I

107TH CONGRESS

1ST SESSION H. R. 1923

To amend the Internal Revenue Code of 1986 to provide for Start-up Success

Accounts.

IN THE HOUSE OF REPRESENTATIVES

MAY 21, 2001

Mr. DEMINT (for himself and Mr. BAIRD) introduced the following bill; which

was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to provide

for Start-up Success Accounts.

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 ‘‘Start-Up Success Ac5 counts Act of 2001’’.

6 SEC. 2. START-UP SUCCESS 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)
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1 is amended by inserting after section 468B the following

2 new section:

3 ‘‘SEC. 468C. START-UP SUCCESS ACCOUNTS.

4 ‘‘(a) DEDUCTION ALLOWED.—In the case of a tax5 payer which is an eligible small business, there shall be

6 allowed as a deduction for any taxable year the amount

7 paid in cash by such taxpayer to a Start-up Success Ac8 count (hereafter in this section also referred to as an

9 ‘SUSA Account’).

10 ‘‘(b) LIMITATION.—

11 ‘‘(1) IN GENERAL.—The amount which a tax12 payer may pay into the SUSA Account for any tax13 able year shall not exceed whichever of the following

14 is the least:

15 ‘‘(A) 20 percent of so much of the taxable

16 income of the taxpayer (determined without re17 gard to this section) which is attributable to

18 any trade or business.

19 ‘‘(B) $50,000.

20 ‘‘(C) $100,000, reduced by the aggregate

21 amount paid by the taxpayer (and all related

22 persons) into SUSA accounts for all prior tax23 able years.

24 ‘‘(2) DEDUCTION ALLOWED ONLY DURING

25 STARTUP PERIOD.—No deduction shall be allowed
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1 under this section with respect to any eligible small

2 business for any taxable year after the 5th taxable

3 year that such business (or any predecessor) is en4 gaged in a trade or business.

5 ‘‘(3) DOLLAR LIMITATION ON CONTROLLED

6 GROUPS.—

7 ‘‘(A) IN GENERAL.—For purposes of para8 graph (1)—

9 ‘‘(i) all component members of a con10 trolled group shall be treated as one tax11 payer, and

12 ‘‘(ii) the Secretary shall apportion the

13 dollar limitations contained in paragraph

14 (1) among the component members of such

15 controlled group in such manner as he

16 shall by regulations prescribe.

17 ‘‘(B) CONTROLLED GROUP DEFINED.—For

18 purposes of subparagraph (A), the term ‘con19 trolled group’ has the meaning given such term

20 by section 1563(a); except that, for such pur21 poses, ‘more than 50 percent’ shall be sub22 stituted for ‘at least 80 percent’ each place it

23 appears in section 1563(a)(1).

24 ‘‘(4) PARTNERSHIPS AND S CORPORATIONS.—In

25 the case of a partnership, the limitation under para-
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1 graph (1) shall apply with respect to the partnership

2 and each partner. A similar rule shall apply in the

3 case of an S corporation and its shareholders.

4 ‘‘(5) RELATED PERSONS.—For purposes of

5 paragraph (1)(C), a person (hereinafter in this para6 graph referred to as the ‘related person’) is related

7 to any person if the related person bears a relation8 ship to such person specified in section 267(b) or

9 707(b)(1), or the related person and such person are

10 engaged in trades or businesses under common con11 trol (within the meaning of subsections (a) and (b)

12 of section 52. For purposes of the preceding sen13 tence, in applying section 267(b) or 707(b)(1), ‘10

14 percent’ shall be substituted for ‘50 percent’.

15 ‘‘(c) ELIGIBLE SMALL BUSINESS.—

16 ‘‘(1) IN GENERAL.—For purposes of this sec17 tion, the term ‘eligible small business’ means, with

18 respect to any taxable year, any person actively en19 gaged in a trade or business if for all prior taxable

20 years beginning after December 31, 1999, the tax21 payer (or any predecessor) met the $2,000,000 gross

22 receipts test of paragraph (2). In the case of a tax23 payer to which section 469 applies, such term shall

24 not include any trade or business which is a passive
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1 activity (within the meaning of section 469(c)) of the

2 taxpayer.

3 ‘‘(2) $2,000,000 GROSS RECEIPTS TESTS.—A

4 person meets the $2,000,000 gross receipts tests of

5 this paragraph for any prior taxable year if such

6 person would meet the test of section 448(c) were

7 such section applied by substituting ‘$2,000,000’ for

8 ‘$5,000,000’.

9 ‘‘(d) START-UP SUCCESS ACCOUNT.—For purposes

10 of this section—

11 ‘‘(1) IN GENERAL.—The terms ‘Start-up Suc12 cess Account’ and ‘SUSA Account’ means a trust

13 created or organized in the United States for the ex14 clusive benefit of an eligible small business, but only

15 if the written governing instrument creating the

16 trust meets the following requirements:

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

18 any taxable year in excess of the amount al19 lowed as a deduction under subsection (a) for

20 such year.

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

22 section 408(n)) or another person who dem23 onstrates to the satisfaction of the Secretary

24 that the manner in which such person will ad-
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1 minister the trust will be consistent with the re2 quirements of this section.

3 ‘‘(C) The assets of the trust consist en4 tirely of cash or of obligations which have ade5 quate stated interest (as defined in section

6 1274(c)(2)) and which pay such interest not

7 less often than annually.

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

9 currently to the grantor.

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

11 commingled with other property except in a

12 common trust fund or common investment

13 fund.

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

15 The grantor of an SUSA Account shall be treated

16 for purposes of this title as the owner of such Ac17 count and shall be subject to tax thereon in accord18 ance with subpart E of part I of subchapter J of

19 this chapter (relating to grantors and others treated

20 as substantial owners).

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

22 ‘‘(1) IN GENERAL.—Except as provided in para23 graph (2), there shall be includible in the gross in24 come of the taxpayer for any taxable year—
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1 ‘‘(A) any amount distributed from an

2 SUSA Account of the taxpayer during such tax3 able year (to the extent not previously included

4 in gross income), and

5 ‘‘(B) any deemed distribution under—

6 ‘‘(i) subsection (f)(1) (relating to de7 posits not distributed within 5 years),

8 ‘‘(ii) subsection (f)(2) (relating to ces9 sation in trade or business), and

10 ‘‘(iii) subparagraph (A) or (B) of sub11 section (f)(3) (relating to prohibited trans12 actions and pledging account as security).

13 ‘‘(2) EXCEPTIONS.—Gross income shall not in14 clude the distribution of any contribution paid dur15 ing a taxable year to an SUSA Account to the ex16 tent that such contribution exceeds the limitation

17 applicable under subsection (b) if requirements simi18 lar to the requirements of section 408(d)(4) are met.

19 ‘‘(3) EXCLUSION FROM SELF-EMPLOYMENT

20 TAX.—Amounts included in gross income under this

21 subsection shall not be included in determining net

22 earnings from self-employment under section 1402.

23 ‘‘(f) SPECIAL RULES.—

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

25 ARE NOT DISTRIBUTED WITHIN 5 YEARS.—
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1 ‘‘(A) IN GENERAL.—If, at the close of any

2 taxable year, there is a nonqualified balance in

3 any SUSA Account—

4 ‘‘(i) there shall be deemed distributed

5 from such Account during such taxable

6 year an amount equal to such balance, and

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

8 this chapter for such taxable year shall be

9 increased by 10 percent of such deemed

10 distribution.

11 The preceding sentence shall not apply if an

12 amount equal to such nonqualified balance is

13 distributed from such Account to the taxpayer

14 before the due date (including extensions) for

15 filing the return of tax imposed by this chapter

16 for such year (or, if earlier, the date the tax17 payer files such return for such year).

18 ‘‘(B) NONQUALIFIED BALANCE.—For pur19 poses of subparagraph (A), the term ‘non20 qualified balance’ means any balance in the Ac21 count on the last day of the taxable year which

22 is attributable to amounts deposited in such Ac23 count before the 4th preceding taxable year.

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

25 this paragraph, distributions from an SUSA
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1 Account shall be treated as made from deposits

2 in the order in which such deposits were made,

3 beginning with the earliest deposits.

4 ‘‘(2) CESSATION IN TRADE OR BUSINESS.—At

5 the close of the first disqualification period after a

6 period for which the taxpayer was engaged in the

7 trade or business referred to in subsection (a), there

8 shall be deemed distributed from the SUSA Account

9 (if any) of the taxpayer an amount equal to the bal10 ance in such Account at the close of such disquali11 fication period. For purposes of the preceding sen12 tence, the term ‘disqualification period’ means any

13 period of 2 consecutive taxable years for which the

14 taxpayer is not engaged in the trade or business re15 ferred to in subsection (a).

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

17 to the following rules shall apply for purposes of this

18 section:

19 ‘‘(A) Section 408(e)(2) (relating to loss of

20 exemption of account where individual engages

21 in prohibited transaction).

22 ‘‘(B) Section 408(e)(4) (relating to effect

23 of pledging account as security).

24 ‘‘(C) Section 408(g) (relating to commu25 nity property laws).
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1 ‘‘(D) Section 408(h) (relating to custodial

2 accounts).

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

4 For purposes of this section, a taxpayer shall be

5 deemed to have made a payment to an SUSA Ac6 count on the last day of a taxable year if such pay7 ment is made on account of such taxable year and

is made within 31 8 ⁄2 months after the close of such

9 taxable year.

10 ‘‘(g) REPORTS.—The trustee of an SUSA Account

11 shall make such reports regarding such Account to the

12 Secretary and to the person for whose benefit the Account

13 is maintained with respect to contributions, distributions,

14 and such other matters as the Secretary may require

15 under regulations. The reports required by this subsection

16 shall be filed at such time and in such manner and fur17 nished to such persons at such time and in such manner

18 as may be required by those regulations.’’.

19 (b) TAX ON EXCESS CONTRIBUTIONS.—

20 (1) Subsection (a) of section 4973 of such Code

21 (relating to tax on certain excess contributions) is

22 amended by striking ‘‘or’’ at the end of paragraph

23 (3), by redesignating paragraph (4) as paragraph

24 (5), and by inserting after paragraph (3) the fol25 lowing new paragraph:
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1 ‘‘(4) an SUSA Account (within the meaning of

2 section 468C(d)), or’’.

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

4 adding at the end the following new subsection:

5 ‘‘(g) EXCESS CONTRIBUTIONS TO SUSA AC6 COUNTS.—For purposes of this section, in the case of

7 SUSA Accounts (within the meaning of section 468C(d)),

8 the term ‘excess contributions’ means the amount by

9 which the amount contributed for the taxable year to the

10 Account exceeds the amount which may be contributed to

11 the Account under section 468C(b) for such taxable year.

12 For purposes of this subsection, any contribution which

13 is distributed out of the SUSA Account in a distribution

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

15 an amount not contributed.’’.

16 (c) TAX ON PROHIBITED TRANSACTIONS.—

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

18 (relating to prohibited transactions) is amended by

19 adding at the end the following new paragraph:

20 ‘‘(6) SPECIAL RULE FOR SUSA ACCOUNTS.—A

21 person for whose benefit an SUSA Account (within

22 the meaning of section 468C(d)) is established shall

23 be exempt from the tax imposed by this section with

24 respect to any transaction concerning such Account

25 (which would otherwise be taxable under this sec-
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1 tion) if, with respect to such transaction, the ac2 count ceases to be an SUSA Account by reason of

3 the application of section 468C(f)(3)(A) to such Ac4 count.’’.

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

6 Code is amended by redesignating subparagraphs

7 (E) and (F) as subparagraphs (F) and (G), respec8 tively, and by inserting after subparagraph (D) the

9 following new subparagraph:

10 ‘‘(E) an SUSA Account described in sec11 tion 468C(d),’’.

12 (d) FAILURE TO PROVIDE REPORTS ON SUSA AC13 COUNTS.—Paragraph (2) of section 6693(a) of such Code

14 (relating to failure to provide reports on certain tax-fa15 vored accounts or annuities) is amended by redesignating

16 subparagraphs (C) and (D) as subparagraphs (D) and

17 (E), respectively, and by inserting after subparagraph (B)

18 the following new subparagraph:

19 ‘‘(C) section 468C(g) (relating to SUSA

20 Accounts),’’.

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

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

23 such Code is amended by inserting after the item relating

24 to section 468B the following new item:

‘‘Sec. 468C. Start-up Success Accounts.’’.
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1 (f) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 the date of the enactment of this Act.

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