I
107TH CONGRESS
1ST SESSION
H. R. 1923
To amend the Internal Revenue Code of 1986 to provide for Start-up Success
Accounts.
IN THE HOUSE OF REPRESENTATIVES
MAY 21, 2001
Mr. DEMINT (for himself and Mr. BAIRD) introduced the following bill; which
was referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to provide
for Start-up Success Accounts.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Start-Up Success Ac-
counts Act of 2001’’.
SEC. 2. START-UP SUCCESS ACCOUNTS.
(a) IN GENERAL.—Subpart C of part II of sub-
chapter E of chapter 1 of the Internal Revenue Code of
1986 (relating to taxable year for which deductions taken)
is amended by inserting after section 468B the following
new section:
‘‘SEC. 468C. START-UP SUCCESS ACCOUNTS.
‘‘(a) DEDUCTION ALLOWED.—In the case of a tax-
payer which is an eligible small business, there shall be
allowed as a deduction for any taxable year the amount
paid in cash by such taxpayer to a Start-up Success Ac-
count (hereafter in this section also referred to as an
‘SUSA Account’).
‘‘(b) LIMITATION.—
‘‘(1) IN GENERAL.—The amount which a tax-
payer may pay into the SUSA Account for any tax-
able year shall not exceed whichever of the following
is the least:
‘‘(A) 20 percent of so much of the taxable
income of the taxpayer (determined without re-
gard to this section) which is attributable to
any trade or business.
‘‘(B) $50,000.
‘‘(C) $100,000, reduced by the aggregate
amount paid by the taxpayer (and all related
persons) into SUSA accounts for all prior tax-
able years.
‘‘(2) DEDUCTION
ALLOWED
ONLY
DURING
STARTUP PERIOD.—No deduction shall be allowed
under this section with respect to any eligible small
business for any taxable year after the 5th taxable
year that such business (or any predecessor) is en-
gaged in a trade or business.
‘‘(3) DOLLAR
LIMITATION
ON
CONTROLLED
GROUPS.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1)—
‘‘(i) all component members of a con-
trolled group shall be treated as one tax-
payer, and
‘‘(ii) the Secretary shall apportion the
dollar limitations contained in paragraph
(1) among the component members of such
controlled group in such manner as he
shall by regulations prescribe.
‘‘(B) CONTROLLED GROUP DEFINED.—For
purposes of subparagraph (A), the term ‘con-
trolled group’ has the meaning given such term
by section 1563(a); except that, for such pur-
poses, ‘more than 50 percent’ shall be sub-
stituted for ‘at least 80 percent’ each place it
appears in section 1563(a)(1).
‘‘(4) PARTNERSHIPS AND S CORPORATIONS.—In
the case of a partnership, the limitation under para-
graph (1) shall apply with respect to the partnership
and each partner. A similar rule shall apply in the
case of an S corporation and its shareholders.
‘‘(5) RELATED
PERSONS.—For purposes of
paragraph (1)(C), a person (hereinafter in this para-
graph referred to as the ‘related person’) is related
to any person if the related person bears a relation-
ship to such person specified in section 267(b) or
707(b)(1), or the related person and such person are
engaged in trades or businesses under common con-
trol (within the meaning of subsections (a) and (b)
of section 52. For purposes of the preceding sen-
tence, in applying section 267(b) or 707(b)(1), ‘10
percent’ shall be substituted for ‘50 percent’.
‘‘(c) ELIGIBLE SMALL BUSINESS.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘eligible small business’ means, with
respect to any taxable year, any person actively en-
gaged in a trade or business if for all prior taxable
years beginning after December 31, 1999, the tax-
payer (or any predecessor) met the $2,000,000 gross
receipts test of paragraph (2). In the case of a tax-
payer to which section 469 applies, such term shall
not include any trade or business which is a passive
activity (within the meaning of section 469(c)) of the
taxpayer.
‘‘(2) $2,000,000 GROSS
RECEIPTS
TESTS.—A
person meets the $2,000,000 gross receipts tests of
this paragraph for any prior taxable year if such
person would meet the test of section 448(c) were
such section applied by substituting ‘$2,000,000’ for
‘$5,000,000’.
‘‘(d) START-UP SUCCESS ACCOUNT.—For purposes
of this section—
‘‘(1) IN GENERAL.—The terms ‘Start-up Suc-
cess Account’ and ‘SUSA Account’ means a trust
created or organized in the United States for the ex-
clusive benefit of an eligible small business, but only
if the written governing instrument creating the
trust meets the following requirements:
‘‘(A) No contribution will be accepted for
any taxable year in excess of the amount al-
lowed as a deduction under subsection (a) for
such year.
‘‘(B) The trustee is a bank (as defined in
section 408(n)) or another person who dem-
onstrates to the satisfaction of the Secretary
that the manner in which such person will ad-
minister the trust will be consistent with the re-
quirements of this section.
‘‘(C) The assets of the trust consist en-
tirely of cash or of obligations which have ade-
quate stated interest (as defined in section
1274(c)(2)) and which pay such interest not
less often than annually.
‘‘(D) All income of the trust is distributed
currently to the grantor.
‘‘(E) The assets of the trust will not be
commingled with other property except in a
common trust fund or common investment
fund.
‘‘(2) ACCOUNT TAXED AS GRANTOR TRUST.—
The grantor of an SUSA Account shall be treated
for purposes of this title as the owner of such Ac-
count and shall be subject to tax thereon in accord-
ance with subpart E of part I of subchapter J of
this chapter (relating to grantors and others treated
as substantial owners).
‘‘(e) INCLUSION OF AMOUNTS DISTRIBUTED.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), there shall be includible in the gross in-
come of the taxpayer for any taxable year—
‘‘(A) any amount distributed from an
SUSA Account of the taxpayer during such tax-
able year (to the extent not previously included
in gross income), and
‘‘(B) any deemed distribution under—
‘‘(i) subsection (f)(1) (relating to de-
posits not distributed within 5 years),
‘‘(ii) subsection (f)(2) (relating to ces-
sation in trade or business), and
‘‘(iii) subparagraph (A) or (B) of sub-
section (f)(3) (relating to prohibited trans-
actions and pledging account as security).
‘‘(2) EXCEPTIONS.—Gross income shall not in-
clude the distribution of any contribution paid dur-
ing a taxable year to an SUSA Account to the ex-
tent that such contribution exceeds the limitation
applicable under subsection (b) if requirements simi-
lar to the requirements of section 408(d)(4) are met.
‘‘(3) EXCLUSION
FROM
SELF-EMPLOYMENT
TAX.—Amounts included in gross income under this
subsection shall not be included in determining net
earnings from self-employment under section 1402.
‘‘(f) SPECIAL RULES.—
‘‘(1) TAX
ON
DEPOSITS
IN
ACCOUNT
WHICH
ARE NOT DISTRIBUTED WITHIN 5 YEARS.—
‘‘(A) IN GENERAL.—If, at the close of any
taxable year, there is a nonqualified balance in
any SUSA Account—
‘‘(i) there shall be deemed distributed
from such Account during such taxable
year an amount equal to such balance, and
‘‘(ii) the taxpayer’s tax imposed by
this chapter for such taxable year shall be
increased by 10 percent of such deemed
distribution.
The preceding sentence shall not apply if an
amount equal to such nonqualified balance is
distributed from such Account to the taxpayer
before the due date (including extensions) for
filing the return of tax imposed by this chapter
for such year (or, if earlier, the date the tax-
payer files such return for such year).
‘‘(B) NONQUALIFIED BALANCE.—For pur-
poses of subparagraph (A), the term ‘non-
qualified balance’ means any balance in the Ac-
count on the last day of the taxable year which
is attributable to amounts deposited in such Ac-
count before the 4th preceding taxable year.
‘‘(C) ORDERING RULE.—For purposes of
this paragraph, distributions from an SUSA
Account shall be treated as made from deposits
in the order in which such deposits were made,
beginning with the earliest deposits.
‘‘(2) CESSATION IN TRADE OR BUSINESS.—At
the close of the first disqualification period after a
period for which the taxpayer was engaged in the
trade or business referred to in subsection (a), there
shall be deemed distributed from the SUSA Account
(if any) of the taxpayer an amount equal to the bal-
ance in such Account at the close of such disquali-
fication period. For purposes of the preceding sen-
tence, the term ‘disqualification period’ means any
period of 2 consecutive taxable years for which the
taxpayer is not engaged in the trade or business re-
ferred to in subsection (a).
‘‘(3) CERTAIN RULES TO APPLY.—Rules similar
to the following rules shall apply for purposes of this
section:
‘‘(A) Section 408(e)(2) (relating to loss of
exemption of account where individual engages
in prohibited transaction).
‘‘(B) Section 408(e)(4) (relating to effect
of pledging account as security).
‘‘(C) Section 408(g) (relating to commu-
nity property laws).
‘‘(D) Section 408(h) (relating to custodial
accounts).
‘‘(4) TIME WHEN PAYMENTS DEEMED MADE.—
For purposes of this section, a taxpayer shall be
deemed to have made a payment to an SUSA Ac-
count on the last day of a taxable year if such pay-
ment is made on account of such taxable year and
is made within 31⁄2 months after the close of such
taxable year.
‘‘(g) REPORTS.—The trustee of an SUSA Account
shall make such reports regarding such Account to the
Secretary and to the person for whose benefit the Account
is maintained with respect to contributions, distributions,
and such other matters as the Secretary may require
under regulations. The reports required by this subsection
shall be filed at such time and in such manner and fur-
nished to such persons at such time and in such manner
as may be required by those regulations.’’.
(b) TAX ON EXCESS CONTRIBUTIONS.—
(1) Subsection (a) of section 4973 of such Code
(relating to tax on certain excess contributions) is
amended by striking ‘‘or’’ at the end of paragraph
(3), by redesignating paragraph (4) as paragraph
(5), and by inserting after paragraph (3) the fol-
lowing new paragraph: