Medical and Legal Professional Liability Insurance Tax Equity Act of 1979

Medical and Legal Professional Liability Insurance Tax Equity Act of 1979 - Amends the Internal Revenue Code to allow a taxpayer an income tax deduction for cash amounts paid to a medical or legal malpractice liability trust or to a captive insurer (wholly or partially- owned or controlled by the taxpayer) of the taxpayer for malpractice insurance. Limits the amount of such deduction to the smaller of: (1) five percent of the taxpayer's gross income from the sale of medical or legal services; (2) the amount which when added to the sum of the balance of the taxpayer's malpractice liability trust and the net contributions of the taxpayer to his captive insurer equals 15 percent to the taxpayer's yearly gross receipts from the sale of medical or legal services; or (3) $100,000. Disallows deductions for any malpractice liability loss except to the extent that such loss exceeds amounts in the malpractice liability trust.

Provides that amounts in a malpractice liability trust which are used for purposes other than to satisfy malpractice claims shall be included in the taxpayer's gross income for the taxable year and the income tax of the taxpayer shall be increased by ten percent of the amount improperly used.

Defines a "malpractice liability trust" as any trust: (1) which is established in writing by the taxpayer under the laws of any State; (2) the trustee of which is a bank or a competent individual; (3) the exclusive purposes of which are to satisfy malpractice claims and to pay the administrative cost of operating a trust; and (4) the assets of which will not be commingled with any other property and may not be borrowed or used as security for a loan. Limits investment of trust assets to: (1) public debt securities of the United States; (2) State or local obligations which are not in default; or (3) time or demand deposits in certain financial institutions.

Treats product liability loss reserves as amounts accumulated for the reasonably anticipated needs of a business for purposes of the accumulated earnings tax.