[Congressional Record Volume 144, Number 139 (Wednesday, October 7, 1998)]
[Senate]
[Pages S11706-S11707]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. JEFFORDS (for himself and Mr. Dodd):
  S. 2568. A bill to amend the Internal Revenue Code of 1986 to provide 
that the exclusion from gross income for foster care payments shall 
also apply to payments by qualifying placement agencies, and for other 
purposes; to the Committee on Finance.


  exclusion for foster care payments to apply payments by qualifying 
                          placements agencies

  Mr. JEFFORDS. Mr. President, today I am introducing a bill that will 
eliminate unnecessary distinctions drawn by the Internal Revenue Code 
for the tax treatment of payments received by families and individuals 
who open their homes to care for foster children and adults. Currently, 
the law allows an exclusion from income for foster care payments 
received by some providers, while denying eligibility for the exclusion 
to other foster care providers.
  My bill expands the law's exclusion of foster care payments. Under my 
bill, foster care payments to providers made by placement agencies that 
contract with, or are licensed by, State or local governments will be 
eligible for the exclusion, regardless of the age of the individual in 
foster care. This bill is a companion to H.R. 3991, introduced by 
Congressman Jim Bunning of Kentucky. By simplifying the tax treatment 
of foster care payments, the bill will remove the inequities and 
uncertainties inherent in the current tax treatment of foster care 
payments.
  Under current law, foster care providers are permitted to deduct 
expenditures made while caring for foster individuals. Providers must 
maintain detailed records to substantiate these deductions. In lieu of 
this detailed record keeping, section 131 of the Internal Revenue Code 
allows certain foster care providers to exclude from income the 
payments they receive to care for foster care. Eligibility for this 
exclusion depends upon a complicated analysis of three factors: the age 
of the person in foster care; the type of foster care placement agency; 
and the source of the foster care payments.
  For children under age 19 in foster care, section 131 permits 
providers to exclude payments when a State (or one of its political 
subdivisions) or a charitable tax-exempt placement agency places the 
individual in foster care and makes the foster care payments. For 
persons age 19 and older, section 131 permits providers to exclude 
foster care payments only when a State (or one of its political 
subdivisions) places the individual and makes the payments.
  This bill will simplify these anachronistic tax rules by expanding 
the tax code's exclusion to include foster care payments for all 
persons in foster care, regardless of age, even if the foster care 
placement is made by a foster care placement agency and even if foster 
care payments are received through a foster care placement agency, 
rather than directly from a State (or one of its political 
subdivisions). To ensure appropriate oversight, the bill requires that 
the placement agency be either licensed by, or under contract with, a 
State or a political subdivision thereof.
  Increasingly, State and local governments are relying on private 
agencies to arrange for foster care services for children and adults. 
While foster care for children has been in existence for decades, 
foster care for adults is a more recent phenomenon. Sometimes referred 
to as ``host homes'' or ``developmental homes,'' adult foster care 
facilities have proven to be an effective alternative to institutional 
care for adults with disabilities. My home State of Vermont, at the 
forefront of efforts to develop individualized alternatives to 
institutional care, authorizes local developmental service providers to 
act as placement agencies and to contract with families willing to 
provide foster care in their homes. The tax law's disparate tax 
treatment of foster care payments, however, impedes alternative 
arrangements. Persons providing foster care for individuals placed in 
their homes by the government can exclude foster care payments from 
income. For providers receiving payments from private agencies, 
however, the exclusion is not available (unless the individual in 
foster care is under age 19 and the placement agency is a nonprofit 
organization). These rules discourage families willing to provide 
foster care in their homes to persons placed by private placement 
agencies, thus reducing the availability of care alternatives. Because 
of the complexity of the current law, providers often receive 
conflicting advice from tax professionals regarding the proper tax 
treatment of foster care payments they receive.
  Mr. President, this bill will advance the development of family-based 
foster care services, a highly valued alternative to 
institutionalization. I urge my colleagues to support it.
  Mr. DODD. Mr. President, I am very pleased to rise along with my 
colleague, Senator Jeffords, in introducing a critically important 
piece of legislation that will ensure fair treatment for individuals 
and families who provide invaluable care to foster children and adults.
  Presently, foster care providers are permitted to deduct expenditures 
made while caring for foster individuals if detailed expense records 
are maintained to support such deductions.

[[Page S11707]]

However, section 131 of the Internal Revenue Code permits certain 
foster care providers to exclude, from taxable income, payments they 
receive to care for foster individuals. Who specifically is available 
for this exclusion depends upon a complicated analysis of three 
factors: the age of the individual receiving foster care services, the 
type of foster care placement agency, and the source of the foster care 
payments.
  Section 131 presently permits foster care providers to exclude 
payments from taxable income only when a state, or one of its political 
divisions, or a charitable tax exempt placement agency places the 
individual and makes the foster care payments for children under 19 
years of age. However, for adults over the age of 19, section 131 
permits foster providers to exclude payments from taxable income only 
when a State, or one of its divisisions, places the individual and 
provides the foster care payments.
  Mr. President, it is time that we remove the inequities and needless 
complexities of the current system. States and localities across the 
country are increasingly relying on private agencies to arrange for 
foster care services for both children and adults. However, some foster 
care providers are understandably reluctant to contract with private 
placement agencies because current law requires such providers to 
include foster care payments as taxable income. In contrast, current 
law permits providers who care for foster individuals placed in their 
homes by government agencies to exclude such payments from taxable 
income. Current law, therefore, discourages families from providing 
foster care on behalf of private placement agencies, thereby reducing 
badly-needed foster care opportunities for individuals requiring 
assistance.
  The bill Senator Jeffords and I introduce today will greatly simplify 
the outdated tax rules applicable to foster care payments. Under our 
legislation, foster care providers would be able to avoid onerous 
record keeping by excluding from income any foster care payment 
received regardless of the age of the individual receiving foster care 
services, the type of agency that placed the individual, or the source 
of foster care payments. To ensure appropriate oversight, this bill 
will require the placement agency to be licensed either by, or under 
contract with, a state or one or its political divisions.
  Mr. President, this legislation accomplishes what current law does 
not--consistent and fair treatment of families and individuals who open 
their homes and their hearts to foster children and adults.
                                 ______