464 
‘‘(2) the information required to be 
shown on the return with respect to such 
individual. 
The written statement required under the 
preceding sentence shall be furnished to the 
individual on or before January 31 of the year 
following the calendar year for which the re-
turn under subsection (a) was required to be 
made.’’. 
(2) CLERICAL
AMENDMENT.—The table 
of sections for subpart B of part III of 
subchapter A of such chapter 61 of such 
Code is amended by adding at the end 
the following new item: 
‘‘Sec. 6050U. Charges or payments for qualified long-term care 
insurance contracts under combined arrange-
ments.’’. 
(e) TREATMENT OF POLICY ACQUISITION EX-
PENSES.—Subsection (e) of section 848 of such 
Code (relating to classification of contracts) is 
amended by adding at the end the following 
new paragraph: 
‘‘(6) TREATMENT OF CERTAIN QUALIFIED 
LONG-TERM CARE INSURANCE CONTRACT AR-
RANGEMENTS.—An annuity or life insur-
ance contract which includes a qualified 
long-term care insurance contract as a
465 
part of or a rider on such annuity or life 
insurance contract shall be treated as a 
specified 
insurance 
contract 
not 
de-
scribed in subparagraph (A) or (B) of sub-
section (c)(1).’’. 
(f) TREATMENT
AS QUALIFIED ADDITIONAL 
BENEFIT.—Subparagraph 
(A) 
of 
section 
7702(f)(5) of such Code (relating to qualified 
additional benefits) is amended by striking 
‘‘or’’ at the end of clause (iv), by redesignating 
clause (v) as clause (vi), and by inserting after 
clause (iv) the following new clause: 
‘‘(v) qualified long-term care 
insurance contract which is a 
part of or a rider on the contract, 
or’’. 
(g) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as provided 
by paragraph (2), the amendments made 
by this section shall apply to contracts 
issued before, on, or after December 31, 
2006, but only with respect to periods be-
ginning after such date. 
(2) SUBSECTION (b).—The amendments 
made by subsection (b) shall apply with
466 
respect to exchanges occurring after De-
cember 31, 2006. 
SEC. 1002. DISPOSITION OF UNUSED HEALTH BENEFITS IN 
CAFETERIA PLANS AND FLEXIBLE SPENDING 
ARRANGEMENTS. 
(a) IN GENERAL.—Section 125 of the Inter-
nal Revenue Code of 1986 (relating to cafe-
teria plans) is amended by redesignating sub-
sections (h) and (i) as subsections (i) and (j), 
respectively, and by inserting after sub-
section (g) the following: 
‘‘(h) CONTRIBUTIONS
OF CERTAIN UNUSED 
HEALTH BENEFITS.— 
‘‘(1) IN GENERAL.—For purposes of this 
title, a plan or other arrangement shall 
not fail to be treated as a cafeteria plan 
solely because qualified benefits under 
such plan include a health flexible spend-
ing arrangement under which not more 
than $500 of unused health benefits may 
be— 
‘‘(A) carried forward to the suc-
ceeding plan year of such health 
flexible spending arrangement, or
467 
‘‘(B) to the extent permitted by 
section 106(d), contributed by the em-
ployer to a health savings account (as 
defined in section 223(d)) maintained 
for the benefit of the employee. 
‘‘(2) HEALTH
FLEXIBLE
SPENDING
AR-
RANGEMENT.—For purposes of this sub-
section, the term ‘health flexible spend-
ing arrangement’ means a flexible spend-
ing arrangement (as defined in section 
106(c)) that is a qualified benefit and only 
permits reimbursement for expenses for 
medical 
care 
(as 
defined 
in 
section 
213(d)(1), without regard to subpara-
graphs (C) and (D) thereof). 
‘‘(3) UNUSED
HEALTH
BENEFITS.—For 
purposes of this subsection, with respect 
to an employee, the term ‘unused health 
benefits’ means the excess of— 
‘‘(A) the maximum amount of re-
imbursement allowable to the em-
ployee for a plan year under a health 
flexible spending arrangement, over
468 
‘‘(B) the actual amount of reim-
bursement for such year under such 
arrangement.’’. 
(b) EFFECTIVE
DATE.—The amendments 
made by subsection (a) shall apply to taxable 
years beginning after December 31, 2005. 
SEC. 1003. DISTRIBUTIONS FROM GOVERNMENTAL RETIRE-
MENT PLANS FOR HEALTH AND LONG-TERM 
CARE INSURANCE FOR PUBLIC SAFETY OFFI-
CERS. 
(a) IN GENERAL.—Section 402 of the Inter-
nal Revenue Code of 1986 (relating to tax-
ability of beneficiary of employees’ trust) is 
amended by adding at the end the following 
new subsection: 
‘‘(l) DISTRIBUTIONS FROM GOVERNMENTAL 
PLANS FOR HEALTH AND LONG-TERM CARE IN-
SURANCE.— 
‘‘(1) IN
GENERAL.—In the case of an 
employee who is an eligible retired pub-
lic safety officer who makes the election 
described in paragraph (6) with respect 
to any taxable year of such employee, 
gross income of such employee for such 
taxable year does not include any dis-
469 
tribution from an eligible retirement plan 
to the extent that the aggregate amount 
of such distributions does not exceed the 
amount paid by such employee for quali-
fied health insurance premiums of the 
employee, his spouse, or dependents (as 
defined in section 152) for such taxable 
year. 
‘‘(2) LIMITATION.—The amount which 
may be excluded from gross income for 
the taxable year by reason of paragraph 
(1) shall not exceed $5,000. 
‘‘(3) DISTRIBUTIONS MUST OTHERWISE BE 
INCLUDIBLE.— 
‘‘(A) 
IN
GENERAL.—An 
amount 
shall be treated as a distribution for 
purposes of paragraph (1) only to the 
extent that such amount would be in-
cludible in gross income without re-
gard to paragraph (1). 
‘‘(B) APPLICATION OF SECTION 72.— 
Notwithstanding section 72, in deter-
mining 
the 
extent 
to 
which 
an 
amount is treated as a distribution 
for purposes of subparagraph (A), the