Tax News

CCH (cch.taxgroup.com) reports:

The Senate late on December 12 approved by unanimous consent a $1.2-billion tax relief measure, but the bill differs from similar House-approved legislation (HR 3997) and requires approval by that chamber before it can be sent to President Bush for him to sign it into law. The Defenders of Freedom Tax Relief Bill of 2007 (Sen 1593), first introduced by Senate Finance Committee Chairman Max Baucus, D-Mont., in June and later modified, includes tax cuts for members of the military who are receiving combat pay, saving for retirement, or purchasing homes. It also provides benefits for employers of military reservists and for members of the National Guard who provide assistance to employees who are called to active duty.
Some of the tax benefits in the bill
include a permanent allowance for soldiers to count their nontaxable combat pay when figuring their eligibility for the earned income tax credit; a refundable federal income tax credit; a tax cut for small businesses when they continue paying some salary to members of the National Guard and Reserve who are called to duty; and the ability for active duty troops to withdraw money from retirement plans, with two years to replace the funds without tax penalty.
The unanimous consent agreement fully offsets the cost of the military tax relief with four provisions. The bill makes certain that individuals who relinquish their U.S. citizenship or long-term U.S. residency pay the same federal taxes for appreciation of assets, such as stocks or bonds, that they would pay if they sold them as U.S. citizens or residents. It also increases the penalty for people who fail to file their tax returns. Another offset allows reservists returning from a tour of duty to opt back into a civilian employer's health insurance plan. Finally, the package allows the Social Security Administration and the Veterans' Administration to work together to verify low-income status when distributing veteran's benefits.
The Bush administration does not plan to issue a policy statement on HR 3997 until it reaches the House floor. As a general rule, President Bush has threatened to veto any measure that funds tax cuts with higher taxes. The White House has not indicated whether the tax provisions in the Senate-passed measure are tax revenues that would face a presidential veto or tax loophole-closers acceptable to the president.
By Jeff Carlson and Paula Cruickshank, CCH News Staff
Defenders of Freedom Tax Relief Act of 2007, as Amended and Passed by the Senate on December 12, 2007, HR 3997
Joint Committee on Taxation Estimated Revenue Effects of HR 3997, the Defenders of Freedom Tax Relief Act of 2007, as Amended and Passed by the Senate on December 12, 2007, JCX-116-07
Senate Finance Committee Release: Baucus, Grassley Win Tax Relief for America's Military Men and Women
Senate Finance Committee Release: Summary of Costs of Defenders of Freedom Tax Relief Bill of 2007