To amend the Internal Revenue Code of 1986 to allow a deduction for contributions to a volunteer firefighter savings account.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Volunteer Firefighter's Relief 
Act''.

SEC. 2. DEDUCTION FOR CONTRIBUTIONS TO VOLUNTEER FIREFIGHTER SAVINGS 
              ACCOUNTS.

    (a) In General.--Part VII of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to additional itemized 
deductions for individuals) is amended by redesignating section 222 as 
section 223 and by inserting after section 221 the following new 
section:

``SEC. 222. CONTRIBUTIONS TO VOLUNTEER FIREFIGHTER SAVINGS ACCOUNTS.

    ``(a) Deduction Allowed.--
            ``(1) In general.--In the case of an individual who is a 
        qualified volunteer firefighter, there shall be allowed as a 
        deduction for the taxable year an amount equal to the 
        contributions of the individual to a volunteer firefighter 
        savings account of the individual for the taxable year.
            ``(2) Maximum annual amount.--The amount allowable as a 
        deduction under subsection (a) to any individual for a taxable 
        year shall not exceed $500.
    ``(b) Qualified Volunteer Firefighter.--For purposes of this 
section, the term `qualified volunteer firefighter' means an individual 
who, on the last day of the taxable year, is a member in good standing 
of a qualified volunteer fire department (as defined in section 
150(e)).
    ``(c) Volunteer Firefighter Savings Account.--For purposes of this 
section, the term `volunteer firefighter savings account' means a trust 
created or organized in the United States for the exclusive benefit of 
an individual and the individual's beneficiaries, but only if the 
written governing instrument creating the trust meets the following 
requirements:
            ``(1) No contribution will be accepted unless it is in 
        cash.
            ``(2) The trustee is a bank (as defined in section 408(n)) 
        or another person who demonstrates to the satisfaction of the 
        Secretary that the manner in which that person will administer 
        the trust will be consistent with the requirements of this 
        section.
            ``(3) No part of the trust assets 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) The interest of an individual in the balance of the 
        individual's account is nonforfeitable.
    ``(d) Tax Treatment of Distributions.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, any amount paid or distributed out of a volunteer 
        firefighter savings account shall be included in the gross 
        income of the payee or distributee for the taxable year in 
        which the payment or distribution is received in the manner 
        provided under section 72.
            ``(2) Excess contributions returned before due date of 
        return.--Paragraph (1) shall not apply to the distribution of 
        any contribution paid during a taxable year to a volunteer 
        firefighter savings account to the extent that such 
        contribution exceeds the amount allowable as a deduction under 
        subsection (a) if--
                    ``(A) such distribution is received on or before 
                the day prescribed by law (including extensions of 
                time) for filing such individual's return for such 
                taxable year,
                    ``(B) no deduction is allowed under subsection (a) 
                with respect to such excess contribution, and
                    ``(C) such distribution is accompanied by the 
                amount of net income attributable to such excess 
                contribution.
        Any net income described in subparagraph (C) shall be included 
        in the gross income of the individual for the taxable year in 
        which such excess contribution was made.
            ``(3) Rollover contributions.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                any amount paid or distributed to an account holder 
                from a volunteer firefighter savings account to the 
                extent that the amount received is paid into an 
                individual retirement plan (as defined in section 
                7701(37)) for the benefit of the account holder not 
                later than the 60th day after the day on which the 
                account holder receives the payment or distribution.
                    ``(B) Limitation.--Subparagraph (A) shall not apply 
                to any payment or distribution described in 
                subparagraph (A) if, at any time during the 1-year 
                period ending on the day of such receipt, such account 
                holder received any other amount described in 
                subparagraph (A) which was not includible in the 
                account holder's gross income because of the 
                application of subparagraph (A).
            ``(4) Investment in collectibles treated as 
        distributions.--Rules similar to the rules of section 408(m) 
        shall apply for purposes of this section.
    ``(e) Tax Treatment of Accounts.--
            ``(1) Exemption from tax.--A volunteer firefighter savings 
        account is exempt from taxation under this subtitle unless such 
        account has ceased to be a volunteer firefighter savings 
        account by reason of paragraph (2). Notwithstanding the 
        preceding sentence, any such account is subject to the taxes 
        imposed by section 511 (relating to imposition of tax on 
        unrelated business income of charitable, etc. organizations).
            ``(2) Loss of exemption of account where individual engages 
        in prohibited transaction.--
                    ``(A) In general.--If the individual for whose 
                benefit a volunteer firefighter savings account is 
                established or any individual who contributes to such 
                account engages in any transaction prohibited by 
                section 4975 with respect to the account, the account 
                shall cease to be a volunteer firefighter savings 
                account as of the first day of the taxable year (of the 
                individual so engaging in such transaction) during 
                which such transaction occurs.
                    ``(B) Account treated as distributing all its 
                assets.--In any case in which any account ceases to be 
                a volunteer firefighter savings account by reason of 
                subparagraph (A) as of the first day of any taxable 
                year, paragraph (1) of subsection (d) shall apply as if 
                there was a distribution on such first day in an amount 
                equal to the fair market value (on such first day) of 
                all assets in the account (on such first day).
            ``(3) Effect of pledging account as security.--If, during 
        any taxable year, the individual for whose benefit a volunteer 
        firefighter savings account is established uses the account or 
        any portion thereof as security for a loan, the portion so used 
        shall be treated as distributed to the individual so using such 
        portion.
    ``(f) Special Rules.--
            ``(1) Time when contributions deemed made.--A taxpayer 
        shall be deemed to have made a contribution to a volunteer 
        firefighter savings account on the last day of the preceding 
        taxable year if the contribution is made on account of such 
        taxable year and is made not later than the time prescribed by 
        law for filing the return for such taxable year (not including 
        extensions thereof).
            ``(2) Death and divorce.--Rules similar to the rules of 
        sections 401(a)(9), 401(a)(11), and 408(d)(6) shall apply for 
        purposes of this section.
            ``(3) Community property laws.--This section shall be 
        applied without regard to any community property laws.
    ``(g) Reports.--The trustee of a volunteer firefighter savings 
account shall make such reports regarding such account to the Secretary 
and to the account holder with respect to contributions, distributions, 
and such other matters as the Secretary may require under regulations. 
The reports required by this subsection shall be filed at such time and 
in such manner and furnished to such individuals at such time and in 
such manner as may be required by those regulations.''.
    (b) Allowance of Deduction in Computing Adjusted Gross Income.--
Subsection (a) of section 62 of such Code (defining adjusted gross 
income) is amended by inserting after paragraph (17) the following new 
paragraph:
            ``(18) Contributions to volunteer firefighter savings 
        accounts.--The deduction allowed by section 222(a).''.
    (c) Additional Tax on Early Distributions.--Subsection (t) of 
section 72 of such Code (relating to 10-percent additional tax on early 
distributions from qualified retirement plans) is amended--
            (1) in paragraph (1) by inserting ``or a volunteer 
        firefighter savings account (as defined in section 220(c))'' 
        after ``section 4974(c))'', and
            (2) in the heading by striking ``Qualified Retirement 
        Plans'' and inserting ``Certain Tax-Favored Plans''.
    (d) Tax on Excess Contributions.--Section 4973 of such Code 
(relating to tax on excess contributions to certain tax-favored 
accounts and annuities) is amended--
            (1) in subsection (a) by striking ``or'' at the end of 
        paragraph (3), by inserting ``or'' at the end of paragraph (4), 
        and by inserting after paragraph (4) the following new 
        paragraph:
            ``(5) a volunteer firefighter savings account (as defined 
        in section 222(c)),'', and
            (2) by adding at the end the following new subsection:
    ``(g) Excess Contributions to Volunteer Firefighter Savings 
Accounts.--For purposes of this section, in the case of a volunteer 
firefighter savings account, the term `excess contributions' means the 
sum of--
            ``(1) the aggregate amount contributed for the taxable year 
        to the account which is not allowable as a deduction under 
section 222 for such taxable year, and
            ``(2) the amount determined under this subsection for the 
        preceding taxable year, reduced by--
                    ``(A) the distributions out of the accounts which 
                were included in gross income under section 222(d)(1) 
                for the taxable year, over
                    ``(B) the amount contributed to the accounts for 
                the taxable year.
        For purposes of this subsection, any contribution which is 
        distributed out of the volunteer firefighter account in a 
        distribution to which section 222(d)(2) applies shall be 
        treated as an amount not contributed.''.
    (e) Tax on Prohibited Transactions.--Section 4975 of such Code 
(relating to prohibited transactions) is amended--
            (1) by adding at the end of subsection (c) the following 
        new paragraph:
            ``(6) Special rule for volunteer firefighter savings 
        accounts.--An individual for whose benefit a volunteer 
        firefighter 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, with 
        respect to such transaction, the account ceases to be a 
        volunteer firefighter savings account by reason of the 
        application of section 222 to such account.'', and
            (2) in subsection (e)(1) by striking ``or'' at the end of 
        subparagraph (E), by redesignating subparagraph (F) as 
        subparagraph (G), and by inserting after subparagraph (E) the 
        following new subparagraph:
                    ``(F) a volunteer firefighter savings account 
                described in section 222, or''.
    (f) Failure To Provide Reports on Volunteer Firefighter Savings 
Accounts.--Paragraph (2) of section 6693(a) of such Code (relating to 
failure to provide reports on certain tax-favored accounts or 
annuities) is amended by striking ``and'' at the end of subparagraph 
(C), by striking the period at the end of subparagraph (D) and 
inserting ``, and'', and by adding at the end the following new 
subparagraph:
                    ``(E) section 222(g) (relating to volunteer 
                firefighter savings accounts).''.
    (g) Conforming Amendments.--
            (1) Paragraph (1) of section 408(a) is amended by inserting 
        ``222(d)(3),'' before ``402(c)''.
            (2) The table of sections for part VII of subchapter B of 
        chapter 1 of such Code is amended by striking the item relating 
        to section 222 and inserting the following new items:

                              ``Sec. 222. Contributions to volunteer 
                                        firefighter savings accounts.
                              ``Sec. 223. Cross reference.''
    (h) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

Summary: Volunteer Firefighter's Relief Act - Amends the Internal Revenue Code to allow, for a volunteer firefighter, an annual deduction for contributions to a volunteer firefighter savings account.