Short title, etc

(a)

Short title

This Act may be cited as the

Fair and Simple Tax Act of 2011

. (b)

Amendment of 1986 code

Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986. (c)

Table of contents

Sec. 1. Short title, etc.

Sec. 2. Simplified alternative determination of income tax liability for individuals.

Sec. 3. Repeal of estate and gift taxes.

Sec. 4. Alternative minimum tax exemption amounts indexed for inflation.

Sec. 5. Maximum corporate income tax rate reduced to 25 percent.

Sec. 6. 15 percent rate on dividends and capital gains of individuals reduced to 10 percent.

Sec. 7. Indexing of certain assets for purposes of determining gain or loss.

Sec. 8. Retirement savings accounts.

Sec. 9. Lifetime savings accounts.

Sec. 10. Lifetime skills accounts.

Sec. 11. Expanded deduction for medical care expenses; expansion of individuals to whom health savings accounts may be passed on death.

Sec. 12. Research credit made permanent.

Sec. 13. Tax provisions of prior laws made permanent.

Simplified alternative determination of income tax liability for individuals

(a)

In general

Subchapter A of chapter 1 (relating to determination of tax liability) is amended by adding at the end the following new part:

VIII

Alternative determination of tax liability for individuals

Sec. 59B. Alternative determination of tax liability for individuals.

59B.

Alternative determination of tax liability for individuals

(a)

In general

In the case of an individual, the net income tax of the taxpayer shall be the tax determined under this section. (b)

Determination of tax

The tax determined under this section is the amount equal to— (1)the sum of— (A)10 percent of so much of simplified taxable income as does not exceed $40,000, (B)15 percent of so much of simplified taxable income as exceeds $40,000 but does not exceed $150,000, and (C)30 percent of so much of simplified taxable income as exceeds $150,000, reduced by (2)the sum of the credits allowed by— (A)section 31 (relating to tax withheld on wages), and (B)section 24 (relating to child tax credit). (c)

Simplified taxable income

For purposes of this section, the term simplified taxable income means the amount equal to— (1)gross income, minus (2)the sum of— (A)the deduction for personal exemptions allowed by section 151, (B)the deduction allowed by section 163 for acquisition indebtedness (as defined in section 163(h)(3)(B)) with respect to the principal residence (within the meaning of section 121) of the taxpayer, (C)the deduction allowed by section 164 for State and local income taxes, (D)the deduction allowed by section 170 (relating to charitable, etc., contributions and gifts), and (E)the deduction allowed by section 213 (relating to medical, dental, etc., expenses) to the extent such deduction is determined under section 213(a)(2) (relating to individuals who have not attained age 65 and are not covered under an employer health plan). (d)

Net income tax

For purposes of this section, the term net income tax means the sum of the regular tax liability and the tax imposed by section 55, reduced by the credits allowable under this part. (e)

Estate and trusts

This section shall not apply to an estate or trust. (f)

Section To be elective

This section shall apply to a taxpayer for a taxable year only if elected by the taxpayer for such year. Such election, once made for a taxable year, shall be irrevocable without the consent of the Secretary.

(b)

Clerical amendment

The table of parts for such subchapter is amended by adding at the end the following new item:

Part VIII. Alternative determination of tax liability for individuals..

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2010.

Repeal of estate and gift taxes

(a)

In general

Subtitle B is hereby repealed. (b)

Effective date

The repeal made by subsection (a) shall apply to the estates of decedents dying, and gifts and generation-skipping transfers made, after December 31, 2010.

Alternative minimum tax exemption amounts indexed for inflation

(a)

In general

Subsection (d) of section 55 (relating to exemption amount) is amended by adding at the end the following new paragraph:

(4)

Inflation adjustment

(A)

In general

In the case of any taxable year beginning in a calendar year after 2011, the dollar amounts contained in paragraphs (1), (2), and (3) 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 2010 for calendar year 1992 in subparagraph (B) thereof. (B)

Rounding

Any increase determined under subparagraph (A) shall be rounded to the nearest multiple of $100.

(b)

Prior increase made permanent

Paragraph (1) of section 55(d) is amended— (1)by striking $45,000 ($72,450 in the case of taxable years beginning in 2010 and $74,450 in the case of taxable years beginning in 2011) and inserting $74,450, (2)by striking $33,750 ($47,450 in the case of taxable years beginning in 2010 and $48,450 in the case of taxable years beginning in 2011) and inserting $48,450, and (3)by striking paragraph (1)(A) and inserting subparagraph (A). (c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2010.

Maximum corporate income tax rate reduced to 25 percent

(a)

In general

Paragraph (1) of section 11(b) (relating to amount of tax on corporations) is amended to read as follows:

(1)

In general

The amount of the tax imposed by subsection (a) shall be the sum of— (A)15 percent of so much of the taxable income as does not exceed $50,000, and (B)25 percent of so much of the taxable income as exceeds $50,000.

(b)

Personal service corporations

Paragraph (2) of section 11(b) is amended by striking 35 percent and inserting 25 percent. (c)

Conforming amendments

Paragraphs (1) and (2) of section 1445(e) are each amended by striking 35 percent and inserting 25 percent. (d)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2010; except that the amendments made by subsection (c) shall take effect on January 1, 2011.

15 percent rate on dividends and capital gains of individuals reduced to 10 percent

(a)

In general

Subparagraph (C) of section 1(h)(1) (relating to maximum capital gains rate) is amended by striking 15 percent and inserting 10 percent. (b)

Effective date

The amendment made by this section shall apply to taxable years beginning after December 31, 2010.

Indexing of certain assets for purposes of determining gain or loss

(a)

In general

Part II of subchapter O of chapter 1 (relating to basis rules of general application) is amended by redesignating section 1023 as section 1024 and by inserting after section 1022 the following new section:

1023.

Indexing of certain assets for purposes of determining gain or loss

(a)

General rule

(1)

Indexed basis substituted for adjusted basis

Solely for purposes of determining gain or loss on the sale or other disposition by a taxpayer (other than a corporation) of an indexed asset which has been held for more than 3 years, the indexed basis of the asset shall be substituted for its adjusted basis. (2)

Exception for depreciation, etc

The deductions for depreciation, depletion, and amortization shall be determined without regard to the application of paragraph (1) to the taxpayer or any other person. (b)

Indexed asset

(1)

In general

For purposes of this section, the term indexed asset means— (A)common stock in a C corporation (other than a foreign corporation), and (B)tangible property,

which is a capital asset or property used in the trade or business (as defined in section 1231(b)).

(2)

Stock in certain foreign corporations included

For purposes of this section— (A)

In general

The term indexed asset includes common stock in a foreign corporation which is regularly traded on an established securities market. (B)

Exception

Subparagraph (A) shall not apply to— (i)stock in a passive foreign investment company (as defined in section 1296), and (ii)stock in a foreign corporation held by a United States person who meets the requirements of section 1248(a)(2). (C)

Treatment of american depository receipts

An American depository receipt for common stock in a foreign corporation shall be treated as common stock in such corporation. (c)

Indexed basis

For purposes of this section— (1)

In general

The indexed basis for any asset is— (A)the adjusted basis of the asset, increased by (B)the applicable inflation adjustment. (2)

Applicable inflation adjustment

The applicable inflation adjustment for any asset is an amount equal to— (A)the adjusted basis of the asset, multiplied by (B)the percentage (if any) by which— (i)the gross domestic product deflator for the last calendar quarter ending before the asset is disposed of, exceeds (ii)the gross domestic product deflator for the last calendar quarter ending before the asset was acquired by the taxpayer (or, if later, the calendar quarter ending on December 31, 2009).

The percentage under subparagraph (B) shall be rounded to the nearest 1/10 of 1 percentage point.

(3)

Gross domestic product deflator

The gross domestic product deflator for any calendar quarter is the implicit price deflator for the gross domestic product for such quarter (as shown in the last revision thereof released by the Secretary of Commerce before the close of the following calendar quarter). (d)

Suspension of holding period where diminished risk of loss; treatment of short sales

(1)

In general

If the taxpayer (or a related person) enters into any transaction which substantially reduces the risk of loss from holding any asset, such asset shall not be treated as an indexed asset for the period of such reduced risk. (2)

Short sales

(A)

In general

In the case of a short sale of an indexed asset with a short sale period in excess of 3 years, for purposes of this title, the amount realized shall be an amount equal to the amount realized (determined without regard to this paragraph) increased by the applicable inflation adjustment. In applying subsection (c)(2) for purposes of the preceding sentence, the date on which the property is sold short shall be treated as the date of acquisition and the closing date for the sale shall be treated as the date of disposition. (B)

Short sale period

For purposes of subparagraph (A), the short sale period begins on the day that the property is sold and ends on the closing date for the sale. (e)

Treatment of regulated investment companies and real estate investment trusts

(1)

Adjustments at entity level

(A)

In general

Except as otherwise provided in this paragraph, the adjustment under subsection (a) shall be allowed to any qualified investment entity (including for purposes of determining the earnings and profits of such entity). (B)

Exception for corporate shareholders

Under regulations— (i)in the case of a distribution by a qualified investment entity (directly or indirectly) to a corporation— (I)the determination of whether such distribution is a dividend shall be made without regard to this section, and (II)the amount treated as gain by reason of the receipt of any capital gain dividend shall be increased by the percentage by which the entity's net capital gain for the taxable year (determined without regard to this section) exceeds the entity’s net capital gain for such year determined with regard to this section, and (ii)there shall be other appropriate adjustments (including deemed distributions) so as to ensure that the benefits of this section are not allowed (directly or indirectly) to corporate shareholders of qualified investment entities.

For purposes of the preceding sentence, any amount includible in gross income under section 852(b)(3)(D) shall be treated as a capital gain dividend and an S corporation shall not be treated as a corporation.

(C)

Exception for qualification purposes

This section shall not apply for purposes of sections 851(b) and 856(c). (D)

Exception for certain taxes imposed at entity level

(i)

Tax on failure to distribute entire gain

If any amount is subject to tax under section 852(b)(3)(A) for any taxable year, the amount on which tax is imposed under such section shall be increased by the percentage determined under subparagraph (B)(i)(II). A similar rule shall apply in the case of any amount subject to tax under paragraph (2) or (3) of section 857(b) to the extent attributable to the excess of the net capital gain over the deduction for dividends paid determined with reference to capital gain dividends only. The first sentence of this clause shall not apply to so much of the amount subject to tax under section 852(b)(3)(A) as is designated by the company under section 852(b)(3)(D). (ii)

Other taxes

This section shall not apply for purposes of determining the amount of any tax imposed by paragraph (4), (5), or (6) of section 857(b). (2)

Adjustments to interests held in entity

(A)

Regulated investment companies

Stock in a regulated investment company (within the meaning of section 851) shall be an indexed asset for any calendar quarter in the same ratio as— (i)the average of the fair market values of the indexed assets held by such company at the close of each month during such quarter, bears to (ii)the average of the fair market values of all assets held by such company at the close of each such month. (B)

Real estate investment trusts

Stock in a real estate investment trust (within the meaning of section 856) shall be an indexed asset for any calendar quarter in the same ratio as— (i)the fair market value of the indexed assets held by such trust at the close of such quarter, bears to (ii)the fair market value of all assets held by such trust at the close of such quarter. (C)

Ratio of 80 percent or more

If the ratio for any calendar quarter determined under subparagraph (A) or (B) would (but for this subparagraph) be 80 percent or more, such ratio for such quarter shall be 100 percent. (D)

Ratio of 20 percent or less

If the ratio for any calendar quarter determined under subparagraph (A) or (B) would (but for this subparagraph) be 20 percent or less, such ratio for such quarter shall be zero. (E)

Look-thru of partnerships

For purposes of this paragraph, a qualified investment entity which holds a partnership interest shall be treated (in lieu of holding a partnership interest) as holding its proportionate share of the assets held by the partnership. (3)

Treatment of return of capital distributions

Except as otherwise provided by the Secretary, a distribution with respect to stock in a qualified investment entity which is not a dividend and which results in a reduction in the adjusted basis of such stock shall be treated as allocable to stock acquired by the taxpayer in the order in which such stock was acquired. (4)

Qualified investment entity

For purposes of this subsection, the term qualified investment entity means— (A)a regulated investment company (within the meaning of section 851), and (B)a real estate investment trust (within the meaning of section 856). (f)

Other pass-Thru entities

(1)

Partnerships

(A)

In general

In the case of a partnership, the adjustment made under subsection (a) at the partnership level shall be passed through to the partners. (B)

Special rule in the case of section 754 elections

In the case of a transfer of an interest in a partnership with respect to which the election provided in section 754 is in effect— (i)the adjustment under section 743(b)(1) shall, with respect to the transferor partner, be treated as a sale of the partnership assets for purposes of applying this section, and (ii)with respect to the transferee partner, the partnership’s holding period for purposes of this section in such assets shall be treated as beginning on the date of such adjustment. (2)

S corporations

In the case of an S corporation, the adjustment made under subsection (a) at the corporate level shall be passed through to the shareholders. This section shall not apply for purposes of determining the amount of any tax imposed by section 1374 or 1375. (3)

Common trust funds

In the case of a common trust fund, the adjustment made under subsection (a) at the trust level shall be passed through to the participants. (4)

Indexing adjustment disregarded in determining loss on sale of interest in entity

Notwithstanding the preceding provisions of this subsection, for purposes of determining the amount of any loss on a sale or exchange of an interest in a partnership, S corporation, or common trust fund, the adjustment made under subsection (a) shall not be taken into account in determining the adjusted basis of such interest. (g)

Dispositions between related persons

(1)

In general

This section shall not apply to any sale or other disposition of property between related persons except to the extent that the basis of such property in the hands of the transferee is a substituted basis. (2)

Related persons defined

For purposes of this section, the term related persons means— (A)persons bearing a relationship set forth in section 267(b), and (B)persons treated as single employer under subsection (b) or (c) of section 414. (h)

Transfers To increase indexing adjustment

If any person transfers cash, debt, or any other property to another person and the principal purpose of such transfer is to secure or increase an adjustment under subsection (a), the Secretary may disallow part or all of such adjustment or increase. (i)

Special rules

For purposes of this section— (1)

Treatment of improvements, etc

If there is an addition to the adjusted basis of any tangible property or of any stock in a corporation during the taxable year by reason of an improvement to such property or a contribution to capital of such corporation— (A)such addition shall never be taken into account under subsection (c)(1)(A) if the aggregate amount thereof during the taxable year with respect to such property or stock is less than $1,000, and (B)such addition shall be treated as a separate asset acquired at the close of such taxable year if the aggregate amount thereof during the taxable year with respect to such property or stock is $1,000 or more.

A rule similar to the rule of the preceding sentence shall apply to any other portion of an asset to the extent that separate treatment of such portion is appropriate to carry out the purposes of this section.

(2)

Assets which are not indexed assets throughout holding period

The applicable inflation adjustment shall be appropriately reduced for periods during which the asset was not an indexed asset. (3)

Treatment of certain distributions

A distribution with respect to stock in a corporation which is not a dividend shall be treated as a disposition. (4)

Section cannot increase ordinary loss

To the extent that (but for this paragraph) this section would create or increase a net ordinary loss to which section 1231(a)(2) applies or an ordinary loss to which any other provision of this title applies, such provision shall not apply. The taxpayer shall be treated as having a long-term capital loss in an amount equal to the amount of the ordinary loss to which the preceding sentence applies. (5)

Acquisition date where there has been prior application of subsection (a)(1) with respect to the taxpayer

If there has been a prior application of subsection (a)(1) to an asset while such asset was held by the taxpayer, the date of acquisition of such asset by the taxpayer shall be treated as not earlier than the date of the most recent such prior application. (j)

Regulations

The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.

(b)

Clerical amendment

The table of sections for part II of subchapter O of chapter 1 is amended by striking the item relating to section 1023 and inserting after the item relating to section 1022 the following new items:

Sec. 1023. Indexing of certain assets for purposes of determining gain or loss.

Sec. 1024. Cross references.

(c)

Effective date

The amendments made by this section shall apply to dispositions after December 31, 2010, in taxable years ending after such date.

Retirement savings accounts

(a)

In general

Subpart A of part I of subchapter D of chapter 1 (relating to pension, profit-sharing, stock bonus plans, etc.) is amended by inserting after section 408A the following new section:

408B.

Retirement savings accounts

(a)

General rule

Except as provided in this section, a Retirement Savings Account shall be treated for purposes of this title in the same manner as an individual retirement plan. (b)

Retirement savings account

For purposes of this title, the term Retirement Savings Account means an individual retirement plan (as defined in section 7701(a)(37)) which is designated at the time of establishment of the plan as a Retirement Savings Account. Such designation shall be made in such manner as the Secretary may prescribe. (c)

Treatment of contributions

(1)

No deduction allowed

No deduction shall be allowed under section 219 for a contribution to a Retirement Savings Account. (2)

Contribution limit

The aggregate amount of contributions for any taxable year to all Retirement Savings Accounts maintained for the benefit of an individual shall not exceed $5,000. (3)

Contributions permitted after age 701/2

Contributions to a Retirement Savings Account may be made even after the individual for whom the account is maintained has attained age 70½. (4)

Mandatory distribution rules not to apply before death

Notwithstanding subsections (a)(6) and (b)(3) of section 408 (relating to required distributions), the following provisions shall not apply to any Retirement Savings Account: (A)Section 401(a)(9)(A). (B)The incidental death benefit requirements of section 401(a). (5)

Rollover contributions

(A)

In general

No rollover contribution may be made to or from a Retirement Savings Account except from or to another such Account, as the case may be. (B)

Coordination with limit

Any rollover permitted under subparagraph (A) shall not be taken into account for purposes of paragraph (2). (6)

Time when contributions made

For purposes of this section, the rule of section 219(f)(3) shall apply. (d)

Distribution rules

Any qualified distribution (as defined in section 408A(d)(2)) from a Retirement Savings Account shall not be includible in gross income.

(b)

Conforming amendments

(1)Clause (vi) of section 1361(c)(2)(A) is amended by inserting or a Retirement Savings Account under section 408B after Roth IRA under section 408A. (2)Section 4973 (relating to tax on excess contributions to certain tax-favored accounts and annuities) is amended by inserting after subsection (g) the following new subsection:

(h)

Excess contributions to retirement savings accounts

For purposes of this section, in the case of contributions to a Retirement Savings Account (within the meaning of section 408B(b)), the term excess contributions means the sum of— (1)the excess (if any) of— (A)the amount contributed for the taxable year to Retirement Savings Accounts (other than a rollover contribution from another such Account), over (B)$5,000, 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 $5,000 over the amount contributed by the individual to all Retirement Savings Accounts for the taxable year.

For purposes of this subsection, any contribution which is distributed from a Retirement Savings Account in a distribution described in section 408(d)(4) shall be treated as an amount not contributed.

(3)The table of sections for subpart A of part I of subchapter D of chapter 1 is amended by inserting after the item relating to section 408A the following new item:

Sec. 408B. Retirement Savings Accounts..

(c)

Effective date

The amendments made by this section shall apply to amounts contributed for taxable years beginning after December 31, 2010.

Lifetime savings accounts

(a)

In general

Subchapter F of chapter 1 (relating to exempt organizations) is amended by adding at the end the following new part:

Lifetime savings accounts.

Sec. 530B. Lifetime Savings Accounts.

530B.

Lifetime Savings Accounts

(a)

In general

A Lifetime Savings Account shall be exempt from taxation under this subtitle. Notwithstanding the preceding sentence, the Lifetime Savings 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)

Lifetime savings account

The term Lifetime Savings Account means a trust created or organized in the United States exclusively for the benefit of an individual who is the designated beneficiary of the trust (and designated as a Lifetime Savings Account at the time created or organized), but only if the written governing instrument creating the trust meets the following requirements: (A)No contribution will be accepted— (i)unless it is in cash, and (ii)except in the case of rollover contributions from another Lifetime Savings Account, if such contribution would result in aggregate contributions for the taxable year exceeding $5,000. (B)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 or who has so demonstrated with respect to any individual retirement plan. (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)

Time when contributions deemed made

An individual shall be deemed to have made a contribution to a Lifetime 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). (3)

Contributions returned before due date of return

A rule similar to the rule of section 408(d)(4) shall apply for purposes of this section. (c)

Distribution not includible

Distributions from a Lifetime Savings Account shall not be includible in gross income. (d)

Tax treatment of accounts

Rules similar to the rules of paragraphs (2) and (4) of section 408(e) shall apply to any Lifetime Savings Account. (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 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 if the custodial account would, except for the fact that it is not a trust, constitute an account described in subsection (b)(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 Lifetime Savings 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 of excess contributions

(1)Subsection (a) of section 4973 (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 adding or at the end of paragraph (5), and by inserting after paragraph (5) the following new paragraph:

(6)a Lifetime Savings Account (as defined by section 530B(b)),

(2)Section 4973 is amended by inserting after subsection (h) the following new subsection:

(i)

Excess contributions to lifetime savings accounts

For purposes of this section, in the case of contributions to a Lifetime Savings Account (within the meaning of section 530B(b)), the term excess contributions means the sum of— (1)the excess (if any) of— (A)the amount contributed for the taxable year to Lifetime Savings Accounts (other than a rollover contribution from another such Account), over (B)$5,000, and (2)the amount determined under this subsection for the preceding taxable year, reduced by the sum of— (A)the distributions out of such Accounts for the taxable year, and (B)the excess (if any) of $5,000 over the amount contributed by the individual to all such Accounts for the taxable year.

For purposes of this subsection, any contribution which is distributed from a Lifetime Savings Account in a distribution described in section 530B(b)(3) shall be treated as an amount not contributed.

(c)

Tax on prohibited transactions

(1)

In general

Paragraph (1) of section 4975(e) (relating to prohibited transactions) is amended 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 Lifetime Savings Account described in section 530B, or

(2)

Special rule

Subsection (c) of section 4975 is amended by inserting after paragraph (6) the following new paragraph:

(7)

Special rules for lifetime savings accounts

An individual for whose benefit a Lifetime 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 section 530B(d) applies with respect to such transaction.

(d)

Failure To provide reports

Paragraph (2) of section 6693(a) (relating to failure to provide reports on certain tax-favored accounts or annuities; penalties relating to designated nondeductible contributions) 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 end the following new subparagraph:

(F)section 530B(g) (relating to Lifetime Savings Accounts).

(e)

Clerical amendment

The table of parts for subchapter F of chapter 1 is amended by adding at the end the following new item:

Part IX. Lifetime Savings Accounts..

10.

Lifetime skills accounts

(a)

In general

Part VIII of subchapter F of chapter 1 (relating to higher education savings entities) is amended by adding at the end the following new section:

530A.

Lifetime skills accounts

(a)

In general

A Lifetime Skills Account shall be exempt from taxation under this subtitle. Notwithstanding the preceding sentence, the Lifetime Skills 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)

Lifetime skills account

The term Lifetime Skills Account means a trust created or organized in the United States exclusively for the purpose of paying the qualified life skills expenses of an individual who is the designated beneficiary of the trust (and designated as a Lifetime Skills Account at the time created or organized), but only if the written governing instrument creating the trust meets the following requirements: (A)No contribution will be accepted— (i)unless it is in cash, and (ii)except in the case of rollover contributions from another such Account, if such contribution would result in aggregate contributions for the taxable year exceeding $1,000. (B)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 or who has so demonstrated with respect to any individual retirement plan. (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 life skills expenses

The term qualified life skills expenses means expenses for any of the following services: (A)Comprehensive and specialized assessments of the skill levels and service needs of adults and dislocated workers, which may include— (i)diagnostic testing and use of other assessment tools, and (ii)in-depth interviewing and evaluation to identify employment barriers and appropriate employment goals. (B)Development of an individual employment plan, to identify the employment goals, appropriate achievement objectives, and appropriate combination of services for the participant to achieve the employment goals. (C)Individual counseling and career planning. (D)Short-term prevocational services, including development of learning skills, communication skills, interviewing skills, punctuality, personal maintenance skills, and professional conduct, to prepare individuals for unsubsidized employment or training. (E)Occupational skills training, including training for nontraditional employment. (F)On-the-job training. (G)Programs that combine workplace training with related instruction, which may include cooperative education programs. (H)Training programs operated by the private sector. (I)Skill upgrading and retraining. (J)Entrepreneurial training. (K)Job readiness training. (L)Adult education and literacy activities provided in combination with services described in any of subparagraphs (E) through (K). (M)Customized training conducted with a commitment by an employer or group of employers to employ an individual upon successful completion of the training. (3)

Time when contributions deemed made

An individual shall be deemed to have made a contribution to a Lifetime Skills 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). (c)

Tax treatment of distributions

(1)

In general

Any distribution from a Lifetime Skills Account shall be includible in the gross income of the distributee in the manner provided in section 72. (2)

Distributions for qualified life skills expenses

(A)

In general

No amount shall be includible in gross income under paragraph (1) if the qualified life skills 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 life skills expenses bear to such aggregate distributions. (C)

Coordination with other education savings incentives

For purposes of subparagraph (A), rules similar to the rules of subparagraph (C) of section 530(d)(2) shall apply. (D)

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 life skills expenses to the extent taken into account in determining the amount of the exclusion under this paragraph. (3)

Special rules for applying estate and gift taxes with respect to account

Rules similar to the rules of paragraphs (2), (4), and (5) of section 529(c) shall apply for purposes of this section. (4)

Additional tax for distributions not used for life skills expenses

(A)

In general

The tax imposed by this chapter for any taxable year on any taxpayer who receives a payment or distribution from a Lifetime Skills Account which is includible in gross income shall be increased by 10 percent of the amount which is so includible. (B)

Exceptions

Rules similar to the following rules shall apply for purposes of this subsection: (i)Subparagraphs (B) and (C) of section 530(d)(4). (ii)Paragraphs (5), (6), (7), and (8) of section 530(d). (d)

Tax treatment of accounts

Rules similar to the rules of paragraphs (2) and (4) of section 408(e) shall apply to any Lifetime Skills Account. (e)

Community property laws

This section shall be applied without regard to any community property laws. (f)

Custodial accounts

Reports

The trustee of a Lifetime Skills 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, as amended by section 9 of this Act, is amended by striking or at the end of paragraph (5), by adding or at the end of paragraph (6), and by inserting after paragraph (6) the following new paragraph:

(7)a Lifetime Skills Account (as defined in section 530A(b)),

(2)

Excess contribution defined

Section 4973, as amended by section 9 of this Act, is amended by inserting after subsection (i) the following new subsection:

(j)

Excess contributions to lifetime skills accounts

For purposes of this section, in the case of contributions to a Lifetime Skills Account (within the meaning of section 530A(b)), the term excess contributions means the sum of— (1)the excess (if any) of— (A)the amount contributed for the taxable year to Lifetime Skills Accounts (other than a rollover contribution from another such Account), over (B)$1,000, and (2)the amount determined under this subsection for the preceding taxable year, reduced by the sum of— (A)the distributions out of such Accounts for the taxable year, and (B)the excess (if any) of $1,000 over the amount contributed by the individual to all such Accounts for the taxable year.

For purposes of this subsection, any contribution which is distributed from a Lifetime Skills Account in a distribution to which rules similar to the rules of section 530(d)(4)(C) apply under section 530B(c)(4)(B)(i) shall be treated as an amount not contributed.

(c)

Tax on Prohibited Transactions

(1)

In general

Paragraph (1) of section 4975(e) (relating to prohibited transactions), as amended by section 9 of this Act, is amended by striking or at the end of subparagraph (G), by redesignating subparagraph (H) as subparagraph (I), and by inserting after subparagraph (G) the following new subparagraph:

(H)a Lifetime Skills Account described in section 530A, or

(2)

Special rule

Subsection (c) of section 4975, as amended by section 9 of this Act, is amended by adding at the end the following new paragraph:

(8)

Special rules for lifetime skills accounts

An individual for whose benefit a Lifetime Skills 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 section 530A(d) applies with respect to such transaction.

(d)

Failure To provide reports

Paragraph (2) of section 6693(a) (relating to failure to provide reports on certain tax-favored accounts or annuities; penalties relating to designated nondeductible contributions), as amended by section 9 of this Act, is amended by striking and at the end of subparagraph (E), by striking the period at the end of subparagraph (F) and inserting , and, and by adding at the end the following new subparagraph:

(G)section 530A(g) (relating to Lifetime Skills Accounts).

(e)

Technical amendments

(1)Section 26(b)(2) 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 adding at the end the following new subparagraph:

(Y)section 530A(c)(4) (relating to Lifetime Skills Accounts).

(2)Paragraph (9) of section 72(e) is amended— (A)by striking

coverdell

in the heading, (B)by striking or under a Coverdell and inserting , under a Coverdell, and (C)by inserting , or under a Lifetime Skills Account (as defined in section 530A(b)) after 530(b)). (3)Subparagraph (C) of section 135(c)(2) is amended— (A)in the heading by striking

and

and by adding at the end

, and lifetime skills accounts

, (B)by striking or to a Coverdell and inserting to a Coverdell, and (C)by inserting , or to a Lifetime Skills Account (as defined in section 530A(b)) after 530). (4)Subparagraph (A) of section 221(d)(2) is amended by striking or 530 and inserting 530, or 530A. (5)Subparagraph (B) of section 222(c)(2) is amended by striking or 530(d)(2) and inserting 530(d)(2), or 530A(c)(2). (6)Clause (vi) of section 529(c)(3)(B) is amended— (A)by adding at the end of the heading

and lifetime skills accounts

, and (B)by striking and section 530(d)(2)(A) apply each place it appears and inserting , section 530(d)(2)(A), and 530A(c)(2)(A) apply. (7)The table of sections for part VIII of subchapter F of chapter 1 is amended by adding at the end the following new item:

Sec. 530A. Lifetime Skills Accounts..

(f)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2010.

11.

Expanded deduction for medical care expenses; expansion of individuals to whom health savings accounts may be passed on death

(a)

In general

Subsection (a) of section 213 (relating to medical, dental, etc., expenses) is amended to read as follows:

(a)

Allowance of deduction

(1)

In general

There shall be allowed as a deduction the expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, his spouse, or a dependent (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), to the extent that such expenses exceed 7.5 percent of adjusted gross income. (2)

Individuals who have not attained age 65 and are not covered under an employer plan

(A)

In general

The expenses for medical care of an individual which are incurred while the individual is an eligible individual may be taken into account under paragraph (1) without regard to the adjusted gross income threshold. (B)

Eligible individual

For purposes of this paragraph, the term eligible individual means any individual— (i)who has not attained age 65 as of the close of the taxable year, and (ii)who is not covered by any plan sponsored by an employer of such individual, such individual’s spouse, or of any other individual with respect to whom such individual is a dependent (within the meaning of paragraph (1)). (C)

Limitations

(i)

Per individual

The amount of each individual’s expenses which may be taken into account by reason of subparagraph (A) for the taxable year shall not exceed $7,500. (ii)

Per taxpayer

If expenses for the medical care of more than 1 eligible individual are paid by the taxpayer, clause (i) shall not apply and the aggregate expenses which may be taken into account by reason of subparagraph (A) for the taxable year shall not exceed $15,000. (D)

Unused limitation may be deposited into health savings account

(i)

In general

Except as otherwise provided in this subparagraph, if the limitation under subparagraph (C) applicable to an individual exceeds the expenses taken into account by reason of subparagraph (A), then, for purposes of section 223 (relating to health savings accounts)— (I)such individual shall be treated as an eligible individual for purposes of such section, and (II)the limitation otherwise applicable under section 223(b) shall be increased by an amount equal to such excess. (ii)

Allocation of per taxpayer limitation

For purposes of clause (i), the limitation under subparagraph (C)(ii) shall be allocated among the individuals whose expenses are paid in proportion to their respective shares of such expenses. (iii)

Treatment of dependents

Clause (i) shall not apply to a dependent (within the meaning of paragraph (1)) of the taxpayer, and any excess determined under clause (i) for such dependent shall be allowed to the taxpayer. In the case of a joint return, any excess allowed to the taxpayer under the preceding sentence shall be divided equally between the husband and wife.

(b)

Heath savings accounts may be passed to other than spouse

Paragraph (8) of section 223(f) (relating to treatment after death of account beneficiary) is amended to read as follows:

(8)

Treatment after death of account beneficiary

If an individual acquires the account beneficiary’s interest in a health savings account by reason of being the designated beneficiary of such account at the death of the account beneficiary, such health savings account shall be treated as if the individual were the account beneficiary.

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2010.

12.

Research credit made permanent

(a)

In general

Section 41 (relating to credit for increasing research activities) is amended by striking subsection (h). (b)

Conforming amendment

Paragraph (1) of section 45C(b) is amended by striking subparagraph (D). (c)

Effective date

The amendments made by this section shall apply to amounts paid or incurred after December 31, 2010.

13.

Tax provisions of prior laws made permanent

(a)

Economic Growth and Tax Relief Reconciliation Act of 2001

Title IX of the Economic Growth and Tax Relief Reconciliation Act of 2001 (relating to sunset of provisions of Act) is hereby repealed. (b)

Jobs and Growth Tax Relief Reconciliation Act of 2003

(1)Section 107 of the Jobs and Growth Tax Relief Reconciliation Act of 2003 (relating to application of EGTRRA sunset to this title) is hereby repealed. (2)Section 303 of the Jobs and Growth Tax Relief Reconciliation Act of 2003 is hereby repealed.