[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 2743 Introduced in Senate (IS)]
110th CONGRESS
2d Session
S. 2743
To amend the Internal Revenue Code of 1986 to provide for the
establishment of financial security accounts for the care of family
members with disabilities, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
March 11, 2008
Mr. Casey (for himself and Mr. Hatch) introduced the following bill;
which was read twice and referred to the Committee on Finance
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide for the
establishment of financial security accounts for the care of family
members with disabilities, 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.
This Act may be cited as the ``Financial Security Accounts for
Individuals with Disabilities Act of 2008''.
SEC. 2. FINANCIAL SECURITY ACCOUNTS FOR INDIVIDUALS WITH DISABILITIES.
(a) Establishment.--
(1) In general.--Subchapter F of chapter 1 of the Internal
Revenue Code of 1986 (relating to exempt organizations) is
amended by inserting after part VIII the following new part:
``PART IX--SAVINGS FOR INDIVIDUALS WITH DISABILITIES
``Sec. 530A. Financial security accounts for individuals with
disabilities.
``SEC. 530A. FINANCIAL SECURITY ACCOUNTS FOR INDIVIDUALS WITH
DISABILITIES.
``(a) General Rule.--A financial security account for an individual
with a disability shall be exempt from taxation under this subtitle.
Notwithstanding the preceding sentence, such account shall be subject
to the taxes imposed by section 511 (relating to imposition of tax on
unrelated business income of charitable organizations).
``(b) Definitions and Special Rules.--For purposes of this
section--
``(1) Financial security account for an individual with a
disability.--The term `financial security account for an
individual with a disability' means a trust created or
organized in the United States (and designated as a financial
security account for an individual with a disability at the
time created or organized) exclusively for the purpose of
paying qualified disability expenses of an individual who is
disabled and who is the designated beneficiary of the trust,
but only if the written governing instrument creating the trust
meets the following requirements:
``(A) No contribution will be accepted--
``(i) except in the case of rollover
contributions described in subsection (c)(4)
and sections 223(c)(5)(A)(ii),
408(d)(3)(A)(iii), 529(c)(3)(E), and
530(d)(9)--
``(I) unless it is in cash, and
``(II) if such contribution would
result in aggregate contributions for
the taxable year and all preceding
taxable years exceeding $500,000, and
``(ii) after the date on which the account
holder attains the age of 65.
``(B) The trustee is a bank (as defined in section
408(n)), a parent or guardian of the designated
beneficiary, a designee of a parent or guardian of the
designated beneficiary, the designated beneficiary, or
another person, who demonstrates to the satisfaction of
the Secretary that the manner in which that person will
administer the trust will be consistent with the
requirements of this section.
``(C) No part of the trust assets will be invested
in life insurance contracts.
``(D) The assets of the trust shall not be
commingled with other property except in a common trust
fund or common investment fund.
``(2) Qualified disability expenses.--The term `qualified
disability expenses' means, with respect to an individual with
a disability, amounts paid or incurred, not compensated for by
insurance or otherwise, for--
``(A) education, medical and dental care, community
based support services, employment training and
support, moving, and assistive technology,
``(B) after the designated beneficiary has attained
the age of 18, housing and transportation, and
``(C) funeral and burial services and property.
``(3) Individual with a disability.--An individual is an
individual with a disability if such individual is receiving
supplemental security income benefits under title XVI of the
Social Security Act or an individual otherwise eligible to
receive such benefits notwithstanding the income and assets
tests required for eligibility for such benefits.
``(4) Rules relating to estate and gift tax.--Rules similar
to the rules of paragraphs (2), (4), and (5) of section 529(c)
shall apply for purposes of this section.
``(5) Only 1 account per qualified beneficiary.--No
individual may have more than 1 financial security account for
an individual with a disability.
``(c) Tax Treatment of Distributions.--
``(1) In general.--Except as otherwise provided in this
subsection, any amount paid or distributed out of a financial
security account for an individual with a disability shall be
included in gross income by the payee or distributee, as the
case may be, for the taxable year in which received in the
manner as provided in section 72.
``(2) Distributions for benefit of designated
beneficiary.--
``(A) In general.--No amount shall be includible in
gross income under paragraph (1) if the qualified
disability expenses of the designated beneficiary
during the taxable year are not less than the aggregate
distributions during the taxable year.
``(B) Distributions in excess of expenses.--If such
aggregate distributions exceed such expenses during the
taxable year, the amount otherwise includible in gross
income under paragraph (1) shall be reduced by the
amount which bears the same ratio to the amount which
would be includible in gross income under paragraph (1)
(without regard to this subparagraph) as the qualified
disability expenses bear to such aggregate
distributions.
``(C) Disallowance of excluded amounts as
deduction, credit, or exclusion.--No deduction, credit,
or exclusion shall be allowed to the taxpayer under any
other section of this chapter for any qualified
disability expenses to the extent taken into account in
determining the amount of the exclusion under this
paragraph.
``(3) Additional tax for distributions not used for benefit
of designated beneficiary.--
``(A) In general.--The tax imposed by this chapter
for any taxable year on any taxpayer who receives a
payment or distribution from a financial security
account for an individual with a disability shall be
increased by 10 percent of the amount thereof which is
includible in gross income under paragraph (1).
``(B) Exception.--Subparagraph (A) shall not apply
if the payment or distribution is made to a beneficiary
(or to the estate of the designated beneficiary) on or
after the death of the designated beneficiary.
``(C) Contributions returned before certain date.--
Subparagraph (A) shall not apply to the distribution of
any contribution made during a taxable year if--
``(i) such distribution is made before the
first day of the sixth month of the taxable
year following the taxable year, and
``(ii) such distribution is accompanied by
the amount of net income attributable to such
excess contribution.
Any net income described in clause (ii) shall be
included in gross income for the taxable year in which
such excess contribution was made.
``(4) Rollovers.--Paragraph (1) shall not apply to any
amount paid or distributed from a financial security account
for an individual with a disability to the extent that the
amount received is paid, not later than the 60th day after the
date of such payment or distribution, into another financial
security account for an individual with a disability for the
benefit of the same beneficiary. The preceding sentence shall
not apply to any payment or distribution if it applied to any
prior payment or distribution during the 12-month period ending
on the date of the payment or distribution.
``(5) Change in beneficiary.--Any change in the beneficiary
of a financial security account for an individual with a
disability shall not be treated as a distribution for purposes
of paragraph (1) if the new beneficiary is disabled and is a
member of the family (as defined in section 529(e)(2)) of the
old beneficiary.
``(d) Tax Treatment of Accounts.--Rules similar to the rules of
paragraphs (2) and (4) of section 408(e) shall apply to any financial
security account for an individual with a disability.
``(e) Community Property Laws.--This section shall be applied
without regard to any community property laws.
``(f) Custodial Accounts.--For purposes of this section, a
custodial account shall be treated as a trust if--
``(1) the assets of such account are held by a bank (as
defined in section 408(n) or another person who demonstrates,
to the satisfaction of the Secretary, that the manner in which
he will administer the account will be consistent with the
requirements of this section, and
``(2) the custodial account would, except for the fact that
it is not a trust, constitute an account described in
subsection (c)(1).
For purposes of this title, in the case of a custodial account treated
as a trust by reason of the preceding sentence, the custodian of such
account shall be treated as the trustee thereof.
``(g) Reports.--The trustee of a financial security account for an
individual with a disability shall make such reports regarding such
account to the Secretary and to the beneficiary of the account with
respect to contributions, distributions, and such other matters as the
Secretary may require. The reports required by this subsection shall be
filed at such time and in such manner and furnished to such individuals
at such time and in such manner as may be required.
``(h) Inflation Adjustment.--
``(1) In general.--In the case of any taxable year
beginning after 2008, the $500,000 dollar amount under
subsection (b)(1)(A)(ii) shall be increased by an amount equal
to--
``(A) such dollar amount, multiplied by
``(B) the cost of living adjustment determined
under section 1(f)(3) for the calendar year in which
the taxable year begins, determined by substituting
`calendar year 2007' for `calendar year 1992' in
subparagraph (B) thereof.
``(2) Rounding.--If any amount as adjusted under paragraph
(1) is not a multiple of $1,000, such amount shall be rounded
to the next lowest multiple of $1,000.
``(i) Regulations.--The Secretary, in consultation with the
Secretary of Health and Human Services, shall prescribe regulations to
carry out the purposes of this section, including regulations--
``(1) to ensure that individuals do not have more than 1
financial security account for an individual with a disability,
and
``(2) to prevent fraud and abuse with respect to amounts
claimed as qualified disability expenses.''.
(2) Conforming amendments.--
(A) Penalty for failure to meet minimum
distribution requirement.--Subsection (c) of section
4974 of such Code is amended by striking ``or'' at the
end of paragraph (4), by striking the period at the end
of paragraph (5) and inserting ``, or'', and by
inserting after paragraph (5) the following new
paragraph:
``(6) any financial security account for an individual with
a disability (as defined in section 530A(b)).''.
(B) Tax on prohibited transactions.--
(i) In general.--Paragraph (1) of section
4975(e) of such Code (defining plan) is amended
by redesignating subparagraph (G) as
subparagraph (H), by striking ``or'' at the end
of subparagraph (F), and by adding after
subparagraph (F) the following:
``(G) a financial security account for an
individual with a disability described in section 530A,
or''.
(ii) Exemption.--Subsection (d) of section
4975 of such Code (relating to exemptions) is
amended by striking ``or'' at the end of
paragraph (22), by striking the period at the
end of paragraph (23) and inserting ``; or'',
and by inserting after paragraph (23) the
following:
``(24) in the case of a financial security account for an
individual with a disability, any transaction to provide
housing or other services by a family member to or for the
designated beneficiary of the trust to the extent that such
transaction does not exceed the fair market value of the
housing or service (as the case may be) provided.''.
(iii) Special rule.--Subsection (c) of
section 4975 of such Code (relating to tax on
prohibited transactions) is amended by adding
at the end the following new paragraph:
``(7) Special rule for financial security account for
individuals with disabilities.--An individual for whose benefit
a financial security account for an individual with a
disability is established and any contributor to such account
shall be exempt from the tax imposed by this section with
respect to any transaction concerning such account (which would
otherwise be taxable under this section) if section 530A(d)
applies with respect to such transaction.''.
(C) Rollovers from certain other tax favored
accounts.--
(i) Qualified tuition programs.--Paragraph
(3) of section 529(c) of such Code is amended
by adding at the end the following new
subparagraph:
``(E) Contributions to financial security account
for an individual with a disability.--Subparagraph (A)
shall not apply to that portion of any distribution
which, within 60 days of such distribution, is
contributed to a financial security account for an
individual with a disability for the benefit of the
designated beneficiary.''.
(ii) Education savings accounts.--
Subsection (d) of section 530 of such Code is
amended by adding at the end the following new
paragraph:
``(9) Contributions to financial security account for an
individual with a disability.--Paragraph (1) shall not apply to
any amount paid or distributed from a Coverdell education
savings account to the extent that the amount received is paid,
not later than the 60th day after the date of such payment or
distribution, into a financial security account for an
individual with a disability for the benefit of the same
beneficiary.''.
(iii) Health savings accounts.--
Subparagraph (A) of section 223(f)(5) is
amended--
(I) by inserting ``(i)'' before
``into a health savings account'', and
(II) by inserting ``or (ii) into a
financial security account for an
individual with a disability for the
benefit of such beneficiary'' before
``not later than the 60th day''.
(iv) Certain iras.--Subparagraph (A) of
section 408(d)(3) is amended by striking ``or''
at the end of clause (i), by striking the
period at the end of clause (ii) and inserting
``; or'', and by inserting after clause (ii)
the following new clause:
``(iii) the entire amount received
(including money and other property) is paid
into a financial security account for an
individual with a disability for the benefit of
the child or grandchild of such individual not
later than the 60th day after the day on which
the payment or distribution is received.''.
(D) Reports.--Paragraph (2) of section 6693(a) of
such Code is amended by striking ``and'' at the end of
subparagraph (D), by striking the period at the end of
subparagraph (E) and inserting ``and'', and by
inserting after subparagraph (E) the following new
subparagraph:
``(F) section 530A(g) (relating to financial
security accounts for individuals with
disabilities).''.
(E) Exclusion from income.--Subsection (b) of
section 1612 of the Social Security Act (42 U.S.C.
1382a) is amended by striking ``or'' at the end of
paragraph (22), by striking the period at the end of
paragraph (23) and inserting ``; or'', and by inserting
after paragraph (23) the following:
``(24) any contribution to a financial security account for
an individual with a disability.''.
(F) Clerical amendment.--The table of parts for
subchapter F of chapter 1 of such Code is amended by
inserting after the item relating to part VIII the
following new item:
``Part IX. Savings for Individuals With Disabilities.''.
(b) Deduction for Contributions to Financial Security Accounts for
Individuals With Disabilities.--
(1) In general.--Part VII of subchapter B of chapter 1 of
the Internal Revenue Code of 1986 is amended by redesignating
section 224 as section 225 and inserting after section 223 the
following new section:
``SEC. 224. CONTRIBUTIONS TO FINANCIAL SECURITY ACCOUNTS FOR
INDIVIDUALS WITH DISABILITIES.
``(a) Allowance of Deduction.--In the case of an individual, there
shall be allowed as a deduction an amount equal to the amount paid in
cash for the taxable year by or on behalf of such individual to a
financial security account for an individual with a disability (as
defined in section 530A(b)(1)) for the benefit of such individual's
child, grandchild, brother, or sister.
``(b) Limitations.--
``(1) In general.--The amount allowable as a deduction
under subsection (a) for any taxable year shall not exceed
$2,000.
``(2) Cost-of-living adjustment.--
``(A) In general.--In the case of any taxable year
beginning after 2008, the $2,000 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 the
calendar year in which the taxable year begins,
determined by substituting `calendar year 2007'
for `calendar year 1992' in subparagraph (B)
thereof.
``(B) Rounding.--If any amount after adjustment
under the preceding sentence is not a multiple of $200,
such amount shall be rounded to the next lowest
multiple of $200.
``(3) Reduction based on adjusted gross income.--The dollar
limitation under paragraph (1) for such taxable year shall be
reduced (but not below zero) by the amount determined under
section 219(g)(2).''.
(2) Clerical amendment.--The table of sections for part VII
of subchapter B of chapter 1 of such Code is amended by
redesignating the item relating to section 224 as relating to
section 225 and by inserting after the item relating to section
223 the following new item:
``Sec. 224. Contributions to financial security accounts for
individuals with disabilities.''.
(c) Annual Reports.--
(1) In general.--The Secretary of the Treasury, in
consultation with the Secretary of Health and Human Services,
shall report annually to Congress on the usage of financial
security accounts for individuals with disabilities under
section 530A of the Internal Revenue Code of 1986.
(2) Contents of report.--Any report under paragraph (1)
shall include--
(A) the number of people with a financial security
account for an individual with a disability,
(B) the total amount of contributions to such
accounts and the number of individuals claiming the
deduction allowed under section 224 of the Internal
Revenue Code of 1986, as added by subsection(b), and
the total amount of such deductions,
(C) the total amount and nature of distributions
from such accounts, and
(D) issues relating to the abuse of such accounts,
if any.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2007.
SEC. 3. TREATMENT OF FINANCIAL SECURITY ACCOUNTS FOR INDIVIDUALS WITH
DISABILITIES UNDER CERTAIN FEDERAL PROGRAMS.
(a) Treatment as a Medicaid Excepted Trust.--Paragraph (4) of
section 1917(d) of the Social Security Act (42 U.S.C. 1396p(d)(4)) is
amended by adding at the end the following new subparagraph:
``(D) A trust which is a financial security account for an
individual with a disability described in section 530A(b)(1) of
the Internal Revenue Code of 1986.''.
(b) Account Funds Disregarded for Purposes of Certain Other Means-
Tested Federal Programs.--Notwithstanding any other provision of
Federal law that requires consideration of 1 or more financial
circumstances of an individual, for the purpose of determining
eligibility to receive, or the amount of, any assistance or benefit
authorized by such provision to be provided to or for the benefit of
such individual, any amount (including earnings thereon) in any
financial security account for an individual with a disability of such
individual, and any distribution for qualified disability expenses (as
defined in section 530A(b)(2)) shall be disregarded for such purpose
with respect to any period during which such individual maintains,
makes contributions to, or receives distributions from such financial
security account.
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