I 
108TH CONGRESS 
1ST SESSION H. R. 2591
To amend the Internal Revenue Code of 1986 to provide for Small Business 
Protection Accounts, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
JUNE 24, 2003
Mr. PORTER introduced the following bill; which was referred to the Com-
mittee on Ways and Means, and in addition to the Committee on Small 
Business, for a period to be subsequently determined by the Speaker, in 
each case for consideration of such provisions as fall within the jurisdic-
tion of the committee concerned 
A BILL 
To amend the Internal Revenue Code of 1986 to provide 
for Small Business Protection Accounts, and for other 
purposes.
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 ‘‘Small Business Protec-
tion Act of 2003’’. 
SEC. 2. FINDINGS. 
Congress hereby finds that—
‘‘(2) CARRYOVER OF EXCESS LIMITATION.—If 
the limitation under paragraph (1) for any taxable 
year exceeds the amount paid by the taxpayer to the 
taxpayer’s Small Business Protection Account for 
such year, the limitation under paragraph (1) for 
the following taxable year (determined without re-
gard to this paragraph) shall be increased by such 
excess. 
‘‘(c) ELIGIBLE SMALL BUSINESS.—For purposes of 
this section, the term ‘eligible small business’ means any 
trade or business if—
‘‘(1) such trade or business (or any predecessor 
thereof) meets the gross receipts test of section 
448(c) for all prior taxable years, 
‘‘(2) such trade or business is not a passive ac-
tivity (within the meaning of section 469(c)) of the 
taxpayer, 
‘‘(3) such trade or business is not a farming 
business (as defined in section 263A(e)(4)), and 
‘‘(4) such trade or business has never been de-
termined by the United States Equal Employment 
Opportunity Commission to have engaged in job dis-
crimination.
‘‘(d) SMALL BUSINESS PROTECTION ACCOUNT.—For 
purposes of this section—
‘‘(1) IN GENERAL.—The term ‘Small Business 
Protection Account’ means a trust created or orga-
nized in the United States for the exclusive benefit 
of the taxpayer, but only if the written governing in-
strument creating the trust meets the following re-
quirements:
‘‘(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 a Small Business Protection Account 
shall be treated for purposes of this title as the 
owner of such Account and shall be subject to tax 
thereon in accordance 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 a Small 
Business Protection Account of the taxpayer 
during such taxable year, 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 eligible small business), and 
‘‘(iii) subparagraph (A) or (B) of sub-
section (f )(3) (relating to prohibited trans-
actions and pledging account as security).
‘‘(2) EXCEPTIONS.—Paragraph (1)(A) shall not 
apply to—
‘‘(A) any distribution to the extent attrib-
utable to income of the Account, and 
‘‘(B) the distribution of any contribution 
paid during a taxable year to a Small Business 
Protection Account to the extent that such con-
tribution exceeds the limitation applicable under 
subsection (b) if requirements similar to the re-
quirements of section 408(d)(4) are met. 
For purposes of subparagraph (A), distributions 
shall be treated as first attributable to income and 
then to other amounts. 
‘‘(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 Small Business Protection 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 a Small 
Business Protection Account (other than dis-
tributions of current income) shall be treated as 
made from deposits in the order in which such 
deposits were made, beginning with the earliest 
deposits. 
‘‘(2) CESSATION
IN
ELIGIBLE
BUSINESS.—At 
the close of the first disqualification period after a 
period for which the taxpayer was engaged in an eli-
gible small business, there shall be deemed distrib-
uted from the Small Business Protection Account of 
the taxpayer an amount equal to the balance in such 
Account (if any) at the close of such disqualification 
period. For purposes of the preceding sentence, the 
term ‘disqualification period’ means any period of 2 
consecutive taxable years for which the taxpayer is 
not engaged in an eligible small business. 
‘‘(3) CERTAIN RULES TO APPLY.—Rules similar 
to the following rules shall apply for purposes of this 
section: 
‘‘(A) Section 220(f)(8) (relating to treat-
ment on death). 
‘‘(B) Section 408(e)(2) (relating to loss of 
exemption of account where individual engages 
in prohibited transaction). 
‘‘(C) Section 408(e)(4) (relating to effect 
of pledging account as security). 
‘‘(D) Section 408(g) (relating to commu-
nity property laws). 
‘‘(E) 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 a Small Busi-
ness Protection Account on the last day of a taxable 
year if such payment is made on account of such 
taxable year and is made on or before the due date 
(without regard to extensions) for filing the return 
of tax for such taxable year.
‘‘(5) INDIVIDUAL.—For purposes of this sec-
tion, the term ‘individual’ shall not include an estate 
or trust. 
‘‘(6) DEDUCTION NOT ALLOWED FOR SELF-EM-
PLOYMENT TAX.—The deduction allowable by reason 
of subsection (a) shall not be taken into account in 
determining an individual’s net earnings from self-
employment (within the meaning of section 1402(a)) 
for purposes of chapter 2. 
‘‘(g) REPORTS.—The trustee of a Small Business 
Protection 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 contribu-
tions, distributions, and such other matters as the Sec-
retary may require under regulations. The reports re-
quired by this subsection shall be filed at such time and 
in such manner and furnished to such persons at such 
time and in such manner as may be required by such regu-
lations.’’. 
(b) TAX ON EXCESS CONTRIBUTIONS.—
(1) Subsection (a) of section 4973 of such Code 
(relating to tax on excess contributions to certain 
tax-favored accounts and annuities) is amended by 
striking ‘‘or’’ at the end of paragraph (3), by redes-
ignating paragraph (4) as paragraph (5), and by in-
serting after paragraph (3) the following: 
‘‘(4) a Small Business Protection Account 
(within the meaning of section 468C(d)), or’’. 
(2) Section 4973 of such Code is amended by 
adding at the end the following: 
‘‘(g) EXCESS CONTRIBUTIONS TO SMALL BUSINESS 
PROTECTION ACCOUNT.—For purposes of this section, in 
the case of a Small Business Protection Account (within 
the meaning of section 468C(d)), the term ‘excess con-
tributions’ means the amount by which the amount con-
tributed for the taxable year to the Account exceeds the 
amount which may be contributed to the Account under 
section 468C(b) for such taxable year. For purposes of 
this subsection, any contribution which is distributed out 
of the Small Business Protection Account in a distribution 
to which section 468C(e)(2)(B) applies shall be treated as 
an amount not contributed.’’. 
(3) The section heading for section 4973 of 
such Code is amended to read as follows:
‘‘SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN AC-
COUNTS, ANNUITIES, ETC.’’. 
(4) The table of sections for chapter 43 of such 
Code is amended by striking the item relating to sec-
tion 4973 and inserting the following:
‘‘Sec. 4973. Excess contributions to certain accounts, annuities, 
etc.’’.
(c) TAX ON PROHIBITED TRANSACTIONS.—
(1) Subsection (c) of section 4975 of such Code 
(relating to tax on prohibited transactions) is 
amended by adding at the end the following: 
‘‘(6) SPECIAL
RULE
FOR SMALL BUSINESS 
PROTECTION ACCOUNT.—A person for whose benefit 
a Small Business Protection Account (within the 
meaning of section 468C(d)) is established shall be 
exempt from the tax imposed by this section with re-
spect to any transaction concerning such account 
(which would otherwise be taxable under this sec-
tion) if, with respect to such transaction, the ac-
count ceases to be a Small Business Protection Ac-
count by reason of the application of section 
468C(f )(3)(A) to such account.’’. 
(2) Paragraph (1) of section 4975(e) of such 
Code is amended by redesignating subparagraphs 
(E) and (F) as subparagraphs (F) and (G), respec-
tively, and by inserting after subparagraph (D) the 
following: 
‘‘(E) a Small Business Protection Account 
described in section 468C(d),’’. 
(d) FAILURE TO PROVIDE REPORTS
ON SMALL 
BUSINESS PROTECTION ACCOUNTS.—Paragraph (2) of 
section 6693(a) of such Code (relating to failure to provide 
reports on certain tax-favored accounts or annuities) is 
amended by redesignating subparagraphs (C) and (D) as 
subparagraphs (D) and (E), respectively, and by inserting 
after subparagraph (B) the following: 
‘‘(C) section 468C(g) (relating to Small 
Business Protection Accounts),’’. 
(e) CLERICAL AMENDMENT.—The table of sections 
for subpart C of part II of subchapter E of chapter 1 of 
such Code is amended by inserting after the item relating 
to section 468B the following:
‘‘Sec. 468C. Small Business Protection Accounts.’’.
(f ) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
(g) REPORT.—Not later than 1 year after the date 
of the enactment of this Act, the Administrator of the 
Small Business Administration shall submit a report on 
the implementation and effectiveness of section 468C of 
the Internal Revenue Code of 1986 (as added by this sec-
tion), with emphasis on the impact of Small Business Pro-
tection Accounts in enterprise and similar zones, to the 
Committee on Small Business of the House of Representa-
tives and the Committee on Small Business and Entrepre-
neurship of the Senate. 
SEC. 5. ADMINISTRATIVE AUTHORITY. 
The Administrator of the Small Business Administra-
tion shall designate the Small Business Development Cen-
ter Program as the lead agency for assisting small busi-
nesses in establishing and operating Small Business Pro-
tection Accounts. The Internal Revenue Service shall pro-
vide such assistance to the Small Business Administration 
as necessary for the purposes of this section.
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