Title: Long-Term Care Account Act
Policy area: Taxation

Summary:
Long-Term Care Account Act
This bill allows tax-exempt long-term care accounts that are funded using a taxpayer's gains from the sale or assignment of a life insurance contract. The bill excludes from gross income (1) the gains that are contributed to the accounts, and (2) distributions from the accounts that are used exclusively for the long-term care expenses of the account beneficiary or the account beneficiary's spouse.

[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[H.R. 7203 Introduced in House (IH)]

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115th CONGRESS
  2d Session
                                H. R. 7203

  To amend the Internal Revenue Code of 1986 to create long-term care 
   accounts funded by the proceeds of the sale or assignment of life 
                          insurance contracts.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           November 30, 2018

 Mr. Marchant (for himself and Mr. Higgins of New York) 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 create long-term care 
   accounts funded by the proceeds of the sale or assignment of life 
                          insurance contracts.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Long-Term Care Account Act''.

SEC. 2. LONG-TERM CARE ACCOUNT.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by inserting after section 
139G the following new section:

``SEC. 139H. LONG-TERM CARE ACCOUNT.

    ``(a) Exclusion of Contributions of Long-Term Gain From Sales of 
Life Insurance Contracts.--The amount of gain from the sale or 
assignment of a life insurance contract of a taxpayer shall be reduced 
(but not below zero) by the amount of contributions to a long-term care 
account made by such taxpayer during the 30-day period beginning on the 
date of such sale or assignment.
    ``(b) Tax Treatment of Long-Term Care Account.--
            ``(1) In general.--A long-term account is exempt from 
        taxation under this subtitle unless such account has ceased to 
        be a long-term care account. Notwithstanding the preceding 
        sentence, any such account is subject to the taxes imposed by 
        section 511 (relating to imposition of tax on unrelated 
        business income of charitable, etc. organizations).
            ``(2) Account terminations.--Rules similar to the rules of 
        paragraphs (2) and (4) of section 408(e) shall apply to health 
        savings accounts, and any amount treated as distributed under 
        such rules shall be treated as not used to pay long-term care 
        expenses.
            ``(3) Tax treatment of distributions.--
                    ``(A) Amounts used for long-term care expenses.--
                Any amount paid or distributed out of a long-term care 
                account which is used exclusively to pay long-term care 
                expenses of the account beneficiary or the account 
                beneficiary's spouse shall not be includible in gross 
                income.
                    ``(B) Inclusion of amounts not used for long-term 
                care expenses.--Any amount paid or distributed out of a 
                long-term care account which is not used to pay the 
                long-term care expenses of the account beneficiary or 
                the account beneficiary's spouse shall be included in 
                the gross income of such beneficiary.
                    ``(C) Additional tax on distributions not used for 
                long-term care expenses.--The tax imposed by this 
                chapter on the account beneficiary for any taxable year 
                in which there is a payment or distribution from a 
                long-term care account of such beneficiary which is 
                includible in gross income under subparagraph (B) shall 
                be increased by 20 percent of the amount which is so 
                includible. This subparagraph shall not apply if the 
                payment or distribution is made after the account 
                beneficiary--
                            ``(i) dies,
                            ``(ii) becomes a terminally ill individual 
                        (as such term is defined in section 
                        101(g)(4)(A)), or
                            ``(iii) becomes a chronically ill 
                        individual (as such term is defined in section 
                        101(g)(4)(B)).
            ``(4) Coordination with medical expense deduction.--For 
        purposes of determining the amount of the deduction under 
        section 213, any payment or distribution out of a long-term 
        care account for long-term care expenses shall not be treated 
        as an expense paid for medical care.
            ``(5) Transfer of account incident to divorce.--The 
        transfer of an individual's interest in a long-term care 
        account to an individual's spouse or former spouse under a 
        divorce or separation instrument described in subparagraph (A) 
        of section 71(b)(2) shall not be considered a taxable transfer 
        made by such individual notwithstanding any other provision of 
        this subtitle, and such interest shall, after such transfer, be 
        treated as a long-term care account with respect to which such 
        spouse is the account beneficiary.
            ``(6) Treatment after death of account beneficiary.--
                    ``(A) Treatment if designated beneficiary is 
                spouse.--If the account beneficiary's surviving spouse 
                acquires such beneficiary's interest in a long-term 
                care account by reason of being the designated 
                beneficiary of such account at the death of the account 
                beneficiary, such long-term care account shall be 
                treated as if the spouse were the account beneficiary.
                    ``(B) Other cases.--
                            ``(i) In general.--If, by reason of the 
                        death of the account beneficiary, any person 
                        acquires the account beneficiary's interest in 
                        a long-term care account in a case to which 
                        subparagraph (A) does not apply--
                                    ``(I) such account shall cease to 
                                be a long-term care account as of the 
                                date of death, and
                                    ``(II) an amount equal to the fair 
                                market value of the assets in such 
                                account on such date shall be 
                                includible if such person is not the 
                                estate of such beneficiary, in such 
                                person's gross income for the taxable 
                                year which includes such date, or if 
                                such person is the estate of such 
                                beneficiary, in such beneficiary's 
                                gross income for the last taxable year 
                                of such beneficiary.
                            ``(ii) Special rules.--
                                    ``(I) Reduction of inclusion for 
                                predeath expenses.--The amount 
                                includible in gross income under clause 
                                (i) by any person (other than the 
                                estate) shall be reduced by the amount 
                                of qualified long-term care expenses 
                                which were incurred by the decedent 
                                before the date of the decedent's death 
                                and paid by such person within 1 year 
                                after such date.
                                    ``(II) Deduction for estate 
                                taxes.--An appropriate deduction shall 
                                be allowed under section 691(c) to any 
                                person (other than the decedent or the 
                                decedent's spouse) with respect to 
                                amounts included in gross income under 
                                clause (i) by such person.
    ``(c) Definitions.--For purposes of this subsection--
            ``(1) Account beneficiary.--The term `account beneficiary' 
        means, with respect to a long-term care account, the individual 
        on whose behalf such account was established.
            ``(2) Long-term care account.--The term `long-term care 
        account' means a trust created or organized in the United 
        States as a long-term care account, but only if the written 
        governing instrument creating the trust meets the following 
        requirements:
                    ``(A) No contribution will be accepted unless it is 
                in cash and in consideration of the sale or assignment 
                of any portion of the death benefits under a life 
                insurance contract on the life of the account 
                beneficiary.
                    ``(B) The trustee is a bank (as defined in section 
                408(n)), an insurance company (as defined in section 
                816), or another person who demonstrates to the 
                satisfaction of the Secretary that the manner in which 
                such person will administer the trust will be 
                consistent with the requirements of this section.
                    ``(C) No part of the trust assets will be invested 
                in life insurance contracts.
                    ``(D) The assets of the trust will not be 
                commingled with other property except in a common trust 
                fund or common investment fund.
                    ``(E) The interest of an individual in the balance 
                in his account is nonforfeitable.
            ``(3) Long-term care expenses.--The term `long-term care 
        expenses' means amounts paid or incurred--
                    ``(A) as premiums for a qualified long-term care 
                insurance contract (as such term is defined in section 
                7702B(b)),
                    ``(B) for qualified long-term care services (as 
                such term is defined in section 7702B(c)), or
                    ``(C) for qualified health services.
            ``(4) Qualified health services.--The term `qualified 
        health services' means--
                    ``(A) diagnostic, preventive, therapeutic, curing, 
                treating, mitigating, and rehabilitative services, and 
                maintenance or personal care services, which are--
                            ``(i) required by an instrumentally 
                        impaired individual, and
                            ``(ii) provided pursuant to a plan of care 
                        prescribed by a licensed health care 
                        practitioner, or
                    ``(B) items or services that a licensed health care 
                practitioner determines are reasonable and necessary to 
                reduce the likelihood of an individual becoming an 
                instrumentally impaired individual.
            ``(5) Instrumentally impaired individual.--The term 
        `instrumentally impaired individual' means an individual who 
        has been certified by a licensed health care practitioner as 
        being unable to perform (without substantial assistance from 
        another individual) at least 2 instrumental activities of daily 
        living for a period of at least 90 days due to a loss of 
        functional capacity.
            ``(6) Instrumental activities of daily living.--The term 
        `instrumental activities of daily living' means activities 
        related to living independently in the community, including--
                    ``(A) meal planning and preparation,
                    ``(B) managing finances,
                    ``(C) shopping for food, clothing, and other 
                essential items,
                    ``(D) performing essential household chores,
                    ``(E) communicating by phone or other media, or
                    ``(F) traveling in and participating in the 
                community.''.
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 of such Code is amended by inserting after 
the item relating to section 139G the following new item:

``Sec. 139G. Long-term care account.''.
    (c) Effective Date.--The amendments made by this subsection shall 
apply with respect to sales or assignments of life insurance contracts 
after the date of enactment of this Act.
    (d) Reports.--The Secretary may require the trustee of a long-term 
care account to make such reports regarding such account to the 
Secretary and to the account beneficiary with respect to contributions, 
distributions, and such other matters as the Secretary determines 
appropriate.
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