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endar year in which such individual’s taxable year
begins.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) ELIGIBLE INDIVIDUAL.—
‘‘(A) IN GENERAL.—The term ‘eligible in-
dividual’ means, with respect to any month, any
individual—
‘‘(i) who is covered under a cata-
strophic health plan at any time during
such month, and
‘‘(ii) who is not, while covered under
a catastrophic health plan, covered under
any health plan—
‘‘(I) which is not a catastrophic
health plan, and
‘‘(II) which provides coverage for
any benefit which is covered under the
catastrophic health plan.
‘‘(B) 
CERTAIN
COVERAGE
DIS-
REGARDED.—Subparagraph (A)(ii) shall be ap-
plied without regard to—
‘‘(i) coverage for any benefit provided
by permitted insurance, and
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‘‘(ii) coverage (whether through insur-
ance or otherwise) for accidents, dental
care, vision care, or long-term care.
‘‘(2) CATASTROPHIC HEALTH PLAN.—The term
‘catastrophic health plan’ means any health plan
which provides no compensation for an individual’s
expenses covered by the plan for any calendar year
to the extent such expenses for such calendar year
do not exceed $1,500 ($3,000 if the catastrophic
health plan covering the taxpayer provides coverage
for more than 1 individual) or such higher amounts
as may be specified by the plan.
‘‘(3) PERMITTED INSURANCE.—The term ‘per-
mitted insurance’ means—
‘‘(A) Medicare supplemental insurance,
‘‘(B) insurance if substantially all of the
coverage provided under such insurance relates
to—
‘‘(i) liabilities incurred under workers’
compensation laws,
‘‘(ii) tort liabilities,
‘‘(iii) liabilities relating to ownership
or use of property,
‘‘(iv) credit insurance, or
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‘‘(v) such other similar liabilities as
the Secretary may specify by regulations,
‘‘(C) insurance for a specified disease or
illness, and
‘‘(D) insurance paying a fixed amount per
day (or other period) of hospitalization.
‘‘(d) MEDICAL SAVINGS ACCOUNT.—For purposes of
this section—
‘‘(1) MEDICAL SAVINGS ACCOUNT.—The term
‘medical savings account’ means a trust created or
organized in the United States exclusively for the
purpose of paying the qualified medical expenses of
the account holder, but only if the written governing
instrument creating the trust meets the following re-
quirements:
‘‘(A) Except in the case of a rollover con-
tribution described in subsection (f)(4), no con-
tribution will be accepted unless it is in cash.
‘‘(B) The trustee is a bank (as defined in
section 408(n)), an insurance company (as de-
fined in section 816), or another person who
demonstrates to the satisfaction of the Sec-
retary that the manner in which such person
will administer the trust will be consistent with
the requirements of this section.
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‘‘(C) No part of the trust assets will be in-
vested in life insurance contracts.
‘‘(D) The assets of the trust will not be
commingled with other property except in a
common trust fund or common investment
fund.
‘‘(E) The interest of an individual in the
balance in his account is nonforfeitable.
‘‘(2) QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
medical expenses’ means, with respect to an ac-
count holder, amounts paid by such holder—
‘‘(i) for medical care (as defined in
section 213(d)) for such individual, the
spouse of such individual, and any depend-
ent (as defined in section 152) of such in-
dividual, but only to the extent such
amounts are not compensated for by insur-
ance or otherwise, or
‘‘(ii) for long-term care insurance for
such individual, spouse, or dependent.
‘‘(B) HEALTH
INSURANCE
MAY
NOT
BE
PURCHASED
FROM
ACCOUNT.—Subparagraph
(A)(i) shall not apply to any payment for insur-
ance.
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‘‘(3) ACCOUNT
HOLDER.—The term ‘account
holder’ means the individual on whose behalf the
medical savings account was established.
‘‘(4) CERTAIN RULES TO APPLY.—Rules similar
to the following rules shall apply for purposes of this
section:
‘‘(A) Section 219(d)(2) (relating to no de-
duction for rollovers).
‘‘(B) Section 219(f)(3) (relating to time
when contributions deemed made).
‘‘(C) Except as provided in section 106(b),
section 219(f)(5) (relating to employer pay-
ments).
‘‘(D) Section 408(g) (relating to commu-
nity property laws).
‘‘(E) Section 408(h) (relating to custodial
accounts).
‘‘(e) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) ACCOUNT TAXED AS GRANTOR TRUST.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the account holder of a med-
ical savings account shall be treated for pur-
poses of this title as the owner of such account
and shall be subject to tax thereon in accord-
ance with subpart E of part I of subchapter J
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of this chapter (relating to grantors and others
treated as substantial owners).
‘‘(B) TREATMENT OF CAPITAL LOSSES.—
With respect to assets held in a medical savings
account, any capital loss for a taxable year
from the sale or exchange of such an asset shall
be allowed only to the extent of capital gains
from such assets for such taxable year. Any
capital loss which is disallowed under the pre-
ceding sentence shall be treated as a capital
loss from the sale or exchange of such an asset
in the next taxable year. For purposes of this
subparagraph, all medical savings accounts of
the account holder shall be treated as 1 ac-
count.
‘‘(2) ACCOUNT ASSETS TREATED AS DISTRIB-
UTED IN THE CASE OF PROHIBITED TRANSACTIONS
OR ACCOUNT PLEDGED AS SECURITY FOR LOAN.—
Rules similar to the rules of paragraphs (2) and (4)
of section 408(e) shall apply to medical savings ac-
counts, and any amount treated as distributed under
such rules shall be treated as not used to pay quali-
fied medical expenses.
‘‘(3) TREATMENT OF ACCOUNT AFTER DEATH
OF ACCOUNT HOLDER.—
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‘‘(A) a notice of such action is provided to
the taxpayer not later than the day 30 days be-
fore the date of such action, and
‘‘(B) such notice includes an explanation
why the Secretary intends to take such action.
The preceding sentence shall not apply in any case
in which the Secretary believes that collection of any
tax to which an agreement under this section relates
is in jeopardy.’’
(b) CONFORMING AMENDMENT.—Paragraph (3) of
section 6159(b) is amended to read as follows:
‘‘(3) SUBSEQUENT CHANGE IN FINANCIAL CON-
DITIONS.—If the Secretary makes a determination
that the financial condition of a taxpayer with whom
the Secretary has entered into an agreement under
subsection (a) has significantly changed, the Sec-
retary may alter, modify, or terminate such agree-
ment.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the date 6 months after
the date of the enactment of this Act.
SEC. 13307. ADMINISTRATIVE REVIEW OF TERMINATION OF
INSTALLMENT AGREEMENT.
(a) GENERAL RULE.—Section 6159 (relating to
agreements for payment of tax liability in installments)