S. 2724 — Introduced in Senate

II 113th CONGRESS 2d Session S. 2724 IN THE SENATE OF THE UNITED STATES July 31, 2014 Mr. Udall of New Mexico 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 provide for the tax treatment of small business start-up savings accounts. 1. Short title This Act may be cited as the Incentivize Growth Now In Tomorrow’s Entrepreneurs Act of 2014. 2. Small Business Start-Up Savings Accounts (a) In general Part VIII of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by redesignating section 224 as section 225 and inserting after section 223 the following new section: 224. Small Business Start-up Savings Accounts (a) Allowance of deduction In the case of an individual, there shall be allowed as a deduction for the taxable year an amount equal to amount of contributions made to the small-business start-up savings account of such individual. (b) Limitation based on adjusted gross income The amount of the deduction allowed under subsection (a) for any taxable year shall be reduced (but not below zero) by an amount equal to the excess of— (1) the taxpayer's adjusted gross income for such taxable year, over (2) $150,000 ($300,000 in the case of a joint return). (c) Small business start-Up savings account The term small business start-up savings account means a trust created or organized in the United States exclusively for the purpose of paying the eligible costs of the individual who is the designated beneficiary of the trust (and designated as a small business start-up savings account at the time created or organized), but only if the written governing instrument creating the trust meets the following requirements: (1) Except in the case of a rollover contribution described in subsection (e)(4), no contribution will be accepted unless it is in cash, and contributions will not be accepted if such contribution would result in— (A) aggregate contributions for the taxable year exceeding the lesser of— (i) $10,000, or (ii) an amount equal to the compensation (as defined in section 219(f)(1)) includible in the individual’s gross income for such taxable year, or (B) aggregate contributions to all small business start-up savings account of the individual for such taxable year and all prior taxable years exceeding $150,000. (2) The trustee is a bank (as defined in section 408(n)) or such other person who demonstrates to the satisfaction of the Secretary that the manner in which such other person will administer the trust will be consistent with the requirements of this section. (3) No part of the trust funds will be invested in life insurance contracts. (4) The assets of the trust will not be commingled with other property except in a common trust fund or common investment fund. (5) Contributions may be made even after the individual for whom the account is maintained has attained age 70½. (d) Tax treatment of accounts (1) In general A small business start-up savings account shall be exempt from taxation under this subtitle. Notwithstanding the preceding sentence, the small business start-up savings account shall be subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable organizations). (2) Account terminations Rules similar to the rules of paragraphs (2) and (4) of section 408(e) shall apply to small business start-up savings accounts, and any amount treated as distributed under such rules shall be treated as not used to pay for eligible costs. (e) Tax treatment of distributions (1) Qualified distributions (A) In general Any qualified distribution from a small business start-up savings account shall not be included in gross income. (B) Qualified distribution For purposes of this section, the term qualified distribution means the amount of any payment or distribution made from a small business savings account— (i) to the extent that such distribution does not exceed the eligible costs paid or incurred by the taxpayer during the taxable year if the distribution, and (ii) which is made not later than the last day of the 5th taxable year beginning after the initial distribution from the small business start-up savings account. For purposes of clause (i), a taxpayer shall be treated as having paid or incurred the taxpayer’s allocable share of eligible costs of any entity in which the taxpayer directly holds stock or a capital or profits interest. (C) Eligible costs (i) In general For purposes of this section, the term eligible costs means costs paid or incurred by the taxpayer with respect to the designated business of the taxpayer for operating capital, the purchase of equipment or facilities, marketing, training, incorporation, and accounting fees. (ii) Designated business For purposes of clause (i), the term designated business means any single business of the taxpayer which— (I) employs 50 or fewer full-time employees on all days during the taxable year, and (II) is designated by the taxpayer for purposes of this section. Any designation made under subclause (II), once made, may not be revoked. (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 distribution to the extent taken into account in determining the amount of the exclusion under this paragraph. (2) Nonqualified distributions (A) In general Any amount paid or distributed out of a small business start-up savings account which is not a qualified distribution, including any amount paid out pursuant to a termination of such an account, shall be included in the gross income of the taxpayer as provided in section 72. (B) Treatment of amounts remaining in account Any remaining amount in a small business start-up savings account following the date described in paragraph (1)(B)(ii) shall be treated as distributed during the taxable year following such date and such distribution shall not be treated as a qualified distribution. (C) Additional tax (i) In general The tax imposed by this chapter on the account beneficiary for any taxable year in which there is a payment or distribution from a small business start-up savings account of such beneficiary which is includible in income under subparagraph (A) shall be increased by 10 percent of the amount which is so includible. (ii) Exception Clause (i) shall not apply if the payment or distribution is made after the account beneficiary becomes disabled within the meaning of section 72(m)(7) or dies. (3) Excess contributions returned before due date of return (A) In general If any excess contribution is contributed for a taxable year to any small business start-up savings account of an individual, paragraph (2) shall not apply to distributions from the small business start-up savings accounts of such individual (to the extent such distributions do not exceed the aggregate excess contributions to all such accounts of such individual for such year) if— (i) such distribution is received by the individual on or before the last day prescribed by law (including extensions of time) for filing such individual’s return for such taxable year, and (ii) such distribution is accompanied by the amount of net income attributable to such excess contribution. (B) Excess contribution For purposes of subparagraph (A), the term excess contribution means any contribution (other than a rollover contribution described in paragraph (4)) which when added to all previous contributions for the taxable year exceeds the amount allowable as a contribution under subsection (b)(1). (4) Rollover contribution Paragraph (2) shall not apply to any amount paid or distributed from a small business start-up savings account to the account beneficiary to the extent the amount received is paid into a small business start-up savings account for the benefit of such beneficiary not later than the 60th day after the day on which the beneficiary receives the payment or distribution. For purposes of this paragraph, rules similar to the rules of section 408(d)(3)(D) shall apply. (5) Transfer of account incident to divorce The transfer of an individual’s interest in a small business start-up savings account to an individual’s spouse or former spouse under a divorce or separation instrument described in subparagraph (A) of section 71(b)(2) shall not be considered a taxable transfer made by such individual notwithstanding any other provision of this subtitle, and such interest shall, after such transfer, be treated as a small business start-up savings account with respect to which such spouse is the account beneficiary. (6) Treatment after death of account beneficiary (A) Treatment if designated beneficiary is spouse If the account beneficiary’s surviving spouse acquires such beneficiary’s interest in a small business start-up savings account by reason of being the designated beneficiary of such account at the death of the account beneficiary, such account shall be treated as if the spouse were the account beneficiary. (B) Other cases (i) In general If, by reason of the death of the account beneficiary, any person acquires the account beneficiary’s interest in a small business start-up savings account in a case to which subparagraph (A) does not apply— (I) such account shall cease to be a small business start-up savings account as of the date of death, and (II) an amount equal to the fair market value of the assets in such account on such date shall be includible, if such person is not the estate of such beneficiary, in such person’s gross income for the taxable year which includes such date, or if such person is the estate of such beneficiary, in such beneficiary’s gross income for the last taxable year of such beneficiary. (ii) Special rules (I) Reduction of inclusion for predeath expenses The amount includible in gross income under clause (i) by any person (other than the estate) shall be reduced by the amount of qualified distributions which were paid or incurred by the decedent before the date of the decedent’s death and paid by such person within 1 year after such date. (II) Deduction for estate taxes An appropriate deduction shall be allowed under section 691(c) to any person (other than the decedent or the decedent’s spouse) with respect to amounts included in gross income under clause (i) by such person. (f) Community property laws This section shall be applied without regard to any community property laws. (g) Adjustment for inflation In the case of a taxable year beginning after December 31, 2014, of the dollar amount in subsection (b)(1) and each of the dollar amounts in subsection (c)(1) shall be increased by an amount equal to— (1) such dollar amount, multiplied by (2) 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 2013 for calendar year 1992 in subparagraph (B) thereof. If any amount as increased under the preceding sentence is not a multiple of $100, such amount shall be rounded to the nearest multiple of $100. (h) Reports The trustee of a small business start-up savings account shall make such reports regarding such account to the Secretary and to the individual for whom the account is, or is to be, maintained with respect to contributions (and the years to which they relate), distributions, aggregating $10 or more in any calendar year, and such other matters as the Secretary may require. The reports required by this subsection— (1) shall be filed at such time and in such manner as the Secretary prescribes, and (2) shall be furnished to individuals— (A) not later than January 31 of the calendar year following the calendar year to which such reports relate, and (B) in such manner as the Secretary prescribes. (i) Regulations The Secretary shall issue such regulations or other guidance as may be necessary to carry out this section, including for purposes of subsection (e)(1)(B)(i) the making reports by regarding eligible costs of an entity in which the taxpayer directly holds stock or a capital or profits interest. . (b) Deduction allowed whether or not individual itemizes deductions Section 62(a) of the Internal Revenue Code of 1986 is amended by inserting after paragraph (21) the following new paragraph: (22) Small business start-up savings accounts The deduction allowed by section 224. . (c) Tax on prohibited transactions (1) In general Paragraph (1) of section 4975(e) of the Internal Revenue Code of 1986 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 small business start-up savings account described in section 224, or . (2) Special rule Subsection (c) of section 4975 of such Code is amended by adding at the end of subsection (c) the following new paragraph: (7) Special rule for small business start-up savings accounts An individual for whose benefit a small business start-up 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 224(e)(2) applies with respect to such transaction. . (d) Failure To Provide Reports on Small Business Start-Up Savings Accounts Paragraph (2) of section 6693(a) of the Internal Revenue Code of 1986 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 adding at the end the following new subparagraph: (F) section 224(h) (relating to small business start-up savings accounts). . (e) Excess contributions Section 4973(b) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection: (h) Excess contributions to small business start-Up savings accounts For purposes of this section, in the case of contributions to a small business start-up savings account (within the meaning of section 224(c)), the term excess contributions means the sum of— (1) the excess (if any) of— (A) the amount contributed for the taxable year to such accounts (other than a rollover contribution described in section 224(e)(4)), over (B) the amount allowable as a contribution under section 224(c)(1), 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 the maximum amount allowable as a contribution under sections 224(c)(1) for the taxable year over the amount contributed to the accounts for the taxable year. For purposes of this subsection, any contribution which is distributed from a small business start-up savings account in a distribution described in section 224(e)(3) shall be treated as an amount not contributed. . (f) Clerical amendment The table of contents for part VIII of subchapter B of chapter 1 of such Code is amended by redesignating the item relating to section 224 as relating to section 225 and by inserting after the item relating to section 223 the following new item: Sec. 224. Small Business Start-Up Savings Accounts. . (g) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2013.