II 

110TH CONGRESS 

1ST SESSION S. 504 

To amend the Internal Revenue Code of 1986 to establish long-term care 

trust accounts and allow a refundable tax credit for contributions to 

such accounts, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

FEBRUARY 6, 2007 

Mr. SMITH 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 establish 

long-term care trust accounts and allow a refundable 

tax credit for contributions to such 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 ‘‘Long-Term Care Trust 

5 Account Act of 2007’’. 

6 SEC. 2. LONG-TERM CARE TRUST ACCOUNTS. 

7 (a) IN GENERAL.—Subchapter F of chapter 1 of the 

8 Internal Revenue Code of 1986 (relating to exempt organiVerDate Aug 31 2005 23:28 Feb 08, 2007 Jkt 059200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S504.IS S504

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1 zations) is amended by adding at the end the following 

2 new part: 

3 ‘‘PART IX—LONG-TERM CARE TRUST ACCOUNTS 

4 ‘‘SEC. 530A. LONG-TERM CARE TRUST ACCOUNTS. 

5 ‘‘(a) GENERAL RULE.—A Long-Term Care Trust Ac6 count shall be exempt from taxation under this subtitle. 

7 Notwithstanding the preceding sentence, such account 

8 shall be subject to the taxes imposed by section 511 (relat9 ing to imposition of tax on unrelated business income of 

10 charitable organizations). 

11 ‘‘(b) LONG-TERM CARE TRUST ACCOUNT.—For pur12 poses of this section, the term ‘Long-Term Care Trust Ac13 count’ means a trust created or organized in the United 

14 States for the exclusive benefit of an individual who is the 

15 designated beneficiary of the trust and which is designated 

16 (in such manner as the Secretary shall prescribe) at the 

17 time of the establishment of the trust as a Long-Term 

18 Care Trust Account, but only if the written governing in19 strument creating the trust meets the following require20 ments: 

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

22 contribution described in subsection (d)— 

23 ‘‘(A) no contribution will be accepted un24 less it is in cash, and 


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

2 the calendar year in excess of the contribution 

3 limit specified in subsection (c)(1). 

4 ‘‘(2) The trustee is a bank (as defined in sec5 tion 408(n)), an insurance company (as defined in 

6 section 816), or another person who demonstrates to 

7 the satisfaction of the Secretary that the manner in 

8 which that person will administer the trust will be 

9 consistent with the requirements of this section or 

10 who has so demonstrated with respect to any indi11 vidual retirement plan. 

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

13 in life insurance contracts. 

14 ‘‘(4) The interest of an individual in the bal15 ance of his account is nonforfeitable. 

16 ‘‘(5) The assets of the trust shall not be com17 mingled with other property except in a common 

18 trust fund or common investment fund. 

19 ‘‘(6) Except as provided in subsection (e)(2), no 

20 distribution will be allowed if at the time of such dis21 tribution the designated beneficiary is not a chron22 ically ill individual (as defined in section 

23 7702B(c)(2)). 

24 ‘‘(c) TAX TREATMENT OF CONTRIBUTIONS.— 

25 ‘‘(1) CONTRIBUTION LIMIT.— 


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1 ‘‘(A) IN GENERAL.—The aggregate 

2 amount of contributions (other than qualified 

3 rollover contributions described in subsection 

4 (d)) for any taxable year to all Long-Term Care 

5 Trust Accounts maintained for the benefit of 

6 the designated beneficiary shall not exceed 

7 $5,000. 

8 ‘‘(B) INFLATION ADJUSTMENT.—In the 

9 case of any taxable year beginning in a calendar 

10 year after 2007, the dollar amount under sub11 paragraph (A) shall be increased by an amount 

12 equal to— 

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

14 ‘‘(ii) the medical care cost adjustment 

15 determined under section 213(d)(10)(B)(ii) 

16 for the calendar year in which the taxable 

17 year begins, determined by substituting 

18 ‘2006’ for ‘1996’ in subclause (II) thereof. 

19 If any amount as adjusted under the preceding 

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

21 shall be rounded to the next lowest multiple of 

22 $10. 

23 ‘‘(2) GIFT TAX TREATMENT OF CONTRIBU24 TIONS.—For purposes of chapters 12 and 13— 


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1 ‘‘(A) IN GENERAL.—Any contribution to a 

2 Long-Term Care Trust Account on behalf of 

3 any designated beneficiary— 

4 ‘‘(i) shall be treated as a completed 

5 gift to such beneficiary which is not a fu6 ture interest in property, and 

7 ‘‘(ii) shall not be treated as a qualified 

8 transfer under section 2503(e). 

9 ‘‘(B) TREATMENT OF EXCESS CONTRIBU10 TIONS.—If the aggregate amount of contribu11 tions described in subparagraph (A) during the 

12 calendar year by a donor exceeds the limitation 

13 for such year under section 2503(b), such ag14 gregate amount shall, at the election of the 

15 donor, be taken into account for purposes of 

16 such section ratably over the 5-year period be17 ginning with such calendar year. 

18 ‘‘(d) QUALIFIED ROLLOVER CONTRIBUTION.—For 

19 purposes of this section, the term ‘qualified rollover con20 tribution’ means a contribution to a Long-Term Care 

21 Trust Account— 

22 ‘‘(1) from another such account of the same 

23 beneficiary, but only if such amount is contributed 

24 not later than the 60th day after the distribution 

25 from such other account, and 


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1 ‘‘(2) from a Long-Term Care Trust Account of 

2 a spouse of the beneficiary of the account to which 

3 the contribution is made, but only if such amount is 

4 contributed not later than the 60th day after the 

5 distribution from such other account. 

6 ‘‘(e) TAX TREATMENT OF DISTRIBUTIONS.— 

7 ‘‘(1) IN GENERAL.—Any distribution from a 

8 Long-Term Care Trust Account shall be includible 

9 in the gross income of the distributee in the manner 

10 as provided under section 72 to the extent not ex11 cluded from gross income under any other provision 

12 of this subsection. 

13 ‘‘(2) LONG-TERM CARE INSURANCE PRE14 MIUMS.—If at the time of any distribution, the des15 ignated beneficiary is not a chronically ill individual 

16 (as defined in section 7702B(c)(2)), no amount shall 

17 be includible in gross income under paragraph (1) if 

18 the aggregate premiums for any qualified long-term 

19 care insurance contract for such beneficiary during 

20 the taxable year are not less than the aggregate dis21 tributions during the taxable year. 

22 ‘‘(3) DISTRIBUTIONS FOR QUALIFIED LONG23 TERM CARE SERVICES.—For purposes of this sub24 section, if at the time of any distribution, the desVerDate Aug 31 2005 23:28 Feb 08, 2007 Jkt 059200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S504.IS S504

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1 ignated beneficiary is a chronically ill individual (as 

2 so defined)— 

3 ‘‘(A) IN-KIND DISTRIBUTIONS.—No 

4 amount shall be includible in gross income 

5 under paragraph (1) by reason of a distribution 

6 which consists of providing a benefit to the dis7 tributee which, if paid for by the distributee, 

8 would constitute expenses for any qualified 

9 long-term care services (as defined in section 

10 7702B(c)). 

11 ‘‘(B) CASH DISTRIBUTIONS.—In the case 

12 of distributions not described in subparagraph 

13 (A), if— 

14 ‘‘(i) such distributions do not exceed 

15 the expenses for qualified long-term care 

16 services (as so defined), reduced by ex17 penses described in subparagraph (A), no 

18 amount shall be includible in gross income, 

19 and 

20 ‘‘(ii) in any other case, the amount 

21 otherwise includible in gross income shall 

22 be reduced by an amount which bears the 

23 same ratio to such amount as such ex24 penses bear to such distributions. 


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1 ‘‘(4) CHANGE IN BENEFICIARIES OR AC2 COUNTS.—Paragraph (1) shall not apply to that 

3 portion of any distribution which, within 60 days of 

4 such distribution, is transferred— 

5 ‘‘(A) to another Long-Term Care Trust 

6 Account for the benefit of the designated bene7 ficiary, or 

8 ‘‘(B) to the credit of another designated 

9 beneficiary under a Long-Term Care Trust Ac10 count who is a spouse of the designated bene11 ficiary with respect to which the distribution 

12 was made. 

13 ‘‘(5) OPERATING RULES.—For purposes of ap14 plying section 72— 

15 ‘‘(A) to the extent provided by the Sec16 retary, all Long-Term Care Trust Accounts of 

17 which an individual is a designated beneficiary 

18 shall be treated as one account, 

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

20 Secretary, all distributions during a taxable 

21 year shall be treated as one distribution, and 

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

23 Secretary, the value of the contract, income on 

24 the contract, and investment in the contract 


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1 shall be computed as of the close of the cal2 endar year in which the taxable year begins. 

3 ‘‘(6) SPECIAL RULES FOR DEATH AND DI4 VORCE.— 

5 ‘‘(A) IN GENERAL.—Rules similar to the 

6 rules of paragraphs (7) and (8) of section 

7 220(f) shall apply. 

8 ‘‘(B) AMOUNTS INCLUDIBLE IN ESTATE OF

9 DONOR MAKING EXCESS CONTRIBUTIONS.—In 

10 the case of a donor who makes the election de11 scribed in subsection (c)(2)(B) and who dies be12 fore the close of the 5-year period referred to 

13 in such subsection, the gross estate of the donor 

14 shall include the portion of such contributions 

15 properly allocable to periods after the date of 

16 death of the donor. 

17 ‘‘(7) ADDITIONAL TAX.—The tax imposed by 

18 this chapter for any taxable year on any taxpayer 

19 who receives a payment or distribution from a Long20 Term Care Trust Account which is includible in 

21 gross income shall be increased by 25 percent of the 

22 amount which is so includible under rules similar to 

23 the rules of section 530(d)(4). 

24 ‘‘(8) DENIAL OF DOUBLE BENEFIT.—For pur25 poses of determining the amount of any deduction 


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1 under this chapter, any payment or distribution out 

2 of a Long-Term Care Trust Account shall not be 

3 treated as an expense paid for medical care. 

4 ‘‘(f) DESIGNATED BENEFICIARY.—For purposes of 

5 this section, the term ‘designated beneficiary’ means the 

6 individual designated at the commencement of participa7 tion in the Long-Term Care Trust Account as the bene8 ficiary of amounts paid (or to be paid) to the account. 

9 ‘‘(g) LOSS OF TAXATION EXEMPTION OF ACCOUNT

10 WHERE BENEFICIARY ENGAGES IN PROHIBITED TRANS11 ACTION.—Rules similar to the rules of paragraph (2) of 

12 section 408(e) shall apply to any Long-Term Care Trust 

13 Account. 

14 ‘‘(h) CUSTODIAL ACCOUNTS.—For purposes of this 

15 section, a custodial account or an annuity contract issued 

16 by an insurance company qualified to do business in a 

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

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

19 would, except for the fact that it is not a trust, con20 stitute a trust which meets the requirements of sub21 section (b), and 

22 ‘‘(2) in the case of a custodial account, the as23 sets of such account are held by a bank (as defined 

24 in section 408(n)) or another person who dem25 onstrates, to the satisfaction of the Secretary, that 


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1 the manner in which he will administer the account 

2 will be consistent with the requirements of this sec3 tion. 

4 For purposes of this title, in the case of a custodial ac5 count or annuity contract treated as a trust by reason of 

6 the preceding sentence, the person holding the assets of 

7 such account or holding such annuity contract shall be 

8 treated as the trustee thereof. 

9 ‘‘(i) REPORTS.—The trustee of a Long-Term Care 

10 Trust Account shall make such reports regarding such ac11 count to the Secretary and to the beneficiary of the ac12 count with respect to contributions, distributions, and 

13 such other matters as the Secretary may require. The re14 ports required by this subsection shall be filed at such time 

15 and in such manner and furnished to such individuals at 

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

17 (b) TAX ON EXCESS CONTRIBUTIONS.— 

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

19 4973 of the Internal Revenue Code of 1986 (relating 

20 to tax on excess contributions to certain tax-favored 

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

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

23 end of paragraph (5), and by inserting after para24 graph (5) the following new paragraph: 


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1 ‘‘(6) a Long-Term Care Trust Account (as de2 fined in section 530A),’’. 

3 (2) EXCESS CONTRIBUTION.—Section 4973 of 

4 such Code is amended by adding at the end the fol5 lowing new subsection: 

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

7 TRUST ACCOUNTS.—For purposes of this section— 

8 ‘‘(1) IN GENERAL.—In the case of Long-Term 

9 Care Trust Accounts (within the meaning of section 

10 530A), the term ‘excess contributions’ means the 

11 sum of— 

12 ‘‘(A) the amount by which the amount con13 tributed for the calendar year to such accounts 

14 (other than qualified rollover contributions (as 

15 defined in section 530A(d))) exceeds the con16 tribution limit under section 530A(c)(1), and 

17 ‘‘(B) the amount determined under this 

18 subsection for the preceding calendar year, re19 duced by the excess (if any) of the maximum 

20 amount allowable as a contribution under sec21 tion 530A(c)(1) for the calendar year over the 

22 amount contributed to the accounts for the cal23 endar year. 

24 ‘‘(2) SPECIAL RULE.—A contribution shall not 

25 be taken into account under paragraph (1) if such 


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1 contribution (together with the amount of net in2 come attributable to such contribution) is returned 

3 to the beneficiary before June 1 of the year fol4 lowing the year in which the contribution is made.’’. 

5 (c) FAILURE TO PROVIDE REPORTS ON LONG-TERM

6 CARE TRUST ACCOUNTS.—Paragraph (2) of section 

7 6693(a) of the Internal Revenue Code of 1986 (relating 

8 to failure to provide reports on individual retirement ac9 counts or annuities) is amended by striking ‘‘and’’ at the 

10 end of subparagraph (D), by striking the period at the 

11 end of subparagraph (E) and inserting ‘‘, and’’, and by 

12 inserting after subparagraph (E) the following new sub13 paragraph: 

14 ‘‘(F) section 530A(i) (relating to Long15 Term Care Trust Accounts).’’. 

16 (d) CONFORMING AMENDMENT.—The table of parts 

17 for subchapter F of chapter 1 of the Internal Revenue 

18 Code of 1986 is amended by adding at the end the fol19 lowing new item: 

‘‘PART IX. LONG-TERM CARE TRUST ACCOUNTS’’. 

20 (e) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to taxable years beginning after 

22 December 31, 2006. 


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1 SEC. 3. REFUNDABLE CREDIT FOR CONTRIBUTIONS TO 

2 LONG-TERM CARE TRUST ACCOUNTS. 

3 (a) IN GENERAL.—Subpart C of part IV of sub4 chapter A of chapter 1 of the Internal Revenue Code of 

5 1986 (relating to refundable credits) is amended by insert6 ing after section 35 the following new section: 

7 ‘‘SEC. 35A. CONTRIBUTIONS TO LONG-TERM CARE TRUST 

8 ACCOUNTS. 

9 ‘‘(a) GENERAL RULE.—In the case of an individual, 

10 there shall be allowed as a credit against the tax imposed 

11 by this subtitle for the taxable year an amount equal to 

12 10 percent of the contributions to any Long-Term Care 

13 Trust Account allowed under section 530A for such tax14 able year. 

15 ‘‘(b) REDUCTION BASED ON ADJUSTED GROSS IN16 COME.— 

17 ‘‘(1) IN GENERAL.—The percentage which 

18 would (but for this subsection) be taken into account 

19 under subsection (a) for the taxable year shall be re20 duced (but not below zero) by the percentage deter21 mined under paragraph (2). 

22 ‘‘(2) AMOUNT OF REDUCTION.—The percentage 

23 determined under this paragraph is the percentage 

24 which bears the same ratio to the percentage which 

25 would be so taken into account as— 

26 ‘‘(A) the excess of— 


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1 ‘‘(i) the taxpayer’s adjusted gross in2 come for such taxable year, over 

3 ‘‘(ii) $95,000 ($190,000 in the case of 

4 a joint return), bears to 

5 ‘‘(B) $10,000 ($20,000 in the case of a 

6 joint return). 

7 ‘‘(3) ADJUSTED GROSS INCOME.—For purposes 

8 of this subsection, adjusted gross income shall be de9 termined without regard to sections 911, 931, and 

10 933. 

11 ‘‘(c) DENIAL OF DOUBLE BENEFIT.—No deduction 

12 shall be allowed under this chapter for any amount taken 

13 into account in determining the credit under this section.’’. 

14 (b) CONFORMING AMENDMENTS.— 

15 (1) Paragraph (2) of section 1324(b) of title 

16 31, United States Code, is amended by inserting be17 fore the period ‘‘, or from section 35A of such 

18 Code’’. 

19 (2) The table of sections of subpart C of part 

20 IV of subchapter A of chapter 1 of the Internal Rev21 enue Code of 1986 is amended by inserting after the 

22 item relating to section 35 the following new item: 

‘‘Sec. 35A. Contributions to Long-Term Care Trust Accounts.’’. 


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

2 this section shall apply to amounts paid or incurred in tax3 able years beginning after December 31, 2005. 

Æ 


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