of an employee if (and to the extent that) at the
time of payment of such remuneration it is reason-
able to believe that a corresponding deduction is al-
lowable under section 220.’’
(3) UNEMPLOYMENT TAX.—Subsection (b) of
section 3306 of such Code is amended by striking
‘‘or’’ at the end of paragraph (15), by striking the
period at the end of paragraph (16) and inserting ‘‘;
or’’, and by inserting after paragraph (16) the fol-
lowing new paragraph:
‘‘(17) remuneration paid to or on behalf of an
employee if (and to the extent that) at the time of
payment of such remuneration it is reasonable to be-
lieve that a corresponding deduction is allowable
under section 220.’’
(4) WITHHOLDING TAX.—Subsection (a) of sec-
tion 3401 of such Code is amended by striking ‘‘or’’
at the end of paragraph (19), by striking the period
at the end of paragraph (20) and inserting ‘‘; or’’,
and by inserting after paragraph (20) the following
new paragraph:
‘‘(21) to or on behalf of an employee if (and to
the extent that) at the time of payment of such re-
muneration it is reasonable to believe that a cor-
responding deduction is allowable under section
220.’’
(e) TAX ON EXCESS CONTRIBUTIONS.—Section 4973
of such Code (relating to tax on excess contributions to
individual retirement accounts, certain section 403(b) con-
tracts, and certain individual retirement annuities) is
amended—
(1) by inserting ‘‘MEDISAVE
ACCOUNTS,’’
after ‘‘ACCOUNTS,’’ in the heading of such section,
(2) by redesignating paragraph (2) of sub-
section (a) as paragraph (3) and by inserting after
paragraph (1) the following:
‘‘(2) a Medisave account (within the meaning of
section 220(d)),’’,
(3) by striking ‘‘or’’ at the end of paragraph
(1) of subsection (a), and
(4) by adding at the end thereof the following
new subsection:
‘‘(d) EXCESS CONTRIBUTIONS
TO MEDISAVE AC-
COUNTS.—For purposes of this section, in the case of a
Medisave account (within the meaning of section 220(d)),
the term ‘excess contributions’ means the amount by
which the amount contributed for the taxable year to the
account exceeds the amount allowable as a deduction
under section 220 for such taxable year. For purposes of
this subsection, any contribution which is distributed out
of the Medisave account in a distribution to which section
220(e)(2) applies shall be treated as an amount not con-
tributed.’’
(f) TAX ON PROHIBITED TRANSACTIONS.—Section
4975 of such Code (relating to prohibited transactions)
is amended—
(1) by adding at the end of subsection (c) the
following new paragraph:
‘‘(4) 
SPECIAL
RULE
FOR
MEDISAVE
AC-
COUNTS.—An 
individual 
for 
whose 
benefit 
a
Medisave account (within the meaning of section
220(d)) is established shall be exempt from the tax
imposed by this section with respect to any trans-
action concerning such account (which would other-
wise be taxable under this section) if, with respect
to such transaction, the account ceases to be a
Medisave account by reason of the application of
section 220(e)(2)(A) to such account.’’, and
(2) by inserting ‘‘or a Medisave account de-
scribed in section 220(d)’’ in subsection (e)(1) after
‘‘described in section 408(a)’’.
(g) FAILURE TO PROVIDE REPORTS ON MEDISAVE
ACCOUNTS.—Section 6693 of such Code (relating to fail-
ure to provide reports on individual retirement account or
annuities) is amended—
(1) by inserting ‘‘OR
ON
MEDISAVE
AC-
COUNTS’’ after ‘‘ANNUITIES’’ in the heading of
such section, and
(2) by adding at the end of subsection (a) the
following: ‘‘The person required by section 220(h) to
file a report regarding a Medisave account at the
time and in the manner required by such section
shall pay a penalty of $50 for each failure unless it
is shown that such failure is due to reasonable
cause.’’
(h) CLERICAL AMENDMENTS.—
(1) 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:
‘‘Sec. 220. Medisave accounts.
‘‘Sec. 221. Cross reference.’’
(2) 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. Tax on excess contributions to individual retirement
accounts, medisave accounts, certain 403(b) con-
tracts, and certain individual retirement annuities.’’
(3) The table of sections for subchapter B of
chapter 68 of such Code is amended by inserting ‘‘or
on Medisave accounts’’ after ‘‘annuities’’ in the item
relating to section 6693.
(i) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
Æ
HR 720 IH——2