[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 803 Introduced in Senate (IS)]







108th CONGRESS
  1st Session
                                 S. 803

  To amend the Internal Revenue Code of 1986 to allow a deduction to 
   members of the Armed Forces reserves for contributions to savings 
 accounts which may be used when the members are called to active duty.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             April 7, 2003

  Mr. Nelson of Nebraska (for himself, Ms. Mikulski, Mr. Daschle, Mr. 
    Levin, Mr. Leahy, Mrs. Clinton, Mr. Chambliss, and Ms. Collins) 
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 allow a deduction to 
   members of the Armed Forces reserves for contributions to savings 
 accounts which may be used when the members are called to active duty.

    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 ``Mobilized Reserve Savings Account 
Act''.

SEC. 2. DEDUCTION FOR CONTRIBUTIONS TO SAVINGS ACCOUNTS OF ARMED FORCES 
              RESERVES.

    (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 223 as 
section 224 and by inserting after section 222 the following new 
section:

``SEC. 223. CONTRIBUTIONS TO ARMED FORCES RESERVE SAVINGS ACCOUNTS.

    ``(a) Deduction Allowed.--
            ``(1) In general.--In the case of an individual who is a 
        qualified reservist, there shall be allowed as a deduction for 
        the taxable year an amount equal to the contributions of the 
        individual to an Armed Forces reserve savings account of the 
        individual for the taxable year.
            ``(2) Maximum amount.--The amount allowable as a deduction 
        under subsection (a) to any individual for a taxable year shall 
        not exceed the lesser of--
                    ``(A) $5,000, or
                    ``(B) $25,000, reduced by the aggregate 
                contributions by such individual to Armed Forces 
                reserve savings accounts for all preceding taxable 
                years.
    ``(b) Qualified Reservist.--For purposes of this section, the term 
`qualified reservist' means an individual who, on the last day of the 
taxable year, is a member of a reserve component of the Armed Forces.
    ``(c) Armed Forces Reserve Savings Account.--For purposes of this 
section, the term `Armed Forces reserve savings account' means a trust 
created or organized in the United States for the exclusive benefit of 
an individual and the individual's beneficiaries, but only if the 
written governing instrument creating the trust meets the following 
requirements:
            ``(1) No contribution will be accepted unless it is in 
        cash.
            ``(2) The trustee is a bank (as defined in section 408(n)) 
        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.
            ``(3) No part of the trust assets will be invested in life 
        insurance contracts.
            ``(4) The assets of the trust will not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
            ``(5) The interest of an individual in the balance of the 
        individual's account is nonforfeitable.
    ``(d) Tax Treatment of Distributions.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, any amount paid or distributed out of an Armed 
        Forces reserve savings account shall be included in the gross 
        income of the payee or distributee for the taxable year in 
        which the payment or distribution is received in the manner 
        provided under section 72.
            ``(2) Excess contributions returned before due date of 
        return.--Paragraph (1) shall not apply to the distribution of 
        any contribution paid during a taxable year to an Armed Forces 
        reserve savings account to the extent that such contribution 
        exceeds the amount allowable as a deduction under subsection 
        (a) if--
                    ``(A) such distribution is received on or before 
                the day prescribed by law (including extensions of 
                time) for filing such individual's return for such 
                taxable year,
                    ``(B) no deduction is allowed under subsection (a) 
                with respect to such excess contribution, and
                    ``(C) such distribution is accompanied by the 
                amount of net income attributable to such excess 
                contribution.
        Any net income described in subparagraph (C) shall be included 
        in the gross income of the individual for the taxable year in 
        which such excess contribution was made.
            ``(3) Rollover contribution.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                any amount paid or distributed from an Armed Forces 
                reserve savings account to the account holder to the 
                extent the amount received is paid to another such 
                account for the benefit of such holder not later than 
                the 60th day on which the holder receives the payment 
                or distribution.
                    ``(B) Limitation.--If an individual receives more 
                than 1 payment or distribution during any 12-month 
                period, this paragraph shall not apply to any such 
                payment or distribution to the individual if this 
                paragraph previously applied to any such payment or 
                distribution.
            ``(4) Additional tax on certain distributions.--
                    ``(A) In general.--The tax imposed by this chapter 
                on the account holder for any taxable year in which 
                there is a payment or distribution from an Armed Forces 
                reserve account which is includible in gross income 
                shall be increased by 10 percent of the amount which is 
                so includible.
                    ``(B) Exceptions related to military service.--
                Subparagraph (A) shall not apply if the payment or 
                distribution is made--
                            ``(i) during any period during which the 
                        account holder is serving on active duty to 
                        which called or ordered under a provision of 
                        law referred to in section 101(a)(13)(B) of 
                        title 10, United States Code, or
                            ``(ii) after the account holder ceases to 
                        be a member of a reserve component of the Armed 
                        Forces or is transferred to the retired list of 
                        such a reserve component.
                For purposes of clause (i), a payment made during the 
                60-day period immediately preceding or following the 
                period described in clause (i) shall be treated as made 
                during the period so described.
                    ``(C) Exceptions for disability or death.--
                Subparagraph (A) shall not apply if the payment or 
                distribution is made after the account holder becomes 
                disabled within the meaning of section 72(m)(7) or 
                dies.
            ``(5) Investment in collectibles treated as 
        distributions.--Rules similar to the rules of section 408(m) 
        shall apply for purposes of this section.
    ``(e) Tax Treatment of Accounts.--
            ``(1) Exemption from tax.--An Armed Forces reserve savings 
        account is exempt from taxation under this subtitle unless such 
        account has ceased to be an Armed Forces reserve savings 
        account by reason of paragraph (2). 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).
            ``(2) Loss of exemption of account where individual engages 
        in prohibited transaction.--
                    ``(A) In general.--If the individual for whose 
                benefit an Armed Forces reserve 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 
                shall cease to be an Armed Forces reserve savings 
                account as of the first day of the taxable year (of the 
                individual so engaging in such transaction) during 
                which such transaction occurs.
                    ``(B) Account treated as distributing all its 
                assets.--In any case in which any account ceases to be 
                an Armed Forces reserve savings account by reason of 
                subparagraph (A) as of the first day of any taxable 
                year, paragraph (1) of subsection (d) shall apply as if 
                there was a distribution on such first day in an amount 
                equal to the fair market value (on such first day) of 
                all assets in the account (on such first day).
            ``(3) Effect of pledging account as security.--If, during 
        any taxable year, the individual for whose benefit an Armed 
        Forces reserve savings account is established uses the account 
        or any portion thereof as security for a loan, the portion so 
        used shall be treated as distributed to the individual so using 
        such portion.
    ``(f) Special Rules.--
            ``(1) Time when contributions deemed made.--A taxpayer 
        shall be deemed to have made a contribution to an Armed Forces 
        reserve savings account on the last day of the preceding 
        taxable year if the contribution is made on account of such 
        taxable year and is made not later than the time prescribed by 
        law for filing the return for such taxable year (not including 
        extensions thereof).
            ``(2) Death and divorce.--Rules similar to the rules of 
        sections 401(a)(9), 401(a)(11), and 408(d)(6) shall apply for 
        purposes of this section.
            ``(3) Community property laws.--This section shall be 
        applied without regard to any community property laws.
    ``(g) Reports.--The trustee of an Armed Forces reserve savings 
account shall make such reports regarding such account to the Secretary 
and to the account holder 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 those regulations.''
    (b) Allowance of Deduction in Computing Adjusted Gross Income.--
Subsection (a) of section 62 of such Code (defining adjusted gross 
income) is amended by inserting after paragraph (18) the following new 
paragraph:
            ``(19) Contributions to armed forces reserve savings 
        accounts.--The deduction allowed by section 223(a).''
    (c) Tax on Excess Contributions.--Section 4973 of such Code 
(relating to tax on excess contributions to certain tax-favored 
accounts and annuities) is amended--
            (1) in subsection (a), by striking ``or'' at the end of 
        paragraph (3), by inserting ``or'' at the end of paragraph (4), 
        and by inserting after paragraph (4) the following new 
        paragraph:
            ``(5) an Armed Forces reserve savings account (as defined 
        in section 223(c)),'', and
            (2) by adding at the end the following new subsection:
    ``(g) Excess Contributions to an Armed Forces Reserve Savings 
Account.--For purposes of this section, in the case of an Armed Forces 
reserve savings account, the term `excess contributions' means the sum 
of--
            ``(1) the aggregate amount contributed for the taxable year 
        to the account which is not allowable as a deduction under 
section 223 for such taxable year, and
            ``(2) the amount determined under this subsection for the 
        preceding taxable year, reduced by--
                    ``(A) the distributions out of the accounts which 
                were included in gross income under section 223(d)(1) 
                for the taxable year, over
                    ``(B) the amount contributed to the accounts for 
                the taxable year.
        For purposes of this subsection, any contribution which is 
        distributed out of the Armed Forces reserve savings account in 
        a distribution to which section 223(d)(2) applies shall be 
        treated as an amount not contributed.''.
    (d) Tax on Prohibited Transactions.--Section 4975 of such Code 
(relating to prohibited transactions) is amended--
            (1) by adding at the end of subsection (c) the following 
        new paragraph:
            ``(6) Special rule for armed forces reserve savings 
        accounts.--An individual for whose benefit an Armed Forces 
        reserve savings account 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, with 
        respect to such transaction, the account ceases to be an Armed 
        Forces reserve savings account by reason of the application of 
        section 223 to such account.'', and
            (2) in subsection (e)(1), by striking ``or'' at the end of 
        subparagraph (E), by redesignating subparagraph (F) as 
        subparagraph (G), and by inserting after subparagraph (E) the 
        following new subparagraph:
                    ``(F) an Armed Forces reserve savings account 
                described in section 223, or''.
    (e) Failure To Provide Reports on Armed Forces Reserve Savings 
Accounts.--Paragraph (2) of section 6693(a) of such Code (relating to 
failure to provide reports on certain tax-favored accounts or 
annuities) is amended by striking ``and'' at the end of subparagraph 
(C), by striking the period at the end of subparagraph (D) and 
inserting ``, and'', and by adding at the end the following new 
subparagraph:
                    ``(E) section 223(g) (relating to Armed Forces 
                reserve savings accounts).''.
    (f) Conforming Amendment.--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 223 and inserting the following new items:

                              ``Sec. 223. Contributions to Armed Forces 
                                        reserve savings accounts.
                              ``Sec. 224. Cross reference.''
    (g) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.
                                 <all>