The current tax treatment of capital gains on the sale of a principal residence provides a $250,000-$500,000 exclusion of gains from taxation as long as the taxpayer has resided in the home for 2 of the past 5 years. Volunteers or staff members might well serve for 3 years and return to find that they are not immediately eligible for this exclusion. This is an issue that has most relevance to older Volunteers; younger Volunteers do not often own homes. Section 101 of the H.R. 3365, the Military Family Tax Relief Act of 2003 (P. L. 108-121) provided a tolling of the clock while military and foreign service personnel are serving abroad. This same tolling has been extended to intelligence officers while they serve abroad. See the Tax Relief and Health Care Act of 2006, H.R. 6111, Public Law 109-432, Section 417 (December 22, 2006). It's now time to extend this tolling to Peace Corps Volunteers and staff. The issue is simple: while these individuals are serving their country abroad, the capital gains provision should not be counting against them. When the 2003 legislation embodying this tolling provision was first proposed, it provided a tolling of the 2 of 5 rule for Peace Corps Volunteers and staff while they serve. See Committee reported and House Passed Bill, H.R. 878, the Armed Forces Tax Fairness Act of 2003 (Copy attached as Appendix B). The Ways and Means Committee report explained this provision in detail. House Report 108-023 (copy attached as Appendix C). Unfortunately in the elaborate ping pong legislative process that ensued prior to enactment of this legislation, the provision applying to Volunteers and Peace Corps staff was lost as there was no corollary provision in the Senate bill. (See S. 351, introduced by Senator Chuck Grassley on February 11, 2003 and Senate Report 108-3.) Here we are urging the Committee and the House to do exactly what it's done once before, in 2003—pass the tolling for Peace Corps Volunteers and staff. We're working to ensure that the Other Body this time recedes to the House position.
Statement of Chuck Ludlam and Paula Hirschoff on H.R. 3764, Peace Corps Volunteers Tax Improvement Act of 2007
Statement of Chuck Ludlam and Paula Hirschoff Peace Corps Volunteers, Guinguinéo, Sénégal Regarding H.R. 3764, Peace Corps Volunteers Tax Improvement Act of 2007 (McDermott/VanHollen, October 4, 2007) Before the House Ways and Means Committee October 2007
Mr. Chairman and Members of the Committee: Asalaa maalekum. Naka nga def? (Traditional greetings in Senegal)
We are submitting this statement to endorse enactment of H.R. 3764, Peace Corps Volunteers Tax Improvement Act of 2007 introduced by Congressmen McDermott and Van Hollen on October 4, 2007.
We are currently serving as Peace Corps Volunteers in Senegal, and we previously served as Volunteers in Nepal (Chuck: 1968-1970) and Kenya (Paula: 1968-1970). Our biographical information is attached as Appendix A.1
We are submitting this statement because we love the Peace Corps and feel deep gratitude for the opportunity it has given us to serve. We want this institution to thrive so that many more generations of Americans will have the opportunity to serve. We still believe that the Peace Corps is our country's best means of outreach to the world. We believe in the idea of Peace Corps and the idealism of Volunteers.
Our testimony today focuses on the importance of the McDermott/Van Hollen bill to the current Peace Corps Director Ron Tschetter's priority to recruit Boomers to serve as Volunteers. We can vouch that Peace Corps provides an incredible opportunity for people our age, but the Congress needs to lift certain financial disincentives to service. This is precisely what the McDermott/Van Hollen bill would do.
To be clear, we have no personal financial interest in this legislation. Our only interest is in supporting Director Tschetter's efforts to recruit Boomers to serve as Volunteers.
The demographics of the Peace Corps have always been heavily skewed toward recent college graduates with little or no work experience. Then-Senator John F. Kennedy proposed the Peace Corps idea at the University of Michigan during his 1960 presidential campaign, asking whether the students gathered there would be willing to serve their country abroad. His call has resonated over 45 years. And we believe it will resonate with that same generation, now close to retirement, so Peace Corps can broaden its demographic scope. We were pleased to hear Director Tschetter state that his key new initiative was to recruit more experienced Volunteers, especially Baby Boomers. Removing disincentives for this service is an essential element in this campaign.
The McDermott/Van Hollen bill would address two disincentives to Boomers serving as Peace Corps Volunteers.
Capital Gains Exclusion on Gains from
Sale of a Principal Residence
The current tax treatment of capital gains on the sale of a principal residence provides a $250,000-$500,000 exclusion of gains from taxation as long as the taxpayer has resided in the home for 2 of the past 5 years. Volunteers or staff members might well serve for 3 years and return to find that they are not immediately eligible for this exclusion. This is an issue that has most relevance to older Volunteers; younger Volunteers do not often own homes.
Section 101 of the H.R. 3365, the Military Family Tax Relief Act of 2003 (P. L. 108-121) provided a tolling of the clock while military and foreign service personnel are serving abroad. This same tolling has been extended to intelligence officers while they serve abroad. See the Tax Relief and Health Care Act of 2006, H.R. 6111, Public Law 109-432, Section 417 (December 22, 2006). It's now time to extend this tolling to Peace Corps Volunteers and staff.
The issue is simple: while these individuals are serving their country abroad, the capital gains provision should not be counting against them.
When the 2003 legislation embodying this tolling provision was first proposed, it provided a tolling of the 2 of 5 rule for Peace Corps Volunteers and staff while they serve. See Committee reported and House Passed Bill, H.R. 878, the Armed Forces Tax Fairness Act of 2003 (Copy attached as Appendix B). The Ways and Means Committee report explained this provision in detail. House Report 108-023 (copy attached as Appendix C). Unfortunately in the elaborate ping pong legislative process that ensued prior to enactment of this legislation, the provision applying to Volunteers and Peace Corps staff was lost as there was no corollary provision in the Senate bill. (See S. 351, introduced by Senator Chuck Grassley on February 11, 2003 and Senate Report 108-3.)
Here we are urging the Committee and the House to do exactly what it's done once before, in 2003—pass the tolling for Peace Corps Volunteers and staff. We're working to ensure that the Other Body this time recedes to the House position.
Senator Christopher Dodd, the only former Volunteer currently serving in the U.S. Senate, and Senator Ted Kennedy have introduced legislation, S. 732, the Peace Corps Volunteer Empowerment Act, that provides that the Department of Treasury propose and the Congress enact legislation for Peace Corps Volunteers and staff similar to that enacted as Section 101 of the H.R. 3365, the Military Family Tax Relief Act of 2003 (P. L. 108-121) for military and foreign service personnel (and now intelligence officers). See Section 304. We had the privilege of speaking in favor of this bill and this provision, flying in from Senegal at our own expense – to testify at a hearing on July 25 before the Senate Foreign Relations Committee.
The revenue score for this provision should be zero or near zero. Approximately 8% of the Volunteers are over 50. Very few Volunteers under 50 own homes. Some percentage of those over 50 own homes and retain them while they serve. About 8,000 Volunteers currently serve over two years so about 4,000 finish their service each year. About 320 of them are over 50. Each of the 73 countries where Volunteers now serve has about 3 American staff. Some percentage of them own homes and retain them while they serve. Most Volunteers serve only 2 years, so they can still qualify for the capital gains exclusion if they sell within one year of returning to the States. The typical contract for American staff is 2-1/2 years. Some get extensions. So some of them will not meet the 2 of 5 rule. Overall, it seems plausible that the Volunteers and Peace Corps staff who own homes with a lower than average market value and pay taxes in a lower than average tax bracket, so if they run afoul of the rule, the extra tax they'd pay will not be large. The capital gains tax is a voluntary tax. All a Volunteer or staff has to do to quality for the exclusion is wait until they meet the 2 of 5 rule. It's hard to imagine many (or really any) of them going ahead and selling their home when they don't qualify for the exclusion. The same rule as applied to military personnel focuses on a million taxpayers. As it applies to foreign service personnel, it focuses on many thousands. Even for intelligence officers, it's thousands. So, of these groups, the smallest by far is the Peace Corps Volunteers and staff.
Information Regarding Itemized Deductions by Volunteers
H.R. 3764 contains a second useful provision consistent with Director Tschetter's priority to recruit Boomer Volunteers. It states that, "The Secretary of the Treasury, in consultation with the Director of the Peace Corps, shall publish guidance with respect to expenses which may be deductible from gross income with respect to service as enrolled volunteers or volunteer leaders under the Peace Corps Act (22 U.S.C. 2501 et seq.), and such guidance shall be periodically updated when the Director of the Peace Corps and the Secretary determine it necessary."
This provision is necessary as it is currently not at all clear to Volunteers which of their expenses might be itemized as deductions. Can Volunteers deduct—as charitable expenses or unreimbursed employee expenses—the cost of special items they purchase solely because of the demands of Peace Corps service? (Probably yes.) Can Volunteers who intend to write a book about their Peace Corps experiences—as many do—deduct some of their expenses? (Clearly yes.) Can Volunteers deduct the cost of foreign language classes they take prior to their service? (Probably yes.) Can Volunteers deduct their unreimbursed medical expenses incurred as part of the Peace Corps screening process? (Probably yes.)
The tax code provides that "volunteers" may deduct unreimbursed expenses that are incidental to their volunteer work. The expenses must be directly connected to the individual's performance as a volunteer with a qualified organization. The volunteer expenses that are deductible must be 1) unreimbursed, 2) directly connected with the volunteer service, 3) incurred only because of the services rendered, and 4) not personal, living, or family expenses. In addition, volunteers who purchase assets to use while performing volunteer services for charity can't deduct their cost if the volunteer retains ownership of the asset, even if it is used exclusively for charitable purposes. A taxpayer may deduct the cost of maintaining a personally owned asset to the extent that its use relates to providing services to charity. For example, volunteers can deduct the fuel, maintenance, and repair costs (but not depreciation or fair market value) of piloting their planes in connection with volunteer activities for the Civil Air Patrol. They cannot deduct the value of the taxpayer's time in service.2
These are issues that primarily affect older Volunteers, who are much more likely to itemize their deductions than younger Volunteers.
The Dodd/Kennedy bill, S. 732, also addresses this issue. It states in Section 305 that the Peace Corps shall consult with the Department of Treasury and the Internal Revenue Service to determine what Volunteer expenses may be deducted as itemized deductions. The Peace Corps shall also secure rulings from same on which Volunteers can rely in claiming such deductions (e.g. revenue rulings or IRS "letters"). The Peace Corps shall report to the Congress which additional deductions for expenses will be helpful. And the Peace Corps shall publish a guide for applicants and Volunteers on same.
The Peace Corps should hire a tax expert to work through these issues and cooperate closely with the IRS to determine which expenses are deductible. In many cases, current IRS guidance is not clear. It's also likely that the IRS will take an exceedingly restrictive view on what is deductible, so the Peace Corps will need to exert its interests as a sister agency to persuade the IRS to provide reasonable guidance. If the IRS concludes that it does not have the legal authority to allow the deduction of many of these expenses, the Peace Corps could work with the IRS and OMB to develop a legislative recommendation to submit to the Congress to make some of these expenses deductible.
Conclusion
Serving a second time as Peace Corps Volunteers is an enormous privilege and opportunity.
It gives us a chance to help people work toward realizing their dreams. It provides us with fascinating cross cultural experiences and life long friendships. We are still in close touch with friends and families in Nepal and Kenya. We know that our Senegalese friendships will also endure. We have learned many life lessons from our friends here. We care deeply about their future.
Peace Corps service has a life-long impact on Volunteers. Chuck's service in Nepal was no exception. While the average tenure of Congressional staff is about 5 years3, Chuck served on the Hill over 4 decades (1965-2005). He retired 40 years after his Stanford in Government internship in the House of Representatives. That staying power was a direct result of his Volunteer experience in Nepal. Because of the perspective he gained from that experience and his travels since then, he has always viewed our political system as the fairest, most open, and most substantive in the world. He never became cynical but remained optimistic about his ability to influence the course of American policy.
Paula's service in Kenya had a powerful impact on her life as well, laying the groundwork for a love of African art and culture that became a theme of her career and an avocation over more than 40 years.
The Peace Corps led us to find each other, the greatest stroke of good fortune in our lives.
Our current service in Senegal is changing our lives again, challenging and enriching our values, our perspectives on the world, and our plans for the future,
For all of this we are deeply grateful.
Now we are acting to secure this same opportunity for others by eliminating disincentives for service by Boomers. That America has a Peace Corps speaks highly for our country's altruism and idealism. The excellent corps of current Volunteers says great things about this generation of young Americans.
With enactment of these reforms, we have a vision of the Peace Corps thriving for another 45 years, a Peace Corps where a culture of listening to, respecting and empowering the Volunteers prevails. In this vision Volunteers of all ages lend their enthusiasm and resourcefulness to addressing the world's development challenges, thereby promoting peace and understanding.
Appendix A: Biographical Information and
Description of Peace Corps Service
Chuck Ludlam
Counsel, Senator Joseph I. Lieberman (2001-05); Vice President for Government Relations, Biotechnology Industry Organization (1993-2000); Counsel, Senate Small Business Committee (Senator Dale Bumpers)(1984-1993); Counsel, Joint Economic Committee (Representative Gillis Long), 1981-84); Counsel, White House Domestic Policy Staff (President Jimmy Carter), 1979-81; Counsel, Senate Judiciary Committee (Senator Jim Abourezk), 1975-79; and Trial Attorney, Federal Trade Commission 1972-75. Stanford University (BA 1967) and University of Michigan Law School, JD, 1972. Recipient of Stanford Centennial Medallion in 1992 (awarded to 100 Alumni). Office of Stanford in Government program at Haas Public Service Center named the "Chuck Ludlam Room." Peace Corps Volunteer in Nepal, 1968-70 and cofounder of Friends of Nepal (RPCV group). First job on Capital Hill, intern, June 1965, with Stanford in Government program; retired from government service, June 2005, 40 years later, to serve again as Peace Corps Volunteer in Senegal, 2005-07. Oral history of career posted at Evoca.com/chuckludlam, Stanford in Government website (http://sig.stanford.edu/history.htm), and will appear soon on website of Senate Historian.
In Nepal, Chuck served as an agriculture agent, extending the new hybrid cereal seeds that comprised the Green Revolution in Asia. The rice variety yielded 20 to 40 times more than the local variety of rice—a true revolution that helped to prevent famine and environmental degradation. He walked 32 miles roundtrip to get his mail, lived in a hut without electricity, running water, or an outhouse, and was often ill with various tropical diseases. Yet he loved the experience and believes that it changed his life. He's still in touch with four Nepali families. When we traveled to Nepal together in 1998, he was often close to tears as we revisited his village and found his old friends.
As an Agro Forestry agent in Senegal, Chuck oversaw the planting of 225 mango, cashew, and papaya trees last year and 500 papaya and 700 Leucena trees (nitrogen fixing/great feed for cattle) this past June. He's organized field tests of Stock O Sorb, a cross linked polymer that holds 400 times its weight in water—potentially revolutionary for water conservation—to determine whether it enhances tree seedling survival. He trained a women's group in a nearby village to plant their first vegetable garden. He's also planted demonstration gardens at other sites in Guinguinéo and is seeking financing for two wells to support vegetable gardens and fruit orchards. He introduced drip irrigation to the town, essential technology in a country abutting the Sahara, and organized hammock making and fruit drying enterprises.
Paula Hirschoff
English Professor (adjunct), University of the District of Columbia (2002-05); Board Member, Friends of Kenya (2002-05); Smithsonian Museum Docent, National Museum of African Art (1989-2005); Community Club Tutor, Workshop Leader, Librarian, (1993-2005); Researcher, George Washington University Anthropology Dept. Cotlow Grant (1996-97); Consultant/Advocate for Community-based Natural Resource Management, Africa Resources Trust (1996-97); M.A., Anthropology with emphasis on International Development, George Washington University (1994-96); Senior Writer/Editor for USAID Consulting Firms—Chemonics International, Inc. (1991-93) and Abt Associates, Inc., (1989-91); Manager, freelance writing/editing business, (1987-88); Board Member and counselor, My Sister’s Place battered women's shelter (1978-88); Editor, Africa Update and Assistant Editor, Africa Report, African-American Institute, New York, New York (1984-87); Legislative Assistant/Press Aide, Congressman Ted Weiss (1982-84); Communications Director, The Children's Foundation (1981-2); Managing Editor (1978-81) and Assistant Editor (1977-78), Employment and Training Reporter, Bureau of National Affairs; Editor/Reporter, North Hennepin Post, Post Publications, Minneapolis, Minnesota (1973-77); Peace Corps Volunteer (teacher/headmistress), Nyamira Girls School, Kenya (1968-70); English teacher, New Brunswick High School, New Jersey (1967-78) and Wakefield Junior High School, Michigan (1967); B.A., English/Secondary Education; Macalester College, St. Paul, Minnesota.
In Kenya, Paula served as a teacher and the headmistress of a girls' boarding school that had been founded and managed by a rural Luo community. She helped to put the school on a firmer financial footing by securing government funding after a long campaign. She lived in the school compound forty miles west of the town of Kisumu, sharing her house with Kenyan teachers. She considers her years there to have been among the best of her life. Afterwards, she stayed in touch with a number of students and fellow teachers. When she returned in 1990, she had the time of her life revisiting old haunts and reconnecting with friends from two decades earlier.
In Senegal as a Small Enterprise Development Volunteer, Paula works with a group of women to produce and sell an enriched porridge for malnourished children. In addition, she trained women in a nearby village to open and manage their first grocery store and is now helping to launch a quilt making enterprise in Guinguinéo. She also oversaw a community survey to determine AIDS awareness, organized a scholarship competition for young girls, and managed a girls club that meets twice monthly to build members' self confidence and computer skills.
Appendix B:
House Passed Bill (H.R. 878)(2003):
Includes Peace Corps Volunteers and Staff
H.R.878
Armed Forces Tax Fairness Act of 2003 (Reported in House)
108th CONGRESS, 1st Session
[Report No. 108-23]
To amend the Internal Revenue Code of 1986 to provide a special rule for members of the uniformed services and Foreign Service in determining the exclusion of gain from the sale of a principal residence and to restore the tax exempt status of death gratuity payments to members of the uniformed services, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
February 25, 2003
Mr. THOMAS (for himself, Mr. HOUGHTON, Mr. CAMP, Mr. LEWIS of Kentucky, Mr. HAYWORTH, Mr. SAM JOHNSON of Texas, Mr. HERGER, Mr. RAMSTAD, Mr. CANTOR, Mr. ENGLISH, and Mr. CRANE) introduced the following bill; which was referred to the Committee on Ways and Means
March 5, 2003
Reported with an amendment, committed to the Committee of the Whole House on the State of the Union, and ordered to be printed
[Strike out all after the enacting clause and insert the part printed in italic]
[For text of introduced bill, see copy of bill as introduced on February 25, 2003]
A BILL
To amend the Internal Revenue Code of 1986 to provide a special rule for members of the uniformed services and Foreign Service in determining the exclusion of gain from the sale of a principal residence and to restore the tax exempt status of death gratuity payments to members of the uniformed services, 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; REFERENCES; TABLE OF CONTENTS.
(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 of this Act is as follows:
Sec. 1. Short title; references; table of contents.
TITLE I--ARMED FORCES
SEC. 101. SPECIAL RULE FOR MEMBERS OF UNIFORMED SERVICES AND FOREIGN SERVICE AND PEACE CORPS VOLUNTEERS AND EMPLOYEES IN DETERMINING EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE.
(a) IN GENERAL- Subsection (d) of section 121 (relating to exclusion of gain from sale of principal residence) is amended by adding at the end the following new paragraph:
`(10) MEMBERS OF UNIFORMED SERVICES AND FOREIGN SERVICE AND PEACE CORPS VOLUNTEERS AND EMPLOYEES-
`(A) IN GENERAL- At the election of an individual with respect to a property, the running of the 5-year period referred to 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 or as a Peace Corps volunteer or an employee of the Peace Corps.
`(B) MAXIMUM PERIOD OF SUSPENSION- Such 5-year period shall not be extended more than 5 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 150 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- The term `member of the Foreign Service' 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 180 days or for an indefinite period.
`(v) RULES RELATING TO THE PEACE CORPS-
`(I) EXTENDED DUTY- In the case of a Peace Corps volunteer, the term `extended duty' means any period of active duty assigned to a Peace Corps volunteer under the Peace Corps Act for a period in excess of 180 days or for an indefinite period.
`(II) PEACE CORPS VOLUNTEER- The term `Peace Corps volunteer' means an individual enrolled as a volunteer or volunteer leader under the Peace Corps Act.
`(III) EMPLOYEE OF THE PEACE CORPS- The term `employee of the Peace Corps' means a person employed in the Peace Corps under section 7 of the Peace Corps Act.
`(IV) REFERENCES TO PEACE CORPS ACT- References in this clause to the Peace Corps Act mean references to the Peace Corps Act (22 U.S.C. 2501 et seq.) as in effect on the date of the enactment of this clause.
`(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 amendment 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 amendment 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.
Appendix C:
Report on House Passed Bill (H.R. 878) (2003): Includes Peace Corps Volunteers and Staff
House Report 108-023 - ARMED FORCES TAX FAIRNESS ACT OF 2003
108TH CONGRESS, 1st SESSION
REPORT, HOUSE OF REPRESENTATIVES
March 5, 2003
II. EXPLANATION OF THE BILL
TITLE I. IMPROVING TAX EQUITY FOR MILITARY PERSONNEL
A. EXCLUSION OF GAIN ON SALE OF A PRINCIPAL RESIDENCE BY A MEMBER OF THE UNIFORMED SERVICES, THE FOREIGN SERVICE OR THE PEACE CORPS
(Sec. 101 of the bill and sec. 121 of the Code)
PRESENT LAW
Under present law, an individual taxpayer may exclude up to $250,000 ($500,000, if married filing a joint return) of gain realized on the sale or exchange of a principal residence. To be eligible for the exclusion, the taxpayer must have owned and used the residence as a principal residence for at least two of the five years ending on the sale or exchange. A taxpayer who fails to meet these requirements by reason of a change of place of employment, health, or, to the extent provided under regulations, unforeseen circumstances is able to exclude an amount equal to the fraction of the $250,000 ($500,000, if married filing a joint return) that is equal to the fraction of the two years that the ownership and use requirements are met. There are no special rules relating to members of the uniformed services or the Foreign Service of the United States.
REASONS FOR CHANGE
The Committee believes that members of the uniformed services, the Foreign Service of the United States, or the Peace Corps who would otherwise qualify for the exclusion of the gain on the sale of a principal residence should not be deprived the exclusion because of service to their country. The Committee believes that it is unfair that members of the uniform services and Foreign Service of the United States are unable to avail themselves of the exclusion due to relocations required by service to their country.
EXPLANATION OF PROVISION
Under the bill, an individual may elect to suspend for a maximum of five years the five-year test period for ownership and use during certain absences due to service in the uniformed services, the Foreign Service of the United States, or as Peace Corps volunteers or employees. The uniformed services include: (1) the Armed forces (the Army, Navy, Air Force, Marine Corps, and Coast Guard); (2) the commissioned corps of the National Oceanic and Atmospheric Administration; and (3) the commissioned corps of the Public Health Service. If the election is made, the five-year period ending on the date of the sale or exchange of a principal residence does not include any period up to five years during which the taxpayer or the taxpayer's spouse is on qualified official extended duty as a member of the uniformed services, in Foreign Service of the United States, or on active duty assigned to a Peace Corps volunteer under the Peace Corps Act 1 [Footnote] or an employee of the Peace Corps. For these purposes, qualified official extended duty is any period of extended duty by a member of the uniformed services, or the Foreign Service of the United States while serving at a place of duty at least 150 miles away from the taxpayer's principal residence or under orders compelling residence in Government furnished quarters. Extended duty is defined as any period of duty pursuant to a call or order to such duty for a period in excess of 180 days or for an indefinite period. Active duty for Peace Corps volunteers means a period in excess of 180 days or for an indefinite period. The election may be made with respect to only one property for a suspension period.
[Footnote 1: 22 U.S.C. 2501 et. seq.]
EFFECTIVE DATE
The provision is effective for sales or exchanges after May 6, 1997.
