II 

109TH CONGRESS 

2D SESSION S. 2281 

To amend the Internal Revenue Code of 1986 to allow Americans to age 

with respect and dignity by providing tax incentives to assist them 

in preparing for the financial impact of their long-term care needs. 

IN THE SENATE OF THE UNITED STATES 

FEBRUARY 14, 2006 

Mr. SANTORUM 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 allow Americans to age with respect and dignity by providing tax 

incentives to assist them in preparing for the financial 

impact of their long-term care needs. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Aging with Respect 

5 and Dignity Act of 2005’’. 
2 

•S 2281 IS

1 SEC. 2. LONG-TERM CARE INSURANCE OR SERVICES PER2 MITTED TO BE OFFERED UNDER CAFETERIA 

3 PLANS AND FLEXIBLE SPENDING ARRANGE4 MENTS. 

5 (a) CAFETERIA PLANS.—The last sentence of section 

6 125(f) of the Internal Revenue Code of 1986 (defining 

7 qualified benefits) is amended by inserting before the pe8 riod at the end ‘‘; except that such term shall include the 

9 payment of premiums for any qualified long-term care in10 surance contract (as defined in section 7702B) to the ex11 tent the amount of such payment does not exceed the eligi12 ble long-term care premiums (as defined in section 

13 213(d)(10)) for such contract’’. 

14 (b) FLEXIBLE SPENDING ARRANGEMENTS.—So 

15 much of section 106(c) of such Code as precedes para16 graph (2) thereof is amended to read as follows: 

17 ‘‘(c) RULES RELATING TO LONG-TERM CARE BENE18 FITS PROVIDED THROUGH FLEXIBLE SPENDING AR19 RANGEMENTS.— 

20 ‘‘(1) IN GENERAL.—For purposes of subsection 

21 (a), in the case of employer-provided coverage for 

22 qualified long-term care services provided through a 

23 flexible spending or similar arrangement— 

24 ‘‘(A) such coverage shall be treated as pro25 vided under an accident or health plan, and 
3 

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1 ‘‘(B) if such services are provided to an in2 dividual who bears a relationship described in 

3 section 152(d)(2) (other than subparagraph (H) 

4 thereof) to the employee, such services shall be 

5 treated as provided to a dependent of the em6 ployee without regard to whether the individual 

7 is treated as a dependent of the employee under 

8 section 152(a).’’. 

9 (c) EFFECTIVE DATE.—The amendments made by 

10 this section shall apply to taxable years beginning after 

11 December 31, 2005. 

12 SEC. 3. DEDUCTION FOR CONTRIBUTIONS TO LONG-TERM 

13 CARE ACCOUNTS. 

14 (a) IN GENERAL.—Part VII of subchapter B of chap15 ter 1 of the Internal Revenue Code of 1986 (relating to 

16 additional itemized deductions for individuals) is amended 

17 by redesignating section 224 as section 225 and by adding 

18 at the end the following new section: 

19 ‘‘SEC. 224. LONG-TERM CARE ACCOUNTS. 

20 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi21 vidual, there shall be allowed as a deduction for the tax22 able year an amount equal to the aggregate amount paid 

23 in cash during such taxable year by or on behalf of such 

24 individual to a long-term care account with respect to 

25 which the individual is the account beneficiary. 
4 

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1 ‘‘(b) LIMITATIONS.— 

2 ‘‘(1) DOLLAR LIMITATION.— 

3 ‘‘(A) IN GENERAL.—The aggregate 

4 amount allowable as a deduction under sub5 section (a) for any taxable year with respect to 

6 any individual shall not exceed $5,000. 

7 ‘‘(B) INFLATION ADJUSTMENT.—In the 

8 case of any taxable year beginning in a calendar 

9 year after 2007, the $5,000 amount under sub10 paragraph (A) shall be increased by an amount 

11 equal to— 

12 ‘‘(i) such dollar amount, multiplied by 

13 ‘‘(ii) the medical care cost adjustment 

14 under section 213(d)(10)(B)(ii) for the cal15 endar year in which the taxable year be16 gins, determined by substituting ‘2006’ for 

17 ‘1996’ in subclause (II) thereof. 

18 If any amount as adjusted under the preceding 

19 sentence is not a multiple of $10, such amount 

20 shall be rounded to the next lowest multiple of 

21 $10. 

22 ‘‘(2) DENIAL OF DEDUCTION TO DEPEND23 ENTS.—No deduction shall be allowed under this 

24 section with respect to any individual with respect to 

25 whom a deduction under section 151 is allowable to 
5 

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1 another taxpayer for a taxable year beginning in the 

2 calendar year in which the individual’s taxable year 

3 begins. 

4 ‘‘(c) LONG-TERM CARE ACCOUNT.—For purposes of 

5 this section, the term ‘long-term care account’ means a 

6 trust which is created or organized in the United States 

7 for the exclusive benefit of the individual who is the ac8 count beneficiary of the trust and members of the individ9 ual’s family and which is designated (in such manner as 

10 the Secretary shall prescribe) at the time of the establish11 ment of the trust as a long-term care account, but only 

12 if the written governing instrument creating the trust 

13 meets the following requirements: 

14 ‘‘(1) Except in the case of a qualified rollover 

15 contribution described in subsection (e)(5)— 

16 ‘‘(A) no contribution will be accepted un17 less it is in cash, and 

18 ‘‘(B) contributions will not be accepted for 

19 the calendar year in excess of the limit specified 

20 in subsection (b)(1). 

21 ‘‘(2) The trustee is a bank (as defined in sec22 tion 408(n)), an insurance company (as defined in 

23 section 816), or another person who demonstrates to 

24 the satisfaction of the Secretary that the manner in 

25 which that person will administer the trust will be 
6 

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1 consistent with the requirements of this section or 

2 who has so demonstrated with respect to any indi3 vidual retirement plan. 

4 ‘‘(3) No part of the trust assets will be invested 

5 in life insurance contracts. 

6 ‘‘(4) The interest of an individual in the bal7 ance of his account is nonforfeitable. 

8 ‘‘(5) The assets of the trust shall not be com9 mingled with other property except in a common 

10 trust fund or common investment fund. 

11 ‘‘(d) TAX TREATMENT OF ACCOUNTS.— 

12 ‘‘(1) IN GENERAL.—A long-term care account 

13 shall be exempt from taxation under this subtitle. 

14 Notwithstanding the preceding sentence, such ac15 count shall be subject to the taxes imposed by sec16 tion 511 (relating to imposition of tax on unrelated 

17 business income of charitable organizations). 

18 ‘‘(2) ACCOUNT TERMINATIONS.—Rules similar 

19 to the rules under paragraphs (2) and (4) of section 

20 408(e) shall apply to long-term care accounts, and 

21 any amount treated as distributed under such rules 

22 shall be treated as not used to pay for qualified 

23 long-term care expenses. 

24 ‘‘(e) TAX TREATMENT OF DISTRIBUTIONS.— 
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1 ‘‘(1) AMOUNTS USED FOR QUALIFIED LONG2 TERM CARE EXPENSES.—Any amount paid or dis3 tributed out of a long-term care account which is 

4 used exclusively to pay qualified long-term care ex5 penses of the account beneficiary or any member of 

6 the beneficiary’s family shall not be includible in 

7 gross income. 

8 ‘‘(2) INCLUSION OF AMOUNTS NOT USED FOR

9 QUALIFIED LONG-TERM CARE EXPENSES.—Any 

10 amount paid or distributed out of a long-term care 

11 account which is not used exclusively to pay the 

12 qualified long-term care expenses of the account ben13 eficiary or any member of the beneficiary’s family 

14 shall be included in the gross income of such bene15 ficiary. 

16 ‘‘(3) EXCESS CONTRIBUTIONS RETURNED BE17 FORE DUE DATE OF RETURN.— 

18 ‘‘(A) IN GENERAL.—If any excess con19 tribution is contributed for a taxable year to 

20 any long-term care account of an individual, 

21 paragraph (2) shall not apply to distributions 

22 from the long-term care accounts of such indi23 vidual (to the extent such distributions do not 

24 exceed the aggregate excess contributions to all 
8 

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1 such accounts of such individual for such year) 

2 if— 

3 ‘‘(i) such distribution is received by 

4 the individual on or before the last day 

5 prescribed by law (including extensions of 

6 time) for filing such individual’s return for 

7 such taxable year, and 

8 ‘‘(ii) such distribution is accompanied 

9 by the amount of net income attributable 

10 to such excess contribution. 

11 Any net income described in clause (ii) shall be 

12 included in the gross income of the individual 

13 for the taxable year in which it is received. 

14 ‘‘(B) EXCESS CONTRIBUTION.—For pur15 poses of subparagraph (A), the term ‘excess 

16 contribution’ means any contribution (other 

17 than a rollover contribution described in para18 graph (5)) which is not deductible under this 

19 section. 

20 ‘‘(4) ADDITIONAL TAX ON DISTRIBUTIONS NOT

21 USED FOR QUALIFIED LONG-TERM EXPENSES.— 

22 ‘‘(A) IN GENERAL.—The tax imposed by 

23 this chapter on the account beneficiary for any 

24 taxable year in which there is a payment or dis25 tribution from a long-term care account of such 
9 

•S 2281 IS

1 beneficiary which is includible in gross income 

2 under paragraph (2) shall be increased by 10 

3 percent of the amount which is so includible. 

4 ‘‘(B) EXCEPTION FOR DISABILITY OR

5 DEATH.—Subparagraph (A) shall not apply if 

6 the payment or distribution is made after the 

7 account beneficiary becomes disabled within the 

8 meaning of section 72(m)(7) or dies. 

9 ‘‘(5) ROLLOVER CONTRIBUTION.— 

10 ‘‘(A) IN GENERAL.—An amount is a roll11 over contribution described in this paragraph if 

12 it meets the requirements of subparagraphs (B) 

13 and (C). 

14 ‘‘(B) PAYMENT TO OTHER ACCOUNT.— 

15 Paragraph (2) shall not apply to any amount 

16 paid or distributed from a long-term care ac17 count to the account beneficiary to the extent 

18 the amount received is paid into a long-term 

19 care account for the benefit of such beneficiary 

20 not later than the 60th day after the day on 

21 which the beneficiary receives the payment or 

22 distribution. 

23 ‘‘(C) LIMITATION.—This paragraph shall 

24 not apply to any amount described in subpara25 graph (B) received by an individual from a 
10 

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1 long-term care account if, at any time during 

2 the 1-year period ending on the day of such re3 ceipt, such individual received any other amount 

4 described in subparagraph (B) from a long5 term care account which was not includible in 

6 the individual’s gross income because of the ap7 plication of this paragraph. 

8 ‘‘(6) COORDINATION WITH MEDICAL EXPENSE

9 DEDUCTION.—For purposes of determining the 

10 amount of the deduction under section 213, any pay11 ment or distribution out of a long-term care account 

12 for qualified long-term care expenses shall not be 

13 treated as an expense paid for medical care. 

14 ‘‘(7) TRANSFER OF ACCOUNT INCIDENT TO DI15 VORCE.—The transfer of an individual’s interest in 

16 a long-term care account to an individual’s spouse or 

17 former spouse under a divorce or separation instru18 ment described in subparagraph (A) of section 

19 71(b)(2) shall not be considered a taxable transfer 

20 made by such individual notwithstanding any other 

21 provision of this subtitle, and such interest shall, 

22 after such transfer, be treated as a long-term care 

23 account with respect to which such spouse is the ac24 count beneficiary. 
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1 ‘‘(8) TREATMENT AFTER DEATH OF ACCOUNT

2 BENEFICIARY.— 

3 ‘‘(A) TREATMENT IF DESIGNATED BENE4 FICIARY IS SPOUSE.—If the account 

5 beneficiary‘s surviving spouse acquires such 

6 beneficiary’s interest in a long-term care ac7 count by reason of being the beneficiary of such 

8 account at the death of the account beneficiary, 

9 such account shall be treated as if the spouse 

10 were the account beneficiary. 

11 ‘‘(B) OTHER CASES.— 

12 ‘‘(i) IN GENERAL.—If, by reason of 

13 the death of the account beneficiary, any 

14 person acquires the account beneficiary’s 

15 interest in a long-term care account in a 

16 case to which subparagraph (A) does not 

17 apply— 

18 ‘‘(I) such account shall cease to 

19 be a long-term care account as of the 

20 date of death, and 

21 ‘‘(II) an amount equal to the fair 

22 market value of the assets in such ac23 count on such date shall be includible 

24 in such person’s gross income for the 

25 taxable year which includes such date 
12 

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1 if such person is not the estate of 

2 such beneficiary, or shall be includible 

3 in such beneficiary’s gross income for 

4 the last taxable year of such bene5 ficiary if such person is the estate of 

6 such beneficiary. 

7 ‘‘(ii) SPECIAL RULES.— 

8 ‘‘(I) REDUCTION OF INCLUSION

9 FOR PREDEATH EXPENSES.—The 

10 amount includible in gross income 

11 under clause (i) by any person (other 

12 than the estate) shall be reduced by 

13 the amount of qualified long-term care 

14 expenses which were incurred by the 

15 decedent before the date of the dece16 dent’s death and paid by such person 

17 within 1 year after such date. 

18 ‘‘(II) DEDUCTION FOR ESTATE

19 TAXES.—An appropriate deduction 

20 shall be allowed under section 691(c) 

21 to any person (other than the dece22 dent or the decedent’s spouse) with 

23 respect to amounts included in gross 

24 income under clause (i) by such per25 son. 
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•S 2281 IS

1 ‘‘(9) GIFT TAX EXCEPTION.—A distribution to 

2 a member of the account beneficiary’s family which 

3 is not includible in gross income under paragraph 

4 (1) shall in no event be treated as a taxable gift for 

5 purposes of chapters 12 and 13. 

6 ‘‘(10) OPERATING RULES.—For purposes of ap7 plying section 72— 

8 ‘‘(A) to the extent provided by the Sec9 retary, all long-term care accounts of which an 

10 individual is an account beneficiary shall be 

11 treated as one account, 

12 ‘‘(B) except to the extent provided by the 

13 Secretary, all distributions during a taxable 

14 year shall be treated as one distribution, and 

15 ‘‘(C) except to the extent provided by the 

16 Secretary, the value of the contract, income on 

17 the contract, and investment in the contract 

18 shall be computed as of the close of the cal19 endar year in which the taxable year begins. 

20 ‘‘(f) DEFINITIONS AND SPECIAL RULES.—For pur21 poses of this section— 

22 ‘‘(1) ACCOUNT BENEFICIARY.—The term ‘ac23 count beneficiary’ means the individual on whose be24 half the long-term care account was established. 
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1 ‘‘(2) QUALIFIED LONG-TERM CARE EX2 PENSES.—The term ‘qualified long-term care ex3 penses’ means any amount paid or incurred— 

4 ‘‘(A) for premiums for any qualified long5 term care insurance contract (as defined in sec6 tion 7702B) to the extent the amount of such 

7 payment does not exceed the eligible long-term 

8 care premiums (as defined in section 

9 213(d)(10)) for such contract, or 

10 ‘‘(B) for qualified long-term care services 

11 (as defined in section 7702B(c)) unless such 

12 payment is not treated as paid for medical care 

13 under section 213(d)(11). 

14 ‘‘(3) MEMBER OF THE FAMILY.—The term 

15 ‘member of the family’ means, with respect to any 

16 account beneficiary, an individual who bears a rela17 tionship described in section 152(d)(2) (other than 

18 subparagraph (H) thereof) to the beneficiary. 

19 ‘‘(4) OTHER RULES.—Rules similar to the rules 

20 described in section 223(d)(4) shall apply. 

21 ‘‘(g) CUSTODIAL ACCOUNTS.—For purposes of this 

22 section, a custodial account or an annuity contract issued 

23 by an insurance company qualified to do business in a 

24 State shall be treated as a trust under this section if— 
15 

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1 ‘‘(1) the custodial account or annuity contract 

2 would, except for the fact that it is not a trust, con3 stitute a trust which meets the requirements of sub4 section (b), and 

5 ‘‘(2) in the case of a custodial account, the as6 sets of such account are held by a bank (as defined 

7 in section 408(n)) or another person who dem8 onstrates, to the satisfaction of the Secretary, that 

9 the manner in which the person will administer the 

10 account will be consistent with the requirements of 

11 this section. 

12 For purposes of this title, in the case of a custodial ac13 count or annuity contract treated as a trust by reason of 

14 the preceding sentence, the person holding the assets of 

15 such account or holding such annuity contract shall be 

16 treated as the trustee thereof. 

17 ‘‘(h) REPORTS.—The trustee of a long-term care ac18 count shall make such reports regarding such account to 

19 the Secretary and to the beneficiary of the account with 

20 respect to contributions, distributions, and such other 

21 matters as the Secretary may require. The reports re22 quired by this subsection shall be filed at such time and 

23 in such manner and furnished to such individuals at such 

24 time and in such manner as may be required.’’. 
16 

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1 (b) DEDUCTION ALLOWED IN DETERMINING AD2 JUSTED GROSS INCOME.—Section 62(a) of the Internal 

3 Revenue Code of 1986 (defining adjusted gross income) 

4 is amended by adding at the end the following: 

5 ‘‘(21) LONG-TERM CARE ACCOUNTS.—The de6 duction allowed by section 224.’’ 

7 (c) TAX ON EXCESS CONTRIBUTIONS.— 

8 (1) IN GENERAL.—Subsection (a) of section 

9 4973 of the Internal Revenue Code of 1986 (relating 

10 to tax on excess contributions to certain tax-favored 

11 accounts and annuities) is amended by striking ‘‘or’’ 

12 at the end of paragraph (4), by inserting ‘‘or’’ at the 

13 end of paragraph (5), and by inserting after para14 graph (5) the following new paragraph: 

15 ‘‘(6) a long-term care account (as defined in 

16 section 224(c)),’’. 

17 (2) EXCESS CONTRIBUTION.—Section 4973 of 

18 such Code is amended by adding at the end the fol19 lowing new subsection: 

20 ‘‘(h) EXCESS CONTRIBUTIONS TO LONG-TERM CARE

21 ACCOUNTS.—For purposes of this section— 

22 ‘‘(1) IN GENERAL.—In the case of long-term 

23 care accounts (within the meaning of section 

24 224(c)), the term ‘excess contributions’ means the 

25 sum of— 
17 

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1 ‘‘(A) the amount by which the amount con2 tributed for the calendar year to such accounts 

3 (other than qualified rollover contributions (as 

4 defined in section 224(e)(5)) exceeds the con5 tribution limit under section 224(b)(1), and 

6 ‘‘(B) the amount determined under this 

7 subsection for the preceding calendar year, re8 duced by the excess (if any) of the maximum 

9 amount allowable as a contribution under sec10 tion 224(b)(1) for the calendar year over the 

11 amount contributed to the accounts for the cal12 endar year. 

13 ‘‘(2) SPECIAL RULE.—A contribution which is 

14 distributed out of a long-term care account in a dis15 tribution to which section 224(e)(3) applies shall not 

16 be taken into account under paragraph (1).’’. 

17 (d) FAILURE TO PROVIDE REPORTS ON LONG-TERM

18 CARE ACCOUNTS.—Paragraph (2) of section 6693(a) of 

19 the Internal Revenue Code of 1986 (relating to failure to 

20 provide reports on individual retirement accounts or annu21 ities) is amended by redesignating subparagraphs (D) and 

22 (E) as subparagraphs (E) and (F), respectively, and by 

23 inserting after subparagraph (C) the following new sub24 paragraph: 
18 

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1 ‘‘(D) section 224(h) (relating to long-term 

2 care accounts),’’. 

3 (e) CONFORMING AMENDMENT.—The table of sec4 tions for part VII of subchapter B of chapter 1 of the 

5 Internal Revenue Code of 1986 is amended by striking the 

6 item relating to section 224 and inserting the following 

7 new items: 

‘‘Sec. 224. Long-term care accounts. 

‘‘Sec. 225. Cross reference.’’. 

8 (f) EFFECTIVE DATE.—The amendments made by 

9 this section shall apply to taxable years beginning after 

10 December 31, 2005. 

11 SEC. 4. TREATMENT OF ANNUITY AND LIFE INSURANCE 

12 CONTRACTS WITH A LONG-TERM CARE IN13 SURANCE FEATURE. 

14 (a) EXCLUSION FROM GROSS INCOME.—Subsection 

15 (e) of section 72 of the Internal Revenue Code of 1986 

16 (relating to amounts not received as annuities) is amended 

17 by redesignating paragraph (11) as paragraph (12) and 

18 by inserting after paragraph (10) the following new para19 graph: 

20 ‘‘(11) SPECIAL RULES FOR CERTAIN COMBINA21 TION CONTRACTS PROVIDING LONG-TERM CARE IN22 SURANCE.—Notwithstanding paragraphs (2), (5)(C), 

23 and (10), in the case of any charge against the cash 

24 value of an annuity contract or the cash surrender 
19 

•S 2281 IS

1 value of a life insurance contract made as payment 

2 for coverage under a qualified long-term care insur3 ance contract which is part of or a rider on such an4 nuity or life insurance contract— 

5 ‘‘(A) the investment in the contract shall 

6 be reduced (but not below zero) by such charge, 

7 and 

8 ‘‘(B) such charge shall not be includible in 

9 gross income.’’. 

10 (b) TAX-FREE EXCHANGES AMONG CERTAIN INSUR11 ANCE POLICIES.— 

12 (1) ANNUITY CONTRACTS CAN INCLUDE QUALI13 FIED LONG-TERM CARE INSURANCE RIDERS.—Para14 graph (2) of section 1035(b) of such Code is amend15 ed by adding at the end the following new sentence: 

16 ‘‘For purposes of the preceding sentence, a contract 

17 shall not fail to be treated as an annuity contract 

18 solely because a qualified long-term care insurance 

19 contract is a part of or a rider on such contract.’’. 

20 (2) LIFE INSURANCE CONTRACTS CAN INCLUDE

21 QUALIFIED LONG-TERM CARE INSURANCE RIDERS.— 

22 Paragraph (3) of section 1035(b) of such Code is 

23 amended by adding at the end the following new 

24 sentence: ‘‘For purposes of the preceding sentence, 

25 a contract shall not fail to be treated as a life insur-
20 

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1 ance contract solely because a qualified long-term 

2 care insurance contract is a part of or a rider on 

3 such contract.’’. 

4 (3) EXPANSION OF TAX-FREE EXCHANGES OF

5 LIFE INSURANCE, ENDOWMENT, AND ANNUITY CON6 TRACTS FOR LONG-TERM CARE CONTRACTS.—Sub7 section (a) of section 1035 of such Code (relating to 

8 certain exchanges of insurance policies) is amend9 ed— 

10 (A) in paragraph (1) by striking ‘‘con11 tract;’’ and inserting ‘‘contract or for a quali12 fied long-term care insurance contract;’’, 

13 (B) in paragraph (2) by striking ‘‘con14 tract;’’ and inserting ‘‘contract, or (C) for a 

15 qualified long-term care insurance contract;’’, 

16 and 

17 (C) in paragraph (3) by striking ‘‘con18 tract.’’ and inserting ‘‘contract or for a quali19 fied long-term care insurance contract.’’. 

20 (4) TAX-FREE EXCHANGES OF QUALIFIED

21 LONG-TERM CARE INSURANCE CONTRACT.—Sub22 section (a) of section 1035 of such Code (relating to 

23 certain exchanges of insurance policies) is amended 

24 by striking ‘‘or’’ at the end of paragraph (2), by 

25 striking the period at the end of paragraph (3) and 
21 

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1 inserting ‘‘; or’’, and by inserting after paragraph 

2 (3) the following new paragraph: 

3 ‘‘(4) a qualified long-term care insurance con4 tract for a qualified long-term care insurance con5 tract.’’. 

6 (c) TREATMENT OF COVERAGE PROVIDED AS PART

7 OF A LIFE INSURANCE OR ANNUITY CONTRACT.—Sub8 section (e) of section 7702B of such Code (relating to 

9 treatment of qualified long-term care insurance) is amend10 ed to read as follows: 

11 ‘‘(e) TREATMENT OF COVERAGE PROVIDED AS PART

12 OF A LIFE INSURANCE OR ANNUITY CONTRACT.— 

13 ‘‘(1) COVERAGE TREATED AS CONTRACT.—Ex14 cept as otherwise provided in regulations prescribed 

15 by the Secretary, in the case of any long-term care 

16 insurance coverage (whether or not qualified) pro17 vided by a rider on or as part of a life insurance 

18 contract or an annuity contract, this title shall apply 

19 as if the portion of the contract providing such cov20 erage is a separate contract. 

21 ‘‘(2) DENIAL OF DEDUCTION UNDER SECTION

22 213.—No deduction shall be allowed under section 

23 213(a) for any payment made for coverage under a 

24 qualified long-term care insurance contract if such 

25 payment is made as a charge against the cash value 
22 

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1 of an annuity contract or the cash surrender value 

2 of a life insurance contract. 

3 ‘‘(3) APPLICATION OF SECTION 7702.—Section 

4 7702(c)(2) (relating to the guideline premium limi5 tation) shall be applied by increasing the guideline 

6 premium limitation with respect to the life insurance 

7 contract, as of any date— 

8 ‘‘(A) by the sum of any charges (but not 

9 premium payments) against the life insurance 

10 contract’s cash surrender value (within the 

11 meaning of section 7702(f)(2)(A)) for coverage 

12 under the qualified long-term care insurance 

13 contract made to that date under the life insur14 ance contract, less 

15 ‘‘(B) any such charges the imposition of 

16 which reduces the premiums paid for the life in17 surance contract (within the meaning of section 

18 7702(f)(1)). 

19 This paragraph shall not apply to any charges de20 scribed in subparagraph (A) which are otherwise 

21 taken into account in computing the guideline pre22 mium limitation by reason of section 

23 7702(f)(5)(A)(v). 

24 ‘‘(4) PORTION DEFINED.—For purposes of this 

25 subsection, the term ‘portion’ means only the terms 
23 

•S 2281 IS

1 and benefits under a life insurance contract or annu2 ity contract that are in addition to the terms and 

3 benefits under the contract without regard to long4 term care insurance coverage. 

5 ‘‘(5) ANNUITY CONTRACTS TO WHICH PARA6 GRAPH (1) DOES NOT APPLY.—For purposes of this 

7 subsection, none of the following shall be treated as 

8 an annuity contract: 

9 ‘‘(A) A trust described in section 401(a) 

10 which is exempt from tax under section 501(a). 

11 ‘‘(B) A contract— 

12 ‘‘(i) purchased by a trust described in 

13 subparagraph (A), 

14 ‘‘(ii) purchased as part of a plan de15 scribed in section 403(a), 

16 ‘‘(iii) described in section 403(b), 

17 ‘‘(iv) provided for employees of a life 

18 insurance company under a plan described 

19 in section 818(a)(3), or 

20 ‘‘(v) from an individual retirement ac21 count or an individual retirement annuity. 

22 ‘‘(C) A contract purchased by an employer 

23 for the benefit of the employee (or the employ24 ee’s spouse). 
24 

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1 Any dividend described in section 404(k) which is 

2 received by a participant or beneficiary shall, for 

3 purposes of this paragraph, be treated as paid under 

4 a separate contract to which subparagraph (B)(i) 

5 applies.’’. 

6 (d) INFORMATION REPORTING.— 

7 (1) Subpart B of part III of subchapter A of 

8 chapter 61 of such Code (relating to information 

9 concerning transactions with other persons) is 

10 amended by adding at the end the following new sec11 tion: 

12 ‘‘SEC. 6050U. CHARGES OR PAYMENTS FOR QUALIFIED 

13 LONG-TERM CARE INSURANCE CONTRACTS 

14 UNDER COMBINED ARRANGEMENTS. 

15 ‘‘(a) REQUIREMENT OF REPORTING.—Any person 

16 who makes a charge against the cash value of an annuity 

17 contract, or the cash surrender value of a life insurance 

18 contract, which is excludable from gross income under sec19 tion 72(e)(11) shall make a return, according to the forms 

20 or regulations prescribed by the Secretary, setting forth— 

21 ‘‘(1) the amount of the aggregate of such 

22 charges against each such contract for the calendar 

23 year, 
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•S 2281 IS

1 ‘‘(2) the amount of the reduction in the invest2 ment in each such contract by reason of such 

3 charges, and 

4 ‘‘(3) the name, address, and TIN of the indi5 vidual who is the holder of each such contract. 

6 ‘‘(b) STATEMENTS TO BE FURNISHED TO PERSONS

7 WITH RESPECT TO WHOM INFORMATION IS REQUIRED.— 

8 Every person required to make a return under subsection 

9 (a) shall furnish to each individual whose name is required 

10 to be set forth in such return a written statement show11 ing— 

12 ‘‘(1) the name, address, and phone number of 

13 the information contact of the person making the 

14 payments, and 

15 ‘‘(2) the information required to be shown on 

16 the return with respect to such individual. 

17 The written statement required under the preceding sen18 tence shall be furnished to the individual on or before Jan19 uary 31 of the year following the calendar year for which 

20 the return under subsection (a) was required to be made.’’. 

21 (2) CLERICAL AMENDMENT.—The table of sec22 tions for subpart B of part III of subchapter A of 

23 such chapter 61 of such Code is amended by adding 

24 at the end the following new item: 

‘‘Sec. 6050U. Charges or payments for qualified long-term care insurance contracts under combined arrangements’’. 
26 

•S 2281 IS

1 (e) TREATMENT OF POLICY ACQUISITION EX2 PENSES.—Subsection (e) of section 848 of such Code (re3 lating to classification of contracts) is amended by adding 

4 at the end the following new paragraph: 

5 ‘‘(6) TREATMENT OF CERTAIN QUALIFIED

6 LONG-TERM CARE INSURANCE CONTRACT ARRANGE7 MENTS.—An annuity or life insurance contract 

8 which includes a qualified long-term care insurance 

9 contract as a part of or a rider on such annuity or 

10 life insurance contract shall be treated as a specified 

11 insurance contract not described in subparagraph 

12 (A) or (B) of subsection (c)(1).’’. 

13 (f) APPLICATION TO OTHER DEFINITIONS AND

14 RULES.—Section 7702(f) of such Code (relating to other 

15 definitions and special rules) is amended 

16 (1) in paragraph (1), by inserting ‘‘(other than 

17 paragraph (11) thereof)’’ after ‘‘section 72(e)’’, and 

18 (2) in paragraph (5)(A), by striking ‘‘or’’ at the 

19 end of clause (iv), by redesignating clause (v) as 

20 clause (vi), and by inserting after clause (iv) the fol21 lowing new clause: 

22 ‘‘(v) qualified long-term care insur23 ance contract which is a part of or a rider 

24 on the life insurance contract, or’’. 

25 (g) EFFECTIVE DATES.— 
27 

•S 2281 IS

1 (1) IN GENERAL.—Except as provided by para2 graph (2), the amendments made by this section 

3 shall apply to contracts issued before, on, or after 

4 December 31, 2005, but only with respect to periods 

5 beginning after such date. 

6 (2) SUBSECTION (b).—The amendments made 

7 by subsection (b) shall apply with respect to ex8 changes occurring after December 31, 2005. 

Æ