H.R. 2576 - Incentivize Growth Now In Tomorrow's Entrepreneurs Act of 2017

115TH CONGRESS
1ST SESSION

H.R. 2576

To amend the Internal Revenue Code of 1986 to provide for the
tax treatment of small business start-up savings accounts.

IN THE HOUSE OF REPRESENTATIVES

MAY 19, 2017

Mr. SERRANO introduced the following bill; which was
referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to provide for the tax treatment of small business start-up savings accounts.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘‘Incentivize Growth Now In Tomorrow’s Entrepreneurs Act of 2017’’.

SEC. 2. SMALL BUSINESS START-UP SAVINGS ACCOUNTS.

a) IN GENERAL. — Subchapter F of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new part:

‘‘PART IX — SMALL BUSINESS START-UP SAVINGS ACCOUNTS

‘‘Sec. 530A. Small Business Start-Up Savings Accounts.

‘‘SEC. 530A. SMALL BUSINESS START-UP SAVINGS ACCOUNTS.

‘‘(a) GENERAL RULE. — 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).

‘‘(b) 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 making qualified start-up expenditures 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 (d)(4), no contribution will be accepted unless it is in cash, and contributions will not be accepted if such contribution would result in aggregate contributions for the taxable year not exceeding the lesser of —

‘‘(A) $10,000, or

‘‘(B) an amount equal to the compensation (as defined in section 219(f)(1)) includible in the individual’s gross income for such taxable year.

‘‘(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.

‘‘(c) QUALIFIED START-UP EXPENDITURES. — For purposes of this section —

‘‘(1) IN GENERAL. — The term ‘qualified startup expenditures’ has the meaning given such term by section 195.

‘‘(2) SPECIAL RULE FOR CORPORATION OR PARTNERSHIP INTERESTS. — Such term includes the taxpayer’s allocable share of qualified start-up expenditures of an entity in which the taxpayer directly holds stock or a capital or profits interest.

‘‘(3) EXCEPTION. — Such term shall not apply to any expenditures paid or incurred in a taxable year in connection with a trade or business if there is any day during the taxable year on which the number of full-time employees of the trade or business exceeds 50.

‘‘(d) TAX TREATMENT OF DISTRIBUTIONS. —

‘‘(1) IN GENERAL. — Any distribution shall be includible in the gross income of the distributee in the manner as provided in section 72.

‘‘(2) DISTRIBUTIONS FOR QUALIFIED START-UP EXPENDITURES. —

‘‘(A) IN GENERAL. — No amount shall be includible in gross income under paragraph (1) if the qualified start-up expenditures of the individual during the taxable year are not less than the aggregate distributions during the tax able 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 start-up expenditures bear to such aggregate distributions.

‘‘(C) 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 start-up expenditure to the extent taken into account in determining the amount of the exclusion under this paragraph.

‘‘(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 (1) 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 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 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 PRE-DEATH 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 start-up expenditures 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 or the decedent’s spouse) with respect to amounts included in gross income under clause (i) by such person.

‘‘(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 subsection (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 a small business start-up account described in subsection (a). 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) ADJUSTMENT FOR INFLATION. — In the case of a taxable year beginning after December 31, 2017, the dollar amount in subsection (b)(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 2016’ 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 (c)(2) the making reports by regarding qualified start-up expenditures of an entity in which the taxpayer directly holds stock or a capital or profits interest.’’.

(b) TAX ON PROHIBITED TRANSACTIONS. —

(1) IN GENERAL. — Paragraph (1) of section 4975(e) of such Code (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 small business start-up savings account described in section 530A, 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 530A(d)(1) applies with respect to such transaction or if such transaction is a qualified start-up expenditure (as defined in section 530A(c)).’’.

(c) FAILURE TO PROVIDE REPORTS ON SMALL BUSINESS START-UP SAVINGS ACCOUNTS. — Paragraph (2) of section 6693(a) of such Code 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 530A(h) (relating to small business start-up savings accounts).’’.

(d) EXCESS CONTRIBUTIONS. —

(1) TAX IMPOSED. — Section 4973(a) of such Code is amended by striking ‘‘or’’ at the end of paragraph (5), by inserting ‘‘or’’ at the end of paragraph (6), and by inserting after paragraph (6) the following:

‘‘(7) a small business start-up savings account (within the meaning of section 530A(b)),’’.

(2) EXCESS CONTRIBUTIONS TO SMALL BUSINESS START-UP SAVINGS ACCOUNTS DEFINED. — Section 4973 of such Code is amended by adding at the end the following new subsection:

‘‘(i) 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 530A(b)), 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 530A(d)(4)), over

‘‘(B) the amount allowable as a contribution under section 530A(b)(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 530A(b)(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 530A(d)(3) shall be treated as an amount not contributed.’’.

(e) CLERICAL AMENDMENT. — The table of contents for subchapter F of chapter 1 of such Code is amended by adding at the end the following new item:

‘‘PART IX. SMALL BUSINESS START-UP SAVINGS ACCOUNTS’’.

(f) EFFECTIVE DATE. — The amendments made by this section shall apply to taxable years beginning after December 31, 2016.