171 
XVIII) to ‘age 65’ shall be deemed a reference to 
the medicare qualifying age specified in paragraph 
(2). 
‘‘(2) MEDICARE QUALIFYING AGE SPECIFIED.— 
The medicare qualifying age specified in this para-
graph is determined as follows: 
‘‘(A) In the case of an individual who at-
tains 65 years of age before January 1, 2019, 
the medicare qualifying age is 65 years of age. 
‘‘(B) In the case of an individual who at-
tains 65 years of age in a year after 2018 and 
before 2027, the medicare qualifying age is the 
medicare qualifying age specified in this para-
graph for the previous year increased by 2 
months. 
‘‘(C) In the case of an individual who at-
tains 65 years of age— 
‘‘(i) in the 2-year period beginning on 
January 1, 2027, the medicare qualifying 
age is 67 years and 1 month; or 
‘‘(ii) in a subsequent 2-year period be-
ginning before 2087, the medicare quali-
fying age is the medicare qualifying age 
specified in this paragraph for the previous 
2-year period (or, in the case of the first 
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2-year period, specified for 2026) increased 
by 1 month. 
‘‘(D) In the case of an individual who at-
tains 65 years of age on or after January 1, 
2086, the medicare qualifying age is the medi-
care qualifying age specified in this paragraph 
is 69 years and 6 months.’’. 
SEC. 303. UNIFIED MEDICARE TRUST FUND. 
(a) IN GENERAL.—The Federal Hospital Insurance 
Trust Fund (established under section 1817 of the Social 
Security Act) and the Federal Supplementary Medical In-
surance Trust Fund (established under section 1841 of 
such Act) are hereby consolidated into a unified Medicare 
trust fund. Such trust fund shall have separate accounts 
for parts A, B, and D of such title and shall be adminis-
tered by the same board of trustees that administers the 
current Trust Funds. 
(b) CONSTRUCTION.—Nothing in this section shall be 
construed as affecting the actual transfer of funds or com-
putations of amounts of premiums under any part of the 
Medicare program. 
(c) SOLVENCY.—The Medicare trustee shall establish 
a measure of program solvency for the Medicare program 
of total outlays as a measure of gross domestic product. 
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173 
Subtitle B—Changes in Current 
Medicare Program 
SEC. 311. INCOME-RELATED REDUCTION IN PART D PRE-
MIUM SUBSIDY. 
(a) INCOME-RELATED REDUCTION IN PART D PRE-
MIUM SUBSIDY.— 
(1) IN GENERAL.—Section 1860D–13(a) of the 
Social Security Act (42 U.S.C. 1395w–113(a)) is 
amended by adding at the end the following new 
paragraph: 
‘‘(7) REDUCTION IN PREMIUM SUBSIDY BASED 
ON INCOME.— 
‘‘(A) IN GENERAL.—In the case of an indi-
vidual whose modified adjusted gross income 
exceeds the threshold amount applicable under 
paragraph (2) of section 1839(i) (including ap-
plication of paragraph (5) of such section) for 
the calendar year, the monthly amount of the 
premium subsidy applicable to the premium 
under this section for a month after December 
2009 shall be reduced (and the monthly bene-
ficiary premium shall be increased) by the 
monthly adjustment amount specified in sub-
paragraph (B). 
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‘‘(B) MONTHLY ADJUSTMENT AMOUNT.— 
The monthly adjustment amount specified in 
this subparagraph for an individual for a month 
in a year is equal to the product of— 
‘‘(i) the quotient obtained by divid-
ing— 
‘‘(I) the applicable percentage de-
termined under paragraph (3)(C) of 
section 1839(i) (including application 
of paragraph (5) of such section) for 
the individual for the calendar year 
reduced by 25.5 percent; by 
‘‘(II) 25.5 percent; and 
‘‘(ii) the base beneficiary premium (as 
computed under paragraph (2)). 
‘‘(C) MODIFIED
ADJUSTED
GROSS
IN-
COME.—For purposes of this paragraph, the 
term ‘modified adjusted gross income’ has the 
meaning given such term in subparagraph (A) 
of section 1839(i)(4), determined for the tax-
able year applicable under subparagraphs (B) 
and (C) of such section. 
‘‘(D) DETERMINATION BY COMMISSIONER 
OF
SOCIAL
SECURITY.—The Commissioner of 
Social Security shall make any determination 
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necessary to carry out the income-related reduc-
tion in premium subsidy under this paragraph. 
‘‘(E) PROCEDURES TO ASSURE CORRECT 
INCOME-RELATED
REDUCTION
IN
PREMIUM 
SUBSIDY.— 
‘‘(i) DISCLOSURE
OF
BASE
BENE-
FICIARY
PREMIUM.—Not later than Sep-
tember 15 of each year beginning with 
2009, the Secretary shall disclose to the 
Commissioner 
of 
Social 
Security 
the 
amount of the base beneficiary premium 
(as computed under paragraph (2)) for the 
purpose of carrying out the income-related 
reduction in premium subsidy under this 
paragraph with respect to the following 
year. 
‘‘(ii) ADDITIONAL DISCLOSURE.—Not 
later than October 15 of each year begin-
ning with 2009, the Secretary shall dis-
close to the Commissioner of Social Secu-
rity the following information for the pur-
pose of carrying out the income-related re-
duction in premium subsidy under this 
paragraph with respect to the following 
year: 
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‘‘(I) The modified adjusted gross 
income threshold applicable under 
paragraph (2) of section 1839(i) (in-
cluding application of paragraph (5) 
of such section). 
‘‘(II) The applicable percentage 
determined under paragraph (3)(C) of 
section 1839(i) (including application 
of paragraph (5) of such section). 
‘‘(III) The monthly adjustment 
amount specified in subparagraph 
(B). 
‘‘(IV) Any other information the 
Commissioner of Social Security de-
termines necessary to carry out the 
income-related reduction in premium 
subsidy under this paragraph. 
‘‘(F) RULE OF CONSTRUCTION.—The for-
mula used to determine the monthly adjustment 
amount specified under subparagraph (B) shall 
only be used for the purpose of determining 
such monthly adjustment amount under such 
subparagraph.’’. 
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(2) COLLECTION
OF
MONTHLY
ADJUSTMENT 
AMOUNT.—Section 1860D–13(c) of the Social Secu-
rity Act (42 U.S.C. 1395w–113(c)) is amended— 
(A) in paragraph (1), by striking ‘‘(2) and 
(3)’’ and inserting ‘‘(2), (3), and (4)’’; and 
(B) by adding at the end the following new 
paragraph: 
‘‘(4) COLLECTION OF MONTHLY ADJUSTMENT 
AMOUNT.— 
‘‘(A) IN GENERAL.—Notwithstanding any 
other provision of this subsection or section 
1854(d)(2), subject to subparagraph (B), the 
amount of the income-related reduction in pre-
mium subsidy for an individual for a month (as 
determined under subsection (a)(7)) shall be 
paid through withholding from benefit pay-
ments in the manner provided under section 
1840. 
‘‘(B) AGREEMENTS.—In the case where 
the monthly benefit payments of an individual 
that are withheld under subparagraph (A) are 
insufficient to pay the amount described in such 
subparagraph, the Commissioner of Social Se-
curity shall enter into agreements with the Sec-
retary, the Director of the Office of Personnel 
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178 
Management, and the Railroad Retirement 
Board as necessary in order to allow other 
agencies to collect the amount described in sub-
paragraph (A) that was not withheld under 
such subparagraph.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) MEDICARE.—Part D of title XVIII of the 
Social Security Act (42 U.S.C. 1395w–101 et seq.) 
is amended— 
(A) in section 1860D–13(a)(1)— 
(i) by redesignating subparagraph (F) 
as subparagraph (G); 
(ii) in subparagraph (G), as redesig-
nated by clause (i), by striking ‘‘(D) and 
(E)’’ and inserting ‘‘(D), (E), and (F)’’; 
and 
(iii) by inserting after subparagraph 
(E) the following new subparagraph: 
‘‘(F) INCREASE BASED ON INCOME.—The 
monthly beneficiary premium shall be increased 
pursuant to paragraph (7).’’; and 
(B) in section 1860D–15(a)(1)(B), by 
striking ‘‘paragraph (1)(B)’’ and inserting 
‘‘paragraphs (1)(B) and (1)(F)’’. 
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179 
(2) 
INTERNAL
REVENUE
CODE.—Section 
6103(l)(20) of the Internal Revenue Code of 1986 
(relating to disclosure of return information to carry 
out Medicare part B premium subsidy adjustment) 
is amended— 
(A) in the heading, by striking ‘‘PART B 
PREMIUM SUBSIDY ADJUSTMENT’’ and inserting 
‘‘PARTS B AND D PREMIUM SUBSIDY ADJUST-
MENTS’’; 
(B) in subparagraph (A)— 
(i) in the matter preceding clause (i), 
by inserting ‘‘or 1860D–13(a)(7)’’ after 
‘‘1839(i)’’; and 
(ii) in clause (vii), by inserting after 
‘‘subsection (i) of such section’’ the fol-
lowing: ‘‘or under section 1860D–13(a)(7) 
of such Act’’; and 
(C) in subparagraph (B)— 
(i) by inserting ‘‘or such section 
1860D–13(a)(7)’’ before the period at the 
end; 
(ii) as amended by clause (i), by in-
serting ‘‘or for the purpose of resolving tax 
payer appeals with respect to any such pre-
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mium adjustment’’ before the period at the 
end; and 
(iii) by adding at the end the fol-
lowing new sentence: ‘‘Officers, employees, 
and contractors of the Social Security Ad-
ministration may disclose such return in-
formation to officers, employees, and con-
tractors of the Department of Health and 
Human Services, the Office of Personnel 
Management, the Railroad Retirement 
Board, the Department of Justice, and the 
courts of the United States to the extent 
necessary to carry out the purposes de-
scribed in the preceding sentence.’’; and 
(D) by adding at the end the following new 
subparagraph: 
‘‘(C) TIMING OF DISCLOSURE.—Return in-
formation shall be disclosed to officers, employ-
ees, and contractors of the Social Security Ad-
ministration under subparagraph (A) not later 
than the date that is 90 days prior to the date 
on which the taxpayer first becomes entitled to 
benefits under part A of title XVIII of the So-
cial Security Act or eligible to enroll for benefits 
under part B of such title.’’. 
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181 
SEC. 312. REDUCTION IN HOSPITAL MARKETBASKET IN-
CREASES. 
Notwithstanding any other provision of law: 
(1) OUTPATIENT
HOSPITAL
SERVICES.—For 
2010 and each succeeding year, the OPD fee sched-
ule increase factor otherwise computed under section 
1833(t)(3)(C)(iv) of the Social Security Act (42 
U.S.C. 1395l(t)(3)(C)(iv)) shall be reduced by .4 
percentage points. 
(2) INPATIENT HOSPITAL SERVICES.—For fis-
cal year 2010 and each succeeding fiscal year, the 
applicable percentage increase otherwise computed 
under clauses (i) and (ii) of section 1886(b)(3)(B) of 
such Act (42 U.S.C. 1395ww(b)(3)(B)) shall be re-
duced by .4 percentage points. 
SEC. 313. ELIMINATION OF INDEXING OF INCOME THRESH-
OLDS FOR PART B INCOME-RELATED PRE-
MIUMS. 
(a) IN GENERAL.—Section 1839(i) of the Social Se-
curity Act (42 U.S.C. 1395r(i)) is amended by striking 
paragraph (5). 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to premiums for years beginning 
with 2010. 
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182 
TITLE IV—SOCIAL SECURITY 
REFORM 
SEC. 401. SHORT TITLE AND TABLE OF CONTENTS OF 
TITLE. 
(a) SHORT TITLE OF TITLE.—This title may be cited 
as the ‘‘Social Security Personal Savings Guarantee and 
Prosperity Act of 2008’’. 
(b) TABLE OF CONTENTS OF TITLE.—The table of 
contents for this title is as follows: 
TITLE IV—SOCIAL SECURITY REFORM 
Sec. 401. Short title and table of contents of title. 
Sec. 402. Establishment of Personal Social Security Savings Program. 
‘‘PART B—PERSONAL SOCIAL SECURITY SAVINGS PROGRAM 
‘‘Sec. 251. Definitions. 
‘‘Sec. 252. Social Security Personal Savings Fund. 
‘‘Sec. 253. Participation in Program. 
‘‘Sec. 254. Personal social security savings accounts. 
‘‘Sec. 255. Tier I Investment Fund. 
‘‘Sec. 256. Tier II Investment Fund. 
‘‘Sec. 257. Tier III Investment Options. 
‘‘Sec. 258. Personal social security savings annuity and other distributions. 
‘‘Sec. 259. Guarantee of promised benefits. 
‘‘Sec. 260. Personal Social Security Savings Board. 
‘‘Sec. 261. Executive Director. 
Sec. 403. Monthly insurance benefits for participating individuals. 
Sec. 404. Tax treatment of accounts. 
Sec. 405. Self-Liquidating Social Security Transition Fund. 
Sec. 406. Budgetary treatment of social security. 
Sec. 407. Accounting for the Old-Age, Survivors, and Disability Insurance Pro-
gram and the Personal Social Security Savings Program. 
Sec. 408. Progressive indexing of benefits for old-age, wife’s, and husband’s in-
surance benefits. 
Sec. 409. Enhancements to part A benefits. 
Sec. 410. Adjustments to schedule for increases in normal retirement age. 
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183 
SEC. 402. ESTABLISHMENT OF PERSONAL SOCIAL SECU-
RITY SAVINGS PROGRAM. 
(a) IN GENERAL.—Title II of the Social Security Act 
is amended— 
(1) by inserting before section 201 the fol-
lowing: 
‘‘PART A—INSURANCE BENEFITS’’; 
and 
(2) by adding at the end the following new part: 
‘‘PART B—PERSONAL SOCIAL SECURITY SAVINGS 
PROGRAM 
‘‘SEC. 251. DEFINITIONS. 
‘‘For purposes of this part— 
‘‘(1) PARTICIPATING
INDIVIDUAL.—The term 
‘participating individual’ has the meaning provided 
in section 253(a). 
‘‘(2) BOARD.—The term ‘Board’ means the 
Personal Social Security Savings Board established 
under section 260. 
‘‘(3) EXECUTIVE DIRECTOR.—The term ‘Execu-
tive Director’ means the Executive Director ap-
pointed under section 261. 
‘‘(4) PERSONAL SOCIAL SECURITY SAVINGS AC-
COUNT.—The term ‘personal social security savings 
account’ means an account established under section 
254(a). 
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184 
‘‘(5) PERSONAL SOCIAL SECURITY SAVINGS AN-
NUITY.—The term ‘personal social security savings 
annuity’ means an annuity approved by the Board 
under section 258(b)(3). 
‘‘(6) SAVINGS FUND.—The term ‘Savings Fund’ 
means the Social Security Personal Savings Fund 
established under section 252. 
‘‘(7) TIER
I
INVESTMENT
FUND.—The term 
‘Tier I Investment Fund’ means the trust fund cre-
ated under section 255. 
‘‘(8) TIER II INVESTMENT FUND.—The term 
‘Tier II Investment Fund’ means the trust fund cre-
ated under section 256. 
‘‘(9) TIER III INVESTMENT OPTION.—The term 
‘Tier III Investment Option’ means an investment 
option which is— 
‘‘(A) offered by an eligible entity certified 
by the Board under section 257(b); and 
‘‘(B) approved by the Board under section 
257(c). 
‘‘SEC. 252. SOCIAL SECURITY PERSONAL SAVINGS FUND. 
‘‘(a) ESTABLISHMENT OF SAVINGS FUND.— 
‘‘(1) ESTABLISHMENT.—There is established in 
the Treasury of the United States a trust fund to 
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be known as the ‘Social Security Personal Savings 
Fund’. 
‘‘(2) AMOUNTS IN FUND.—The Savings Fund 
shall consist of— 
‘‘(A) all amounts transferred to or depos-
ited into the Savings Fund under subsection 
(b), increased by the total net earnings from in-
vestments of sums in the Savings Fund attrib-
utable 
to 
such 
transferred 
or 
deposited 
amounts, and reduced by the total net losses 
from investments of such sums, and 
‘‘(B) the reserves held in the Annuity Re-
serves 
Account 
established 
under 
section 
258(b)(3), increased by the total net earnings 
from investments of such reserves, and reduced 
by the total net losses from investments of such 
reserves. 
‘‘(3) TRUSTEES.—The Board shall serve as 
trustees of the Savings Fund. 
‘‘(4) BUDGET
AUTHORITY; APPROPRIATION.— 
This part constitutes budget authority in advance of 
appropriations Acts and represents the obligation of 
the Board to provide for the payment of amounts 
provided under this part. The amounts held in the 
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Savings Fund are appropriated and shall remain 
available without fiscal year limitation. 
‘‘(b) DEPOSITS INTO FUND.— 
‘‘(1) IN GENERAL.—During each calendar year, 
the Secretary of the Treasury shall deposit into the 
Savings Fund, from amounts held in the Federal 
Old-Age and Survivors Insurance Trust Fund, a 
total amount equal, in the aggregate, to 100 percent 
of the redirected social security contribution for such 
calendar year of each individual who is a partici-
pating individual for such calendar year. 
‘‘(2) TRANSFERS BASED ON ESTIMATES.— 
‘‘(A) IN GENERAL.—The amounts depos-
ited pursuant to paragraph (1) shall be trans-
ferred in at least weekly payments from the 
Federal Old-Age and Survivors Insurance Trust 
Fund to the Savings Fund. 
‘‘(B) DETERMINATION OF AMOUNTS.—The 
amounts transferred under subparagraph (A) 
shall be determined on the basis of estimates, 
made by the Commissioner of Social Security 
and certified to the Secretary of the Treasury, 
of the wages paid to, and self-employment in-
come derived by, participating individuals. 
Proper adjustments shall be made in amounts 
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subsequently transferred to the extent prior es-
timates were in excess of or were less than ac-
tual amounts transferred. 
‘‘(3) REDIRECTED SOCIAL SECURITY CONTRIBU-
TIONS.—For purposes of paragraph (1)— 
‘‘(A) IN GENERAL.—The term ‘redirected 
social security contributions’ means, with re-
spect to an individual for a calendar year, the 
sum of— 
‘‘(i) the product derived by multi-
plying— 
‘‘(I) the sum of the total wages 
paid to, and self-employment income 
derived by, such individual during 
such calendar year, to the extent such 
total wages and self-employment in-
come do not exceed the base amount 
for such calendar year; by 
‘‘(II) the applicable base percent-
age for the calendar year; and 
‘‘(ii) the product derived by multi-
plying— 
‘‘(I) the sum of the total wages 
paid to, and self-employment income 
derived by, such individual during 
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such calendar year, to the extent such 
total wages and self-employment in-
come exceed the base amount (taking 
into account the limits imposed by the 
contribution and benefit base under 
section 230); by 
‘‘(II) the applicable supplemental 
percentage for the calendar year. 
‘‘(B) BASE
AMOUNT.—For purposes of 
subparagraph (A)— 
‘‘(i) INITIAL
BASE
AMOUNT.—The 
base amount for calendar year 2011 is 
$10,000. 
‘‘(ii) 
ADJUSTMENTS
TO
BASE 
AMOUNT.—The base amount for any cal-
endar year after 2011 is the product de-
rived by multiplying $10,000 by a frac-
tion— 
‘‘(I) the numerator of which is 
the national average wage index (as 
defined in section 209(k)) for the first 
of the 2 preceding calendar years; and 
‘‘(II) the denominator of which is 
the national average wage index (as so 
defined) for 2009. 
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‘‘(C) APPLICABLE
BASE
PERCENTAGE.— 
For purposes of subparagraph (A), the applica-
ble base percentage for a calendar year is— 
‘‘(i) for calendar years after 2010 and 
before 2021, 2 percent; 
‘‘(ii) for calendar years after 2020 
and before 2031, 4 percent; 
‘‘(iii) for calendar years after 2030 
and before 2041, 6 percent; and 
‘‘(iv) for calendar years after 2040, 8 
percent. 
‘‘(D) APPLICABLE
SUPPLEMENTAL
PER-
CENTAGE.—For purposes of subparagraph (A), 
the applicable supplemental percentage for a 
calendar year is— 
‘‘(i) for calendar years after 2010 and 
before 2021, 1 percent; 
‘‘(ii) for calendar years after 2020 
and before 2031, 2 percent; 
‘‘(iii) for calendar years after 2030 
and before 2041, 3 percent; and 
‘‘(iv) for calendar years after 2040, 4 
percent. 
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‘‘(c) AVAILABILITY.—The sums in the Savings Fund 
are appropriated and shall remain available without fiscal 
year limitation— 
‘‘(1) to invest funds in the Tier I Investment 
Fund of the Savings Fund and the Tier II Invest-
ment Fund of the Savings Fund under sections 255 
and 256, respectively; 
‘‘(2) to transfer into Tier III Investment Op-
tions under section 257; 
‘‘(3) to make distributions in accordance with 
section 258; and 
‘‘(4) to pay the administrative expenses of the 
Board in accordance with subsection (e). 
‘‘(d) LIMITATIONS ON USE OF FUNDS.— 
‘‘(1) IN GENERAL.—Sums in the Savings Fund 
credited to a participating individual’s personal so-
cial security savings account may not be used for, or 
diverted to, purposes other than for the exclusive 
benefit of the participating individual or the partici-
pating individual’s beneficiaries under this part. 
‘‘(2) ASSIGNMENTS.—Sums in the Savings 
Fund may not be assigned or alienated and are not 
subject to execution, levy, attachment, garnishment, 
or other legal process. 
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‘‘(e) PAYMENT OF ADMINISTRATIVE EXPENSES.— 
Administrative expenses incurred to carry out this part 
shall be paid out of net earnings in the Savings Fund in 
conjunction with the allocation of investment earnings and 
losses under section 254(c). 
‘‘(f) LIMITATION.—The sums in the Savings Fund 
shall not be appropriated for any purpose other than the 
purposes specified in this part and may not be used for 
any other purpose. 
‘‘SEC. 253. PARTICIPATION IN PROGRAM. 
‘‘(a) PARTICIPATING INDIVIDUAL.—For purposes of 
this part, the term ‘participating individual’ means any 
individual— 
‘‘(1)(A) who receives wages in any calendar 
year after December 31, 2010, on which there is im-
posed a tax under section 3101(a) of the Internal 
Revenue Code of 1986, or 
‘‘(B) who derives self-employment income for a 
taxable year beginning after December 31, 2010, on 
which there is imposed a tax under section 1401(a) 
of the Internal Revenue Code of 1986, 
‘‘(2) who is born on or after January 1, 1954, 
and 
‘‘(3) who has not filed an election to renounce 
such individual’s status as a participating individual 
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under subsection (b) or has filed such an election 
and has subsequently filed an election to reinstate 
such individual’s status as a participating individual 
under subsection (c). 
‘‘(b) RENUNCIATION OF PARTICIPATION.— 
‘‘(1) IN GENERAL.—An individual— 
‘‘(A) who has not attained retirement age 
(as defined in section 216(l)(1)), and 
‘‘(B) with respect to whom no distribution 
has been made from amounts credited to the in-
dividual’s personal social security savings ac-
count for the purchase of a personal social se-
curity savings annuity, 
may elect, in such form and manner as shall be pre-
scribed in regulations of the Board, to renounce 
such individual’s status as a ‘participating indi-
vidual’ for purposes of this part. Upon completion of 
the procedures provided for under paragraph (2), 
any such individual who has made such an election 
shall not be treated as a participating individual 
under this part, effective as if such individual had 
never been a participating individual. The Board 
shall provide for immediate notification of such elec-
tion to the Commissioner of Social Security, the Sec-
retary of the Treasury, and the Executive Director. 
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‘‘(2) PROCEDURE.—The Board shall prescribe 
by regulation procedures governing the termination 
of an individual’s status as ‘participating individual’ 
pursuant to an election under this subsection. Such 
procedures shall include— 
‘‘(A) prompt closing of the individual’s per-
sonal social security savings account established 
under section 254, 
‘‘(B) revocation of any benefit credit cer-
tificate assigned to the individual’s personal so-
cial security savings account under section 255, 
and 
‘‘(C) prompt transfer to the Federal Old- 
Age and Survivors Insurance Trust Fund as 
general receipts of any amount held in the Tier 
II Investment Fund of the Savings Fund or 
under a Tier III Investment Option pursuant to 
section 256 or 257 and credited to such individ-
ual’s personal social security savings account. 
‘‘(c) REINSTATEMENT OF PARTICIPATION.— 
‘‘(1) IN
GENERAL.—Any individual who has 
filed an election under subsection (b) to renounce 
such individual’s status as a ‘participating indi-
vidual’ under this part may elect, in such form and 
manner as shall be prescribed in regulations of the 
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Board, to reinstate such status. Such regulations 
shall provide for regular, periodic opportunities for 
the filing of such an election. The Board shall pro-
vide for immediate notification to the Commissioner 
of Social Security, the Secretary of the Treasury, 
and the Executive Director of such election. 
‘‘(2) EFFECTIVENESS
OF
REINSTATEMENT.— 
An election under this subsection shall be effective 
with respect to wages earned, and self-employment 
income derived, on the earliest date on which the 
Board determines is practicable to make such elec-
tion effective following the date of the filing of the 
election. The individual filing the election shall be 
treated as becoming a participating individual under 
this part on the effective date of the election as if 
such individual first met the requirements of sub-
section (a) on such date. 
‘‘(3) IRREVOCABILITY.—An election under this 
subsection shall be irrevocable. 
‘‘SEC. 254. PERSONAL SOCIAL SECURITY SAVINGS AC-
COUNTS. 
‘‘(a) ESTABLISHMENT OF PUBLICLY ADMINISTERED 
SYSTEM OF PERSONAL SECURITY SAVINGS ACCOUNTS.— 
As soon as practicable after the later of January 1, 2011, 
or the date on which an individual becomes a participating 
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individual under this part, the Executive Director shall es-
tablish a personal social security savings account for such 
individual. Such account shall be the means by which 
amounts held in the Tier I Investment Fund and the Tier 
II Investment Fund of the Savings Fund under sections 
255 and 256 and amounts held under Tier III Investment 
Options under section 257 are credited to such individual, 
under procedures which shall be established by the Board 
by regulation. Each account of a participating individual 
shall be identified to such participating individual by 
means of the participating individual’s social security ac-
count number. 
‘‘(b) ACCOUNT BALANCE.—The balance in a partici-
pating individual’s account at any time is the sum of— 
‘‘(1) the balance in the Tier I Investment Fund 
of the Savings Fund credited to such participating 
individual prior to transfer of the credited amount to 
the Tier II Investment Fund of the Savings Fund; 
plus 
‘‘(2) the excess of— 
‘‘(A) all deposits in the Tier II Investment 
Fund of the Savings Fund credited to such par-
ticipating individual’s personal social security 
savings account, subject to such increases and 
reductions as may result from allocations made 
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to and reductions made in the account pursuant 
to subsection (c)(1); over 
‘‘(B) amounts paid out of the Tier II In-
vestment Fund in connection with amounts 
credited to such participating individual’s per-
sonal social security savings account; plus 
‘‘(3) the excess of— 
‘‘(A) the deposits in the Tier III Invest-
ment Options credited to such participating in-
dividual’s personal social security savings ac-
count, subject to such increases and reductions 
as may result from amounts credited to, and re-
ductions made in, the account pursuant to sub-
section (c)(2); over 
‘‘(B) amounts paid out of the Tier III In-
vestment Options of such participating indi-
vidual. 
The calculation made under paragraph (3) shall be made 
separately for each Tier III Investment Option of the par-
ticipating individual. The Board shall also hold for the 
participating individual any benefit credit certificate as-
signed to the participating individual’s personal social se-
curity savings account under section 255. 
‘‘(c) ALLOCATION OF EARNINGS AND LOSSES.—Pur-
suant to regulations which shall be prescribed by the 
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Board, the Executive Director shall allocate to each per-
sonal social security savings account an amount equal to 
the net earnings and net losses from each investment of 
sums— 
‘‘(1) in the Tier I Investment Fund and the 
Tier II Investment Fund which are attributable to 
sums credited to such account reduced by an appro-
priate share of the administrative expenses paid out 
of the net earnings, as determined by the Executive 
Director; and 
‘‘(2) in the Tier III Investment Options which 
are attributable to sums credited to such account re-
duced by the administrative expenses paid out of the 
net earnings. 
‘‘SEC. 255. TIER I INVESTMENT FUND. 
‘‘(a) ESTABLISHMENT
OF
TIER
I INVESTMENT 
FUND.— 
‘‘(1) IN GENERAL.—The Savings Fund shall in-
clude a separate fund to be known as the ‘Tier I In-
vestment Fund’. 
‘‘(2) AMOUNTS IN FUND.—The Tier I Invest-
ment Fund consists of all amounts derived from 
payments into the Fund under section 252(b) and 
remaining after investment of such amounts under 
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subsection (b), including additional amounts derived 
as income from such investments. 
‘‘(3) USE OF FUNDS.—The amounts held in the 
Fund are appropriated and shall remain available 
without fiscal year limitation— 
‘‘(A) to be held for investment on behalf of 
participating individuals under subsection (b), 
‘‘(B) to pay the administrative expenses re-
lated to the Fund, and 
‘‘(C) to make transfers from the Fund 
under subsection (c)(2). 
‘‘(b) INVESTMENT OF FUND BALANCE.—For pur-
poses of investment of the Tier I Investment Fund, the 
Board shall contract with appropriate professional asset 
managers, recordkeepers, and custodians selected for in-
vestment of amounts held in the Fund, so as to provide 
for investment of the balance of the Fund, in a manner 
providing broad diversification in accordance with regula-
tions of the Board, in— 
‘‘(1) insurance contracts, 
‘‘(2) certificates of deposit, or 
‘‘(3) other instruments or obligations selected 
by such asset managers, 
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which return the amount invested and pay interest, at a 
specified rate or rates, on that amount during a specified 
period of time. 
‘‘(c) SEPARATE CREDITING TO PERSONAL SOCIAL 
SECURITY SAVINGS ACCOUNTS AND TRANSFERS TO THE 
TIER II INVESTMENT FUND OR TO TIER III INVESTMENT 
OPTIONS.— 
‘‘(1) CREDITING TO ACCOUNTS.— 
‘‘(A) IN GENERAL.—Subject to this para-
graph, the Board shall provide for prompt, sep-
arate crediting, as soon as practicable, of the 
amounts deposited in the Tier I Investment 
Fund to the personal social security savings ac-
count of each participating individual with re-
spect to the redirected social security contribu-
tions (as defined in section 252(b)(3)) of such 
participating individual. The Board shall in-
clude in such crediting, with respect to each 
such individual, any increases or decreases in 
such amounts so as to reflect the net returns 
and losses from investment of the balance of 
the Fund prior to such crediting. For purposes 
of determining such increases and decreases for 
each calendar year, the amounts deposited into 
the Fund in connection with such individual 
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during such calendar year shall be deemed to 
have been deposited on June 30 of such year. 
‘‘(B) TREATMENT OF MARRIED PARTICI-
PATING INDIVIDUALS.—If the participating in-
dividual is married as of the end of the calendar 
year in which the amounts to be credited were 
deposited in the Tier I Investment Fund and 
the spouse is also a participating individual, the 
personal social security savings account of the 
participating individual and the personal social 
security savings account of his or her spouse 
shall each be credited with 50 percent of such 
amounts. 
‘‘(2) TRANSFERS
FROM
THE
TIER
I
INVEST-
MENT
FUND.—In accordance with elections filed 
with the Board by a participating individual, any 
amount credited to the personal social security sav-
ings account of such participating individual under 
paragraph (1) shall be promptly transferred to the 
Tier II Investment Fund of the Savings Fund for 
investment in accordance with section 256 and, to 
the extent available under section 257, to Tier III 
Investment Options in accordance with section 257. 
‘‘(d) TREATMENT OF AMOUNTS HELD IN TIER I IN-
VESTMENT FUND.—Subject to this part— 
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‘‘(1) until amounts deposited into the Tier I In-
vestment Fund during any calendar year are cred-
ited to personal social security savings accounts, 
such amounts shall be treated as the unallocated 
property of all participating individuals with respect 
to whom amounts were deposited in the Fund dur-
ing such year, jointly held in trust for such partici-
pating individuals in the Savings Fund, and 
‘‘(2) amounts deposited into the Fund which 
are credited to the personal social security savings 
account of a participating individual shall be treated 
as property of the participating individual, held in 
trust for such participating individual in the Savings 
Fund. 
‘‘SEC. 256. TIER II INVESTMENT FUND. 
‘‘(a) ESTABLISHMENT
OF TIER II INVESTMENT 
FUND.— 
‘‘(1) IN GENERAL.—The Savings Fund shall in-
clude a separate fund to be known as the ‘Tier II 
Investment Fund’. 
‘‘(2) AMOUNTS IN FUND.—The Tier II Invest-
ment Fund consists of all amounts derived from 
payments into the Fund under section 255(c)(2) and 
remaining after investment of such amounts under 
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subsection (b), including additional amounts derived 
as income from such investments. 
‘‘(3) USE OF FUNDS.—The amounts held in the 
Fund are appropriated and shall remain available 
without fiscal year limitation— 
‘‘(A) to be held for investment under sub-
section (b), 
‘‘(B) to pay the administrative expenses re-
lated to the Fund, and 
‘‘(C) to make transfers to Tier III Invest-
ment Options under section 257 or to make 
payments under section 258. 
‘‘(b) PAYMENTS INTO TIER II INVESTMENT FUND.— 
‘‘(1) IN GENERAL.—Upon the crediting under 
section 252 to the personal social security savings 
account of a participating individual of any amount 
held in the Tier I Investment Fund for any calendar 
year, the Board shall transfer from the Tier I In-
vestment Fund into the Tier II Investment Fund 
any amount so credited to such participating individ-
ual’s account which is not transferred to a Tier III 
Investment Option pursuant to an election under 
section 257(a). 
‘‘(2) ONGOING SEPARATE CREDITING.—Subject 
to this paragraph, the Board shall provide for ongo-
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203 
ing separate crediting to each participating individ-
ual’s personal social security savings account of the 
amounts deposited in the Tier II Investment Fund 
with respect to such participating individual, to-
gether with any increases or decreases therein so as 
to reflect the net returns and losses from investment 
thereof while held in the Fund. 
‘‘(c) INVESTMENT ACCOUNTS.— 
‘‘(1) IN GENERAL.—For purposes of investment 
of the Tier II Investment Fund, the Board shall di-
vide the Fund into 6 investment accounts. The 
Board shall contract with appropriate investment 
managers, recordkeepers, and custodians selected for 
investment of amounts held in each investment ac-
count. Such accounts shall consist of— 
‘‘(A) a Lifecycle Investment Account, 
‘‘(B) a Government Securities Investment 
Account, 
‘‘(C) a Fixed Income Investment Account, 
‘‘(D) a Common Stock Index Investment 
Account, 
‘‘(E) a Small Capitalization Stock Index 
Investment Account, and 
‘‘(F) an International Stock Index Invest-
ment Account. 
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204 
‘‘(2) ELECTION OF INVESTMENT OPTIONS.— 
‘‘(A) DEFAULT INVESTMENT ACCOUNT.— 
Except as provided in an election in effect 
under subparagraph (B), amounts held in the 
Tier II Investment Fund shall be credited to 
the Lifecycle Investment Account. 
‘‘(B) ELECTION OF TRANSFERS BETWEEN 
INVESTMENT ACCOUNTS.—In any case in which 
a participating individual who has an amount in 
such individual’s personal social security sav-
ings account credited to any of the investment 
accounts in the Tier II Investment Fund files 
with the Secretary of the Treasury a written 
election under this subparagraph, not more fre-
quently than annually and in accordance with 
regulations of the Board, the Secretary of the 
Treasury shall transfer the full amount so cred-
ited in such investment account from such in-
vestment account to any one of the other invest-
ment accounts in the Tier II Investment Fund 
(whichever is designated in such election). 
‘‘(d) LIFECYLE INVESTMENT ACCOUNT.— 
‘‘(1) IN GENERAL.—The investment manager, 
recordkeeper, and custodian selected for investment 
of amounts held in the Lifecyle Investment Account 
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205 
shall invest such amounts under regulations which 
shall be prescribed by the Board in a mix of equities 
and fixed income instruments so as to ensure, to the 
maximum extent practicable, that, of the total bal-
ance in the Fund credited to such account and avail-
able for investment (after allowing for administrative 
expenses), the percentage invested in fixed income 
instruments by individuals in designated cohorts, 
ranging in age up to those of at least retirement 
age, will increase in a linear progression from 0 per-
cent to 100 percent as the cohort approaches retire-
ment age. 
‘‘(2) INVESTMENT IN EQUITIES.—In accordance 
with regulations which shall be prescribed by the 
Board, the Board shall establish standards which 
must be met by equities selected for investment in 
the Lifecycle Investment Account. In conformity 
with such standards, the Board shall select, for pur-
poses of such investment, indices which are com-
prised of equities the aggregate market value of 
which is, in each case, a reasonably broad represen-
tation of companies whose shares are traded on the 
equity markets. Amounts invested in equities under 
an investment option shall be held in a portfolio de-
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signed to replicate the performance of one or more 
of such indices. 
‘‘(3) INVESTMENT IN FIXED INCOME INSTRU-
MENTS.—In accordance with regulations which shall 
be prescribed by the Board, the Board shall estab-
lish standards which must be met by fixed income 
instruments selected for investment in the Lifecycle 
Investment Account. Such standards shall take into 
account the competing considerations of risk and re-
turn. Amounts invested in fixed income instruments 
in an investment option shall be held in a portfolio 
which shall consist of a diverse range of fixed income 
instruments, taking into full account the opposing 
considerations of risk and maximization of return. 
‘‘(e) GOVERNMENT SECURITIES INVESTMENT AC-
COUNT.— 
‘‘(1) IN
GENERAL.—Amounts in the Govern-
ment Securities Investment Account shall be in-
vested in securities of the United States Government 
as provided in this subsection 
‘‘(2) ISSUANCE
OF
SPECIAL
OBLIGATIONS.— 
The Secretary of the Treasury is authorized to issue 
special interest-bearing obligations of the United 
States for purchase by the Tier II Investment Fund 
for purposes of investment of amounts in the Gov-
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207 
ernment Securities Investment Account. Such obliga-
tions shall have maturities fixed with due regard to 
the needs of the Fund as determined by the Board, 
and shall bear interest at a rate equal to the average 
market yield (computed by the Secretary of the 
treasury on the basis of market quotations as of the 
end of the calendar month next preceding the date 
of issue of such obligations) on all marketable inter-
est-bearing obligations of the United States then 
forming a part of the public debt which are not due 
or callable earlier than 4 years after the end of such 
calendar month. Any average market yield computed 
under this paragraph which is not a multiple of one- 
eighth of 1 percent shall be rounded to the nearest 
multiple of one-eighth of 1 percent. 
‘‘(f) FIXED
INCOME
INVESTMENT
ACCOUNT.— 
Amounts in the Fixed Income Investment Account shall 
be invested in instruments or obligations which return the 
amount invested and pay interest, at a specified rate or 
rates, on that amount during a specified period of time, 
consisting of instruments or obligations in one or more 
of the following categories: 
‘‘(1) insurance contracts; 
‘‘(2) certificates of deposit; or 
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‘‘(3) other instruments or obligations selected 
by qualified professional asset managers. 
‘‘(g) COMMON
STOCK
INDEX
INVESTMENT
AC-
COUNT.— 
‘‘(1) PORTFOLIO DESIGN.—Amounts held in the 
Common Stock Investment Account shall be invested 
in a portfolio of common stock designed to replicate 
the performance of the index selected under para-
graph (2). The portfolio shall be designed such that, 
to the extent practicable, the percentage of the bal-
ance in the Common Stock Index Investment Ac-
count that is invested in each stock is the same as 
the percentage determined by dividing the aggregate 
market value of all shares of that stock by the ag-
gregate market value of all shares of all stocks in-
cluded in such index. 
‘‘(2) SELECTION OF INDEX.—The Board shall 
select, for purposes of investment of amounts held in 
the Common Stock Investment Account, an index 
which is a commonly recognized index comprised of 
common stock the aggregate market value of which 
is a reasonably complete representation of the 
United States equity markets. 
‘‘(h) SMALL CAPITALIZATION STOCK INDEX INVEST-
MENT ACCOUNT.— 
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209 
‘‘(1) PORTFOLIO DESIGN.—Amounts held in the 
Small Capitalization Stock Index Investment Ac-
count shall be invested in a portfolio of common 
stock designed to replicate the performance of the 
index selected under paragraph (2). The portfolio 
shall be designed such that, to the extent prac-
ticable, the percentage of the balance in the Small 
Capitalization Stock Index Investment Account that 
is invested in each stock is the same as the percent-
age determined by dividing the aggregate market 
value of all shares of that stock by the aggregate 
market value of all shares of all stocks included in 
such index. 
‘‘(2) SELECTION OF INDEX.—The Board shall 
select, for purposes of investment of amounts held in 
the Small Capitalization Stock Index Investment Ac-
count, an index which is a commonly recognized 
index comprised of common stock the aggregate 
market value of which represents the United States 
equity markets excluding the common stocks in-
cluded in the Common Stock Index Investment Ac-
count. 
‘‘(i) INTERNATIONAL STOCK INDEX INVESTMENT 
ACCOUNT.— 
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210 
‘‘(1) PORTFOLIO DESIGN.—Amounts held in the 
International Stock Index Investment Account shall 
be invested in a portfolio of stock designed to rep-
licate the performance of the index selected under 
paragraph (2). The portfolio shall be designed such 
that, to the extent practicable, the percentage of the 
balance in the International Stock Index Investment 
Account that is invested in each stock is the same 
as the percentage determined by dividing the aggre-
gate market value of all shares of that stock by the 
aggregate market value of all shares of all stocks in-
cluded in such index. 
‘‘(2) SELECTION OF INDEX.—The Board shall 
select, for purposes of investment of amounts held in 
the International Stock Index Investment Account, 
an index which is a commonly recognized index com-
prised of common stock the aggregate market value 
of which is a reasonably complete representation of 
the international equity markets excluding the 
United States equity markets. 
‘‘(j) 
ADDITIONAL
INVESTMENT
OPTIONS.—The 
Board may from time to time, as determined by regulation 
as appropriate to further the purposes of this section, 
shall— 
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211 
‘‘(1) establish investment accounts in the Tier 
II Investment Fund meeting the requirements of 
this section in addition to those established by this 
section, and 
‘‘(2) terminate investment accounts in the Tier 
II Investment Fund established pursuant to para-
graph (1). 
‘‘(k) DISCLOSURE OF ADMINISTRATIVE COSTS.—The 
Board shall provide to each participating individual an an-
nual disclosure of the rate of administrative costs charge-
able with respect to investment in each investment account 
in the Tier II Investment Fund. Such disclosure shall be 
written in a manner calculated to be understood by the 
average participating individual. 
‘‘(l) TREATMENT OF AMOUNTS HELD IN TIER II IN-
VESTMENT FUND.—Subject to this part, amounts depos-
ited into, and held and accounted for in, the Tier II In-
vestment Fund with respect to any participating individual 
shall continue to be treated as property of such partici-
pating individual, held in trust for such participating indi-
vidual in the Fund. 
‘‘SEC. 257. TIER III INVESTMENT OPTIONS. 
‘‘(a) ELECTION
OF TIER III INVESTMENT OP-
TIONS.— 
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‘‘(1) IN GENERAL.—A participating individual 
may elect to direct transfers from amounts in the 
Savings Fund credited to the personal social security 
savings account of such individual into 1 or more 
Tier III Investment Options in accordance with 
paragraph (2). 
‘‘(2) COMMENCEMENT OF TIER III INVESTMENT 
OPTIONS UPON ATTAINMENT OF ELECTION THRESH-
OLD.—In any case in which, as of the end of any 
calendar year, the total balance in the Savings Fund 
credited to a participating individual’s personal so-
cial security savings account exceeds for the first 
time the election threshold, the Board shall, by regu-
lation, provide for an opportunity for such partici-
pating individual to make, at any time thereafter, 
such individual’s first election of one or more of the 
Tier III Investment Options for investment of an 
amount in the Savings Fund credited to such ac-
count. Such election may be in lieu of or in addition 
to investment in the options available with respect to 
the Tier II Investment Fund of the Savings Fund. 
‘‘(3) ALLOCATION OF FUNDS.—In the case of 
an election under paragraph (1), funds credited to 
the personal social security savings account of the 
participating individual and elected for transfer to 
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one or more Tier III Investment Options shall be 
transferred to the Tier III Investment Options so 
elected for such calendar year, in percentages speci-
fied in the election by the participating individual for 
each applicable portfolio. 
‘‘(4) ELECTION THRESHOLD.— 
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), for purposes of this subsection the 
term ‘election threshold’ means an amount 
equal to $25,000. 
‘‘(B) ADJUSTMENTS.—The Board shall ad-
just annually (effective for annual reporting 
months occurring after December 2011) the 
dollar amount set forth in subparagraph (A) 
under procedures providing for adjustments in 
the same manner and to the same extent as ad-
justments are provided for under the proce-
dures used to adjust benefit amounts under sec-
tion 215(i)(2)(A), except that any amount so 
adjusted that is not a multiple of $1.00 shall be 
rounded to the nearest multiple of $1.00. 
‘‘(5) SUBSEQUENT INVESTMENT OF AMOUNTS 
HELD
IN
TIER
III
INVESTMENT
OPTIONS.—Any 
amounts held in one or more Tier III Investment 
Options may be— 
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‘‘(A) transferred at any time to one or 
more other Tier III Investment Options, subject 
to applicable regulations of the Board and the 
terms governing the affected Tier III Invest-
ment Options, and 
‘‘(B) transferred, not more frequently than 
annually, to the Tier II Investment Fund, for 
deposit in the applicable investment account 
then selected by the participating individual 
under section 256. 
‘‘(b) CERTIFICATION OF ELIGIBLE ENTITIES.— 
‘‘(1) IN GENERAL.—The Board shall certify eli-
gible entities to offer Tier III Investment Options 
under this part. 
‘‘(2) APPLICATION.—Any eligible entity that de-
sires to be certified by the Board to offer a Tier III 
Investment Option shall submit an application to the 
Board at such time, in such manner, and containing 
such information as the Board may require. 
‘‘(3) REQUIREMENTS
FOR
APPROVAL.—The 
Board shall not certify an eligible entity unless such 
eligible entity agrees to the following requirements: 
‘‘(A) SEPARATE ACCOUNTING.—Each eligi-
ble entity shall, with respect to each Tier III 
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Investment Option offered by such eligible enti-
ty to participating individuals— 
‘‘(i) establish separate accounts for 
the contributions of each participating in-
dividual, and any earnings properly allo-
cable to the contributions, and 
‘‘(ii) maintain separate recordkeeping 
with respect to each account. 
‘‘(B) TREATMENT OF AMOUNTS HELD IN 
FUND.—Amounts deposited into, and held and 
accounted for in, a Tier III Investment Option 
with respect to any participating individual 
shall be treated as property of such partici-
pating individual, held in trust for such partici-
pating individual. 
‘‘(C) TRUST
REQUIREMENTS.—Amounts 
held and accounted for with respect to a partici-
pating individual shall be held in a trust created 
or organized in the United States for the exclu-
sive benefit of such individual or his bene-
ficiaries. 
‘‘(D) EXEMPTION
FROM
THIRD
PARTY 
CLAIMS.—Each Tier III Investment Option 
shall be exempt from any and all third party 
claims against the eligible entity. 
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‘‘(E) DISCLOSURE
OF
ADMINISTRATIVE 
COSTS.—Each eligible entity offering a Tier III 
Investment Option under this section shall pro-
vide to each participating individual an annual 
disclosure of the rate of administrative costs 
chargeable with respect to investment in such 
Option. Such disclosure shall be written in a 
manner calculated to be understood by the av-
erage participating individual. The Board shall 
provide for coordination of disclosures with re-
spect to Tier III Investment Options under this 
subparagraph so as to assist participating indi-
viduals in comparing alternative Options based 
on administrative costs. 
‘‘(F) REPORTING TO THE EXECUTIVE DI-
RECTOR AND THE BOARD.—Each eligible entity 
shall provide reports to the Executive Director 
and the Board at such time, in such manner, 
and containing such information as the Board 
may require. 
‘‘(4) ELIGIBLE
ENTITY
DEFINED.—For pur-
poses of this section, the term ‘eligible entity’ means 
any investment company (as defined in section 3 of 
the Investment Company Act of 1940) or other per-
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son that the Board determines appropriate to offer 
Tier III Investment Options under this part. 
‘‘(c) APPROVAL
OF TIER III INVESTMENT OP-
TIONS.— 
‘‘(1) IN GENERAL.—No funds may be trans-
ferred into a Tier III Investment Option unless the 
Board has approved an application submitted under 
paragraph (2) with respect to the option. 
‘‘(2) APPLICATION.—With respect to each Tier 
III Investment Option that an eligible entity cer-
tified under subsection (b)(1) seeks to offer, such 
entity shall submit an application to the Board at 
such time, in such manner, and containing such in-
formation as the Board may require. 
‘‘(3) QUALIFICATIONS
FOR
APPROVAL.—The 
Board may not approve an application submitted 
under paragraph (2) in connection with a Tier III 
Investment Option unless the following requirements 
are met: 
‘‘(A) OPTION MUST BE OFFERED BY CER-
TIFIED
ELIGIBLE
ENTITY.—The Tier III In-
vestment Option is offered by an eligible entity 
certified under subsection (b). 
‘‘(B) OPTION MUST MEET QUALITY FAC-
TORS.— 
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‘‘(i) IN GENERAL.—The Tier III In-
vestment Option meets qualifications which 
shall be prescribed by the Board relating 
to the quality factors described in clause 
(ii). 
‘‘(ii) QUALITY FACTORS.—The quality 
factors described in this clause are— 
‘‘(I) the safety and soundness of 
the Tier III Investment Option’s pro-
posed investment policy; 
‘‘(II) the experience and record 
of performance of the proposed invest-
ment option, if any; 
‘‘(III) the experience and record 
of performance of the entity issuing or 
offering such option; and 
‘‘(IV) such other factors as the 
Board may determine appropriate. 
‘‘(d) CONSIDERATIONS FOR CERTIFICATION AND AP-
PROVAL.—In determining whether to certify an eligible en-
tity under subsection (b) or to approve a Tier III Invest-
ment Option under subsection (c), the Board shall— 
‘‘(1) act in the best interests of the partici-
pating individuals; 
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219 
‘‘(2) base its determination solely on consider-
ations of balancing safety and soundness of the Tier 
III Investment Option with the maximization of re-
turns of such option; and 
‘‘(3) not base any determination related to the 
entity or option on political or other extraneous con-
siderations. 
‘‘(e) SPONSORSHIP OF TIER III INVESTMENT OP-
TIONS BY MEMBERSHIP AND LABOR ORGANIZATIONS.— 
‘‘(1) IN GENERAL.—A membership or labor or-
ganization (as defined by the Board) may sponsor 
Tier III Investment Options under contracts with el-
igible entities certified under subsection (b) who 
shall administer the investment option if such invest-
ment option is approved by the Board under sub-
section (c). 
‘‘(2) LIMITATION
TO
MEMBERSHIP.—A mem-
bership or labor organization (as so defined) may 
limit to the members of such organization participa-
tion in a Tier III Investment Option sponsored by 
such organization. 
‘‘(f) DISTRIBUTIONS IN CASE OF DEATH.—Upon the 
death of a participating individual, the amount of any as-
sets held under a Tier III Investment Option credited to 
the personal social security savings account of such indi-
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220 
vidual shall be distributed in accordance with section 
258(e). 
‘‘SEC. 258. PERSONAL SOCIAL SECURITY SAVINGS ANNUITY 
AND OTHER DISTRIBUTIONS. 
‘‘(a) DATE OF INITIAL DISTRIBUTION.—Except as 
provided in subsection (e), distributions may be made to 
a participating individual from amounts credited to the 
personal social security savings account of such individual 
only on or after the earliest of— 
‘‘(1) the date the participating individual at-
tains retirement age (as defined in section 216(l)(1)) 
or, if elected by the individual, early retirement age 
(as defined in section 216(l)(2)); or 
‘‘(2) the date on which the amount credited to 
the participating individual’s personal social security 
savings account is sufficient to purchase a personal 
social security savings annuity with a monthly ben-
efit that is at least equal to the minimum annuity 
payment 
amount 
(as 
defined 
in 
subsection 
(b)(4)(C)(iii)). 
‘‘(b) PERSONAL SOCIAL SECURITY SAVINGS ANNU-
ITIES.— 
‘‘(1) NOTICE OF AVAILABLE ANNUITIES.—Not 
later than the date determined under subsection (a), 
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the Board shall notify each participating individual 
of— 
‘‘(A) the most recent listing of personal so-
cial security savings annuities offered by the 
Annuity Issuance Authority under paragraph 
(2); and 
‘‘(B) the entitlement of the participating 
individual to purchase such an annuity. 
‘‘(2) ANNUITY ISSUANCE AUTHORITY.—There is 
established in the office of the Board an agency 
which shall be known as the ‘Annuity Issuance Au-
thority’. The Authority shall provide, in accordance 
with regulations of the Board, for the issuance of 
personal social security savings annuities for pur-
chase from the Authority under this section and to 
otherwise administer the issuance of such annuities 
in accordance with such regulations. 
‘‘(3) ANNUITY RESERVES ACCOUNT.—There is 
established in the Savings Fund an Annuity Re-
serves Account. The Account shall consist of all 
amounts received by the Authority from the pur-
chase of personal social security savings annuities 
under this section (plus such amounts as may be 
transferred to the Account under paragraph (5)(B)), 
increased by the total net earnings from investments 
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of such reserves under subparagraph (A) of para-
graph (5) and reduced by the total net losses from 
investments of such reserves under such subpara-
graph. 
‘‘(4) PURCHASE OF ANNUITIES.— 
‘‘(A) SELECTION OF ANNUITY.—On a date 
elected by the participating individual, but no 
earlier than the date determined under sub-
section (a), a participating individual may pur-
chase a personal social security savings annuity 
selected from among the annuities offered by 
the Authority under paragraph (2). 
‘‘(B) TRANSFER
OF
ASSETS.—Upon the 
selection of an annuity by a participating indi-
vidual under subparagraph (A), the Board shall 
provide for the transfer of assets, credited to 
the personal social security savings account of 
the participating individual and held in the Tier 
II Investment Fund or under 1 or more Tier 
III Investment Options (or any combination 
thereof), in a total amount sufficient to pur-
chase the annuity selected by the participating 
individual from annuities offered by the Author-
ity. 
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223 
‘‘(C) 
MINIMUM
ANNUITY
PAYMENT 
AMOUNT.— 
‘‘(i) IN
GENERAL.—Subject to sub-
paragraph (D), if, at the time a personal 
social security savings annuity is pur-
chased under subparagraph (A), the assets 
credited to the personal social security sav-
ings account of the participating individual 
are sufficient to purchase a personal social 
security savings annuity offered by the Au-
thority under paragraph (2) with a month-
ly annuity payment that is at least equal 
to the minimum annuity payment amount, 
the amount of the monthly annuity pay-
ment provided by such annuity may not be 
less then the minimum annuity payment 
amount. 
‘‘(ii) 
CONSTRUCTION.—Nothing 
in 
this subparagraph shall be construed to 
prohibit a participating individual from 
using personal social security savings ac-
count assets to purchase a personal social 
security savings annuity offered by the Au-
thority under paragraph (2) which provides 
for a monthly payment in excess of the 
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minimum amount required under clause 
(i). 
‘‘(iii) MINIMUM
ANNUITY
PAYMENT 
AMOUNT DEFINED.—For purposes of this 
part, the term ‘minimum annuity payment 
amount’ means, as of any date, an amount 
equal to the monthly equivalent of 150 per-
cent of the poverty line for an individual 
(as in effect on such date), determined 
under the poverty guidelines of the Depart-
ment of Health and Human Services 
issued under sections 652 and 673(2) of 
the Omnibus Budget Reconciliation Act of 
1981. 
‘‘(D) PURCHASE
OF
ANNUITIES
IN
THE 
EVENT OF INSUFFICIENT ASSETS.—If a partici-
pating individual desires, or is required under 
subsection (f), to purchase a personal social se-
curity savings annuity under subsection (b) on 
or after the date determined under subsection 
(a)(1) and the assets of the personal social se-
curity savings account of such individual are in-
sufficient to purchase a personal social security 
savings annuity that provides for a monthly 
payment that is at least equal to the minimum 
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225 
annuity payment amount (as defined in para-
graph (4)(C)(iii)), the participating individual 
shall purchase a personal social security savings 
annuity with a monthly payment equal to the 
maximum amount that the participating indi-
vidual’s personal social security savings account 
can fund, as determined in accordance with reg-
ulations which shall be prescribed by the Au-
thority, and that otherwise meets the require-
ments of this subsection (including the cost-of- 
living protection requirement of subsection 
(c)(1)(C)), and the Authority shall provide for 
appropriate certification to the Secretary of the 
Treasury with respect to the participating indi-
vidual’s eligibility for guarantee payments 
under section 259. 
‘‘(5) MAINTENANCE
OF
RESERVES
FOR
PAY-
MENT OF ANNUITIES.— 
‘‘(A) INVESTMENT
OF
RESERVES.—For 
purposes of investment of reserves held in the 
Annuity Reserves Account, the Authority shall 
contract with appropriate investment managers, 
recordkeepers, and custodians selected by the 
Authority for investment of such reserves. Such 
reserves shall be invested under regulations 
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226 
which shall be prescribed by the Authority so as 
to ensure, to the maximum extent practicable, 
that, of the total balance of the reserves (after 
payment of administrative expenses to such 
managers, recordkeepers, and custodians)— 
‘‘(i) 65 percent is invested in equities 
in the same manner and under the same 
standards as are provided in section 
256(c)(4), and 
‘‘(ii) 35 percent is invested in fixed in-
come instruments in the same manner and 
under the same standards as are provided 
in section 256(c)(5). 
‘‘(B) PROVISION FOR FULL PAYMENT OF 
ANNUITIES.—Payment of personal social secu-
rity savings annuities in accordance with the 
terms of such annuities shall be made, irrespec-
tive of the sufficiency of reserves in the Annuity 
Reserves Fund attributable to funds obtained 
from the purchase of such annuities. In the 
event of any impending insufficiency in the An-
nuity Reserves Account for the next fiscal year, 
the Authority shall certify to the Secretary of 
the Treasury the amount of such insufficiency, 
and the Secretary of the Treasury shall transfer 
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227 
from the Federal Old-Age and Survivors Insur-
ance Trust Fund to the Annuity Reserves Ac-
count the amount of the insufficiency, as so cer-
tified, in such installments, made prior to or 
during such fiscal year, as are necessary to 
eliminate in advance such insufficiency. 
‘‘(c) PERSONAL SOCIAL SECURITY SAVINGS ANNU-
ITY.— 
‘‘(1) IN GENERAL.—For purposes of this part, 
the term ‘personal social security savings annuity’ 
means an annuity that meets the following require-
ments: 
‘‘(A) The annuity starting date (as defined 
in section 72(c)(4) of the Internal Revenue 
Code of 1986) commences on the first day of 
the month beginning after the date of the pur-
chase of the annuity. 
‘‘(B) The terms of the annuity provide— 
‘‘(i) for a monthly payment to the 
participating individual during the life of 
the participating individual equal to at 
least 
the 
minimum 
annuity 
payment 
amount 
(as 
defined 
in 
subsection 
(b)(4)(C)(iii)), or 
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228 
‘‘(ii) in the case of an annuity pur-
chased under subparagraph (D) of sub-
section (b)(4), the maximum monthly pay-
ment determined under regulations pre-
scribed under such subparagraph. 
‘‘(C) The terms of the annuity include pro-
cedures providing for adjustments in the 
amount of the monthly payments in the same 
manner and to the same extent as adjustments 
are provided for under the procedures used to 
adjust 
benefit 
amounts 
under 
section 
215(i)(2)(A). Nothing in this subparagraph 
shall be construed to preclude the terms gov-
erning such an annuity from providing for ad-
justments in the amount of monthly payments 
resulting in a payment for any month greater 
than the payment for that month that would re-
sult from adjustments required under the pre-
ceding sentence (b)(4)(D). 
‘‘(D) The terms of the annuity include 
such other terms and conditions as the Board 
requires for the protection of the annuitant. 
‘‘(2) 
EXEMPTION
FROM
THIRD
PARTY 
CLAIMS.—Each personal social security savings an-
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229 
nuity shall be exempt from any and all third party 
claims against the issuer. 
‘‘(d) RIGHT TO USE EXCESS PERSONAL SOCIAL SE-
CURITY SAVINGS ACCOUNT ASSETS.—To the extent assets 
credited to a participating individual’s personal social se-
curity savings account remain after the purchase of an an-
nuity under subsection (b), the remaining assets shall be 
payable to the participating individual at such time, in 
such manner, and in such amounts as the participating 
individual may specify, subject to subsection (f). 
‘‘(e) DISTRIBUTIONS IN CASE OF DEATH.—If the 
participating individual dies before all amounts which are 
held in the Tier I Investment Fund or the Tier II Invest-
ment Fund of the Savings Fund or held under a Tier III 
Investment Option and which are credited to the personal 
social security savings account of the individual are other-
wise distributed in accordance with this section, such 
amounts shall be distributed, under regulations which 
shall be prescribed by the Board— 
‘‘(1) in any case in which one or more bene-
ficiaries have been designated in advance, to such 
beneficiaries in accordance with such designation as 
provided in such regulations, and 
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‘‘(2) in the case of any amount not distributed 
as described in paragraph (1), to such individual’s 
estate. 
‘‘(f) DATE OF FINAL DISTRIBUTION.—All amounts 
credited to the personal social security savings account of 
an individual shall be distributed, by means of the pur-
chase of annuities or otherwise in a manner consistent 
with the requirements of this section, not later than 5 
years after the date the individual attains retirement age 
(as defined in section 216(l)). The Board shall provide by 
regulation for means of distribution necessary to ensure 
compliance with the requirements of this subsection. 
‘‘SEC. 259. GUARANTEE OF PROMISED BENEFITS. 
‘‘(a) IN GENERAL.—If, for any month ending after 
the date on which a participating individual attains retire-
ment age (as defined in section 216(l)(1)), the monthly 
payment under a participating individual’s personal social 
security savings annuity is less than the minimum annuity 
payment amount (as defined in section 258(b)(4)(C)(iii)), 
adjusted as provided in section 258(c)(1)(C), the Annuity 
Issuance Authority shall so certify to the Secretary of the 
Treasury and, upon receipt of such certification, such Sec-
retary shall provide to the participating individual, from 
amounts in the Federal Old-Age and Survivors Insurance 
Trust Fund, a guaranty payment for such month to sup-
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231 
plement the personal social security savings annuity and 
to guarantee full payment of such individual’s monthly 
promised benefits. 
‘‘(b) GUARANTY PAYMENT.—For purposes of sub-
section (a), a participating individual’s guaranty payment 
for any month is equal to the excess of— 
‘‘(1) the minimum annuity payment amount (as 
defined in section 258(b)(4)(C)(iii)), adjusted as 
provided in section 258(c)(1)(C); over 
‘‘(2) the payment for such month of the per-
sonal social security savings annuity purchased by 
the participating individual. 
‘‘(c) PROTECTION OF PART A NORMAL RETIREMENT 
BENEFIT LEVELS.— 
‘‘(1) IN GENERAL.—In any case in which, for 
any month ending after the date on which a partici-
pating individual attains retirement age (as defined 
in section 216(l)(1))— 
‘‘(A) such individual’s assumed total nor-
mal retirement part A benefit for such month, 
exceeds 
‘‘(B) the monthly payment payable for 
such month under such individual’s personal so-
cial security savings annuity, 
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232 
the Secretary of the Treasury shall pay to such indi-
vidual for such month, from amounts in the Federal 
Old-Age and Survivors Insurance Trust Fund, an 
additional amount (if any) equal to the excess of the 
amount described in subparagraph (A) over the 
amount described in subparagraph (B). 
‘‘(2) DEFINITION.—For purposes of this sub-
section, the term ‘assumed total normal retirement 
part A benefit’ means, in connection with a partici-
pating individual, the total amount of monthly insur-
ance benefits under section 202 based on such indi-
vidual’s wages and self-employment income (ad-
justed by taking into account adjustments under sec-
tion 215(i)) that would have been payable if— 
‘‘(A) section 202(z) did not apply, and 
‘‘(B) such individual applied for old-age in-
surance benefits under section 202(a) during 
the month in which such individual attains re-
tirement age (as defined in section 216(l)(1)). 
‘‘SEC. 260. PERSONAL SOCIAL SECURITY SAVINGS BOARD. 
‘‘(a) ESTABLISHMENT.—There is established in the 
executive branch of the Government a Personal Social Se-
curity Savings Board. 
‘‘(b) COMPOSITION.—The Board shall be composed 
of— 
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‘‘(1) 3 members appointed by the President, of 
whom 1 shall be designated by the President as 
Chairman; and 
‘‘(2) 2 members appointed by the President, of 
whom— 
‘‘(A) 1 shall be appointed by the President 
after taking into consideration the recommenda-
tion made by the Speaker of the House of Rep-
resentatives in consultation with the minority 
leader of the House of Representatives; and 
‘‘(B) 1 shall be appointed by the President 
after taking into consideration the recommenda-
tion made by the majority leader of the Senate 
in consultation with the minority leader of the 
Senate. 
‘‘(c) ADVICE AND CONSENT.—Appointments under 
subsection (b) shall be made by and with the advice and 
consent of the Senate. 
‘‘(d) MEMBERSHIP REQUIREMENTS.—Members of 
the Board shall have substantial experience, training, and 
expertise in the management of financial investments and 
pension benefit plans. 
‘‘(e) LENGTH OF APPOINTMENTS.— 
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‘‘(1) TERMS.—A member of the Board shall be 
appointed for a term of 4 years, except that of the 
members first appointed under subsection (b)— 
‘‘(A) the Chairman shall be appointed for 
a term of 4 years; 
‘‘(B) the members appointed under sub-
section (b)(2) shall be appointed for terms of 3 
years; and 
‘‘(C) the remaining members shall be ap-
pointed for terms of 2 years. 
‘‘(2) VACANCIES.— 
‘‘(A) IN
GENERAL.—A vacancy on the 
Board shall be filled in the manner in which the 
original appointment was made and shall be 
subject to any conditions that applied with re-
spect to the original appointment. 
‘‘(B) COMPLETION
OF
TERM.—An indi-
vidual chosen to fill a vacancy shall be ap-
pointed for the unexpired term of the member 
replaced. 
‘‘(3) EXPIRATION.—The term of any member 
shall not expire before the date on which the mem-
ber’s successor takes office. 
‘‘(f) DUTIES.—The Board shall— 
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‘‘(1) administer the program established under 
this part; 
‘‘(2) establish policies for the investment and 
management of the Savings Fund, including the 
Tier I Investment Fund and the Tier II Investment 
Fund, and amounts held under Tier III Investment 
Options, including policies applicable to the asset 
managers, recordkeepers, and custodians with re-
sponsibility for managing the investment of amounts 
credited to personal social security investment ac-
counts, and for the management and operation of 
personal social security savings annuities, which 
shall provide for— 
‘‘(A) prudent investments suitable for ac-
cumulating funds for payment of retirement in-
come; 
‘‘(B) sound management practices; and 
‘‘(C) low administrative costs; 
‘‘(3) review the performance of investments 
made for the Tier I Investment Fund and the Tier 
II Investment Fund; 
‘‘(4) review the performance of investments 
made under Tier III Investment Options; 
‘‘(5) review the management and operation of 
personal social security savings annuities; 
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‘‘(6) review and approve the budget of the 
Board; and 
‘‘(7) comply with the fiduciary requirements of 
part 4 of subtitle B of title I of the Employee Re-
tirement Income Security Act of 1974 (relating to fi-
duciary responsibility) in connection with any exer-
cise of discretion in connection with the assets of the 
Savings Fund. 
‘‘(g) ADMINISTRATIVE PROVISIONS.— 
‘‘(1) IN GENERAL.—The Board may— 
‘‘(A) adopt, alter, and use a seal; 
‘‘(B) except as provided in paragraph (4), 
direct the Executive Director to take such ac-
tion as the Board considers appropriate to 
carry out the provisions of this part and the 
policies of the Board in accordance with delega-
tions under this part; 
‘‘(C) upon the concurring votes of 4 mem-
bers, remove the Executive Director from office 
for good cause shown; 
‘‘(D) provide to the Executive Director 
such resources as are necessary to carry out the 
duties of the Executive Director; and 
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‘‘(E) take such other actions as may be 
necessary to carry out the functions of the 
Board. 
‘‘(2) MEETINGS.—The Board shall meet— 
‘‘(A) not less than once during each 
month; and 
‘‘(B) at additional times at the call of the 
Chairman. 
‘‘(3) EXERCISE OF POWERS.— 
‘‘(A) IN GENERAL.—Except as provided in 
paragraph (1)(C), the Board shall perform the 
functions and exercise the powers of the Board 
on a majority vote of a quorum of the Board. 
Three members of the Board shall constitute a 
quorum for the transaction of business. 
‘‘(B) VACANCIES.—A vacancy on the 
Board shall not impair the authority of a 
quorum of the Board to perform the functions 
and exercise the powers of the Board. 
‘‘(4) LIMITATIONS
ON
INVESTMENTS.—The 
Board may not direct any person to invest or to 
cause to be invested any sums in the Tier II Invest-
ment Fund or any personal social security invest-
ment account in a specific asset or to dispose of or 
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cause to be disposed of any specific asset of such 
Fund or any such account. 
‘‘(h) COMPENSATION.— 
‘‘(1) IN GENERAL.—Each member of the Board 
who is not an officer or employee of the Federal 
Government shall be compensated at the daily rate 
of basic pay for level IV of the Executive Schedule 
for each day during which such member is engaged 
in performing a function of the Board. 
‘‘(2) EXPENSES.—A member of the Board shall 
be paid travel, per diem, and other necessary ex-
penses under subchapter I of chapter 57 of title 5, 
United States Code, while traveling away from such 
member’s home or regular place of business in the 
performance of the duties of the Board. 
‘‘(3) SOURCE OF FUNDS.—Payments authorized 
under this subsection shall be paid from the Tier I 
Investment Fund or the Tier II Investment Fund, 
as determined appropriate by the Board. 
‘‘(i) DISCHARGE OF RESPONSIBILITIES.—The mem-
bers of the Board shall discharge their responsibilities 
solely in the interest of the participating individuals and 
their beneficiaries under this part. 
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‘‘(j) ANNUAL INDEPENDENT AUDIT.—The Board 
shall annually engage an independent qualified public ac-
countant to audit the activities of the Board. 
‘‘(k) SUBMISSION OF BUDGET TO CONGRESS.—The 
Board shall prepare and submit to the President, and, at 
the same time, to the appropriate committees of Congress, 
an annual budget of the expenses and other items relating 
to the Board which shall be included as a separate item 
in the budget required to be transmitted to Congress 
under section 1105 of title 31, United States Code. 
‘‘(l) SUBMISSION
OF LEGISLATIVE RECOMMENDA-
TIONS.—The Board may submit to the President, and, at 
the same time, shall submit to each House of Congress, 
any legislative recommendations of the Board relating to 
any of its functions under this part or any other provision 
of law. 
‘‘SEC. 261. EXECUTIVE DIRECTOR. 
‘‘(a) APPOINTMENT OF EXECUTIVE DIRECTOR.—The 
Board shall appoint, without regard to the provisions of 
law governing appointments in the competitive service, an 
Executive Director by action agreed to by a majority of 
the members of the Board. 
‘‘(b) DUTIES.—The Executive Director shall, as de-
termined appropriate by the Board— 
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‘‘(1) carry out the policies established by the 
Board; 
‘‘(2) invest and manage the Tier I Investment 
Fund and the Tier II Investment Fund in accord-
ance with the investment policies and other policies 
established by the Board; 
‘‘(3) administer the provisions of this part re-
lating to the Tier I Investment Fund and the Tier 
II Investment Fund; and 
‘‘(4) prescribe such regulations (other than reg-
ulations relating to fiduciary responsibilities) as may 
be necessary for the administration of this part re-
lating to the Tier I Investment Fund and the Tier 
II Investment Fund. 
‘‘(c) ADMINISTRATIVE AUTHORITY.—The Executive 
Director may, within the scope of the duties of the Execu-
tive Director as determined by the Board— 
‘‘(1) appoint such personnel as may be nec-
essary to carry out the provisions of this part relat-
ing to the Tier I Investment Fund and the Tier II 
Investment Fund; 
‘‘(2) subject to approval by the Board, procure 
the services of experts and consultants under section 
3109 of title 5, United States Code; 
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‘‘(3) secure directly from an Executive agency, 
the United States Postal Service, or the Postal Rate 
Commission any information necessary to carry out 
the provisions of this part and the policies of the 
Board relating to the Tier I Investment Fund and 
the Tier II Investment Fund; 
‘‘(4) make such payments out of sums in the 
Tier I Investment Fund and the Tier II Investment 
Fund as the Executive Director determines, in ac-
cordance with regulations of the Board, are nec-
essary to carry out the provisions of this part and 
the policies of the Board; 
‘‘(5) pay the compensation, per diem, and travel 
expenses of individuals appointed under paragraphs 
(1), (2), and (6) from the Tier I Investment Fund 
or the Tier II Investment Fund, in accordance with 
regulations of the Board; 
‘‘(6) accept and use the services of individuals 
employed intermittently in the Government service 
and reimburse such individuals for travel expenses, 
authorized by section 5703 of title 5, United States 
Code, including per diem as authorized by section 
5702 of such title; 
‘‘(7) except as otherwise expressly prohibited by 
law or the policies of the Board, delegate any of the 
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Executive Director’s functions to such employees 
under the Board as the Executive Director may des-
ignate and authorize such successive redelegations of 
such functions to such employees under the Board 
as the Executive Director may consider to be nec-
essary or appropriate; and 
‘‘(8) take such other actions as are appropriate 
to carry out the functions of the Executive Direc-
tor.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply with respect to wages paid after 
December 31, 2010, for pay periods ending after such 
date and self-employment income for taxable years begin-
ning after such date. 
SEC. 403. MONTHLY INSURANCE BENEFITS FOR PARTICI-
PATING INDIVIDUALS. 
Section 202 of the Social Security Act (42 U.S.C. 
402) is amended by adding at the end the following new 
subsection: 
‘‘Benefits for Participants Under Part B 
‘‘(z)(1) Notwithstanding the preceding provisions of 
this section— 
‘‘(A) a participating individual under the Per-
sonal Social Security Savings Program under part B 
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243 
shall not be entitled to old-age insurance benefits 
under subsection (a); and 
‘‘(B) except as provided in paragraph (2), no 
individual shall be entitled to benefits under this sec-
tion on the basis of the wages and self-employment 
income of such a participating individual. 
‘‘(2) In the case of any such participating individual 
who dies before such individual purchases a personal social 
security savings annuity under section 258, paragraph 
(1)(B) shall not apply with respect to child’s insurance 
benefits under subsection (d), widow’s insurance benefits 
under subsection (e), widower’s insurance benefits under 
subsection (f), mother’s and father’s insurance benefits 
under subsection (g), and parent’s insurance benefits 
under subsection (h).’’. 
SEC. 404. TAX TREATMENT OF ACCOUNTS. 
(a) IN GENERAL.— 
(1) IN GENERAL.—Subchapter F of chapter 1 
of the Internal Revenue Code of 1986 (relating to 
exempt organizations) is amended by adding at the 
end the following new part: 
‘‘PART IX—PERSONAL SOCIAL SECURITY 
SAVINGS PROGRAM 
‘‘Sec. 530A. Personal social security savings program. 
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244 
‘‘SEC. 530A. PERSONAL SOCIAL SECURITY SAVINGS PRO-
GRAM. 
‘‘(a) GENERAL RULE.—The Social Security Personal 
Savings Fund and each Tier III Investment Option are 
exempt from taxation under this subtitle. Notwithstanding 
the preceding sentence, sums in a personal social security 
savings account which are attributable to a Tier III Op-
tion shall be subject to the taxes imposed by section 511 
(relating to imposition of tax on unrelated business income 
of charitable, etc. organizations). 
‘‘(b) DISTRIBUTIONS.— 
‘‘(1) IN GENERAL.—Any qualified distribution 
from— 
‘‘(A) amounts credited to a personal social 
security savings account from the Social Secu-
rity Personal Savings Fund or attributable to a 
Tier III Investment Option, or 
‘‘(B) a personal social security savings an-
nuity, 
shall not be included in the gross income of the dis-
tributee. 
‘‘(2) QUALIFIED DISTRIBUTION.—For purposes 
of paragraph (1), the term ‘qualified distribution’ 
means a distribution which meets the requirements 
of section 258 of the Social Security Act and which 
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and which is credited to the personal social security sav-
ings account of the individual.’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
86(d)(1)(A) of such Code is amended by inserting 
‘‘part A of’’ after ‘‘under’’. 
(3) CLERICAL
AMENDMENT.—The table of 
parts for subchapter F of chapter 1 of such Code is 
amended by adding after the item relating to part 
VIII the following new item: 
‘‘PART IX. PERSONAL SOCIAL SECURITY SAVINGS PROGRAM.’’. 
(b) GUARANTY PAYMENTS.—Paragraph (1) of sec-
tion 86(d) of the Internal Revenue Act of 1986, as amend-
ed by subsection (a)(2), is amended by striking ‘‘or’’ at 
the end of subparagraph (A), by striking the period and 
inserting ‘‘, or’’ at the end of subparagraph (B), and by 
adding at the end the following new subparagraph: 
‘‘(C) a guaranty payment under section 
259(a), and a payment of an additional amount 
under section 259(c), of the Social Security 
Act.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2010. 
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247 
SEC. 405. SELF-LIQUIDATING SOCIAL SECURITY TRANSI-
TION FUND. 
Part B of title II of the Social Security Act (as added 
by section 101 of this Act) is amended by adding at the 
end the following new section: 
‘‘SEC. 262. SELF-LIQUIDATING SOCIAL SECURITY TRANSI-
TION FUND. 
‘‘(a) ESTABLISHMENT.—There is hereby created on 
the books of the Treasury of the United States a trust 
fund to be known as the Self-Liquidating Social Security 
Transition Fund (in this section referred to as the ‘Transi-
tion Fund’). 
‘‘(b) BOARD OF TRUSTEES.— 
‘‘(1) ESTABLISHMENT.—With respect to the 
Transition Fund, there is hereby created a body to 
be known as the Board of Trustees of the Transition 
Fund (in this section referred to as the ‘Board of 
Trustees’) composed of the Commissioner of Social 
Security, the Secretary of the Treasury, and the 
members of the Personal Social Security Savings 
Board. 
‘‘(2) DUTIES.—The Board of Trustees shall— 
‘‘(A) provide for the issuance of obligations 
by the Transition Fund pursuant to subsection 
(c), 
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‘‘(B) provide for the receipt and manage-
ment of amounts paid into the Transition Fund 
pursuant to subsection (d), 
‘‘(C) use all funds paid into the Transition 
Fund to redeem obligations issued under sub-
section (c) as soon as practicable, 
‘‘(D) report to Congress not later than the 
first day of April of each year on the operation 
and status of the Transition Fund during the 
preceding fiscal year and on its expected oper-
ation and status during the current fiscal year 
and the next 2 fiscal years, and 
‘‘(E) review the general policies followed in 
managing the Transition Fund, and recommend 
changes in such policies, including necessary 
changes in the provisions of law which govern 
the way in which the Transition Fund is to be 
managed. 
‘‘(3) MEETINGS.—The Board of Trustees shall 
meet not less frequently than once each calendar 
year. 
‘‘(c) ISSUANCE OF TRANSITION FUND BONDS.— 
‘‘(1) ISSUANCE.— 
‘‘(A) IN
GENERAL.—The purposes for 
which obligations of the United States may be 
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249 
issued under chapter 31 of title 31, United 
States Code, are hereby extended to authorize 
the issuance at par of public-debt obligations by 
the Transition Fund. 
‘‘(B) REQUIRED ISSUANCE.—Beginning on 
January 1, 2011, whenever any obligation held 
in the Federal Old-Age and Survivors Insurance 
Trust Fund or the Federal Disability Insurance 
Trust Fund is repaid from the general fund of 
the Treasury to either of such Trust Funds, the 
Transition Fund shall issue an obligation under 
this subsection in an amount equal to the 
amount of interest and principal so repaid. 
‘‘(C) TRANSFER
OF
PROCEEDS
TO
GEN-
ERAL
FUND
OF
THE
TREASURY.—Proceeds 
from the issuance of any obligation issued 
under this section shall be transferred to the 
general fund of the Treasury. 
‘‘(D) ACCOUNTING.—The debt owed on 
any obligation issued under this section shall be 
considered to be debt of the Transition Fund 
and shall be accounted for in such manner. 
‘‘(2) MATURITIES AND INTEREST RATE.—Such 
obligations issued by the Transition Fund for pur-
chase by the public shall have maturities fixed with 
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250 
due regard for the needs of the Transition Fund and 
shall bear interest at a rate equal to the average 
market yield (computed by the Secretary of the 
Treasury on the basis of market quotations as of the 
end of the calendar month next preceding the date 
of such issue) on all marketable interest-bearing ob-
ligations of the United States then forming a part 
of the public debt which are not due or callable until 
after the expiration of 4 years from the end of such 
calendar month, except that where such average 
market yield is not a multiple of one-eighth of 1 per 
centum, the rate of interest on such obligations shall 
be the multiple of one-eighth of 1 per centum near-
est such market yield. 
‘‘(3) REPAYMENT
OF
OBLIGATIONS.—Obliga-
tions issued under this subsection may be redeemed 
only by funds in the Transition Fund. 
‘‘(d) DEPOSIT OF OASDI TRUST FUND SURPLUS.— 
‘‘(1) IN GENERAL.—There are appropriated to 
the Transition Fund for the fiscal year beginning in 
2032, and for each fiscal year thereafter, out of any 
moneys in the Federal Old-Age and Survivors Insur-
ance Trust Fund, amounts equivalent to the OASDI 
trust fund surplus (as defined in paragraph (2)) for 
the preceding fiscal year. 
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251 
‘‘(2) TRANSFERS BASED ON ESTIMATES.—The 
amounts appropriated by paragraph (1) shall be 
transferred from time to time from the Federal Old- 
Age and Survivors Insurance Trust Fund to the 
Transition Fund, such amounts to be determined on 
the basis of estimates by the Commissioner of Social 
Security. Proper adjustments shall be made in 
amounts subsequently transferred to the extent prior 
estimates were in excess of or were less than such 
surplus. 
‘‘(3) OASDI 
TRUST
FUND
SURPLUS
DE-
FINED.—In this section, the term ‘OASDI trust 
fund surplus’ for a fiscal year means the dollar 
amount by which the Federal Old-Age and Survivors 
Insurance Trust Fund could be reduced as of the 
end of such fiscal year so as to result in an OASDI 
trust fund ratio (as defined in section 201(p)(4)) for 
such fiscal year equal to 125 percent. 
‘‘(4) RULE
OF
CONSTRUCTION.—This section 
shall not be construed to require redemption of obli-
gations of the Trust Fund for the purpose of mak-
ing transfers to the Transition Fund under this sec-
tion or for any other purpose other than to provide 
for payment of benefits under part A of title II of 
the Social Security Act. 
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252 
‘‘(e) REDEMPTION OF OBLIGATIONS UPON DEPOSIT 
OF FUNDS.—Obligations issued under subsection (c) may 
be redeemed only by funds in the Transition Fund. The 
Board of Trustees shall provide for the redemption of such 
obligations as soon as possible with funds deposited into 
the Transition Fund pursuant to subsection (d). 
‘‘(f) SUNSET.—On the first date as of which all of 
the obligations issued under subsection (c) have been re-
deemed, any balance remaining in the Transition Fund 
as of such date shall be deposited in the Federal Old-Age 
and Survivors Insurance Trust Fund, the terms of the 
Board of Trustees shall end, the Transition Fund shall 
cease to exist, and this section shall be repealed.’’. 
SEC. 406. BUDGETARY TREATMENT OF SOCIAL SECURITY. 
(a) IN GENERAL.—Section 710 of the Social Security 
Act (42 U.S.C. 911) is amended to read as follows: 
‘‘BUDGETARY TREATMENT OF SOCIAL SECURITY 
‘‘SEC. 710. 
‘‘Notwithstanding any other provision of law and ex-
cept as provided in subsection (b), the receipts and dis-
bursements shall be treated in the same manner as section 
13301 of the Budget Enforcement Act of 1990.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply with respect to fiscal years begin-
ning on or after October 1, 2010. 
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253 
SEC. 407. ACCOUNTING FOR THE OLD-AGE, SURVIVORS, 
AND DISABILITY INSURANCE PROGRAM AND 
THE PERSONAL SOCIAL SECURITY SAVINGS 
PROGRAM. 
Title VII of the Social Security Act is amended by 
inserting after section 705 (42 U.S.C. 906) the following 
new section: 
‘‘ACCOUNTING FOR THE OLD-AGE, SURVIVORS, AND DIS-
ABILITY INSURANCE PROGRAM AND THE PERSONAL 
SOCIAL SECURITY SAVINGS PROGRAM 
‘‘Social Security Lockbox Budget 
‘‘SEC. 706. (a) At the time of the transmittal to the 
Congress by the President of the budget of the United 
States Government, the President shall transmit to each 
House of the Congress a separate report (to be known as 
the ‘Social Security Lockbox Budget’) detailing the per-
formance during the preceding fiscal year of each of the 
accounts established under subsection (b). Such report 
shall set forth, as determined as of the end of the year— 
‘‘(1) the amount of the balance of each account, 
‘‘(2) the amount of the total charges and the 
amount of the total credits to each account for the 
year, and 
‘‘(3) the amount of the total for the year of 
each category of charges and credits itemized in sub-
section (b). 
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‘‘Establishment of Accounts 
‘‘(b) For purposes of accounting for certain receipts 
and disbursement of the Treasury of the United States 
in connection with the Old-Age, Survivors, and Disability 
Insurance Program under part A of title II of the Social 
Security Act and the Personal Security Savings Program 
under part B of such title, the Secretary of the Treasury 
shall establish and maintain a Social Security Part A Ac-
count, a Social Security Part B Account, and a Self-Liqui-
dating Social Security Transition Fund Account. 
‘‘Credits and Charges to the Social Security Part A 
Account 
‘‘(c)(1) For each fiscal year, the Social Security Part 
A Account shall be credited with the sum of— 
‘‘(A) all receipts during the year by the Federal 
Old-Age and Survivors Insurance Trust Fund and 
the Federal Disability Insurance Trust Fund under 
section 201 (including amounts received as interest 
on notes and obligations purchased by the Trust 
Funds under section 201(d) of such Act, and exclud-
ing amounts received in redemption of such notes 
and obligations and amounts received by either such 
Trust Fund as transfers from the other such Trust 
Fund), and 
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‘‘(B) all receipts during the year by the Federal 
Old-Age and Survivors Insurance Trust Fund and 
the Federal Disability Insurance Trust Fund under 
section 121(e) of the Social Security Amendments of 
1983 (relating to appropriation of amounts equiva-
lent to taxes on social security benefits) (42 U.S.C. 
401 note). 
‘‘(2) For each fiscal year, the Social Security Part 
A Account shall be charged with the sum of— 
‘‘(A) all benefits paid during the year from the 
Federal Old-Age and Survivors Insurance Trust 
Fund and the Federal Disability Insurance Trust 
Fund under part A of title II of the Social Security 
Act, 
‘‘(B) all redirected social security contributions 
transferred during the year to the Social Security 
Personal Savings Fund under section 252(b), 
‘‘(C) all other expenditures during the year 
from the Trust Funds under part A of title II (ex-
cluding amounts expended as transfers by either 
such Trust Fund to the other such Trust Fund and 
amounts paid for the purchase of notes and obliga-
tions under section 201(d)), and 
‘‘(D) all transfers from the Federal Old-Age 
and Survivors Insurance Trust Fund to the Self-Liq-
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uidating Social Security Transition Fund under sec-
tion 262(d). 
‘‘Charges and Credits to the Social Security Part B 
Account 
‘‘(d)(1) For each fiscal year, the Social Security Part 
B Account shall be credited with— 
‘‘(A) all redirected social security contributions 
transferred during the year to the Personal Social 
Security Savings Fund under section 252(b) of the 
Social Security Act, and 
‘‘(B) any net increase in the Tier I Investment 
Fund attributable to investment for the fiscal year, 
any net increase in the Tier II Investment Fund at-
tributable to investment for the fiscal year, and the 
total amount of any net increases in Tier III Invest-
ment Options attributable to investment for the fis-
cal year. 
‘‘(2) For each fiscal year, the Social Security Part 
B Account shall be charged with— 
‘‘(A) all administrative costs incurred for the 
fiscal year with respect to the Tier I Investment 
Fund, the Tier II Investment Fund, and the Tier III 
Investment Options, 
‘‘(B) any net decrease in the Tier I Investment 
Fund attributable to investment for the fiscal year, 
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any net decrease in the Tier II Investment Fund at-
tributable to investment for the fiscal year, and the 
total amount of any net decreases in Tier III Invest-
ment Options attributable to investment for the fis-
cal year, and 
‘‘(C) annuity payments made during the year 
under section 258 from the Annuity Reserve Ac-
count in the Savings Fund. 
‘‘Charges and Credits to the Self-Liquidating Social 
Security Transition Fund Account 
‘‘(e)(1) For each fiscal year, the Self-Liquidating So-
cial Security Transition Account shall be credited with— 
‘‘(A) all transfers to the Transition Fund from 
the Federal Old-Age and Survivors Insurance Trust 
Fund under section 262(b), and 
‘‘(B) all amounts expended during the fiscal 
year from the Trust Funds in the redemption under 
section 262(e) of obligations issued by the Transi-
tion fund under section 262(c). 
‘‘(2) For each fiscal year, the Self-Liquidating Social 
Security Transition Fund Account shall be charged with 
the total amount of obligations issued during the fiscal 
year by the Transition Fund under section 262(c)’’. 
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258 
SEC. 408. PROGRESSIVE INDEXING OF BENEFITS FOR OLD- 
AGE, WIFE’S, AND HUSBAND’S INSURANCE 
BENEFITS. 
(a) IN GENERAL.—Section 215(a) of the Social Secu-
rity Act (42 U.S.C. 415(a)) is amended— 
(1) by striking ‘‘The’’ in paragraph (1)(A) and 
inserting ‘‘In the case of any benefit other than an 
applicable benefit to which paragraph (2) applies, 
the’’, and 
(2) by redesignating paragraphs (2) through 
(7) as paragraphs (3) through (8), respectively, and 
by inserting after paragraph (1) the following new 
paragraph: 
‘‘(2)(A) In the case of an applicable benefit with re-
spect to any individual who initially becomes eligible for 
old-age insurance benefits or who dies (before becoming 
eligible for such benefits) in calendar year 2016 or later, 
the primary insurance amount of the individual shall be 
equal to the sum of— 
‘‘(i) 90 percent of the individual’s average in-
dexed monthly earning (determined under subsection 
(b)) to the extent that such earnings do not exceed 
the amount established for purposes of paragraph 
(1)(A)(i) by paragraph (1)(B); 
‘‘(ii) 32 percent of the individual’s average in-
dexed monthly earnings to the extent that such 
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259 
earnings exceed the amount established for purposes 
of paragraph (1)(A)(i) by paragraph (1)(B) but do 
not exceed the amount established for purposes of 
this clause by subparagraph (B); 
‘‘(iii) 32 percent (reduced as provided in sub-
paragraph (C)) of the individual’s average indexed 
monthly earnings to the extent that such earnings 
exceed the amount established for purposes of clause 
(ii) but do not exceed the amount established for 
purposes of paragraph (1)(A)(ii) by paragraph 
(1)(B); and 
‘‘(iv) 15 percent (reduced as provided in sub-
paragraph (C)) of the individual’s average indexed 
monthly earnings to the extent that such earnings 
exceed the amount established for purposes of para-
graph (1)(A)(ii) by paragraph (1)(B). 
‘‘(B)(i) For purposes of subparagraph (A)(ii), the 
amount established under this subparagraph for calendar 
year 2016 shall be the level of average indexed monthly 
earnings determined by the Chief Actuary of the Social 
Security Administration under clause (ii) as being at the 
30th percentile for the period of calendar years 2005 
through 2007. 
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‘‘(ii) For purposes of clause (i), the average indexed 
monthly earnings for the period of calendar years 2005 
through 2007 shall be determined by— 
‘‘(I) determining the average indexed monthly 
earnings for each individual who initially became eli-
gible for old-age insurance benefits or who died (be-
fore becoming eligible for such benefits) during such 
period, except that in determining such average in-
dexed monthly earnings under subsection (b), sub-
section (b)(3)(A)(ii)(I) shall be applied by sub-
stituting calendar year 2002 for the second calendar 
year described in such subsection; and 
‘‘(II) multiplying the amount determined for 
each individual under subclause (I) by the quotient 
obtained by dividing the national average wage index 
(as defined in section 209(k)(1)) for the calendar 
year 2014 by such index for the calendar year 2002. 
‘‘(iii) For purposes of subparagraph (A)(ii), the 
amount established under this subparagraph for any cal-
endar year after 2016 shall be equal to the product of 
the amount in effect under clause (i) with respect to cal-
endar year 2016 and the quotient obtained by dividing— 
‘‘(I) the national average wage index (as de-
fined in section 209(k)(1)) for the second calendar 
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261 
year preceding the calendar year for which the de-
termination is being made, by 
‘‘(II) the national average wage index (as so de-
fined) for 2014. 
‘‘(iv) The amount established under this subpara-
graph for any calendar year shall be rounded to the near-
est $1, except that any amount so established which is 
a multiple of $0.50 but not of $1 shall be rounded to the 
next higher $1. 
‘‘(C)(i) Except as provided in clause (ii), in the case 
of any calendar year after 2015, each of the percentages 
to which this subparagraph applies by reason of clauses 
(iii) or (iv) of subparagraph (A) shall be a percentage 
equal to such percentage multiplied by the quotient ob-
tained by dividing— 
‘‘(I) the difference of the maximum CPI-in-
dexed benefit amount for such year over the amount 
determined under this paragraph for an individual 
whose average indexed monthly earnings are equal 
to the amount established for purposes of subpara-
graph (A)(ii) for such year, by 
‘‘(II) the difference of the maximum wage-in-
dexed benefit amount for such year over the amount 
determined under this paragraph for an individual 
whose average indexed monthly earnings are equal 
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262 
to the amount established for purposes of subpara-
graph (A)(ii) for such year. 
‘‘(ii)(I) In the case of any calendar year which is a 
positive balance year, clause (i) shall not apply and each 
of the percentages to which this subparagraph applies by 
reason of clause (iii) or (iv) of subparagraph (B) shall be 
a percentage equal to the percentage determined under 
this subparagraph for the preceding year (determined 
after the application of this subparagraph). 
‘‘(II) In the case of any calendar year after a positive 
balance year which is not a positive balance year, this sub-
paragraph shall be applied by substituting ‘the second cal-
endar year preceding the most recent positive balance 
year’ for ‘2013’ each place it appears in clause (iv). 
‘‘(iii) For purposes of clause (i), the maximum wage- 
indexed benefit amount for any calendar year shall be 
equal to the amount determined under this paragraph (de-
termined without regard to any reduction under this sub-
paragraph) for an individual with wages paid in and self- 
employment income credited to each computation base 
year in an amount equal to the contribution and benefit 
base for each calendar year. 
‘‘(iv) For purposes of clause (i), the maximum CPI- 
indexed benefit amount for any calendar year shall be an 
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263 
amount equal to the amount determined under clause (iii) 
for such year multiplied by a fraction— 
‘‘(I) the numerator of which is the ratio (round-
ed to the nearest one-thousandth of 1 percent) of 
the Consumer Price Index for the second preceding 
year to such index for 2013; and 
‘‘(II) the denominator of which is the ratio 
(rounded to the nearest one-thousandth of 1 per-
cent) of the national wage index (as defined in sec-
tion 209(k)(1)) for the second year preceding such 
year to such index for 2013. 
‘‘(v)(I) For purposes of this subparagraph, a positive 
balance year is a calendar year following any calendar year 
after 2080 for which the Chief Actuary of the Social Secu-
rity Administration certifies to the Secretary of the Treas-
ury and the Congress that the combined balance ratio of 
the Federal Old-Age and Survivors Trust Fund and the 
Federal Disability Insurance Trust Fund is not less than 
100 percent for such year. 
‘‘(II) For purposes of subclause (I), the combined 
balance ratio of the Federal Old-Age and Survivors Trust 
Fund and the Federal Disability Insurance Trust Fund 
for any calendar year is the ratio of the combined balance 
of such Trust Funds as of the last day of such calendar 
year (reduced by any transfer made pursuant to section 
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264 
201(o) in such calendar year) to the amount estimated 
by the Commissioner of Social Security under section 
201(l)(3)(B)(iii)(II) to be paid from such Trust Funds 
during the calendar year following such calendar year for 
all purposes authorized by section 201 (determined as if 
such following calendar year were a positive balance year). 
‘‘(D) For purposes of this paragraph, rules similar 
to the rules of subparagraphs (C) and (D) of paragraph 
(1) shall apply. 
‘‘(E) For purposes of this paragraph, the term ‘appli-
cable benefit’ means any benefit under section 202 other 
than— 
‘‘(i) a child’s insurance benefit under section 
202(d) with respect to a child of an individual who 
has died; 
‘‘(ii) a widow’s insurance benefit under section 
202(e) with respect to a widow who has not attained 
age 60 and is under a disability (as defined in sec-
tion 223(d)) which began before the end of the pe-
riod specified in section 202(e)(4); 
‘‘(iii) a widower’s insurance benefit under sec-
tion 202(f) with respect to a widower who has not 
attained age 60 and is under a disability (as defined 
in section 223(d)) which began before the end of the 
period specified in section 202(f)(4); and 
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‘‘(iv) a mother’s and father’s insurance benefit 
under section 202(g).’’. 
(b) TREATMENT OF DISABLED BENEFICIARIES.— 
Section 215(a) of such Act (as amended by subsection (a)) 
is amended further by adding at the end the following new 
paragraph: 
‘‘(9)(A) Notwithstanding the preceding provisions of 
this subsection, in the case of an individual who has or 
has had a period of disability and who initially becomes 
eligible for old-age insurance benefits or who dies (before 
becoming eligible for such benefits) in any calendar year 
in or after 2016, the primary insurance amount of such 
individual shall be the sum of— 
‘‘(i) the amount determined under subpara-
graph (B); and 
‘‘(ii) the product derived by multiplying— 
‘‘(I) the excess of the amount determined 
under subparagraph (C) over the amount deter-
mined under subparagraph (B), by 
‘‘(II) the adjustment factor for such indi-
vidual determined under subparagraph (D). 
‘‘(B) The amount determined under this subpara-
graph is the amount of such individual’s primary insur-
ance amount as determined under this section without re-
gard to this paragraph. 
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267 
(1) 
Subsections 
(e)(2)(B)(i)(I) 
and 
(f)(2)(B)(i)(I) of section 202 of the Social Security 
Act are each amended by inserting ‘‘or section 
215(a)(2)(B)(iii)’’ after ‘‘section 215(a)(1)(B)(i) and 
(ii)’’. 
(2) Section 203(a)(10) of such Act is amend-
ed— 
(A) in subparagraph (A)(i), by striking 
‘‘215(a)(2)(B)(i)’’ 
and 
inserting 
‘‘215(a)(3)(B)(i)’’; 
(B) in subparagraph (A)(ii), by striking 
‘‘215(a)(2)(C)’’ and inserting ‘‘215(a)(3)(C)’’; 
and 
(C) in subparagraph (B)(ii), by striking 
‘‘215(a)(2)’’ and inserting ‘‘215(a)(3)’’. 
(3) Section 209(k)(1) of such Act is amended 
by inserting ‘‘215(a)(2)(B), 215(a)(2)(C),’’ after 
‘‘215(a)(1)(D),’’. 
(4) Section 215(a) of such Act is amended— 
(A) in paragraph (4)(A), as redesignated 
by paragraph (2), by striking ‘‘paragraph (4)’’ 
and inserting ‘‘paragraph (5)’’; 
(B) in paragraph (4)(B), as redesignated 
by paragraph (2), by striking ‘‘paragraph 
(2)(A)’’ and inserting ‘‘paragraph (3)(A)’’; 
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(C) in paragraph (5), as redesignated by 
paragraph (2), by striking ‘‘paragraph (3)(A)’’ 
and inserting ‘‘paragraph (4)(A)’’; 
(D) in paragraph (6)(A), as redesignated 
by paragraph (2), by striking ‘‘paragraph 
(4)(B)’’ and inserting ‘‘paragraph (5)(B)’’; and 
(E) in paragraph (8)(B)(ii)(I), as redesig-
nated by paragraph (2), by striking ‘‘paragraph 
(3)(B)’’ and inserting ‘‘paragraph (4)(B)’’. 
(5) Section 215(d)(3) of such Act is amended— 
(A) by striking ‘‘paragraph (4)(B)(ii)’’ and 
inserting ‘‘paragraph (5)(B)(ii)’’; and 
(B) by striking ‘‘subsection (a)(7)(C)’’ and 
inserting ‘‘subsection (a)(8)(C)’’. 
(6) Subsection 215(f) of such Act is amended— 
(A) in paragraph (2)(B), by striking ‘‘sub-
section (a)(4)(B)’’ and inserting ‘‘subsection 
(a)(5)(B)’’; 
(B) in paragraph (7), by striking ‘‘sub-
section (a)(4)(B)’’ and inserting ‘‘subsection 
(a)(5)(B)’’, and by striking ‘‘subsection (a)(6)’’ 
and inserting ‘‘subsection (a)(7)’’; 
(C) in paragraph (9)(A)— 
(i) by striking ‘‘subsection (a)(7)(A)’’ 
and inserting ‘‘subsection (a)(8)(A)’’; and 
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269 
(ii) by striking ‘‘subsection (a)(7)(C)’’ 
and inserting ‘‘subsection (a)(8)(C)’’; and 
(D) in paragraph (9)(B), by striking ‘‘sub-
section (a)(7)’’ each place it appears and insert-
ing ‘‘subsection (a)(8)’’. 
SEC. 409. ENHANCEMENTS TO PART A BENEFITS. 
(a) CPI INDEXING IN PART A BENEFIT FORMULA.— 
Section 215(a)(1)(B) of the Social Security Act (42 
U.S.C. 415(a)(1)(B)) is amended— 
(1) by redesignating clause (iii) as clause (iv); 
(2) in clause (ii), by inserting ‘‘and before 
2016’’ after ‘‘1979’’; 
(3) in clause (iv) (as so redesignated), by in-
serting ‘‘or (iii)’’ after ‘‘clause (ii)’’; and 
(4) by inserting after clause (ii) the following 
new clause: 
‘‘(iii) For individuals who initially become eligible for 
old-age or disability insurance benefits, or who die (before 
becoming eligible for such benefits), in any calendar year 
after 2015, each of the amounts so established shall be 
equal to the product of the corresponding amount estab-
lished with respect to the calendar year 2015 under clause 
(ii) of this subparagraph and the quotient obtained by di-
viding— 
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‘‘(I) the Consumer Price Index for the second 
calendar year preceding the calendar year for which 
the determination is made, by 
‘‘(II) the Consumer Price Index for 2013. 
For purposes of this clause, the term ‘Consumer Price 
Index’ for a calendar year means the arithmetical mean 
of the Consumer Price Index (within the meaning of such 
term as used in subsection (i)) for the 12 months in such 
calendar year.’’. 
(b) ENHANCED PART A BENEFIT LEVELS FOR LOW 
EARNERS.—Section 215(a) of such Act (as amended by 
section 408) is amended by adding at the end the following 
new paragraph: 
‘‘(10)(A) In the case of any individual who initially 
becomes eligible for old-age or disability insurance bene-
fits, or who dies (before becoming eligible for such bene-
fits), in any calendar year after 2015 and whose average 
indexed monthly earnings is less than twice the 35-year 
low earner AIME for such calendar year, each primary 
insurance amount otherwise determined under paragraph 
(1) or (2) shall be the product of— 
‘‘(i) such primary insurance amount as so de-
termined, and 
‘‘(ii) the applicable adjustment factor for such 
individual. 
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271 
‘‘(B) For purposes of this paragraph, the applicable 
adjustment factor for an individual is 100 percent plus 
the product of— 
‘‘(i) the applicable percentage for the calendar 
year, 
‘‘(ii) the applicable AIME factor, and 
‘‘(iii) the applicable coverage factor. 
‘‘(C) For purposes of subparagraph (B)(i), the appli-
cable percentage for a calendar year is the percentage set 
forth in connection with such calendar year in the fol-
lowing table: 
‘‘If the calendar year is: 
The percentage is: 
2016 .............................................................................................
4.04
2017 .............................................................................................
8.08
2018 .............................................................................................
12.12
2019 .............................................................................................
16.16
2020 .............................................................................................
20.20
2021 .............................................................................................
24.24
2022 .............................................................................................
28.28
2023 .............................................................................................
32.32
2024 .............................................................................................
36.36
2025 or thereafter .......................................................................
40.40. 
‘‘(D) For purposes of subparagraph (B)(ii)— 
‘‘(i) in any case in which an individual’s aver-
age indexed monthly earnings is less than or equal 
to the 30-year low earner AIME for the calendar 
year referred to in subparagraph (A), the applicable 
AIME factor in connection with the individual for 
the calendar year is 1, 
‘‘(ii) in any case in which an individual’s AIME 
is greater than the 30-year low earner AIME for the 
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272 
calendar year referred to in subparagraph (A) and 
less than twice the 35-year low earner AIME for the 
calendar year, the applicable AIME factor in connec-
tion with the individual for the calendar year is the 
quotient derived by dividing— 
‘‘(I) the excess of twice the 35-year low 
earner AIME for the calendar year over the in-
dividual’s average indexed monthly earnings, by 
‘‘(II) the excess of twice the 35-year low 
earner AIME for the calendar year over the 30- 
year low earner AIME for the calendar year, 
and 
‘‘(iii) in any case in which an individual’s aver-
age indexed monthly earnings is greater than or 
equal to twice the 35-year low earner AIME for the 
calendar year referred to in subparagraph (A), the 
applicable AIME factor in connection with an indi-
vidual for the calendar year is 0. 
‘‘(E) For purposes of subparagraph (B)(iii)— 
‘‘(i) in any case in which the number of an indi-
vidual’s quarters of coverage earned prior to the 
date on which the individual became eligible or died 
as described in subparagraph (A) is less than or 
equal to twice the number of elapsed years with re-
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277 
determined under this subparagraph as of October 1 
of such calendar year in which such determination is 
made.’’. 
TITLE V—SIMPLIFIED INCOME 
TAX 
SEC. 501. SHORT TITLE. 
This title may be cited as the ‘‘Taxpayer Choice Act 
of 2008’’. 
SEC. 502. REPEAL OF ALTERNATIVE MINIMUM TAX FOR 
NONCORPORATE TAXPAYERS. 
(a) IN GENERAL.—Section 55(a) of the Internal Rev-
enue Code of 1986 (relating to alternative minimum tax 
imposed) is amended by adding at the end the following 
new flush sentence: 
‘‘In the case of a taxpayer other than a corporation, no 
tax shall be imposed by this section for any taxable year 
beginning after December 31, 2008, and the tentative 
minimum tax of any taxpayer other than a corporation 
for any such taxable year shall be zero for purposes of 
this title.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 26(c) of such Code is amended by 
striking ‘‘the term ‘tentative minimum tax’ means 
the amount determined under section 55(b)(1)’’ and 
inserting ‘‘the tentative minimum tax is zero.’’. 
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(2) Section 911(f)(2) of such Code is amended 
to read as follows: 
‘‘(2) the tentative minimum tax under section 
55 for the taxable year shall be zero.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2008. 
SEC. 503. SIMPLIFIED INCOME TAX SYSTEM. 
(a) IN GENERAL.—Part I of subchapter A of chapter 
1 of the Internal Revenue Code of 1986 (relating to tax 
on individuals) is amended by redesignating section 5 as 
section 6 and by inserting after section 4 the following 
new section: 
‘‘SEC. 5. SIMPLIFIED INCOME TAX SYSTEM. 
‘‘(a) ELECTION.— 
‘‘(1) IN GENERAL.—A taxpayer other than a 
corporation may elect in accordance with this sub-
section to be subject to the tax imposed by this sec-
tion in lieu of the tax imposed by section 1 for a tax-
able year and all subsequent taxable years. 
‘‘(2) EFFECT OF ELECTION.—For purposes of 
this title, if an election is in effect under paragraph 
(1) for any taxable year, the tax imposed by this sec-
tion shall be treated as the tax imposed by section 
1 for the taxable year and, except as provided by 
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sections 31 and 36, no amount shall be allowed as 
a credit against such tax for the taxable year. 
‘‘(3) ELECTION.— 
‘‘(A) IN GENERAL.— 
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii) of this subparagraph 
and clauses (ii) and (iii) of subparagraph 
(B), the election under paragraph (1) may 
only be made with respect to any taxable 
year beginning before January 1, 2018, on 
a timely filed return for the first taxable 
year for which the election applies. 
‘‘(ii) NEW TAXPAYERS.—In the case 
of an individual with no tax liability under 
this title before January 1, 2018, the elec-
tion under paragraph (1) may only be 
made for the first taxable year beginning 
after December 31, 2017, for which such 
individual has tax liability under this title. 
‘‘(B) EFFECT OF ELECTION.— 
‘‘(i) IN
GENERAL.—Except as pro-
vided in clauses (ii) and (iii), the election 
under paragraph (1), once made, shall be 
irrevocable. 
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‘‘(ii) 
ONE-TIME
REVOCATION
OF 
ELECTION.—A taxpayer may revoke an 
election under paragraph (1) for a taxable 
year and all subsequent taxable years. The 
preceding sentence shall not apply if the 
taxpayer has made a revocation under such 
sentence for any prior taxable year. 
‘‘(iii) FILING STATUS CHANGES DUE 
TO MAJOR LIFE EVENTS.—In the case of 
any major life event described in clause 
(iv), a taxpayer may make an election 
under paragraph (1) or revoke such an 
election under clause (ii). Any such election 
or revocation shall apply for the taxable 
year for which made and all subsequent 
taxable years until the taxpayer makes an 
election under the preceding sentence for 
any subsequent (and all succeeding) tax-
able year. 
‘‘(iv) MAJOR LIFE EVENT.—For pur-
poses of clause (iii), a major life event de-
scribed in this clause is marriage, divorce, 
and death. 
‘‘(b) TAX IMPOSED.— 
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281 
‘‘(1) MARRIED
INDIVIDUALS
AND
SURVIVING 
SPOUSES.—In the case of a taxpayer for whom an 
election under subsection (a) is in effect and who is 
a married individual (as defined in section 7703) 
who makes a single return jointly with his spouse 
under section 6013 or a surviving spouse (as defined 
in section 2(a)), there is hereby imposed on the al-
ternative taxable income of such individual a tax de-
termined in accordance with the following table: 
‘‘If taxable income is: 
The tax is: 
Not over $100,000 ........................
10% of alternative taxable income. 
Over $100,000 ...............................
$10,000, plus 25% of the excess over 
$100,000. 
‘‘(2) UNMARRIED INDIVIDUALS (OTHER THAN 
SURVIVING SPOUSES).—In the case of a taxpayer for 
whom an election under subsection (a) is in effect 
and who is not described in paragraph (1), there is 
hereby imposed on the alternative taxable income of 
such individual a tax determined in accordance with 
the following table: 
‘‘If taxable income is: 
The tax is: 
Not over $50,000 ..........................
10% of alternative taxable income. 
Over $50,000 .................................
$5,000, plus 25% of the excess over 
$50,000. 
‘‘(c) ALTERNATIVE TAXABLE INCOME.—For pur-
poses of this section— 
‘‘(1) IN GENERAL.—The term ‘alternative tax-
able income’ means— 
‘‘(A) gross income, 
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‘‘(B) the amount excluded from income 
under section 139C for capital gains, dividends, 
and interest, minus 
‘‘(C) the sum of— 
‘‘(i) the personal exemption, 
‘‘(ii) the dependent allowance, plus 
‘‘(iii) the alternative standard deduc-
tion. 
‘‘(2) PERSONAL EXEMPTION.—The personal ex-
emption is— 
‘‘(A) 200 percent of the dollar amount in 
effect under subparagraph (B) in the case of— 
‘‘(i) a joint return, or 
‘‘(ii) a surviving spouse (as defined in 
section 2(a)), and 
‘‘(B) $3,500 in the case of an individual— 
‘‘(i) who is not married and is not a 
surviving spouse, or 
‘‘(ii) who is a married individual filing 
a separate return. 
‘‘(3) DEPENDENT
ALLOWANCE.—The depend-
ent allowance is $3,500 for each dependent (as de-
fined in section 152). 
‘‘(4) ALTERNATIVE
STANDARD
DEDUCTION.— 
The alternative standard deduction means— 
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‘‘(A) $25,000 in the case of— 
‘‘(i) a joint return, or 
‘‘(ii) a surviving spouse (as defined in 
section 2(a)), and 
‘‘(B) $12,500 in the case of an indi-
vidual— 
‘‘(i) who is not married and is not a 
surviving spouse, or 
‘‘(ii) who is a married individual filing 
a separate return. 
‘‘(d) INFLATION ADJUSTMENTS.— 
‘‘(1) IN GENERAL.—In the case of any taxable 
year beginning in a calendar year after 2008, each 
of the dollar amounts for the rate brackets in sub-
section (b) and each of the dollar amounts in sub-
section (d)(2)(B), (d)(3), and (d)(4) shall be in-
creased by an amount equal to— 
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar 
year in which the taxable year begins, by sub-
stituting ‘calendar year 2007’ for ‘calendar year 
1992’ in subparagraph (B) thereof. 
‘‘(2) ROUNDING.—If any amount as adjusted 
under clause (i) is not a multiple of $100, such 
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284 
amount shall be rounded to the nearest multiple of 
$100.’’. 
(b) CONFORMING AMENDMENT.—The table of sec-
tions for part I of subchapter A of chapter 1 of such Code 
is amended by striking the item relating to section 5 and 
inserting after the item relating to section 4 the following: 
‘‘Sec. 5. Simplified income tax System. 
‘‘Sec. 6. Cross references relating to tax on individuals.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2008. 
SEC. 504. EXCLUSION FOR CAPITAL GAINS, DIVIDENDS, 
AND INTEREST. 
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to 
items specifically excluded from gross income) is amended 
by inserting after section 139B the following new section: 
‘‘SEC. 139C. CAPITAL GAINS, DIVIDENDS, AND INTEREST. 
‘‘(a) EXCLUSION.—Gross income does not include 
amounts received by an individual as net capital gains, 
qualified dividends, and interest. 
‘‘(b) QUALIFIED DIVIDENDS.—For purposes of this 
section— 
‘‘(1) IN GENERAL.—The term ‘qualified divi-
dends’ means dividends received during the taxable 
year from— 
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‘‘(A) domestic corporations, and 
‘‘(B) qualified foreign corporations. 
‘‘(2) QUALIFIED FOREIGN CORPORATIONS.— 
‘‘(A) IN GENERAL.—Except as otherwise 
provided in this paragraph, the term ‘qualified 
foreign corporation’ means any foreign corpora-
tion if— 
‘‘(i) such corporation is incorporated 
in a possession of the United States, or 
‘‘(ii) such corporation is eligible for 
benefits of a comprehensive income tax 
treaty with the United States which the 
Secretary determines is satisfactory for 
purposes of this paragraph and which in-
cludes an exchange of information pro-
gram. 
‘‘(B) DIVIDENDS
ON
STOCK
READILY 
TRADABLE
ON
UNITED
STATES
SECURITIES 
MARKET.—A foreign corporation not otherwise 
treated as a qualified foreign corporation under 
subparagraph (A) shall be so treated with re-
spect to any dividend paid by such corporation 
if the stock with respect to which such dividend 
is paid is readily tradable on an established se-
curities market in the United States. 
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‘‘(C) EXCLUSION OF DIVIDENDS OF CER-
TAIN
FOREIGN
CORPORATIONS.—Such term 
shall not include any foreign corporation which 
for the taxable year of the corporation in which 
the dividend was paid, or the preceding taxable 
year, is a passive foreign investment company 
(as defined in section 1297). 
‘‘(3) SPECIAL RULE.—If a taxpayer to whom 
this section applies receives, with respect to any 
share of stock, qualified dividend income from 1 or 
more dividends which are extraordinary dividends 
(within the meaning of section 1059(c)), any loss on 
the sale or exchange of such share shall, to the ex-
tent of such dividends, be treated as long-term cap-
ital loss. 
‘‘(c) INTEREST.—For purposes of this section, the 
term ‘interest’ means— 
‘‘(1) interest on deposits with a bank (as de-
fined in section 581), 
‘‘(2) amounts (whether or not designated as in-
terest) paid, in respect to deposits, investment cer-
tificates, or withdrawable or repurchasable shares, 
by— 
‘‘(A) a mutual savings bank, cooperative 
bank, domestic building and loan association, 
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industrial loan association or bank, or credit 
union, or 
‘‘(B) any other savings or thrift institu-
tion, which is chartered and supervised under 
Federal or State law, 
the deposits or accounts in which are insured under 
Federal or State law or which are protected and 
guaranteed under State law, 
‘‘(3) interest on— 
‘‘(A) evidences of indebtedness (including 
bonds, debentures, notes, and certificates) 
issued by a domestic corporation in registered 
form, and 
‘‘(B) to the extent provided in regulations 
prescribed by the Secretary, other evidences of 
indebtedness issued by a domestic corporation 
of a type offered by corporations to the public, 
‘‘(4) interest on obligations of the United 
States, a State, or a political subdivision of a State 
(not excluded from gross income of the taxpayer 
under any other provision of law), and 
‘‘(5) interest attributable to participation shares 
in a trust established and maintained by a corpora-
tion established pursuant to Federal law. 
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288 
‘‘(d) CERTAIN NONRESIDENT ALIENS INELIGIBLE 
FOR EXCLUSION.—In the case of a nonresident alien indi-
vidual, subsection (a) shall apply only— 
‘‘(1) in determining the tax imposed for the 
taxable year pursuant to section 871(b)(1) and only 
in respect to dividends and interest which are effec-
tively connected with the conduct of a trade or busi-
ness within the United States, or 
‘‘(2) in determining the tax imposed for the 
taxable year pursuant to section 877(b).’’. 
(b) CONFORMING AMENDMENT.—Section 1 of such 
Code is amended by striking subsection (h). 
(c) CLERICAL AMENDMENT.—The table of sections 
for such part III is amended by inserting after the item 
relating to section 139B the following new item: 
‘‘Sec. 139C. Capital gains, dividends, and interest.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2008. 
SEC. 505. REPEAL OF ESTATE AND GIFT TAXES. 
(a) IN GENERAL.—Subtitle B of the Internal Rev-
enue Code of 1986 is hereby repealed. 
(b) EFFECTIVE DATE.—The repeal made by sub-
section (a) shall apply to the estates of decedents dying, 
and gifts made, and generation-skipping transfers after 
December 31, 2008. 
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289 
TITLE VI—BUSINESS 
CONSUMPTION TAX 
SEC. 601. SHORT TITLE. 
This title may be cited as the ‘‘Competitive American 
Business Tax’’. 
SEC. 602. REPEAL OF CORPORATE INCOME TAX; NEW TAX 
PAID BY CORPORATIONS AND OTHER BUSI-
NESSES. 
(a) IN GENERAL.—Subtitle A of the Internal Rev-
enue Code of 1986 is amended by inserting after chapter 
6 the following new chapter: 
‘‘CHAPTER 7—BUSINESS CONSUMPTION 
TAX 
‘‘SUBCHAPTER A. IMPOSITION OF TAX. 
‘‘SUBCHAPTER B. BASIC RULES FOR BUSINESS CONSUMPTION TAX. 
‘‘SUBCHAPTER C. CAPITAL CONTRIBUTIONS, MERGERS, ACQUISITIONS, AND 
DISTRIBUTIONS. 
‘‘SUBCHAPTER D. ACCOUNTING METHOD RULES. 
‘‘SUBCHAPTER E. LAND AND RENTAL PROPERTY. 
‘‘SUBCHAPTER F. INSURANCE AND FINANCIAL PRODUCTS. 
‘‘SUBCHAPTER G. FINANCIAL INTERMEDIATION AND FINANCIAL INSTITUTIONS. 
‘‘SUBCHAPTER H. TAX-EXEMPT ORGANIZATIONS. 
‘‘SUBCHAPTER I. COOPERATIVES. 
‘‘SUBCHAPTER J. SOURCING RULES. 
‘‘SUBCHAPTER K. IMPORT TAX. 
‘‘SUBCHAPTER L. TRANSITION RULES. 
‘‘SUBCHAPTER M. RULES FOR ADMINISTRATION, CONSOLIDATED RETURNS. 
‘‘SUBCHAPTER N. DEFINITIONS AND RULES OF APPLICATION. 
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291 
‘‘(2) SALES AND LEASES OF REAL PROPERTY; 
IMPORTS.—For purposes of this chapter— 
‘‘(A) IN
GENERAL.—The term ‘business 
transaction’ includes— 
‘‘(i) any sale or leasing of real prop-
erty, and 
‘‘(ii) any importing of property, 
whether or not such transaction is described in 
paragraph (1). 
‘‘(B) CERTAIN
IMPORTED
ARTICLES.— 
Notwithstanding subparagraph (A)(ii), the im-
porting of an article which is free of duty under 
part 2 of schedule 8 of the Tariff Schedules of 
the United States shall not be treated as a busi-
ness transaction unless such transaction is de-
scribed in paragraph (1). 
‘‘(e) TAXABLE PERSON.— 
‘‘(1) GENERAL
RULE.—Except as otherwise 
provided in this chapter, for purposes of this chap-
ter, the term ‘taxable person’ means a person who 
engages in a business or in a business transaction. 
‘‘(2) TREATMENT OF EMPLOYEES, ETC.—For 
purposes of this chapter, an employee shall not be 
treated as a taxable person with respect to activities 
engaged in as an employee. 
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292 
‘‘(f) TRANSACTIONS IN THE UNITED STATES.— 
‘‘(1) SALES OF PROPERTY.—For purposes of 
this chapter— 
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), the sale of property shall be 
treated as occurring where delivery takes place. 
‘‘(B) REAL PROPERTY.—The sale of real 
property shall be treated as occurring where the 
real property is located. 
‘‘(2) PERFORMANCE
OF
SERVICE.—For pur-
poses of this chapter— 
‘‘(A) IN GENERAL.—Except as otherwise 
provided in this paragraph, a service shall be 
treated as occurring where it is performed. 
‘‘(B) SERVICES PERFORMED INSIDE AND 
OUTSIDE THE UNITED STATES.—If a service is 
performed both inside and outside the United 
States, such service shall be treated as per-
formed— 
‘‘(i) inside the United States, if 50 
percent or more of such service is per-
formed inside the United States, and 
‘‘(ii) outside the United States, if less 
than 50 percent of such service is per-
formed inside the United States. 
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293 
‘‘(g) RULES RELATING TO OTHER TERMS USED IN 
SUBSECTION (c).— 
‘‘(1) EXCHANGES
TREATED
AS
SALES.—For 
purposes of this chapter— 
‘‘(A) an exchange of property for property 
or services shall be treated as a sale of prop-
erty, and 
‘‘(B) an exchange of services for property 
or services shall be treated as the performance 
of services. 
‘‘(2) CERTAIN
TRANSFERS
TO
EMPLOYEES 
TREATED AS SALES.—For purposes of this chapter, 
the transfer of property to an employee as com-
pensation (other than a transfer of a type for which 
no amount is includible in the gross income of em-
ployees for purposes of chapter 1) shall be treated 
as the sale of property. 
‘‘(3) PERFORMANCE OF SERVICES.—For pur-
poses of this chapter— 
‘‘(A) CERTAIN
ACTIVITIES
TREATED
AS 
PERFORMANCE OF SERVICES.—Activities treat-
ed as included in the performance of services 
shall include (but shall not be limited to)— 
‘‘(i) permitting the use of property, 
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‘‘(ii) the granting of a right to the 
performance of services or to reimburse-
ment (including the granting of warranties, 
insurance, and similar items), and 
‘‘(iii) the making of a covenant not to 
compete (or similar agreement to refrain 
from doing something). 
‘‘(B) EMPLOYERS AND EMPLOYEES.— 
‘‘(i) SERVICES
FOR
EMPLOYER.—An 
employee’s services for the employee’s em-
ployer shall not be treated as the perform-
ance of services. 
‘‘(ii) SERVICES FOR EMPLOYEE.—An 
employer’s services for the employer’s em-
ployee shall not be treated as the perform-
ance of services unless such services are of 
a type which constitute gross income to the 
employee for purposes of chapter 1. 
‘‘(C) PERFORMANCE OF SERVICES TREAT-
ED AS SALE OF SERVICES.—The performance of 
services shall be treated as the sale of services. 
‘‘SEC. 1602. TAXABLE AMOUNT. 
‘‘(a) AMOUNT CHARGED CUSTOMER.—For purposes 
of this chapter, the taxable amount for any transaction 
for which money is the only consideration shall be the 
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price charged the purchaser of the property or services by 
the seller thereof— 
‘‘(1) including all invoiced charges for transpor-
tation, and other items payable to the seller with re-
spect to this transaction, but 
‘‘(2) excluding the tax imposed by section 1601 
with respect to this transaction and excluding any 
State and local sales and use taxes with respect to 
this transaction. 
‘‘(b) EXCHANGES.—For purposes of this chapter, the 
taxable amount in any exchange of property or services 
shall be the fair market value of the property or services 
transferred by the person liable for the tax (determined 
as if such person had sold the property or services to the 
other party to the exchange). 
‘‘(c) IMPORTS.—For purposes of this chapter, the 
taxable amount in the case of any import shall be— 
‘‘(1) the customs value plus customs duties and 
any other duties which may be imposed, or 
‘‘(2) if there is no such customs value, the fair 
market value (determined as if the importer had sold 
the property). 
‘‘SEC. 1603. ZERO RATING FOR EXPORTS AND INTEREST. 
‘‘The rate of the tax imposed by section 1601 shall 
be zero with respect to the following: 
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‘‘(1) EXPORTS.—Exports of property. 
‘‘(2) INTEREST.—Interest. 
‘‘SEC. 1604. GOVERNMENTAL ENTITIES. 
‘‘(a) ZERO RATING FOR SALES TO GOVERNMENTAL 
ENTITIES AND EDUCATIONAL ACTIVITIES OF GOVERN-
MENTAL ENTITIES.—The rate of the tax imposed by sec-
tion 1601 shall be zero with respect to the following: 
‘‘(1) SALES
TO
GOVERNMENTAL
ENTITIES.— 
Any sale of property or services to a governmental 
entity. 
‘‘(2) EDUCATIONAL ACTIVITIES.—The providing 
by a governmental entity of property and services in 
connection with the education of students. 
‘‘(b) SALES, ETC., BY GOVERNMENTAL ENTITIES 
TAXABLE ONLY WHERE SEPARATE CHARGE IS MADE.— 
For purposes of this chapter, the sale of property and the 
performance of services by a governmental entity shall be 
a taxable transaction if (and only if) a separate charge 
of fee is made therefor. 
‘‘(c) GOVERNMENTAL ENTITY DEFINED.—For pur-
poses of this chapter, the term ‘governmental entity’ 
means the United States, any State or political subdivision 
thereof, the District of Columbia, a Commonwealth or pos-
session of the United States, or any agency or instrumen-
tality of any of the foregoing. 
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297 
‘‘SEC. 1605. EXEMPT ORGANIZATIONS. 
‘‘(a) ZERO RATING FOR SECTION 501(c)(3) ORGANI-
ZATIONS; CREDIT ALLOWED FOR ALL PURCHASES.— 
‘‘(1) ZERO RATING.—The rate of the tax im-
posed by section 1601 shall be zero with respect to 
any taxable transaction engaged in by a section 
501(c)(3) organization other than as part of an un-
related business. 
‘‘(2) CREDIT ALLOWED FOR ALL PURCHASES.— 
For purposes of this chapter, a section 501(c)(3) or-
ganization shall be treated as engaged in a business 
with respect to all of its activities. 
‘‘(b) TAXABLE TRANSACTIONS IN CASE OF OTHER 
EXEMPT ORGANIZATIONS.—For purposes of this chapter, 
the sale of property and the performance of services by 
any exempt organization other than a section 501(c)(3) 
organization shall be a taxable transaction if (and only 
if) a charge or fee is made for such services. 
‘‘(c) DEFINITIONS.—For purposes of this chapter— 
‘‘(1) SECTION 501(c)(3) ORGANIZATIONS.—The 
term ‘section 501(c)(3) organization’ means an orga-
nization described in section 501(c)(3) which is ex-
empt from tax under section 501(a). 
‘‘(2) OTHER
EXEMPT
ORGANIZATION.—The 
term ‘other exempt organization’ means any organi-
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299 
excess shall be treated as an overpayment of the tax 
imposed by section 1601. 
‘‘(2) TIME WHEN OVERPAYMENT ARISES.—Any 
overpayment under paragraph (1) for any taxable 
period shall be treated as arising on the later of— 
‘‘(A) the due date for the return for such 
period, or 
‘‘(B) the date on which the return is filed. 
‘‘Subchapter B—Basic Rules for Business 
Consumption Tax 
‘‘Sec. 1611. Gross profits. 
‘‘Sec. 1612. Taxable receipts. 
‘‘Sec. 1613. Deductible amounts. 
‘‘Sec. 1614. Cost of business purchases. 
‘‘Sec. 1615. Business entity and business activity. 
‘‘Sec. 1616. Loss carryover deduction. 
‘‘SEC. 1611. GROSS PROFITS. 
‘‘ ‘Gross profits’ means for a taxable transaction of 
a business entity the amount by which— 
‘‘(1) the taxable receipts of the business entity 
with respect to the taxable transaction, exceed 
‘‘(2) the deductible amounts for the business 
entity with respect to the taxable transactions. 
‘‘SEC. 1612. TAXABLE RECEIPTS. 
‘‘(a) IN GENERAL.—‘Taxable receipts’ means all re-
ceipts from the sale of property, use of property, and per-
formance of services in the United States. 
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300 
‘‘(b) GAMES
OF CHANCE.—Amounts received for 
playing games of chance by business entities engaging in 
the activity of providing such games shall be treated as 
receipts from the sale of property or services. 
‘‘(c) IN-KIND RECEIPTS.—The taxable receipts at-
tributable to the receipt of property, use of property or 
services in whole or partial exchange for property, use of 
property or services equal the fair market value of the 
services or property received. 
‘‘(d) TAXES.—Taxable receipts do not include any ex-
cise tax, sales tax, custom duty, or other separately stated 
levy imposed by a Federal, State, or local government re-
ceived by a business entity in connection with the sale of 
property or services or the use of property. 
‘‘(e) FINANCIAL RECEIPTS.—Except as provided in 
subchapter G (relating to financial intermediation and fi-
nancial institutions), taxable receipts do not include finan-
cial receipts (as defined by regulations by the Secretary). 
‘‘SEC. 1613. DEDUCTIBLE AMOUNTS. 
‘‘ ‘Deductible amounts’ for a business entity in a tax-
able transaction include— 
‘‘(1) the cost of business purchases with respect 
to the taxable transaction (as determined under sec-
tion 1614), 
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‘‘(2) such entity’s loss carryover deduction (as 
determined under section 1616) , and 
‘‘(3) the transition basis deduction (as deter-
mined under section 1711). 
‘‘SEC. 1614. COST OF BUSINESS PURCHASES. 
‘‘(a) BUSINESS PURCHASES.— 
‘‘(1) IN GENERAL.—‘Business purchases’ means 
the acquisition of— 
‘‘(A) property, 
‘‘(B) the use of property, or 
‘‘(C) services 
in the United States for use in a business activity. 
‘‘(2) EXAMPLES.—Business purchases include 
(without limitation) the— 
‘‘(A) purchase or rental of real property, 
‘‘(B) purchase or rental of capital equip-
ment, 
‘‘(C) purchase of supplies and inventory, 
‘‘(D) purchase of services from inde-
pendent contractors, 
‘‘(E) purchase of financial intermediation 
services (as determined in accordance with sec-
tion 1661), 
‘‘(F) imports for use in a business activity, 
and 
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‘‘(G) premiums for the cost of health in-
surance policies for which the service provider, 
members of his family, or persons designated by 
him or members of his family are the bene-
ficiaries. 
‘‘(3) EXCLUSIONS.—Business purchases do not 
include— 
‘‘(A) payments for use of money or capital, 
such as interest or dividends (except to the ex-
tent that a portion so paid is a fee for financial 
intermediation services), 
‘‘(B) premiums for life insurance, 
‘‘(C) the acquisition of savings assets or 
other financial instruments. 
‘‘(D) property acquired outside the United 
States (but such property shall be taken into 
account as an import if imported), 
‘‘(E) services performed outside the United 
States (unless treated as imported into the 
United States), 
‘‘(F) compensation expenses for an indi-
vidual (other than amounts paid to an indi-
vidual in his capacity as a business entity), or 
‘‘(G) taxes (except as provided in sub-
section (b)(2) relating to product taxes). 
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‘‘(4) COMPENSATION
EXPENSES.—‘Compensa-
tion expenses’ means— 
‘‘(A) wages, salaries or other cash payable 
for services, 
‘‘(B) any taxes imposed on the recipient 
that are withheld by the business entity, 
‘‘(C) the cost of property purchased to pro-
vide employees with compensation (other than 
property incidental to the provision of fringe 
benefits that are excluded from income under 
the individual tax), 
‘‘(D) the cost of fringe benefits which are 
includible in an employee’s, partner’s, or propri-
etor’s income under section 5 (or are excluded 
solely because they constitute employee sav-
ings), including (without limitation)— 
‘‘(i) contributions to retirement and 
severance benefit plans, 
‘‘(ii) premiums for the cost of life, ac-
cident, disability and other insurance poli-
cies for which the service provider, mem-
bers of his family, or persons designated 
by him or members of his family are the 
beneficiaries, 
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‘‘(iii) rental of parking spaces or park-
ing fees (unless the parking space is used 
for a vehicle that is regularly used in a 
business activity); 
‘‘(iv) employer paid educational bene-
fits; 
‘‘(v) employer paid housing (other 
than housing provided for the convenience 
of the employer); and 
‘‘(vi) employer paid meals (other than 
meals provided for the convenience of the 
employer). 
‘‘(b) COST OF BUSINESS PURCHASES.— 
‘‘(1) IN
GENERAL.—The ‘cost of a business 
purchase’ is the amount paid or to be paid for the 
business purchase. 
‘‘(2) TAXES.— 
‘‘(A) IN GENERAL.—The ‘cost of business 
purchases’ includes any product taxes paid with 
respect to the property or services purchased. 
‘‘(B) PRODUCT TAX.—‘Product tax’ means 
any excise tax, sales or use tax, custom duty, or 
other separately stated levy imposed by a Fed-
eral, State, or local government on the produc-
tion, severance or consumption of property or 
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on the provision of services, whether or not sep-
arately stated, and including any such taxes 
that are technically imposed on the seller of 
property or services. 
‘‘(C) TAXES NOT PRODUCT TAXES.—Prod-
uct taxes do not include— 
‘‘(i) the import tax, 
‘‘(ii) state and local property taxes, 
‘‘(iii) franchise or income taxes, 
‘‘(iv) payroll taxes and self-employ-
ment taxes, or 
‘‘(v) the business tax. 
‘‘(3) IMPORTS.—In the case of an import by a 
business entity, the cost of the import is the import 
price for purposes of the import tax. The import tax 
is not part of the cost of the import. 
‘‘(c) PROPERTY
AND
SERVICES
ACQUIRED
FOR 
PROPERTY.—If a business entity receives property or serv-
ices from a business entity in whole or partial exchange 
for property or services, the property or services acquired 
shall be treated as if they were purchased for an amount 
equal to the fair market value of the services or property 
received. For purposes of this section, property includes 
stock and other equity interests in business other than 
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stock or an equity interest in the business entity acquiring 
the property or services. 
‘‘(d) GAMBLING PAYMENTS.—In the case of a busi-
ness involving gambling, lotteries, or other games of 
chance, business purchases include amounts paid to win-
ners. 
‘‘(e) SAVINGS
ASSETS.—‘Savings assets’ means 
stocks, bonds, securities, certificates of deposits, invest-
ments in partnerships and limited liability companies, 
shares of mutual funds, life insurance policies, annuities, 
and other similar savings or investment assets. 
‘‘SEC. 1615. BUSINESS ENTITY AND BUSINESS ACTIVITY. 
‘‘(a) BUSINESS ENTITY.—For purposes of the busi-
ness tax, ‘business entity’ means any corporation, unincor-
porated association, partnership, limited liability company, 
proprietorship, independent contractor, individual, or any 
other person engaging in business activity in the United 
States. An individual shall be considered a business entity 
only with respect to the individual’s business activities. 
‘‘(b) BUSINESS ACTIVITY.—‘Business activity’ means 
the sale of property or services, the leasing of property, 
the development of property or services for subsequent 
sale or use in producing property or services for subse-
quent sale. ‘Business activity’ does not include casual or 
occasional sales of property used by an individual (other 
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307 
than in a business activity), such as the sale by an indi-
vidual of a vehicle used by the individual. 
‘‘(c) EXCEPTION FOR CERTAIN EMPLOYEES.— 
‘‘(1) IN GENERAL.—‘Business activity’ does not 
include— 
‘‘(A) the performance of services by an em-
ployee for an employer that is a business entity 
with respect to the activity in which the em-
ployee is engaged, or 
‘‘(B) the performance of regular domestic 
household 
services 
(including 
babysitting, 
housecleaning, and lawn cutting) by an em-
ployee of an employer that is an individual or 
family. 
‘‘(2) EMPLOYEE
DEFINED.—For purposes of 
this subsection, ‘employee’ includes an individual 
partner who provides services to a partnership or an 
individual member who provides services to a limited 
liability company, or a proprietor with respect to 
compensation for services from his proprietorship. 
‘‘SEC. 1616. LOSS CARRYOVER DEDUCTION. 
‘‘(a) DEDUCTION.—The ‘loss carryover deduction’ for 
a taxable period is the lesser of— 
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‘‘(1) the business entity’s gross profits for the 
taxable period (determined without the loss carry-
over deduction), or 
‘‘(2) the amount of the loss carryover to the 
taxable period. 
‘‘(b) LOSS CARRYOVER.— 
‘‘(1) GENERAL RULE.—A loss for any taxable 
period shall be a loss carryover to the succeeding 
taxable period. 
‘‘(2) LOSS
CARRYOVERS
TO
A
TAXABLE
PE-
RIOD.—The loss carryover to a taxable period is the 
sum of the loss carryovers from all prior taxable pe-
riods beginning on or after January 1 of the year 
following the year in which this chapter is enacted. 
‘‘(3) REDUCTION OF LOSS CARRYOVERS AS A 
RESULT OF THE DEDUCTION.—A business entity’s 
loss carryovers shall be reduced each year by the 
amount of the loss carryover deduction for the year. 
Loss carryovers shall be reduced in the order that 
they arose. 
‘‘(c) LOSS FOR TAXABLE PERIOD.—A business enti-
ty’s loss (if any) for the taxable period equals the excess 
(if any) of— 
‘‘(1) the sum of— 
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‘‘(A) the cost of business purchases for the 
taxable period, and 
‘‘(B) the transition basis adjustment for 
the taxable period, over 
‘‘(2) taxable receipts for the taxable period. 
‘‘(d) SPECIAL RULES.— 
‘‘(1) CONSOLIDATED RETURNS.—In the case of 
a consolidated return, the loss for a taxable period 
shall be determined on a consolidated group basis. 
In the case of a deconsolidation, the loss carryovers 
from the consolidated group shall be allocated in ac-
cordance with rules to be prescribed by the Sec-
retary. 
‘‘(2) LOSS
CARRYOVERS
OF
ACQUIRED
BUSI-
NESS ENTITY.—Any loss arising in the case of the 
acquisition of a business entity shall be allowed as 
prescribed by the Secretary. 
‘‘(e) INTEREST.—Interest shall be allowed on each 
loss carried forward under this section at a rate deter-
mined by the Secretary of the Treasury. 
‘‘Subchapter C—Capital Contributions, 
Mergers, Acquisitions, and Distributions 
‘‘Sec. 1621. Contributions to a business entity. 
‘‘Sec. 1622. Distributions of property. 
‘‘Sec. 1623. Asset acquisitions. 
‘‘Sec. 1624. Mergers and stock acquisitions. 
‘‘Sec. 1625. Spin-offs, split-offs, etc. 
‘‘Sec. 1626. Allocation of certain tax attributes. 
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‘‘SEC. 1621. CONTRIBUTIONS TO A BUSINESS ENTITY. 
‘‘(a) BY BUSINESS ENTITY.— 
‘‘(1) CASH.—If a business entity contributes 
cash to a business entity of which it is or becomes 
a partial or full owner, the amount contributed is 
not a deductible amount to the contributor or a tax-
able receipt to the recipient. 
‘‘(2) PROPERTY OR SERVICES.—If a business 
entity contributes property or services to a business 
entity of which it is or becomes a partial or full 
owner, the transaction will not result in taxable re-
ceipts to the contributor or a deduction for a busi-
ness purchase for the recipient and will not con-
stitute a sale resulting in taxable receipts to the con-
tributor. 
‘‘(b) BY INDIVIDUAL.— 
‘‘(1) CASH.—If an individual contributes cash 
to a business entity, the cash received is not a tax-
able receipt. 
‘‘(2) NEW PROPERTY.—If an individual contrib-
utes to a business entity property that the individual 
purchased for the business entity but which was not 
used by any person after its purchase, the property 
shall be considered purchased by such business enti-
ty from the person from which the individual pur-
chased the property. 
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‘‘(3) PERSONAL USE PROPERTY.— 
‘‘(A) IN GENERAL.—If an individual con-
tributes personal use property to a business en-
tity in which the individual has an ownership 
interest or for which the individual receives an 
ownership interest, the business entity shall not 
be permitted to deduct the value of the property 
received as a business expense. The business 
entity will have a tax basis in the contributed 
property equal to the contributor’s basis. 
‘‘(B) PERSONAL
USE
PROPERTY.—‘Per-
sonal use property’ means any property used by 
an individual at any time other than in a busi-
ness activity. 
‘‘(4) SERVICES.—If an individual contributes 
services to a business entity in which the individual 
has an ownership interest or receives an ownership 
interest, the business entity shall not be permitted to 
deduct the value of the services received (or the 
value of the equity interest provided to the services 
provider). 
‘‘SEC. 1622. DISTRIBUTIONS OF PROPERTY. 
‘‘(a) DISTRIBUTIONS OTHER THAN TO CONTROL-
LING BUSINESS.—If a business entity distributes all or a 
portion of its assets to its owners (other than a controlling 
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business entity), the business entity will be treated as if 
it sold the assets to its owners at fair market value. The 
fair market value will be determined by the distributing 
corporation and those determinations, unless unreason-
able, will be binding on the recipients. 
‘‘(b) DISTRIBUTIONS
TO
A CONTROLLING BUSI-
NESS.—If a business entity distributes all or a portion of 
its assets to a controlling business, the controlling busi-
ness will assume the distributing entity’s tax attributes 
with respect to the assets and neither entity will have tax-
able receipts or a deduction as a result of the transaction. 
‘‘(c) DISTRIBUTION
OF
PERSONAL
USE
PROP-
ERTY.—If personal use property is distributed to the indi-
vidual who contributed the personal use property to a busi-
ness entity, the fair market value of the property for pur-
poses of paragraph (a) shall equal the basis of the prop-
erty plus any enhancement in value of the property attrib-
utable to business purchases with respect to the property. 
‘‘(d) CONTROLLING BUSINESS ENTITY.—A business 
entity is a ‘controlling business entity’ with respect to an-
other business entity if it owns directly or indirectly more 
than 50 percent of the profits or capital interest in the 
other business entity. 
‘‘(e) APPLICATION OF THIS SECTION.—This section 
applies to both liquidating and nonliquidating distribu-
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313 
tions. Property shall be treated as distributed if the prop-
erty is used for a nonbusiness purpose for more than an 
insubstantial period of time during a taxable period. 
‘‘SEC. 1623. ASSET ACQUISITIONS. 
‘‘(a) IN GENERAL.—If a business entity transfers 
some or all of its assets, the consideration received for 
such assets shall be allocated among the assets transferred 
in the same manner as was required by section 1060. If 
the transferee and transferor agree in writing on the allo-
cation of any consideration, or as to the fair market value 
of any of the assets, such agreement shall be binding on 
both the transferor and transferee unless the Secretary de-
termines that such allocation (or fair market value) is not 
appropriate. 
‘‘(b) TAX CONSEQUENCES.—The tax consequences of 
an asset acquisition shall be determined in accordance 
with the rules of this chapter and shall be dependent upon 
allocations made under subsection (a). In general, consid-
eration allocable to savings assets, such as stock in an-
other business entity, would not be included in taxable re-
ceipts of the transferor and would not be a business pur-
chase of the purchaser, but consideration allocable to the 
sale of tangible property and intangible property (other 
than savings assets) will constitute taxable receipts of the 
seller and a business purchase of the purchaser. 
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‘‘(c) ELECTION TO TREAT ASSET ACQUISITION AS A 
STOCK ACQUISITION.—In the case of the sale of substan-
tially all of the assets of a business entity or substantially 
all of the assets of a line of business or a separately stand-
ing business of a business entity, the transferee and trans-
feror can jointly elect to treat the acquisition as if it were 
an acquisition of the stock of a business entity holding 
the assets so transferred. In such case, the rules of section 
1624 shall apply. 
‘‘(d) AUTHORITY TO REQUIRE ALLOCATION AGREE-
MENT AND NOTICE TO THE SECRETARY.—If the Sec-
retary determines that certain types of asset acquisitions 
have significant possibilities of tax avoidance, the Sec-
retary may require— 
‘‘(1) parties to such types of acquisitions to 
enter into agreements allocating consideration, 
‘‘(2) parties to acquisitions involving certain 
kinds of assets to enter into agreements allocating 
part of the consideration to those assets, or 
‘‘(3) parties to certain acquisitions to report in-
formation to the Secretary. 
‘‘(e) ASSET ACQUISITION RULES DO NOT APPLY IF 
CONSIDERATION INCLUDES EQUITY IN PURCHASER.— 
‘‘(1) IN GENERAL.—If a business entity issues 
its own equity or equity in a subsidiary or other con-
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trolled entity as part of the consideration for the 
transfer of assets to it, the transaction shall not be 
treated as an asset acquisition and the rules of sec-
tion 1624 shall apply. 
‘‘(2) EQUITY.—For purposes of this subsection, 
equity means— 
‘‘(A) stock, in the case of a corporation, 
‘‘(B) partnership or similar interest, in the 
case of a partnership or limited liability com-
pany, and 
‘‘(C) an ownership interest or interest in 
profits in the case of any other business entity. 
‘‘SEC. 1624. MERGERS AND STOCK ACQUISITIONS. 
‘‘(a) MERGERS.—A merger of one business entity 
into another or two businesses entities into a third busi-
ness entity or any other similar transaction shall have no 
direct consequences under the business tax. The surviving 
entity shall assume the tax attributes of the merged cor-
porations, including any loss carryovers and credit 
carryovers. 
‘‘(b) STOCK ACQUISITION.—The acquisition of all or 
substantially all of the ownership interest in one business 
entity either for cash or in exchange for ownership in the 
acquiring entity or an entity controlled by the acquired 
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316 
entity shall have no direct consequences under the busi-
ness tax. 
‘‘SEC. 1625. SPIN-OFFS, SPLIT-OFFS, ETC. 
‘‘A spin-off, split-off or split-up of a business entity 
shall have no direct tax consequences under the business 
tax. 
‘‘SEC. 1626. ALLOCATION OF CERTAIN TAX ATTRIBUTES. 
‘‘The Secretary shall prescribe rules for allocation of 
loss carryovers in cases of substantial shifts of assets from 
one business entity to another business entity. Under such 
rules, a portion of a business entity’s carryovers may be 
deemed transferred when assets are transferred. 
‘‘Subchapter D—Accounting Method Rules 
‘‘Sec. 1631. General accounting rules. 
‘‘Sec. 1632. Use of the cash method of accounting. 
‘‘Sec. 1633. Long-term contracts. 
‘‘Sec. 1634. Post-sale price adjustments and refunds. 
‘‘Sec. 1635. Bad debts. 
‘‘Sec. 1636. Transition rules. 
‘‘SEC. 1631. GENERAL ACCOUNTING RULES. 
‘‘(a) IN GENERAL.—Except as provided in section 
1632, a business entity shall use an accrual method of 
accounting for purposes of determining the timing of rec-
ognition of taxable receipts and deduction of business pur-
chases. All business purchases shall be deducted when in-
curred (in the case of a business entity using the accrual 
method of accounting) or when paid (in case of a business 
entity using the cash method of accounting) without re-
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317 
gard to whether the business purchases are for or relate 
to— 
‘‘(1) inventory, 
‘‘(2) assets with a useful life of more than one 
year, or 
‘‘(3) property that will be used to produce other 
property. 
‘‘(b) ECONOMIC PERFORMANCE.—For purposes of 
determining whether an amount has been incurred, the all 
events test shall not be treated as met any earlier than 
when economic performance with respect to such item oc-
curs. 
‘‘(c) CONSISTENT ACCOUNTING METHODS.—Except 
as otherwise expressly provided in this chapter, a business 
entity shall secure the consent of the Secretary before 
changing the method of accounting by which it determines 
gross profits. This provision shall not apply to changes 
required by the adoption of the business tax. 
‘‘SEC. 1632. USE OF THE CASH METHOD OF ACCOUNTING. 
‘‘(a) IN GENERAL.—A business entity that was per-
mitted to use and used the cash method of accounting 
under the Internal Revenue Code of 1986 shall be per-
mitted to continue to use the cash method of accounting. 
‘‘(b) NEW BUSINESS ENTITIES.—A new business en-
tity shall be permitted to use the cash method of account-
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ing if permitted to under regulations prescribed by the 
Secretary. 
‘‘(c) CHANGE OR EXPANSION OF BUSINESS.—Sub-
section (a) shall cease to apply to a business entity that 
changes or expands its business such that under regula-
tions prescribed by the Secretary it is no longer eligible 
to use the cash method of accounting. 
‘‘(d) REGULATIONS.— 
‘‘(1) USE OF CASH METHOD.—The Secretary 
shall prescribe regulations defining which business 
entities may use the cash method of accounting. In 
general, those regulations shall be consistent with 
the rules under sections 447 and 448, except that all 
corporations shall be treated as C corporations were 
treated under those sections. The regulations shall 
not require a business entity described in subsection 
(a) to convert to the accrual method prior to Janu-
ary 1, 2008. 
‘‘(2) CHANGE IN ACCOUNTING METHOD.—The 
Secretary shall prescribe regulations to prevent dou-
ble counting of taxable receipts and deductible ex-
penses in the case of a change in accounting method. 
‘‘SEC. 1633. LONG-TERM CONTRACTS. 
‘‘(a) IN GENERAL.—In the case of a long-term con-
tract— 
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‘‘(1) CONTRACTOR EXPENSES.—The contractor 
shall be entitled to deduct its business purchases 
when paid or incurred. 
‘‘(2) CONTRACTOR RECEIPTS.—The contractor 
shall recognize taxable receipts— 
‘‘(A) in the case of a project in which the 
acquirer has no ownership interest in the 
project until delivery— 
‘‘(i) upon delivery of the project, in 
the case of an accrual basis contractor, or 
‘‘(ii) upon the later of delivery of the 
project or the receipt of payment, in the 
case of cash-basis contractor. 
‘‘(B) in the case of a project in which the 
acquirer obtains an ownership interest as the 
project is constructed— 
‘‘(i) when the contractor has the right 
to payments, in the case of an accrual 
basis contractor, or 
‘‘(ii) upon the later of when the con-
tractor receives the cash or has the right 
to payments, in the case of a cash basis 
contractor. 
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320 
‘‘(3) ACQUIRER EXPENSES.—The acquirer that 
is a business entity shall be entitled to deduct its 
costs of the business purchase— 
‘‘(A) in the case of a cash-basis acquirer, 
at such time as a cash basis contractor would 
be required to treat the amounts paid as tax-
able receipts, or 
‘‘(B) in the case of an accrual-basis 
acquirer, at such time as an accrual basis con-
tractor would be required to treat the amounts 
paid or due as taxable receipts. 
‘‘(b) RIGHT TO PAYMENTS.— 
‘‘(1) IN GENERAL.—A contractor shall be treat-
ed as having a right to payments with respect to a 
project at any time to the extent that the contractor 
would not be required to return payments received 
(or would be entitled to collect payments not yet re-
ceived) if the project were terminated at such time 
by the contractor. 
‘‘(2) CONTRACTUAL
PROVISIONS.—If a long- 
term contract includes a procedure for paying the 
contractor as work is completed (for example, by 
reason of a draw down from a trust account), the 
contractual provisions shall generally govern when a 
contractor has a right to payment. 
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‘‘(3) PERCENTAGE
COMPLETION
METHOD
OF 
ACCOUNTING.—If a long-term contract does not in-
clude a mechanism for paying the contractor as 
work is completed, the percentage-of-completion 
method of accounting shall be used to determine the 
timing of taxable receipts of the contractor and busi-
ness purchases of the acquirer. 
‘‘(c) LONG-TERM CONTRACT.— 
‘‘(1) 
IN
GENERAL.—‘Long-term 
contract’ 
means— 
‘‘(A) any contract that covers service or 
production through parts of two different cal-
endar years if the contract includes a formal 
deposit and draw-down mechanism, and 
‘‘(B) any contract for the manufacture, 
building, installation, or construction of prop-
erty if such contract is not completed within the 
taxable period of the contractor in which such 
contract is entered into. 
‘‘(2) EXCEPTION.—A contract for the manufac-
ture of property shall not be treated as a long-term 
contract unless such contract involves the manufac-
ture of— 
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‘‘(A) any unique item of a type which is 
not normally included in the finished goods in-
ventory of the taxpayer, or 
‘‘(B) any item which normally requires 
more than 12 calendar months to complete. 
‘‘(d) CONSISTENCY.—The Secretary may require 
business entities to file statements containing such infor-
mation with respect to long-term contracts as the Sec-
retary may prescribe to ensure consistency in reporting. 
‘‘(e) FOREIGN CONTRACTS.—This section shall not 
be construed to permit a deduction for a business purchase 
for the cost of property produced outside the United 
States pursuant to a long-term contract at any time prior 
to the import of such property into the United States. 
‘‘SEC. 1634. POST-SALE PRICE ADJUSTMENTS AND RE-
FUNDS. 
‘‘(a) RECEIPT OF PRICE ADJUSTMENT.—In the case 
of a post-sale price adjustment attributable to a business 
purchase which was taken into account in computing gross 
profits for a prior taxable transaction, the amount of such 
adjustment shall be treated as a reduction or increase, as 
the case may be, in the cost of business purchases for the 
taxable period in which the adjustment is made or in-
curred. 
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‘‘(b) ISSUANCE OF PRICE ADJUSTMENT.—In the case 
of a post-sale price adjustment attributable to a sale the 
receipts from which were taken into account in deter-
mining taxable receipts for a prior taxable transaction, the 
amount of such adjustment shall be treated as a reduction 
or increase, as the case may be, in taxable receipts for 
the taxable period in which the adjustment is made or in-
curred. 
‘‘(c) POST-SALE PRICE ADJUSTMENT.—‘Post-sale 
price adjustment’ means a refund, rebate, or other price 
allowance attributable to a sale of property or services or 
an upward adjustment in price that was not previously 
taken into account under the business entity’s method of 
accounting. 
‘‘SEC. 1635. BAD DEBTS. 
‘‘(a) SELLER.—If an amount owed to an accrual 
basis business entity for property or services sold— 
‘‘(1) was taken into account as a taxable receipt 
in a prior taxable period, and 
‘‘(2) becomes wholly or partially uncollectible 
during the taxable period, then the seller shall treat 
the amount as a reduction in taxable receipts for the 
taxable period in which it becomes wholly or par-
tially uncollectible. 
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‘‘(b) NOTICE REQUIREMENT.—No reduction shall be 
allowed under subsection (a) unless the seller notifies the 
purchaser of the amount which the seller has treated as 
wholly or partially uncollectible. 
‘‘(c) SUBSEQUENT
COLLECTION.—If an amount 
which was treated as uncollectible under subsection (a) is 
subsequently collected, it shall be treated as a taxable re-
ceipt when collected. 
‘‘(d) PURCHASER.—If a purchaser receives notice 
under subsection (b) from a seller and the purchaser has 
treated the amount labeled uncollectible as a business pur-
chase in a prior taxable period, then the purchaser shall 
treat such amount as a reduction in the cost of business 
purchases in the taxable period to which the notice relates. 
If the purchaser subsequently repays such amount, the re-
payment shall constitute the cost of a business purchase. 
‘‘SEC. 1636. TRANSITION RULES. 
‘‘(a) NO DOUBLE DEDUCTIONS.—A business entity 
shall not be entitled to treat as a ‘cost of business pur-
chase’ any amount that the business entity deducted in 
computing taxable income under the income tax in effect 
prior the effective date of the business tax. 
‘‘(b) NO DOUBLE INCLUSION.—A business entity 
shall not be required to include in taxable receipts any 
receipt that the business entity took into account in com-
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puting taxable income under the income tax in effect prior 
to the effect date of the business tax. 
‘‘(c) NO LOSS OF DEDUCTION.—An expense which— 
‘‘(1) a business entity would have been able to 
deduct as a cost of a business purchase in an ac-
counting period before the effective date of the busi-
ness tax if the business tax had been in effect in 
such period, and 
‘‘(2) the business entity would have been able to 
deduct as an expense in computing taxable income 
in a period after the business tax is effective if the 
income tax had continued in effect, shall be treated 
as a cost of a business purchase incurred or paid at 
the time that it would have been paid or incurred 
under the income tax if the income tax had contin-
ued in effect. This subsection shall not apply to any 
amount which is to be taken into account under sub-
chapter N (relating to amortization of transition 
basis, inventory costs, and safe harbor leases), any 
amounts which would have been deducted under the 
income tax through loss carryover deductions, or any 
deductions deferred by the uniform capitalization 
rules under section 263A. 
‘‘(d) ALL TAXABLE RECEIPTS TAXED.—A receipt 
which— 
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‘‘(1) a business entity would have been required 
to treat as a taxable receipt in an accounting period 
before the effective date of the business tax if the 
business tax had been in effect in such period, and 
‘‘(2) the business entity would have been re-
quired to include in gross income in a period after 
the business tax is effective if the income tax had 
continued in effect 
shall be treated as a taxable receipt at the time that it 
would have been included in income if the income tax had 
continued in effect. 
‘‘Subchapter E—Land and Rental Property 
‘‘Sec. 1641. No deduction for land purchased for nonbusiness use. 
‘‘Sec. 1642. Taxable receipts for land held for nonbusiness use. 
‘‘Sec. 1643. Certain rental property. 
‘‘SEC. 1641. NO DEDUCTION FOR LAND PURCHASED FOR 
NONBUSINESS USE. 
‘‘(a) IN GENERAL.—The acquisition of unimproved 
land shall not constitute a business purchase if the unim-
proved land is not acquired to be used in a business activ-
ity or if the land is acquired for— 
‘‘(1) speculation, 
‘‘(2) development (including subdivision), or 
‘‘(3) temporary leasing or other use not com-
mensurate with the value of the land, 
‘‘(4) indefinite future use in a business activity, 
or 
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‘‘(5) use in compensating employees. 
‘‘(b) FUTURE USE IN BUSINESS ACTIVITY.—Unim-
proved land will not be considered held for ‘indefinite fu-
ture use in a business activity’ if promptly upon acquisi-
tion, the purchaser or the lessee begins construction of im-
provements on the land (other than improvements, such 
as paving or sewage lines, intended for indefinite future 
development) that will be used in a business activity. Such 
improvement must be commensurate with the value of the 
land. 
‘‘(c) 
UNIMPROVED
LAND.—‘Unimproved 
land’ 
means— 
‘‘(1) land with no buildings on it, 
‘‘(2) land with improvements if the value of the 
improvements is relatively small in comparison to 
the value of the land and it is anticipated that the 
improvements will be demolished and not used, 
‘‘(3) land in excess of the amount reasonably 
needed for the buildings located on it. 
‘‘(d) CONVERSION TO BUSINESS USE.—If the acqui-
sition of land is not treated as a business purchase by rea-
son of subsection (a) and the land is subsequently used 
in a manner for which it could have been treated as a 
business purchase, the cost of the land will be treated as 
a business purchase when the improvements on the land 
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are placed in service (or in the case of construction for 
sale, substantially completed and advertised for sale). 
‘‘SEC. 1642. TAXABLE RECEIPTS FROM SALE OF LAND HELD 
FOR NONBUSINESS USE. 
‘‘(a) TAX BASIS.—A business entity shall have a tax 
basis in land equal to the cost of the land if such cost 
is not deductible by reason of section 1641(a) and the land 
has not been converted to business use for purposes of 
section 1641(d). 
‘‘(b) TAXABLE RECEIPTS OF A LAND SALE.—The 
taxable receipts from the sale of land (or portion thereof) 
in which a business entity has a tax basis by reason of 
subsection (a) shall be the amount by which the proceeds 
exceed the basis of such land (or portion thereof). 
‘‘SEC. 1643. CERTAIN RENTAL PROPERTY. 
‘‘(a) IN GENERAL.—Except as provided in subsection 
(b), the activity of rental of real estate is a business activ-
ity to which the business tax applies. 
‘‘(b) RENTAL
PROPERTY
BECOMES
NONRENTAL 
PROPERTY.—If property which is considered rental prop-
erty for purposes of subsection (a) in one taxable period 
ceases to be rental property in the following taxable pe-
riod, the property (and any associated debt) shall be treat-
ed as distributed by the business entity to its owners. Sec-
tion 1622(a) shall apply to such distribution. 
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‘‘Subchapter F—Insurance and Financial 
Products 
‘‘Sec. 1651. General rules. 
‘‘Sec. 1652. Fees for financial intermediation services. 
‘‘SEC. 1651. GENERAL RULES. 
‘‘(a) TAXABLE RECEIPTS.—Except in the case of a 
financial intermediation business, taxable receipts do not 
include financial receipts (as defined in section 1662). 
‘‘(b) BUSINESS PURCHASES.—Except in the case of 
a financial intermediation business, business purchases do 
not include the cost of financial instruments or payments 
for use of money or capital, other than fees for financial 
intermediation services. 
‘‘SEC. 1652. FEES FOR FINANCIAL INTERMEDIATION SERV-
ICES. 
‘‘(a) BUSINESS PURCHASE.—Business purchases in-
clude explicit fees and implicit fees for financial intermedi-
ation services (except to the extent that such fees are for 
services treated as performed outside the United States 
and not imported into the United States or for services 
treated as exported.). 
‘‘(b) FINANCIAL INTERMEDIATION SERVICES.—Ex-
cept as provided in subchapter G, the term ‘financial inter-
mediation service’ shall be determined in accordance with 
regulations promulgated by the Secretary. 
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‘‘Subchapter G—Financial Intermediation 
and Financial Institutions 
‘‘Sec. 1661. Activities constituting a financial intermediation business. 
‘‘Sec. 1662. General rule for taxation. 
‘‘Sec. 1663. Special rule for banks. 
‘‘Sec. 1664. Insurance companies. 
‘‘Sec. 1665. Financial pass-through entities. 
‘‘SEC. 
1661. 
ACTIVITIES 
CONSTITUTING 
A 
FINANCIAL 
INTERMEDIATION BUSINESS. 
‘‘(a) FINANCIAL INTERMEDIATION BUSINESS.—The 
providing of financial intermediation services shall be con-
sidered a business activity. The gross profit of a business 
entity providing financial intermediation services shall be 
determined by taking into account the rules of this sub-
chapter. 
‘‘(b) SEPARATE BUSINESS ACTIVITY.—The provision 
of financial intermediation services for unrelated persons 
shall be considered a separate business activity and a busi-
ness shall be considered a separate entity with respect to 
such activity. An entity engaging in such business is re-
ferred to in this chapter as a ‘financial intermediation 
business’. 
‘‘(c) DEFINITIONS.— 
‘‘(1) FINANCIAL INTERMEDIATION SERVICES.— 
‘Financial intermediation services’ include— 
‘‘(A) lending services, 
‘‘(B) insurance services, 
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‘‘(C) market-making and dealer services, 
and 
‘‘(D) any other service provided as busi-
ness activity in which a person acts as an inter-
mediary in— 
‘‘(i) the transfer of property, services, 
or financial assets, liabilities, risks or in-
struments (or income or expense derived 
therefrom) between two or more persons, 
or 
‘‘(ii) the pooling of economic risk 
among other persons 
and derives all or a portion of such person’s 
gross receipts from streams of income or ex-
pense, discounts, or other financial flows associ-
ated with the matter with respect to which such 
person is acting as an intermediary. 
‘‘(2) LENDING
SERVICES.—‘Lending services’ 
means the regular making of loans and providing 
credit to, or taking deposits from customers, but 
does not include an installment or delayed payment 
arrangement provided by a seller of property or serv-
ices under which additional charges or fees are im-
posed by the seller for the late payment. 
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‘‘(3) MARKET-MAKING OR DEALER SERVICES.— 
‘Market-making or dealer services’ means services 
provided by a person who— 
‘‘(A) regularly purchases financial instru-
ments from or sells financial instruments to 
customers in the ordinary course of a trade or 
business, 
‘‘(B) regularly offers to enter into, assume, 
offset, assign, or otherwise terminate positions 
in financial instruments with customers in the 
ordinary course of a trade or business. 
‘‘SEC. 1662. GENERAL RULE FOR TAXATION. 
‘‘(a) IN GENERAL.—In the case of a financial inter-
mediation business, gross profits shall be computed by— 
‘‘(1) substituting financial receipts for taxable 
receipts, and 
‘‘(2) including financial expenses as business 
purchases. 
‘‘(b) DEFINITIONS.— 
‘‘(1) FINANCIAL
RECEIPTS.—‘Financial re-
ceipts’ means all receipts other than amounts re-
ceived as contributions to capital. 
‘‘(2) FINANCIAL
EXPENSES.—‘Financial ex-
penses’ include— 
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‘‘(A) payments for principal and interest 
that is properly allocable to the provision of fi-
nancial intermediation services, 
‘‘(B) the cost of and payments under fi-
nancial instruments (other than financial in-
struments in the person subject to the tax im-
posed under this chapter and any person re-
lated to such person), 
‘‘(C) claims and cash surrender values paid 
in connection with insurance or reinsurance 
services, and 
‘‘(D) amounts paid for reinsurance. 
‘‘(3) FINANCIAL INSTRUMENT.—‘Financial in-
strument’ means any— 
‘‘(A) share of stock in a corporation, 
‘‘(B) equity ownership in any widely held 
or publicly traded partnership, trust, or other 
business entity, 
‘‘(C) note, bond, debenture, or other evi-
dence of indebtedness, 
‘‘(D) interest rate, currency, or equity no-
tional principal contract, 
‘‘(E) evidence or interest in, or a derivative 
financial instrument in, any financial instru-
ment described in subparagraph (A), (B), (C), 
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or (D), or any currency, including any option, 
forward contract, short position, and any simi-
lar financial instrument in such a financial in-
strument or currency, and 
‘‘(F) a position which— 
‘‘(i) is not a financial instrument de-
scribed in subparagraph (A), (B), (C), (D) 
or (E), 
‘‘(ii) is a hedge with respect to such 
a financial instrument, and 
‘‘(iii) is clearly identified in the deal-
er’s records as being described in this sub-
paragraph before the close of the day on 
which it was acquired or entered into. 
‘‘(c) INTERNATIONAL MATTERS.—For purposes of 
this section in the case of a financial intermediation busi-
ness with activity in and outside the United States— 
‘‘(1) INCLUSION REGARDLESS OF SOURCE.— 
‘‘(A) Financial receipts shall be determined 
without regard to whether they are received for 
property or service provided in or outside the 
United States, except that financial receipts do 
not include amounts that— 
‘‘(i) are not taxable receipts (as deter-
mined without regard to this section), but 
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‘‘(ii) would have been taxable receipts 
(as determined without regard to this sec-
tion) if they had been received for services 
or property in the United States. 
‘‘(B) Financial expenses shall be deter-
mined without regard to whether they are re-
ceived for property or services acquired in or 
outside the United States. 
‘‘(2) ALLOCATION.—Under regulations pre-
scribed by the Secretary, gross profits (as deter-
mined without regard to this paragraph) shall be re-
duced by the amount of financial intermediation 
gross profit attributable to financial intermediation 
activity provided outside the United States. 
‘‘(3) GROSS PROFIT ATTRIBUTABLE TO FINAN-
CIAL INTERMEDIATION ACTIVITY.—‘Gross profits at-
tributable to financial intermediation activity’ means 
the excess of— 
‘‘(A) gross profits as determined under 
this section (but without regard to paragraph 
(2)), over 
‘‘(B) gross profits as determined without 
regard to this subchapter. 
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‘‘SEC. 1663. SPECIAL RULES FOR BANKS. 
‘‘(a) IN GENERAL.—In the case of a bank, gross prof-
its shall be determined in accordance with section 1662, 
except that— 
‘‘(1) FINANCIAL RECEIPTS.—Financial receipts 
shall include only— 
‘‘(A) taxable receipts (as determined with-
out regard to this subchapter), 
‘‘(B) interest on loans made or acquired by 
the bank, 
‘‘(C) gain on the sale of loans, 
‘‘(D) discount points received, and 
‘‘(E) any explicit fees for financial or fidu-
ciary services not included in subparagraphs 
(A) through (E). 
‘‘(2) FINANCIAL
EXPENSES.—Financial ex-
penses shall include only— 
‘‘(A) interest paid to depositors and on 
other funds borrowed by the bank, and 
‘‘(B) reasonable additions to reserves for 
bad debts. 
‘‘(3) FORECLOSURE PROPERTY.—Gross profits 
shall properly take into account proceeds from the 
operation or sale of foreclosure property. 
‘‘(b) BANK.— 
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‘‘(1) IN GENERAL.—‘Bank’ means a bank or 
trust company incorporated and doing business 
under the laws of the United States, the District of 
Columbia, or any State, a substantial part of the 
business of which consists of receiving deposits and 
making loans and discounts, or of exercising fidu-
ciary powers similar to those exercised by national 
banks under the authority of the Comptroller of the 
Currency, and which is subject by law to supervision 
and examination by State or Federal authority hav-
ing supervision over banking institutions or credit 
unions. Such term includes domestic building and 
loan associations and credit unions. 
‘‘(2) OTHER ACTIVITIES.—If a bank is engaged 
in significant amounts of activities other than those 
described in paragraph (1), the bank shall be consid-
ered as a separate business entity with respect to 
such other activity. 
‘‘SEC. 1664. INSURANCE COMPANIES. 
‘‘(a) IN GENERAL.—In the case of companies pro-
viding insurance services, gross profits shall be determined 
in accordance with section 1662, except— 
‘‘(1) subsection (c) of section 1662 (relating to 
international operations) shall not apply, and 
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‘‘(2) the rules of subchapter J (sourcing rules) 
shall apply to determine financial receipts and finan-
cial expenses. 
‘‘(b) RESULT INCONSISTENT WITH STATUTORY IN-
TENT.—If an insurance company determines that the ap-
plication of subsection (a) produces results inconsistent 
with the territorial approach of the business tax, it may 
apply to the Secretary for permission to apply section 
1662(c) in lieu of subsection (a). 
‘‘SEC. 1665. FINANCIAL PASS-THROUGH ENTITIES. 
‘‘(a) IN GENERAL.—In the case of a financial pass- 
thru entity, gross profits shall be determined in accord-
ance with section 1662, except— 
‘‘(1) financial receipts shall include contribu-
tions to capital, 
‘‘(2) financial expenses shall include— 
‘‘(A) distributions to persons holding inter-
ests in the pass-thru entity, 
‘‘(B) investments in related entities (in-
cluding wholly owned entities) engaging in real 
estate investment. 
‘‘(b) PASS-THRU ENTITY.—‘Pass-thru entity’ means 
a business entity that is intended to serve as a conduit. 
The Secretary shall prescribe regulations defining pass- 
thru entity. 
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