[Congressional Record Volume 145, Number 44 (Friday, March 19, 1999)]
[Senate]
[Pages S3002-S3003]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. JEFFORDS (for himself and Mr. Dodd):
  S. 670. 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.


                          tax code legislation

  Mr. JEFFORDS. Mr. President, today I am introducing a bill that will 
eliminate unnecessary distinctions drawn by the Internal Revenue Code 
in the tax treatment of payments received by people 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 
providers. My bill expands the law's exclusion for foster care 
payments. By simplifying the tax treatment of foster care payments, the 
bill will remove the inequities and uncertainties inherent in the 
current tax treatment.
  Under current law, foster care providers are permitted to deduct 
expenditures incurred for the care of 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 for providing 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. The exclusion will also be 
available when the foster care placement is made by a private foster 
care placement agency and even when foster care payments are received 
through a private 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 certified by, a State or a political subdivision 
thereof.
  A qualified foster care payment under this bill must be made pursuant 
to a foster care program of a State or a political subdivision thereof. 
My intention is for this bill to cover the wide variety of foster care 
programs developed by States, some of which are part of larger State 
programs designed to provide a variety of home- and community-based 
services to individuals. These foster care programs place children--and 
in some cases adults--in homes of unrelated families who provide foster 
care on a full-time basis. Families providing foster care give those in 
their care the daily support and supervision typically given to a 
family member. Like traditional families, foster care providers ensure 
that foster children or adults have a healthy physical environment, get 
routine and emergency medical care, are adequately clothed and fed, and 
have satisfying leisure activities. Foster families provide those under 
their care with intellectual stimulation and emotional support that is 
all too often lacking in institutional or large congregate settings.
  In some States, the State itself (or a political subdivision) 
administers both child and adult foster care programs. Many States, 
however, are increasingly entrusting administration of these programs 
to private placement agencies, approved through licensing or 
certification procedures, or government-designated intermediary tax-
exempt organizations. Through the approval process, private placement 
agencies are accountable for their use of funds and for the quality of 
services they provide. The bill is intended to cover both those 
governmental foster care programs funded solely by State or political 
subdivision monies, and--especially in the case of adult foster care--
programs funded by the federal government, typically through a State's 
Medicaid Home and Community-Based Waiver program approved by the 
federal government under 42 U.S.C. section 1396n(c).
  While foster care for children has been in existence for decades, 
foster care for adults is a more recent phenomenon. Sometimes referred 
to as

[[Page S3003]]

``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 has been at the 
forefront of efforts to develop individualized alternatives to 
institutional care. In 1993, Vermont closed the state institution for 
people with developmental disabilities. Vermont has chosen to rely on 
foster families, so that people with developmental disabilities can 
live in homes and participate in the regular routines of life that most 
of us take for granted. The foster care model has provided people with 
disabilities a cost-effective opportunity for successful lives in 
communities, with valued relationships with their foster families that 
have developed over time.
  Vermont 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 impedes these types of 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). Because of the 
complexity of current law, providers often receive conflicting advice 
from tax professionals regarding the proper tax treatment of foster 
care payments they receive. In addition, these rules discourage willing 
families from providing foster care in their homes to persons placed by 
private placement agencies, thus reducing the availability of care 
alternatives.
  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 pleased to again introduce with 
my colleague, Senator Jeffords, a critically important piece of 
legislation that will ensure fair treatment for individuals and 
families who provide invaluable care to foster children and adults.
  Foster care providers are currently permitted to deduct expenditures 
made while caring for foster individuals if detailed expense records 
are maintained to support such deductions. 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 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 less than 19 years of age. 
However, for adults over the age of 19, section 131 permits foster care 
providers to exclude payments from taxable income only when a state, or 
one of its divisions, places the individual and provides the foster 
care payments.
  Mr. President, I believe we must move to eliminate the inequities and 
needless complexities of the current system. Because states and 
localities across the country are increasingly relying on private 
agencies to arrange for foster care services for both children and 
adults, this inequity will only become more apparent. Presently, 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 
proposed 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 of 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. While this 
modest proposal was unfortunately not adopted in the last Congress, it 
is my hope that foster parents may soon realize equitable treatment 
with the passage of this important legislation.
                                 ______