Title: Small Business Start-up Savings Accounts Act of 2019
Policy area: Taxation

Summary:
Small Business Start-up Savings Accounts Act of 2019
This bill allows an individual or eligible small business (500 or fewer employees) to establish a small business start-up savings account. The taxpayer may deduct contributions to such start-up accounts in the amount of $10,000, or $150,000, reduced by aggregate contributions for all taxable years, whichever is the lesser amount. Qualified distributions (e.g, for purchase of equipment, marketing, training, or accounting fees) from such accounts are excluded from gross income, for income tax purposes.
The bill also imposes penalty taxes on excess contributions to a small business start-up savings account and for nonqualified distributions from such an account.

[Congressional Bills 116th Congress]
[From the U.S. Government Publishing Office]
[S. 3136 Introduced in Senate (IS)]

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116th CONGRESS
  1st Session
                                S. 3136

To amend the Internal Revenue Code of 1986 to establish small business 
                       start-up savings accounts.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           December 19, 2019

Mr. Gardner (for himself and Mr. Peters) introduced the following bill; 
     which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to establish small business 
                       start-up savings accounts.

    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 ``Small Business Start-up Savings 
Accounts Act of 2019''.

SEC. 2. ESTABLISHMENT OF SMALL BUSINESS START-UP SAVINGS ACCOUNTS.

    (a) In General.--Chapter 77 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new section:

``SEC. 7530. SMALL BUSINESS START-UP SAVINGS ACCOUNTS.

    ``(a) In General.--An individual or an eligible small business may 
establish a small business start-up savings account.
    ``(b) Small Business Start-Up Savings Account.--For purposes of 
this section, the term `small business start-up savings account' means 
a trust created or organized in the United States for the benefit of 
the account beneficiary, but only if the written governing instrument 
creating the trust meets the following requirements:
            ``(1) Except as provided in subsection (d)(3) in the case 
        of a rollover contribution, no contribution will be accepted 
        unless it is in cash, and contributions will not be accepted 
        for the taxable year on behalf of any account beneficiary in 
        excess of the amount in effect for such taxable year under 
        subsection (d)(2).
            ``(2) The trustee is a bank (as defined in section 408(n)) 
        or such other person who demonstrates to the satisfaction of 
        the Secretary that the manner in which such other person will 
        administer the trust will be consistent with the requirements 
        of this section.
            ``(3) No part of the trust funds will be invested in life 
        insurance contracts.
            ``(4) The interest of an individual in the balance of his 
        account is nonforfeitable.
            ``(5) The assets of the trust will not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
    ``(c) Eligible Small Business.--For purposes of this section, the 
term `eligible small business' means, with respect to any taxable year, 
any person engaged in a trade or business if the average number of 
employees employed by such person on business days during the taxable 
year was 500 or fewer.
    ``(d) Treatment of Contributions.--
            ``(1) In general.--There shall be allowed as a deduction 
        for the taxable year an amount equal to so much of the account 
        beneficiary's contributions for the taxable year to all small 
        business start-up savings accounts maintained for the benefit 
        of such beneficiary as do not exceed the contribution 
        limitations in effect for the taxable year under paragraph (2).
            ``(2) Contribution limitation.--
                    ``(A) In general.--The amount allowable as a 
                deduction under paragraph (1) with respect to all small 
                business start-up savings accounts maintained for the 
                benefit of any person shall not exceed the lesser of--
                            ``(i) $10,000, or
                            ``(ii) $150,000, reduced by the aggregate 
                        contributions by such person for all taxable 
                        years with respect to all small business start-
                        up savings accounts of the taxpayer.
                    ``(B) Cost of living adjustment.--
                            ``(i) In general.--In the case of a taxable 
                        year beginning after 2020, the $10,000 amount 
                        in subparagraph (A) shall be increased by an 
                        amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for the calendar year in which 
                                the taxable year begins, determined by 
                                substituting `calendar year 2019' for 
                                `calendar year 1992' in subparagraph 
                                (A)(ii) thereof.
                            ``(ii) Rounding.--If any amount as adjusted 
                        under clause (i) is not a multiple of $500, 
                        such amount shall be rounded to the next lowest 
                        multiple of $500.
            ``(3) Rollovers from retirement plans not allowed.--Under 
        regulations prescribed by the Secretary, a person may make a 
        rollover contribution to a small business start-up savings 
        account only in the case of a rollover from another small 
        business start-up savings account.
            ``(4) Treated as deduction for individuals and 
        corporations.--For purposes of chapter 1, the deduction allowed 
        under paragraph (1) shall be treated as a deduction specified 
        in part VI of subchapter B of chapter 1 (relating to itemized 
        deductions for individuals and corporations).
    ``(e) Treatment of Distributions.--
            ``(1) Tax treatment.--
                    ``(A) Exclusion of qualified distributions.--Any 
                qualified distribution from a small business start-up 
                savings account shall not be includible in gross 
                income.
                    ``(B) Inclusion of other distributions.--Any 
                distribution from a small business start-up savings 
                account which is not a qualified distribution shall be 
                included in gross income.
            ``(2) Qualified distribution.--For purposes of this 
        subsection, the term `qualified distribution' means, with 
        respect to any taxable year, any payment or distribution from a 
        small business start-up savings account--
                    ``(A) to the extent the amount of such payment or 
                distribution does not exceed the sum of--
                            ``(i) the aggregate amounts paid or 
                        incurred by the taxpayer for such taxable year 
                        with respect to the taxpayer's trade or 
                        business for the purchase of equipment or 
                        facilities, marketing, training, incorporation, 
                        and accounting fees, and
                            ``(ii) the aggregate capital contributions 
                        of the taxpayer with respect to an eligible 
                        small business for the taxable year (but only 
                        to the extent such amounts are used by such 
                        small business for purposes described in clause 
                        (i)), and
                    ``(B) which, in the case of a payment or 
                distribution subsequent to the first payment or 
                distribution from such account (or any predecessor to 
                such account)--
                            ``(i) is made not later than the close of 
                        the 5th taxable year beginning after the date 
                        of such first payment or distribution, and
                            ``(ii) is made with respect to the same 
                        eligible small business with respect to which 
                        such first payment or distribution was made.
            ``(3) Treatment after death of account beneficiary.--
                    ``(A) In general.--If, by reason of the death of 
                the account beneficiary, any person acquires the 
                account beneficiary's interest in a small business 
                start-up savings account--
                            ``(i) such account shall cease to be a 
                        small business start-up savings 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--
                                    ``(I) in the case of a person who 
                                is not the estate of such beneficiary, 
                                in such person's gross income for the 
                                taxable year which includes such date, 
                                or
                                    ``(II) in the case of a person who 
                                is the estate of such beneficiary, in 
                                such beneficiary's gross income for the 
                                last taxable year of such beneficiary.
                    ``(B) Special rules.--
                            ``(i) Reduction of inclusion for predeath 
                        expenses.--The amount includible in gross 
                        income under subparagraph (A) shall be reduced 
                        by the amounts described in paragraph (2) 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) with respect to amounts included in 
                        gross income under subparagraph (A)(ii)(I) by 
                        such person.
            ``(4) Treatment for failure to be treated as eligible small 
        business.--If for any taxable year a taxpayer which holds a 
        small business start-up savings account as an eligible small 
        business ceases to be an eligible small business--
                    ``(A) such account shall cease to be a small 
                business start-up savings account, and
                    ``(B) the balance of such account shall be treated 
                as paid out for such taxable year in a distribution 
                which is not a qualified distribution.
    ``(f) Special Rules.--
            ``(1) Denial of double benefit.--Any deduction or credit 
        otherwise allowed for the taxable year with respect to amounts 
        described in subsection (e)(2)(A) shall be reduced by an amount 
        equal to the qualified distributions attributable to such 
        amounts. The adjusted basis of any property placed in service 
        for the taxable year shall be reduced by the amount of any 
        qualified distributions attributable to such property. For 
        purposes of this paragraph, qualified distributions shall first 
        be treated as attributable to amounts described in subsection 
        (e)(2)(A), then to property placed in service for the taxable 
        year.
            ``(2) Aggregation rule.--For purposes of this section, all 
        persons treated as a single employer under subsection (a) or 
        (b) of section 52, or subsection (m) or (o) of section 414, 
        shall be treated as one person.''.
    (b) Excise Tax on Excess Contributions and Nonqualified 
Distributions.--Subtitle D of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new chapter:

        ``CHAPTER 50A--SMALL BUSINESS START-UP SAVINGS ACCOUNTS

``Sec. 5000D. Tax on excess contributions to small business start-up 
                            savings accounts.
``Sec. 5000E. Tax on nonqualified distributions from small business 
                            start-up savings accounts.
``Sec. 5000F. Cross reference.

``SEC. 5000D. TAX ON EXCESS CONTRIBUTIONS TO SMALL BUSINESS START-UP 
              SAVINGS ACCOUNTS.

    ``(a) In General.--In the case of a small business start-up savings 
account (within the meaning of section 7530) there is imposed for each 
taxable year a tax in an amount equal to 6 percent of the amount of the 
excess contributions to such taxpayer's account (determined as of the 
close of the taxable year).
    ``(b) Limitation.--The amount of tax imposed by subsection (a) 
shall not exceed 6 percent of the value of the account (determined as 
of the close of the taxable year).
    ``(c) Excess Contributions.--For purposes of this section, in the 
case of contributions to all small business start-up savings accounts 
maintained for the benefit of a person, the term `excess contributions' 
means the sum of--
            ``(1) the excess (if any) of--
                    ``(A) the amount contributed to such accounts for 
                the taxable year, over
                    ``(B) the amount allowable as a contribution under 
                section 7530(d)(2)(A) for such taxable year, and
            ``(2) the amount determined under this subsection for the 
        preceding taxable year, reduced by the sum of--
                    ``(A) the distributions out of the accounts for the 
                taxable year, and
                    ``(B) the excess (if any) of--
                            ``(i) the maximum amount allowable as a 
                        contribution under section 7530(d)(2)(A) for 
                        such taxable year, over
                            ``(ii) the amount contributed to such 
                        accounts for such taxable year.

``SEC. 5000E. TAX ON NONQUALIFIED DISTRIBUTIONS FROM SMALL BUSINESS 
              START-UP SAVINGS ACCOUNTS.

    ``(a) In General.--If for any taxable year an amount is paid or 
distributed out of a taxpayer's small business start-up savings 
account, there is imposed for such taxable year a tax in an amount 
equal to 10 percent of the portion of such amount which is includible 
in the gross income of the taxpayer.
    ``(b) Exception for Disability or Death.--Subsection (a) shall not 
apply if the payment or distribution is made after the account 
beneficiary becomes disabled within the meaning of section 72(m)(7) 
(but only if such beneficiary's account was created before becoming so 
disabled) or dies.

``SEC. 5000F. CROSS REFERENCE.

    ``For prohibited transactions, see section 4975.''.
    (c) Prohibited Transactions.--
            (1) In general.--Paragraph (1) of section 4975(e) of such 
        Code is amended by striking ``or'' at the end of subparagraph 
        (F), by striking the period at the end of subparagraph and 
        inserting ``, or'', and by adding at the end the following new 
        subparagraph:
                    ``(H) a small business start-up savings account 
                (within the meaning of section 7530).''.
            (2) Special rule for ceasing to be a small business start-
        up savings account.--Section 4975(c) of such Code (relating to 
        tax on prohibited transactions) is amended by adding at the end 
        the following new paragraph:
            ``(7) Special rule for small business start-up savings 
        account.--An individual for whose benefit a small business 
        start-up savings account (within the meaning of section 7530) 
        is established shall be exempt from the tax imposed by this 
        section with respect to any transaction concerning such account 
        (which would otherwise be taxable under this section) if, with 
        respect to such transaction, the account ceases to be a small 
        business start-up savings account by reason of the application 
        of paragraph (3) or (4) of section 7530(e) to such account.''.
    (d) Deduction Allowed Whether or Not Individual Itemizes.--
Subsection (a) of section 62 of such Code is amended by inserting after 
paragraph (21) the following new paragraph:
            ``(22) Contributions to small business start-up savings 
        accounts.--The deduction allowed by section 7530(d)(1)(A).''.
    (e) Conforming Amendments.--
            (1) The table of chapters for subtitle D of such Code is 
        amended by adding at the end the following new item:

       ``Chapter 50A. Small Business Start-Up Savings Accounts''.

            (2) The table of sections for chapter 77 of such Code is 
        amended by inserting after the item relating to section 7529 
        the following new item:

``Sec. 7530. Small Business Start-Up Savings Accounts.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2019.
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