II 

113TH CONGRESS 

2D SESSION S. 2724 

To amend the Internal Revenue Code of 1986 to provide for the tax treatment 

of small business start-up savings accounts. 

IN THE SENATE OF THE UNITED STATES 

JULY 31, 2014 

Mr. UDALL of New Mexico 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 provide 

for the tax treatment of small business start-up savings 

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 ‘‘Incentivize Growth 

5 Now In Tomorrow’s Entrepreneurs Act of 2014’’. 

6 SEC. 2. SMALL BUSINESS START-UP SAVINGS ACCOUNTS. 

7 (a) IN GENERAL.—Part VIII of subchapter B of 

8 chapter 1 of the Internal Revenue Code of 1986 is amend9 ed by redesignating section 224 as section 225 and insert10 ing after section 223 the following new section: 


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1 ‘‘SEC. 224. SMALL BUSINESS START-UP SAVINGS ACCOUNTS. 

2 ‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of an 

3 individual, there shall be allowed as a deduction for the 

4 taxable year an amount equal to amount of contributions 

5 made to the small-business start-up savings account of 

6 such individual. 

7 ‘‘(b) LIMITATION BASED ON ADJUSTED GROSS IN8 COME.—The amount of the deduction allowed under sub9 section (a) for any taxable year shall be reduced (but not 

10 below zero) by an amount equal to the excess of— 

11 ‘‘(1) the taxpayer’s adjusted gross income for 

12 such taxable year, over 

13 ‘‘(2) $150,000 ($300,000 in the case of a joint 

14 return). 

15 ‘‘(c) SMALL BUSINESS START-UP SAVINGS AC16 COUNT.—The term ‘small business start-up savings ac17 count’ means a trust created or organized in the United 

18 States exclusively for the purpose of paying the eligible 

19 costs of the individual who is the designated beneficiary 

20 of the trust (and designated as a small business start-up 

21 savings account at the time created or organized), but only 

22 if the written governing instrument creating the trust 

23 meets the following requirements: 

24 ‘‘(1) Except in the case of a rollover contribu25 tion described in subsection (e)(4), no contribution 

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1 tions will not be accepted if such contribution would 

2 result in— 

3 ‘‘(A) aggregate contributions for the tax4 able year exceeding the lesser of— 

5 ‘‘(i) $10,000, or 

6 ‘‘(ii) an amount equal to the com7 pensation (as defined in section 219(f)(1)) 

8 includible in the individual’s gross income 

9 for such taxable year, or 

10 ‘‘(B) aggregate contributions to all small 

11 business start-up savings account of the indi12 vidual for such taxable year and all prior tax13 able years exceeding $150,000. 

14 ‘‘(2) The trustee is a bank (as defined in sec15 tion 408(n)) or such other person who demonstrates 

16 to the satisfaction of the Secretary that the manner 

17 in which such other person will administer the trust 

18 will be consistent with the requirements of this sec19 tion. 

20 ‘‘(3) No part of the trust funds will be invested 

21 in life insurance contracts. 

22 ‘‘(4) The assets of the trust will not be commin23 gled with other property except in a common trust 

24 fund or common investment fund. 


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1 ‘‘(5) Contributions may be made even after the 

2 individual for whom the account is maintained has 

attained age 701 3 ⁄2. 

4 ‘‘(d) TAX TREATMENT OF ACCOUNTS.— 

5 ‘‘(1) IN GENERAL.—A small business start-up 

6 savings account shall be exempt from taxation under 

7 this subtitle. Notwithstanding the preceding sen8 tence, the small business start-up savings account 

9 shall be subject to the taxes imposed by section 511 

10 (relating to imposition of tax on unrelated business 

11 income of charitable organizations). 

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

13 to the rules of paragraphs (2) and (4) of section 

14 408(e) shall apply to small business start-up savings 

15 accounts, and any amount treated as distributed 

16 under such rules shall be treated as not used to pay 

17 for eligible costs. 

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

19 ‘‘(1) QUALIFIED DISTRIBUTIONS.— 

20 ‘‘(A) IN GENERAL.—Any qualified distribu21 tion from a small business start-up savings ac22 count shall not be included in gross income. 

23 ‘‘(B) QUALIFIED DISTRIBUTION.—For 

24 purposes of this section, the term ‘qualified dis25 tribution’ means the amount of any payment or 


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1 distribution made from a small business savings 

2 account— 

3 ‘‘(i) to the extent that such distribu4 tion does not exceed the eligible costs paid 

5 or incurred by the taxpayer during the tax6 able year if the distribution, and 

7 ‘‘(ii) which is made not later than the 

8 last day of the 5th taxable year beginning 

9 after the initial distribution from the small 

10 business start-up savings account. 

11 For purposes of clause (i), a taxpayer shall be 

12 treated as having paid or incurred the tax13 payer’s allocable share of eligible costs of any 

14 entity in which the taxpayer directly holds stock 

15 or a capital or profits interest. 

16 ‘‘(C) ELIGIBLE COSTS.— 

17 ‘‘(i) IN GENERAL.—For purposes of 

18 this section, the term ‘eligible costs’ means 

19 costs paid or incurred by the taxpayer with 

20 respect to the designated business of the 

21 taxpayer for operating capital, the pur22 chase of equipment or facilities, marketing, 

23 training, incorporation, and accounting 

24 fees. 


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1 ‘‘(ii) DESIGNATED BUSINESS.—For 

2 purposes of clause (i), the term ‘designated 

3 business’ means any single business of the 

4 taxpayer which— 

5 ‘‘(I) employs 50 or fewer full6 time employees on all days during the 

7 taxable year, and 

8 ‘‘(II) is designated by the tax9 payer for purposes of this section. 

10 Any designation made under subclause 

11 (II), once made, may not be revoked. 

12 ‘‘(D) DISALLOWANCE OF EXCLUDED

13 AMOUNTS AS DEDUCTION, CREDIT, OR EXCLU14 SION.—No deduction, credit, or exclusion shall 

15 be allowed to the taxpayer under any other sec16 tion of this chapter for any qualified distribu17 tion to the extent taken into account in deter18 mining the amount of the exclusion under this 

19 paragraph. 

20 ‘‘(2) NONQUALIFIED DISTRIBUTIONS.— 

21 ‘‘(A) IN GENERAL.—Any amount paid or 

22 distributed out of a small business start-up sav23 ings account which is not a qualified distribu24 tion, including any amount paid out pursuant 

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1 cluded in the gross income of the taxpayer as 

2 provided in section 72. 

3 ‘‘(B) TREATMENT OF AMOUNTS REMAIN4 ING IN ACCOUNT.—Any remaining amount in a 

5 small business start-up savings account fol6 lowing the date described in paragraph 

7 (1)(B)(ii) shall be treated as distributed during 

8 the taxable year following such date and such 

9 distribution shall not be treated as a qualified 

10 distribution. 

11 ‘‘(C) ADDITIONAL TAX.— 

12 ‘‘(i) IN GENERAL.—The tax imposed 

13 by this chapter on the account beneficiary 

14 for any taxable year in which there is a 

15 payment or distribution from a small busi16 ness start-up savings account of such bene17 ficiary which is includible in income under 

18 subparagraph (A) shall be increased by 10 

19 percent of the amount which is so includ20 ible. 

21 ‘‘(ii) EXCEPTION.—Clause (i) shall 

22 not apply if the payment or distribution is 

23 made after the account beneficiary be24 comes disabled within the meaning of sec25 tion 72(m)(7) or dies. 


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1 ‘‘(3) EXCESS CONTRIBUTIONS RETURNED BE2 FORE DUE DATE OF RETURN.— 

3 ‘‘(A) IN GENERAL.—If any excess con4 tribution is contributed for a taxable year to 

5 any small business start-up savings account of 

6 an individual, paragraph (2) shall not apply to 

7 distributions from the small business start-up 

8 savings accounts of such individual (to the ex9 tent such distributions do not exceed the aggre10 gate excess contributions to all such accounts of 

11 such individual for such year) if— 

12 ‘‘(i) such distribution is received by 

13 the individual on or before the last day 

14 prescribed by law (including extensions of 

15 time) for filing such individual’s return for 

16 such taxable year, and 

17 ‘‘(ii) such distribution is accompanied 

18 by the amount of net income attributable 

19 to such excess contribution. 

20 ‘‘(B) EXCESS CONTRIBUTION.—For pur21 poses of subparagraph (A), the term ‘excess 

22 contribution’ means any contribution (other 

23 than a rollover contribution described in para24 graph (4)) which when added to all previous 

25 contributions for the taxable year exceeds the 


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1 amount allowable as a contribution under sub2 section (b)(1). 

3 ‘‘(4) ROLLOVER CONTRIBUTION.—Paragraph 

4 (2) shall not apply to any amount paid or distrib5 uted from a small business start-up savings account 

6 to the account beneficiary to the extent the amount 

7 received is paid into a small business start-up sav8 ings account for the benefit of such beneficiary not 

9 later than the 60th day after the day on which the 

10 beneficiary receives the payment or distribution. For 

11 purposes of this paragraph, rules similar to the rules 

12 of section 408(d)(3)(D) shall apply. 

13 ‘‘(5) TRANSFER OF ACCOUNT INCIDENT TO DI14 VORCE.—The transfer of an individual’s interest in 

15 a small business start-up savings account to an indi16 vidual’s spouse or former spouse under a divorce or 

17 separation instrument described in subparagraph 

18 (A) of section 71(b)(2) shall not be considered a tax19 able transfer made by such individual notwith20 standing any other provision of this subtitle, and 

21 such interest shall, after such transfer, be treated as 

22 a small business start-up savings account with re23 spect to which such spouse is the account bene24 ficiary. 


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1 ‘‘(6) TREATMENT AFTER DEATH OF ACCOUNT

2 BENEFICIARY.— 

3 ‘‘(A) TREATMENT IF DESIGNATED BENE4 FICIARY IS SPOUSE.—If the account bene5 ficiary’s surviving spouse acquires such bene6 ficiary’s interest in a small business start-up 

7 savings account by reason of being the des8 ignated beneficiary of such account at the death 

9 of the account beneficiary, such account shall 

10 be treated as if the spouse were the account 

11 beneficiary. 

12 ‘‘(B) OTHER CASES.— 

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

14 the death of the account beneficiary, any 

15 person acquires the account beneficiary’s 

16 interest in a small business start-up sav17 ings account in a case to which subpara18 graph (A) does not apply— 

19 ‘‘(I) such account shall cease to 

20 be a small business start-up savings 

21 account as of the date of death, and 

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

23 market value of the assets in such ac24 count on such date shall be includible, 

25 if such person is not the estate of 


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1 such beneficiary, in such person’s 

2 gross income for the taxable year 

3 which includes such date, or if such 

4 person is the estate of such bene5 ficiary, in such beneficiary’s gross in6 come for the last taxable year of such 

7 beneficiary. 

8 ‘‘(ii) SPECIAL RULES.— 

9 ‘‘(I) REDUCTION OF INCLUSION

10 FOR PREDEATH EXPENSES.—The 

11 amount includible in gross income 

12 under clause (i) by any person (other 

13 than the estate) shall be reduced by 

14 the amount of qualified distributions 

15 which were paid or incurred by the 

16 decedent before the date of the dece17 dent’s death and paid by such person 

18 within 1 year after such date. 

19 ‘‘(II) DEDUCTION FOR ESTATE

20 TAXES.—An appropriate deduction 

21 shall be allowed under section 691(c) 

22 to any person (other than the dece23 dent or the decedent’s spouse) with 

24 respect to amounts included in gross 


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1 income under clause (i) by such per2 son. 

3 ‘‘(f) COMMUNITY PROPERTY LAWS.—This section 

4 shall be applied without regard to any community property 

5 laws. 

6 ‘‘(g) ADJUSTMENT FOR INFLATION.—In the case of 

7 a taxable year beginning after December 31, 2014, of the 

8 dollar amount in subsection (b)(1) and each of the dollar 

9 amounts in subsection (c)(1) shall be increased by an 

10 amount equal to— 

11 ‘‘(1) such dollar amount, multiplied by 

12 ‘‘(2) the cost-of-living adjustment determined 

13 under section 1(f)(3) for the calendar year in which 

14 the taxable year begins, determined by substituting 

15 ‘calendar year 2013’ for ‘calendar year 1992’ in sub16 paragraph (B) thereof. 

17 If any amount as increased under the preceding sentence 

18 is not a multiple of $100, such amount shall be rounded 

19 to the nearest multiple of $100. 

20 ‘‘(h) REPORTS.—The trustee of a small business 

21 start-up savings account shall make such reports regard22 ing such account to the Secretary and to the individual 

23 for whom the account is, or is to be, maintained with re24 spect to contributions (and the years to which they relate), 

25 distributions, aggregating $10 or more in any calendar 


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1 year, and such other matters as the Secretary may re2 quire. The reports required by this subsection— 

3 ‘‘(1) shall be filed at such time and in such 

4 manner as the Secretary prescribes, and 

5 ‘‘(2) shall be furnished to individuals— 

6 ‘‘(A) not later than January 31 of the cal7 endar year following the calendar year to which 

8 such reports relate, and 

9 ‘‘(B) in such manner as the Secretary pre10 scribes. 

11 ‘‘(i) REGULATIONS.—The Secretary shall issue such 

12 regulations or other guidance as may be necessary to carry 

13 out this section, including for purposes of subsection 

14 (e)(1)(B)(i) the making reports by regarding eligible costs 

15 of an entity in which the taxpayer directly holds stock or 

16 a capital or profits interest.’’. 

17 (b) DEDUCTION ALLOWED WHETHER OR NOT INDI18 VIDUAL ITEMIZES DEDUCTIONS.—Section 62(a) of the In19 ternal Revenue Code of 1986 is amended by inserting 

20 after paragraph (21) the following new paragraph: 

21 ‘‘(22) SMALL BUSINESS START-UP SAVINGS AC22 COUNTS.—The deduction allowed by section 224.’’. 

23 (c) TAX ON PROHIBITED TRANSACTIONS.— 

24 (1) IN GENERAL.—Paragraph (1) of section 

25 4975(e) of the Internal Revenue Code of 1986 is 


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1 amended by striking ‘‘or’’ at the end of subpara2 graph (F), by redesignating subparagraph (G) as 

3 subparagraph (H), and by inserting after subpara4 graph (F) the following new subparagraph: 

5 ‘‘(G) a small business start-up savings ac6 count described in section 224, or’’. 

7 (2) SPECIAL RULE.—Subsection (c) of section 

8 4975 of such Code is amended by adding at the end 

9 of subsection (c) the following new paragraph: 

10 ‘‘(7) SPECIAL RULE FOR SMALL BUSINESS

11 START-UP SAVINGS ACCOUNTS.—An individual for 

12 whose benefit a small business start-up savings ac13 count is established and any contributor to such ac14 count shall be exempt from the tax imposed by this 

15 section with respect to any transaction concerning 

16 such account (which would otherwise be taxable 

17 under this section) if section 224(e)(2) applies with 

18 respect to such transaction.’’. 

19 (d) FAILURE TO PROVIDE REPORTS ON SMALL

20 BUSINESS START-UP SAVINGS ACCOUNTS.—Paragraph 

21 (2) of section 6693(a) of the Internal Revenue Code of 

22 1986 is amended by striking ‘‘and’’ at the end of subpara23 graph (D), by striking the period at the end of subpara24 graph (E) and inserting ‘‘, and’’, and by adding at the 

25 end the following new subparagraph: 


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1 ‘‘(F) section 224(h) (relating to small busi2 ness start-up savings accounts).’’. 

3 (e) EXCESS CONTRIBUTIONS.—Section 4973(b) of 

4 the Internal Revenue Code of 1986 is amended by adding 

5 at the end the following new subsection: 

6 ‘‘(h) EXCESS CONTRIBUTIONS TO SMALL BUSINESS

7 START-UP SAVINGS ACCOUNTS.—For purposes of this 

8 section, in the case of contributions to a small business 

9 start-up savings account (within the meaning of section 

10 224(c)), the term ‘excess contributions’ means the sum 

11 of— 

12 ‘‘(1) the excess (if any) of— 

13 ‘‘(A) the amount contributed for the tax14 able year to such accounts (other than a roll15 over contribution described in section 

16 224(e)(4)), over 

17 ‘‘(B) the amount allowable as a contribu18 tion under section 224(c)(1), and 

19 ‘‘(2) the amount determined under this sub20 section for the preceding taxable year, reduced by 

21 the sum of— 

22 ‘‘(A) the distributions out of the accounts 

23 for the taxable year, and 

24 ‘‘(B) the excess (if any) of the maximum 

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1 tions 224(c)(1) for the taxable year over the 

2 amount contributed to the accounts for the tax3 able year. 

4 For purposes of this subsection, any contribution 

5 which is distributed from a small business start-up 

6 savings account in a distribution described in section 

7 224(e)(3) shall be treated as an amount not contrib8 uted.’’. 

9 (f) CLERICAL AMENDMENT.—The table of contents 

10 for part VIII of subchapter B of chapter 1 of such Code 

11 is amended by redesignating the item relating to section 

12 224 as relating to section 225 and by inserting after the 

13 item relating to section 223 the following new item: 

‘‘Sec. 224. Small Business Start-Up Savings Accounts.’’. 

14 (g) EFFECTIVE DATE.—The amendments made by 

15 this section shall apply to taxable years beginning after 

16 December 31, 2013. 

Æ 


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