Passage of Military Tax Relief Marks Significant Legislative Achievement
Original Baucus-Grassley Comprehensive Military Tax Relief Bill is Headed to President's Desk
(WASHINGTON, D.C.) U.S. Senator Max Baucus, Ranking Member of the Senate FinanceCommittee and original author of the Armed Forces Tax Fairness Act, today hailed theunanimous House passage of the military tax relief bill, which will allow the bill to now move tothe President's desk. The bill will increase payments to families when a member of the militarydies in the line of duty, will eliminate taxes on military child care benefits, and will assistNational Guard and Reservists with costs relating to service, among other provisions.
Baucus has been a long-time champion of providing the military with tax relief, havingfirst introduced the bill in 2002 with Finance Committee Chairman Grassley. Baucus hascontinuously pressed for final passage of the bill and has worked to attach it to a number ofvarious pieces of legislation. Most recently, Baucus included the bill within the major tax cutlegislation that passed in May, although the military provisions were stripped before finalpassage.
"I have worked doggedly with Chairman Grassle y and numerous other Members to keepup the pressure and get our military legislation passed once and for all. Today we finallyachieved victory," Baucus said. "We've reached an important milestone for all of our bravemilitary personnel -- they will finally receive the tax relief and assistance they deserve."
The Armed Forces Tax Fairness Act of 2003 last passed the Senate as a stand alone billin March of this year by a vote of 97 to 0. Last week, the House passed a watered down versionof the Senate military tax relief bill. As a result, the Senate passed an amendment to strengthenthe House bill and reinserted the full provisions of the original Senate bill into the Houselegislation.
Today, the House passed all of the provisions included in the original Senate ArmedForces Tax Fairness Act. The only difference in the legislation is how the bill is offset.Formerly, the bill was financed through an increased collection of taxes from U.S. expatriatesand IRS user fees. The bill will now be paid for through customs user fees. The bill has alsobeen re-titled as the Military Family Tax Relief Act.
"We've passed this bill in honor of each and every member of the military who is servingfar from home, away from their families. I believe this legislation will help ease some tax relatedworries, so our military can spend their time fighting for our country, not fighting the tax code. Ilook forward to seeing the bill signed into law shortly," Baucus said.
Provisions of the Military Family Tax Relief Act include:
A. Increase in Military Death Gratuity Payments. Under current law, the families ofsoldiers killed in combat receive a death gratuity payment of $6,000. The bill wouldincrease this amount to $12,000.
B. Exclusion of Military Death Gratuity Payments. Under current law, death gratuitybenefits 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 theexclusion from income for such benefits has not been adjusted. This bill would increasethe amount to $12,000 and provide exclusion for all death gratuity payments.
C. Exclusion of Gain from the Sale of a Princ ipal Residence by Military and ForeignService Personnel. In 1997, Congress amended the taxation of capital gains from thesale of a principal residence. Under those rules, up to $250,000 ($500,000 per marriedcouple) may be excluded on the sale of a principal residence if the individual has lived inthe house for at least two of the previous five years. Although Treasury Regulationsprovide relief in the event a principal residence is sold for work-related reasons prior tothe time at which the two- year requirement is met, no relief has been provided formilitary and foreign service personnel who are required to move either within the U.S. orabroad 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 runningof the two and five year periods while away on active duty assignments.
D. Exclusion of Amounts Received Under Military Housing Assistance Program. TheDepartment of Defense makes payments to members of the Armed Services to offsetdiminution in housing values due to military base realignment or closure. For example, ifa house near a base was worth $180,000 prior to a base closure and $100,000 after a baseclosure, DOD may provide the owner wit h a payment to offset most (but not all) of the$80,000 diminution in value. Under current law, those amounts are taxable ascompensation. The proposal would provide that such payments are not includible intoincome.
E. Expand Combat Zone Filing Rules To Include Contingency Operations . Undercurrent law, military personnel in a combat zone receive an extended period of time forfiling federal income tax returns. This exception, however, has not been extended tocontingency operations. The proposal would provide similar filing extensions to militarypersonnel assigned to contingency operations designated by the Secretary of Defense.
F. Above-The Line-Deduction For Overnight Travel Expenses of National Guard andReserve Members. Reservists who travel periodically (typically one weekend per monthand two weeks in the summer) for reserve duty incur significant travel expenses, some ofwhich are not reimbursed by the military. Under current law, those “unreimbursedbusiness expenses” may be deducted as itemized deductions on Schedule A to the extentthose expenses exceed 2% of adjusted gross income. Thus, reservists who do not itemize(like 75% of all taxpayers) may not deduct any portion of those expenses, and reservistswho itemize may deduct those expenses only in limited form. The proposal wouldprovide an above-the- line deduction for overnight travel costs incurred more than 100miles from the taxpayer’s home including meals, transportation and lodging up to theamount allowable as per diem allowances applicable to the locale by the DOD for allreservists and members of the National Guard.
G. Expansion of Membership For Veterans’ Organizations . Qualified veterans’organizations under section 501(c)(19) of the tax code are treated as tax-exemptorganizations under the Internal Revenue Code. As such, contributions to qualifiedveterans’ organization are deductible. To become a qualified veterans’ organization, (1)75% of the members must be current or former active military personnel 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 wouldpermit lineal descendants and ancestors of current or former active military personnel toqualify for the “substantially all” test.
H. Clarification of Treatment of Child Care Subsidies. Under current law, employeesgenerally may exclude from taxable income up to $5,000 of employer-provided childcareexpenses. The military provides extensive childcare benefits to its employees. Aseparate provision in the Internal Revenue Code excludes from income benefits providedto members of the uniformed services. However, it is unclear whether childcare benefitswere intended to be included in that provision. The proposal would clarify that childcarebenefits provided to military personnel would be excludible from income and is notexpected to have a revenue effect.
I. Treatment of Service Academy Appointments as Scholarships for Purposes ofSection 529 and Section 530 Education Programs . The proposal permits penalty-freewithdrawals from Coverdell education savings accounts and qualified tuition programsmade on account of the attendance of the account holder or beneficiary at the UnitedStates Military Academy, the United States Naval Academy, the United States Air ForceAcademy, the United States Coast Guard Academy, or the United States MerchantMarine Academy. The amount of funds that can be withdrawn penalty- free is limited tothe 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.
J. Suspension of the Tax-Exempt Status of Terrorist Organizations . The proposalsuspends the tax-exempt status of an organization that is exempt from tax under section501(a) for any period during which the organization is designated or identified as aterrorist organization. The proposal also makes such an organization ineligible to applyfor tax exemption under section 501(a). The period of suspension runs from the date theorganization is first designated or identified to the date when all designations oridentifications with respect to the organization have been rescinded pursuant to the law orExecutive order under which the designation or identification was made. The proposaldirects the IRS to update the listings of tax-exempt organizations to take account oforganizations that have had their exemption suspended and publish for taxpayers the nondeductibilityof contributions to such organizations during the period of suspension.
K. Assistance for Families of Space Shuttle Columbia Heroes. This amendment expandsthe class of those eligible for income tax relief to include astronauts who die in the line ofduty, effective January 1, 2003. This amendment will afford astronauts killed in the lineof duty income tax relief, death benefit relief, and estate tax relief.
L. Offset: Custom User Fees. The bill would be fully paid for by extending custom userfees through March 1, 2005.
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