Small Business Start-up Savings Accounts Act of 2019

II 116TH CONGRESS 1ST SESSION S. 3136 To amend the Internal Revenue Code of 1986 to establish small business start-up savings accounts. IN THE SENATE OF THE UNITED STATES DECEMBER 19, 2019 Mr. GARDNER (for himself and Mr. PETERS) 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 establish small business start-up savings accounts. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Small Business Start- 4 up Savings Accounts Act of 2019’’. 5 SEC. 2. ESTABLISHMENT OF SMALL BUSINESS START-UP 6 SAVINGS ACCOUNTS. 7 (a) IN GENERAL.—Chapter 77 of the Internal Rev- 8 enue Code of 1986 is amended by adding at the end the 9 following new section: 10 VerDate Sep 11 2014 18:35 Dec 28, 2019 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S3136.IS S3136 pamtmann on DSKBC07HB2PROD with BILLS 2 •S 3136 IS ‘‘SEC. 7530. SMALL BUSINESS START-UP SAVINGS AC- 1 COUNTS. 2 ‘‘(a) IN GENERAL.—An individual or an eligible small 3 business may establish a small business start-up savings 4 account. 5 ‘‘(b) SMALL BUSINESS START-UP SAVINGS AC- 6 COUNT.—For purposes of this section, the term ‘small 7 business start-up savings account’ means a trust created 8 or organized in the United States for the benefit of the 9 account beneficiary, but only if the written governing in- 10 strument creating the trust meets the following require- 11 ments: 12 ‘‘(1) Except as provided in subsection (d)(3) in 13 the case of a rollover contribution, no contribution 14 will be accepted unless it is in cash, and contribu- 15 tions will not be accepted for the taxable year on be- 16 half of any account beneficiary in excess of the 17 amount in effect for such taxable year under sub- 18 section (d)(2). 19 ‘‘(2) The trustee is a bank (as defined in sec- 20 tion 408(n)) or such other person who demonstrates 21 to the satisfaction of the Secretary that the manner 22 in which such other person will administer the trust 23 will be consistent with the requirements of this sec- 24 tion. 25 VerDate Sep 11 2014 18:35 Dec 28, 2019 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S3136.IS S3136 pamtmann on DSKBC07HB2PROD with BILLS 3 •S 3136 IS ‘‘(3) No part of the trust funds will be invested 1 in life insurance contracts. 2 ‘‘(4) The interest of an individual in the bal- 3 ance of his account is nonforfeitable. 4 ‘‘(5) The assets of the trust will not be commin- 5 gled with other property except in a common trust 6 fund or common investment fund. 7 ‘‘(c) ELIGIBLE SMALL BUSINESS.—For purposes of 8 this section, the term ‘eligible small business’ means, with 9 respect to any taxable year, any person engaged in a trade 10 or business if the average number of employees employed 11 by such person on business days during the taxable year 12 was 500 or fewer. 13 ‘‘(d) TREATMENT OF CONTRIBUTIONS.— 14 ‘‘(1) IN GENERAL.—There shall be allowed as a 15 deduction for the taxable year an amount equal to 16 so much of the account beneficiary’s contributions 17 for the taxable year to all small business start-up 18 savings accounts maintained for the benefit of such 19 beneficiary as do not exceed the contribution limita- 20 tions in effect for the taxable year under paragraph 21 (2). 22 ‘‘(2) CONTRIBUTION LIMITATION.— 23 ‘‘(A) IN GENERAL.—The amount allowable 24 as a deduction under paragraph (1) with re- 25 VerDate Sep 11 2014 18:35 Dec 28, 2019 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S3136.IS S3136 pamtmann on DSKBC07HB2PROD with BILLS 4 •S 3136 IS spect to all small business start-up savings ac- 1 counts maintained for the benefit of any person 2 shall not exceed the lesser of— 3 ‘‘(i) $10,000, or 4 ‘‘(ii) $150,000, reduced by the aggre- 5 gate contributions by such person for all 6 taxable years with respect to all small busi- 7 ness start-up savings accounts of the tax- 8 payer. 9 ‘‘(B) COST OF LIVING ADJUSTMENT.— 10 ‘‘(i) IN GENERAL.—In the case of a 11 taxable year beginning after 2020, the 12 $10,000 amount in subparagraph (A) shall 13 be increased by an amount equal to— 14 ‘‘(I) such dollar amount, multi- 15 plied by 16 ‘‘(II) the cost-of-living adjust- 17 ment determined under section 1(f)(3) 18 for the calendar year in which the tax- 19 able year begins, determined by sub- 20 stituting ‘calendar year 2019’ for ‘cal- 21 endar year 1992’ in subparagraph 22 (A)(ii) thereof. 23 ‘‘(ii) ROUNDING.—If any amount as 24 adjusted under clause (i) is not a multiple 25 VerDate Sep 11 2014 18:35 Dec 28, 2019 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S3136.IS S3136 pamtmann on DSKBC07HB2PROD with BILLS 5 •S 3136 IS of $500, such amount shall be rounded to 1 the next lowest multiple of $500. 2 ‘‘(3) ROLLOVERS FROM RETIREMENT PLANS 3 NOT ALLOWED.—Under regulations prescribed by 4 the Secretary, a person may make a rollover con- 5 tribution to a small business start-up savings ac- 6 count only in the case of a rollover from another 7 small business start-up savings account. 8 ‘‘(4) TREATED AS DEDUCTION FOR INDIVID- 9 UALS AND CORPORATIONS.—For purposes of chapter 10 1, the deduction allowed under paragraph (1) shall 11 be treated as a deduction specified in part VI of sub- 12 chapter B of chapter 1 (relating to itemized deduc- 13 tions for individuals and corporations). 14 ‘‘(e) TREATMENT OF DISTRIBUTIONS.— 15 ‘‘(1) TAX TREATMENT.— 16 ‘‘(A) EXCLUSION OF QUALIFIED DISTRIBU- 17 TIONS.—Any qualified distribution from a small 18 business start-up savings account shall not be 19 includible in gross income. 20 ‘‘(B) INCLUSION OF OTHER DISTRIBU- 21 TIONS.—Any distribution from a small business 22 start-up savings account which is not a quali- 23 fied distribution shall be included in gross in- 24 come. 25 VerDate Sep 11 2014 18:35 Dec 28, 2019 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S3136.IS S3136 pamtmann on DSKBC07HB2PROD with BILLS 6 •S 3136 IS ‘‘(2) QUALIFIED DISTRIBUTION.—For purposes 1 of this subsection, the term ‘qualified distribution’ 2 means, with respect to any taxable year, any pay- 3 ment or distribution from a small business start-up 4 savings account— 5 ‘‘(A) to the extent the amount of such pay- 6 ment or distribution does not exceed the sum 7 of— 8 ‘‘(i) the aggregate amounts paid or in- 9 curred by the taxpayer for such taxable 10 year with respect to the taxpayer’s trade or 11 business for the purchase of equipment or 12 facilities, marketing, training, incorpora- 13 tion, and accounting fees, and 14 ‘‘(ii) the aggregate capital contribu- 15 tions of the taxpayer with respect to an eli- 16 gible small business for the taxable year 17 (but only to the extent such amounts are 18 used by such small business for purposes 19 described in clause (i)), and 20 ‘‘(B) which, in the case of a payment or 21 distribution subsequent to the first payment or 22 distribution from such account (or any prede- 23 cessor to such account)— 24 VerDate Sep 11 2014 18:35 Dec 28, 2019 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S3136.IS S3136 pamtmann on DSKBC07HB2PROD with BILLS 7 •S 3136 IS ‘‘(i) is made not later than the close 1 of the 5th taxable year beginning after the 2 date of such first payment or distribution, 3 and 4 ‘‘(ii) is made with respect to the same 5 eligible small business with respect to 6 which such first payment or distribution 7 was made. 8 ‘‘(3) TREATMENT AFTER DEATH OF ACCOUNT 9 BENEFICIARY.— 10 ‘‘(A) IN GENERAL.—If, by reason of the 11 death of the account beneficiary, any person ac- 12 quires the account beneficiary’s interest in a 13 small business start-up savings account— 14 ‘‘(i) such account shall cease to be a 15 small business start-up savings account as 16 of the date of death, and 17 ‘‘(ii) an amount equal to the fair mar- 18 ket value of the assets in such account on 19 such date shall be includible— 20 ‘‘(I) in the case of a person who 21 is not the estate of such beneficiary, 22 in such person’s gross income for the 23 taxable year which includes such date, 24 or 25 VerDate Sep 11 2014 18:35 Dec 28, 2019 Jkt 099200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S3136.IS S3136 pamtmann on DSKBC07HB2PROD with BILLS 8 •S 3136 IS ‘‘(II) in the case of a person who 1 is the estate of such beneficiary, in 2 such beneficiary’s gross income for 3 the last taxable year of such bene- 4 ficiary. 5 ‘‘(B) SPECIAL RULES.— 6 ‘‘(i) REDUCTION OF INCLUSION FOR 7 PREDEATH EXPENSES.—The amount in- 8 cludible in gross income under subpara- 9 graph (A) shall be reduced by the amounts 10 described in paragraph (2) which were in- 11 curred by the decedent before the date of 12 the decedent’s death and paid by such per- 13 son within 1 year after such date. 14 ‘‘(ii) DEDUCTION FOR ESTATE 15 TAXES.—An appropriate deduction shall be 16 allowed under section 691(c) to any person 17 (other than the decedent) with respect to 18 amounts included in gross income under 19 subparagraph (A)(ii)(I) by such person. 20 ‘‘(4) TREATMENT FOR FAILURE TO BE TREAT- 21 ED AS ELIGIBLE SMALL BUSINESS.—If for any tax- 22 able year a taxpayer which holds a small business 23 start-up savings account as an eligible small busi- 24 ness ceases to be an eligible small business— 25 VerDate Sep 11 2014 18:35 Dec 28, 2019 Jkt 099200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S3136.IS S3136 pamtmann on DSKBC07HB2PROD with BILLS 9 •S 3136 IS ‘‘(A) such account shall cease to be a small 1 business start-up savings account, and 2 ‘‘(B) the balance of such account shall be 3 treated as paid out for such taxable year in a 4 distribution which is not a qualified distribu- 5 tion. 6 ‘‘(f) SPECIAL RULES.— 7 ‘‘(1) DENIAL OF DOUBLE BENEFIT.—Any de- 8 duction or credit otherwise allowed for the taxable 9 year with respect to amounts described in subsection 10 (e)(2)(A) shall be reduced by an amount equal to 11 the qualified distributions attributable to such 12 amounts. The adjusted basis of any property placed 13 in service for the taxable year shall be reduced by 14 the amount of any qualified distributions attrib- 15 utable to such property. For purposes of this para- 16 graph, qualified distributions shall first be treated as 17 attributable to amounts described in subsection 18 (e)(2)(A), then to property placed in service for the 19 taxable year. 20 ‘‘(2) AGGREGATION RULE.—For purposes of 21 this section, all persons treated as a single employer 22 under subsection (a) or (b) of section 52, or sub- 23 section (m) or (o) of section 414, shall be treated as 24 one person.’’. 25 VerDate Sep 11 2014 18:35 Dec 28, 2019 Jkt 099200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S3136.IS S3136 pamtmann on DSKBC07HB2PROD with BILLS 10 •S 3136 IS (b) EXCISE TAX ON EXCESS CONTRIBUTIONS AND 1 NONQUALIFIED DISTRIBUTIONS.—Subtitle D of the Inter- 2 nal Revenue Code of 1986 is amended by adding at the 3 end the following new chapter: 4 ‘‘CHAPTER 50A—SMALL BUSINESS START- 5 UP SAVINGS ACCOUNTS 6 ‘‘Sec. 5000D. Tax on excess contributions to small business start-up savings accounts. ‘‘Sec. 5000E. Tax on nonqualified distributions from small business start-up savings accounts. ‘‘Sec. 5000F. Cross reference. ‘‘SEC. 5000D. TAX ON EXCESS CONTRIBUTIONS TO SMALL 7 BUSINESS START-UP SAVINGS ACCOUNTS. 8 ‘‘(a) IN GENERAL.—In the case of a small business 9 start-up savings account (within the meaning of section 10 7530) there is imposed for each taxable year a tax in an 11 amount equal to 6 percent of the amount of the excess 12 contributions to such taxpayer’s account (determined as 13 of the close of the taxable year). 14 ‘‘(b) LIMITATION.—The amount of tax imposed by 15 subsection (a) shall not exceed 6 percent of the value of 16 the account (determined as of the close of the taxable 17 year). 18 ‘‘(c) EXCESS CONTRIBUTIONS.—For purposes of this 19 section, in the case of contributions to all small business 20 start-up savings accounts maintained for the benefit of a 21 person, the term ‘excess contributions’ means the sum 22 of— 23 VerDate Sep 11 2014 18:35 Dec 28, 2019 Jkt 099200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S3136.IS S3136 pamtmann on DSKBC07HB2PROD with BILLS 11 •S 3136 IS ‘‘(1) the excess (if any) of— 1 ‘‘(A) the amount contributed to such ac- 2 counts for the taxable year, over 3 ‘‘(B) the amount allowable as a contribu- 4 tion under section 7530(d)(2)(A) for such tax- 5 able year, and 6 ‘‘(2) the amount determined under this sub- 7 section for the preceding taxable year, reduced by 8 the sum of— 9 ‘‘(A) the distributions out of the accounts 10 for the taxable year, and 11 ‘‘(B) the excess (if any) of— 12 ‘‘(i) the maximum amount allowable 13 as a contribution under section 14 7530(d)(2)(A) for such taxable year, over 15 ‘‘(ii) the amount contributed to such 16 accounts for such taxable year. 17 ‘‘SEC. 5000E. TAX ON NONQUALIFIED DISTRIBUTIONS FROM 18 SMALL BUSINESS START-UP SAVINGS AC- 19 COUNTS. 20 ‘‘(a) IN GENERAL.—If for any taxable year an 21 amount is paid or distributed out of a taxpayer’s small 22 business start-up savings account, there is imposed for 23 such taxable year a tax in an amount equal to 10 percent 24 VerDate Sep 11 2014 18:35 Dec 28, 2019 Jkt 099200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S3136.IS S3136 pamtmann on DSKBC07HB2PROD with BILLS 12 •S 3136 IS of the portion of such amount which is includible in the 1 gross income of the taxpayer. 2 ‘‘(b) EXCEPTION FOR DISABILITY OR DEATH.—Sub- 3 section (a) shall not apply if the payment or distribution 4 is made after the account beneficiary becomes disabled 5 within the meaning of section 72(m)(7) (but only if such 6 beneficiary’s account was created before becoming so dis- 7 abled) or dies. 8 ‘‘SEC. 5000F. CROSS REFERENCE. 9 ‘‘For prohibited transactions, see section 4975.’’. 10 (c) PROHIBITED TRANSACTIONS.— 11 (1) IN GENERAL.—Paragraph (1) of section 12 4975(e) of such Code is amended by striking ‘‘or’’ 13 at the end of subparagraph (F), by striking the pe- 14 riod at the end of subparagraph and inserting ‘‘, 15 or’’, and by adding at the end the following new sub- 16 paragraph: 17 ‘‘(H) a small business start-up savings ac- 18 count (within the meaning of section 7530).’’. 19 (2) SPECIAL RULE FOR CEASING TO BE A 20 SMALL BUSINESS START-UP SAVINGS ACCOUNT.— 21 Section 4975(c) of such Code (relating to tax on 22 prohibited transactions) is amended by adding at the 23 end the following new paragraph: 24 VerDate Sep 11 2014 18:35 Dec 28, 2019 Jkt 099200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S3136.IS S3136 pamtmann on DSKBC07HB2PROD with BILLS 13 •S 3136 IS ‘‘(7) SPECIAL RULE FOR SMALL BUSIN [Text truncated for display. Full text available on Congress.gov.]