[Congressional Record Volume 147, Number 33 (Tuesday, March 13, 2001)]
[Senate]
[Pages S2220-S2221]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. FRIST:
  S. 519. A bill to amend the Internal Revenue Code of 1986 to provide 
that trusts established for the benefit of individuals with 
disabilities shall be taxed at the same rate as individual taxpayers, 
to the Committee on Finance.
  Mr. FRIST. Mr. President, today I introduce a bill to address a tax 
inequity that has existed for some time and was made worse by the large 
tax increases of 1993. The ``Tax Fairness for Support of the 
Permanently Disabled Act'' would change the tax rates for the taxable 
income of a trust fund established solely for the benefit of a person 
who is permanently and totally disabled. Instead of being taxed at the 
highest tax rate 39.6 percent for amounts over $7500, the income of 
this fund would be taxed at the tax rates that would normally apply to 
regular income of the same amount. In essence, trust fund income would 
be treated as personal income for a permanently disabled person.
  Mr. Nicholas Verbin of Nashville, TN personally called my office 
about this problem he had encountered. The problem was that he had 
established an irrevocable trust for his son Nicky, who is completely 
disabled, unable to work, and totally dependent on his dad to provide 
for him. Mr. Verbin has spent his whole life building up this trust 
fund so that his son can live off this lifetime of hard work after Mr. 
Verbin is gone. Mr. Verbin does not want his son to have to go on 
welfare or become a ward of the state. Instead, he has

[[Page S2221]]

built up this fund so that his son can be self-sufficient after he 
dies. Apparently, the federal government would rather have Nicky on its 
welfare roles than have him take care of himself.
  Instead of taxing the interest that Nicky's trust accumulates every 
year as simple income, which it is since Nicky has no other form of 
income, the IRS taxes the interest at the highest rate allowable, 39.6 
percent. Instead of helping this sum grow into a sort of pension fund 
for Nicky, the IRS has milked it for all its worth. If Nicky's trust 
earns more than $7500 in interest in a year, the federal government 
takes $2,125 plus 39.5 percent of the amount above $7500. Meanwhile, 
even Bill Gates does not pay 39.6 percent on the first $275,000 of his 
income. We are taxing disabled children at a rate that we don't even 
tax multimillionaires!
  I believe that we should not punish Mr. Verbin for his foresight, nor 
should we punish Nicky for his disability. While a case could be made 
that Congress should eliminate the tax on this type of trust 
altogether, I have simply proposed that the interest income be treated 
like normal income for those disabled boys and girls, men and women who 
cannot work for themselves and depend on this interest as their only 
source of income.
  I ask my colleagues to support this bill. I ask unanimous consent 
that the text of the bill be printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 519

       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 ``Tax Fairness for Support of 
     the Permanently Disabled Act''.

     SEC. 2. MODIFICATION OF TAX RATES FOR TRUSTS FOR INDIVIDUALS 
                   WHO ARE DISABLED.

       (a) In General.--Section 1(e) of the Internal Revenue Code 
     of 1986 (relating to tax imposed on estates and trusts) is 
     amended--
       (1) by redesignating paragraphs (1) and (2) as 
     subparagraphs (A) and (B), respectively,
       (2) by striking ``There'' and inserting:
       ``(1) In general.--Except as provided in paragraph (2), 
     there'', and
       (3) by adding at the end the following new paragraph:
       ``(2) Special rule for trusts for disabled individuals.--
       ``(A) In general.--There is hereby imposed on the taxable 
     income of an eligible trust taxable under this subsection a 
     tax determined in the same manner as under subsection (c).
       ``(B) Eligible trust.--For purposes of subparagraph (A), a 
     trust shall be treated as an eligible trust for any taxable 
     year if, at all times during such year during which the trust 
     is in existence, the exclusive purpose of the trust is to 
     provide reasonable amounts for the support and maintenance of 
     1 or more beneficiaries each of whom is permanently and 
     totally disabled (within the meaning of section 22(e)(3)). A 
     trust shall not fail to meet the requirements of this 
     subparagraph merely because the corpus of the trust may 
     revert to the grantor or a member of the grantor's family 
     upon the death of the beneficiary.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.
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