[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 2743 Introduced in Senate (IS)]







110th CONGRESS
  2d Session
                                S. 2743

     To amend the Internal Revenue Code of 1986 to provide for the 
  establishment of financial security accounts for the care of family 
           members with disabilities, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             March 11, 2008

 Mr. Casey (for himself and Mr. Hatch) 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 provide for the 
  establishment of financial security accounts for the care of family 
           members with disabilities, 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 ``Financial Security Accounts for 
Individuals with Disabilities Act of 2008''.

SEC. 2. FINANCIAL SECURITY ACCOUNTS FOR INDIVIDUALS WITH DISABILITIES.

    (a) Establishment.--
            (1) In general.--Subchapter F of chapter 1 of the Internal 
        Revenue Code of 1986 (relating to exempt organizations) is 
        amended by inserting after part VIII the following new part:

          ``PART IX--SAVINGS FOR INDIVIDUALS WITH DISABILITIES

``Sec. 530A. Financial security accounts for individuals with 
                            disabilities.

``SEC. 530A. FINANCIAL SECURITY ACCOUNTS FOR INDIVIDUALS WITH 
              DISABILITIES.

    ``(a) General Rule.--A financial security account for an individual 
with a disability 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) Definitions and Special Rules.--For purposes of this 
section--
            ``(1)  Financial security account for an individual with a 
        disability.--The term `financial security account for an 
        individual with a disability' means a trust created or 
        organized in the United States (and designated as a financial 
        security account for an individual with a disability at the 
        time created or organized) exclusively for the purpose of 
        paying qualified disability expenses of an individual who is 
        disabled and who is the designated beneficiary of the trust, 
        but only if the written governing instrument creating the trust 
        meets the following requirements:
                    ``(A) No contribution will be accepted--
                            ``(i) except in the case of rollover 
                        contributions described in subsection (c)(4) 
                        and sections 223(c)(5)(A)(ii), 
                        408(d)(3)(A)(iii), 529(c)(3)(E), and 
                        530(d)(9)--
                                    ``(I) unless it is in cash, and
                                    ``(II) if such contribution would 
                                result in aggregate contributions for 
                                the taxable year and all preceding 
                                taxable years exceeding $500,000, and
                            ``(ii) after the date on which the account 
                        holder attains the age of 65.
                    ``(B) The trustee is a bank (as defined in section 
                408(n)), a parent or guardian of the designated 
                beneficiary, a designee of a parent or guardian of the 
                designated beneficiary, the designated beneficiary, 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.
                    ``(C) No part of the trust assets will be invested 
                in life insurance contracts.
                    ``(D) The assets of the trust shall not be 
                commingled with other property except in a common trust 
                fund or common investment fund.
            ``(2) Qualified disability expenses.--The term `qualified 
        disability expenses' means, with respect to an individual with 
        a disability, amounts paid or incurred, not compensated for by 
        insurance or otherwise, for--
                    ``(A) education, medical and dental care, community 
                based support services, employment training and 
                support, moving, and assistive technology,
                    ``(B) after the designated beneficiary has attained 
                the age of 18, housing and transportation, and
                    ``(C) funeral and burial services and property.
            ``(3) Individual with a disability.--An individual is an 
        individual with a disability if such individual is receiving 
        supplemental security income benefits under title XVI of the 
        Social Security Act or an individual otherwise eligible to 
        receive such benefits notwithstanding the income and assets 
        tests required for eligibility for such benefits.
            ``(4) Rules relating to estate and gift tax.--Rules similar 
        to the rules of paragraphs (2), (4), and (5) of section 529(c) 
        shall apply for purposes of this section.
            ``(5) Only 1 account per qualified beneficiary.--No 
        individual may have more than 1 financial security account for 
        an individual with a disability.
    ``(c) Tax Treatment of Distributions.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, any amount paid or distributed out of a financial 
        security account for an individual with a disability shall be 
        included in gross income by the payee or distributee, as the 
        case may be, for the taxable year in which received in the 
        manner as provided in section 72.
            ``(2) Distributions for benefit of designated 
        beneficiary.--
                    ``(A) In general.--No amount shall be includible in 
                gross income under paragraph (1) if the qualified 
                disability expenses of the designated beneficiary 
                during the taxable year are not less than the aggregate 
                distributions during the taxable year.
                    ``(B) Distributions in excess of expenses.--If such 
                aggregate distributions exceed such expenses during the 
                taxable year, the amount otherwise includible in gross 
                income under paragraph (1) shall be reduced by the 
                amount which bears the same ratio to the amount which 
                would be includible in gross income under paragraph (1) 
                (without regard to this subparagraph) as the qualified 
                disability expenses bear to such aggregate 
                distributions.
                    ``(C) Disallowance of excluded amounts as 
                deduction, credit, or exclusion.--No deduction, credit, 
                or exclusion shall be allowed to the taxpayer under any 
                other section of this chapter for any qualified 
                disability expenses to the extent taken into account in 
                determining the amount of the exclusion under this 
                paragraph.
            ``(3) Additional tax for distributions not used for benefit 
        of designated beneficiary.--
                    ``(A) In general.--The tax imposed by this chapter 
                for any taxable year on any taxpayer who receives a 
                payment or distribution from a financial security 
                account for an individual with a disability shall be 
                increased by 10 percent of the amount thereof which is 
                includible in gross income under paragraph (1).
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                if the payment or distribution is made to a beneficiary 
                (or to the estate of the designated beneficiary) on or 
                after the death of the designated beneficiary.
                    ``(C) Contributions returned before certain date.--
                Subparagraph (A) shall not apply to the distribution of 
                any contribution made during a taxable year if--
                            ``(i) such distribution is made before the 
                        first day of the sixth month of the taxable 
                        year following the taxable year, and
                            ``(ii) such distribution is accompanied by 
                        the amount of net income attributable to such 
                        excess contribution.
                Any net income described in clause (ii) shall be 
                included in gross income for the taxable year in which 
                such excess contribution was made.
            ``(4) Rollovers.--Paragraph (1) shall not apply to any 
        amount paid or distributed from a financial security account 
        for an individual with a disability to the extent that the 
        amount received is paid, not later than the 60th day after the 
        date of such payment or distribution, into another financial 
        security account for an individual with a disability for the 
        benefit of the same beneficiary. The preceding sentence shall 
        not apply to any payment or distribution if it applied to any 
        prior payment or distribution during the 12-month period ending 
        on the date of the payment or distribution.
            ``(5) Change in beneficiary.--Any change in the beneficiary 
        of a financial security account for an individual with a 
        disability shall not be treated as a distribution for purposes 
        of paragraph (1) if the new beneficiary is disabled and is a 
        member of the family (as defined in section 529(e)(2)) of the 
        old beneficiary.
    ``(d) Tax Treatment of Accounts.--Rules similar to the rules of 
paragraphs (2) and (4) of section 408(e) shall apply to any financial 
security account for an individual with a disability.
    ``(e) Community Property Laws.--This section shall be applied 
without regard to any community property laws.
    ``(f) Custodial Accounts.--For purposes of this section, a 
custodial account shall be treated as a trust if--
            ``(1) 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, and
            ``(2) the custodial account would, except for the fact that 
        it is not a trust, constitute an account described in 
        subsection (c)(1).
For purposes of this title, in the case of a custodial account treated 
as a trust by reason of the preceding sentence, the custodian of such 
account shall be treated as the trustee thereof.
    ``(g) Reports.--The trustee of a financial security account for an 
individual with a disability 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.
    ``(h) Inflation Adjustment.--
            ``(1) In general.--In the case of any taxable year 
        beginning after 2008, the $500,000 dollar amount under 
        subsection (b)(1)(A)(ii) shall be increased by an amount equal 
        to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost of living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, determined by substituting 
                `calendar year 2007' for `calendar year 1992' in 
                subparagraph (B) thereof.
            ``(2) Rounding.--If any amount as adjusted under paragraph 
        (1) is not a multiple of $1,000, such amount shall be rounded 
        to the next lowest multiple of $1,000.
    ``(i) Regulations.--The Secretary, in consultation with the 
Secretary of Health and Human Services, shall prescribe regulations to 
carry out the purposes of this section, including regulations--
            ``(1) to ensure that individuals do not have more than 1 
        financial security account for an individual with a disability, 
        and
            ``(2) to prevent fraud and abuse with respect to amounts 
        claimed as qualified disability expenses.''.
            (2) Conforming amendments.--
                    (A) Penalty for failure to meet minimum 
                distribution requirement.--Subsection (c) of section 
                4974 of such Code is amended by striking ``or'' at the 
                end of paragraph (4), by striking the period at the end 
                of paragraph (5) and inserting ``, or'', and by 
                inserting after paragraph (5) the following new 
                paragraph:
            ``(6) any financial security account for an individual with 
        a disability (as defined in section 530A(b)).''.
                    (B) Tax on prohibited transactions.--
                            (i) In general.--Paragraph (1) of section 
                        4975(e) of such Code (defining plan) is amended 
                        by redesignating subparagraph (G) as 
                        subparagraph (H), by striking ``or'' at the end 
                        of subparagraph (F), and by adding after 
                        subparagraph (F) the following:
                    ``(G) a financial security account for an 
                individual with a disability described in section 530A, 
                or''.
                            (ii) Exemption.--Subsection (d) of section 
                        4975 of such Code (relating to exemptions) is 
                        amended by striking ``or'' at the end of 
                        paragraph (22), by striking the period at the 
                        end of paragraph (23) and inserting ``; or'', 
                        and by inserting after paragraph (23) the 
                        following:
            ``(24) in the case of a financial security account for an 
        individual with a disability, any transaction to provide 
        housing or other services by a family member to or for the 
        designated beneficiary of the trust to the extent that such 
        transaction does not exceed the fair market value of the 
        housing or service (as the case may be) provided.''.
                            (iii) Special rule.--Subsection (c) of 
                        section 4975 of such Code (relating to tax on 
                        prohibited transactions) is amended by adding 
                        at the end the following new paragraph:
            ``(7) Special rule for financial security account for 
        individuals with disabilities.--An individual for whose benefit 
        a financial security account for an individual with a 
        disability 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 section 530A(d) 
        applies with respect to such transaction.''.
                    (C) Rollovers from certain other tax favored 
                accounts.--
                            (i) Qualified tuition programs.--Paragraph 
                        (3) of section 529(c) of such Code is amended 
                        by adding at the end the following new 
                        subparagraph:
                    ``(E) Contributions to financial security account 
                for an individual with a disability.--Subparagraph (A) 
                shall not apply to that portion of any distribution 
                which, within 60 days of such distribution, is 
                contributed to a financial security account for an 
                individual with a disability for the benefit of the 
                designated beneficiary.''.
                            (ii) Education savings accounts.--
                        Subsection (d) of section 530 of such Code is 
                        amended by adding at the end the following new 
                        paragraph:
            ``(9) Contributions to financial security account for an 
        individual with a disability.--Paragraph (1) shall not apply to 
        any amount paid or distributed from a Coverdell education 
        savings account to the extent that the amount received is paid, 
        not later than the 60th day after the date of such payment or 
        distribution, into a financial security account for an 
        individual with a disability for the benefit of the same 
        beneficiary.''.
                            (iii) Health savings accounts.--
                        Subparagraph (A) of section 223(f)(5) is 
                        amended--
                                    (I) by inserting ``(i)'' before 
                                ``into a health savings account'', and
                                    (II) by inserting ``or (ii) into a 
                                financial security account for an 
                                individual with a disability for the 
                                benefit of such beneficiary'' before 
                                ``not later than the 60th day''.
                            (iv) Certain iras.--Subparagraph (A) of 
                        section 408(d)(3) is amended by striking ``or'' 
                        at the end of clause (i), by striking the 
                        period at the end of clause (ii) and inserting 
                        ``; or'', and by inserting after clause (ii) 
                        the following new clause:
                            ``(iii) the entire amount received 
                        (including money and other property) is paid 
                        into a financial security account for an 
                        individual with a disability for the benefit of 
                        the child or grandchild of such individual not 
                        later than the 60th day after the day on which 
                        the payment or distribution is received.''.
                    (D) Reports.--Paragraph (2) of section 6693(a) of 
                such Code 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 
                inserting after subparagraph (E) the following new 
                subparagraph:
                    ``(F) section 530A(g) (relating to financial 
                security accounts for individuals with 
                disabilities).''.
                    (E) Exclusion from income.--Subsection (b) of 
                section 1612 of the Social Security Act (42 U.S.C. 
                1382a) is amended by striking ``or'' at the end of 
                paragraph (22), by striking the period at the end of 
                paragraph (23) and inserting ``; or'', and by inserting 
                after paragraph (23) the following:
            ``(24) any contribution to a financial security account for 
        an individual with a disability.''.
                    (F) Clerical amendment.--The table of parts for 
                subchapter F of chapter 1 of such Code is amended by 
                inserting after the item relating to part VIII the 
                following new item:

        ``Part IX. Savings for Individuals With Disabilities.''.

    (b) Deduction for Contributions to Financial Security Accounts for 
Individuals With Disabilities.--
            (1) In general.--Part VII of subchapter B of chapter 1 of 
        the Internal Revenue Code of 1986 is amended by redesignating 
        section 224 as section 225 and inserting after section 223 the 
        following new section:

``SEC. 224. CONTRIBUTIONS TO FINANCIAL SECURITY ACCOUNTS FOR 
              INDIVIDUALS WITH DISABILITIES.

    ``(a) Allowance of Deduction.--In the case of an individual, there 
shall be allowed as a deduction an amount equal to the amount paid in 
cash for the taxable year by or on behalf of such individual to a 
financial security account for an individual with a disability (as 
defined in section 530A(b)(1)) for the benefit of such individual's 
child, grandchild, brother, or sister.
    ``(b) Limitations.--
            ``(1) In general.--The amount allowable as a deduction 
        under subsection (a) for any taxable year shall not exceed 
        $2,000.
            ``(2) Cost-of-living adjustment.--
                    ``(A) In general.--In the case of any taxable year 
                beginning after 2008, the $2,000 amount under 
                subparagraph (A) shall be increased by an amount equal 
                to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for the 
                        calendar year in which the taxable year begins, 
                        determined by substituting `calendar year 2007' 
                        for `calendar year 1992' in subparagraph (B) 
                        thereof.
                    ``(B) Rounding.--If any amount after adjustment 
                under the preceding sentence is not a multiple of $200, 
                such amount shall be rounded to the next lowest 
                multiple of $200.
            ``(3) Reduction based on adjusted gross income.--The dollar 
        limitation under paragraph (1) for such taxable year shall be 
        reduced (but not below zero) by the amount determined under 
        section 219(g)(2).''.
            (2) Clerical amendment.--The table of sections for part VII 
        of subchapter B of chapter 1 of such Code is amended by 
        redesignating the item relating to section 224 as relating to 
        section 225 and by inserting after the item relating to section 
        223 the following new item:

``Sec. 224. Contributions to financial security accounts for 
                            individuals with disabilities.''.
    (c) Annual Reports.--
            (1) In general.--The Secretary of the Treasury, in 
        consultation with the Secretary of Health and Human Services, 
        shall report annually to Congress on the usage of financial 
        security accounts for individuals with disabilities under 
        section 530A of the Internal Revenue Code of 1986.
            (2) Contents of report.--Any report under paragraph (1) 
        shall include--
                    (A) the number of people with a financial security 
                account for an individual with a disability,
                    (B) the total amount of contributions to such 
                accounts and the number of individuals claiming the 
                deduction allowed under section 224 of the Internal 
                Revenue Code of 1986, as added by subsection(b), and 
                the total amount of such deductions,
                    (C) the total amount and nature of distributions 
                from such accounts, and
                    (D) issues relating to the abuse of such accounts, 
                if any.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2007.

SEC. 3. TREATMENT OF FINANCIAL SECURITY ACCOUNTS FOR INDIVIDUALS WITH 
              DISABILITIES UNDER CERTAIN FEDERAL PROGRAMS.

    (a) Treatment as a Medicaid Excepted Trust.--Paragraph (4) of 
section 1917(d) of the Social Security Act (42 U.S.C. 1396p(d)(4)) is 
amended by adding at the end the following new subparagraph:
            ``(D) A trust which is a financial security account for an 
        individual with a disability described in section 530A(b)(1) of 
        the Internal Revenue Code of 1986.''.
    (b) Account Funds Disregarded for Purposes of Certain Other Means-
Tested Federal Programs.--Notwithstanding any other provision of 
Federal law that requires consideration of 1 or more financial 
circumstances of an individual, for the purpose of determining 
eligibility to receive, or the amount of, any assistance or benefit 
authorized by such provision to be provided to or for the benefit of 
such individual, any amount (including earnings thereon) in any 
financial security account for an individual with a disability of such 
individual, and any distribution for qualified disability expenses (as 
defined in section 530A(b)(2)) shall be disregarded for such purpose 
with respect to any period during which such individual maintains, 
makes contributions to, or receives distributions from such financial 
security account.
                                 <all>