Small Business Savings Accounts

(a)

In general

Chapter 77 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

7529.

Small Business Savings Accounts

(a)

In general

Any eligible small business may enter into an agreement with the Secretary under this section to establish a small business savings account with respect to such business under terms which meet the requirements of this section. (b)

Small business savings accounts

For purposes of this section, the term small business savings account means a tax preferred savings account which is designated at the time of establishment of the plan as a small business savings account. Such designation shall be made in such manner as the Secretary may by regulation prescribe. (c)

Contributions

(1)

Deduction

There shall be allowed as a deduction an amount equal to the contributions to a small business savings account for the taxable year. (2)

Limitation

The aggregate amount of contributions for any taxable year to all small business savings accounts maintained for the benefit of an eligible small business shall not exceed an amount equal to 10 percent of the gross profits of the business for the preceding taxable year. (d)

Distributions

(1)

In general

Any qualified distribution from a small business savings account shall not be includible in gross income. (2)

Inclusion of nonqualified distributions

Any amounts distributed out of a small business savings account that are not qualified distributions shall be included in gross income for the taxable year of the distribution. (3)

Qualified distribution

For purposes of this subsection— (A)

In general

The term qualified distribution means any amount— (i)distributed from a small business savings account during a specified period of economic hardship, and (ii)the distribution of which is certified by the taxpayer as part of a plan which provides for the reinvestment of such distribution for the funding of worker hiring or financial stabilization for the purposes of job retention or creation. (B)

Specified period of economic hardship

The term specified period of economic hardship means— (i)any 1-year period beginning immediately after the end of any 3 consecutive quarters during which the annual rate of real gross domestic product (as determined by the Bureau of Economic Analysis of the Department of Commerce) decreases, or (ii)any period, in no event shorter than 1 year, specified by the Administrator of the Small Business Administration for purposes of this section. (C)

Federally Declared disaster areas

The Administrator of the Small Business Administration may specify a period under subparagraph (B)(ii) with respect to a specified area in the case of an area determined by the President to warrant assistance from the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (as in effect on the date of the enactment of the SAVE for Small Businesses Act). (D)

Limitation

The Administrator of the Small Business Administration shall, in consultation with the Secretary, for each specified period of economic hardship establish a distribution limitation for qualified distributions from eligible small business accounts with respect to such period. The aggregate qualified distributions for any such period from all accounts with respect to an eligible small business shall not exceed such limitation. (E)

Amounts not used for reinvestment

Any distribution not used in the manner certified under subparagraph (A)(ii) shall be treated as a distribution other than a qualified distribution in the taxable year of such distribution. (F)

Eight-year rule

Any amount contributed to a small business savings account (and any earnings attributable thereto), once distributed, shall not be treated as a qualified distribution unless such distribution is made not later than 8 years after the date of such contribution. For purposes of the preceding sentence, amounts (and the earnings attributable thereto) shall be treated as distributed on a first-in first-out basis. (e)

Tax treatment of account

Any small business savings account is exempt from taxation under this subtitle A unless such account has ceased to be a small business savings account. Notwithstanding the preceding sentence, any such account is subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable, etc. organizations). (f)

Eligible small business

For purposes of this section— (1)

In general

The term eligible small business means, with respect to any calendar year, any person if the annual average number of full-time employees employed by such person during the preceding calendar year was 50 or fewer. For purposes of the preceding sentence, a preceding calendar year may be taken into account only if the person was in existence throughout the year. (2)

Full-time employees

(A)

In general

The term full-time employee means, with respect to any year, an employee who is employed on average at least 40 hours of service per week. (B)

Hours of service

The Secretary, in consultation with the Secretary of Labor, shall prescribe such regulations, rules, and guidance as may be necessary to determine the hours of service of an employee, including rules for the application of this paragraph to employees who are not compensated on an hourly basis. (3)

Startups, controlled groups, and predecessors

Rules similar to the rules of subparagraphs (B) and (D) of section 220(c)(4) shall apply for purposes of this subsection. (g)

Effect of pledging account as security

If, during any taxable year of the eligible small business for whose benefit an account is established, the account or any portion thereof is pledged as security for a loan, the portion so pledged shall be treated as distributed in a distribution other than a qualified distribution.

(b)

Small business savings account programs

(1)

In general

The Secretary of the Treasury shall establish a program to administer small business savings accounts under section 7529 of the Internal Revenue Code of 1986. (2)

Account standards

The Secretary shall establish minimum standards for small business savings accounts and shall establish accounts within the Department of the Treasury or enter into agreements with trustees that meet these standards to administer such accounts. In establishing such standards and making such agreements the Secretary shall, to the extent practicable, seek to minimize fees, minimize risk of loss of principal, and ensure a range of investment risk options available to account beneficiaries. (c)

Excess contributions

Section 4973 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

(h)

Excess contributions to small business savings accounts

For purposes of this section, in the case of contributions to all small business savings accounts (within the meaning of section 7529(b)) maintained for the benefit of an individual, the term excess contributions means the sum of— (1)the excess (if any) of— (A)the amount contributed to such accounts for the taxable year, over (B)the amount allowable as a contribution under section 7529(c)(2) for such taxable year, and (2)the amount determined under this subsection for the preceding taxable year, reduced by the sum of— (A)the distributions out of the accounts for the taxable year, and (B)the excess (if any) of— (i)the maximum amount allowable as a contribution under section 7529(c)(2) for such taxable year, over (ii)the amount contributed to such accounts for such taxable year.

(d)

Clerical amendment

The table of sections for chapter 77 of the Internal Revenue Code of 1986 is amended by adding at the end the following new item:

Sec. 7529. Small Business Savings Accounts.

(e)

Effective date

The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.