Small Business Start-up Savings Accounts Act of 2016

To amend the Internal Revenue Code of 1986 to establish tax-preferred Small Business Start-up Savings Accounts. 1. Short title This Act may be cited as the Small Business Start-up Savings Accounts Act of 2016 2. Establishment of Small Business Start-up Savings Accounts (a) In general Subpart A of part I of subchapter D of chapter 1 408B. Small Business Start-up Savings Accounts (a) General rule Except as provided in this section, a Small Business Start-up Savings Account shall be treated for purposes of this title in the same manner as an individual retirement plan. (b) Small business start-Up savings account For purposes of this title, the term Small Business Start-up Savings Account (c) Treatment of contributions (1) No deduction allowed No deduction shall be allowed under section 219 for a contribution to a Small Business Start-up Savings Account. (2) Contribution limit (A) In general The aggregate amount of contributions for any taxable year to all Small Business Start-up Savings Accounts maintained for the benefit of an individual shall not exceed $10,000. (B) Aggregate limitation The aggregate of the amount of contributions for all taxable years with respect to all Small Business Start-up Savings Accounts maintained for the benefit of an individual shall not exceed $150,000. (C) Cost of living adjustment (i) In general In the case of a taxable year beginning after 2017, the $10,000 amount in subparagraph (A) shall be increased by an amount equal to— (I) such dollar amount, multiplied by (II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2016 calendar year 1992 (ii) Rounding If any amount as adjusted under clause (i) is not a multiple of $500, such amount shall be rounded to the next lowest multiple of $500. (3) Contributions permitted after age 70 ½ Contributions to a Small Business Start-up Savings Account may be made even after the individual for whom the account is maintained has attained age 70 ½ (4) Rollovers from retirement plans not allowed A taxpayer shall not be allowed to make a qualified rollover contribution to a Small Business Start-up Savings Account from any eligible retirement plan (as defined in section 402(c)(8)(B)), except as may be provided by the Secretary in the case of a rollover from another Small Business Start-up Savings Account. (5) Income based on modified adjusted gross income (A) In general In the case of a taxable year in which the taxpayer’s adjusted gross income exceeds $150,000 ($300,000 in the case of a joint return), the dollar amount in effect for such taxable year under subsection (c)(2) shall be reduced (but not below zero) by the amount determined under subparagraph (B). (B) Amount of reduction The amount determined under this subparagraph shall be the amount which bears the same ratio to such limitation as— (i) the excess of— (I) the taxpayer’s adjusted gross income for such taxable year, over (II) $150,000 ($300,000 in the case of a joint return), bears to (ii) $25,000. (C) Modified adjusted gross income The term modified adjusted gross income (d) Treatment of distributions (1) Tax treatment (A) Exclusion of qualified distributions Any qualified distribution from a Small Business Start-up Savings Account shall not be includible in gross income. (B) Inclusion of other distributions Distributions from a Small Business Start-up Savings Account which is not a qualified distribution shall be included in gross income and, for purposes of section 1, treated as a net capital gain. (2) Qualified distribution For purposes of this subsection, the term qualified distribution (A) to the extent the amount of such payment or distribution does not exceed the sum of— (i) the aggregate amounts paid or incurred by the taxpayer for such taxable year with respect to a trade or business for the purchase of equipment or facilities, marketing, training, incorporation, and accounting fees, and (ii) the aggregate capital contributions of the taxpayer with respect to a trade or business for the taxable year (but only to the extent such amounts are used in such trade or business for purposes described in clause (i)), and (B) which, in the case of a payment or distribution subsequent to the first payment or distribution from such account (or any predecessor to such account)— (i) is made not later than the close of the 5th taxable year beginning after the date of such first payment or distribution, and (ii) is made with respect to the same trade or business with respect to which such first payment or distribution was made. (3) Treatment after death of account beneficiary If, by reason of the death of the account beneficiary, any person acquires the account beneficiary’s interest in a Small Business Start-up Savings Account— (A) such account shall cease to be a Small Business Start-up Savings Account as of the date of death, and (B) an amount equal to the fair market value of the assets in such account on such date shall be includible— (i) in the case of a person who is not the estate of such beneficiary, in such person’s gross income for the taxable year which includes such date, or (ii) in the case of a person who is the estate of such beneficiary, in such beneficiary’s gross income for the last taxable year of such beneficiary. (C) Special rules (i) Reduction of inclusion for predeath expenses The amount includible in gross income under subparagraph (B) shall be reduced by the amounts described in paragraph (2) which were incurred by the decedent before the date of the decedent’s death and paid by such person within 1 year after such date. (ii) Deduction for estate taxes An appropriate deduction shall be allowed under section 691(c) to any person (other than the decedent) with respect to amounts included in gross income under clause (i) by such person. (4) Mandatory distribution rules not to apply Section 401(a)(9)(A) and the incidental death benefit requirements of section 401(a) shall not apply to any Small Business Start-up Savings Account. . (b) Excess contributions Section 4973 of such Code is amended by adding at the end the following new subsection: (i) Excess contributions to Small Business Start-Up Savings Accounts For purposes of this section, in the case of contributions to all Small Business Start-up Savings Accounts (within the meaning of section 408B(b)) maintained for the benefit of an individual, the term excess contributions (1) the excess (if any) of— (A) the amount contributed to such accounts for the taxable year, over (B) the amount allowable as a contribution under section 408B(c)(2)(A) for such taxable year, and (2) the amount determined under this subsection for the preceding taxable year, reduced by the sum of— (A) the distributions out of the accounts for the taxable year, and (B) the excess (if any) of— (i) the maximum amount allowable as a contribution under section 408B(c)(2)(A) for such taxable year, over (ii) the amount contributed to such accounts for such taxable year, and (3) the excess (if any) of— (A) the excess (if any) of— (i) the aggregate amounts contributed to such accounts for all taxable years, over (ii) the aggregate amount allowable as contributions under section 408B(c)(2)(B) for all taxable years, over (B) the amount determined under this paragraph for all preceding taxable years. . (c) Conforming amendment The table of sections for subpart A of part I of subchapter D of chapter 1 of such Code is amended by inserting after the item relating to section 408A the following new item: Sec. 408B. Small Business Start-up Savings Accounts. . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2016.

Summary: Small Business Start-up Savings Accounts Act of 2016 This bill amends the Internal Revenue Code to provide for tax-preferred Small Business Start-up Savings Accounts to pay for trade or business expenses, including the purchase of equipment or facilities, marketing, training, incorporation, and accounting fees. The bill allows annual nondeductible contributions to such accounts of up to $10,000, subject to a $150,000 limit on total contributions to the account and adjustments for inflation after 2017. The bill sets forth rules for the tax treatment of contributions to and rollovers or distributions from the accounts, similar to rules governing individual retirement accounts (IRAs). Qualified distributions from the accounts are excluded from gross income.