Grassley Praises Senate Passage of Military Tax Fairness Bill
WASHINGTON -- Sen. Chuck Grassley, chairman of the Committee on Finance, today praised the Senate’s passage last night of legislation he co-authored to fix a series of tax inequities facing the nation’s armed services. This is a key step toward final passage.
“Our nation is relying on the military in unique ways,” Grassley said. “We remain engaged in restoring peace to Iraq. We face the challenge of defeating terrorism at home and abroad. Our enlisted men and women are front and center for all of these tasks. The sad fact is these folks don’tget a fair shake under the federal tax code.”
The bipartisan Armed Forces Tax Fairness Act of 2003 passed the Finance Committee inFebruary on an unanimous vote. The bill became stalled over philosophical differences between theSenate and the House.
Grassley said the bill passed by the Senate last night is nearly identical to the committee passed bill except that the bill now raises the death gratuity benefit from $6,000 to $12,000 and is paid for with Customs Service user fees. The Military Officers Association of America urged theSenate to pass the Senate’s version of the bill, which is more comprehensive than the House bill. The Reserve Officers Association also supports the legislation, which includes tax relief for National Guard members and reservists who pay for their own expenses while drilling away from home.
“This bill pays respect to the men and women making sacrifices and, in many cases, risking their lives to protect and defend freedom,” Grassley said. “Congress should pass the bill as soon as possible.”
(1) Grassley’s floor statement describing the Armed Forces Tax Fairness Act of 2003
(2) a detailed description of the Senate-passed bill
Senator Chuck Grassley
Floor Statement on the Armed Forces Tax Fairness Act of 2003
Nov. 3, 2003
Mr. President, we are here tonight to adopt long-overdue legislation to rectify a number of inequitiesfaced by members of our nation's armed services.
Since the terrorist attacks of September 11th, these brave men and women have been called upon tomake terrific sacrifices. They have left their families and friends behind for months at a time towillingly cast themselves into harm's way. Whether in Afghanistan, Iraq, or on whatever battlefieldthe war against terrorism must be fought, these courageous patriots have put their lives on the lineto defend our freedoms.
While I realize that we could never begin to fully repay these fine young Americans -- not to mentionthe loved ones they leave behind -- the Senate has an opportunity tonight to show our gratitude fortheir sacrifices.
The legislation before us, which the Finance Committee first developed during the 107th Congress,will ensure that members of the uniformed services, the national guard, and the foreign service aretreated fairly in all aspects of the tax code.
First, this legislation ensures that the families of military personnel called into active duty are notdisadvantaged under the home sale exclusion. Unlike most Americans, military personnel who arecalled to active duty or asked to relocate often lack the flexibility to meet residency requirementsunder the exclusion and are adversely impacted by these rules. This legislation would suspend theresidency test for periods of active duty aggregating no more than 10 years.
We should not punish members of our military and their families who are asked to relocate in thename of service to their country.
This legislation also clarifies that dependent care benefits provided to families of the uniformedservices will not be treated as taxable compensation. The provision of affordable child care is animportant function of the military during peacetime; but it is never more critical than during periodsof conflict - especially for single parents and dual military career families.
We must also not forget about the increasing role that reserve and national guard members fulfill inour nation’s defense. Currently, more than 157,000 reservists and National Guard are on active dutystatus -- most assisting in Operation Iraqi Freedom. We have begun to rely increasingly on theseservice personnel to defend our borders and to serve and protect in other areas of the world.
This legislation will allow an above-the-line deduction for travel expenses that these men andwomen incur related to training assignments. This provision will at least partially reimburse nationalguard members and reservists for the expenses they incur when they travel for weekend drills.The Armed Forces Tax Fairness Act also ensures that military personnel serving in Secretary ofDefense-designated “contingency operations” receive appropriate relief from the administrativeburdens of our tax laws during participation in those operations.
What’s more, this legislation is completely offset. All of the military tax fairness provisions in thislegislation are fully funded by extending Customs user fees.
As we consider this legislation tonight, the men and women of our armed forces remain in hostilesituations, battling terrorism wherever that battle may lead. At the same time, their loved ones --wives, husbands, parents, children -- remain at home, making equally demanding sacrifices as theystruggle to make ends meet. It is deeply regrettable that Congress has delayed so long to enact thiscommon-sense legislation.
Mr. President, we must delay no longer. I urge my colleagues to support this legislation to providethe tax relief that our military personnel need and deserve.
Summary of Components of Military Tax Relief Bill
A. Exclusion of Military Death Gratuity Payments. Under current law, death gratuity benefits are only excludable from income up to the amount payable as of September 9, 1986 (i.e., $3,000). The death gratuity benefit was increased to $6,000 in 1991 but the exclusion from income for such benefits has not been adjusted. This bill would increase the amount to $12,000 and provide an exclusion for all death gratuity payments. The proposal is estimated to cost $122 million over 10 years.
B. Exclusion of Gain from the Sale of a Principal Residence by Military and Foreign Service Personnel. In 1997, Congress amended the taxation of capital gains from the sale of a principal residence. Under those rules, up to $250,000 ($500,000 per married couple) may be excluded on the sale of a principal residence if the individual has lived in the house for at least two of the previous five years. Although Treasury Regulations provide relief in the event a principal residence is sold for work-related reasons prior to the time at which the two-year requirement is met, no relief has been provided for military and foreign service personnel who are required to move either within the U.S. or abroad in the course of active duty. The proposal would permit military and foreignservice personnel to make an election to suspend for a maximum of ten years the running of the twoand five year periods while away on active duty assignments. The proposal is expected to cost $227million over 10 years.
C. Exclusion of Amounts Received Under Military Housing Assistance Program. The Departmentof Defense makes payments to members of the Armed Services to offset diminution in housing values due to military base realignment or closure. For example, if a house near a base was worth $180,000 prior to a base closure and $100,000 after a base closure, DOD may provide the owner with a payment to offset most (but not all) of the $80,000 diminution in value. Under current law,those amounts are taxable as compensation. The proposal would provide that such payments are notincludible into income. It is expected to cost $22 million over 10 years.
D. Expand Combat Zone Filing Rules To Include Contingency Operations. Under current law,military personnel in a combat zone receive an extended period of time for filing federal income taxreturns. This exception, however, has not been extended to contingency operations. The proposalwould provide similar filing extensions to military personnel assigned to contingency operationsdesignated by the Secretary of Defense. The proposal is estimated to cost $14 million over 10 years.
E. Above-The Line-Deduction For Overnight Travel Expenses of National Guard and Reserve Members. Reservists who travel periodically (typically one weekend per month and two weeks inthe summer) for reserve duty incur significant travel expenses, some of which are not reimbursedby the military. Under current law, those “unreimbursed business expenses” may deducted as anitemized deductions on Schedule A to the extent those expenses exceed 2% of adjusted grossincome. Thus, reservists who do not itemize (like 75% of all taxpayers) may not deduct any portionof those expenses, and reservists who itemize may deduct those expenses only in limited form. Theproposal would provide an above-the-line deduction for overnight travel costs incurred more than100 miles from the taxpayer’s home including meals, transportation and lodging up to the amountallowable as per diem allowances applicable to the locale by the DOD for all reservists and membersof the National Guard. The proposal is expected to cost less than $851 million over 10 years.
F. Expansion of Membership For Veterans’ Organizations. Qualified veterans’ organizations undersection 501(c)(19) of the tax code are treated as tax-exempt organizations under the Internal RevenueCode. As such, contributions to qualified veterans’ organization are deductible. To become aqualified veterans’ organization, (1) 75% of the members must be current or former active militarypersonnel and (2) “substantially all” of the members must be either current or former active militarypersonnel or widows/widowers of former active military personnel. The proposal would permitlineal descendants and ancestors of current or former active military personnel to qualify for the“substantially all” test. The proposal is expected to cost $17 million over 10 years.
G. Clarification of Treatment of Child Care Subsidies. Under current law, employees generally may exclude from taxable income up to $5,000 of employer-provided child care expenses. The military provides extensive child-care benefits to its employees. A separate provision in the Internal Revenue Code excludes from income benefits provided to members of the uniformed services. However, it is unclear whether child-care benefits were intended to be included in that provision. Proposal would clarify that child-care benefits provided to military personnel would be excludible from income and is not expected to have a revenue effect.
H. Treatment of Service Academy Appointments as Scholarships for Purposes of Section 529 and Section 530 Education Programs. The proposal permits penalty-free withdrawals from Coverdell education savings accounts and qualified tuition programs made on account of the attendance of the account holder or beneficiary at the United States Military Academy, the United States NavalAcademy, the United States Air Force Academy, the United States Coast Guard Academy, or the United States Merchant Marine Academy. The amount of funds that can be withdrawn penalty-freeis limited to the costs of advanced education as defined in Title 10, section 2005(e)(3) of the UnitedStates Code (as in effect on the date of the enactment of the proposal) at such Academies. Theproposal is expected to cost $2 million over 10 years.
I. Suspension of the Tax-Exempt Status of Terrorist Organizations. The proposal suspends the tax exemptstatus of an organization that is exempt from tax under section 501(a) for any period duringwhich the organization is designated or identified as a terrorist organization. The proposal alsomakes such an organization ineligible to apply for tax exemption under section 501(a). The periodof suspension runs from the date the organization is first designated or identified to the date whenall designations or identifications with respect to the organization have been rescinded pursuant tothe law or Executive order under which the designation or identification was made. The proposaldirects the IRS to update the listings of tax-exempt organizations to take account of organizationsthat have had their exemption suspended and publish for taxpayers the non-deductibility ofcontributions to such organizations during the period of suspension. The proposal has a negligiblerevenue effect.
J. Assistance for Families of Space Shuttle Columbia Heroes. This amendment expands the classof those eligible for income tax relief to include astronauts who die in the line of duty, effectiveJanuary 1, 2003. This amendment will afford astronauts killed in the line of duty income tax relief,death benefit relief, and estate tax relief. The proposal is estimated to cost $1 billion over ten years.K. Offset: Custom User Fees. The bill would be paid for by extending custom user fees throughMarch 1, 2005.
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