TITLE IV—PROVISIONS TO 
IMPROVE FINANCIAL LITERACY 
SEC. 401. GRANTS TO COMMUNITY-BASED TAXPAYER CLIN-
ICS TO PROVIDE RETIREMENT SAVINGS AD-
VICE. 
(a) IN GENERAL.—Section 7526 (relating to low-in-
come taxpayer clinics) is amended by adding at the end 
the following: 
‘‘(d) ADDITIONAL GRANTS FOR RETIREMENT SAV-
INGS ADVICE.— 
‘‘(1) MAKING OF GRANTS.—The Secretary may, 
subject to the availability of appropriated funds, 
make grants to qualified low-income taxpayer clinics 
to provide retirement savings counseling to low-in-
come taxpayers. 
‘‘(2) USE
OF
GRANT
FUNDS.—Grants under 
paragraph (1) shall be used to— 
‘‘(A) develop the infrastructure necessary 
to carry out retirement savings counseling for 
low-income taxpayers, including the develop-
ment of software to assist low-income taxpayers 
in beginning a retirement savings program, 
monitoring their savings behavior, and taking 
advantage of tax benefits provided under this 
title to assist in retirement savings, 
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‘‘(B) develop partnerships with certified fi-
nancial planners and other financial experts to 
assist in carrying out the retirement savings 
program, and 
‘‘(C) train advisors to assist low-income 
taxpayers with retirement savings. 
‘‘(3) CRITERIA FOR AWARDS.—The provisions 
of subsection (c)(4) shall apply in determining 
whether to make a grant under paragraph (1). 
‘‘(4) LIMITATIONS AND SPECIAL RULES.— 
‘‘(A) 
AGGREGATE
LIMITATION.—Unless 
otherwise provided by specific appropriations, 
the Secretary shall not allocate more than 
$25,000,000 per year (exclusive of costs of ad-
ministering the program) to grants under para-
graph (1). 
‘‘(B) LIMITATION ON ANNUAL GRANTS TO 
A
CLINIC.—The aggregate amount of grants 
which may be made under paragraph (1) to a 
clinic for a year shall not exceed $100,000. 
‘‘(C) MULTI-YEAR
GRANTS.—The provi-
sions of subsection (c)(3) shall apply to grants 
under paragraph (1). 
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‘‘(D) 
ADDITIONAL
AMOUNTS.—Grants 
under paragraph (1) shall be in addition to any 
grants under subsection (a).’’ 
(b) CONFORMING AMENDMENTS.— 
(1) Section 7526(c) (relating to special rules 
and limitations) is amended by striking ‘‘this sec-
tion’’ each place it appears and inserting ‘‘subsection 
(a)’’. 
(2) Section 7526(c)(3) is amended by inserting 
‘‘under subsection (a)’’ after ‘‘award’’. 
(c) AUTHORIZATION OF APPROPRIATIONS.—There is 
authorized to be appropriated for each fiscal year begin-
ning after September 30, 2008, $25,000,000 to carry out 
the provisions of this section. 
SEC. 402. TREATMENT OF QUALIFIED RETIREMENT PLAN-
NING SERVICES. 
(a) IN GENERAL.—Subsection (m) of section 132 
(defining qualified retirement services) is amended by add-
ing at the end the following new paragraph: 
‘‘(4) NO CONSTRUCTIVE RECEIPT.— 
‘‘(A) IN GENERAL.—No amount shall be 
included in the gross income of any employee 
solely because the employee may choose between 
any qualified retirement planning services pro-
vided by an eligible investment advisor and 
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compensation which would otherwise be includ-
ible in the gross income of such employee. The 
preceding sentence shall apply to highly com-
pensated employees only if the choice described 
in such sentence is available on substantially 
the same terms to each member of the group of 
employees normally provided education and in-
formation regarding the employer’s qualified 
employer plan. 
‘‘(B) LIMITATION.—The maximum amount 
which may be excluded under subparagraph (A) 
with respect to any employee for any taxable 
year shall not exceed $1,000. 
‘‘(C) ELIGIBLE
INVESTMENT
ADVISER.— 
For purposes of this paragraph, the term ‘eligi-
ble investment adviser’ means, with respect to 
a plan, a person— 
‘‘(i) who— 
‘‘(I) is registered as an invest-
ment adviser under the Investment 
Advisers Act of 1940 (15 U.S.C. 80b– 
1 et seq.), 
‘‘(II) is registered as an invest-
ment adviser under the laws of the 
State in which such adviser maintains 
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the principal office and place of busi-
ness of such adviser, but only if such 
State laws are consistent with section 
203A of the Investment Advisers Act 
of 1940 (15 U.S.C. 80b–3a), 
‘‘(III) is a bank or similar finan-
cial institution referred to in section 
408(b)(4), 
‘‘(IV) is an insurance company 
qualified to do business under the 
laws of a State, or 
‘‘(V) is any other comparably 
qualified entity which satisfies such 
criteria as the Secretary determines 
appropriate, consistent with the pur-
poses of this subsection, and 
‘‘(ii) who meets the requirements of 
subparagraph (D). 
‘‘(D) ADVISER
REQUIREMENTS.—The re-
quirements of this subparagraph are met if 
every individual employed (or otherwise com-
pensated) by a person described in subpara-
graph (C)(i) who provides investment advice on 
behalf of such person to any plan participant or 
beneficiary is— 
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‘‘(i) an individual described in sub-
clause (I) of subparagraph (C)(i), 
‘‘(ii) an individual described in sub-
clause (II) of subparagraph (C)(i), but 
only if such State has an examination re-
quirement to qualify for registration, 
‘‘(iii) registered as a broker or dealer 
under the Securities Exchange Act of 1934 
(15 U.S.C. 78a et seq.), 
‘‘(iv) a registered representative as de-
scribed in section 3(a)(18) of the Securi-
ties Exchange Act of 1934 (15 U.S.C. 
78c(a)(18)) or section 202(a)(17) of the 
Investment Advisers Act of 1940 (15 
U.S.C. 80b–2(a)(17)), or 
‘‘(v) any other comparably qualified 
individual who satisfies such criteria as the 
Secretary determines appropriate, con-
sistent with the purposes of this para-
graph. 
‘‘(E) 
TERMINATION.—This 
paragraph 
shall not apply to taxable years beginning after 
December 31, 2012.’’. 
(b) CONFORMING AMENDMENTS.— 
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The checklist will include answers to the questions 
or directions as to where information is available to 
answer the questions. All information shall be in a 
form readily understandable to the average recipient 
of the checklist. 
‘‘(4) REVISIONS.—The Commissioner shall peri-
odically revise and update the handbook and check-
list prepared under this subsection. 
‘‘(5) DISTRIBUTION OF MATERIALS.— 
‘‘(A) HANDBOOK.—The financial reference 
handbook described in paragraph (2) shall be 
included with materials provided to an indi-
vidual when the individual first applies for ben-
efits under title II and such other times as the 
Commissioner determines appropriate. 
‘‘(B) CHECKLIST.—The retirement readi-
ness checklist described in paragraph (3) shall 
be included with an individual’s annual social 
security account statement provided under sec-
tion 1143.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall take effect on the date of the enactment 
of this Act, but the handbooks and checklists required to 
be provided by such amendment shall be provided on or 
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after January 1, 2010 (or such earlier date as the Com-
missioner of Social Security may provide). 
TITLE 
V—INCENTIVES 
FOR 
SMALL BUSINESSES TO ES-
TABLISH AND MAINTAIN RE-
TIREMENT PLANS FOR EM-
PLOYEES 
SEC. 501. CREDIT FOR QUALIFIED PENSION PLAN CON-
TRIBUTIONS OF SMALL EMPLOYERS. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business related cred-
its), as amended by section 102, is amended by adding 
at the end the following new section: 
‘‘SEC. 45P. SMALL EMPLOYER PENSION PLAN CONTRIBU-
TIONS. 
‘‘(a) GENERAL RULE.—For purposes of section 38, 
in the case of an eligible employer, the small employer pen-
sion plan contribution credit determined under this section 
for any taxable year is an amount equal to 50 percent 
of the amount which would (but for subsection (f)(1)) be 
allowed as a deduction under section 404 for such taxable 
year for qualified employer contributions made to any 
qualified retirement plan on behalf of any employee who 
is not a highly compensated employee. 
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‘‘(b) CREDIT LIMITED TO 3 YEARS.—The credit al-
lowable by this section shall be allowed only with respect 
to the period of 3 taxable years beginning with the first 
taxable year for which a credit is allowable with respect 
to a plan under this section. 
‘‘(c) QUALIFIED EMPLOYER CONTRIBUTION.—For 
purposes of this section— 
‘‘(1) DEFINED CONTRIBUTION PLANS.—In the 
case of a defined contribution plan, the term ‘quali-
fied employer contribution’ means the amount of 
nonelective and matching contributions to the plan 
made by the employer on behalf of any employee 
who is not a highly compensated employee to the ex-
tent such amount does not exceed 3 percent of such 
employee’s compensation from the employer for the 
year. 
‘‘(2) DEFINED BENEFIT PLANS.—In the case of 
a defined benefit plan, the term ‘qualified employer 
contribution’ means the amount of employer con-
tributions to the plan made on behalf of any em-
ployee who is not a highly compensated employee to 
the extent that the accrued benefit of such employee 
derived from employer contributions for the year 
does not exceed the equivalent (as determined under 
regulations prescribed by the Secretary and without 
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regard to contributions and benefits under the Social 
Security Act) of 3 percent of such employee’s com-
pensation from the employer for the year. 
‘‘(d) QUALIFIED RETIREMENT PLAN.— 
‘‘(1) IN GENERAL.—The term ‘qualified retire-
ment plan’ means any plan described in section 
401(a) which includes a trust exempt from tax 
under section 501(a), any simplified pension (as de-
fined in section 408(k)), or any simple retirement 
account (as defined in section 408(p) if the following 
requirements are met with respect to such plan, pen-
sion, or account: 
‘‘(A) The contribution requirements of 
paragraph (2). 
‘‘(B) The vesting requirements of para-
graph (3). 
‘‘(C) The distribution requirements of 
paragraph (4). 
The contribution and vesting requirements of para-
graphs (2) and (3) shall be treated as met in the 
case of a simple retirement account under a quali-
fied salary reduction arrangement (as defined in sec-
tion 408(p)(2)) or a cash or deferred arrangement 
meeting the requirements of section 401(k)(11). 
‘‘(2) CONTRIBUTION REQUIREMENTS.— 
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‘‘(A) IN GENERAL.—The requirements of 
this paragraph are met if, under the plan— 
‘‘(i) the employer is required to make 
nonelective contributions of at least 1 per-
cent of compensation (or the equivalent 
thereof in the case of a defined benefit 
plan) for each employee who is not a high-
ly compensated employee who is eligible to 
participate in the plan, and 
‘‘(ii) allocations of nonelective em-
ployer contributions, in the case of a de-
fined contribution plan, are either in equal 
dollar amounts for all employees covered 
by the plan or bear a uniform relationship 
to the total compensation, or the basic or 
regular rate of compensation, of the em-
ployees covered by the plan (and an equiv-
alent requirement is met with respect to a 
defined benefit plan). 
‘‘(B) COMPENSATION
LIMITATION.—The 
compensation taken into account under sub-
paragraph (A) for any year shall not exceed the 
limitation in effect for such year under section 
401(a)(17). 
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‘‘(3) VESTING
REQUIREMENTS.—The require-
ments of this paragraph are met if the plan satisfies 
the requirements of either of the following subpara-
graphs: 
‘‘(A) 3-YEAR
VESTING.—A plan satisfies 
the requirements of this subparagraph if an em-
ployee who has completed at least 3 years of 
service has a nonforfeitable right to 100 percent 
of the employee’s accrued benefit derived from 
employer contributions. 
‘‘(B) 5-YEAR
GRADED
VESTING.—A plan 
satisfies the requirements of this subparagraph 
if an employee has a nonforfeitable right to a 
percentage of the employee’s accrued benefit de-
rived from employer contributions determined 
under the following table: 
The nonforfeitable 
‘‘Years of service: 
percentage is: 
1 .........................................................................................................
2 .........................................................................................................
3 .........................................................................................................
4 .........................................................................................................
5 .........................................................................................................
100. 
‘‘(4) DISTRIBUTION
REQUIREMENTS.—In the 
case of a profit-sharing or stock bonus plan, the re-
quirements of this paragraph are met if, under the 
plan, qualified employer contributions are distribut-
able only as provided in section 401(k)(2)(B). 
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100 
‘‘(e) OTHER DEFINITIONS.—For purposes of this 
section— 
‘‘(1) ELIGIBLE EMPLOYER.— 
‘‘(A) IN GENERAL.—The term ‘eligible em-
ployer’ means, with respect to any year, an em-
ployer which has no more than 25 employees 
who received at least $5,000 of compensation 
from the employer for the preceding year. 
‘‘(B) REQUIREMENT FOR NEW QUALIFIED 
EMPLOYER
PLANS.—Such term shall not in-
clude an employer if, during the 3-taxable year 
period immediately preceding the first taxable 
year for which the credit under this section is 
otherwise allowable for a qualified employer 
plan of the employer, the employer or any mem-
ber of any controlled group including the em-
ployer (or any predecessor of either) established 
or maintained a qualified employer plan with 
respect to which contributions were made, or 
benefits were accrued, for substantially the 
same employees as are in the qualified employer 
plan. 
‘‘(2) HIGHLY COMPENSATED EMPLOYEE.—The 
term ‘highly compensated employee’ has the mean-
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101 
ing given such term by section 414(q) (determined 
without regard to section 414(q)(1)(B)(ii)). 
‘‘(f) SPECIAL RULES.— 
‘‘(1) DISALLOWANCE OF DEDUCTION.—No de-
duction shall be allowed for that portion of the quali-
fied employer contributions paid or incurred for the 
taxable year which is equal to the credit determined 
under subsection (a). 
‘‘(2) ELECTION NOT TO CLAIM CREDIT.—This 
section shall not apply to a taxpayer for any taxable 
year if such taxpayer elects to have this section not 
apply for such taxable year. 
‘‘(3) AGGREGATION RULES.—All persons treat-
ed as a single employer under subsection (a) or (b) 
of section 52, or subsection (n) or (o) of section 414, 
shall be treated as one person. All eligible employer 
plans shall be treated as 1 eligible employer plan. 
‘‘(g) RECAPTURE OF CREDIT ON FORFEITED CON-
TRIBUTIONS.— 
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), if any accrued benefit which is forfeitable 
by reason of subsection (d)(3) is forfeited, the em-
ployer’s tax imposed by this chapter for the taxable 
year in which the forfeiture occurs shall be increased 
by 35 percent of the employer contributions from 
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102 
which such benefit is derived to the extent such con-
tributions were taken into account in determining 
the credit under this section. 
‘‘(2) REALLOCATED
CONTRIBUTIONS.—Para-
graph (1) shall not apply to any contribution which 
is reallocated by the employer under the plan to em-
ployees who are not highly compensated employees.’’. 
(b) CREDIT ALLOWED AS PART OF GENERAL BUSI-
NESS CREDIT.—Section 38(b) (defining current year busi-
ness credit), as amended by section 102, is amended by 
striking ‘‘and’’ at the end of paragraph (31), by striking 
the period at the end of paragraph (32) and inserting ‘‘, 
and’’, and by adding at the end the following new para-
graph: 
‘‘(33) in the case of an eligible employer (as de-
fined in section 45P(e)), the small employer pension 
plan contribution credit determined under section 
45P(a).’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Subsection (c) of section 196 is amended by 
striking ‘‘and’’ at the end of paragraph (12), by 
striking the period at the end of paragraph (13) and 
inserting ‘‘, and’’, and by adding at the end the fol-
lowing new paragraph: 
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103 
‘‘(14) the small employer pension plan contribu-
tion credit determined under section 45P(a).’’. 
(2) The table of sections for subpart D of part 
IV of subchapter A of chapter 1, as amended by sec-
tion 102, is amended by adding at the end the fol-
lowing new item: 
‘‘Sec. 45P. Small employer pension plan contributions.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to contributions paid or incurred 
in taxable years beginning after December 31, 2008. 
SEC. 502. DEDUCTION FOR PENSION CONTRIBUTIONS AL-
LOWED IN COMPUTING NET EARNINGS FROM 
SELF-EMPLOYMENT. 
(a) IN GENERAL.—Section 1402(a) (defining net 
earnings from self-employment) is amended by striking 
‘‘and’’ at the end of paragraph (15), by striking the period 
at the end of paragraph (16) and inserting ‘‘, and’’, and 
by inserting after paragraph (16) the following new para-
graph: 
‘‘(17) any deduction allowed under section 404 
by reason of section 404(a)(8)(C) shall be allowed, 
except that the amount of such deduction shall be 
determined without regard to this paragraph.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2008. 
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104 
SEC. 503. EXEMPTION OF DEFERRAL-ONLY QUALIFIED 
CASH OR DEFERRED ARRANGEMENTS FROM 
TOP-HEAVY PLAN RULES. 
(a) IN GENERAL.—Section 416(g) (defining top- 
heavy plan) is amended by adding at the end the following 
new paragraph: 
‘‘(5) EXCEPTION
FOR
DEFERRAL-ONLY
CASH 
OR DEFERRED ARRANGEMENTS.—In the case of a 
plan which consists solely of a qualified cash or de-
ferred arrangement (as defined in section 401(k)(2)) 
under which no amounts may be contributed other 
than elective deferrals (as defined in section 
402(g)(3)), such plan shall not be treated as a top- 
heavy plan.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2008. 
SEC. 504. EXTENSION OF TIME FOR SMALL PENSION PLANS 
TO ADOPT REQUIRED PLAN QUALIFICATION 
AMENDMENTS. 
(a) IN GENERAL.—In the case of an eligible small 
plan for which a remedial amendment period is established 
under Internal Revenue Procedure 2005–66 (or any regu-
lation, revenue ruling, revenue procedure, or guidance pro-
viding for a similar period), no amendment to the plan 
necessary for the plan to meet the qualification require-
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105 
ments under the Internal Revenue Code of 1986 shall be 
required before the close of such period. 
(b) ADDITIONAL REQUIREMENTS.—Subsection (a) 
shall not apply to an eligible small plan unless— 
(1) any amendment described in subsection (a) 
applies retroactively to the period during which such 
amendment would otherwise have been required to 
be in effect, 
(2) the plan is operated during the period de-
scribed in paragraph (1) as if the amendment were 
in effect, and 
(3) the plan meets such requirements as the 
Secretary of the Treasury may prescribe to ensure 
that the Secretary, the Secretary of Labor, employ-
ers maintaining the plan, and participants and bene-
ficiaries of the plan are adequately notified of the 
terms of the plan actually in effect during a plan 
year. 
(c) ELIGIBLE SMALL PLAN.—For purposes of this 
section— 
(1) IN
GENERAL.—The term ‘‘eligible small 
plan’’ means a plan which, as of the beginning of a 
remedial amendment or similar period described in 
subsection (a), had 100 or fewer participants. For 
purposes of this paragraph, all defined benefit plans 
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106 
which are single-employer plans and are maintained 
by the same employer (or any member of such em-
ployer’s controlled group) shall be treated as 1 plan, 
but only participants with respect to such employer 
or member shall be taken into account. 
(2) APPLICATION OF CERTAIN RULES IN DE-
TERMINATION OF PLAN SIZE.—For purposes of this 
subsection— 
(A) PLANS
NOT
IN
EXISTENCE
IN
PRE-
CEDING YEAR.—In the case of the first plan 
year of any plan, subparagraph (B) shall apply 
to such plan by taking into account the number 
of participants that the plan is reasonably ex-
pected to have on days during such first plan 
year. 
(B) PREDECESSORS.—Any reference in 
paragraph (1) to an employer shall include a 
reference to any predecessor of such employer. 
(d) EFFECTIVE DATE.—This section shall apply to 
amendments required to be adopted for plan years begin-
ning after December 31, 2007. 
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107 
TITLE VI—PROVISIONS RELAT-
ING TO LONG-TERM CARE IN-
SURANCE 
SEC. 601. TREATMENT OF PREMIUMS ON QUALIFIED LONG- 
TERM CARE INSURANCE CONTRACTS. 
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to 
additional itemized deductions) is amended by redesig-
nating section 224 as section 225 and by inserting after 
section 223 the following new section: 
‘‘SEC. 224. PREMIUMS ON QUALIFIED LONG-TERM CARE IN-
SURANCE CONTRACTS. 
‘‘(a) IN GENERAL.—In the case of an individual, 
there shall be allowed as a deduction an amount equal to 
the applicable percentage of the amount of eligible long- 
term care premiums (as defined in section 213(d)(10)) 
paid during the taxable year for coverage for the taxpayer 
and the taxpayer’s spouse and dependents under a quali-
fied long-term care insurance contract (as defined in sec-
tion 7702B(b)). 
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of 
subsection (a), the applicable percentage shall be deter-
mined in accordance with the following table: 
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108 
‘‘For taxable years beginning 
The applicable 
in calendar year— 
percentage is— 
2008 ...................................................................................................
2009 ...................................................................................................
2010 ...................................................................................................
2011 or thereafter ..............................................................................
100. 
‘‘(c) COORDINATION WITH OTHER DEDUCTIONS.— 
Any amount paid by a taxpayer for any qualified long- 
term care insurance contract to which subsection (a) ap-
plies shall not be taken into account in computing the 
amount allowable to the taxpayer as a deduction under 
section 162(l) or 213(a).’’. 
(b) LONG-TERM CARE INSURANCE PERMITTED TO 
BE OFFERED UNDER CAFETERIA PLANS AND FLEXIBLE 
SPENDING ARRANGEMENTS.— 
(1) CAFETERIA PLANS.—The last sentence of 
section 125(f) of such Code (defining qualified bene-
fits) is amended by inserting before the period at the 
end ‘‘; except that such term shall include the pay-
ment of premiums for any qualified long-term care 
insurance contract (as defined in section 7702B) to 
the extent the amount of such payment does not ex-
ceed the eligible long-term care premiums (as de-
fined in section 213(d)(10)) for such contract’’. 
(2) FLEXIBLE
SPENDING
ARRANGEMENTS.— 
Section 106 of such Code (relating to contributions 
by an employer to accident and health plans) is 
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amended by striking subsection (c) and redesig-
nating subsection (d) as subsection (c). 
(c) CONFORMING AMENDMENTS.— 
(1) Section 62(a) of such Code is amended by 
inserting before the last sentence at the end the fol-
lowing new paragraph: 
‘‘(22) PREMIUMS
ON
QUALIFIED
LONG-TERM 
CARE
INSURANCE
CONTRACTS.—The deduction al-
lowed by section 224.’’. 
(2) 
Sections 
223(b)(4)(B), 
223(d)(4)(C), 
223(f)(3)(B), 
3231(e)(11), 
3306(b)(18), 
3401(a)(22), 4973(g)(1), and 4973(g)(2)(B)(i) of 
such Code are each amended by striking ‘‘section 
106(d)’’ and inserting ‘‘section 106(c)’’. 
(3) Section 6041 of such Code is amended— 
(A) in subsection (f)(1) by striking ‘‘(as 
defined in section 106(c)(2))’’, and 
(B) by adding at the end the following new 
subsection: 
‘‘(h) FLEXIBLE
SPENDING
ARRANGEMENT
DE-
FINED.—For purposes of this section, a flexible spending 
arrangement is a benefit program which provides employ-
ees with coverage under which— 
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110 
‘‘(1) specified incurred expenses may be reim-
bursed (subject to reimbursement maximums and 
other reasonable conditions), and 
‘‘(2) the maximum amount of reimbursement 
which is reasonably available to a participant for 
such coverage is less than 500 percent of the value 
of such coverage. 
In the case of an insured plan, the maximum amount rea-
sonably available shall be determined on the basis of the 
underlying coverage.’’. 
(4) The table of sections for part VII of sub-
chapter B of chapter 1 of such Code is amended by 
striking the last item and inserting the following 
new items: 
‘‘Sec. 224. Premiums on qualified long-term care insurance contracts. 
‘‘Sec. 225. Cross reference’’. 
(d) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to taxable years beginning after Decem-
ber 31, 2007. 
(2) CAFETERIA PLANS AND FLEXIBLE SPEND-
ING
ARRANGEMENTS.—The amendments made by 
subsection (b) shall apply to taxable years beginning 
after December 31, 2009. 
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111 
SEC. 602. CREDIT FOR TAXPAYERS WITH LONG-TERM CARE 
NEEDS. 
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of 
1986 (relating to nonrefundable personal credits) is 
amended by inserting after section 25D the following new 
section: 
‘‘SEC. 25E. CREDIT FOR TAXPAYERS WITH LONG-TERM 
CARE NEEDS. 
‘‘(a) ALLOWANCE OF CREDIT.— 
‘‘(1) IN GENERAL.—There shall be allowed as a 
credit against the tax imposed by this chapter for 
the taxable year an amount equal to the applicable 
credit amount multiplied by the number of applica-
ble individuals with respect to whom the taxpayer is 
an eligible caregiver for the taxable year. 
‘‘(2) APPLICABLE CREDIT AMOUNT.—For pur-
poses of paragraph (1), the applicable credit amount 
shall be determined in accordance with the following 
table: 
‘‘For taxable years beginning 
The applicable 
in calendar year— 
credit amount is— 
2008 ..................................................................................
$1,000
2009 ..................................................................................
1,500
2010 ..................................................................................
2,000
2011 ..................................................................................
2,500
2012 or thereafter .............................................................
3,000. 
‘‘(b) LIMITATION BASED ON ADJUSTED GROSS IN-
COME.— 
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112 
‘‘(1) IN GENERAL.—The amount of the credit 
allowable under subsection (a) shall be reduced (but 
not below zero) by $100 for each $1,000 (or fraction 
thereof) by which the taxpayer’s modified adjusted 
gross income exceeds the threshold amount. For 
purposes of the preceding sentence, the term ‘modi-
fied adjusted gross income’ means adjusted gross in-
come increased by any amount excluded from gross 
income under section 911, 931, or 933. 
‘‘(2) THRESHOLD AMOUNT.—For purposes of 
paragraph (1), the term ‘threshold amount’ means— 
‘‘(A) $150,000 in the case of a joint re-
turn, and 
‘‘(B) $75,000 in any other case. 
‘‘(3) INDEXING.—In the case of any taxable 
year beginning in a calendar year after 2008, each 
dollar amount contained in paragraph (2) shall be 
increased by an amount equal to the product of— 
‘‘(A) such dollar amount, and 
‘‘(B) the medical care cost adjustment de-
termined under section 213(d)(10)(B)(ii) for 
the calendar year in which the taxable year be-
gins, determined by substituting ‘August 2007’ 
for ‘August 1996’ in subclause (II) thereof. 
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113 
If any increase determined under the preceding sen-
tence is not a multiple of $50, such increase shall 
be rounded to the next lowest multiple of $50. 
‘‘(c) DEFINITIONS.—For purposes of this section— 
‘‘(1) APPLICABLE INDIVIDUAL.— 
‘‘(A) IN GENERAL.—The term ‘applicable 
individual’ means, with respect to any taxable 
year, any individual who has been certified, be-
fore the due date for filing the return of tax for 
the taxable year (without extensions), by a phy-
sician (as defined in section 1861(r)(1) of the 
Social Security Act) as being an individual with 
long-term care needs described in subparagraph 
(B) for a period— 
‘‘(i) which is at least 180 consecutive 
days, and 
‘‘(ii) a portion of which occurs within 
the taxable year. 
Notwithstanding the preceding sentence, a cer-
tification shall not be treated as valid unless it 
is made within the 391⁄2 month period ending 
on such due date (or such other period as the 
Secretary prescribes). 
‘‘(B) INDIVIDUALS WITH LONG-TERM CARE 
NEEDS.—An individual is described in this sub-
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114 
paragraph if the individual meets any of the fol-
lowing requirements: 
‘‘(i) The individual is at least 6 years 
of age and— 
‘‘(I) is unable to perform (with-
out substantial assistance from an-
other individual) at least 3 activities 
of daily living (as defined in section 
7702B(c)(2)(B)) due to a loss of 
functional capacity, or 
‘‘(II) requires substantial super-
vision to protect such individual from 
threats to health and safety due to se-
vere cognitive impairment and is un-
able to preform, without reminding or 
cuing assistance, at least 1 activity of 
daily living (as so defined) or to the 
extent provided in regulations pre-
scribed by the Secretary (in consulta-
tion with the Secretary of Health and 
Human Services), is unable to engage 
in age appropriate activities. 
‘‘(ii) The individual is at least 2 but 
not 6 years of age and is unable due to a 
loss of functional capacity to perform 
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115 
(without substantial assistance from an-
other individual) at least 2 of the following 
activities: eating, transferring, or mobility. 
‘‘(iii) The individual is under 2 years 
of age and requires specific durable med-
ical equipment by reason of a severe health 
condition or requires a skilled practitioner 
trained to address the individual’s condi-
tion to be available if the individual’s par-
ents or guardians are absent. 
‘‘(2) ELIGIBLE CAREGIVER.— 
‘‘(A) IN GENERAL.—A taxpayer shall be 
treated as an eligible caregiver for any taxable 
year with respect to the following individuals: 
‘‘(i) The taxpayer. 
‘‘(ii) The taxpayer’s spouse. 
‘‘(iii) An individual with respect to 
whom the taxpayer is allowed a deduction 
under section 151 for the taxable year. 
‘‘(iv) An individual who would be de-
scribed in clause (iii) for the taxable year 
if section 152(d)(1)(B) were applied by 
substituting for the exemption amount an 
amount equal to the sum of the exemption 
amount, the standard deduction under sec-
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116 
tion 63(c)(2)(C), and any additional stand-
ard deduction under section 63(c)(3) which 
would be applicable to the individual if 
clause (iii) applied. 
‘‘(v) An individual who would be de-
scribed in clause (iii) for the taxable year 
if— 
‘‘(I) the requirements of subpara-
graph (B) are met with respect to the 
individual in lieu of the support test 
of 
section 
152(c)(1)(D) 
or 
152(d)(1)(C), as the case may be, and 
‘‘(II) in the case of an individual 
who is not a qualifying child (as de-
fined in section 152(d)) for the tax-
able year, the requirements of clause 
(iv) are met with respect to the indi-
vidual. 
‘‘(B) RESIDENCY
TEST.—The require-
ments of this subparagraph are met if an indi-
vidual has as his principal place of abode the 
home of the taxpayer and— 
‘‘(i) in the case of an individual who 
is an ancestor or descendant of the tax-
payer or the taxpayer’s spouse, is a mem-
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117 
ber of the taxpayer’s household for over 
half the taxable year, or 
‘‘(ii) in the case of any other indi-
vidual, is a member of the taxpayer’s 
household for the entire taxable year. 
‘‘(C) SPECIAL RULES WHERE MORE THAN 
1 ELIGIBLE CAREGIVER.— 
‘‘(i) IN GENERAL.—If more than 1 in-
dividual is an eligible caregiver with re-
spect to the same applicable individual for 
taxable years ending with or within the 
same calendar year, a taxpayer shall be 
treated as the eligible caregiver if each 
such individual (other than the taxpayer) 
files a written declaration (in such form 
and manner as the Secretary may pre-
scribe) that such individual will not claim 
such applicable individual for the credit 
under this section. 
‘‘(ii) NO AGREEMENT.—If each indi-
vidual required under clause (i) to file a 
written declaration under clause (i) does 
not do so, the individual with the highest 
adjusted gross income shall be treated as 
the eligible caregiver. 
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118 
‘‘(iii) MARRIED
INDIVIDUALS
FILING 
SEPARATELY.—In the case of married indi-
viduals filing separately, the determination 
under this subparagraph as to whether the 
husband or wife is the eligible caregiver 
shall be made under the rules of clause (ii) 
(whether or not one of them has filed a 
written declaration under clause (i)). 
‘‘(d) IDENTIFICATION
REQUIREMENT.—No credit 
shall be allowed under this section to a taxpayer with re-
spect to any applicable individual unless the taxpayer in-
cludes the name and taxpayer identification number of 
such individual, and the identification number of the phy-
sician certifying such individual, on the return of tax for 
the taxable year. 
‘‘(e) TAXABLE YEAR MUST BE FULL TAXABLE 
YEAR.—Except in the case of a taxable year closed by rea-
son of the death of the taxpayer, no credit shall be allow-
able under this section in the case of a taxable year cov-
ering a period of less than 12 months.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 6213(g)(2) of such Code is amend-
ed by striking ‘‘and’’ at the end of subparagraph 
(L), by striking the period at the end of subpara-
graph (M) and inserting ‘‘, and’’, and by inserting 
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119 
after subparagraph (M) the following new subpara-
graph: 
‘‘(N) an omission of a correct TIN or phy-
sician identification required under section 
25E(d) (relating to credit for taxpayers with 
long-term care needs) to be included on a re-
turn.’’. 
(2) The table of sections for subpart A of part 
IV of subchapter A of chapter 1 of such Code is 
amended by inserting after the item relating to sec-
tion 25D the following new item: 
‘‘Sec. 25E. Credit for taxpayers with long-term care needs’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2007. 
SEC. 603. ADDITIONAL CONSUMER PROTECTIONS FOR 
LONG-TERM CARE INSURANCE. 
(a) ADDITIONAL
PROTECTIONS
APPLICABLE
TO 
LONG-TERM CARE INSURANCE.—Subparagraphs (A) and 
(B) of section 7702B(g)(2) of the Internal Revenue Code 
of 1986 (relating to requirements of model regulation and 
Act) are amended to read as follows: 
‘‘(A) IN GENERAL.—The requirements of 
this paragraph are met with respect to any con-
tract if such contract meets— 
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120 
‘‘(i) MODEL
REGULATION.—The fol-
lowing requirements of the model regula-
tion: 
‘‘(I) Section 6A (relating to guar-
anteed renewal or noncancellability), 
other than paragraph (5) thereof, and 
the requirements of section 6B of the 
model Act relating to such section 6A. 
‘‘(II) Section 6B (relating to pro-
hibitions on limitations and exclu-
sions) other than paragraph (7) there-
of. 
‘‘(III) Section 6C (relating to ex-
tension of benefits). 
‘‘(IV) Section 6D (relating to 
continuation or conversion of cov-
erage). 
‘‘(V) Section 6E (relating to dis-
continuance and replacement of poli-
cies). 
‘‘(VI) Section 7 (relating to unin-
tentional lapse). 
‘‘(VII) Section 8 (relating to dis-
closure), other than sections 8F, 8G, 
8H, and 8I thereof. 
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‘‘(VIII) Section 11 (relating to 
prohibitions against post-claims un-
derwriting). 
‘‘(IX) Section 12 (relating to 
minimum standards). 
‘‘(X) Section 13 (relating to re-
quirement to offer inflation protec-
tion). 
‘‘(XI) Section 25 (relating to pro-
hibition against preexisting conditions 
and probationary periods in replace-
ment policies or certificates). 
‘‘(XII) The provisions of section 
26 relating to contingent nonforfeiture 
benefits, if the policyholder declines 
the offer of a nonforfeiture provision 
described in paragraph (4). 
‘‘(ii) MODEL ACT.—The following re-
quirements of the model Act: 
‘‘(I) Section 6C (relating to pre-
existing conditions). 
‘‘(II) Section 6D (relating to 
prior hospitalization). 
‘‘(III) The provisions of section 8 
relating to contingent nonforfeiture 
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122 
benefits, if the policyholder declines 
the offer of a nonforfeiture provision 
described in paragraph (4). 
‘‘(B) DEFINITIONS.—For purposes of this 
paragraph— 
‘‘(i) MODEL PROVISIONS.—The terms 
‘model regulation’ and ‘model Act’ mean 
the long-term care insurance model regula-
tion, and the long-term care insurance 
model Act, respectively, promulgated by 
the National Association of Insurance 
Commissioners (as adopted as of October 
2000). 
‘‘(ii) COORDINATION.—Any provision 
of the model regulation or model Act listed 
under clause (i) or (ii) of subparagraph 
(A) shall be treated as including any other 
provision of such regulation or Act nec-
essary to implement the provision. 
‘‘(iii) 
DETERMINATION.—For 
pur-
poses of this section and section 4980C, 
the determination of whether any require-
ment of a model regulation or the model 
Act has been met shall be made by the 
Secretary.’’. 
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123 
(b) 
EXCISE
TAX.—Paragraph 
(1) 
of 
section 
4980C(c) of the Internal Revenue Code of 1986 (relating 
to requirements of model provisions) is amended to read 
as follows: 
‘‘(1) REQUIREMENTS OF MODEL PROVISIONS.— 
‘‘(A) MODEL REGULATION.—The following 
requirements of the model regulation must be 
met: 
‘‘(i) Section 9 (relating to required 
disclosure of rating practices to consumer). 
‘‘(ii) Section 14 (relating to applica-
tion forms and replacement coverage). 
‘‘(iii) Section 15 (relating to reporting 
requirements). 
‘‘(iv) Section 22 (relating to filing re-
quirements for marketing). 
‘‘(v) Section 23 (relating to standards 
for marketing), including inaccurate com-
pletion of medical histories, other than 
paragraphs (1), (6), and (9) of section 
23C. 
‘‘(vi) Section 24 (relating to suit-
ability). 
‘‘(vii) Section 29 (relating to standard 
format outline of coverage). 
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124 
‘‘(viii) Section 30 (relating to require-
ment to deliver shopper’s guide). 
The requirements referred to in clause (vi) shall 
not include those portions of the personal work-
sheet described in Appendix B relating to con-
sumer protection requirements not imposed by 
section 4980C or 7702B. 
‘‘(B) MODEL ACT.—The following require-
ments of the model Act must be met: 
‘‘(i) Section 6F (relating to right to 
return). 
‘‘(ii) Section 6G (relating to outline of 
coverage). 
‘‘(iii) Section 6H (relating to require-
ments for certificates under group plans). 
‘‘(iv) Section 6J (relating to policy 
summary). 
‘‘(v) Section 6K (relating to monthly 
reports on accelerated death benefits). 
‘‘(vi) Section 7 (relating to incontest-
ability period). 
‘‘(C) DEFINITIONS.—For purposes of this 
paragraph, the terms ‘model regulation’ and 
‘model Act’ have the meanings given such terms 
by section 7702B(g)(2)(B).’’. 
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125 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to policies issued more than 1 year 
after the date of the enactment of this Act. 
SEC. 604. TREATMENT OF EXCHANGES OF LONG-TERM 
CARE INSURANCE CONTRACTS. 
(a) IN GENERAL.—Subsection (a) of section 1035 of 
the Internal Revenue Code of 1986 (relating to exchanges 
of insurance policies) is amended by striking the period 
at the end of paragraph (3) and inserting ‘‘; or’’ and by 
adding at the end the following new paragraph: 
‘‘(4) a qualified long-term care insurance con-
tract for another qualified long-term care insurance 
contract.’’. 
(b) QUALIFIED LONG-TERM CARE INSURANCE CON-
TRACT.—Subsection (b) of section 1035 of such Code (re-
lating to definitions) is amended by adding at the end the 
following new paragraph: 
‘‘(4) QUALIFIED LONG-TERM CARE INSURANCE 
CONTRACT.—The term ‘qualified long-term care in-
surance contract’ means— 
‘‘(A) any qualified long-term care insur-
ance contract (as defined in section 7702B), 
and 
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126 
‘‘(B) any contract which is treated as such 
by section 321(f)(2) of the Health Insurance 
Portability and Accountability Act of 1996.’’. 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by 
this section shall apply to exchanges after December 
31, 1997. 
(2) WAIVER OF LIMITATIONS.—If the credit or 
refund of any overpayment of tax with respect to a 
taxable year ending before the date of the enactment 
of this Act resulting from the application of section 
1035(a)(4) of the Internal Revenue Code of 1986, as 
added by this section, is prevented at any time by 
the operation of any law or rule of law (including res 
judicata), such credit or refund may nevertheless be 
allowed or made if the claim therefor is filed before 
the close of the 1-year period beginning on the date 
of the enactment of this Act. 
Æ 
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