[Congressional Bills 113th Congress]
[From the U.S. Government Publishing Office]
[S. 2724 Introduced in Senate (IS)]

113th CONGRESS
  2d Session
                                S. 2724

   To amend the Internal Revenue Code of 1986 to provide for the tax 
         treatment of small business start-up savings accounts.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 31, 2014

 Mr. Udall of New Mexico introduced the following bill; which was read 
             twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
   To amend the Internal Revenue Code of 1986 to provide for the tax 
         treatment of small business start-up savings accounts.

    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 ``Incentivize Growth Now In Tomorrow's 
Entrepreneurs Act of 2014''.

SEC. 2. SMALL BUSINESS START-UP SAVINGS ACCOUNTS.

    (a) In General.--Part VIII of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by redesignating section 224 
as section 225 and inserting after section 223 the following new 
section:

``SEC. 224. SMALL BUSINESS START-UP SAVINGS ACCOUNTS.

    ``(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 
amount of contributions made to the small-business start-up savings 
account of such individual.
    ``(b) Limitation Based on Adjusted Gross Income.--The amount of the 
deduction allowed under subsection (a) for any taxable year shall be 
reduced (but not below zero) by an amount equal to the excess of--
            ``(1) the taxpayer's adjusted gross income for such taxable 
        year, over
            ``(2) $150,000 ($300,000 in the case of a joint return).
    ``(c) Small Business Start-Up Savings Account.--The term `small 
business start-up savings account' means a trust created or organized 
in the United States exclusively for the purpose of paying the eligible 
costs of the individual who is the designated beneficiary of the trust 
(and designated as a small business start-up savings account at the 
time created or organized), but only if the written governing 
instrument creating the trust meets the following requirements:
            ``(1) Except in the case of a rollover contribution 
        described in subsection (e)(4), no contribution will be 
        accepted unless it is in cash, and contributions will not be 
        accepted if such contribution would result in--
                    ``(A) aggregate contributions for the taxable year 
                exceeding the lesser of--
                            ``(i) $10,000, or
                            ``(ii) an amount equal to the compensation 
                        (as defined in section 219(f)(1)) includible in 
                        the individual's gross income for such taxable 
                        year, or
                    ``(B) aggregate contributions to all small business 
                start-up savings account of the individual for such 
                taxable year and all prior taxable years exceeding 
                $150,000.
            ``(2) The trustee is a bank (as defined in section 408(n)) 
        or such other person who demonstrates to the satisfaction of 
        the Secretary that the manner in which such other person will 
        administer the trust will be consistent with the requirements 
        of this section.
            ``(3) No part of the trust funds will be invested in life 
        insurance contracts.
            ``(4) The assets of the trust will not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
            ``(5) Contributions may be made even after the individual 
        for whom the account is maintained has attained age 70\1/2\.
    ``(d) Tax Treatment of Accounts.--
            ``(1) In general.--A small business start-up savings 
        account shall be exempt from taxation under this subtitle. 
        Notwithstanding the preceding sentence, the small business 
        start-up savings account shall be subject to the taxes imposed 
        by section 511 (relating to imposition of tax on unrelated 
        business income of charitable organizations).
            ``(2) Account terminations.--Rules similar to the rules of 
        paragraphs (2) and (4) of section 408(e) shall apply to small 
        business start-up savings accounts, and any amount treated as 
        distributed under such rules shall be treated as not used to 
        pay for eligible costs.
    ``(e) Tax Treatment of Distributions.--
            ``(1) Qualified distributions.--
                    ``(A) In general.--Any qualified distribution from 
                a small business start-up savings account shall not be 
                included in gross income.
                    ``(B) Qualified distribution.--For purposes of this 
                section, the term `qualified distribution' means the 
                amount of any payment or distribution made from a small 
                business savings account--
                            ``(i) to the extent that such distribution 
                        does not exceed the eligible costs paid or 
                        incurred by the taxpayer during the taxable 
                        year if the distribution, and
                            ``(ii) which is made not later than the 
                        last day of the 5th taxable year beginning 
                        after the initial distribution from the small 
                        business start-up savings account.
                For purposes of clause (i), a taxpayer shall be treated 
                as having paid or incurred the taxpayer's allocable 
                share of eligible costs of any entity in which the 
                taxpayer directly holds stock or a capital or profits 
                interest.
                    ``(C) Eligible costs.--
                            ``(i) In general.--For purposes of this 
                        section, the term `eligible costs' means costs 
                        paid or incurred by the taxpayer with respect 
                        to the designated business of the taxpayer for 
                        operating capital, the purchase of equipment or 
                        facilities, marketing, training, incorporation, 
                        and accounting fees.
                            ``(ii) Designated business.--For purposes 
                        of clause (i), the term `designated business' 
                        means any single business of the taxpayer 
                        which--
                                    ``(I) employs 50 or fewer full-time 
                                employees on all days during the 
                                taxable year, and
                                    ``(II) is designated by the 
                                taxpayer for purposes of this section.
                        Any designation made under subclause (II), once 
                        made, may not be revoked.
                    ``(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 
                distribution to the extent taken into account in 
                determining the amount of the exclusion under this 
                paragraph.
            ``(2) Nonqualified distributions.--
                    ``(A) In general.--Any amount paid or distributed 
                out of a small business start-up savings account which 
                is not a qualified distribution, including any amount 
                paid out pursuant to a termination of such an account, 
                shall be included in the gross income of the taxpayer 
                as provided in section 72.
                    ``(B) Treatment of amounts remaining in account.--
                Any remaining amount in a small business start-up 
                savings account following the date described in 
                paragraph (1)(B)(ii) shall be treated as distributed 
                during the taxable year following such date and such 
                distribution shall not be treated as a qualified 
                distribution.
                    ``(C) Additional tax.--
                            ``(i) In general.--The tax imposed by this 
                        chapter on the account beneficiary for any 
                        taxable year in which there is a payment or 
                        distribution from a small business start-up 
                        savings account of such beneficiary which is 
                        includible in income under subparagraph (A) 
                        shall be increased by 10 percent of the amount 
                        which is so includible.
                            ``(ii) Exception.--Clause (i) shall not 
                        apply if the payment or distribution is made 
                        after the account beneficiary becomes disabled 
                        within the meaning of section 72(m)(7) or dies.
            ``(3) Excess contributions returned before due date of 
        return.--
                    ``(A) In general.--If any excess contribution is 
                contributed for a taxable year to any small business 
                start-up savings account of an individual, paragraph 
                (2) shall not apply to distributions from the small 
                business start-up savings accounts of such individual 
                (to the extent such distributions do not exceed the 
                aggregate excess contributions to all such accounts of 
                such individual for such year) if--
                            ``(i) such distribution is received by the 
                        individual on or before the last day prescribed 
                        by law (including extensions of time) for 
                        filing such individual's return for such 
                        taxable year, and
                            ``(ii) such distribution is accompanied by 
                        the amount of net income attributable to such 
                        excess contribution.
                    ``(B) Excess contribution.--For purposes of 
                subparagraph (A), the term `excess contribution' means 
                any contribution (other than a rollover contribution 
                described in paragraph (4)) which when added to all 
                previous contributions for the taxable year exceeds the 
                amount allowable as a contribution under subsection 
                (b)(1).
            ``(4) Rollover contribution.--Paragraph (2) shall not apply 
        to any amount paid or distributed from a small business start-
        up savings account to the account beneficiary to the extent the 
        amount received is paid into a small business start-up savings 
        account for the benefit of such beneficiary not later than the 
        60th day after the day on which the beneficiary receives the 
        payment or distribution. For purposes of this paragraph, rules 
        similar to the rules of section 408(d)(3)(D) shall apply.
            ``(5) Transfer of account incident to divorce.--The 
        transfer of an individual's interest in a small business start-
        up savings account to an individual's spouse or former spouse 
        under a divorce or separation instrument described in 
        subparagraph (A) of section 71(b)(2) shall not be considered a 
        taxable transfer made by such individual notwithstanding any 
        other provision of this subtitle, and such interest shall, 
        after such transfer, be treated as a small business start-up 
        savings account with respect to which such spouse is the 
        account beneficiary.
            ``(6) Treatment after death of account beneficiary.--
                    ``(A) Treatment if designated beneficiary is 
                spouse.--If the account beneficiary's surviving spouse 
                acquires such beneficiary's interest in a small 
                business start-up savings account by reason of being 
                the designated beneficiary of such account at the death 
                of the account beneficiary, such account shall be 
                treated as if the spouse were the account beneficiary.
                    ``(B) Other cases.--
                            ``(i) In general.--If, by reason of the 
                        death of the account beneficiary, any person 
                        acquires the account beneficiary's interest in 
                        a small business start-up savings account in a 
                        case to which subparagraph (A) does not apply--
                                    ``(I) such account shall cease to 
                                be a small business start-up savings 
                                account as of the date of death, and
                                    ``(II) an amount equal to the fair 
                                market value of the assets in such 
                                account on such date shall be 
                                includible, if such person is not the 
                                estate of such beneficiary, in such 
                                person's gross income for the taxable 
                                year which includes such date, or if 
                                such person is the estate of such 
                                beneficiary, in such beneficiary's 
                                gross income for the last taxable year 
                                of such beneficiary.
                            ``(ii) Special rules.--
                                    ``(I) Reduction of inclusion for 
                                predeath expenses.--The amount 
                                includible in gross income under clause 
                                (i) by any person (other than the 
                                estate) shall be reduced by the amount 
                                of qualified distributions which were 
                                paid or incurred by the decedent before 
                                the date of the decedent's death and 
                                paid by such person within 1 year after 
                                such date.
                                    ``(II) Deduction for estate 
                                taxes.--An appropriate deduction shall 
                                be allowed under section 691(c) to any 
                                person (other than the decedent or the 
                                decedent's spouse) with respect to 
                                amounts included in gross income under 
                                clause (i) by such person.
    ``(f) Community Property Laws.--This section shall be applied 
without regard to any community property laws.
    ``(g) Adjustment for Inflation.--In the case of a taxable year 
beginning after December 31, 2014, of the dollar amount in subsection 
(b)(1) and each of the dollar amounts in subsection (c)(1) shall be 
increased by an amount equal to--
            ``(1) such dollar amount, multiplied by
            ``(2) 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 2013' for 
        `calendar year 1992' in subparagraph (B) thereof.
If any amount as increased under the preceding sentence is not a 
multiple of $100, such amount shall be rounded to the nearest multiple 
of $100.
    ``(h) Reports.--The trustee of a small business start-up savings 
account shall make such reports regarding such account to the Secretary 
and to the individual for whom the account is, or is to be, maintained 
with respect to contributions (and the years to which they relate), 
distributions, aggregating $10 or more in any calendar year, and such 
other matters as the Secretary may require. The reports required by 
this subsection--
            ``(1) shall be filed at such time and in such manner as the 
        Secretary prescribes, and
            ``(2) shall be furnished to individuals--
                    ``(A) not later than January 31 of the calendar 
                year following the calendar year to which such reports 
                relate, and
                    ``(B) in such manner as the Secretary prescribes.
    ``(i) Regulations.--The Secretary shall issue such regulations or 
other guidance as may be necessary to carry out this section, including 
for purposes of subsection (e)(1)(B)(i) the making reports by regarding 
eligible costs of an entity in which the taxpayer directly holds stock 
or a capital or profits interest.''.
    (b) Deduction Allowed Whether or Not Individual Itemizes 
Deductions.--Section 62(a) of the Internal Revenue Code of 1986 is 
amended by inserting after paragraph (21) the following new paragraph:
            ``(22) Small business start-up savings accounts.--The 
        deduction allowed by section 224.''.
    (c) Tax on Prohibited Transactions.--
            (1) In general.--Paragraph (1) of section 4975(e) of the 
        Internal Revenue Code of 1986 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 small business start-up savings account 
                described in section 224, or''.
            (2) Special rule.--Subsection (c) of section 4975 of such 
        Code is amended by adding at the end of subsection (c) the 
        following new paragraph:
            ``(7) Special rule for small business start-up savings 
        accounts.--An individual for whose benefit a small business 
        start-up 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 224(e)(2) applies with respect to such transaction.''.
    (d) Failure To Provide Reports on Small Business Start-Up Savings 
Accounts.--Paragraph (2) of section 6693(a) of the Internal Revenue 
Code of 1986 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 adding at the end the following new 
subparagraph:
                    ``(F) section 224(h) (relating to small business 
                start-up savings accounts).''.
    (e) Excess Contributions.--Section 4973(b) of the Internal Revenue 
Code of 1986 is amended by adding at the end the following new 
subsection:
    ``(h) Excess Contributions to Small Business Start-Up Savings 
Accounts.--For purposes of this section, in the case of contributions 
to a small business start-up savings account (within the meaning of 
section 224(c)), the term `excess contributions' means the sum of--
            ``(1) the excess (if any) of--
                    ``(A) the amount contributed for the taxable year 
                to such accounts (other than a rollover contribution 
                described in section 224(e)(4)), over
                    ``(B) the amount allowable as a contribution under 
                section 224(c)(1), 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 the maximum amount 
                allowable as a contribution under sections 224(c)(1) 
                for the taxable year over the amount contributed to the 
                accounts for the taxable year.
        For purposes of this subsection, any contribution which is 
        distributed from a small business start-up savings account in a 
        distribution described in section 224(e)(3) shall be treated as 
        an amount not contributed.''.
    (f) Clerical Amendment.--The table of contents for part VIII of 
subchapter B of chapter 1 of such Code is amended by redesignating the 
item relating to section 224 as relating to section 225 and by 
inserting after the item relating to section 223 the following new 
item:

``Sec. 224. Small Business Start-Up Savings Accounts.''.
    (g) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2013.
                                 <all>