[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 504 Introduced in Senate (IS)]







110th CONGRESS
  1st Session
                                 S. 504

To amend the Internal Revenue Code of 1986 to establish long-term care 
 trust accounts and allow a refundable tax credit for contributions to 
                 such accounts, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            February 6, 2007

   Mr. Smith 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 establish long-term care 
 trust accounts and allow a refundable tax credit for contributions to 
                 such accounts, 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 ``Long-Term Care Trust Account Act of 
2007''.

SEC. 2. LONG-TERM CARE TRUST ACCOUNTS.

    (a) In General.--Subchapter F of chapter 1 of the Internal Revenue 
Code of 1986 (relating to exempt organizations) is amended by adding at 
the end the following new part:

                ``PART IX--LONG-TERM CARE TRUST ACCOUNTS

``SEC. 530A. LONG-TERM CARE TRUST ACCOUNTS.

    ``(a) General Rule.--A Long-Term Care Trust 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 organizations).
    ``(b) Long-Term Care Trust Account.--For purposes of this section, 
the term `Long-Term Care Trust Account' means a trust created or 
organized in the United States for the exclusive benefit of an 
individual who is the designated beneficiary of the trust and which is 
designated (in such manner as the Secretary shall prescribe) at the 
time of the establishment of the trust as a Long-Term Care Trust 
Account, but only if the written governing instrument creating the 
trust meets the following requirements:
            ``(1) Except in the case of a qualified rollover 
        contribution described in subsection (d)--
                    ``(A) no contribution will be accepted unless it is 
                in cash, and
                    ``(B) contributions will not be accepted for the 
                calendar year in excess of the contribution limit 
                specified in subsection (c)(1).
            ``(2) The trustee is a bank (as defined in section 408(n)), 
        an insurance company (as defined in section 816), 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 or who 
        has so demonstrated with respect to any individual retirement 
        plan.
            ``(3) No part of the trust assets will be invested in life 
        insurance contracts.
            ``(4) The interest of an individual in the balance of his 
        account is nonforfeitable.
            ``(5) The assets of the trust shall not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
            ``(6) Except as provided in subsection (e)(2), no 
        distribution will be allowed if at the time of such 
        distribution the designated beneficiary is not a chronically 
        ill individual (as defined in section 7702B(c)(2)).
    ``(c) Tax Treatment of Contributions.--
            ``(1) Contribution limit.--
                    ``(A) In general.--The aggregate amount of 
                contributions (other than qualified rollover 
                contributions described in subsection (d)) for any 
                taxable year to all Long-Term Care Trust Accounts 
                maintained for the benefit of the designated 
                beneficiary shall not exceed $5,000.
                    ``(B) Inflation adjustment.--In the case of any 
                taxable year beginning in a calendar year after 2007, 
                the dollar amount under subparagraph (A) shall be 
                increased by an amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the medical care cost adjustment 
                        determined under section 213(d)(10)(B)(ii) for 
                        the calendar year in which the taxable year 
                        begins, determined by substituting `2006' for 
                        `1996' in subclause (II) thereof.
                If any amount as adjusted under the preceding sentence 
                is not a multiple of $10, such amount shall be rounded 
                to the next lowest multiple of $10.
            ``(2) Gift tax treatment of contributions.--For purposes of 
        chapters 12 and 13--
                    ``(A) In general.--Any contribution to a Long-Term 
                Care Trust Account on behalf of any designated 
                beneficiary--
                            ``(i) shall be treated as a completed gift 
                        to such beneficiary which is not a future 
                        interest in property, and
                            ``(ii) shall not be treated as a qualified 
                        transfer under section 2503(e).
                    ``(B) Treatment of excess contributions.--If the 
                aggregate amount of contributions described in 
                subparagraph (A) during the calendar year by a donor 
                exceeds the limitation for such year under section 
                2503(b), such aggregate amount shall, at the election 
                of the donor, be taken into account for purposes of 
                such section ratably over the 5-year period beginning 
                with such calendar year.
    ``(d) Qualified Rollover Contribution.--For purposes of this 
section, the term `qualified rollover contribution' means a 
contribution to a Long-Term Care Trust Account--
            ``(1) from another such account of the same beneficiary, 
        but only if such amount is contributed not later than the 60th 
        day after the distribution from such other account, and
            ``(2) from a Long-Term Care Trust Account of a spouse of 
        the beneficiary of the account to which the contribution is 
        made, but only if such amount is contributed not later than the 
        60th day after the distribution from such other account.
    ``(e) Tax Treatment of Distributions.--
            ``(1) In general.--Any distribution from a Long-Term Care 
        Trust Account shall be includible in the gross income of the 
        distributee in the manner as provided under section 72 to the 
        extent not excluded from gross income under any other provision 
        of this subsection.
            ``(2) Long-term care insurance premiums.--If at the time of 
        any distribution, the designated beneficiary is not a 
        chronically ill individual (as defined in section 7702B(c)(2)), 
        no amount shall be includible in gross income under paragraph 
        (1) if the aggregate premiums for any qualified long-term care 
        insurance contract for such beneficiary during the taxable year 
        are not less than the aggregate distributions during the 
        taxable year.
            ``(3) Distributions for qualified long-term care 
        services.--For purposes of this subsection, if at the time of 
        any distribution, the designated beneficiary is a chronically 
        ill individual (as so defined)--
                    ``(A) In-kind distributions.--No amount shall be 
                includible in gross income under paragraph (1) by 
                reason of a distribution which consists of providing a 
                benefit to the distributee which, if paid for by the 
                distributee, would constitute expenses for any 
                qualified long-term care services (as defined in 
                section 7702B(c)).
                    ``(B) Cash distributions.--In the case of 
                distributions not described in subparagraph (A), if--
                            ``(i) such distributions do not exceed the 
                        expenses for qualified long-term care services 
                        (as so defined), reduced by expenses described 
                        in subparagraph (A), no amount shall be 
                        includible in gross income, and
                            ``(ii) in any other case, the amount 
                        otherwise includible in gross income shall be 
                        reduced by an amount which bears the same ratio 
                        to such amount as such expenses bear to such 
                        distributions.
            ``(4) Change in beneficiaries or accounts.--Paragraph (1) 
        shall not apply to that portion of any distribution which, 
        within 60 days of such distribution, is transferred--
                    ``(A) to another Long-Term Care Trust Account for 
                the benefit of the designated beneficiary, or
                    ``(B) to the credit of another designated 
                beneficiary under a Long-Term Care Trust Account who is 
                a spouse of the designated beneficiary with respect to 
                which the distribution was made.
            ``(5) Operating rules.--For purposes of applying section 
        72--
                    ``(A) to the extent provided by the Secretary, all 
                Long-Term Care Trust Accounts of which an individual is 
                a designated beneficiary shall be treated as one 
                account,
                    ``(B) except to the extent provided by the 
                Secretary, all distributions during a taxable year 
                shall be treated as one distribution, and
                    ``(C) except to the extent provided by the 
                Secretary, the value of the contract, income on the 
                contract, and investment in the contract shall be 
                computed as of the close of the calendar year in which 
                the taxable year begins.
            ``(6) Special rules for death and divorce.--
                    ``(A) In general.--Rules similar to the rules of 
                paragraphs (7) and (8) of section 220(f) shall apply.
                    ``(B) Amounts includible in estate of donor making 
                excess contributions.--In the case of a donor who makes 
                the election described in subsection (c)(2)(B) and who 
                dies before the close of the 5-year period referred to 
                in such subsection, the gross estate of the donor shall 
                include the portion of such contributions properly 
                allocable to periods after the date of death of the 
                donor.
            ``(7) Additional tax.--The tax imposed by this chapter for 
        any taxable year on any taxpayer who receives a payment or 
        distribution from a Long-Term Care Trust Account which is 
        includible in gross income shall be increased by 25 percent of 
        the amount which is so includible under rules similar to the 
        rules of section 530(d)(4).
            ``(8) Denial of double benefit.--For purposes of 
        determining the amount of any deduction under this chapter, any 
        payment or distribution out of a Long-Term Care Trust Account 
        shall not be treated as an expense paid for medical care.
    ``(f) Designated Beneficiary.--For purposes of this section, the 
term `designated beneficiary' means the individual designated at the 
commencement of participation in the Long-Term Care Trust Account as 
the beneficiary of amounts paid (or to be paid) to the account.
    ``(g) Loss of Taxation Exemption of Account Where Beneficiary 
Engages in Prohibited Transaction.--Rules similar to the rules of 
paragraph (2) of section 408(e) shall apply to any Long-Term Care Trust 
Account.
    ``(h) Custodial Accounts.--For purposes of this section, a 
custodial account or an annuity contract issued by an insurance company 
qualified to do business in a State shall be treated as a trust under 
this section if--
            ``(1) the custodial account or annuity contract would, 
        except for the fact that it is not a trust, constitute a trust 
        which meets the requirements of subsection (b), and
            ``(2) in the case of a custodial account, 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.
For purposes of this title, in the case of a custodial account or 
annuity contract treated as a trust by reason of the preceding 
sentence, the person holding the assets of such account or holding such 
annuity contract shall be treated as the trustee thereof.
    ``(i) Reports.--The trustee of a Long-Term Care Trust Account 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.''.
    (b) Tax on Excess Contributions.--
            (1) In general.--Subsection (a) of section 4973 of the 
        Internal Revenue Code of 1986 (relating to tax on excess 
        contributions to certain tax-favored accounts and annuities) is 
        amended by striking ``or'' at the end of paragraph (4), by 
        inserting ``or'' at the end of paragraph (5), and by inserting 
        after paragraph (5) the following new paragraph:
            ``(6) a Long-Term Care Trust Account (as defined in section 
        530A),''.
            (2) Excess contribution.--Section 4973 of such Code is 
        amended by adding at the end the following new subsection:
    ``(h) Excess Contributions to Long-Term Care Trust Accounts.--For 
purposes of this section--
            ``(1) In general.--In the case of Long-Term Care Trust 
        Accounts (within the meaning of section 530A), the term `excess 
        contributions' means the sum of--
                    ``(A) the amount by which the amount contributed 
                for the calendar year to such accounts (other than 
                qualified rollover contributions (as defined in section 
                530A(d))) exceeds the contribution limit under section 
                530A(c)(1), and
                    ``(B) the amount determined under this subsection 
                for the preceding calendar year, reduced by the excess 
                (if any) of the maximum amount allowable as a 
                contribution under section 530A(c)(1) for the calendar 
                year over the amount contributed to the accounts for 
                the calendar year.
            ``(2) Special rule.--A contribution shall not be taken into 
        account under paragraph (1) if such contribution (together with 
        the amount of net income attributable to such contribution) is 
        returned to the beneficiary before June 1 of the year following 
        the year in which the contribution is made.''.
    (c) Failure To Provide Reports on Long-Term Care Trust Accounts.--
Paragraph (2) of section 6693(a) of the Internal Revenue Code of 1986 
(relating to failure to provide reports on individual retirement 
accounts or annuities) 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(i) (relating to Long-Term Care 
                Trust Accounts).''.
    (d) Conforming Amendment.--The table of parts for subchapter F of 
chapter 1 of the Internal Revenue Code of 1986 is amended by adding at 
the end the following new item:

              ``Part IX. Long-Term Care Trust Accounts''.

    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 3. REFUNDABLE CREDIT FOR CONTRIBUTIONS TO LONG-TERM CARE TRUST 
              ACCOUNTS.

    (a) In General.--Subpart C of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to refundable credits) 
is amended by inserting after section 35 the following new section:

``SEC. 35A. CONTRIBUTIONS TO LONG-TERM CARE TRUST ACCOUNTS.

    ``(a) General Rule.--In the case of an individual, there shall be 
allowed as a credit against the tax imposed by this subtitle for the 
taxable year an amount equal to 10 percent of the contributions to any 
Long-Term Care Trust Account allowed under section 530A for such 
taxable year.
    ``(b) Reduction Based on Adjusted Gross Income.--
            ``(1) In general.--The percentage which would (but for this 
        subsection) be taken into account under subsection (a) for the 
        taxable year shall be reduced (but not below zero) by the 
        percentage determined under paragraph (2).
            ``(2) Amount of reduction.--The percentage determined under 
        this paragraph is the percentage which bears the same ratio to 
        the percentage which would be so taken into account as--
                    ``(A) the excess of--
                            ``(i) the taxpayer's adjusted gross income 
                        for such taxable year, over
                            ``(ii) $95,000 ($190,000 in the case of a 
                        joint return), bears to
                    ``(B) $10,000 ($20,000 in the case of a joint 
                return).
            ``(3) Adjusted gross income.--For purposes of this 
        subsection, adjusted gross income shall be determined without 
        regard to sections 911, 931, and 933.
    ``(c) Denial of Double Benefit.--No deduction shall be allowed 
under this chapter for any amount taken into account in determining the 
credit under this section.''.
    (b) Conforming Amendments.--
            (1) Paragraph (2) of section 1324(b) of title 31, United 
        States Code, is amended by inserting before the period ``, or 
        from section 35A of such Code''.
            (2) The table of sections of subpart C of part IV of 
        subchapter A of chapter 1 of the Internal Revenue Code of 1986 
        is amended by inserting after the item relating to section 35 
        the following new item:

``Sec. 35A. Contributions to Long-Term Care Trust Accounts.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred in taxable years beginning after 
December 31, 2005.
                                 <all>