To amend the Internal Revenue Code of 1986 to provide a temporary exclusion for members of reserve components of the Armed Forces and Department of Defense civilian employees serving in a combat zone and to extend the exclusion for serving in a combat zone to Department of Defense civilian employees.

March 6, 2003

Mr. JEFFERSON introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Internal Revenue Code of 1986 to provide a temporary exclusion for members of reserve components of the Armed Forces and Department of Defense civilian employees serving in a combat zone and to extend the exclusion for serving in a combat zone to Department of Defense civilian employees.

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

SECTION 1. TEMPORARY EXCLUSION FOR RESERVISTS CALLED TO ACTIVE DUTY AND FOR DEPARTMENT OF DEFENSE CIVILIAN EMPLOYEES SERVING IN A COMBAT ZONE.

(a) IN GENERAL- Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 139 the following new section:

`SEC. 139A. TEMPORARY EXCLUSION FOR RESERVISTS CALLED TO ACTIVE DUTY AND FOR DEPARTMENT OF DEFENSE CIVILIAN EMPLOYEES SERVING IN A COMBAT ZONE.

`(a) IN GENERAL- In the case of an eligible individual, if the amount excluded from gross income of the taxpayer by section 112 for an applicable taxable year does not exceed $40,000, gross income of the taxpayer shall be reduced (but not below zero) by the amount described in subsection (b).

`(b) AMOUNT-

`(1) IN GENERAL- If the exclusion referred to in subsection (a) does not exceed $30,000, the amount described in this subsection is the lesser of--

`(A) $30,000, and

`(B) gross income (without regard to this section).

`(2) PHASEOUT- If the exclusion referred to in subsection (a) is over $30,000 but not over $40,000, the amount described in paragraph (1) shall be reduced (but not below zero)--

`(A) by an amount which bears the same ratio to gross income (without regard to this section), as

`(B) the excess of the amount excluded from gross income by section 112 over $30,000 bears to $10,000.

`(3) PART-YEAR SERVICE IN COMBAT ZONE- If the period of active duty with respect to a member of a reserve component or service in a combat zone with respect to a civilian employee of the Department of Defense is less than an entire applicable taxable year, the amount described in this subsection shall be the same portion of the amount determined under paragraphs (1) and (2) such period bears to the entire taxable year.

`(c) ELIGIBLE INDIVIDUAL SERVING IN A COMBAT ZONE- For purposes of this section--

`(1) ELIGIBLE INDIVIDUAL- The term `eligible individual' means--

`(A) any individual who is a member of a reserve component (as defined in section 101 of title 37, United States Code) and who is ordered or called to active duty for a period of more than 30 days or for an indefinite period, and

`(B) a civilian employee of the Department of Defense while such employee is serving in a combat zone.

`(2) EMPLOYEE- The term `employee' has the meaning given to such term by section 5561 of title 5, United States Code, except that an individual shall not fail to be treated as an employee for purposes of this section solely because such individual is a nonappropriated fund instrumentality employee (as defined in section 1587(a) of title 10, United States Code).

`(3) COMBAT ZONE- The term `combat zone' has the meaning given to such term by section 112.

`(d) APPLICABLE TAXABLE YEAR- The term `applicable taxable year' means any taxable year beginning in 2003.'

(b) CLERICAL AMENDMENT- The table of sections for part III of subchapter B of chapter 1 of such Code is amended by inserting after the item relating to section 139 the following new item:

`Sec. 139A. Temporary exclusion for reservists called to active duty and for department of defense civilian employees serving in a combat zone.'

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

SEC. 2. TAX TREATMENT OF CIVILIAN EMPLOYEES OF DEPARTMENT OF DEFENSE IN COMBAT ZONES.

(a) EXCLUSION OF COMBAT ZONE COMPENSATION- Section 112 of the Internal Revenue Code of 1986 (relating to prisoners of war, etc.) is amended by adding at the end the following new subsection:

`(e) CIVILIAN EMPLOYEES OF DEPARTMENT OF DEFENSE-

`(1) SERVICE IN COMBAT ZONE- Gross income does not include so much of the compensation as does not exceed the maximum enlisted amount received for active service as a civilian employee of the Department of Defense serving in support of the Armed Forces of the United States for any month during any part of which such employee--

`(A) served in a combat zone, or

`(B) was hospitalized as a result of wounds, disease, or injury incurred while serving in a combat zone.

Subparagraph (B) shall not apply for any month beginning more than 2 years after the date of the termination of combatant activities in such zone.

`(2) DEFINITIONS- For purposes of this subsection, the terms `active service' and `employee' have the respective meanings given to such terms by section 5561 of title 5, United States Code, except that an individual shall not fail to be treated as an employee for purposes of this subsection solely because such individual is a nonappropriated fund instrumentality employee (as defined in section 1587(a) of title 10, United States Code).'.

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

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