‘‘(2) EXCESS CONTRIBUTIONS RETURNED BE-
FORE DUE DATE OF RETURN.—Paragraph (1) shall
not apply to the distribution of any contribution paid
during a taxable year to a volunteer firefighter sav-
ings account to the extent that such contribution ex-
ceeds the amount allowable as a deduction under
subsection (a) if—
‘‘(A) such distribution is received on or be-
fore the day prescribed by law (including exten-
sions of time) for filing such individual’s return
for such taxable year,
‘‘(B) no deduction is allowed under sub-
section (a) with respect to such excess contribu-
tion, and
‘‘(C) such distribution is accompanied by
the amount of net income attributable to such
excess contribution.
Any net income described in subparagraph (C) shall
be included in the gross income of the individual for
the taxable year in which such excess contribution
was made.
‘‘(3) ROLLOVER CONTRIBUTIONS.—
‘‘(A) IN
GENERAL.—Paragraph (1) shall
not apply to any amount paid or distributed to
an account holder from a volunteer firefighter
savings account to the extent that the amount
received is paid into an individual retirement
plan (as defined in section 7701(37)) for the
benefit of the account holder not later than the
60th day after the day on which the account
holder receives the payment or distribution.
‘‘(B) 
LIMITATION.—Subparagraph 
(A)
shall not apply to any payment or distribution
described in subparagraph (A) if, at any time
during the 1-year period ending on the day of
such receipt, such account holder received any
other amount described in subparagraph (A)
which was not includible in the account holder’s
gross income because of the application of sub-
paragraph (A).
‘‘(4) INVESTMENT IN COLLECTIBLES TREATED
AS DISTRIBUTIONS.—Rules similar to the rules of
section 408(m) shall apply for purposes of this sec-
tion.
‘‘(e) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) EXEMPTION FROM TAX.—A volunteer fire-
fighter savings account is exempt from taxation
under this subtitle unless such account has ceased to
be a volunteer firefighter savings account by reason
of paragraph (2). Notwithstanding the preceding
sentence, any such account is subject to the taxes
imposed by section 511 (relating to imposition of tax
on unrelated business income of charitable, etc. or-
ganizations).
‘‘(2) LOSS OF EXEMPTION OF ACCOUNT WHERE
INDIVIDUAL
ENGAGES
IN
PROHIBITED
TRANS-
ACTION.—
‘‘(A) IN GENERAL.—If the individual for
whose benefit a volunteer firefighter savings ac-
count is established or any individual who con-
tributes to such account engages in any trans-
action prohibited by section 4975 with respect
to the account, the account shall cease to be a
volunteer firefighter savings account as of the
first day of the taxable year (of the individual
so engaging in such transaction) during which
such transaction occurs.
‘‘(B) ACCOUNT TREATED AS DISTRIBUTING
ALL ITS ASSETS.—In any case in which any ac-
count ceases to be a volunteer firefighter sav-
ings account by reason of subparagraph (A) as
of the first day of any taxable year, paragraph
(1) of subsection (d) shall apply as if there was
a distribution on such first day in an amount
equal to the fair market value (on such first
day) of all assets in the account (on such first
day).
‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU-
RITY.—If, during any taxable year, the individual for
whose benefit a volunteer firefighter savings account
is established uses the account or any portion there-
of as security for a loan, the portion so used shall
be treated as distributed to the individual so using
such portion.
‘‘(f) SPECIAL RULES.—
‘‘(1) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—A taxpayer shall be deemed to have made a
contribution to a volunteer firefighter savings ac-
count on the last day of the preceding taxable year
if the contribution is made on account of such tax-
able year and is made not later than the time pre-
scribed by law for filing the return for such taxable
year (not including extensions thereof).
‘‘(2) DEATH AND DIVORCE.—Rules similar to
the rules of sections 401(a)(9), 401(a)(11), and
408(d)(6) shall apply for purposes of this section.
‘‘(3) COMMUNITY PROPERTY LAWS.—This sec-
tion shall be applied without regard to any commu-
nity property laws.
‘‘(g) REPORTS.—The trustee of a volunteer fire-
fighter savings account shall make such reports regarding
such account to the Secretary and to the account holder
with respect to contributions, distributions, and such other
matters as the Secretary may require under regulations.
The reports required by this subsection shall be filed at
such time and in such manner and furnished to such indi-
viduals at such time and in such manner as may be re-
quired by those regulations.’’.
(b) ALLOWANCE OF DEDUCTION IN COMPUTING AD-
JUSTED GROSS INCOME.—Subsection (a) of section 62 of
such Code (defining adjusted gross income) is amended
by inserting after paragraph (17) the following new para-
graph:
‘‘(18) CONTRIBUTIONS
TO
VOLUNTEER
FIRE-
FIGHTER
SAVINGS
ACCOUNTS.—The deduction al-
lowed by section 222(a).’’.
(c) ADDITIONAL TAX ON EARLY DISTRIBUTIONS.—
Subsection (t) of section 72 of such Code (relating to 10-
percent additional tax on early distributions from qualified
retirement plans) is amended—
(1) in paragraph (1) by inserting ‘‘or a volun-
teer firefighter savings account (as defined in section
220(c))’’ after ‘‘section 4974(c))’’, and