II

106TH CONGRESS

2D SESSION S. 2225

To amend the Internal Revenue Code of 1986 to allow individuals a deduction

for qualified long-term care insurance premiums, use of such insurance

under cafeteria plans and flexible spending arrangements, and a credit

for individuals with long-term care needs.

IN THE SENATE OF THE UNITED STATES

MARCH 9, 2000

Mr. GRASSLEY (for himself and Mr. GRAHAM) 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 individuals a deduction for qualified long-term care insurance

premiums, use of such insurance under cafeteria plans

and flexible spending arrangements, and a credit for

individuals with 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 ‘‘Long-Term Care and

5 Retirement Security Act of 2000’’.
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1 SEC. 2. TREATMENT OF PREMIUMS ON QUALIFIED LONG2 TERM CARE INSURANCE CONTRACTS.

3 (a) IN GENERAL.—Part VII of subchapter B of chap4 ter 1 of the Internal Revenue Code of 1986 (relating to

5 additional itemized deductions) is amended by redesig6 nating section 222 as section 223 and by inserting after

7 section 221 the following new section:

8 ‘‘SEC. 222. PREMIUMS ON QUALIFIED LONG-TERM CARE IN9 SURANCE CONTRACTS.

10 ‘‘(a) IN GENERAL.—In the case of an individual,

11 there shall be allowed as a deduction an amount equal to

12 the applicable percentage of the amount of eligible long13 term care premiums (as defined in section 213(d)(10))

14 paid during the taxable year for coverage for the taxpayer,

15 his spouse, and dependents under a qualified long-term

16 care insurance contract (as defined in section 7702B(b)).

17 ‘‘(b) APPLICABLE PERCENTAGE.—For purposes of

18 subsection (a)—

19 ‘‘(1) IN GENERAL.—Except as otherwise pro20 vided in this subsection, the applicable percentage

21 shall be determined in accordance with the following

22 table based on the number of years of continuous

23 coverage (as of the close of the taxable year) of the

24 individual under any qualified long-term care insur25 ance contracts (as defined in section 7702B(b)):
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‘‘If the number of years of The applicable long-term

continuous coverage is— care percentage is—

Less than 1 .................................................................. 60

At least 1 but less than 2 ............................................. 70

At least 2 but less than 3 ............................................. 80

At least 3 but less than 4 ............................................. 90

At least 4 ...................................................................... 100.

1 ‘‘(2) SPECIAL RULES FOR INDIVIDUALS WHO

2 HAVE ATTAINED AGE 55.—In the case of an indi3 vidual who has attained age 55 as of the close of the

4 taxable year, the following table shall be substituted

5 for the table in paragraph (1).

‘‘If the number of years of The applicable long-term

continuous coverage is— care percentage is—

Less than 1 .................................................................. 70

At least 1 but less than 2 ............................................. 85

At least 2 ...................................................................... 100.

6 ‘‘(3) ONLY COVERAGE AFTER 1999 TAKEN INTO

7 ACCOUNT.—Only coverage for periods after Decem8 ber 31, 1999, shall be taken into account under this

9 subsection.

10 ‘‘(4) CONTINUOUS COVERAGE.—An individual

11 shall not fail to be treated as having continuous cov12 erage if the aggregate breaks in coverage during any

13 1-year period are less than 60 days.

14 ‘‘(c) COORDINATION WITH OTHER DEDUCTIONS.—

15 Any amount paid by a taxpayer for any qualified long16 term care insurance contract to which subsection (a) ap17 plies shall not be taken into account in computing the

18 amount allowable to the taxpayer as a deduction under

19 section 162(l) or 213(a).’’
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1 (b) CONTINGENT NONFORFEITURE REQUIREMENTS

2 ADDED TO CONSUMER PROTECTION PROVISIONS.—

3 (1) Section 7702B(g)(2)(A)(i) of the Internal

4 Revenue Code of 1986 (relating to model regulation)

5 is amended by adding at the end the following new

6 subclause:

7 ‘‘(XII) Section 23 (relating to

8 contingent nonforfeiture benefits), if

9 the policyholder declines the offer of a

10 nonforfeiture provision described in

11 paragraph (4).’’

12 (2) Section 7702B(g)(2)(A)(ii) of such Code

13 (relating to model Act) is amended by adding at the

14 end the following new subclause:

15 ‘‘(III) Section 8 (relating to con16 tingent nonforfeiture benefits), if the

17 policyholder declines the offer of a

18 nonforfeiture provision described in

19 paragraph (4).’’

20 (c) REFERENCE TO NAIC MODEL ACT UPDATED.—

21 Section 7702B(g)(2)(B)(i) of the Internal Revenue Code

22 of 1986 (relating to model provisions) is amended by strik23 ing ‘‘January 1993’’ and inserting ‘‘January 1999’’.
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1 (d) LONG-TERM CARE INSURANCE PERMITTED TO

2 BE OFFERED UNDER CAFETERIA PLANS AND FLEXIBLE

3 SPENDING ARRANGEMENTS.—

4 (1) CAFETERIA PLANS.—Section 125(f) of the

5 Internal Revenue Code of 1986 (defining qualified

6 benefits) is amended by inserting before the period

7 at the end ‘‘; except that such term shall include the

8 payment of premiums for any qualified long-term

9 care insurance contract (as defined in section

10 7702B) to the extent the amount of such payment

11 does not exceed the eligible long-term care premiums

12 (as defined in section 213(d)(10)) for such con13 tract’’.

14 (2) FLEXIBLE SPENDING ARRANGEMENTS.—

15 Section 106 of such Code (relating to contributions

16 by an employer to accident and health plans) is

17 amended by striking subsection (c).

18 (e) CONFORMING AMENDMENTS.—

19 (1) Section 62(a) of the Internal Revenue Code

20 of 1986 is amended by inserting after paragraph

21 (17) the following new item:

22 ‘‘(18) PREMIUMS ON QUALIFIED LONG-TERM

23 CARE INSURANCE CONTRACTS.—The deduction al24 lowed by section 222.’’
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1 (2) Section 7702B(g)(2)(A)(i) of such Code, as

2 amended by subsection (b)(1), is amended by strik3 ing ‘‘7A’’ both places it appears, ‘‘7B’’, ‘‘7C’’, ‘‘7D’’,

4 ‘‘7E’’, ‘‘8’’, ‘‘9’’, ‘‘9F’’, ‘‘10’’, ‘‘11’’, ‘‘12’’, and ‘‘23’’

5 the first place it appears and inserting ‘‘6A’’, ‘‘6B’’,

6 ‘‘6C’’, ‘‘6D’’, ‘‘6E’’, ‘‘7’’, ‘‘8’’, ‘‘8F’’, ‘‘9’’, ‘‘10’’,

7 ‘‘11’’, and ‘‘22’’, respectively.

8 (3) Section 4980C(c)(1)(A) of such Code is

9 amended by striking ‘‘13’’, ‘‘14’’, ‘‘20’’, ‘‘21’’,

10 ‘‘21C(1)’’, ‘‘21C(6)’’, ‘‘22’’, ‘‘24’’, and ‘‘25’’ and in11 serting ‘‘12’’, ‘‘13’’, ‘‘19’’, ‘‘20C(1)’’, ‘‘20C(6)’’,

12 ‘‘21’’, ‘‘25’’, and ‘‘26’’, respectively.

13 (4) The table of sections for part VII of sub14 chapter B of chapter 1 of such Code is amended by

15 striking the last item and inserting the following

16 new items:

‘‘Sec. 222. Premiums on qualified long-term care insurance contracts.

‘‘Sec. 223. Cross reference.’’

17 (f) EFFECTIVE DATES.—

18 (1) IN GENERAL.—Except as provided in para19 graphs (2) and (3), the amendments made by this

20 section shall apply to taxable years beginning after

21 December 31, 1999.

22 (2) CONSUMER PROTECTION PROVISIONS.—The

23 amendments made by subsections (b), (c), (e)(2),

24 and (e)(3) shall apply to policies issued after the
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1 date which is 1 year after the date of the enactment

2 of this Act.

3 (3) CAFETERIA PLANS AND FLEXIBLE SPEND4 ING ARRANGEMENTS.—The amendments made by

5 subsection (c) shall apply to taxable years beginning

6 after December 31, 2001.

7 SEC. 3. CREDIT FOR TAXPAYERS WITH LONG-TERM CARE

8 NEEDS.

9 (a) IN GENERAL.—Subpart A of part IV of sub10 chapter A of chapter 1 of the Internal Revenue Code of

11 1986 (relating to nonrefundable personal credits) is

12 amended by inserting after section 25A the following new

13 section:

14 ‘‘SEC. 25B. CREDIT FOR TAXPAYERS WITH LONG-TERM

15 CARE NEEDS.

16 ‘‘(a) ALLOWANCE OF CREDIT.—

17 ‘‘(1) IN GENERAL.—There shall be allowed as a

18 credit against the tax imposed by this chapter for

19 the taxable year an amount equal to the applicable

20 credit amount multiplied by the number of applica21 ble individuals with respect to whom the taxpayer is

22 an eligible caregiver for the taxable year.

23 ‘‘(2) APPLICABLE CREDIT AMOUNT.—For pur24 poses of paragraph (1), the applicable credit amount
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1 shall be determined in accordance with the following

2 table:

‘‘For taxable years beginning The applicable

in calendar year— credit amount is—

2000 .....................................................................................$1,000

2001 ..................................................................................... 1,500

2002 ..................................................................................... 2,000

2003 ..................................................................................... 2,500

2004 or thereafter ................................................................ 3,000.

3 ‘‘(b) LIMITATION BASED ON ADJUSTED GROSS IN4 COME.—

5 ‘‘(1) IN GENERAL.—The amount of the credit

6 allowable under subsection (a) shall be reduced (but

7 not below zero) by $100 for each $1,000 (or fraction

8 thereof) by which the taxpayer’s modified adjusted

9 gross income exceeds the threshold amount. For

10 purposes of the preceding sentence, the term ‘modi11 fied adjusted gross income’ means adjusted gross in12 come increased by any amount excluded from gross

13 income under section 911, 931, or 933.

14 ‘‘(2) THRESHOLD AMOUNT.—For purposes of

15 paragraph (1), the term ‘threshold amount’ means—

16 ‘‘(A) $150,000 in the case of a joint re17 turn, and

18 ‘‘(B) $75,000 in any other case.

19 ‘‘(3) INDEXING.—In the case of any taxable

20 year beginning in a calendar year after 2000, each

21 dollar amount contained in paragraph (2) shall be

22 increased by an amount equal to the product of—
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1 ‘‘(A) such dollar amount, and

2 ‘‘(B) the medical care cost adjustment de3 termined under section 213(d)(10)(B)(ii) for

4 the calendar year in which the taxable year be5 gins, determined by substituting ‘August 1999’

6 for ‘August 1996’ in subclause (II) thereof.

7 If any increase determined under the preceding sen8 tence is not a multiple of $50, such increase shall

9 be rounded to the next lowest multiple of $50.

10 ‘‘(c) DEFINITIONS.—For purposes of this section—

11 ‘‘(1) APPLICABLE INDIVIDUAL.—

12 ‘‘(A) IN GENERAL.—The term ‘applicable

13 individual’ means, with respect to any taxable

14 year, any individual who has been certified, be15 fore the due date for filing the return of tax for

16 the taxable year (without extensions), by a phy17 sician (as defined in section 1861(r)(1) of the

18 Social Security Act) as being an individual with

19 long-term care needs described in subparagraph

20 (B) for a period—

21 ‘‘(i) which is at least 180 consecutive

22 days, and

23 ‘‘(ii) a portion of which occurs within

24 the taxable year.
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1 Such term shall not include any individual oth2 erwise meeting the requirements of the preceding sentence unless within the 391 3 ⁄2 month

4 period ending on such due date (or such other

5 period as the Secretary prescribes) a physician

6 (as so defined) has certified that such indi7 vidual meets such requirements.

8 ‘‘(B) INDIVIDUALS WITH LONG-TERM CARE

9 NEEDS.—An individual is described in this sub10 paragraph if the individual meets any of the fol11 lowing requirements:

12 ‘‘(i) The individual is at least 6 years

13 of age and—

14 ‘‘(I) is unable to perform (with15 out substantial assistance from an16 other individual) at least 3 activities

17 of daily living (as defined in section

18 7702B(c)(2)(B)) due to a loss of

19 functional capacity, or

20 ‘‘(II) requires substantial super21 vision to protect such individual from

22 threats to health and safety due to se23 vere cognitive impairment and is un24 able to preform, without reminding or

25 cuing assistance, at least 1 activity of
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1 daily living (as so defined) or to the

2 extent provided in regulations pre3 scribed by the Secretary (in consulta4 tion with the Secretary of Health and

5 Human Services), is unable to engage

6 in age appropriate activities.

7 ‘‘(ii) The individual is at least 2 but

8 not 6 years of age and is unable due to a

9 loss of functional capacity to perform

10 (without substantial assistance from an11 other individual) at least 2 of the following

12 activities: eating, transferring, or mobility.

13 ‘‘(iii) The individual is under 2 years

14 of age and requires specific durable med15 ical equipment by reason of a severe health

16 condition or requires a skilled practitioner

17 trained to address the individual’s condi18 tion to be available if the individual’s par19 ents or guardians are absent.

20 ‘‘(2) ELIGIBLE CAREGIVER.—

21 ‘‘(A) IN GENERAL.—A taxpayer shall be

22 treated as an eligible caregiver for any taxable

23 year with respect to the following individuals:

24 ‘‘(i) The taxpayer.

25 ‘‘(ii) The taxpayer’s spouse.
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1 ‘‘(iii) An individual with respect to

2 whom the taxpayer is allowed a deduction

3 under section 151 for the taxable year.

4 ‘‘(iv) An individual who would be de5 scribed in clause (iii) for the taxable year

6 if section 151(c)(1)(A) were applied by

7 substituting for the exemption amount an

8 amount equal to the sum of the exemption

9 amount, the standard deduction under sec10 tion 63(c)(2)(C), and any additional stand11 ard deduction under section 63(c)(3) which

12 would be applicable to the individual if

13 clause (iii) applied.

14 ‘‘(v) An individual who would be de15 scribed in clause (iii) for the taxable year

16 if—

17 ‘‘(I) the requirements of clause

18 (iv) are met with respect to the indi19 vidual, and

20 ‘‘(II) the requirements of sub21 paragraph (B) are met with respect to

22 the individual in lieu of the support

23 test of section 152(a).

24 ‘‘(B) RESIDENCY TEST.—The require25 ments of this subparagraph are met if an indi-
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1 vidual has as his principal place of abode the

2 home of the taxpayer and—

3 ‘‘(i) in the case of an individual who

4 is an ancestor or descendant of the tax5 payer or the taxpayer’s spouse, is a mem6 ber of the taxpayer’s household for over

7 half the taxable year, or

8 ‘‘(ii) in the case of any other indi9 vidual, is a member of the taxpayer’s

10 household for the entire taxable year.

11 ‘‘(C) SPECIAL RULES WHERE MORE THAN

12 1 ELIGIBLE CAREGIVER.—

13 ‘‘(i) IN GENERAL.—If more than 1 in14 dividual is an eligible caregiver with re15 spect to the same applicable individual for

16 taxable years ending with or within the

17 same calendar year, a taxpayer shall be

18 treated as the eligible caregiver if each

19 such individual (other than the taxpayer)

20 files a written declaration (in such form

21 and manner as the Secretary may pre22 scribe) that such individual will not claim

23 such applicable individual for the credit

24 under this section.
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1 ‘‘(ii) NO AGREEMENT.—If each indi2 vidual required under clause (i) to file a

3 written declaration under clause (i) does

4 not do so, the individual with the highest

5 modified adjusted gross income (as defined

6 in section 32(c)(5)) shall be treated as the

7 eligible caregiver.

8 ‘‘(iii) MARRIED INDIVIDUALS FILING

9 SEPARATELY.—In the case of married indi10 viduals filing separately, the determination

11 under this subparagraph as to whether the

12 husband or wife is the eligible caregiver

13 shall be made under the rules of clause (ii)

14 (whether or not one of them has filed a

15 written declaration under clause (i)).

16 ‘‘(d) IDENTIFICATION REQUIREMENT.—No credit

17 shall be allowed under this section to a taxpayer with re18 spect to any applicable individual unless the taxpayer in19 cludes the name and taxpayer identification number of

20 such individual, and the identification number of the phy21 sician certifying such individual, on the return of tax for

22 the taxable year.

23 ‘‘(e) TAXABLE YEAR MUST BE FULL TAXABLE

24 YEAR.—Except in the case of a taxable year closed by rea25 son of the death of the taxpayer, no credit shall be allow-
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1 able under this section in the case of a taxable year cov2 ering a period of less than 12 months.’’

3 (b) CONFORMING AMENDMENTS.—

4 (1) Section 6213(g)(2) of the Internal Revenue

5 Code of 1986 is amended by striking ‘‘and’’ at the

6 end of subparagraph (K), by striking the period at

7 the end of subparagraph (L) and inserting ‘‘, and’’,

8 and by inserting after subparagraph (L) the fol9 lowing new subparagraph:

10 ‘‘(M) an omission of a correct TIN or phy11 sician identification required under section

12 25B(d) (relating to credit for taxpayers with

13 long-term care needs) to be included on a re14 turn.’’

15 (2) The table of sections for subpart A of part

16 IV of subchapter A of chapter 1 of such Code is

17 amended by inserting after the item relating to sec18 tion 25A the following new item:

‘‘Sec. 25B. Credit for taxpayers with long-term care needs.’’

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

20 this section shall apply to taxable years beginning after

21 December 31, 1999.

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