To amend the Internal Revenue Code of 1986 to improve tax equity for military personnel, and for other purposes.

February 4, 2003

Mr. GRASSLEY (for himself, Mr. Baucus, Mr. McCain, Mr. Rockefeller, Mr. Hatch, Mr. Conrad, Mr. DeWine, Mr. Graham of Florida, Mr. Smith, Mr. Bingaman, Mr. Allard, Mrs. Lincoln, Mr. Warner, Mr. Johnson, Mr. Harkin, Mr. Durbin, and Ms. Landrieu) introduced the following bill; which was read twice and referred to the Committee on Finance

To amend the Internal Revenue Code of 1986 to improve tax equity for military personnel, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; ETC.

(a) SHORT TITLE- This Act may be cited as the `Armed Forces Tax Fairness Act of 2003'.

(b) AMENDMENT OF 1986 CODE- Except 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--IMPROVING TAX EQUITY FOR MILITARY PERSONNEL

Sec. 101. Exclusion of gain from sale of a principal residence by a member of the uniformed services or the Foreign Service.

Sec. 102. Exclusion from gross income of certain death gratuity payments.

Sec. 103. Exclusion for amounts received under Department of Defense Homeowners Assistance Program.

Sec. 104. Expansion of combat zone filing rules to contingency operations.

Sec. 105. Modification of membership requirement for exemption from tax for certain veterans' organizations.

Sec. 106. Clarification of treatment of certain dependent care assistance programs.

Sec. 107. Clarification relating to exception from additional tax on certain distributions from qualified tuition programs, etc. on account of attendance at military academy.

Sec. 108. Suspension of tax-exempt status of terrorist organizations.

Sec. 109. Above-the-line deduction for overnight travel expenses of National Guard and Reserve members.

TITLE II--OTHER PROVISIONS

Sec. 201. Extension of IRS user fees.

Sec. 202. Partial payment of tax liability in installment agreements.

Sec. 203. Revision of tax rules on expatriation.

Sec. 204. Protection of social security.

TITLE I--IMPROVING TAX EQUITY FOR MILITARY PERSONNEL

SEC. 101. EXCLUSION OF GAIN FROM SALE OF A PRINCIPAL RESIDENCE BY A MEMBER OF THE UNIFORMED SERVICES OR THE FOREIGN SERVICE.

(a) IN GENERAL- Subsection (d) of section 121 (relating to exclusion of gain from sale of principal residence) is amended by redesignating paragraph (9) as paragraph (10) and by inserting after paragraph (8) the following new paragraph:

`(9) MEMBERS OF UNIFORMED SERVICES AND FOREIGN SERVICE-

`(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 on qualified official extended duty as a member of the uniformed services or of the Foreign Service of the United States.

`(B) MAXIMUM PERIOD OF SUSPENSION- The 5-year period described in subsection (a) shall not be extended more than 10 years by reason of subparagraph (A).

`(C) QUALIFIED OFFICIAL EXTENDED DUTY- For purposes of this paragraph--

`(i) IN GENERAL- The term `qualified official extended duty' means any extended duty while serving at a duty station which is at least 50 miles from such property or while residing under Government orders in Government quarters.

`(ii) UNIFORMED SERVICES- The term `uniformed services' has the meaning given such term by section 101(a)(5) of title 10, United States Code, as in effect on the date of the enactment of this paragraph.

`(iii) FOREIGN SERVICE OF THE UNITED STATES- The term `member of the Foreign Service of the United States' has the meaning given the term `member of the Service' by paragraph (1), (2), (3), (4), or (5) of section 103 of the Foreign Service Act of 1980, as in effect on the date of the enactment of this paragraph.

`(iv) EXTENDED DUTY- The term `extended duty' means any period of active duty pursuant to a call or order to such duty for a period in excess of 90 days or for an indefinite period.

`(D) SPECIAL RULES RELATING TO ELECTION-

`(i) ELECTION LIMITED TO 1 PROPERTY AT A TIME- An election under subparagraph (A) with respect to any property may not be made if such an election is in effect with respect to any other property.

`(ii) REVOCATION OF ELECTION- An election under subparagraph (A) may be revoked at any time.'.

(b) EFFECTIVE DATE; SPECIAL RULE-

(1) EFFECTIVE DATE- The amendments made by this section shall take effect as if included in the amendments made by section 312 of the Taxpayer Relief Act of 1997.

(2) WAIVER OF LIMITATIONS- If refund or credit of any overpayment of tax resulting from the amendments made by this section is prevented at any time before the close of the 1-year period beginning on the date of the enactment of this Act by the operation of any law or rule of law (including res judicata), such refund or credit may nevertheless be made or allowed if claim therefor is filed before the close of such period.

SEC. 102. EXCLUSION FROM GROSS INCOME OF CERTAIN DEATH GRATUITY PAYMENTS.

(a) IN GENERAL- Subsection (b)(3) of section 134 (relating to certain military benefits) is amended by adding at the end the following new subparagraph:

`(C) EXCEPTION FOR DEATH GRATUITY ADJUSTMENTS MADE BY LAW- Subparagraph (A) shall not apply to any adjustment to the amount of death gratuity payable under chapter 75 of title 10, United States Code, which is pursuant to a provision of law enacted after September 9, 1986.'.

(b) CONFORMING AMENDMENT- Subparagraph (A) of section 134(b)(3) is amended by striking `subparagraph (B)' and inserting `subparagraphs (B) and (C)'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply with respect to deaths occurring after September 10, 2001.

SEC. 103. EXCLUSION FOR AMOUNTS RECEIVED UNDER DEPARTMENT OF DEFENSE HOMEOWNERS ASSISTANCE PROGRAM.

(a) IN GENERAL- Section 132(a) (relating to the exclusion from gross income of certain fringe benefits) is amended by striking `or' at the end of paragraph (6), by striking the period at the end of paragraph (7) and inserting `, or', and by adding at the end the following new paragraph:

`(8) qualified military base realignment and closure fringe.'.

(b) QUALIFIED MILITARY BASE REALIGNMENT AND CLOSURE FRINGE- Section 132 is amended by redesignating subsection (n) as subsection (o) and by inserting after subsection (m) the following new subsection:

`(n) QUALIFIED MILITARY BASE REALIGNMENT AND CLOSURE FRINGE- For purposes of this section--

`(1) IN GENERAL- The term `qualified military base realignment and closure fringe' means 1 or more payments under the authority of section 1013 of the Demonstration Cities and Metropolitan Development Act of 1966 (42 U.S.C. 3374) (as in effect on the date of the enactment of this subsection) to offset the adverse effects on housing values as a result of a military base realignment or closure.

`(2) LIMITATION- With respect to any property, such term shall not include any payment referred to in paragraph (1) to the extent that the sum of all of such payments related to such property exceeds the amount described in clause (1) of subsection (c) of such section (as in effect on such date).'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to payments made after the date of the enactment of this Act.

SEC. 104. EXPANSION OF COMBAT ZONE FILING RULES TO CONTINGENCY OPERATIONS.

(a) IN GENERAL- Section 7508(a) (relating to time for performing certain acts postponed by reason of service in combat zone) is amended--

(1) by inserting `, or when deployed outside the United States away from the individual's permanent duty station while participating in an operation designated by the Secretary of Defense as a contingency operation (as defined in section 101(a)(13) of title 10, United States Code) or which became such a contingency operation by operation of law' after `section 112',

(2) by inserting in the first sentence `or at any time during the period of such contingency operation' after `for purposes of such section',

(3) by inserting `or operation' after `such an area', and

(4) by inserting `or operation' after `such area'.

(b) CONFORMING AMENDMENTS-

(1) Section 7508(d) is amended by inserting `or contingency operation' after `area'.

(2) The heading for section 7508 is amended by inserting `or contingency operation' after `combat zone'.

(3) The item relating to section 7508 in the table of sections for chapter 77 is amended by inserting `or contingency operation' after `combat zone'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to any period for performing an act which has not expired before the date of the enactment of this Act.

SEC. 105. MODIFICATION OF MEMBERSHIP REQUIREMENT FOR EXEMPTION FROM TAX FOR CERTAIN VETERANS' ORGANIZATIONS.

(a) IN GENERAL- Subparagraph (B) of section 501(c)(19) (relating to list of exempt organizations) is amended by striking `or widowers' and inserting `, widowers, ancestors, or lineal descendants'.

(b) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 106. CLARIFICATION OF THE TREATMENT OF CERTAIN DEPENDENT CARE ASSISTANCE PROGRAMS.

(a) IN GENERAL- Section 134(b) (defining qualified military benefit) is amended by adding at the end the following new paragraph:

`(4) CLARIFICATION OF CERTAIN BENEFITS- For purposes of paragraph (1), such term includes any dependent care assistance program (as in effect on the date of the enactment of this paragraph) for any individual described in paragraph (1)(A).'.

(b) CONFORMING AMENDMENTS-

(1) Section 134(b)(3)(A), as amended by section 102, is amended by inserting `and paragraph (4)' after `subparagraphs (B) and (C)'.

(2) Section 3121(a)(18) is amended by striking `or 129' and inserting `, 129, or 134(b)(4)'.

(3) Section 3306(b)(13) is amended by striking `or 129' and inserting `, 129, or 134(b)(4)'.

(4) Section 3401(a)(18) is amended by striking `or 129' and inserting `, 129, or 134(b)(4)'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2002.

(d) NO INFERENCE- No inference may be drawn from the amendments made by this section with respect to the tax treatment of any amounts under the program described in section 134(b)(4) of the Internal Revenue Code of 1986 (as added by this section) for any taxable year beginning before January 1, 2002.

SEC. 107. CLARIFICATION RELATING TO EXCEPTION FROM ADDITIONAL TAX ON CERTAIN DISTRIBUTIONS FROM QUALIFIED TUITION PROGRAMS, ETC. ON ACCOUNT OF ATTENDANCE AT MILITARY ACADEMY.

(a) IN GENERAL- Subparagraph (B) of section 530(d)(4) (relating to exceptions from additional tax for distributions not used for educational purposes) is amended by striking `or' at the end of clause (iii), by redesignating clause (iv) as clause (v), and by inserting after clause (iii) the following new clause:

`(iv) made on account of the attendance of the account holder at the United States Military Academy, the United States Naval Academy, the United States Air Force Academy, the United States Coast Guard Academy, or the United States Merchant Marine Academy, to the extent that the amount of the payment or distribution does not exceed the costs of advanced education (as defined by section 2005(e)(3) of title 10, United States Code, as in effect on the date of the enactment of this section) attributable to such attendance, or'.

(b) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2002.

SEC. 108. SUSPENSION OF TAX-EXEMPT STATUS OF TERRORIST ORGANIZATIONS.

(a) IN GENERAL- Section 501 (relating to exemption from tax on corporations, certain trusts, etc.) is amended by redesignating subsection (p) as subsection (q) and by inserting after subsection (o) the following new subsection:

`(p) SUSPENSION OF TAX-EXEMPT STATUS OF TERRORIST ORGANIZATIONS-

`(1) IN GENERAL- The exemption from tax under subsection (a) with respect to any organization described in paragraph (2), and the eligibility of any organization described in paragraph (2) to apply for recognition of exemption under subsection (a), shall be suspended during the period described in paragraph (3).

`(2) TERRORIST ORGANIZATIONS- An organization is described in this paragraph if such organization is designated or otherwise individually identified--

`(A) under section 212(a)(3)(B)(vi)(II) or 219 of the Immigration and Nationality Act as a terrorist organization or foreign terrorist organization,

`(B) in or pursuant to an Executive order which is related to terrorism and issued under the authority of the International Emergency Economic Powers Act or section 5 of the United Nations Participation Act of 1945 for the purpose of imposing on such organization an economic or other sanction, or

`(C) in or pursuant to an Executive order issued under the authority of any Federal law if--

`(i) the organization is designated or otherwise individually identified in or pursuant to such Executive order as supporting or engaging in terrorist activity (as defined in section 212(a)(3)(B) of the Immigration and Nationality Act) or supporting terrorism (as defined in section 140(d)(2) of the Foreign Relations Authorization Act, Fiscal Years 1988 and 1989); and

`(ii) such Executive order refers to this subsection.

`(3) PERIOD OF SUSPENSION- With respect to any organization described in paragraph (2), the period of suspension--

`(A) begins on the date of the first publication of a designation or identification described in paragraph (2) with respect to such organization, and

`(B) ends on the first date that all designations and identifications described in paragraph (2) with respect to such organization are rescinded pursuant to the law or Executive order under which such designation or identification was made.

`(4) DENIAL OF TAX BENEFITS- No exclusion, credit, or deduction shall be allowed under any provision of this title with respect to any contribution to an organization described in paragraph (2) during the period described in paragraph (3).

`(5) DENIAL OF ADMINISTRATIVE OR JUDICIAL CHALLENGE OF SUSPENSION OR DENIAL OF DEDUCTION- Notwithstanding section 7428 or any other provision of law, no organization or other person may challenge a suspension under paragraph (1), a designation or identification described in paragraph (2), the period of suspension described in paragraph (3), or a denial of a deduction under paragraph (4) in any administrative or judicial proceeding relating to the Federal tax liability of such organization or other person.

`(6) ERRONEOUS DESIGNATION-

`(A) IN GENERAL- If--

`(i) the tax exemption of any organization described in paragraph (2) is suspended under paragraph (1),

`(ii) each designation and identification described in paragraph (2) which has been made with respect to such organization is determined to be erroneous pursuant to the law or Executive order under which such designation or identification was made, and

`(iii) the erroneous designations and identifications result in an overpayment of income tax for any taxable year by such organization,

credit or refund (with interest) with respect to such overpayment shall be made.

`(B) WAIVER OF LIMITATIONS- If the credit or refund of any overpayment of tax described in subparagraph (A)(iii) is prevented at

any time by the operation of any law or rule of law (including res judicata), such credit or refund may nevertheless be allowed or made if the claim therefor is filed before the close of the 1-year period beginning on the date of the last determination described in subparagraph (A)(ii).

`(7) NOTICE OF SUSPENSIONS- If the tax exemption of any organization is suspended under this subsection, the Internal Revenue Service shall update the listings of tax-exempt organizations and shall publish appropriate notice to taxpayers of such suspension and of the fact that contributions to such organization are not deductible during the period of such suspension.'.

(b) EFFECTIVE DATE- The amendments made by this section shall take effect on the date of the enactment of this Act.

SEC. 109. ABOVE-THE-LINE DEDUCTION FOR OVERNIGHT TRAVEL EXPENSES OF NATIONAL GUARD AND RESERVE MEMBERS.

(a) DEDUCTION ALLOWED- Section 162 (relating to certain trade or business expenses) is amended by redesignating subsection (p) as subsection (q) and inserting after subsection (o) the following new subsection:

`(p) TREATMENT OF EXPENSES OF MEMBERS OF RESERVE COMPONENT OF ARMED FORCES OF THE UNITED STATES- For purposes of subsection (a)(2), in the case of an individual who performs services as a member of a reserve component of the Armed Forces of the United States at any time during the taxable year, such individual shall be deemed to be away from home in the pursuit of a trade or business for any period during which such individual is away from home in connection with such service.'.

(b) DEDUCTION ALLOWED WHETHER OR NOT TAXPAYER ELECTS TO ITEMIZE- Section 62(a)(2) (relating to certain trade and business deductions of employees) is amended by adding at the end the following new subparagraph:

`(E) CERTAIN EXPENSES OF MEMBERS OF RESERVE COMPONENTS OF THE ARMED FORCES OF THE UNITED STATES- The deductions allowed by section 162 which consist of expenses, determined at a rate not in excess of the rates for travel expenses (including per diem in lieu of subsistence) authorized for employees of agencies under subchapter I of chapter 57 of title 5, United States Code, paid or incurred by the taxpayer in connection with the performance of services by such taxpayer as a member of a reserve component of the Armed Forces of the United States for any period during which such individual is more than 100 miles away from home in connection with such services.'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2002.

TITLE II--OTHER PROVISIONS

SEC. 201. EXTENSION OF INTERNAL REVENUE SERVICE USER FEES.

(a) IN GENERAL- Chapter 77 (relating to miscellaneous provisions) is amended by adding at the end the following new section:

`SEC. 7528. INTERNAL REVENUE SERVICE USER FEES.

`(a) GENERAL RULE- The Secretary shall establish a program requiring the payment of user fees for--

`(1) requests to the Internal Revenue Service for ruling letters, opinion letters, and determination letters, and

`(2) other similar requests.

`(b) PROGRAM CRITERIA-

`(1) IN GENERAL- The fees charged under the program required by subsection (a)--

`(A) shall vary according to categories (or subcategories) established by the Secretary,

`(B) shall be determined after taking into account the average time for (and difficulty of) complying with requests in each category (and subcategory), and

`(C) shall be payable in advance.

`(2) EXEMPTIONS, ETC-

`(A) IN GENERAL- The Secretary shall provide for such exemptions (and reduced fees) under such program as the Secretary determines to be appropriate.

`(B) EXEMPTION FOR CERTAIN REQUESTS REGARDING PENSION PLANS- The Secretary shall not require payment of user fees under such program for requests for determination letters with respect to the qualified status of a pension benefit plan maintained solely by 1 or more eligible employers or any trust which is part of the plan. The preceding sentence shall not apply to any request--

`(i) made after the later of--

`(I) the fifth plan year the pension benefit plan is in existence, or

`(II) the end of any remedial amendment period with respect to the plan beginning within the first 5 plan years, or

`(ii) made by the sponsor of any prototype or similar plan which the sponsor intends to market to participating employers.

`(C) DEFINITIONS AND SPECIAL RULES- For purposes of subparagraph (B)--

`(i) PENSION BENEFIT PLAN- The term `pension benefit plan' means a pension, profit-sharing, stock bonus, annuity, or employee stock ownership plan.

`(ii) ELIGIBLE EMPLOYER- The term `eligible employer' means an eligible employer (as defined in section 408(p)(2)(C)(i)(I)) which has at least 1 employee who is not a highly compensated employee (as defined in section 414(q)) and is participating in the plan. The determination of whether an employer is an eligible employer under subparagraph (B) shall be made as of the date of the request described in such subparagraph.

`(iii) DETERMINATION OF AVERAGE FEES CHARGED- For purposes of any determination of average fees charged, any request to which subparagraph (B) applies shall not be taken into account.

`(3) AVERAGE FEE REQUIREMENT- The average fee charged under the program required by subsection (a) shall not be less than the amount determined under the following table:

$250

$350

$300

$275

$200.

`(c) TERMINATION- No fee shall be imposed under this section with respect to requests made after September 30, 2013.'.

(b) CONFORMING AMENDMENTS-

(1) The table of sections for chapter 77 is amended by adding at the end the following new item:

`Sec. 7528. Internal Revenue Service user fees.'.

(2) Section 10511 of the Revenue Act of 1987 is repealed.

(3) Section 620 of the Economic Growth and Tax Relief Reconciliation Act of 2001 is repealed.

(c) LIMITATIONS- Notwithstanding any other provision of law, any fees collected pursuant to section 7528 of the Internal Revenue Code of 1986, as added by subsection (a), shall not be expended by the Internal Revenue Service unless provided by an appropriations Act.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to requests made after the date of the enactment of this Act.

SEC. 202. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALLMENT AGREEMENTS.

(a) IN GENERAL-

(1) Section 6159(a) (relating to authorization of agreements) is amended--

(A) by striking `satisfy liability for payment of' and inserting `make payment on', and

(B) by inserting `full or partial' after `facilitate'.

(2) Section 6159(c) (relating to Secretary required to enter into installment agreements in certain cases) is amended in the matter preceding paragraph (1) by inserting `full' before `payment'.

(b) REQUIREMENT TO REVIEW PARTIAL PAYMENT AGREEMENTS EVERY TWO YEARS- Section 6159 is amended by redesignating subsections (d) and (e) as subsections (e) and (f), respectively, and inserting after subsection (c) the following new subsection:

`(d) SECRETARY REQUIRED TO REVIEW INSTALLMENT AGREEMENTS FOR PARTIAL COLLECTION EVERY TWO YEARS- In the case of an agreement entered into by the Secretary under subsection (a) for partial collection of a tax liability, the Secretary shall review the agreement at least once every 2 years.'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to agreements entered into on or after the date of the enactment of this Act.

SEC. 203. 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- Except as provided in subsections (d) and (f), all property of a covered expatriate to whom this section applies 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.

`(3) EXCLUSION FOR CERTAIN GAIN-

`(A) IN GENERAL- The amount which, but for this paragraph, would be includible in the gross income of any individual by reason of this section shall be reduced (but not below zero) by $600,000. For purposes of this paragraph, allocable expatriation gain taken into account under subsection (f)(2) shall be treated in the same manner as an amount required to be includible in gross income.

`(B) COST-OF-LIVING ADJUSTMENT-

`(i) IN GENERAL- In the case of an expatriation date occurring in any calendar year after 2003, the $600,000 amount under 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 such calendar year, determined by substituting `calendar year 2002' for `calendar year 1992' in subparagraph (B) thereof.

`(ii) ROUNDING RULES- If any amount after adjustment under clause (i) is not a multiple of $1,000, such amount shall be rounded to the next lower multiple of $1,000.

`(4) ELECTION TO CONTINUE TO BE TAXED AS UNITED STATES CITIZEN-

`(A) IN GENERAL- If a covered expatriate elects the application of this paragraph--

`(i) this section (other than this paragraph and subsection (i)) shall not apply to the expatriate, but

`(ii) in the case of property to which this section would apply but for such election, the expatriate shall be subject to tax under this title in the same manner as if the individual were a United States citizen.

`(B) REQUIREMENTS- Subparagraph (A) shall not apply to an individual unless the individual--

`(i) provides security for payment of tax in such form and manner, and in such amount, as the Secretary may require,

`(ii) consents to the waiver of any right of the individual under any treaty of the United States which would preclude assessment or collection of any tax which may be imposed by reason of this paragraph, and

`(iii) complies with such other requirements as the Secretary may prescribe.

`(C) ELECTION- An election under subparagraph (A) shall apply to all property to which this section would apply but for the election and, once made, shall be irrevocable. Such election shall also apply to property the basis of which is determined in whole or in part by reference to the property with respect to which the election was made.

`(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 payment of the additional tax attributable to such property shall be postponed 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 POSTPONEMENT- No tax may be postponed 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 to the Secretary 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 in an amount equal to the deferred tax amount under paragraph (2) for the property, or

`(ii) the taxpayer otherwise establishes to the satisfaction of the Secretary that the security is adequate.

`(5) WAIVER OF CERTAIN RIGHTS- No election may be made under paragraph (1) unless the taxpayer consents to the 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 election under paragraph (1) shall only apply to property described in the election and, once made, is irrevocable. An election may be made under paragraph (1) with respect to an interest in a trust with respect to which gain is required to be recognized under subsection (f)(1).

`(7) INTEREST- For purposes of section 6601--

`(A) the last date for the payment of tax shall be determined without regard to the election under this subsection, and

`(B) section 6621(a)(2) shall be applied by substituting `5 percentage points' for `3 percentage points' in subparagraph (B) thereof.

`(c) COVERED EXPATRIATE- For purposes of this section--

`(1) IN GENERAL- Except as provided in paragraph (2), the term `covered expatriate' means an expatriate.

`(2) EXCEPTIONS- An individual shall not be treated as a covered expatriate if--

`(A) 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

`(ii) has not been a resident of the United States (as defined in section 7701(b)(1)(A)(ii)) during the 5 taxable years ending with the taxable year during which the expatriation date occurs, or

`(B)(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 5 taxable years before the date of relinquishment.

`(d) EXEMPT PROPERTY; SPECIAL RULES FOR PENSION PLANS-

`(1) EXEMPT PROPERTY- This section shall not apply to the following:

`(A) UNITED STATES REAL PROPERTY INTERESTS- Any United States real property interest (as defined in section 897(c)(1)), other than stock of a United States real property holding corporation which does not, on the day before the expatriation date, meet the requirements of section 897(c)(2).

`(B) SPECIFIED PROPERTY- Any property or interest in property not described in subparagraph (A) which the Secretary specifies in regulations.

`(2) SPECIAL RULES FOR CERTAIN RETIREMENT PLANS-

`(A) IN GENERAL- If a covered expatriate holds on the day before the expatriation date any interest in a retirement plan to which this paragraph applies--

`(i) such interest shall not be treated as sold for purposes of subsection (a)(1), but

`(ii) an amount equal to the present value of the expatriate's nonforfeitable accrued benefit shall be treated as having been received by such individual on such date as a distribution under the plan.

`(B) TREATMENT OF SUBSEQUENT DISTRIBUTIONS- In the case of any distribution on or after the expatriation date to or on behalf of the covered expatriate from a plan from which the expatriate was treated as receiving a distribution under subparagraph (A), the amount otherwise includible in gross income by reason of the subsequent distribution shall be reduced by the excess of the amount includible in gross income under subparagraph (A) over any portion of such amount to which this subparagraph previously applied.

`(C) TREATMENT OF SUBSEQUENT DISTRIBUTIONS BY PLAN- For purposes of this title, a retirement plan to which this paragraph applies, and any person acting on the plan's behalf, shall treat any subsequent distribution described in subparagraph (B) in the same manner as such distribution would be treated without regard to this paragraph.

`(D) APPLICABLE PLANS- This paragraph shall apply to--

`(i) any qualified retirement plan (as defined in section 4974(c)),

`(ii) an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A), and

`(iii) to the extent provided in regulations, any foreign pension plan or similar retirement arrangements or programs.

`(e) DEFINITIONS- For purposes of this section--

`(1) EXPATRIATE- The term `expatriate' means--

`(A) any United States citizen who relinquishes citizenship, and

`(B) any long-term resident of the United States who--

`(i) ceases to be a lawful permanent resident of the United States (within the meaning of section 7701(b)(6)), or

`(ii) 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 and who does not waive the benefits of such treaty applicable to residents of the foreign country.

`(2) 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 of the event described in clause (i) or (ii) of paragraph (1)(B).

`(3) RELINQUISHMENT OF CITIZENSHIP- A citizen shall be treated as relinquishing United States citizenship on the earliest of--

`(A) the date the individual renounces such individual's 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.

`(4) LONG-TERM RESIDENT- The term `long-term resident' has the meaning given to such term by section 877(e)(2).

`(f) SPECIAL RULES APPLICABLE TO BENEFICIARIES' INTERESTS IN TRUST-

`(1) IN GENERAL- Except as provided in paragraph (2), if an individual is determined under paragraph (3) to hold an interest in a trust on the day before the expatriation date--

`(A) the individual shall not be treated as having sold such interest,

`(B) such interest shall be treated as a separate share in the trust, and

`(C)(i) such separate share shall be treated as a separate trust consisting of the assets allocable to such share,

`(ii) the separate trust shall be treated as having sold its assets on the day before the expatriation date for their fair market value and as having distributed all of its assets to the individual as of such time, and

`(iii) the individual shall be treated as having recontributed the assets to the separate trust.

Subsection (a)(2) shall apply to any income, gain, or loss of the individual arising from a distribution described in subparagraph (C)(ii). In determining the amount of such distribution, proper adjustments shall be made for liabilities of the trust allocable to an individual's share in the trust.

`(2) SPECIAL RULES FOR INTERESTS IN QUALIFIED TRUSTS-

`(A) IN GENERAL- If the trust interest described in paragraph (1) is an interest in a qualified trust--

`(i) paragraph (1) and subsection (a) shall not apply, and

`(ii) in addition to any other tax imposed by this title, there is hereby imposed on each distribution with respect to such interest a tax in the amount determined under subparagraph (B).

`(B) AMOUNT OF TAX- The amount of tax under subparagraph (A)(ii) shall be equal to the lesser of--

`(i) the highest rate of tax imposed by section 1(e) for the taxable year which includes the day before the expatriation date, multiplied by the amount of the distribution, or

`(ii) the balance in the deferred tax account immediately before the distribution determined without regard to any increases under subparagraph (C)(ii) after the 30th day preceding the distribution.

`(C) DEFERRED TAX ACCOUNT- For purposes of subparagraph (B)(ii)--

`(i) OPENING BALANCE- The opening balance in a deferred tax account with respect to any trust interest is an amount equal to the tax which would have been imposed on the allocable expatriation gain with respect to the trust interest if such gain had been included in gross income under subsection (a).

`(ii) INCREASE FOR INTEREST- The balance in the deferred tax account shall be increased by the amount of interest determined (on the balance in the account at the time the interest accrues), for periods after the 90th day after the expatriation date, by using the rates and method applicable under section 6621 for underpayments of tax for such periods, except that section 6621(a)(2) shall be applied by substituting `5 percentage points' for `3 percentage points' in subparagraph (B) thereof.

`(iii) DECREASE FOR TAXES PREVIOUSLY PAID- The balance in the tax deferred account shall be reduced--

`(I) by the amount of taxes imposed by subparagraph (A) on any distribution to the person holding the trust interest, and

`(II) in the case of a person holding a nonvested interest, to the extent provided in regulations, by the amount of taxes imposed by subparagraph (A) on distributions from the

trust with respect to nonvested interests not held by such person.

`(D) ALLOCABLE EXPATRIATION GAIN- For purposes of this paragraph, the allocable expatriation gain with respect to any beneficiary's interest in a trust is the amount of gain which would be allocable to such beneficiary's vested and nonvested interests in the trust if the beneficiary held directly all assets allocable to such interests.

`(E) TAX DEDUCTED AND WITHHELD-

`(i) IN GENERAL- The tax imposed by subparagraph (A)(ii) shall be deducted and withheld by the trustees from the distribution to which it relates.

`(ii) EXCEPTION WHERE FAILURE TO WAIVE TREATY RIGHTS- If an amount may not be deducted and withheld under clause (i) by reason of the distributee failing to waive any treaty right with respect to such distribution--

`(I) the tax imposed by subparagraph (A)(ii) shall be imposed on the trust and each trustee shall be personally liable for the amount of such tax, and

`(II) any other beneficiary of the trust shall be entitled to recover from the distributee the amount of such tax imposed on the other beneficiary.

`(F) DISPOSITION- If a trust ceases to be a qualified trust at any time, a covered expatriate disposes of an interest in a qualified trust, or a covered expatriate holding an interest in a qualified trust dies, then, in lieu of the tax imposed by subparagraph (A)(ii), there is hereby imposed a tax equal to the lesser of--

`(i) the tax determined under paragraph (1) as if the day before the expatriation date were the date of such cessation, disposition, or death, whichever is applicable, or

`(ii) the balance in the tax deferred account immediately before such date.

Such tax shall be imposed on the trust and each trustee shall be personally liable for the amount of such tax and any other beneficiary of the trust shall be entitled to recover from the covered expatriate or the estate the amount of such tax imposed on the other beneficiary.

`(G) DEFINITIONS AND SPECIAL RULES- For purposes of this paragraph--

`(i) QUALIFIED TRUST- The term `qualified trust' means a trust which is described in section 7701(a)(30)(E).

`(ii) VESTED INTEREST- The term `vested interest' means any interest which, as of the day before the expatriation date, is vested in the beneficiary.

`(iii) NONVESTED INTEREST- The term `nonvested interest' means, with respect to any beneficiary, any interest in a trust which is not a vested interest. Such interest shall be determined by assuming the maximum exercise of discretion in favor of the beneficiary and the occurrence of all contingencies in favor of the beneficiary.

`(iv) ADJUSTMENTS- The Secretary may provide for such adjustments to the bases of assets in a trust or a deferred tax account, and the timing of such adjustments, in order to ensure that gain is taxed only once.

`(v) COORDINATION WITH RETIREMENT PLAN RULES- This subsection shall not apply to an interest in a trust which is part of a retirement plan to which subsection (d)(2) applies.

`(3) DETERMINATION OF BENEFICIARIES' INTEREST IN TRUST-

`(A) DETERMINATIONS UNDER PARAGRAPH (1)- For purposes of paragraph (1), a beneficiary's interest in a trust shall be based upon all relevant facts and circumstances, including the terms of the trust instrument and any letter of wishes or similar document, historical patterns of trust distributions, and the existence of and functions performed by a trust protector or any similar adviser.

`(B) OTHER DETERMINATIONS- For purposes of this section--

`(i) CONSTRUCTIVE OWNERSHIP- If a beneficiary of a trust is a corporation, partnership, trust, or estate, the shareholders, partners, or beneficiaries shall be deemed to be the trust beneficiaries for purposes of this section.

`(ii) TAXPAYER RETURN POSITION- A taxpayer shall clearly indicate on its income tax return--

`(I) the methodology used to determine that taxpayer's trust interest under this section, and

`(II) if the taxpayer knows (or has reason to know) that any other beneficiary of such trust is using a different methodology to determine such beneficiary's trust interest under this section.

`(g) TERMINATION OF DEFERRALS, ETC- In the case of any covered expatriate, notwithstanding any other provision of this title--

`(1) any period during which recognition of income or gain is deferred shall terminate on the day before the expatriation date, and

`(2) 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.

`(h) IMPOSITION OF TENTATIVE TAX-

`(1) IN GENERAL- If an individual is required to include any amount in gross income under subsection (a) for any taxable year, there is hereby imposed, immediately before the expatriation date, a tax in an amount equal to the amount of tax which would be imposed if the taxable year were a short taxable year ending on the expatriation date.

`(2) DUE DATE- The due date for any tax imposed by paragraph (1) shall be the 90th day after the expatriation date.

`(3) TREATMENT OF TAX- Any tax paid under paragraph (1) shall be treated as a payment of the tax imposed by this chapter for the taxable year to which subsection (a) applies.

`(4) DEFERRAL OF TAX- The provisions of subsection (b) shall apply to the tax imposed by this subsection to the extent attributable to gain includible in gross income by reason of this section.

`(i) SPECIAL LIENS FOR DEFERRED TAX AMOUNTS-

`(1) IMPOSITION OF LIEN-

`(A) IN GENERAL- If a covered expatriate makes an election under subsection (a)(4) or (b) which results in the deferral of any tax imposed by reason of subsection (a), the deferred amount (including any interest, additional amount, addition to tax, assessable penalty, and costs attributable to the deferred amount) shall be a lien in favor of the United States on all property of the expatriate located in the United States (without regard to whether this section applies to the property).

`(B) DEFERRED AMOUNT- For purposes of this subsection, the deferred amount is the amount of the increase in the covered expatriate's income tax which, but for the election under subsection (a)(4) or (b), would have occurred by reason of this section for the taxable year including the expatriation date.

`(2) PERIOD OF LIEN- The lien imposed by this subsection shall arise on the expatriation date and continue until--

`(A) the liability for tax by reason of this section is satisfied or has become unenforceable by reason of lapse of time, or

`(B) it is established to the satisfaction of the Secretary that no further tax liability may arise by reason of this section.

`(3) CERTAIN RULES APPLY- The rules set forth in paragraphs (1), (3), and (4) of section 6324A(d) shall apply with respect to the lien imposed by this subsection as if it were a lien imposed by section 6324A.

`(j) REGULATIONS- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.'.

(b) INCLUSION IN INCOME OF GIFTS AND BEQUESTS RECEIVED BY UNITED STATES CITIZENS AND RESIDENTS FROM EXPATRIATES- Section 102 (relating to gifts, etc. not included in gross income) is amended by adding at the end the following new subsection:

`(d) GIFTS AND INHERITANCES FROM COVERED EXPATRIATES-

`(1) IN GENERAL- Subsection (a) shall not exclude from gross income the value of any property acquired by gift, bequest, devise, or inheritance from a covered expatriate after the expatriation date. For purposes of this subsection, any term used in this subsection which is also used in section 877A shall have the same meaning as when used in section 877A.

`(2) EXCEPTIONS FOR TRANSFERS OTHERWISE SUBJECT TO ESTATE OR GIFT TAX- Paragraph (1) shall not apply to any property if either--

`(A) the gift, bequest, devise, or inheritance is--

`(i) shown on a timely filed return of tax imposed by chapter 12 as a taxable gift by the covered expatriate, or

`(ii) 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, or

`(B) no such return was timely filed but no such return would have been required to be filed even if the covered expatriate were a citizen or long-term resident of the United States.'.

(c) DEFINITION OF TERMINATION OF UNITED STATES CITIZENSHIP- Section 7701(a) is amended by adding at the end the following new paragraph:

`(48) 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(e)(3).

`(B) DUAL CITIZENS- Under 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.'.

(d) INELIGIBILITY FOR VISA OR ADMISSION TO UNITED STATES-

(1) IN GENERAL- Section 212(a)(10)(E) of the Immigration and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to read as follows:

`(E) FORMER CITIZENS NOT IN COMPLIANCE WITH EXPATRIATION REVENUE PROVISIONS- Any alien who is a former citizen of the United States who relinquishes United States citizenship (within the meaning of section 877A(e)(3) of the Internal Revenue Code of 1986) and who is not in compliance with section 877A of such Code (relating to expatriation).'.

(2) AVAILABILITY OF INFORMATION-

(A) IN GENERAL- Section 6103(l) (relating to disclosure of returns and return information for purposes other than tax administration) is amended by adding at the end the following new paragraph:

`(19) DISCLOSURE TO DENY VISA OR ADMISSION TO CERTAIN EXPATRIATES- Upon written request of the Attorney General or the Attorney General's delegate, the Secretary shall disclose whether an individual is in compliance with section 877A (and if not in compliance, any items of noncompliance) to officers and employees of the Federal agency responsible for administering section 212(a)(10)(E) of the Immigration and Nationality Act solely for the purpose of, and to the extent necessary in, administering such section 212(a)(10)(E).'.

(B) SAFEGUARDS- Section 6103(p)(4) (relating to safeguards) is amended by striking `or (17)' each place it appears and inserting `(17), or (19)'.

(3) EFFECTIVE DATE- The amendments made by this subsection shall apply to individuals who relinquish United States citizenship on or after the date of the enactment of this Act.

(e) CONFORMING AMENDMENTS-

(1) Section 877 is amended by adding at the end the following new subsection:

`(g) APPLICATION- This section shall not apply to an expatriate (as defined in section 877A(e)) whose expatriation date (as so defined) occurs on or after February 5, 2003.'.

(2) Section 2107 is amended by adding at the end the following new subsection:

`(f) APPLICATION- This section shall not apply to any expatriate subject to section 877A.'.

(3) Section 2501(a)(3) is amended by adding at the end the following new subparagraph:

`(F) APPLICATION- This paragraph shall not apply to any expatriate subject to section 877A.'.

(4)(A) Paragraph (1) of section 6039G(d) is amended by inserting `or 877A' after `section 877'.

(B) The second sentence of section 6039G(e) is amended by inserting `or who relinquishes United States citizenship (within the meaning of section 877A(e)(3))' after `877(a))'.

(C) Section 6039G(f) is amended by inserting `or 877A(e)(2)(B)' after `877(e)(1)'.

(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 DATE-

(1) IN GENERAL- Except as provided in this subsection, the amendments made by this section shall apply to expatriates (within the meaning of section 877A(e) of the Internal Revenue Code of 1986, as added by this section) whose expatriation date (as so defined) occurs on or after February 5, 2003.

(2) GIFTS AND BEQUESTS- Section 102(d) of the Internal Revenue Code of 1986 (as added by subsection (b)) shall apply to gifts and bequests received on or after February 5, 2003, from an individual or the estate of an individual whose expatriation date (as so defined) occurs after such date.

(3) DUE DATE FOR TENTATIVE TAX- The due date under section 877A(h)(2) of the Internal Revenue Code of 1986, as added by this section, shall in no event occur before the 90th day after the date of the enactment of this Act.

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