The Foreign Service Journal, January 2004

JANUARY 2004 • AFSA NEWS 3 O n Nov. 11, 2003, Veterans’ Day, President Bush signedH.R. 3365, the “Military Family Tax Relief Act of 2003,” into law. It was passed in the House 420-0 and in the Senate by unanimous consent. One aspect of this law, now Public Law 108-121, that affects the Foreign Service is the change in the tax treatment of capital gains on the sale of a principal residence. Prior to 1997, the U.S. tax code allowed home-owners to roll over the cap- ital gains from the sale of a principal res- idence and take a one-time tax exemp- tion on the rolled-over gains. A 1997 change in the tax code stated that if a homeowner resided in his or her house for two of the previous five years from the date of sale, that person could exclude up to $250,000 ($500,000 for amarried cou- ple) in gains from the sale of their prin- cipal residence. This is where the mem- bers of the Foreign Service and the uni- formed services ran into problems. Back-to-back tours can keep employees overseas six years or more. Upon return to the U.S., when Foreign Service mem- bers wanted to sell their homes, because they had been out of the residence more than two of the previous five years, they had to either occupy the property for two more years or pay the full capital gains tax. The “Military Family Tax Relief Act of 2003” changes the provision for members of the Foreign Service and the uniformed services, extending the look- back period from five to up to fifteen years, based upon the number of years the personwas at least 50miles fromthe prin- cipal residence posted on orders from the U.S. government. (For more details, go to the AFSA Web site.) The new law is retroactive to May 7, 1997. A homeowner who sold a princi- pal residence since then and incurred the capital gains tax because he or she did not fill the residency requirement has one year to file for reimbursement. This one-year period to file ends Nov. 11, 2004. AFSA efforts to change the law have been ongoing for over four years. There are many to thank for helping bring the effort to a successful conclusion. AFSA worked closely with theMilitary Officers Association of America and the American Bar Association. We went to the Hill together to talk to staff on this issue, spent countless hours in strategy sessions, and exchanged information as things were developing. Their work was key to the success and we always appreciated and enjoyed working with them. This legislation passed as a result of a bipartisan effort. While there was diffi- culty in coming to a final agreement on the details, the support fromCongress was not questioned. Thanks to our friends in the legislature, the provisions covering the Foreign Service were added to various tax bills in an effort to get a vehicle that would carry our tax provisions to become law. AFSA thanks Senate Finance Committee Chairman Charles Grassley, R-Iowa, and his staff, and Finance Committee RankingMemberMax Baucus, D-Mont., and his staff for their continued support in developing these bills. In the Senate, a special thanksmust also be given to Sen. JohnMcCain, R-Ariz., and his staff. Sen. McCain, though not on the Finance Committee, was constant in his support of our efforts, and his interventions over the years helped bring this legislation to fruition. In the House of Represen- tatives, we must thank Ways andMeans Committee Chairman Bill Thomas, R-Calif., and his staff, and Ranking Member Charles Rangel, D-N.Y., and his staff. Their work was essential in finally developing a bill that everyone could accept. We also want to thank Rep. Amo Houghton, R-N.Y. It was his bill in the House that gave us a leg- islative vehicle to start the efforts to change the law. It was to Rep. Houghton and his staff that we could always turn for advice and infor- mation on developments in the House. Last but not least, AFSA thanks Secretary of State Colin Powell and his colleagues at the State Department, both Foreign Service and Civil Service. At key moments, the department weighed in to help secure the agreement of the Office of Management and Budget to our pro- posal, and the Secretary and other offi- cials contacted important legislators to express the department’s full support for the passage of this and earlier bills. ▫ AFSA reminds members that the crit- ical advocacy work done by the leg- islative affairs staff is funded primarily through the Legislative Action Fund. Please send contributions to: AFSA Legislative Action Fund, P.O. Box 98026, Washington, DC 20077-7093, or go to the AFSA Web site: www.afsa.org/laf- form.html. Make checks payable to “Legislative Action Fund.” SUCCESS ON CAPITAL GAINS Years of Advocacy for FS Tax Relief Pay Off BY LEGISLATIVE AFFAIRS DIRECTOR KEN NAKAMURA AND LEGISLATIVE AFFAIRS INTERN JOANNA MCNAMARA JOSH