To provide for rollover treatment to traditional IRAs of amounts received in airline carrier bankruptcy.

Summary: Allows a current or former employee of a commercial passenger airline who receives a payment of any money or other property payable by an airline pursuant to a court order filed in a bankruptcy case after September 11, 2001, and before January 1, 2007 (airline payment amount), to: (1) make a tax-free rollover of such amount to a traditional individual retirement account (IRA) within 180 days of receipt (or within 180 days of the enactment of this Act, if later); and (2) transfer, without tax penalty, an airline payment amount contributed to a Roth IRA to a traditional IRA if such transfer is made within 180 days after the enactment of this Act. Excludes from the gross income of an airline employee amounts transferred to a traditional IRA under this Act. Imposes a limit on the aggregate amount transferrable to a traditional IRA.

SECTION 1. ROLLOVER OF AMOUNTS RECEIVED IN AIRLINE CARRIER BANKRUPTCY.

    (a) General Rules.--
            (1) Rollover of airline payment amount.--If a qualified 
        airline employee receives any airline payment amount and 
        transfers any portion of such amount to a traditional IRA 
        within 180 days of receipt of such amount (or, if later, within 
        180 days of the date of the enactment of this Act), then such 
        amount (to the extent so transferred) shall be treated as a 
        rollover contribution described in section 402(c) of the 
        Internal Revenue Code of 1986. A qualified airline employee 
        making such a transfer may exclude from gross income the amount 
        transferred, in the taxable year in which the airline payment 
        amount was paid to the qualified airline employee by the 
        commercial passenger airline carrier.
            (2) Transfer or amounts attributable to airline payment 
        amount following rollover to roth ira.--A qualified, airline 
        employee who has contributed an airline payment amount to a 
        Roth IRA that is treated as a qualified rollover contribution 
        pursuant to section 125 of the Worker, Retiree, and Employer 
        Recovery Act of 2008, may transfer to a traditional IRA, in a 
        trustee-to-trustee transfer, all or any part of the 
        contribution (together with any net income allocable to such 
        contribution), and the transfer to the traditional IRA will be 
        deemed to have been made at the time of the rollover to the 
        Roth IRA, if such transfer is made within 180 days of the date 
        of the enactment of this Act. A qualified airline employee 
        making such a transfer may exclude from gross income the 
        airline payment amount previously rolled over to the Roth IRA, 
        to the extent an amount attributable to the previous rollover 
        was transferred to a traditional IRA, in the taxable year in 
        which the airline payment amount was paid to the qualified 
        airline employee by the commercial passenger airline carrier. 
        No amount so transferred to a traditional IRA may be treated as 
        a qualified rollover contribution with respect to a Roth IRA 
        within the 5-taxable year period beginning with the taxable 
        year in which such transfer was made.
            (3) Extension of time to file claim for refund.--A 
        qualified airline employee who excludes an amount from gross 
        income in a prior taxable year under paragraph (1) or (2) may 
        reflect such exclusion in a claim for refund filed within the 
        period of limitation under section 6511(a) of such Code (or, if 
        later, April 15, 2013).
            (4) Overall limitation on amounts transferred to 
        traditional iras.--
                    (A) In general.--The aggregate amount of airline 
                payment amounts which may be transferred to 1 or more 
                traditional IRAs under paragraphs (1) and (2) with 
                respect to any qualified employee for any taxable year 
                shall not exceed the excess (if any) of--
                            (i) 90 percent of the aggregate airline 
                        payment amounts received by the qualified 
                        airline employee during the taxable year and 
                        all preceding taxable years, over
                            (ii) the aggregate amount of such transfers 
                        to which paragraphs (1) and (2) applied for all 
                        preceding taxable years.
                    (B) Special rules.--For purposes of applying the 
                limitation under subparagraph (A)--
                            (i) any airline payment amount received by 
                        the surviving spouse of any qualified employee, 
                        and any amount transferred to a traditional IRA 
                        by such spouse under subsection (d), shall be 
                        treated as an amount received or transferred by 
                        the qualified employee, and
                            (ii) any amount transferred to a 
                        traditional IRA which is attributable to net 
                        income described in paragraph (2) shall not be 
                        taken into account.
            (5) Covered executives not eligible to make transfers.--
        Paragraphs (1) and (2) shall not apply to any transfer by a 
        qualified airline employee (or any transfer authorized under 
        subsection (d) by a surviving spouse of the qualified airline 
        employee) if at any time during the taxable year of the 
        transfer or any preceding taxable year the qualified airline 
        employee held a position described in subparagraph (A) or (B) 
        of section 162(m)(3) with the commercial passenger airline 
        carrier from whom the airline payment amount was received.
    (b) Treatment of Airline Payment Amounts and Transfers for 
Employment Taxes.--For purposes of chapter 21 of the Internal Revenue 
Code of 1986 and section 209 of the Social Security Act, an airline 
payment amount shall not fail to be treated as a payment of wages by 
the commercial passenger airline carrier to the qualified airline 
employee in the taxable year of payment because such amount is excluded 
from the qualified airline employee's gross income under subsection 
(a).
    (c) Definitions and Special Rules.--For purposes of this section--
            (1) Airline payment amount.--
                    (A) In general.--The term ``airline payment 
                amount'' means any payment of any money or other 
                property which is payable by a commercial passenger 
                airline carrier to a qualified airline employee--
                            (i) under the approval of an order of a 
                        Federal bankruptcy court in a case filed after 
                        September 11, 2001, and before January 1, 2007, 
                        and
                            (ii) in respect of the qualified airline 
                        employee's interest in a bankruptcy claim 
                        against the carrier, any note of the carrier 
                        (or amount paid in lieu of a note being 
                        issued), or any other fixed obligation of the 
                        carrier to pay a lump sum amount.
                The amount of such payment shall be determined without 
                regard to any requirement to deduct and withhold tax 
                from such payment under sections 3102(a) of the 
                Internal Revenue Code of 1986 and 3402(a) of such Code.
                    (B) Exception.--An airline payment amount shall not 
                include any amount payable on the basis of the 
                carrier's future earnings or profits.
            (2) Qualified airline employee.--The term ``qualified 
        airline employee'' means an employee or former employee of a 
        commercial passenger airline carrier who was a participant in a 
        defined benefit plan maintained by the carrier which--
                    (A) is a plan described in section 401(a) of the 
                Internal Revenue Code of 1986 which includes a trust 
                exempt from tax under section 2501(a) of such Code, and
                    (B) was terminated or became subject to the 
                restrictions contained in paragraphs (2) and (3) of 
                section 402(b) of the Pension Protection Act of 2006.
            (3) Traditional ira.--The term ``traditional IRA'' means an 
        individual retirement plan (as defined in section 7701(a)(37) 
        of the Internal Revenue Code of 1986) which is not a Roth IRA.
            (4) Roth ira.--The term ``Roth IRA'' has the meaning given 
        such term by section 408A(b) of such Code.
    (d) Surviving Spouse.--If a qualified airline employee died after 
receiving an airline payment amount, or if an airline payment amount 
was paid to the surviving spouse of a qualified airline employee in 
respect of the qualified airline employee, the surviving spouse of the 
qualified airline employee may take all actions permitted under section 
125 of the Worker, Retiree, and Employer Recovery Act of 2008, or under 
this section, to the same extent that the qualified airline employee 
could have done had the qualified airline employee survived.
    (e) Effective Date.--This section shall apply to transfers made 
after the date of the enactment of this Act with respect to airline 
payment amounts paid before, on, or after such date.