H.R. 388 — Long-Term Care Savings Account Act of 1989

 
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HR 388 IH
101st CONGRESS
1st Session
 H. R. 388
To amend the Internal Revenue Code of 1986 to provide for the establishment
of, and limited deduction of contributions to long-term care savings accounts.
IN THE HOUSE OF REPRESENTATIVES
January 3, 1989
Mr. SOLOMON introduced the following bill; which was referred to the Committee
on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to provide for the establishment
of, and limited deduction of contributions to long-term care savings accounts.
  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 Savings Account Act of 1989'.
SEC. 2. LONG-TERM CARE SAVINGS ACCOUNTS.
  (a) IN GENERAL- Part VII of subchapter B of chapter 1 of the Internal Revenue
  Code of 1986 (relating to additional itemized deductions for individuals)
  is amended by redesignating section 221 as section 222 and by inserting
  after section 220 the following new section:
`SEC. 221. LONG-TERM CARE SAVINGS ACCOUNTS.
  `(a) DEDUCTION ALLOWED- In the case of an individual, there shall be
  allowed as a deduction an amount equal to the qualified contributions of
  the individual for the taxable year.
  `(b) LIMITATIONS-
  `(1) SUM OF CONTRIBUTORS' DEDUCTIONS NOT TO EXCEED $2,000 ANNUALLY PER
  ACCOUNT- Any qualified contribution made for any taxable year with respect to
  any long-term care savings account shall not be deductible under subsection
  (a) to the extent that the contribution when added to the sum of all other
  qualified contributions, if any, previously made by contributors to the
  account for the taxable year exceeds $2,000.
  `(2) ELIGIBLE CONTRIBUTORS- Only the individual, the spouse of the
  individual, and the parents of the individual may contribute to a long-term
  care savings account established for the benefit of the individual.
  `(3) BENEFICIARY AGE REQUIREMENT- No deduction shall be allowed under
  this section for any contribution made to a long-term care savings account
  established for the benefit of an individual who has not attained age 25
  before the close of the calendar year in which such contribution is made.
  `(c) SPECIAL RULES-
  `(1) 1 INDIVIDUAL PER ACCOUNT- Only 1 individual may be the beneficiary
  of any long-term care savings account.
  `(2) 1 ACCOUNT PER INDIVIDUAL- If 2 or more long-term care savings accounts
  are established for the benefit of any individual, a deduction shall be
  allowed under this section only for contributions made to the account
  first established.
  `(3) TIME WHEN CONTRIBUTIONS DEEMED MADE- If a qualified contribution is
  made on account of an individual's taxable year and is made not later than
  the time prescribed by law for filing the return for such taxable year
  (including extensions thereof), the individual shall be deemed to have
  made the contribution on the last day of such taxable year.
  `(4) ADJUSTMENT OF DOLLAR AMOUNTS FOR INFLATION-
  `(A) AUTHORITY OF SECRETARY- The Secretary shall, not later than October
  1 of each year after 1988, revise the dollar amounts in subsection (b)(1)
  to arrive at the dollar amounts to apply therein with respect to taxable
  years beginning in the succeeding calendar year.
  `(B) METHOD OF ADJUSTING DOLLAR AMOUNTS- The dollar amounts applicable
  with respect to taxable years beginning in the year succeeding any calendar
  year shall be calculated by multiplying the dollar amounts which apply to
  the calendar year by the sum of 1 and the net percentage change (if any)
  during the 12-month period ending on the July 31 of the calendar year in the
  consumer price index for all-urban consumers published by the Department
  of Labor. If any amount determined under the preceding sentence is not
  a multiple of $10, such amount shall be rounded to the nearest multiple
  of $10 (or if such amount is a multiple of $5 and not a multiple of $10,
  such amount shall be increased to the next multiple of $10).
  `(5) DISTRIBUTION OF 50 PERCENT OF ACCOUNT ASSETS WHEN BENEFICIARY ATTAINS
  AGE 72 AND 50 PERCENT WHEN BENEFICIARY ATTAINS AGE 73- The Secretary shall
  prescribe regulations prescribing the manner in which--
  `(A) the amounts remaining in any long-term care savings account on the
  day after the individual for whose benefit such account is established
  dies shall be distributed in accordance with the direction of the individual,
  `(B) 50 percent of the amounts remaining in any long-term care savings
  account on the date the individual for whose benefit the account is
  established attains age 72 shall be distributed to the individual within
  30 days after such date, and
  `(C) the amounts remaining in such account on the date the individual
  attains age 73 shall be distributed to such individual within 30 days
  after such date.
  `(d) TAX TREATMENT OF DISTRIBUTIONS-
  `(1) IN GENERAL- Any amount received from a long-term care savings account
  (or a trust under subsection (e)(2)(B)) shall be included in gross income
  of the recipient for the taxable year in which the amount is received,
  except to the extent that paragraph (2) or (3) applies to the amount.
  `(2) DISTRIBUTION USED TO PAY LONG-TERM CARE EXPENSES- Any amount paid from
  a long-term care savings account to cover long-term care expenses incurred
  by the individual for whose benefit the account is established shall not
  be included in the gross income of such individual for the taxable year
  in which such amount is paid.
  `(3) EXCESS CONTRIBUTION RETURNED BEFORE DUE DATE OF RETURN- Gross income
  does not include any excess contribution received from a long-term care
  savings account by the individual with respect to whom it is an excess
  contribution, if--
  `(A) the excess contribution is received on or before the day prescribed
  by law (including extensions of time) for filing the individual's return
  for the taxable year,
  `(B) no deduction is allowed under subsection (a) with respect to the
  excess contribution, and
  `(C) there is received with the excess contribution the amount of net
  income attributable to the excess contribution.
Any net income described in subparagraph (C) shall be included in the gross
income of the individual for the taxable year during which such excess
contribution is made.
  `(e) TAX TREATMENT OF LONG-TERM CARE SAVINGS ACCOUNTS-
  `(1) EXEMPTION FROM TAX- Each long-term care savings 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,
  etc. organizations).
  `(2) EFFECT OF ENGAGING IN PROHIBITED TRANSACTION-
  `(A) DISQUALIFICATION OF TRUST- If the individual for whose benefit
  a long-term care savings account is established or any individual who
  contributes to such account engages in any transaction prohibited by section
  4975 with respect to the account, the account ceases to be a long-term care
  savings account as of the first day of the taxable year of such individual
  during which such prohibited transaction begins.
  `(B) ASSETS TREATED AS DISTRIBUTED- If any trust ceases to be a long-term
  care savings account by reason of subparagraph (A), subsection (d)(1)
  shall apply to the trust assets as if the assets were received (on the
  first day of the taxable year during which the disqualification occurs)
  by the individual who engaged in the prohibited transaction.
  `(3) EFFECT OF PLEDGING ACCOUNT AS SECURITY- If, during any taxable
  year, the individual for whose benefit a long-term care savings account
  is established or any individual who contributes to the account uses
  any portion of the account as security for a loan, subsection (d)(1)
  shall apply to the portion so used as if the portion was received by the
  individual so using such portion during the taxable year.
  `(f) ADDITIONAL TAX ON CERTAIN AMOUNTS INCLUDED IN GROSS INCOME-
  `(1) INCREASE IN TAX OF 10 PERCENT OF AMOUNTS IMPROPERLY USED- If an
  amount is includible in the gross income of an individual for a taxable
  year by reason of subsection (d)(1), (e)(2), or (e)(3), the individual's
  tax liability under this chapter for such taxable year shall be increased
  by an amount equal to 10 percent of such included amount.
  `(2) EXCEPTION FOR DISTRIBUTIONS TO CLOSE ACCOUNT- Paragraph (1) shall not
  apply in the case of an asset received by the individual for whose benefit
  the long-term care savings account is established pursuant to regulations
  issued under subparagraph (B) or (C) of subsection (c)(5).
  `(3) EXCEPTION FOR DISTRIBUTIONS AFTER DEATH- Paragraph (1) shall not
  apply in the case of an asset received after the individual for whose
  benefit the long-term care savings account is established dies.
  `(g) CUSTODIAL ACCOUNTS- For purposes of this section, a custodial account
  shall be treated as a trust if--
  `(1) the account assets 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 such person 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 a long-term care savings account described in subsection (i)(2).
For purposes of this title, in the case of a custodial account treated as a
trust by reason of this subsection, the custodian of such account shall be
treated as the trustee thereof.
  `(h) REPORTS- The trustee of any long-term care savings account shall make
  such reports regarding the account to the Secretary and to the individual
  for whose benefit the account is maintained with respect to contributions,
  distributions, and such other matters as the Secretary may require under
  regulations. 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 by regulations.
  `(i) DEFINITIONS- For purposes of this section--
  `(1) QUALIFIED CONTRIBUTION-
  `(A) IN GENERAL- The term `qualified contribution' means any amount of
  cash transferred to a long-term care savings account in the taxable year.
  `(B) EXCEPTION- The term `qualified contribution' does not include any
  asset transferred directly between long-term care savings accounts.
  `(2) LONG-TERM CARE SAVINGS ACCOUNT- The term `long-term care savings
  account' means an irrevocable trust created or organized in the United
  States for the sole purpose of paying only 1 individual's long-term care
  expenses, but only if the written governing instrument creating the trust
  meets the following requirements:
  `(A) A contribution will not be accepted unless it is in cash.
  `(B) A contribution will not be accepted unless it is from the individual
  for whose benefit the trust is established, the spouse of the individual,
  or a parent or legal guardian of the individual.
  `(C) Contributions will not be accepted for the taxable year in excess of
  the limitations imposed by subsection (b)(1).
  `(D) The trustee is a bank (as defined in section 408(n)) or other person
  who demonstrates to the satisfaction of the Secretary that the manner in
  which such other person will administer the trust will be consistent with
  the requirements of this section.
  `(E) The trust assets will be invested with the objective of preserving
  the principal, in accordance with the direction of the individual for
  whose benefit the trust is established.
  `(F) The trust assets will not be commingled with other property except
  in a common trust fund or common investment fund.
  `(G) 50 percent of the value of the assets remaining in the trust on the
  date the individual for whose benefit the trust is established attains
  age 72 will be distributed within 30 days after such date, as directed
  by such individual (or the representative of the individual), pursuant to
  regulations issued under subsection (c)(5)(B).
  `(H) The assets remaining in the trust on the date the individual for
  whose benefit the trust is established attains age 73 will be distributed
  within 30 days after such date, as directed by such individual (or the
  representative of the individual), pursuant to regulations issued under
  subsection (c)(5)(C).
  `(I) Any assets remaining in the trust on the day after the individual
  dies will be distributed within 30 days after such date, as directed by
  such individual (or the representative of the individual), pursuant to
  regulations issued under subsection (c)(5)(A).
  `(3) LONG-TERM CARE EXPENSES- The term `long-term care expenses' means,
  with respect to an individual, expenses incurred for any item or service
  medically necessary or prudent for the care of the individual.
  `(4) EXCESS CONTRIBUTION- The term `excess contribution' means any amount
  by which the sum of the qualified contributions of an individual for any
  taxable year exceeds the amount allowable as a deduction under subsection
  (a) with respect to the individual for such taxable year.'
  (b) DEDUCTION ALLOWED IN ARRIVING AT ADJUSTED GROSS INCOME- Section (a)(7)
  of such Code (relating to retirement savings) is amended to read as follows:
  `(7) LONG-TERM CARE SAVINGS- The deduction allowed by section 219 (relating
  to deduction for certain retirement savings) and the deduction allowed by
  section 221 (relating to long-term care savings accounts).'
  (c) CONTRIBUTION NOT SUBJECT TO GIFT TAX- Section 2503 of such Code
  (relating to taxable gifts) is amended by adding at the end thereof the
  following new subsection:
  `(f) LONG-TERM CARE SAVINGS ACCOUNTS- Any transfer of assets by, or at
  the direction of, an individual to a long-term care savings account (as
  described in section 221(i)(2)) which is allowable as a deduction under
  section 223 shall not be treated as a transfer of property by gift for
  purposes of this chapter.'
  (d) TAX ON EXCESS CONTRIBUTIONS- Section 4973 of such Code (relating to tax
  on excess contributions to individual retirement accounts, certain section
  403(b) contracts, and certain individual retirement annuities) is amended--
  (1) by striking `and' in the heading of such section,
  (2) by striking `annuities.' and inserting `annuities, and long-term care
  savings accounts.' in the heading of such section,
  (3) by striking `or' at the end of subsection (a)(1),
  (4) by inserting after subsection (a)(2) the following:
  `(3) a long-term care savings account (within the meaning of section
  221(i)(2)), or', and
  (5) by adding at the end the following new subsection:
  `(d) LONG-TERM CARE SAVINGS ACCOUNTS- For purposes of this section, in
  the case of a long-term care savings account referred to in subsection
  (a)(3), the term `excess contributions' means an excess contribution
  (within the meaning of section 221(i)(4)).'
  (e) TAX ON PROHIBITED TRANSACTIONS-
  (1) Subsection (c) of section 4975 of such Code (relating to prohibited
  transactions) is amended by adding at the end the following new paragraph:
  `(4) SPECIAL RULE FOR LONG-TERM CARE SAVINGS ACCOUNTS- The individual for
  whose benefit a long-term care savings account is established and each
  contributor to the account shall be exempt from the tax imposed by this
  section with respect to any transaction concerning the account (which
  would otherwise be taxable under this section) if, with respect to such
  transaction, the account ceases to be a long-term care savings account by
  reason of section 221(e)(2)(A).'
  (2) Paragraph (1) of section 4975(e) of such Code is amended by inserting
  `, a long-term care savings account described in section 221(i)(2),' after
  `described in section 408(a)'.
  (f) FAILURE TO PROVIDE REPORTS ON LONG-TERM CARE SAVINGS ACCOUNTS- Section
  6693 of such Code (relating to failure to provide reports on individual
  retirement accounts or annuities) is amended--
  (1) by inserting `or on long-term care savings accounts' after `annuities'
  in the heading of such section; and
  (2) by adding at the end of subsection (a) the following: `The person
  required by section 221(h) to file a report regarding a long-term care
  savings account at the time and in the manner required by such section
  shall pay a penalty of $50 for each failure, unless it is shown that such
  failure is due to reasonable cause.'
  (g) CLERICAL AMENDMENTS-
  (1) The table of sections for part VII of subchapter B of chapter 1 of
  such Code is amended by striking the item relating to section 221 and
  inserting the following new items:
`Sec. 221. Long-term care savings accounts.
`Sec. 222. Cross references.'
  (2) The table of sections for chapter 43 of such Code is amended by striking
  the item relating to section 4973 and inserting the following new item:
`Sec. 4973. Tax on excess contributions to individual retirement accounts,
long-term care savings accounts, certain 403(b) contracts, and certain
individual retirement annuities.'
  (3) The table of sections for subchapter B of chapter 68 of such Code is
  amended by striking the item relating to section 6693 and inserting the
  following new item:
`Sec. 6693. Failure to provide reports on individual retirement accounts or
annuities or on long-term care savings accounts.'
  (i) EFFECTIVE DATE- The amendments made by this section shall apply to
  contributions made in taxable years beginning after December 31, 1989.
Long-Term Care Savings Account Act of 1989

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