S. 3136 - Small Business Start-up Savings Accounts Act of 2019

"SEC. 7530. SMALL BUSINESS START-UP SAVINGS ACCOUNTS.

"(a) IN GENERAL. — An individual or an eligible small business may establish a small business start-up savings account.

"(b) SMALL BUSINESS START-UP SAVINGS ACCOUNT. — For purposes of this section, the term 'small business start-up savings account' means a trust created or organized in the United States for the benefit of the account beneficiary, but only if the written governing instrument creating the trust meets the following requirements:

"(1) Except as provided in subsection (d)(3) in the case of a rollover contribution, no contribution will be accepted unless it is in cash, and contributions will not be accepted for the taxable year on behalf of any account beneficiary in excess of the amount in effect for such taxable year under subsection (d)(2).

"(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 interest of an individual in the balance of his account is nonforfeitable.

"(5) The assets of the trust will not be commingled with other property except in a common trust fund or common investment fund.

"(c) ELIGIBLE SMALL BUSINESS. — For purposes of this section, the term 'eligible small business' means, with respect to any taxable year, any person engaged in a trade or business if the average number of employees employed by such person on business days during the taxable year was 500 or fewer.

"(d) TREATMENT OF CONTRIBUTIONS. —

"(1) IN GENERAL. — There shall be allowed as a deduction for the taxable year an amount equal to so much of the account beneficiary's contributions for the taxable year to all small business start-up savings accounts maintained for the benefit of such beneficiary as do not exceed the contribution limitations in effect for the taxable year under paragraph (2).

"(2) CONTRIBUTION LIMITATION. —

"(A) IN GENERAL. — The amount allowable as a deduction under paragraph (1) with respect to all small business start-up savings accounts maintained for the benefit of any person shall not exceed the lesser of —

"(i) $10,000, or

"(ii) $150,000, reduced by the aggregate contributions by such person for all taxable years with respect to all small business start-up savings accounts of the taxpayer.

"(B) COST OF LIVING ADJUSTMENT. —

"(i) IN GENERAL. — In the case of a taxable year beginning after 2020, the $10,000 amount in subparagraph (A) 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 2019' for 'calendar year 1992' in subparagraph (A)(ii) thereof.

"(ii) ROUNDING. — If any amount as adjusted under clause (i) is not a multiple of $500, such amount shall be rounded to the next lowest multiple of $500.

"(3) ROLLOVERS FROM RETIREMENT PLANS NOT ALLOWED. — Under regulations prescribed by the Secretary, a person may make a rollover contribution to a small business start-up savings account only in the case of a rollover from another small business start-up savings account.

"(4) TREATED AS DEDUCTION FOR INDIVIDUALS AND CORPORATIONS. — For purposes of chapter 1, the deduction allowed under paragraph (1) shall be treated as a deduction specified in part VI of subchapter B of chapter 1 (relating to itemized deductions for individuals and corporations).

"(e) TREATMENT OF DISTRIBUTIONS. —

"(1) TAX TREATMENT. —

"(A) EXCLUSION OF QUALIFIED DISTRIBUTIONS. — Any qualified distribution from a small business start-up savings account shall not be includible in gross income.

"(B) INCLUSION OF OTHER DISTRIBUTIONS. — Any distribution from a small business start-up savings account which is not a qualified distribution shall be included in gross income.

"(2) QUALIFIED DISTRIBUTION. — For purposes of this subsection, the term 'qualified distribution' means, with respect to any taxable year, any payment or distribution from a small business start-up savings account —

"(A) to the extent the amount of such payment or distribution does not exceed the sum of —

"(i) the aggregate amounts paid or incurred by the taxpayer for such taxable year with respect to the taxpayer's trade or business for the purchase of equipment or facilities, marketing, training, incorporation, and accounting fees, and

"(ii) the aggregate capital contributions of the taxpayer with respect to an eligible small business for the taxable year (but only to the extent such amounts are used by such small business for purposes described in clause (i)), and

"(B) which, in the case of a payment or distribution subsequent to the first payment or distribution from such account (or any predecessor to such account) —

"(i) is made not later than the close of the 5th taxable year beginning after the date of such first payment or distribution, and

"(ii) is made with respect to the same eligible small business with respect to which such first payment or distribution was made.

"(3) TREATMENT AFTER DEATH OF ACCOUNT BENEFICIARY. —

"(A) 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 —

"(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 —

"(I) in the case of a person who is not the estate of such beneficiary, in such person's gross income for the taxable year which includes such date, or

"(II) in the case of a person who is the estate of such beneficiary, in such beneficiary's gross income for the last taxable year of such beneficiary.

"(B) SPECIAL RULES. —

"(i) REDUCTION OF INCLUSION FOR PREDEATH EXPENSES. — The amount includible in gross income under subparagraph (A) shall be reduced by the amounts described in paragraph (2) which were 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) with respect to amounts included in gross income under subparagraph (A)(ii)(I) by such person.

"(4) TREATMENT FOR FAILURE TO BE TREATED AS ELIGIBLE SMALL BUSINESS. — If for any taxable year a taxpayer which holds a small business start-up savings account as an eligible small business ceases to be an eligible small business —

"(A) such account shall cease to be a small business start-up savings account, and

"(B) the balance of such account shall be treated as paid out for such taxable year in a distribution which is not a qualified distribution.

"(f) SPECIAL RULES. —

"(1) DENIAL OF DOUBLE BENEFIT. — Any deduction or credit otherwise allowed for the taxable year with respect to amounts described in subsection (e)(2)(A) shall be reduced by an amount equal to the qualified distributions attributable to such amounts. The adjusted basis of any property placed in service for the taxable year shall be reduced by the amount of any qualified distributions attributable to such property. For purposes of this paragraph, qualified distributions shall first be treated as attributable to amounts described in subsection (e)(2)(A), then to property placed in service for the taxable year.

"(2) AGGREGATION RULE. — For purposes of this section, all persons treated as a single employer under subsection (a) or (b) of section 52, or subsection (m) or (o) of section 414, shall be treated as one person.".

(b) EXCISE TAX ON EXCESS CONTRIBUTIONS AND NONQUALIFIED DISTRIBUTIONS. — Subtitle D of the Internal Revenue Code of 1986 is amended by adding at the end the following new chapter:

"CHAPTER 50A — SMALL BUSINESS START-UP SAVINGS ACCOUNTS

"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 BUSINESS START-UP SAVINGS ACCOUNTS.

"(a) IN GENERAL. — In the case of a small business start-up savings account (within the meaning of section 7530) there is imposed for each taxable year a tax in an amount equal to 6 percent of the amount of the excess contributions to such taxpayer's account (determined as of the close of the taxable year).

"(b) LIMITATION. — The amount of tax imposed by subsection (a) shall not exceed 6 percent of the value of the account (determined as of the close of the taxable year).

"(c) EXCESS CONTRIBUTIONS. — For purposes of this section, in the case of contributions to all small business start-up savings accounts maintained for the benefit of a person, the term 'excess contributions' means the sum of —

"(1) the excess (if any) of —

"(A) the amount contributed to such accounts for the taxable year, over

"(B) the amount allowable as a contribution under section 7530(d)(2)(A) for such taxable year, 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 —

"(i) the maximum amount allowable as a contribution under section 7530(d)(2)(A) for such taxable year, over

"(ii) the amount contributed to such accounts for such taxable year.

"SEC. 5000E. TAX ON NONQUALIFIED DISTRIBUTIONS FROM SMALL BUSINESS START-UP SAVINGS ACCOUNTS.

"(a) IN GENERAL. — If for any taxable year an amount is paid or distributed out of a taxpayer's small business start-up savings account, there is imposed for such taxable year a tax in an amount equal to 10 percent of the portion of such amount which is includible in the gross income of the taxpayer.

"(b) EXCEPTION FOR DISABILITY OR DEATH. — Subsection (a) shall not apply if the payment or distribution is made after the account beneficiary becomes disabled within the meaning of section 72(m)(7) (but only if such beneficiary's account was created before becoming so disabled) or dies.

"SEC. 5000F. CROSS REFERENCE.

"For prohibited transactions, see section 4975.".

(c) PROHIBITED TRANSACTIONS. —

(1) IN GENERAL. — Paragraph (1) of section 4975(e) of such Code is amended by striking "or" at the end of subparagraph (F), by striking the period at the end of subparagraph and inserting ", or", and by adding at the end the following new subparagraph:

"(H) a small business start-up savings account (within the meaning of section 7530).".

(2) SPECIAL RULE FOR CEASING TO BE A SMALL BUSINESS START-UP SAVINGS ACCOUNT. — Section 4975(c) of such Code (relating to tax on prohibited transactions) is amended by adding at the end the following new paragraph:

"(7) SPECIAL RULE FOR SMALL BUSINESS START-UP SAVINGS ACCOUNT. — An individual for whose benefit a small business start-up savings account (within the meaning of section 7530) is established 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, with respect to such transaction, the account ceases to be a small business start-up savings account by reason of the application of paragraph (3) or (4) of section 7530(e) to such account.".

(d) DEDUCTION ALLOWED WHETHER OR NOT INDIVIDUAL ITEMIZES. — Subsection (a) of section 62 of such Code is amended by inserting after paragraph (21) the following new paragraph:

"(22) CONTRIBUTIONS TO SMALL BUSINESS START-UP SAVINGS ACCOUNTS. — The deduction allowed by section 7530(d)(1)(A).".

(e) CONFORMING AMENDMENTS. —

(1) The table of chapters for subtitle D of such Code is amended by adding at the end the following new item:

"CHAPTER 50A. SMALL BUSINESS START-UP SAVINGS ACCOUNTS".

(2) The table of sections for chapter 77 of such Code is amended by inserting after the item relating to section 7529 the following new item:

"Sec. 7530. Small Business Start-Up Savings Accounts.".

(f) EFFECTIVE DATE. — The amendments made by this section shall apply to taxable years beginning after December 31, 2019.