REPORT TITLE:
Long-Term Care; IRC


DESCRIPTION:
Removes the deduction of long-term care services, insurance, and
premiums from Section 213, Internal Revenue Code.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                            1337        
HOUSE OF REPRESENTATIVES                H.B. NO.           
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO TAXES.


BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  Section 235-2.4, Hawaii Revised Statutes, is
 
 2 amended as follows:
 
 3      "235-2.4  Operation of certain Internal Revenue Code
 
 4 provisions.(a)  Section 63 (with respect to taxable income
 
 5 defined) of the Internal Revenue Code shall be operative for the
 
 6 purposes of this chapter, except that the standard deduction
 
 7 amount in section 63(c) of the Internal Revenue Code shall
 
 8 instead mean:
 
 9      (1)  $1,900 in the case of:
 
10           (A)  A joint return as provided by section 235-93[,];
 
11                or
 
12           (B)  A surviving spouse (as defined in section 2(a) of
 
13                the Internal Revenue Code)[,];
 
14      (2)  $1,650 in the case of a head of household (as defined
 
15           in section 2(b) of the Internal Revenue Code)[,];
 
16      (3)  $1,500 in the case of an individual who is not married
 
17           and who is not a surviving spouse or head of
 
18           household[,]; or
 
19      (4)  $950 in the case of a married individual filing a
 
20           separate return. 
 

 
Page 2                                         1337        
                                     H.B. NO.           
                                                        
                                                        

 
 1 Section 63(c)(4) shall not be operative in this State.  Section
 
 2 63(c)(5) shall be operative, except that the limitation on basic
 
 3 standard deduction in the case of certain dependents shall be the
 
 4 greater of $500 or such individual's earned income.  Section
 
 5 63(f) shall not be operative in this State.
 
 6      (b)  Section 72 (with respect to annuities; certain proceeds
 
 7 of endowment and life insurance contracts) of the Internal
 
 8 Revenue Code shall be operative for purposes of this chapter and
 
 9 be interpreted with due regard to section 235-7(a), except that
 
10 the ten per cent additional tax on early distributions from
 
11 retirement plans in section 72(t) shall not be operative for
 
12 purposes of this chapter.
 
13      (c)  Section 121 (with respect to exclusion of gain from
 
14 sale of principal residence) of the Internal Revenue Code shall
 
15 be operative for purposes of this chapter, except that for the
 
16 election under section 121(f), a reference to section 1034
 
17 treatment means a reference to section [235-2.4(n)] 235-2.4(m) in
 
18 effect for taxable year 1997.
 
19      [(d)  Section 213 (with respect to medical, dental, etc.,
 
20 expenses) of the Internal Revenue Code shall be operative, except
 
21 that subsections (d)(1)(C) with respect to long-term care
 
22 services, (d)(1)(D) as it applies to long-term care insurance
 
23 contract premiums, (d)(7) as it applies to long-term care
 

 
Page 3                                         1337        
                                     H.B. NO.           
                                                        
                                                        

 
 1 insurance contract premiums, and (d)(10) as it applies to
 
 2 eligible long-term care premiums shall not be operative in this
 
 3 State.
 
 4      (e)](d)  Section 219 (with respect to retirement savings) of
 
 5 the Internal Revenue Code shall be operative for the purpose of
 
 6 this chapter.  For the purpose of computing the limitation on the
 
 7 deduction for active participants in certain pension plans for
 
 8 state income tax purposes, adjusted gross income as used in
 
 9 section 219 as operative for this chapter means federal adjusted
 
10 gross income.
 
11      [(f)](e)  Section 220 (with respect to medical savings
 
12 accounts) of the Internal Revenue Code shall be operative for the
 
13 purpose of this chapter, but only with respect to medical
 
14 services accounts that have been approved by the secretary of the
 
15 Treasury of the United States.
 
16      [(g)](f)  In administering the provisions of sections 410 to
 
17 417 (with respect to special rules relating to pensions, profit
 
18 sharing, stock bonus plans, etc.), sections 418 to 418E (with
 
19 respect to special rules for multiemployer plans), and sections
 
20 419 and 419A (with respect to treatment of welfare benefit funds)
 
21 of the Internal Revenue Code, the department of taxation shall
 
22 adopt rules under chapter 91 relating to the specific
 
23 requirements under such sections and to such other administrative
 

 
Page 4                                         1337        
                                     H.B. NO.           
                                                        
                                                        

 
 1 requirements under those sections as may be necessary for the
 
 2 efficient administration of sections 410 to 419A.
 
 3      In administering sections 401 to 419A (with respect to
 
 4 deferred compensation) of the Internal Revenue Code, Public Law
 
 5 93-406, section 1017(i), shall be operative for the purposes of
 
 6 this chapter.
 
 7      In administering section 402 (with respect to the taxability
 
 8 of beneficiary of employees' trust) of the Internal Revenue Code,
 
 9 the tax imposed on lump sum distributions by section 402(e) of
 
10 the Internal Revenue Code shall be operative for the purposes of
 
11 this chapter and the tax imposed therein is hereby imposed by
 
12 this chapter at the rate determined under this chapter.
 
13      [(h)](g)  Section 468B (with respect to special rules for
 
14 designated settlement funds) of the Internal Revenue Code shall
 
15 be operative for the purposes of this chapter and the tax imposed
 
16 therein is hereby imposed by this chapter at a rate equal to the
 
17 maximum rate in effect for the taxable year imposed on estates
 
18 and trusts under section 235-51.
 
19      [(i)](h)  Section 469 (with respect to passive activities
 
20 and credits limited) of the Internal Revenue Code shall be
 
21 operative for the purposes of this chapter.  For the purpose of
 
22 computing the offset for rental real estate activities for state
 
23 income tax purposes, adjusted gross income as used in section 469
 

 
Page 5                                         1337        
                                     H.B. NO.           
                                                        
                                                        

 
 1 as operative for this chapter means federal adjusted gross
 
 2 income.
 
 3      [(j)](i)  Sections 512 to 514 (with respect to taxation of
 
 4 business income of certain exempt organizations) of the Internal
 
 5 Revenue Code shall be operative for the purposes of this chapter
 
 6 as provided in this subsection.
 
 7      "Unrelated business taxable income" means the same as in the
 
 8 Internal Revenue Code, except that in the computation thereof
 
 9 sections 235-3 to 235-5, and 235-7 (except subsection (c)), shall
 
10 apply, and in the determination of the net operating loss
 
11 deduction there shall not be taken into account any amount of
 
12 income or deduction which is excluded in computing the unrelated
 
13 business taxable income.  Unrelated business taxable income shall
 
14 not include any income from a prepaid legal service plan.
 
15      For a person described in section 401 or 501 of the Internal
 
16 Revenue Code, as modified by section 235-2.3, the tax imposed by
 
17 section 235-51 or 235-71 shall be imposed upon the person's
 
18 unrelated business taxable income.
 
19      [(k)](j)  Section 521 (with respect to cooperatives) and
 
20 subchapter T (sections 1381 to 1388, with respect to cooperatives
 
21 and their patrons) of the Internal Revenue Code shall be
 
22 operative for the purposes of this chapter as to any cooperative
 
23 fully meeting the requirements of section 421-23, except that
 

 
Page 6                                         1337        
                                     H.B. NO.           
                                                        
                                                        

 
 1 Internal Revenue Code section 521 cooperatives need not be
 
 2 organized in Hawaii.
 
 3      [(l)](k)  Sections 527 (with respect to political
 
 4 organizations) and 528 (with respect to certain homeowners
 
 5 associations) of the Internal Revenue Code shall be operative for
 
 6 the purposes of this chapter and the taxes imposed in each such
 
 7 section are hereby imposed by this chapter at the rates
 
 8 determined under section 235-71.
 
 9      [(m)](l)  Section 641 (with respect to imposition of tax) of
 
10 the Internal Revenue Code shall be operative for the purposes of
 
11 this chapter subject to the following:
 
12      (1)  The deduction for exemptions shall be allowed as
 
13           provided in section 235-54(b)[.];
 
14      (2)  The deduction for contributions and gifts in
 
15           determining taxable income shall be limited to the
 
16           amount allowed in the case of an individual, unless the
 
17           contributions and gifts are to be used exclusively in
 
18           the State[.]; and
 
19      (3)  The tax imposed by section 1(e) of the Internal Revenue
 
20           Code as applied by section 641 of the Internal Revenue
 
21           Code is hereby imposed by this chapter at the rate and
 
22           amount as determined under section 235-51 on estates
 
23           and trusts.
 

 
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                                     H.B. NO.           
                                                        
                                                        

 
 1      [(n)](m)  Section 644 (with respect to special rule for gain
 
 2 on property transferred to trust at less than fair market value)
 
 3 of the Internal Revenue Code shall be operative for the purposes
 
 4 of this chapter and the tax imposed therein is hereby imposed by
 
 5 this chapter at the rate determined under this chapter[;], except
 
 6 that the determination of the interest rate established under
 
 7 section 6621 of the Internal Revenue Code referred to in section
 
 8 644(a)(2) of the Internal Revenue Code shall instead be the
 
 9 interest rate established under section 231-39(b)(4).
 
10      [(o)](n)  Section 667 (with respect to treatment of amounts
 
11 deemed distributed by trusts in preceding years) of the Internal
 
12 Revenue Code shall be operative for the purposes of this chapter
 
13 and the tax imposed therein is hereby imposed by this chapter at
 
14 the rate determined under this chapter[;], except that the
 
15 reference to tax-exempt interest to which section 103 of the
 
16 Internal Revenue Code applies in section 667(a) of the Internal
 
17 Revenue Code shall instead be a reference to tax-exempt interest
 
18 to which section 235-7(b) applies.
 
19      [(p)](o)  Section 685 (with respect to treatment of
 
20 qualified funeral trusts) of the Internal Revenue Code shall be
 
21 operative for purposes of this chapter, except that the tax
 
22 imposed under this chapter shall be computed at the tax rates
 
23 provided under section 235-51, and no deduction for the exemption
 

 
Page 8                                         1337        
                                     H.B. NO.           
                                                        
                                                        

 
 1 amount provided in section 235-54(b) shall be allowed.  The cost-
 
 2 of-living adjustment determined under section 1(f)(3) of the
 
 3 Internal Revenue Code shall be operative for the purpose of
 
 4 applying section 685(c)(3) under this chapter.
 
 5      [(q)](p)  Section 1212 (with respect to capital loss
 
 6 carrybacks and carryforwards) of the Internal Revenue Code shall
 
 7 be operative for the purposes of this chapter[;], except that for
 
 8 the purposes of this chapter, the capital loss carryback
 
 9 provisions of section 1212 shall not be operative and the capital
 
10 loss carryforward allowed by section 1212(a) shall be limited to
 
11 five years.
 
12      [(r)](q)  Subchapter S (sections 1361 to 1379) (with respect
 
13 to tax treatment of S corporations and their shareholders) of
 
14 chapter 1 of the Internal Revenue Code shall be operative for the
 
15 purposes of this chapter as provided in part VII.
 
16      [(s)](r)  Subchapter C (sections 6221 to 6233) (with respect
 
17 to tax treatment of partnership items) of chapter 63 of the
 
18 Internal Revenue Code shall be operative for the purposes of this
 
19 chapter.
 
20      [(t)](s)  Subchapter D (sections 6240 to 6255) (with respect
 
21 to simplified audit procedures for electing large partnerships)
 
22 of the Internal Revenue Code shall be operative for the purposes
 
23 of this chapter, with due regard to chapter 232 relating to tax
 
24 appeals.
 

 
Page 9                                         1337        
                                     H.B. NO.           
                                                        
                                                        

 
 1      [(u)](t)  Section 7518 (with respect to capital construction
 
 2 fund for commercial fishers) of the Internal Revenue Code shall
 
 3 be operative for the purposes of this chapter.  Qualified
 
 4 withdrawals for the acquisition, construction, or reconstruction
 
 5 of any qualified asset which is attributable to deposits made
 
 6 before the effective date of this section shall not reduce the
 
 7 basis of the asset when withdrawn.  Qualified withdrawals shall
 
 8 be treated on a first-in-first-out basis."
 
 9      SECTION 2.  Statutory material to be repealed is bracketed.
 
10 New statutory material is underscored.
 
11      SECTION 3.  This Act shall take effect on July 1, 1999.
 
12 
 
13                           INTRODUCED BY:  _______________________