Fair and Simple Tax Act of 2008 - Amends the Internal Revenue Code to: (1) establish an alternative income tax rate system with three tax brackets (10, 15, and 30%); (2) repeal the estate and gift tax; (3) adjust the increased alternative minimum tax (AMT) exemption amounts for inflation after 2007 and make such exemptions permanent; (4) reduce the maximum corporate income tax rate to 25%; (5) reduce the maximum tax rate on capital gains to 10%; (6) allow an inflation adjustment to the basis of capital assets for purposes of determining gain or loss; (7) establish new tax-exempt accounts for retirement savings, lifetime savings, and lifetime skills accounts; (8) exempt individuals under age 65 who do not have employer health care coverage from the adjusted gross income threshold for the medical care tax deduction; and (9) make permanent the tax credit for increasing research activities.
Repeals the terminating dates applicable to provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003.
[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 2547 Introduced in Senate (IS)]
110th CONGRESS
2d Session
S. 2547
To amend the Internal Revenue Code of 1986 to reduce taxes by providing
an alternative determination of income tax liability for individuals,
repealing the estate and gift taxes, reducing corporate income tax
rates, reducing the maximum tax for individuals on capital gains and
dividends to 10 percent, indexing the basis of assets for purposes of
determining capital gain or loss, creating tax-free accounts for
retirement savings, lifetime savings, and life skills, repealing the
adjusted gross income threshold in the medical care deduction for
individuals under age 65 who have no employer health coverage, and for
other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
January 23, 2008
Mr. Bond 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 reduce taxes by providing
an alternative determination of income tax liability for individuals,
repealing the estate and gift taxes, reducing corporate income tax
rates, reducing the maximum tax for individuals on capital gains and
dividends to 10 percent, indexing the basis of assets for purposes of
determining capital gain or loss, creating tax-free accounts for
retirement savings, lifetime savings, and life skills, repealing the
adjusted gross income threshold in the medical care deduction for
individuals under age 65 who have no employer health coverage, and for
other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE, ETC.
(a) Short Title.--This Act may be cited as the ``Fair and Simple
Tax Act of 2008''.
(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.
SEC. 2. 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:
``PART VIII--ALTERNATIVE DETERMINATION OF TAX LIABILITY FOR INDIVIDUALS
``Sec. 59B. Alternative determination of tax liability for individuals.
``SEC. 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)(2)(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, 2008.
SEC. 3. 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, 2008.
SEC. 4. 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 2007, 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 2006'
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 ($66,250 in the case of taxable
years beginning in 2007)'' and inserting ``$66,250'',
(2) by striking ``$33,750 ($44,350 in the case of taxable
years beginning in 2007)'' and inserting ``$44,350'', 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, 2007.
SEC. 5. 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, 2008; except that
the amendments made by subsection (c) shall take effect on January 1,
2009.
SEC. 6. 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, 2008.
SEC. 7. 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:
``SEC. 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, 2007).
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, 2008, in taxable years ending
after such date.
SEC. 8. 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:
``SEC. 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 70\1/2\.--
Contributions to a Retirement Savings Account may be made even
after the individual for whom the account is maintained has
attained age 70\1/2\.
``(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 408B(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, 2008.
SEC. 9. 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:
``PART IX--LIFETIME SAVINGS ACCOUNTS.
``Sec. 530C. Lifetime Savings Accounts.
``SEC. 530C. 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
530C(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 530C(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 530C(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 530C, 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 530C(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 530C(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.''.
SEC. 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:
``SEC. 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.--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 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 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 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 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 (U), by striking the period at the end of
subparagraph (V) and inserting ``, and'', and by adding at the
end the following new subparagraph:
``(W) 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, 2008.
SEC. 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's 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, 2008.
SEC. 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, 2007.
SEC. 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.--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.
<all>
Introduced in Senate
Read twice and referred to the Committee on Finance.
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