To amend the Internal Revenue Code of 1986 to provide for deductible contributions to medical finance accounts and to reform the earned income credit.

TABLE OF CONTENTS:

Title I: Medical Finance Accounts

Title II: Reform of the Earned Income Credit

Title I: Medical Finance Accounts - Amends the Internal Revenue Code to allow an individual a deduction in an amount equal to the aggregate amount paid in cash by such an individual to the individual's medical finance account. Limits the amount allowable as a deduction to not exceed the greater of: (1) $3,000 ($5,000 for married individuals and dependents); or (2) for individuals with a catastrophic health plan, the deductible or the excess of the limitation for the taxable year and each of the preceding four taxable years over the sum of amounts allowed as a deduction for such years. Imposes a ten percent penalty on any amount not used for qualified medical expenses, except for amounts paid or distributed to an account holder who becomes disabled or dies. Disallows the deduction in cases of rollovers and transfers at death. Allows a deduction whether or not the individual itemizes other deductions. Excludes medical finance accounts from estate tax.

Title II: Reform of the Earned Income Credit - Denies the earned income credit (EIC) to individuals not authorized to be employed in the United States.

(Sec. 203) Repeals provisions allowing the EIC for individuals without children.

(Sec. 204) Prescribes a specified formula for the modification of the phaseout amount and sets forth specified credit and phaseout percentages and amounts. Increases the amount allowable as a credit for low-income families having two or more qualifying children. Provides for a phaseout of the EIC for taxpayers whose applicable income exceeds $14,000 ($17,000 for joint returns). Requires married individuals to file joint returns.

(Sec. 205) Revises provisions concerning: (1) EIC denial on the basis of disqualified income; and (2) modification of the definition of adjusted gross income for EIC purposes.

(Sec. 207) Increases the amount of penalty for return preparers with respect to understatement of income tax liability by the income tax preparer, other assessable penalties, and aiding and abetting understatement of tax liability.