I 

108TH CONGRESS 

1ST SESSION H. R. 2591

To amend the Internal Revenue Code of 1986 to provide for Small Business 

Protection Accounts, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 24, 2003

Mr. PORTER introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committee on Small 

Business, for a period to be subsequently determined by the Speaker, in 

each case for consideration of such provisions as fall within the jurisdiction of the committee concerned 

A BILL

To amend the Internal Revenue Code of 1986 to provide 

for Small Business Protection Accounts, and for other 

purposes.

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 ‘‘Small Business Protec5 tion Act of 2003’’. 

6 SEC. 2. FINDINGS. 

7 Congress hereby finds that—
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1 (1) small businesses represent more than 99 

2 percent of all employers, 

3 (2) the majority of private sector employees 

4 work for small businesses, 

5 (3) more than half of all high-tech workers 

6 work for small businesses, 

7 (4) small businesses are responsible for the ma8 jority of net job creation in the United States, 

9 (5) more than 12 million small businesses are 

10 owned by women or minorities, 

11 (6) small businesses face unique challenges in 

12 accessing capital markets, 

13 (7) small businesses are exposed to more mar14 ket volatility than larger employers, 

15 (8) small businesses are hurt disproportionately 

16 by costs imposed by government regulations, and 

17 (9) small businesses are in need of reforms to 

18 the tax code that reflect these unique challenges. 

19 SEC. 3. PURPOSES. 

20 The purposes of this Act are—

21 (1) to provide employees salaries and benefits, 

22 and to help ensure solvency of small businesses dur23 ing times of recession, 

24 (2) to encourage the formation, growth, and 

25 survival of small businesses, 
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1 (3) to encourage opportunities for charitable 

2 giving by small businesses, and 

3 (4) to enable small businesses to stimulate the 

4 national economy through increased employment and 

5 capital generation. 

6 SEC. 4. SMALL BUSINESS PROTECTION ACCOUNTS. 

7 (a) IN GENERAL.—Subpart C of part II of sub8 chapter E of chapter 1 of the Internal Revenue Code of 

9 1986 (relating to taxable year for which deductions taken) 

10 is amended by inserting after section 468B the following: 

11 ‘‘SEC. 468C. SMALL BUSINESS PROTECTION ACCOUNTS. 

12 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi13 vidual engaged in an eligible small business, there shall 

14 be allowed as a deduction for any taxable year the amount 

15 paid in cash by the taxpayer during the taxable year to 

16 a Small Business Protection Account. 

17 ‘‘(b) LIMITATION.—

18 ‘‘(1) IN GENERAL.—The amount which a tax19 payer may pay into a Small Business Protection Ac20 count for any taxable year shall not exceed 50 per21 cent of so much of the net profit of the taxpayer 

22 (determined without regard to this section) which is 

23 attributable (determined in the manner applicable 

24 under section 1301) to any trade or business. 
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1 ‘‘(2) CARRYOVER OF EXCESS LIMITATION.—If 

2 the limitation under paragraph (1) for any taxable 

3 year exceeds the amount paid by the taxpayer to the 

4 taxpayer’s Small Business Protection Account for 

5 such year, the limitation under paragraph (1) for 

6 the following taxable year (determined without re7 gard to this paragraph) shall be increased by such 

8 excess. 

9 ‘‘(c) ELIGIBLE SMALL BUSINESS.—For purposes of 

10 this section, the term ‘eligible small business’ means any 

11 trade or business if—

12 ‘‘(1) such trade or business (or any predecessor 

13 thereof) meets the gross receipts test of section 

14 448(c) for all prior taxable years, 

15 ‘‘(2) such trade or business is not a passive ac16 tivity (within the meaning of section 469(c)) of the 

17 taxpayer, 

18 ‘‘(3) such trade or business is not a farming 

19 business (as defined in section 263A(e)(4)), and 

20 ‘‘(4) such trade or business has never been de21 termined by the United States Equal Employment 

22 Opportunity Commission to have engaged in job dis23 crimination.

24 ‘‘(d) SMALL BUSINESS PROTECTION ACCOUNT.—For 

25 purposes of this section—
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1 ‘‘(1) IN GENERAL.—The term ‘Small Business 

2 Protection Account’ means a trust created or orga3 nized in the United States for the exclusive benefit 

4 of the taxpayer, but only if the written governing in5 strument creating the trust meets the following re6 quirements:

7 ‘‘(A) No contribution will be accepted for 

8 any taxable year in excess of the amount al9 lowed as a deduction under subsection (a) for 

10 such year. 

11 ‘‘(B) The trustee is a bank (as defined in 

12 section 408(n)) or another person who dem13 onstrates to the satisfaction of the Secretary 

14 that the manner in which such person will ad15 minister the trust will be consistent with the re16 quirements of this section. 

17 ‘‘(C) The assets of the trust consist en18 tirely of cash or of obligations which have ade19 quate stated interest (as defined in section 

20 1274(c)(2)) and which pay such interest not 

21 less often than annually. 

22 ‘‘(D) All income of the trust is distributed 

23 currently to the grantor. 

24 ‘‘(E) The assets of the trust will not be 

25 commingled with other property except in a 
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1 common trust fund or common investment 

2 fund. 

3 ‘‘(2) ACCOUNT TAXED AS GRANTOR TRUST.—

4 The grantor of a Small Business Protection Account 

5 shall be treated for purposes of this title as the 

6 owner of such Account and shall be subject to tax 

7 thereon in accordance with subpart E of part I of 

8 subchapter J of this chapter (relating to grantors 

9 and others treated as substantial owners). 

10 ‘‘(e) INCLUSION OF AMOUNTS DISTRIBUTED.—

11 ‘‘(1) IN GENERAL.—Except as provided in para12 graph (2), there shall be includible in the gross in13 come of the taxpayer for any taxable year—

14 ‘‘(A) any amount distributed from a Small 

15 Business Protection Account of the taxpayer 

16 during such taxable year, and 

17 ‘‘(B) any deemed distribution under—

18 ‘‘(i) subsection (f )(1) (relating to de19 posits not distributed within 5 years), 

20 ‘‘(ii) subsection (f )(2) (relating to ces21 sation in eligible small business), and 

22 ‘‘(iii) subparagraph (A) or (B) of sub23 section (f )(3) (relating to prohibited trans24 actions and pledging account as security). 
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1 ‘‘(2) EXCEPTIONS.—Paragraph (1)(A) shall not 

2 apply to—

3 ‘‘(A) any distribution to the extent attrib4 utable to income of the Account, and 

5 ‘‘(B) the distribution of any contribution 

6 paid during a taxable year to a Small Business 

7 Protection Account to the extent that such con8 tribution exceeds the limitation applicable under 

9 subsection (b) if requirements similar to the re10 quirements of section 408(d)(4) are met. 

11 For purposes of subparagraph (A), distributions 

12 shall be treated as first attributable to income and 

13 then to other amounts. 

14 ‘‘(f ) SPECIAL RULES.—

15 ‘‘(1) TAX ON DEPOSITS IN ACCOUNT WHICH

16 ARE NOT DISTRIBUTED WITHIN 5 YEARS.—

17 ‘‘(A) IN GENERAL.—If, at the close of any 

18 taxable year, there is a nonqualified balance in 

19 any Small Business Protection Account—

20 ‘‘(i) there shall be deemed distributed 

21 from such Account during such taxable 

22 year an amount equal to such balance, and 

23 ‘‘(ii) the taxpayer’s tax imposed by 

24 this chapter for such taxable year shall be 
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1 increased by 10 percent of such deemed 

2 distribution. 

3 The preceding sentence shall not apply if an 

4 amount equal to such nonqualified balance is 

5 distributed from such Account to the taxpayer 

6 before the due date (including extensions) for 

7 filing the return of tax imposed by this chapter 

8 for such year (or, if earlier, the date the tax9 payer files such return for such year). 

10 ‘‘(B) NONQUALIFIED BALANCE.—For pur11 poses of subparagraph (A), the term ‘non12 qualified balance’ means any balance in the Ac13 count on the last day of the taxable year which 

14 is attributable to amounts deposited in such Ac15 count before the 4th preceding taxable year. 

16 ‘‘(C) ORDERING RULE.—For purposes of 

17 this paragraph, distributions from a Small 

18 Business Protection Account (other than dis19 tributions of current income) shall be treated as 

20 made from deposits in the order in which such 

21 deposits were made, beginning with the earliest 

22 deposits. 

23 ‘‘(2) CESSATION IN ELIGIBLE BUSINESS.—At 

24 the close of the first disqualification period after a 

25 period for which the taxpayer was engaged in an eli-
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1 gible small business, there shall be deemed distrib2 uted from the Small Business Protection Account of 

3 the taxpayer an amount equal to the balance in such 

4 Account (if any) at the close of such disqualification 

5 period. For purposes of the preceding sentence, the 

6 term ‘disqualification period’ means any period of 2 

7 consecutive taxable years for which the taxpayer is 

8 not engaged in an eligible small business. 

9 ‘‘(3) CERTAIN RULES TO APPLY.—Rules similar 

10 to the following rules shall apply for purposes of this 

11 section: 

12 ‘‘(A) Section 220(f)(8) (relating to treat13 ment on death). 

14 ‘‘(B) Section 408(e)(2) (relating to loss of 

15 exemption of account where individual engages 

16 in prohibited transaction). 

17 ‘‘(C) Section 408(e)(4) (relating to effect 

18 of pledging account as security). 

19 ‘‘(D) Section 408(g) (relating to commu20 nity property laws). 

21 ‘‘(E) Section 408(h) (relating to custodial 

22 accounts).

23 ‘‘(4) TIME WHEN PAYMENTS DEEMED MADE.—

24 For purposes of this section, a taxpayer shall be 

25 deemed to have made a payment to a Small Busi-
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1 ness Protection Account on the last day of a taxable 

2 year if such payment is made on account of such 

3 taxable year and is made on or before the due date 

4 (without regard to extensions) for filing the return 

5 of tax for such taxable year.

6 ‘‘(5) INDIVIDUAL.—For purposes of this sec7 tion, the term ‘individual’ shall not include an estate 

8 or trust. 

9 ‘‘(6) DEDUCTION NOT ALLOWED FOR SELF-EM10 PLOYMENT TAX.—The deduction allowable by reason 

11 of subsection (a) shall not be taken into account in 

12 determining an individual’s net earnings from self13 employment (within the meaning of section 1402(a)) 

14 for purposes of chapter 2. 

15 ‘‘(g) REPORTS.—The trustee of a Small Business 

16 Protection Account shall make such reports regarding 

17 such Account to the Secretary and to the person for whose 

18 benefit the Account is maintained with respect to contribu19 tions, distributions, and such other matters as the Sec20 retary may require under regulations. The reports re21 quired by this subsection shall be filed at such time and 

22 in such manner and furnished to such persons at such 

23 time and in such manner as may be required by such regu24 lations.’’. 

25 (b) TAX ON EXCESS CONTRIBUTIONS.—
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1 (1) Subsection (a) of section 4973 of such Code 

2 (relating to tax on excess contributions to certain 

3 tax-favored accounts and annuities) is amended by 

4 striking ‘‘or’’ at the end of paragraph (3), by redes5 ignating paragraph (4) as paragraph (5), and by in6 serting after paragraph (3) the following: 

7 ‘‘(4) a Small Business Protection Account 

8 (within the meaning of section 468C(d)), or’’. 

9 (2) Section 4973 of such Code is amended by 

10 adding at the end the following: 

11 ‘‘(g) EXCESS CONTRIBUTIONS TO SMALL BUSINESS

12 PROTECTION ACCOUNT.—For purposes of this section, in 

13 the case of a Small Business Protection Account (within 

14 the meaning of section 468C(d)), the term ‘excess con15 tributions’ means the amount by which the amount con16 tributed for the taxable year to the Account exceeds the 

17 amount which may be contributed to the Account under 

18 section 468C(b) for such taxable year. For purposes of 

19 this subsection, any contribution which is distributed out 

20 of the Small Business Protection Account in a distribution 

21 to which section 468C(e)(2)(B) applies shall be treated as 

22 an amount not contributed.’’. 

23 (3) The section heading for section 4973 of 

24 such Code is amended to read as follows: 
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1 ‘‘SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN AC2 COUNTS, ANNUITIES, ETC.’’. 

3 (4) The table of sections for chapter 43 of such 

4 Code is amended by striking the item relating to sec5 tion 4973 and inserting the following:

‘‘Sec. 4973. Excess contributions to certain accounts, annuities, 

etc.’’.

6 (c) TAX ON PROHIBITED TRANSACTIONS.—

7 (1) Subsection (c) of section 4975 of such Code 

8 (relating to tax on prohibited transactions) is 

9 amended by adding at the end the following: 

10 ‘‘(6) SPECIAL RULE FOR SMALL BUSINESS

11 PROTECTION ACCOUNT.—A person for whose benefit 

12 a Small Business Protection Account (within the 

13 meaning of section 468C(d)) is established shall be 

14 exempt from the tax imposed by this section with re15 spect to any transaction concerning such account 

16 (which would otherwise be taxable under this sec17 tion) if, with respect to such transaction, the ac18 count ceases to be a Small Business Protection Ac19 count by reason of the application of section 

20 468C(f )(3)(A) to such account.’’. 

21 (2) Paragraph (1) of section 4975(e) of such 

22 Code is amended by redesignating subparagraphs 

23 (E) and (F) as subparagraphs (F) and (G), respec-
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1 tively, and by inserting after subparagraph (D) the 

2 following: 

3 ‘‘(E) a Small Business Protection Account 

4 described in section 468C(d),’’. 

5 (d) FAILURE TO PROVIDE REPORTS ON SMALL

6 BUSINESS PROTECTION ACCOUNTS.—Paragraph (2) of 

7 section 6693(a) of such Code (relating to failure to provide 

8 reports on certain tax-favored accounts or annuities) is 

9 amended by redesignating subparagraphs (C) and (D) as 

10 subparagraphs (D) and (E), respectively, and by inserting 

11 after subparagraph (B) the following: 

12 ‘‘(C) section 468C(g) (relating to Small 

13 Business Protection Accounts),’’. 

14 (e) CLERICAL AMENDMENT.—The table of sections 

15 for subpart C of part II of subchapter E of chapter 1 of 

16 such Code is amended by inserting after the item relating 

17 to section 468B the following:

‘‘Sec. 468C. Small Business Protection Accounts.’’.

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

19 this section shall apply to taxable years beginning after 

20 the date of the enactment of this Act. 

21 (g) REPORT.—Not later than 1 year after the date 

22 of the enactment of this Act, the Administrator of the 

23 Small Business Administration shall submit a report on 

24 the implementation and effectiveness of section 468C of 

25 the Internal Revenue Code of 1986 (as added by this sec-
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1 tion), with emphasis on the impact of Small Business Pro2 tection Accounts in enterprise and similar zones, to the 

3 Committee on Small Business of the House of Representa4 tives and the Committee on Small Business and Entrepre5 neurship of the Senate. 

6 SEC. 5. ADMINISTRATIVE AUTHORITY. 

7 The Administrator of the Small Business Administra8 tion shall designate the Small Business Development Cen9 ter Program as the lead agency for assisting small busi10 nesses in establishing and operating Small Business Pro11 tection Accounts. The Internal Revenue Service shall pro12 vide such assistance to the Small Business Administration 

13 as necessary for the purposes of this section.

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