interest in such
account on the day before the expatriation date,
``(B) no early distribution tax shall apply by
reason of such treatment, and
``(C) appropriate adjustments shall be made to
subsequent distributions from the account to reflect
such treatment.
``(2) Specified tax deferred account.--For purposes of
paragraph (1), the term `specified tax deferred account' means
an individual retirement plan (as defined in section
7701(a)(37))
[[Page 122 STAT. 1642]]
other than any arrangement described in subsection (k) or (p) of
section 408, a qualified tuition program (as defined in section
529), a Coverdell education savings account (as defined in
section 530), a health savings account (as defined in section
223), and an Archer MSA (as defined in section 220).
``(f) Special Rules for Nongrantor Trusts.--
``(1) In general.--In the case of a distribution (directly
or indirectly) of any property from a nongrantor trust to a
covered expatriate--
``(A) the trustee shall deduct and withhold from
such distribution an amount equal to 30 percent of the
taxable portion of the distribution, and
``(B) if the fair market value of such property
exceeds its adjusted basis in the hands of the trust,
gain shall be recognized to the trust as if such
property were sold to the expatriate at its fair market
value.
``(2) Taxable portion.--For purposes of this subsection, the
term `taxable portion' means, with respect to any distribution,
that portion of the distribution which would be includible in
the gross income of the covered expatriate if such expatriate
continued to be subject to tax as a citizen or resident of the
United States.
``(3) Nongrantor trust.--For purposes of this subsection,
the term `nongrantor trust' means the portion of any trust that
the individual is not considered the owner of under subpart E of
part I of subchapter J. The determination under the preceding
sentence shall be made immediately before the expatriation date.
``(4) Special rules relating
to <<NOTE: Applicability.>> withholding.--For purposes of this
subsection--
``(A) rules similar to the rules of subsection
(d)(6) shall apply, and
``(B) the covered expatriate shall be treated as
having waived any right to claim any reduction under any
treaty with the United States in withholding on any
distribution to which paragraph (1)(A) applies unless
the covered expatriate agrees to such other treatment as
the Secretary determines appropriate.
``(5) Application.--This subsection shall apply to a
nongrantor trust only if the covered expatriate was a
beneficiary of the trust on the day before the expatriation
date.
``(g) Definitions and Special Rules Relating to Expatriation.--For
purposes of this section--
``(1) Covered expatriate.--
``(A) In general.--The term `covered expatriate'
means an expatriate who meets the requirements of
subparagraph (A), (B), or (C) of section 877(a)(2).
``(B) Exceptions.--An individual shall not be
treated as meeting the requirements of subparagraph (A)
or (B) of section 877(a)(2) if--
``(i) the individual--
``(I) became at birth a citizen of
the United States and a citizen of
another country and, as of the
expatriation date, continues to be a
citizen of, and is taxed as a resident
of, such other country, and
[[Page 122 STAT. 1643]]
``(II) has been a resident of the
United States (as defined in section
7701(b)(1)(A)(ii)) for not more than 10
taxable years during the 15-taxable year
period ending with the taxable year
during which the expatriation date
occurs, or
``(ii)(I) the individual's relinquishment of
United States citizenship occurs before such
individual attains age 18\1/2\, and
``(II) the individual has been a resident of
the United States (as so defined) for not more
than 10 taxable years before the date of
relinquishment.
``(C) Covered expatriates also subject to tax as
citizens or residents.--In the case of any covered
expatriate who is subject to tax as a citizen or
resident of the United States for any period beginning
after the expatriation date, such individual shall not
be treated as a covered expatriate during such period
for purposes of subsections (d)(1) and (f) and section
2801.
``(2) Expatriate.--The term `expatriate' means--
``(A) any United States citizen who relinquishes his
citizenship, and
``(B) any long-term resident of the United States
who ceases to be a lawful permanent resident of the
United States (within the meaning of section
7701(b)(6)).
``(3) Expatriation date.--The term `expatriation date'
means--
``(A) the date an individual relinquishes United
States citizenship, or
``(B) in the case of a long-term resident of the
United States, the date on which the individual ceases
to be a lawful permanent resident of the United States
(within the meaning of section 7701(b)(6)).
``(4) Relinquishment of citizenship.--A citizen shall be
treated as relinquishing his United States citizenship on the
earliest of--
``(A) the date the individual renounces his United
States nationality before a diplomatic or consular
officer of the United States pursuant to paragraph (5)
of section 349(a) of the Immigration and Nationality Act
(8 U.S.C. 1481(a)(5)),
``(B) the date the individual furnishes to the
United States Department of State a signed statement of
voluntary relinquishment of United States nationality
confirming the performance of an act of expatriation
specified in paragraph (1), (2), (3), or (4) of section
349(a) of the Immigration and Nationality Act (8 U.S.C.
1481(a)(1)-(4)),
``(C) the date the United States Department of State
issues to the individual a certificate of loss of
nationality, or
``(D) the date a court of the United States cancels
a naturalized citizen's certificate of naturalization.
Subparagraph (A) or (B) shall not apply to any individual unless
the renunciation or voluntary relinquishment is subsequently
approved by the issuance to the individual of a certificate of
loss of nationality by the United States Department of State.
[[Page 122 STAT. 1644]]
``(5) Long-term resident.--The term `long-term resident' has
the meaning given to such term by section 877(e)(2).
``(6) Early distribution tax.--The term `early distribution
tax' means any increase in tax imposed under section 72(t),
220(e)(4), 223(f)(4), 409A(a)(1)(B), 529(c)(6), or 530(d)(4).
``(h) Other Rules.--
``(1) Termination of deferrals, etc.--In the case of any
covered expatriate, notwithstanding any other provision of this
title--
``(A) any time period for acquiring property which
would result in the reduction in the amount of gain
recognized with respect to property disposed of by the
taxpayer shall terminate on the day before the
expatriation date, and
``(B) any extension of time for payment of tax shall
cease to apply on the day before the expatriation date
and the unpaid portion of such tax shall be due and
payable at the time and in the manner prescribed by the
Secretary.
``(2) Step-up in basis.--Solely for purposes of determining
any tax imposed by reason of subsection (a), property which was
held by an individual on the date the individual first became a
resident of the United States (within the meaning of section
7701(b)) shall be treated as having a basis on such date of not
less than the fair market value of such property on such date.
The preceding sentence shall not apply if the individual elects
not to have such sentence apply. Such an election, once made,
shall be irrevocable.
``(3) Coordination <<NOTE: Applicability.>> with section
684.--If the expatriation of any individual would result in the
recognition of gain under section 684, this section shall be
applied after the application of section 684.
``(i) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section.''.
(b) Tax on Gifts and Bequests Received by United States Citizens and
Residents From Expatriates.--
(1) In general.--Subtitle B (relating to estate and gift
taxes) is amended by inserting after chapter 14 the following
new chapter:
``CHAPTER 15--GIFTS AND BEQUESTS FROM EXPATRIATES
``Sec. 2801. Imposition of tax.
``SEC. 2801. IMPOSITION OF TAX.
``(a) In General.--If, during any calendar year, any United States
citizen or resident receives any covered gift or bequest, there is
hereby imposed a tax equal to the product of--
``(1) the highest rate of tax specified in the table
contained in section 2001(c) as in effect on the date of such
receipt (or, if greater, the highest rate of tax specified in
the table applicable under section 2502(a) as in effect on the
date), and
``(2) the value of such covered gift or bequest.
``(b) Tax To Be Paid by Recipient.--The tax imposed by subsection
(a) on any covered gift or bequest shall be paid by the person receiving
such gift or bequest.
[[Page 122 STAT. 1645]]
``(c) Exception for <<NOTE: Applicability.>> Certain Gifts.--
Subsection (a) shall apply only to the extent that the value of covered
gifts and bequests received by any person during the calendar year
exceeds the dollar amount in effect under section 2503(b) for such
calendar year.
``(d) Tax Reduced by Foreign Gift or Estate Tax.--The tax imposed by
subsection (a) on any covered gift or bequest shall be reduced by the
amount of any gift or estate tax paid to a foreign country with respect
to such covered gift or bequest.
``(e) Covered Gift or Bequest.--
``(1) In general.--For purposes of this chapter, the term
`covered gift or bequest' means--
``(A) any property acquired by gift directly or
indirectly from an individual who, at the time of such
acquisition, is a covered expatriate, and
``(B) any property acquired directly or indirectly
by reason of the death of an individual who, immediately
before such death, was a covered expatriate.
``(2) Exceptions for transfers otherwise subject to estate
or gift tax.--Such term shall not include--
``(A) any property shown on a timely filed return of
tax imposed by chapter 12 which is a taxable gift by the
covered expatriate, and
``(B) any property included in the gross estate of
the covered expatriate for purposes of chapter 11 and
shown on a timely filed return of tax imposed by chapter
11 of the estate of the covered expatriate.
``(3) Exceptions for transfers to spouse or charity.--Such
term shall not include any property with respect to which a
deduction would be allowed under section 2055, 2056, 2522, or
2523, whichever is appropriate, if the decedent or donor were a
United States person.
``(4) Transfers in trust.--
``(A) Domestic trusts.--In the case of a covered
gift or bequest made to a domestic trust--
``(i) <<NOTE: Applicability.>> subsection (a)
shall apply in the same manner as if such trust
were a United States citizen, and
``(ii) the tax imposed by subsection (a) on
such gift or bequest shall be paid by such trust.
``(B) Foreign trusts.--
``(i) In <<NOTE: Applicability.>> general.--In
the case of a covered gift or bequest made to a
foreign trust, subsection (a) shall apply to any
distribution attributable to such gift or bequest
from such trust (whether from income or corpus) to
a United States citizen or resident in the same
manner as if such distribution were a covered gift
or bequest.
``(ii) Deduction for tax paid by recipient.--
There shall be allowed as a deduction under
section 164 the amount of tax imposed by this
section which is paid or accrued by a United
States citizen or resident by reason of a
distribution from a foreign trust, but only to the
extent such tax is imposed on the portion of such
distribution which is included in the gross income
of such citizen or resident.
``(iii) Election to be treated as domestic
trust.--Solely for purposes of this section, a
foreign trust may elect to be treated as a
domestic trust.
[[Page 122 STAT. 1646]]
Such an election may be revoked with the consent
of the Secretary.
``(f) Covered Expatriate.--For purposes of this section, the term
`covered expatriate' has the meaning given to such term by section
877A(g)(1).''.
(2) Clerical amendment.--The table of chapters for subtitle
B is amended by inserting after the item relating to chapter 14
the following new item:
``Chapter 15. Gifts and Bequests From Expatriates.''.
(c) Definition of Termination of United States Citizenship.--
(1) In general.--Section 7701(a) <<NOTE: 26 USC 7701.>> is
amended by adding at the end the following new paragraph:
``(50) Termination of united states citizenship.--
``(A) In general.--An individual shall not cease to
be treated as a United States citizen before the date on
which the individual's citizenship is treated as
relinquished under section 877A(g)(4).
``(B) Dual citizens.--
Under <<NOTE: Regulations.>> regulations prescribed by
the Secretary, subparagraph (A) shall not apply to an
individual who became at birth a citizen of the United
States and a citizen of another country.''.
(2) Conforming amendments.--
(A) Paragraph (1) of section 877(e) is amended to
read as follows:
``(1) In general.--Any long-term resident of the United
States who ceases to be a lawful permanent resident of the
United States (within the meaning of section 7701(b)(6)) shall
be treated for purposes of this section and sections 2107, 2501,
and 6039G in the same manner as if such resident were a citizen
of the United States who lost United States citizenship on the
date of such cessation or commencement.''.
(B) Paragraph (6) of section 7701(b) is amended by
adding at the end the following flush sentence:
``An individual shall cease to be treated as a lawful permanent
resident of the United States if such individual commences to be
treated as a resident of a foreign country under the provisions
of a tax treaty between the United States and the foreign
country, does not waive the benefits of such treaty applicable
to residents of the foreign country, and notifies the Secretary
of the commencement of such treatment.''.
(C) Section 7701 is amended by striking subsection
(n) and by redesignating subsections (o) and (p) as
subsections (n) and (o), respectively.
(d) Termination of Section 877.--Section 877 is amended by adding at
the end the following new subsection:
``(h) Termination.--This section shall not apply to any individual
whose expatriation date (as defined in section 877A(g)(3)) is on or
after the date of the enactment of this subsection.''.
(e) Information Returns.--Section 6039G is amended--
(1) by inserting ``or 877A'' after ``section 877(b)'' in
subsection (a), and
(2) by inserting ``or 877A'' after ``section 877(a)'' in
subsection (d).
[[Page 122 STAT. 1647]]
(f) Clerical Amendment.--The table of sections for subpart A of part
II of subchapter N of chapter 1 is amended by inserting after the item
relating to section 877 the following new item:
``Sec. 877A. Tax responsibilities of expatriation.''.
(g) Effective <<NOTE: 26 USC 2801 note.>> Date.--
(1) In general.--Except as provided in this subsection, the
amendments made by this section shall apply to any individual
whose expatriation date (as so defined) is on or after the date
of the enactment of this Act.
(2) Gifts and bequests.--Chapter <<NOTE: Applicability.>> 15
of the Internal Revenue Code of 1986 (as added by subsection
(b)) shall apply to covered gifts and bequests (as defined in
section 2801 of such Code, as so added) received on or after the
date of the enactment of this Act from transferors (or from the
estates of transferors) whose expatriation date is on or after
such date of enactment.
SEC. 302. CERTAIN DOMESTICALLY CONTROLLED FOREIGN PERSONS
PERFORMING SERVICES UNDER CONTRACT WITH
UNITED STATES GOVERNMENT TREATED AS
AMERICAN EMPLOYERS.
(a) FICA Taxes.--Section 3121 <<NOTE: 26 USC 3121.>> (relating to
definitions) is amended by adding at the end the following new
subsection:
``(z) Treatment of Certain Foreign Persons as American Employers.--
``(1) In general.--If any employee of a foreign person is
performing services in connection with a contract between the
United States Government (or any instrumentality thereof) and
any member of any domestically controlled group of entities
which includes such foreign person, such foreign person shall be
treated for purposes of this chapter as an American employer
with respect to such services performed by such employee.
``(2) Domestically controlled group of entities.--For
purposes of this subsection--
``(A) In general.--The term `domestically controlled
group of entities' means a controlled group of entities
the common parent of which is a domestic corporation.
``(B) Controlled group of entities.--The term
`controlled group of entities' means a controlled group
of corporations as defined in section 1563(a)(1), except
that--
``(i) `more than 50 percent' shall be
substituted for `at least 80 percent' each place
it appears therein, and
``(ii) the determination shall be made without
regard to subsections (a)(4) and (b)(2) of section
1563.
A partnership or any other entity (other than a
corporation) shall be treated as a member of a
controlled group of entities if such entity is
controlled (within the meaning of section 954(d)(3)) by
members of such group (including any entity treated as a
member of such group by reason of this sentence).
``(3) Liability of common parent.--In the case of a foreign
person who is a member of any domestically controlled group of
entities, the common parent of such group shall be jointly and
severally liable for any tax under this chapter for which such
foreign person is liable by reason of this subsection, and
[[Page 122 STAT. 1648]]
for any penalty imposed on such person by this title with
respect to any failure to pay such tax or to file any return or
statement with respect to such tax or wages subject to such tax.
No deduction shall be allowed under this title for any liability
imposed by the preceding sentence.
``(4) Provisions preventing double taxation.--
``(A) Agreements.--Paragraph (1) shall not apply to
any services which are covered by an agreement under
subsection (l).
``(B) Equivalent foreign taxation.--Paragraph (1)
shall not apply to any services if the employer
establishes to the satisfaction of the Secretary that
the remuneration paid by such employer for such services
is subject to a tax imposed by a foreign country which
is substantially equivalent to the taxes imposed by this
chapter.
``(5) Cross reference.--For relief from taxes in cases
covered by certain international agreements, see sections
3101(c) and 3111(c).''.
(b) Social Security Benefits.--Subsection (e) of section 210 of the
Social Security Act (42 U.S.C. 410(e)) is amended--
(1) by striking ``(e) The term'' and inserting ``(e)(1) The
term'',
(2) by redesignating clauses (1) through (6) as clauses (A)
through (F), respectively, and
(3) by adding at the end the following new paragraph:
``(2)(A) If any employee of a foreign person is performing services
in connection with a contract between the United States Government (or
any instrumentality thereof) and any member of any domestically
controlled group of entities which includes such foreign person, such
foreign person shall be treated as an American employer with respect to
such services performed by such employee.
``(B) For purposes of this paragraph--
``(i) The term `domestically controlled group of entities'
means a controlled group of entities the common parent of which
is a domestic corporation.
``(ii) The term `controlled group of entities' means a
controlled group of corporations as defined in section
1563(a)(1) of the Internal Revenue Code of 1986, except that--
``(I) `more than 50 percent' shall be substituted
for `at least 80 percent' each place it appears therein,
and
``(II) the determination shall be made without
regard to subsections (a)(4) and (b)(2) of section 1563
of such Code.
A partnership or any other entity (other than a corporation)
shall be treated as a member of a controlled group of entities
if such entity is controlled (within the meaning of section
954(d)(3) of such Code) by members of such group (including any
entity treated as a member of such group by reason of this
sentence).
``(C) Subparagraph (A) shall not apply to any services to which
paragraph (1) of section 3121(z) of the Internal Revenue Code of 1986
does not apply by reason of paragraph (4) of such section.''.
(c) Effective <<NOTE: 26 USC 3121 note.>> Date.--The amendment made
by this section shall apply to services performed in calendar months
beginning more than 30 days after the date of the enactment of this Act.
[[Page 122 STAT. 1649]]
SEC. 303. INCREASE IN MINIMUM PENALTY ON FAILURE TO FILE A RETURN
OF TAX.
(a) In General.--Subsection (a) of section <<NOTE: 26 USC
6651.>> 6651 is amended by striking ``$100'' in the last sentence and
inserting ``$135''.
(b) Effective <<NOTE: 26 USC 6651 note.>> Date.--The amendment made
by this section shall apply to returns required to be filed after
December 31, 2008.
TITLE IV--PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL HEALTH
BENEFITS
SEC. 401. PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL
HEALTH BENEFITS.
(a) Internal Revenue Code of 1986.--Subsection (f) of section 9812
is amended--
(1) by striking ``and'' at the end of paragraph (2), and
(2) by striking paragraph (3) and inserting the following
new paragraphs:
``(3) on or after January 1, 2008, and before the date of
the enactment of the Heroes Earnings Assistance and Relief Tax
Act of 2008, and
``(4) after December 31, 2008.''.
(b) Employee Retirement Income Security Act of 1974.--Subsection (f)
of section 712 of the Employee Retirement Income Security Act of 1974
(29 U.S.C. 1185a(f)) is amended by striking ``services furnished after
December 31, 2007'' and inserting ``services furnished--
``(1) on or after January 1, 2008, and before the date of
the enactment of the Heroes Earnings Assistance and Relief Tax
Act of 2008, and
``(2) after December 31, 2008.''.
[[Page 122 STAT. 1650]]
(c) Public Health Service Act.--Subsection (f) of section 2705 of
the Public Health Service Act (42 U.S.C. 300gg-5(f)) is amended by
striking ``services furnished after December 31, 2007'' and inserting
``services furnished--
``(1) on or after January 1, 2008, and before the date of
the enactment of the Heroes Earnings Assistance and Relief Tax
Act of 2008, and
``(2) after December 31, 2008.''.
Approved June 17, 2008.
LEGISLATIVE HISTORY--H.R. 6081:
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CONGRESSIONAL RECORD, Vol. 154 (2008):
May 20, considered and passed House.
May 22, considered and passed Senate.
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