[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[H.R. 6001 Introduced in House (IH)]

111th CONGRESS
  2d Session
                                H. R. 6001

     To amend the Internal Revenue Code of 1986 to provide for the 
establishment of tax-free COBRA premium payment accounts, and for other 
                               purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             July 30, 2010

  Mr. Pitts introduced the following bill; which was referred to the 
                      Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
     To amend the Internal Revenue Code of 1986 to provide for the 
establishment of tax-free COBRA premium payment 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 ``COBRA Affordability Act of 2010''.

SEC. 2. COBRA PREMIUM PAYMENT 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--COBRA PREMIUM PAYMENT ACCOUNTS

``Sec. 530A. COBRA Premium Payment Accounts.

``SEC. 530A. COBRA PREMIUM PAYMENT ACCOUNTS.

    ``(a) General Rule.--A COBRA premium payment account shall be 
exempt from taxation under this subtitle. Notwithstanding the preceding 
sentence, any COBRA premium payment account shall be subject to the 
taxes imposed by section 511 (relating to imposition of tax on 
unrelated business income of charitable, etc., organizations).
    ``(b) COBRA Premium Payment Account.--For purposes of this title, 
the term `COBRA premium payment account' means a trust created or 
organized in the United States for the exclusive benefit of an 
individual or his beneficiaries, but only if the written governing 
instrument creating the trust meets the following requirements:
            ``(1) Except in the case of a qualified rollover (as 
        defined in subsection (f)(3)), no contribution will be accepted 
        unless it is in cash, and contributions will not be accepted 
        for the taxable year on behalf of any individual in excess of 
        the amount in effect for such taxable year under section 
        224(b).
            ``(2) The trustee is a bank (as defined in section 408(n)).
            ``(3) The trust funds may only be invested in interest-
        bearing securities of the United States.
            ``(4) The requirements of paragraphs (3) through (6) of 
        section 408(a) are met.
    ``(c) Tax Treatment of Distributions.--
            ``(1) Inclusion of amounts in gross income.--Except as 
        otherwise provided in this subsection, any amount paid or 
        distributed out of a COBRA premium payment account shall be 
        includible in the gross income of the payee or distributee, as 
        the case may be, in the manner as provided in section 72.
            ``(2) Distributions for cobra premium payments.--No amount 
        shall be includible in gross income under paragraph (1) if the 
        qualified COBRA premium payments of the designated beneficiary 
        during the taxable year, reduced by any credit allowed under 
        this chapter with respect to such payments for the taxable 
        year, are not less than the aggregate distributions during the 
        taxable year.
            ``(3) Distributions in excess of payments.--If such 
        aggregate distributions exceed such payments (as so reduced) 
        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 paragraph) as the qualified COBRA premium payments (as 
        so reduced) bear to such aggregate distributions.
            ``(4) Medicare eligibility.--Paragraph (2) shall not apply 
        to any distribution to a beneficiary after the date on which 
        such individual is entitled to benefits under part A of title 
        XVIII of the Social Security Act or is enrolled under part B of 
        such title.
    ``(d) Qualified COBRA Premium Payments.--For purposes of this 
section--
            ``(1) In general.--The term `qualified COBRA premium 
        payments' means any premium paid for COBRA continuation 
        coverage.
            ``(2) COBRA continuation coverage.--The term `COBRA 
        continuation coverage' means continuation coverage provided 
        pursuant to part 6 of subtitle B of title I of the Employee 
        Retirement Income Security Act of 1974 (other than under 
        section 609), title XXII of the Public Health Service Act, 
        section 4980B of this title (other than subsection (f)(1) of 
        such section insofar as it relates to pediatric vaccines), or 
        section 8905a of title 5, United States Code, or under a State 
        program that provides comparable continuation coverage. Such 
        term includes coverage under a health flexible spending 
        arrangement under a cafeteria plan within the meaning of 
        section 125 of the Internal Revenue Code of 1986 if, at the 
        time of the qualifying event (as defined in section 
        4980B(f)(3)), the taxpayer was covered under such coverage.
    ``(e) Tax Treatment of Accounts.--
            ``(1) Loss of exemption in case of prohibited 
        transactions.--For purposes of this section, rules similar to 
        the rules of section 408(e) shall apply.
            ``(2) Other rules to apply.--Rules similar to the rules of 
        paragraphs (4), (5), and (6) of section 408(d) shall apply for 
        purposes of this section.
    ``(f) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) All accounts treated as one account.--All COBRA 
        premium payment accounts of a qualified individual shall be 
        treated as 1 account.
            ``(2) Time when contributions deemed made.--A taxpayer 
        shall be deemed to have made a contribution to a COBRA premium 
        payment 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).
            ``(3) Qualified rollovers.--The term `qualified rollover' 
        means any amount paid from a COBRA premium payment account of a 
        taxpayer into another such account established for the benefit 
        of--
                    ``(A) such taxpayer, or
                    ``(B) any qualified individual who is--
                            ``(i) the spouse of such taxpayer, or
                            ``(ii) any dependent (as defined in section 
                        152) of the taxpayer.
        Rules similar to the rules of section 408(d)(3) shall apply for 
        purposes of this paragraph.
            ``(4) Custodial accounts.--Rules similar to the rules of 
        section 408(h) shall apply.
            ``(5) Reports.--The trustee of a COBRA premium payment 
        account shall make such reports regarding such account to the 
        Secretary and to the individual for whom the account is 
        maintained with respect to contributions (and the years to 
        which they relate), distributions, and such other matters as 
        the Secretary may require under regulations. The reports 
        required by this paragraph--
                    ``(A) shall be filed at such time and in such 
                manner as the Secretary prescribes in such regulations, 
                and
                    ``(B) shall be furnished to individuals--
                            ``(i) not later than January 31 of the 
                        calendar year following the calendar year to 
                        which such reports relate, and
                            ``(ii) in such manner as the Secretary 
                        prescribes in such regulations.
            ``(6) Investment in collectibles treated as 
        distributions.--Rules similar to the rules of section 408(m) 
        shall apply.
    ``(g) Penalty for Distributions Not Used for Qualified COBRA 
Premium Payments.--
            ``(1) In general.--If any amount distributed from a COBRA 
        premium payment account is includible in gross income under 
        subsection (c), the tax imposed by this chapter for the taxable 
        year of such distribution shall be increased by 20 percent of 
        such amount which is includible in gross income. For purposes 
        of the preceding sentence, distributions which are includible 
        in gross income shall be treated as first attributable to 
        amounts contributed under subsection (d) to the extent thereof.
            ``(2) Exception for certain distributions.--Paragraph (1) 
        shall not apply to distributions which are--
                    ``(A) made to a beneficiary (or the estate of the 
                account holder) on or after the death of the account 
                holder, or
                    ``(B) attributable to the account holder's being 
                disabled within the meaning of section 72(m)(7).''.
    (b) Deduction for Contributions.--
            (1) In general.--Part VII of subchapter B of chapter I of 
        the Internal Revenue Code of 1986 (relating to additional 
        itemized deductions for individuals) is amended by 
        redesignating section 224 as section 225 and by inserting after 
        section 223 the following new section:

``SEC. 224. CONTRIBUTIONS TO COBRA PREMIUM PAYMENT ACCOUNT.

    ``(a) Allowance of Deduction.--In the case of an individual, there 
shall be allowed as a deduction for the taxable year an amount equal to 
the contributions of the individual to a COBRA premium payment account.
    ``(b) Maximum Amount of Deduction.--
            ``(1) Dollar limitation.--The amount allowable as a 
        deduction under subsection (a) for a taxable year shall not 
        exceed the lesser of--
                    ``(A) $2,500,
                    ``(B) the amount equal to the excess of--
                            ``(i) the aggregate contributions to all 
                        COBRA premium payment accounts of the 
                        individual for all prior taxable years, over
                            ``(ii) $11,814 ($27,286 in the case of a 
                        joint return), or
                    ``(C) an amount equal to the compensation 
                includible in the individual's gross income for such 
                taxable year.
            ``(2) Limitation based on adjusted gross income.--
                    ``(A) In general.--Each of the dollar limitations 
                contained in subparagraphs (A) and (B) of paragraph (1) 
                for such taxable year shall be reduced (but not below 
                zero) by the amount determined under subparagraph (B).
                    ``(B) Amount of reduction.--
                            ``(i) In general.--The amount determined 
                        under this subparagraph with respect to any 
                        dollar limitation shall be the amount which 
                        bears the same ratio to such limitation as--
                                    ``(I) the excess of--
                                            ``(aa) the taxpayer's 
                                        adjusted gross income for such 
                                        taxable year, over
                                            ``(bb) the applicable 
                                        dollar amount, bears to
                                    ``(II) $10,000 ($20,000 in the case 
                                of a joint return).
                            ``(ii) No reduction below $200 until 
                        complete phase-out.--No dollar limitation shall 
                        be reduced below $200 under paragraph (1) 
                        unless (without regard to this subparagraph) 
                        such limitation is reduced to zero.
                            ``(iii) Rounding.--Any amount determined 
                        under this subparagraph which is not a multiple 
                        of $10 shall be rounded to the next lowest $10.
                    ``(C) Adjusted gross income; applicable dollar 
                amount.--For purposes of this paragraph--
                            ``(i) Adjusted gross income.--Adjusted 
                        gross income of any taxpayer shall be 
                        determined--
                                    ``(I) after application of sections 
                                86 and 469, and
                                    ``(II) without regard to sections 
                                135, 137, 199, 221, 222, and 911 or the 
                                deduction allowable under this section.
                            ``(ii) Applicable dollar amount.--The term 
                        `applicable dollar amount' means, with respect 
                        to a taxable year, the applicable amount 
                        determined under section 219(g)(3)(B) for the 
                        taxable year.
    ``(c) Other Limitations and Restrictions.--
            ``(1) Beneficiary must not be medicare eligible.--No 
        deduction shall be allowed under this section with respect to 
        any contribution to a COBRA premium payment account for the 
        benefit of an individual after the date on which such 
        individual is entitled to benefits under part A of title XVIII 
        of the Social Security Act or is enrolled under part B of such 
        title.
            ``(2) Recontributed amounts.--No deduction shall be allowed 
        under this section with respect to a rollover contribution 
        described in section 530A(f)(3).
            ``(3) Denial of deduction for amount contributed to 
        inherited accounts.--No deduction shall be allowed under this 
        section with respect to any amount paid to an inherited COBRA 
        premium payment account (within the meaning of section 
        408(d)(3)(C)(ii)) by reason of the last sentence of section 
        530A(f)(3).
    ``(d) COBRA Premium Payment Account.--For purposes of this section, 
the term `COBRA premium payment account' has the meaning given such 
term by section 530A.
    ``(e) Applicable Definitions and Rules.--For purposes of this 
section, definitions and rules similar to the definitions and rules of 
section 219(f) (other than paragraphs (5) and (8)) shall apply.
    ``(f) Inflation Adjustment.--In the case of any taxable year 
beginning after December 31, 2011, each dollar amount in subsection 
(b)(1) shall be increased by an amount equal to the product of--
            ``(1) such amount, and
            ``(2) the cost-of-living adjustment determined under 
        section 213(d)(10)(B) for the calendar year in which the 
        taxable year begins by substituting `calendar year 2010' for 
        `calendar year 1997' in clause (i) thereof.
If any amount as adjusted under the preceding sentence is not a 
multiple of $100, such amount shall be rounded to the nearest multiple 
of $100.
    ``(g) Regulations.--The Secretary shall issue such regulations as 
may be necessary or appropriate to carry out this section.''.
            (2) Clerical 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 224 and inserting the 
        following:

``Sec. 224. Contributions to COBRA premium payment account.
``Sec. 225. Cross reference.''.
    (c) Tax on Excess Contributions.--
            (1) Tax imposed.--Subsection (a) of section 4973 of such 
        Code is amended by striking ``or'' at the end of paragraph (4), 
        by redesignating paragraph (5) as paragraph (6), and by 
        inserting after paragraph (4) the following new paragraph:
            ``(5) a COBRA premium payment account (within the meaning 
        of section 530A(b)), or''.
            (2) Excess contributions.--Section 4973 of such Code is 
        amended by adding at the end the following subsection:
    ``(h) COBRA Premium Payment Accounts.--For purposes of this 
section, in the case of COBRA premium payment accounts, the term 
`excess contributions' means the sum of--
            ``(1) the excess (if any) of--
                    ``(A) the amount contributed for the taxable year 
                to the accounts (other than a qualified rollover, as 
                defined in section 530A(f)(3)), over
                    ``(B) the amount allowable under section 224 for 
                such contributions, 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 which were included in the gross income of 
                the payee under section 530A(c)(1),
                    ``(B) the distributions out of the accounts for the 
                taxable year to which rules similar to the rules of 
                section 408(d)(5) apply by reason of section 
                530A(e)(2), and
                    ``(C) the excess (if any) of the maximum amount 
                allowable as a contribution under section 224 for the 
                taxable year over the amount contributed to the account 
                for the taxable year (other than a contribution under 
                section 530A(f)(3)).
For purposes of this subsection, any contribution which is distributed 
from the COBRA premium payment account in a distribution to which rules 
similar to the rules of section 408(d)(4) apply by reason of section 
530A(e)(2) shall be treated as an amount not contributed.''.
    (d) Tax on Prohibited Transactions.--Section 4975 of such Code is 
amended--
            (1) by adding at the end of subsection (c) the following 
        paragraph:
            ``(7) Special rule for cobra premium payment accounts.--An 
        individual for whose benefit a COBRA premium payment 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 a COBRA premium payment 
        account by reason of the application of section 530A(e)(1) to 
        such account.'', and
            (2) in subsection (e)(1), by striking ``or'' at the end of 
        subparagraph (F), by redesignating subparagraph (G) as 
        subparagraph (H), and by inserting after subparagraph (F) the 
        following new subparagraph:
                    ``(G) a COBRA premium payment account described in 
                section 530A(b), or''.
    (e) Failure To Provide Reports on COBRA Premium Payment Accounts.--
Paragraph (2) of section 6693(a) of such Code is amended by striking 
``and'' at the end of subparagraph (D), by striking the period and 
inserting ``, and'' at the end of subparagraph (E), and by inserting 
after subparagraph (E) the following new subparagraph:
                    ``(F) section 530A(f)(5) (relating to COBRA premium 
                payment accounts).''.
    (f) Penalty Not Part of Regular Tax.--Paragraph (2) of section 
26(b) of such Code is amended by striking ``and'' at the end of 
subparagraph (W), by striking the period at the end of subparagraph (X) 
and inserting ``, and'', and by inserting after subparagraph (X) the 
following new subparagraph:
                    ``(Y) section 530A(g) (relating to penalty for 
                distributions not used for Qualified COBRA premium 
                payments).''.
    (g) Clerical Amendment.--The table of parts for subchapter F of 
chapter 1 of such Code is amended by adding at the end the following 
new item:

             ``Part IX. COBRA Premium Payment Accounts.''.

    (h) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2010.

SEC. 3. COBRA ELECTION OF DIFFERENT COVERAGE.

    (a) In General.--Paragraph (2) of section 4980B(f) of the Internal 
Revenue Code of 1986 is amended by adding at the end the following:
                    ``(F) Election of different coverage.--
                            ``(i) In general.--In lieu of subparagraph 
                        (A), coverage meets the requirements of this 
                        subparagraph if the qualified beneficiary may 
                        elect to enroll in coverage under a plan 
                        offered by the employer involved, or the 
                        employee organization involved (including, for 
                        this purpose, a joint board of trustees of a 
                        multiemployer trust affiliated with one or more 
                        multiemployer plans), that is different than 
                        coverage under the plan in which such 
                        individual was enrolled at the time the 
                        qualifying event occurred.
                            ``(ii) Requirements.--A qualified 
                        beneficiary may make an election under clause 
                        (i) only if--
                                    ``(I) the employer involved has 
                                made a determination that such employer 
                                will permit qualified beneficiaries to 
                                enroll in different coverage as 
                                provided for this subparagraph,
                                    ``(II) the premium for such 
                                different coverage does not exceed the 
                                premium for coverage in which the 
                                individual was enrolled at the time the 
                                qualifying event occurred,
                                    ``(III) the different coverage in 
                                which the individual elects to enroll 
                                is coverage that is also offered to the 
                                active employees of the employer at the 
                                time at which such election is made, 
                                and
                                    ``(IV) the different coverage is 
                                coverage other than nonqualifying 
                                coverage.
                            ``(iii) Nonqualifying coverage described.--
                        For purposes of clause (ii)(IV), the term 
                        `nonqualifying coverage' means coverage which 
                        is--
                                    ``(I) coverage that provides only 
                                dental, vision, counseling, or referral 
                                services (or a combination of such 
                                services),
                                    ``(II) a flexible spending 
                                arrangement (as defined in section 
                                106(c)(2)) in which the individual is 
                                not a participant on the date of the 
                                qualifying event, or
                                    ``(III) coverage that provides 
                                coverage for services or treatments 
                                furnished in an on-site medical 
                                facility maintained by the employer and 
                                that consists primarily of first-aid 
                                services, prevention and wellness care, 
                                or similar care (or a combination of 
                                such care).
                            ``(iv) FSA contributions.--For purposes of 
                        this paragraph, an employer making 
                        contributions to a flexible spending 
                        arrangement (as so defined) of an employee 
                        prior to the qualifying event is not obligated 
                        to continue making contributions to such 
                        arrangement of such employee after the 
                        qualifying event.''.
    (b) Effective Date.--
            (1) In general.--The amendment made by this section shall 
        apply with respect to qualifying events occurring on or after 
        the date of the enactment of this Act.
            (2) Qualifying events before enactment.--In the case of a 
        qualifying event occurring before the date of the enactment of 
        this Act, if the election period specified in section 
        4980B(f)(5) of the Internal Revenue Code of 1986 with respect 
        to such qualifying event has not expired on the date of the 
        enactment of this Act, then the amendment made by this section 
        shall apply with respect to such qualifying event and such 
        election period shall not expire until the later of--
                    (A) the 60-day period beginning on the date of the 
                enactment of this Act, or
                    (B) the date on which such election would expire 
                under section 4980B(f)(5) without regard to 
                subparagraph (A).
                                 <all>