109th CONGRESS
2d Session
S. 2397
To amend the Internal Revenue Code of 1986 to establish long-term
care trust accounts and allow a refundable tax credit for contributions
to such accounts, and for other purposes.
IN THE SENATE OF THE UNITED STATES
March 9, 2006
Mr. SMITH (for himself and Mrs. LINCOLN) 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 establish long-term
care trust accounts and allow a refundable tax credit for contributions
to such accounts, 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 `Long-Term Care Trust Account Act of 2006'.
SEC. 2. LONG-TERM CARE TRUST ACCOUNTS.
(a) In General- Subchapter F of chapter 1 of the Internal Revenue Code of
1986 (relating to exempt organizations) is amended by adding at the end
the following new part:
`PART IX--LONG-TERM CARE TRUST ACCOUNTS
`SEC. 530A. LONG-TERM CARE TRUST ACCOUNTS.
`(a) General Rule- A Long-Term Care Trust Account 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) Long-Term Care Trust Account- For purposes of this section, the term
`Long-Term Care Trust Account' means a trust created or organized in the
United States for the exclusive benefit of an individual who is the designated
beneficiary of the trust and which is designated (in such manner as the
Secretary shall prescribe) at the time of the establishment of the trust
as a Long-Term Care Trust Account, but only if the written governing instrument
creating the trust meets the following requirements:
`(1) Except in the case of a qualified rollover contribution described
in subsection (d)--
`(A) no contribution will be accepted unless it is in cash, and
`(B) contributions will not be accepted for the calendar year in excess
of the contribution limit specified in subsection (c)(1).
`(2) The trustee is a bank (as defined in section 408(n)), an insurance
company (as defined in section 816), 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 or who has so demonstrated with respect to any individual
retirement plan.
`(3) No part of the trust assets will be invested in life insurance contracts.
`(4) The interest of an individual in the balance of his account is nonforfeitable.
`(5) The assets of the trust shall not be commingled with other property
except in a common trust fund or common investment fund.
`(6) Except as provided in subsection (e)(2), no distribution will be
allowed if at the time of such distribution the designated beneficiary
is not a chronically ill individual (as defined in section 7702B(c)(2)).
`(c) Tax Treatment of Contributions-
`(A) IN GENERAL- The aggregate amount of contributions (other than qualified
rollover contributions described in subsection (d)) for any taxable
year to all Long-Term Care Trust Accounts maintained for the benefit
of the designated beneficiary shall not exceed $5,000.
`(B) INFLATION ADJUSTMENT- In the case of any taxable year beginning
in a calendar year after 2006, the dollar amount under subparagraph
(A) shall be increased by an amount equal to--
`(i) such dollar amount, multiplied by
`(ii) the medical care cost adjustment determined under section 213(d)(10)(B)(ii)
for the calendar year in which the taxable year begins, determined
by substituting `2005' for `1996' in subclause (II) thereof.
If any amount as adjusted under the preceding sentence is not a multiple
of $10, such amount shall be rounded to the next lowest multiple of
$10.
`(2) GIFT TAX TREATMENT OF CONTRIBUTIONS- For purposes of chapters 12
and 13--
`(A) IN GENERAL- Any contribution to a Long-Term Care Trust Account
on behalf of any designated beneficiary--
`(i) shall be treated as a completed gift to such beneficiary which
is not a future interest in property, and
`(ii) shall not be treated as a qualified transfer under section 2503(e).
`(B) TREATMENT OF EXCESS CONTRIBUTIONS- If the aggregate amount of contributions
described in subparagraph (A) during the calendar year by a donor exceeds
the limitation for such year under section 2503(b), such aggregate amount
shall, at the election of the donor, be taken into account for purposes
of such section ratably over the 5-year period beginning with such calendar
year.
`(d) Qualified Rollover Contribution- For purposes of this section, the
term `qualified rollover contribution' means a contribution to a Long-Term
Care Trust Account--
`(1) from another such account of the same beneficiary, but only if such
amount is contributed not later than the 60th day after the distribution
from such other account, and
`(2) from a Long-Term Care Trust Account of a spouse of the beneficiary
of the account to which the contribution is made, but only if such amount
is contributed not later than the 60th day after the distribution from
such other account.
`(e) Tax Treatment of Distributions-
`(1) IN GENERAL- Any distribution from a Long-Term Care Trust Account
shall be includible in the gross income of the distributee in the manner
as provided under section 72 to the extent not excluded from gross income
under any other provision of this subsection.
`(2) LONG-TERM CARE INSURANCE PREMIUMS- If at the time of any distribution,
the designated beneficiary is not a chronically ill individual (as defined
in section 7702B(c)(2)), no amount shall be includible in gross income
under paragraph (1) if the aggregate premiums for any qualified long-term
care insurance contract for such beneficiary during the taxable year are
not less than the aggregate distributions during the taxable year.
`(3) DISTRIBUTIONS FOR QUALIFIED LONG-TERM CARE SERVICES- For purposes
of this subsection, if at the time of any distribution, the designated
beneficiary is a chronically ill individual (as so defined)--
`(A) IN-KIND DISTRIBUTIONS- No amount shall be includible in gross income
under paragraph (1) by reason of a distribution which consists of providing
a benefit to the distributee which, if paid for by the distributee,
would constitute expenses for any qualified long-term care services
(as defined in section 7702B(c)).
`(B) CASH DISTRIBUTIONS- In the case of distributions not described
in subparagraph (A), if--
`(i) such distributions do not exceed the expenses for qualified long-term
care services (as so defined), reduced by expenses described in subparagraph
(A), no amount shall be includible in gross income, and
`(ii) in any other case, the amount otherwise includible in gross
income shall be reduced by an amount which bears the same ratio to
such amount as such expenses bear to such distributions.
`(4) CHANGE IN BENEFICIARIES OR ACCOUNTS- Paragraph (1) shall not apply
to that portion of any distribution which, within 60 days of such distribution,
is transferred--
`(A) to another Long-Term Care Trust Account for the benefit of the
designated beneficiary, or
`(B) to the credit of another designated beneficiary under a Long-Term
Care Trust Account who is a spouse of the designated beneficiary with
respect to which the distribution was made.
`(5) OPERATING RULES- For purposes of applying section 72--
`(A) to the extent provided by the Secretary, all Long-Term Care Trust
Accounts of which an individual is a designated beneficiary shall be
treated as one account,
`(B) except to the extent provided by the Secretary, all distributions
during a taxable year shall be treated as one distribution, and
`(C) except to the extent provided by the Secretary, the value of the
contract, income on the contract, and investment in the contract shall
be computed as of the close of the calendar year in which the taxable
year begins.
`(6) SPECIAL RULES FOR DEATH AND DIVORCE-
`(A) IN GENERAL- Rules similar to the rules of paragraphs (7) and (8)
of section 220(f) shall apply.
`(B) AMOUNTS INCLUDIBLE IN ESTATE OF DONOR MAKING EXCESS CONTRIBUTIONS-
In the case of a donor who makes the election described in subsection
(c)(2)(B) and who dies before the close of the 5-year period referred
to in such subsection, the gross estate of the donor shall include the
portion of such contributions properly allocable to periods after the
date of death of the donor.
`(7) ADDITIONAL TAX- The tax imposed by this chapter for any taxable year
on any taxpayer who receives a payment or distribution from a Long-Term
Care Trust Account which is includible in gross income shall be increased
by 25 percent of the amount which is so includible under rules similar
to the rules of section 530(d)(4).
`(8) DENIAL OF DOUBLE BENEFIT- For purposes of determining the amount
of any deduction under this chapter, any payment or distribution out of
a Long-Term Care Trust Account shall not be treated as an expense paid
for medical care.
`(f) Designated Beneficiary- For purposes of this section, the term `designated
beneficiary' means the individual designated at the commencement of participation
in the Long-Term Care Trust Account as the beneficiary of amounts paid (or
to be paid) to the account.
`(g) Loss of Taxation Exemption of Account Where Beneficiary Engages in
Prohibited Transaction- Rules similar to the rules of paragraph (2) of section
408(e) shall apply to any Long-Term Care Trust Account.
`(h) Custodial Accounts- For purposes of this section, a custodial account
or an annuity contract issued by an insurance company qualified to do business
in a State shall be treated as a trust under this section if--
`(1) the custodial account or annuity contract would, except for the fact
that it is not a trust, constitute a trust which meets the requirements
of subsection (b), and
`(2) in the case of a custodial account, 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.
For purposes of this title, in the case of a custodial account or annuity
contract treated as a trust by reason of the preceding sentence, the person
holding the assets of such account or holding such annuity contract shall
be treated as the trustee thereof.
`(i) Reports- The trustee of a Long-Term Care Trust Account 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.'.
(b) Tax on Excess Contributions-
(1) IN GENERAL- Subsection (a) of section 4973 of the Internal Revenue
Code of 1986 (relating to tax on excess contributions to certain tax-favored
accounts and annuities) is amended by striking `or' at the end of paragraph
(4), by inserting `or' at the end of paragraph (5), and by inserting after
paragraph (5) the following new paragraph:
`(6) a Long-Term Care Trust Account (as defined in section 530A),'.
(2) EXCESS CONTRIBUTION- Section 4973 of such Code is amended by adding
at the end the following new subsection:
`(h) Excess Contributions to Long-Term Care Trust Accounts- For purposes
of this section--
`(1) IN GENERAL- In the case of Long-Term Care Trust Accounts (within
the meaning of section 530A), the term `excess contributions' means the
sum of--
`(A) the amount by which the amount contributed for the calendar year
to such accounts (other than qualified rollover contributions (as defined
in section 530A(d))) exceeds the contribution limit under section 530A(c)(1),
and
`(B) the amount determined under this subsection for the preceding calendar
year, reduced by the excess (if any) of the maximum amount allowable
as a contribution under section 530A(c)(1) for the calendar year over
the amount contributed to the accounts for the calendar year.
`(2) SPECIAL RULE- A contribution shall not be taken into account under
paragraph (1) if such contribution (together with the amount of net income
attributable to such contribution) is returned to the beneficiary before
June 1 of the year following the year in which the contribution is made.'.
(c) Failure To Provide Reports on Long-Term Care Trust Accounts- Paragraph
(2) of section 6693(a) of the Internal Revenue Code of 1986 (relating to
failure to provide reports on individual retirement accounts or annuities)
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
adding at the end the following new subparagraph:
`(F) section 530A(i) (relating to Long-Term Care Trust Accounts).'.
(d) Conforming Amendment- The table of parts for subchapter F of chapter
1 of the Internal Revenue Code of 1986 is amended by adding at the end the
following new item:
`Part IX. Long-Term Care Trust Accounts'.
(e) Effective Date- The amendments made by this section shall apply to taxable
years beginning after December 31, 2005.
SEC. 3. REFUNDABLE CREDIT FOR CONTRIBUTIONS TO LONG-TERM CARE TRUST ACCOUNTS.
(a) In General- Subpart C of part IV of subchapter A of chapter 1 of the
Internal Revenue Code of 1986 (relating to refundable credits) is amended
by inserting after section 35 the following new section:
`SEC. 35A. CONTRIBUTIONS TO LONG-TERM CARE TRUST ACCOUNTS.
`(a) General Rule- In the case of an individual, there shall be allowed
as a credit against the tax imposed by this subtitle for the taxable year
an amount equal to 10 percent of the contributions to any Long-Term Care
Trust Account allowed under section 530A for such taxable year.
`(b) Reduction Based on Adjusted Gross Income-
`(1) IN GENERAL- The percentage which would (but for this subsection)
be taken into account under subsection (a) for the taxable year shall
be reduced (but not below zero) by the percentage determined under paragraph
(2).
`(2) AMOUNT OF REDUCTION- The percentage determined under this paragraph
is the percentage which bears the same ratio to the percentage which would
be so taken into account as--
`(i) the taxpayer's adjusted gross income for such taxable year, over
`(ii) $95,000 ($190,000 in the case of a joint return), bears to
`(B) $10,000 ($20,000 in the case of a joint return).
`(3) ADJUSTED GROSS INCOME- For purposes of this subsection, adjusted
gross income shall be determined without regard to sections 911, 931,
and 933.
`(c) Denial of Double Benefit- No deduction shall be allowed under this
chapter for any amount taken into account in determining the credit under
this section.'.
(b) Conforming Amendments-
(1) Paragraph (2) of section 1324(b) of title 31, United States Code,
is amended by inserting before the period `, or from section 35A of such
Code'.
(2) The table of sections of subpart C of part IV of subchapter A of chapter
1 of the Internal Revenue Code of 1986 is amended by inserting after the
item relating to section 35 the following new item:
`Sec. 35A. Contributions to Long-Term Care Trust Accounts.'.
(c) Effective Date- The amendments made by this section shall apply to amounts
paid or incurred in taxable years beginning after December 31, 2005.
END
