TITLE 26 - US CODE - PART VII - ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS

26 USC 211 - Allowance of deductions

In computing taxable income under section 63, there shall be allowed as deductions the items specified in this part, subject to the exceptions provided in part IX (section 261 and following, relating to items not deductible).

26 USC 212 - Expenses for production of income

In the case of an individual, there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year
(1) for the production or collection of income;
(2) for the management, conservation, or maintenance of property held for the production of income; or
(3) in connection with the determination, collection, or refund of any tax.

26 USC 213 - Medical, dental, etc., expenses

(a) Allowance of deduction 
There shall be allowed as a deduction the expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, his spouse, or a dependent (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), to the extent that such expenses exceed 7.5 percent of adjusted gross income.
(b) Limitation with respect to medicine and drugs 
An amount paid during the taxable year for medicine or a drug shall be taken into account under subsection (a) only if such medicine or drug is a prescribed drug or is insulin.
(c) Special rule for decedents 

(1) Treatment of expenses paid after death 
For purposes of subsection (a), expenses for the medical care of the taxpayer which are paid out of his estate during the 1-year period beginning with the day after the date of his death shall be treated as paid by the taxpayer at the time incurred.
(2) Limitation 
Paragraph (1) shall not apply if the amount paid is allowable under section 2053 as a deduction in computing the taxable estate of the decedent, but this paragraph shall not apply if (within the time and in the manner and form prescribed by the Secretary) there is filed
(A) a statement that such amount has not been allowed as a deduction under section 2053, and
(B) a waiver of the right to have such amount allowed at any time as a deduction under section 2053.
(d) Definitions 
For purposes of this section
(1) The term medical care means amounts paid
(A) for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body,
(B) for transportation primarily for and essential to medical care referred to in subparagraph (A),
(C) for qualified long-term care services (as defined in section 7702B (c)), or
(D) for insurance (including amounts paid as premiums under part B of title XVIII of the Social Security Act, relating to supplementary medical insurance for the aged) covering medical care referred to in subparagraphs (A) and (B) or for any qualified long-term care insurance contract (as defined in section 7702B (b)).

In the case of a qualified long-term care insurance contract (as defined in section 7702B (b)), only eligible long-term care premiums (as defined in paragraph (10)) shall be taken into account under subparagraph (D).

(2) Amounts paid for certain lodging away from home treated as paid for medical care.— 
Amounts paid for lodging (not lavish or extravagant under the circumstances) while away from home primarily for and essential to medical care referred to in paragraph (1)(A) shall be treated as amounts paid for medical care if
(A) the medical care referred to in paragraph (1)(A) is provided by a physician in a licensed hospital (or in a medical care facility which is related to, or the equivalent of, a licensed hospital), and
(B) there is no significant element of personal pleasure, recreation, or vacation in the travel away from home.

The amount taken into account under the preceding sentence shall not exceed $50 for each night for each individual.

(3) Prescribed drug.— 
The term prescribed drug means a drug or biological which requires a prescription of a physician for its use by an individual.
(4) Physician.— 
The term physician has the meaning given to such term by section 1861(r) of the Social Security Act (42 U.S.C. 1395x (r)).
(5) Special rule in the case of child of divorced parents, etc.— 
Any child to whom section 152 (e) applies shall be treated as a dependent of both parents for purposes of this section.
(6) In the case of an insurance contract under which amounts are payable for other than medical care referred to in subparagraphs (A), (B), and (C) of paragraph (1)
(A) no amount shall be treated as paid for insurance to which paragraph (1)(D) applies unless the charge for such insurance is either separately stated in the contract, or furnished to the policyholder by the insurance company in a separate statement,
(B) the amount taken into account as the amount paid for such insurance shall not exceed such charge, and
(C) no amount shall be treated as paid for such insurance if the amount specified in the contract (or furnished to the policyholder by the insurance company in a separate statement) as the charge for such insurance is unreasonably large in relation to the total charges under the contract.
(7) Subject to the limitations of paragraph (6), premiums paid during the taxable year by a taxpayer before he attains the age of 65 for insurance covering medical care (within the meaning of subparagraphs (A), (B), and (C) of paragraph (1)) for the taxpayer, his spouse, or a dependent after the taxpayer attains the age of 65 shall be treated as expenses paid during the taxable year for insurance which constitutes medical care if premiums for such insurance are payable (on a level payment basis) under the contract for a period of 10 years or more or until the year in which the taxpayer attains the age of 65 (but in no case for a period of less than 5 years).
(8) The determination of whether an individual is married at any time during the taxable year shall be made in accordance with the provisions of section 6013 (d) (relating to determination of status as husband and wife).
(9) Cosmetic surgery.— 

(A) In general.— 
The term medical care does not include cosmetic surgery or other similar procedures, unless the surgery or procedure is necessary to ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or disfiguring disease.
(B) Cosmetic surgery defined.— 
For purposes of this paragraph, the term cosmetic surgery means any procedure which is directed at improving the patients appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease.
(10) Eligible long-term care premiums.— 

(A) In general.— 
For purposes of this section, the term eligible long-term care premiums means the amount paid during a taxable year for any qualified long-term care insurance contract (as defined in section 7702B (b)) covering an individual, to the extent such amount does not exceed the limitation determined under the following table: In the case of an individual with an attained age before the The limitation close of the taxable year of: is: 40 or less $200 More than 40 but not more than 50 375 More than 50 but not more than 60 750 More than 60 but not more than 70 2,000 More than 70 2,500.
(B) Indexing.— 

(i) In general.— 
In the case of any taxable year beginning in a calendar year after 1997, each dollar amount contained in subparagraph (A) shall be increased by the medical care cost adjustment of such amount for such calendar year. If any increase determined under the preceding sentence is not a multiple of $10, such increase shall be rounded to the nearest multiple of $10.
(ii) Medical care cost adjustment.— 
For purposes of clause (i), the medical care cost adjustment for any calendar year is the percentage (if any) by which
(I) the medical care component of the Consumer Price Index (as defined in section 1 (f)(5)) for August of the preceding calendar year, exceeds
(II) such component for August of 1996. The Secretary shall, in consultation with the Secretary of Health and Human Services, prescribe an adjustment which the Secretary determines is more appropriate for purposes of this paragraph than the adjustment described in the preceding sentence, and the adjustment so prescribed shall apply in lieu of the adjustment described in the preceding sentence.
(11) Certain payments to relatives treated as not paid for medical care.— 
An amount paid for a qualified long-term care service (as defined in section 7702B (c)) provided to an individual shall be treated as not paid for medical care if such service is provided
(A) by the spouse of the individual or by a relative (directly or through a partnership, corporation, or other entity) unless the service is provided by a licensed professional with respect to such service, or
(B) by a corporation or partnership which is related (within the meaning of section 267 (b) or 707 (b)) to the individual.

For purposes of this paragraph, the term relative means an individual bearing a relationship to the individual which is described in any of subparagraphs (A) through (G) of section 152 (d)(2). This paragraph shall not apply for purposes of section 105 (b) with respect to reimbursements through insurance.

(e) Exclusion of amounts allowed for care of certain dependents 
Any expense allowed as a credit under section 21 shall not be treated as an expense paid for medical care.

26 USC 214 - Repealed. Pub. L. 94455, title V, 504(b)(1), Oct. 4, 1976, 90 Stat. 1565]

Section, acts Aug. 16, 1954, ch. 736, 68A Stat. 70; Apr. 2, 1963, Pub. L. 88–4, § 1, 77 Stat. 4; Feb. 26, 1964, Pub. L. 88–272, title II, § 212(a), 78 Stat. 49; Dec. 10, 1971, Pub. L. 92–178, title II, § 210(a), 85 Stat. 518; Mar. 29, 1975, Pub. L. 94–12, title II, § 206, 89 Stat. 32, provided for allowance of deduction for household and dependent care services necessary for gainful employment; defined qualifying individual, employment-related expenses, maintaining a household; limitation on deductible amount; income limitation; and special rules and regulations applicable in the determination and allowance of deduction.

26 USC 215 - Alimony, etc., payments

(a) General rule 
In the case of an individual, there shall be allowed as a deduction an amount equal to the alimony or separate maintenance payments paid during such individuals taxable year.
(b) Alimony or separate maintenance payments defined 
For purposes of this section, the term alimony or separate maintenance payment means any alimony or separate maintenance payment (as defined in section 71 (b)) which is includible in the gross income of the recipient under section 71.
(c) Requirement of identification number 
The Secretary may prescribe regulations under which
(1) any individual receiving alimony or separate maintenance payments is required to furnish such individuals taxpayer identification number to the individual making such payments, and
(2) the individual making such payments is required to include such taxpayer identification number on such individuals return for the taxable year in which such payments are made.
(d) Coordination with section 682 
No deduction shall be allowed under this section with respect to any payment if, by reason of section 682 (relating to income of alimony trusts), the amount thereof is not includible in such individuals gross income.

26 USC 216 - Deduction of taxes, interest, and business depreciation by cooperative housing corporation tenant-stockholder

(a) Allowance of deduction 
In the case of a tenant-stockholder (as defined in subsection (b)(2)), there shall be allowed as a deduction amounts (not otherwise deductible) paid or accrued to a cooperative housing corporation within the taxable year, but only to the extent that such amounts represent the tenant-stockholders proportionate share of
(1) the real estate taxes allowable as a deduction to the corporation under section 164 which are paid or incurred by the corporation on the houses or apartment building and on the land on which such houses (or building) are situated, or
(2) the interest allowable as a deduction to the corporation under section 163 which is paid or incurred by the corporation on its indebtedness contracted
(A) in the acquisition, construction, alteration, rehabilitation, or maintenance of the houses or apartment building, or
(B) in the acquisition of the land on which the houses (or apartment building) are situated.
(b) Definitions 
For purposes of this section
(1) Cooperative housing corporation 
The term cooperative housing corporation means a corporation
(A) having one and only one class of stock outstanding,
(B) each of the stockholders of which is entitled, solely by reason of his ownership of stock in the corporation, to occupy for dwelling purposes a house, or an apartment in a building, owned or leased by such corporation,
(C) no stockholder of which is entitled (either conditionally or unconditionally) to receive any distribution not out of earnings and profits of the corporation except on a complete or partial liquidation of the corporation, and
(D) meeting 1 or more of the following requirements for the taxable year in which the taxes and interest described in subsection (a) are paid or incurred:
(i) 80 percent or more of the corporations gross income for such taxable year is derived from tenant-stockholders.
(ii) At all times during such taxable year, 80 percent or more of the total square footage of the corporations property is used or available for use by the tenant-stockholders for residential purposes or purposes ancillary to such residential use.
(iii) 90 percent or more of the expenditures of the corporation paid or incurred during such taxable year are paid or incurred for the acquisition, construction, management, maintenance, or care of the corporations property for the benefit of the tenant-stockholders.
(2) Tenant-stockholder 
The term tenant-stockholder means a person who is a stockholder in a cooperative housing corporation, and whose stock is fully paid-up in an amount not less than an amount shown to the satisfaction of the Secretary as bearing a reasonable relationship to the portion of the value of the corporations equity in the houses or apartment building and the land on which situated which is attributable to the house or apartment which such person is entitled to occupy.
(3) Tenant-stockholder’s proportionate share 

(A) In general 
Except as provided in subparagraph (B), the term tenant-stockholders proportionate share means that proportion which the stock of the cooperative housing corporation owned by the tenant-stockholder is of the total outstanding stock of the corporation (including any stock held by the corporation).
(B) Special rule where allocation of taxes or interest reflect cost to corporation of stockholder’s unit 

(i) In general If, for any taxable year
(I) each dwelling unit owned or leased by a cooperative housing corporation is separately allocated a share of such corporations real estate taxes described in subsection (a)(1) or a share of such corporations interest described in subsection (a)(2), and
(II) such allocations reasonably reflect the cost to such corporation of such taxes, or of such interest, attributable to the tenant-stockholders dwelling unit (and such units share of the common areas),

then the term tenant-stockholders proportionate share means the shares determined in accordance with the allocations described in subclause (II).

(ii) Election by corporation required Clause (i) shall apply with respect to any cooperative housing corporation only if such corporation elects its application. Such an election, once made, may be revoked only with the consent of the Secretary.
(4) Stock owned by governmental units 
For purposes of this subsection, in determining whether a corporation is a cooperative housing corporation, stock owned and apartments leased by the United States or any of its possessions, a State or any political subdivision thereof, or any agency or instrumentality of the foregoing empowered to acquire shares in a cooperative housing corporation for the purpose of providing housing facilities, shall not be taken into account.
(5) Prior approval of occupancy 
For purposes of this section, in the following cases there shall not be taken into account the fact that (by agreement with the cooperative housing corporation) the person or his nominee may not occupy the house or apartment without the prior approval of such corporation:
(A) In any case where a person acquires stock of a cooperative housing corporation by operation of law.
(B) In any case where a person other than an individual acquires stock of a cooperative housing corporation.
(C) In any case where the original seller acquires any stock of the cooperative housing corporation from the corporation not later than 1 year after the date on which the apartments or houses (or leaseholds therein) are transferred by the original seller to the corporation.
(6) Original seller defined 
For purposes of paragraph (5), the term original seller means the person from whom the corporation has acquired the apartments or houses (or leaseholds therein).
(c) Treatment as property subject to depreciation 

(1) In general 
So much of the stock of a tenant-stockholder in a cooperative housing corporation as is allocable, under regulations prescribed by the Secretary, to a proprietary lease or right of tenancy in property subject to the allowance for depreciation under section 167 (a) shall, to the extent such proprietary lease or right of tenancy is used by such tenant-stockholder in a trade or business or for the production of income, be treated as property subject to the allowance for depreciation under section 167 (a). The preceding sentence shall not be construed to limit or deny a deduction for depreciation under section 167 (a) by a cooperative housing corporation with respect to property owned by such a corporation and leased to tenant-stockholders.
(2) Deduction limited to adjusted basis in stock 

(A) In general 
The amount of any deduction for depreciation allowable under section 167 (a) to a tenant-stockholder with respect to any stock for any taxable year by reason of paragraph (1) shall not exceed the adjusted basis of such stock as of the close of the taxable year of the tenant-stockholder in which such deduction was incurred.
(B) Carryforward of disallowed amount 
The amount of any deduction which is not allowed by reason of subparagraph (A) shall, subject to the provisions of subparagraph (A), be treated as a deduction allowable under section 167 (a) in the succeeding taxable year.
(d) Disallowance of deduction for certain payments to the corporation 
No deduction shall be allowed to a stockholder in a cooperative housing corporation for any amount paid or accrued to such corporation during any taxable year (in excess of the stockholders proportionate share of the items described in subsections (a)(1) and (a)(2)) to the extent that, under regulations prescribed by the Secretary, such amount is properly allocable to amounts paid or incurred at any time by the corporation which are chargeable to the corporations capital account. The stockholders adjusted basis in the stock in the corporation shall be increased by the amount of such disallowance.
(e) Distributions by cooperative housing corporations 
Except as provided in regulations no gain or loss shall be recognized on the distribution by a cooperative housing corporation of a dwelling unit to a stockholder in such corporation if such distribution is in exchange for the stockholders stock in such corporation and such dwelling unit is used as his principal residence (within the meaning of section 121).

26 USC 217 - Moving expenses

(a) Deduction allowed 
There shall be allowed as a deduction moving expenses paid or incurred during the taxable year in connection with the commencement of work by the taxpayer as an employee or as a self-employed individual at a new principal place of work.
(b) Definition of moving expenses 

(1) In general 
For purposes of this section, the term moving expenses means only the reasonable expenses
(A) of moving household goods and personal effects from the former residence to the new residence, and
(B) of traveling (including lodging) from the former residence to the new place of residence.

Such term shall not include any expenses for meals.

(2) Individuals other than taxpayer 
In the case of any individual other than the taxpayer, expenses referred to in paragraph (1) shall be taken into account only if such individual has both the former residence and the new residence as his principal place of abode and is a member of the taxpayers household.
(c) Conditions for allowance 
No deduction shall be allowed under this section unless
(1) the taxpayers new principal place of work
(A) is at least 50 miles farther from his former residence than was his former principal place of work, or
(B) if he had no former principal place of work, is at least 50 miles from his former residence, and
(2) either
(A) during the 12-month period immediately following his arrival in the general location of his new principal place of work, the taxpayer is a full-time employee, in such general location, during at least 39 weeks, or
(B) during the 24-month period immediately following his arrival in the general location of his new principal place of work, the taxpayer is a full-time employee or performs services as a self-employed individual on a full-time basis, in such general location, during at least 78 weeks, of which not less than 39 weeks are during the 12-month period referred to in subparagraph (A).

For purposes of paragraph (1), the distance between two points shall be the shortest of the more commonly traveled routes between such two points.

(d) Rules for application of subsection (c)(2) 

(1) The condition of subsection (c)(2) shall not apply if the taxpayer is unable to satisfy such condition by reason of
(A) death or disability, or
(B) involuntary separation (other than for willful misconduct) from the service of, or transfer for the benefit of, an employer after obtaining full-time employment in which the taxpayer could reasonably have been expected to satisfy such condition.
(2) If a taxpayer has not satisfied the condition of subsection (c)(2) before the time prescribed by law (including extensions thereof) for filing the return for the taxable year during which he paid or incurred moving expenses which would otherwise be deductible under this section, but may still satisfy such condition, then such expenses may (at the election of the taxpayer) be deducted for such taxable year notwithstanding subsection (c)(2).
(3) If
(A) for any taxable year moving expenses have been deducted in accordance with the rule provided in paragraph (2), and
(B) the condition of subsection (c)(2) cannot be satisfied at the close of a subsequent taxable year,

then an amount equal to the expenses which were so deducted shall be included in gross income for the first such subsequent taxable year.

[(e) Repealed. Pub. L. 103–66, title XIII, § 13213(a)(2)(A), Aug. 10, 1993, 107 Stat. 473] 
(f) Self-employed individual 
For purposes of this section, the term self-employed individual means an individual who performs personal services
(1) as the owner of the entire interest in an unincorporated trade or business, or
(2) as a partner in a partnership carrying on a trade or business.
(g) Rules for members of the Armed Forces of the United States 
In the case of a member of the Armed Forces of the United States on active duty who moves pursuant to a military order and incident to a permanent change of station
(1) the limitations under subsection (c) shall not apply;
(2) any moving and storage expenses which are furnished in kind (or for which reimbursement or an allowance is provided, but only to the extent of the expenses paid or incurred) to such member, his spouse, or his dependents, shall not be includible in gross income, and no reporting with respect to such expenses shall be required by the Secretary of Defense or the Secretary of Transportation, as the case may be; and
(3) if moving and storage expenses are furnished in kind (or if reimbursement or an allowance for such expenses is provided) to such members spouse and his dependents with regard to moving to a location other than the one to which such member moves (or from a location other than the one from which such member moves), this section shall apply with respect to the moving expenses of his spouse and dependents
(A) as if his spouse commenced work as an employee at a new principal place of work at such location; and
(B) without regard to the limitations under subsection (c).
(h) Special rules for foreign moves 

(1) Allowance of certain storage fees 
In the case of a foreign move, for purposes of this section, the moving expenses described in subsection (b)(1)(A) include the reasonable expenses
(A) of moving household goods and personal effects to and from storage, and
(B) of storing such goods and effects for part or all of the period during which the new place of work continues to be the taxpayers principal place of work.
(2) Foreign move 
For purposes of this subsection, the term foreign move means the commencement of work by the taxpayer at a new principal place of work located outside the United States.
(3) United States defined 
For purposes of this subsection and subsection (i), the term United States includes the possessions of the United States.
(i) Allowance of deductions in case of retirees or decedents who were working abroad 

(1) In general 
In the case of any qualified retiree moving expenses or qualified survivor moving expenses
(A) this section (other than subsection (h)) shall be applied with respect to such expenses as if they were incurred in connection with the commencement of work by the taxpayer as an employee at a new principal place of work located within the United States, and
(B) the limitations of subsection (c)(2) shall not apply.
(2) Qualified retiree moving expenses 
For purposes of paragraph (1), the term qualified retiree moving expenses means any moving expenses
(A) which are incurred by an individual whose former principal place of work and former residence were outside the United States, and
(B) which are incurred for a move to a new residence in the United States in connection with the bona fide retirement of the individual.
(3) Qualified survivor moving expenses 
For purposes of paragraph (1), the term qualified survivor moving expenses means moving expenses
(A) which are paid or incurred by the spouse or any dependent of any decedent who (as of the time of his death) had a principal place of work outside the United States, and
(B) which are incurred for a move which begins within 6 months after the death of such decedent and which is to a residence in the United States from a former residence outside the United States which (as of the time of the decedents death) was the residence of such decedent and the individual paying or incurring the expense.
(j) Regulations 
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section.

26 USC 218 - Repealed. Pub. L. 95600, title I, 113(a)(1), Nov. 6, 1978, 92 Stat. 2778]

Section, added Pub. L. 92–178, title VII, § 702(a), Dec. 10, 1971, 85 Stat. 561; amended Pub. L. 93–625, §§ 11(d), 12 (b), Jan. 3, 1975, 88 Stat. 2120; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834, related to contributions to candidates for public office. A prior section 218 was renumbered section 224 of this title.

26 USC 219 - Retirement savings

(a) Allowance of deduction 
In the case of an individual, there shall be allowed as a deduction an amount equal to the qualified retirement contributions of the individual for the taxable year.
(b) Maximum amount of deduction 

(1) In general 
The amount allowable as a deduction under subsection (a) to any individual for any taxable year shall not exceed the lesser of
(A) the deductible amount, or
(B) an amount equal to the compensation includible in the individuals gross income for such taxable year.
(2) Special rule for employer contributions under simplified employee pensions 
This section shall not apply with respect to an employer contribution to a simplified employee pension.
(3) Plans under section 501 (c)(18) 
Notwithstanding paragraph (1), the amount allowable as a deduction under subsection (a) with respect to any contributions on behalf of an employee to a plan described in section 501 (c)(18) shall not exceed the lesser of
(A) $7,000, or
(B) an amount equal to 25 percent of the compensation (as defined in section 415 (c)(3)) includible in the individuals gross income for such taxable year.
(4) Special rule for simple retirement accounts 
This section shall not apply with respect to any amount contributed to a simple retirement account established under section 408 (p).
(5) Deductible amount 
For purposes of paragraph (1)(A)
(A) In general 
The deductible amount shall be determined in accordance with the following table: For taxable years The deductible beginning in: amount is: 2002 through 2004 $3,000 2005 through 2007 $4,000 2008 and thereafter $5,000.
(B) Catch-up contributions for individuals 50 or older 

(i) In general In the case of an individual who has attained the age of 50 before the close of the taxable year, the deductible amount for such taxable year shall be increased by the applicable amount.
(ii) Applicable amount For purposes of clause (i), the applicable amount shall be the amount determined in accordance with the following table: For taxable years The applicable beginning in: amount is: 2002 through 2005 $500 2006 and thereafter $1,000.
(C) Catchup contributions for certain individuals 

(i) In general In the case of an applicable individual who elects to make a qualified retirement contribution in addition to the deductible amount determined under subparagraph (A)
(I) the deductible amount for any taxable year shall be increased by an amount equal to 3 times the applicable amount determined under subparagraph (B) for such taxable year, and
(II) subparagraph (B) shall not apply.
(ii) Applicable individual For purposes of this subparagraph, the term applicable individual means, with respect to any taxable year, any individual who was a qualified participant in a qualified cash or deferred arrangement (as defined in section 401(k)) of an employer described in clause (iii) under which the employer matched at least 50 percent of the employees contributions to such arrangement with stock of such employer.
(iii) Employer described An employer is described in this clause if, in any taxable year preceding the taxable year described in clause (ii)
(I) such employer (or any controlling corporation of such employer) was a debtor in a case under title 11 of the United States Code, or similar Federal or State law, and
(II) such employer (or any other person) was subject to an indictment or conviction resulting from business transactions related to such case.
(iv) Qualified participant For purposes of clause (ii), the term qualified participant means any applicable individual who was a participant in the cash or deferred arrangement described in such clause on the date that is 6 months before the filing of the case described in clause (iii).
(v) Termination This subparagraph shall not apply to taxable years beginning after December 31, 2009.
(D) Cost-of-living adjustment 

(i) In general In the case of any taxable year beginning in a calendar year after 2008, the $5,000 amount under 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 2007 for calendar year 1992 in subparagraph (B) thereof.
(ii) Rounding rules If any amount after adjustment under clause (i) is not a multiple of $500, such amount shall be rounded to the next lower multiple of $500.
(c) Special rules for certain married individuals 

(1) In general 
In the case of an individual to whom this paragraph applies for the taxable year, the limitation of paragraph (1) of subsection (b) shall be equal to the lesser of
(A) the dollar amount in effect under subsection (b)(1)(A) for the taxable year, or
(B) the sum of
(i) the compensation includible in such individuals gross income for the taxable year, plus
(ii) the compensation includible in the gross income of such individuals spouse for the taxable year reduced by
(I) the amount allowed as a deduction under subsection (a) to such spouse for such taxable year,
(II) the amount of any designated nondeductible contribution (as defined in section 408 (o)) on behalf of such spouse for such taxable year, and
(III) the amount of any contribution on behalf of such spouse to a Roth IRA under section 408A for such taxable year.
(2) Individuals to whom paragraph (1) applies 
Paragraph (1) shall apply to any individual if
(A) such individual files a joint return for the taxable year, and
(B) the amount of compensation (if any) includible in such individuals gross income for the taxable year is less than the compensation includible in the gross income of such individuals spouse for the taxable year.
(d) Other limitations and restrictions 

(1) Beneficiary must be under age 701/2 
No deduction shall be allowed under this section with respect to any qualified retirement contribution for the benefit of an individual if such individual has attained age 701/2 before the close of such individuals taxable year for which the contribution was made.
(2) Recontributed amounts 
No deduction shall be allowed under this section with respect to a rollover contribution described in section 402 (c), 403 (a)(4), 403 (b)(8), 408 (d)(3), or 457 (e)(16).
(3) Amounts contributed under endowment contract 
In the case of an endowment contract described in section 408 (b), no deduction shall be allowed under this section for that portion of the amounts paid under the contract for the taxable year which is properly allocable, under regulations prescribed by the Secretary, to the cost of life insurance.
(4) Denial of deduction for amount contributed to inherited annuities or accounts 
No deduction shall be allowed under this section with respect to any amount paid to an inherited individual retirement account or individual retirement annuity (within the meaning of section 408 (d)(3)(C)(ii)).
(e) Qualified retirement contribution 
For purposes of this section, the term qualified retirement contribution means
(1) any amount paid in cash for the taxable year by or on behalf of an individual to an individual retirement plan for such individuals benefit, and
(2) any amount contributed on behalf of any individual to a plan described in section 501 (c)(18).
(f) Other definitions and special rules 

(1) Compensation 
For purposes of this section, the term compensation includes earned income (as defined in section 401 (c)(2)). The term compensation does not include any amount received as a pension or annuity and does not include any amount received as deferred compensation. The term compensation shall include any amount includible in the individuals gross income under section 71 with respect to a divorce or separation instrument described in subparagraph (A) of section 71 (b)(2). For purposes of this paragraph, section 401 (c)(2) shall be applied as if the term trade or business for purposes of section 1402 included service described in subsection (c)(6).
(2) Married individuals 
The maximum deduction under subsection (b) shall be computed separately for each individual, and this section shall be applied without regard to any community property laws.
(3) Time when contributions deemed made 
For purposes of this section, a taxpayer shall be deemed to have made a contribution to an individual retirement plan on the last day of the preceding taxable year if the contribution is made on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (not including extensions thereof).
(4) Reports 
The Secretary shall prescribe regulations which prescribe the time and the manner in which reports to the Secretary and plan participants shall be made by the plan administrator of a qualified employer or government plan receiving qualified voluntary employee contributions.
(5) Employer payments 
For purposes of this title, any amount paid by an employer to an individual retirement plan shall be treated as payment of compensation to the employee (other than a self-employed individual who is an employee within the meaning of section 401 (c)(1)) includible in his gross income in the taxable year for which the amount was contributed, whether or not a deduction for such payment is allowable under this section to the employee.
(6) Excess contributions treated as contribution made during subsequent year for which there is an unused limitation 

(A) In general 
If for the taxable year the maximum amount allowable as a deduction under this section for contributions to an individual retirement plan exceeds the amount contributed, then the taxpayer shall be treated as having made an additional contribution for the taxable year in an amount equal to the lesser of
(i) the amount of such excess, or
(ii) the amount of the excess contributions for such taxable year (determined under section 4973 (b)(2) without regard to subparagraph (C) thereof).
(B) Amount contributed 
For purposes of this paragraph, the amount contributed
(i) shall be determined without regard to this paragraph, and
(ii) shall not include any rollover contribution.
(C) Special rule where excess deduction was allowed for closed year 
Proper reduction shall be made in the amount allowable as a deduction by reason of this paragraph for any amount allowed as a deduction under this section for a prior taxable year for which the period for assessing deficiency has expired if the amount so allowed exceeds the amount which should have been allowed for such prior taxable year.
(7) Special rule for compensation earned by members of the Armed Forces for service in a combat zone. 
For purposes of subsections (b)(1)(B) and (c), the amount of compensation includible in an individuals gross income shall be determined without regard to section 112.
(8) Election not to deduct contributions 
For election not to deduct contributions to individual retirement plans, see section 408(o)(2)(B)(ii).
(g) Limitation on deduction for active participants in certain pension plans 

(1) In general 
If (for any part of any plan year ending with or within a taxable year) an individual or the individuals spouse is an active participant, each of the dollar limitations contained in subsections (b)(1)(A) and (c)(1)(A) for such taxable year shall be reduced (but not below zero) by the amount determined under paragraph (2).
(2) Amount of reduction 

(A) In general 
The amount determined under this paragraph with respect to any dollar limitation shall be the amount which bears the same ratio to such limitation as
(i) the excess of
(I) the taxpayers adjusted gross income for such taxable year, over
(II) the applicable dollar amount, bears to
(ii) $10,000 ($20,000 in the case of a joint return for a taxable year beginning after December 31, 2006).
(B) No reduction below $200 until complete phase-out 
No dollar limitation shall be reduced below $200 under paragraph (1) unless (without regard to this subparagraph) such limitation is reduced to zero.
(C) Rounding 
Any amount determined under this paragraph which is not a multiple of $10 shall be rounded to the next lowest $10.
(3) Adjusted gross income; applicable dollar amount 
For purposes of this subsection
(A) Adjusted gross income 
Adjusted gross income of any taxpayer shall be determined
(i) after application of sections 86 and 469, and
(ii) without regard to sections 135, 137, 199, 221, 222, and 911 or the deduction allowable under this section.
(B) Applicable dollar amount 
The term applicable dollar amount means the following:
(i) In the case of a taxpayer filing a joint return: The applicable For taxable years beginning in: dollar amount is: 1998 $50,000 1999 $51,000 2000 $52,000 2001 $53,000 2002 $54,000 2003 $60,000 2004 $65,000 2005 $70,000 2006 $75,000 2007 and thereafter $80,000.
(ii) In the case of any other taxpayer (other than a married individual filing a separate return): The applicable For taxable years beginning in: dollar amount is: 1998 $30,000 1999 $31,000 2000 $32,000 2001 $33,000 2002 $34,000 2003 $40,000 2004 $45,000 2005 and thereafter $50,000.
(iii) In the case of a married individual filing a separate return, zero.
(4) Special rule for married individuals filing separately and living apart 
A husband and wife who
(A) file separate returns for any taxable year, and
(B) live apart at all times during such taxable year,

shall not be treated as married individuals for purposes of this subsection.

(5) Active participant 
For purposes of this subsection, the term active participant means, with respect to any plan year, an individual
(A) who is an active participant in
(i) a plan described in section 401 (a) which includes a trust exempt from tax under section 501 (a),
(ii) an annuity plan described in section 403 (a),
(iii) a plan established for its employees by the United States, by a State or political subdivision thereof, or by an agency or instrumentality of any of the foregoing,
(iv) an annuity contract described in section 403 (b),
(v) a simplified employee pension (within the meaning of section 408 (k)), or
(vi) any simple retirement account (within the meaning of section 408 (p)), or
(B) who makes deductible contributions to a trust described in section 501 (c)(18).

The determination of whether an individual is an active participant shall be made without regard to whether or not such individuals rights under a plan, trust, or contract are nonforfeitable. An eligible deferred compensation plan (within the meaning of section 457 (b)) shall not be treated as a plan described in subparagraph (A)(iii).

(6) Certain individuals not treated as active participants 
For purposes of this subsection, any individual described in any of the following subparagraphs shall not be treated as an active participant for any taxable year solely because of any participation so described:
(A) Members of reserve components 
Participation in a plan described in subparagraph (A)(iii) of paragraph (5) by reason of service as a member of a reserve component of the Armed Forces (as defined in section 10101 of title 10), unless such individual has served in excess of 90 days on active duty (other than active duty for training) during the year.
(B) Volunteer firefighters 
A volunteer firefighter
(i) who is a participant in a plan described in subparagraph (A)(iii) of paragraph (5) based on his activity as a volunteer firefighter, and
(ii) whose accrued benefit as of the beginning of the taxable year is not more than an annual benefit of $1,800 (when expressed as a single life annuity commencing at age 65).
(7) Special rule for spouses who are not active participants 
If this subsection applies to an individual for any taxable year solely because their spouse is an active participant, then, in applying this subsection to the individual (but not their spouse)
(A) the applicable dollar amount under paragraph (3)(B)(i) shall be $150,000; and
(B) the amount applicable under paragraph (2)(A)(ii) shall be $10,000.
(8) Inflation adjustment 
In the case of any taxable year beginning in a calendar year after 2006, the dollar amount in the last row of the table contained in paragraph (3)(B)(i), the dollar amount in the last row of the table contained in paragraph (3)(B)(ii), and the dollar amount contained in paragraph (7)(A), shall each be increased by an amount equal to
(A) such dollar amount, multiplied by
(B) 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 2005 for calendar year 1992 in subparagraph (B) thereof.

Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $1,000.

(h) Cross reference 
For failure to provide required reports, see section 6652 (g).

26 USC 220 - Archer MSAs

(a) Deduction allowed 
In the case of an individual who is an eligible individual for any month during the taxable year, there shall be allowed as a deduction for the taxable year an amount equal to the aggregate amount paid in cash during such taxable year by such individual to an Archer MSA of such individual.
(b) Limitations 

(1) In general 
The amount allowable as a deduction under subsection (a) to an individual for the taxable year shall not exceed the sum of the monthly limitations for months during such taxable year that the individual is an eligible individual.
(2) Monthly limitation 
The monthly limitation for any month is the amount equal to 1/12 of
(A) in the case of an individual who has self-only coverage under the high deductible health plan as of the first day of such month, 65 percent of the annual deductible under such coverage, and
(B) in the case of an individual who has family coverage under the high deductible health plan as of the first day of such month, 75 percent of the annual deductible under such coverage.
(3) Special rule for married individuals 
In the case of individuals who are married to each other, if either spouse has family coverage
(A) both spouses shall be treated as having only such family coverage (and if such spouses each have family coverage under different plans, as having the family coverage with the lowest annual deductible), and
(B) the limitation under paragraph (1) (after the application of subparagraph (A) of this paragraph) shall be divided equally between them unless they agree on a different division.
(4) Deduction not to exceed compensation 

(A) Employees 
The deduction allowed under subsection (a) for contributions as an eligible individual described in subclause (I) of subsection (c)(1)(A)(iii) shall not exceed such individuals wages, salaries, tips, and other employee compensation which are attributable to such individuals employment by the employer referred to in such subclause.
(B) Self-employed individuals 
The deduction allowed under subsection (a) for contributions as an eligible individual described in subclause (II) of subsection (c)(1)(A)(iii) shall not exceed such individuals earned income (as defined in section 401 (c)(1)) derived by the taxpayer from the trade or business with respect to which the high deductible health plan is established.
(C) Community property laws not to apply 
The limitations under this paragraph shall be determined without regard to community property laws.
(5) Coordination with exclusion for employer contributions 
No deduction shall be allowed under this section for any amount paid for any taxable year to an Archer MSA of an individual if
(A) any amount is contributed to any Archer MSA of such individual for such year which is excludable from gross income under section 106 (b), or
(B) if such individuals spouse is covered under the high deductible health plan covering such individual, any amount is contributed for such year to any Archer MSA of such spouse which is so excludable.
(6) Denial of deduction to dependents 
No deduction shall be allowed under this section to any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individuals taxable year begins.
(7) Medicare eligible individuals 
The limitation under this subsection for any month with respect to an individual shall be zero for the first month such individual is entitled to benefits under title XVIII of the Social Security Act and for each month thereafter.
(c) Definitions 
For purposes of this section
(1) Eligible individual 

(A) In general 
The term eligible individual means, with respect to any month, any individual if
(i) such individual is covered under a high deductible health plan as of the 1st day of such month,
(ii) such individual is not, while covered under a high deductible health plan, covered under any health plan
(I) which is not a high deductible health plan, and
(II) which provides coverage for any benefit which is covered under the high deductible health plan, and
(iii) 
(I) the high deductible health plan covering such individual is established and maintained by the employer of such individual or of the spouse of such individual and such employer is a small employer, or
(II) such individual is an employee (within the meaning of section 401 (c)(1)) or the spouse of such an employee and the high deductible health plan covering such individual is not established or maintained by any employer of such individual or spouse.
(B) Certain coverage disregarded 
Subparagraph (A)(ii) shall be applied without regard to
(i) coverage for any benefit provided by permitted insurance, and
(ii) coverage (whether through insurance or otherwise) for accidents, disability, dental care, vision care, or long-term care.
(C) Continued eligibility of employee and spouse establishing Archer MSAs 
If, while an employer is a small employer
(i) any amount is contributed to an Archer MSA of an individual who is an employee of such employer or the spouse of such an employee, and
(ii) such amount is excludable from gross income under section 106 (b) or allowable as a deduction under this section,

such individual shall not cease to meet the requirement of subparagraph (A)(iii)(I) by reason of such employer ceasing to be a small employer so long as such employee continues to be an employee of such employer.

(D) Limitations on eligibility 
For limitations on number of taxpayers who are eligible to have Archer MSAs, see subsection (i).
(2) High deductible health plan 

(A) In general 
The term high deductible health plan means a health plan
(i) in the case of self-only coverage, which has an annual deductible which is not less than $1,500 and not more than $2,250,
(ii) in the case of family coverage, which has an annual deductible which is not less than $3,000 and not more than $4,500, and
(iii) the annual out-of-pocket expenses required to be paid under the plan (other than for premiums) for covered benefits does not exceed
(I) $3,000 for self-only coverage, and
(II) $5,500 for family coverage.
(B) Special rules 

(i) Exclusion of certain plans Such term does not include a health plan if substantially all of its coverage is coverage described in paragraph (1)(B).
(ii) Safe harbor for absence of preventive care deductible A plan shall not fail to be treated as a high deductible health plan by reason of failing to have a deductible for preventive care if the absence of a deductible for such care is required by State law.
(3) Permitted insurance 
The term permitted insurance means
(A) insurance if substantially all of the coverage provided under such insurance relates to
(i) liabilities incurred under workers compensation laws,
(ii) tort liabilities,
(iii) liabilities relating to ownership or use of property, or
(iv) such other similar liabilities as the Secretary may specify by regulations,
(B) insurance for a specified disease or illness, and
(C) insurance paying a fixed amount per day (or other period) of hospitalization.
(4) Small employer 

(A) In general 
The term small employer means, with respect to any calendar year, any employer if such employer employed an average of 50 or fewer employees on business days during either of the 2 preceding calendar years. For purposes of the preceding sentence, a preceding calendar year may be taken into account only if the employer was in existence throughout such year.
(B) Employers not in existence in preceding year 
In the case of an employer which was not in existence throughout the 1st preceding calendar year, the determination under subparagraph (A) shall be based on the average number of employees that it is reasonably expected such employer will employ on business days in the current calendar year.
(C) Certain growing employers retain treatment as small employer 
The term small employer includes, with respect to any calendar year, any employer if
(i) such employer met the requirement of subparagraph (A) (determined without regard to subparagraph (B)) for any preceding calendar year after 1996,
(ii) any amount was contributed to the Archer MSA of any employee of such employer with respect to coverage of such employee under a high deductible health plan of such employer during such preceding calendar year and such amount was excludable from gross income under section 106 (b) or allowable as a deduction under this section, and
(iii) such employer employed an average of 200 or fewer employees on business days during each preceding calendar year after 1996.
(D) Special rules 

(i) Controlled groups For purposes of this paragraph, all persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as 1 employer.
(ii) Predecessors Any reference in this paragraph to an employer shall include a reference to any predecessor of such employer.
(5) Family coverage 
The term family coverage means any coverage other than self-only coverage.
(d) Archer MSA 
For purposes of this section
(1) Archer MSA 
The term Archer MSA means a trust created or organized in the United States as a medical savings account exclusively for the purpose of paying the qualified medical expenses of the account holder, but only if the written governing instrument creating the trust meets the following requirements:
(A) Except in the case of a rollover contribution described in subsection (f)(5), no contribution will be accepted
(i) unless it is in cash, or
(ii) to the extent such contribution, when added to previous contributions to the trust for the calendar year, exceeds 75 percent of the highest annual limit deductible permitted under subsection (c)(2)(A)(ii) for such calendar year.
(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.
(2) Qualified medical expenses 

(A) In general 
The term qualified medical expenses means, with respect to an account holder, amounts paid by such holder for medical care (as defined in section 213 (d)) for such individual, the spouse of such individual, and any dependent (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) of such individual, but only to the extent such amounts are not compensated for by insurance or otherwise.
(B) Health insurance may not be purchased from account 

(i) In general Subparagraph (A) shall not apply to any payment for insurance.
(ii) Exceptions Clause (i) shall not apply to any expense for coverage under
(I) a health plan during any period of continuation coverage required under any Federal law,
(II) a qualified long-term care insurance contract (as defined in section 7702B (b)), or
(III) a health plan during a period in which the individual is receiving unemployment compensation under any Federal or State law.
(C) Medical expenses of individuals who are not eligible individuals 
Subparagraph (A) shall apply to an amount paid by an account holder for medical care of an individual who is not described in clauses (i) and (ii) of subsection (c)(1)(A) for the month in which the expense for such care is incurred only if no amount is contributed (other than a rollover contribution) to any Archer MSA of such account holder for the taxable year which includes such month. This subparagraph shall not apply to any expense for coverage described in subclause (I) or (III) of subparagraph (B)(ii).
(3) Account holder 
The term account holder means the individual on whose behalf the Archer MSA was established.
(4) Certain rules to apply 
Rules similar to the following rules shall apply for purposes of this section:
(A) Section 219 (d)(2) (relating to no deduction for rollovers).
(B) Section 219 (f)(3) (relating to time when contributions deemed made).
(C) Except as provided in section 106 (b), section 219(f)(5) (relating to employer payments).
(D) Section 408 (g) (relating to community property laws).
(E) Section 408 (h) (relating to custodial accounts).
(e) Tax treatment of accounts 

(1) In general 
An Archer MSA is exempt from taxation under this subtitle unless such account has ceased to be an Archer MSA. 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 Archer MSAs, and any amount treated as distributed under such rules shall be treated as not used to pay qualified medical expenses.
(f) Tax treatment of distributions 

(1) Amounts used for qualified medical expenses 
Any amount paid or distributed out of an Archer MSA which is used exclusively to pay qualified medical expenses of any account holder shall not be includible in gross income.
(2) Inclusion of amounts not used for qualified medical expenses 
Any amount paid or distributed out of an Archer MSA which is not used exclusively to pay the qualified medical expenses of the account holder shall be included in the gross income of such holder.
(3) Excess contributions returned before due date of return 

(A) In general 
If any excess contribution is contributed for a taxable year to any Archer MSA of an individual, paragraph (2) shall not apply to distributions from the Archer MSAs of such individual (to the extent such distributions do not exceed the aggregate excess contributions to all such accounts of such individual for such year) if
(i) such distribution is received by the individual on or before the last day prescribed by law (including extensions of time) for filing such individuals return for such taxable year, and
(ii) such distribution is accompanied by the amount of net income attributable to such excess contribution.

Any net income described in clause (ii) shall be included in the gross income of the individual for the taxable year in which it is received.

(B) Excess contribution 
For purposes of subparagraph (A), the term excess contribution means any contribution (other than a rollover contribution) which is neither excludable from gross income under section 106 (b) nor deductible under this section.
(4) Additional tax on distributions not used for qualified medical expenses 

(A) In general 
The tax imposed by this chapter on the account holder for any taxable year in which there is a payment or distribution from an Archer MSA of such holder which is includible in gross income under paragraph (2) shall be increased by 15 percent of the amount which is so includible.
(B) Exception for disability or death 
Subparagraph (A) shall not apply if the payment or distribution is made after the account holder becomes disabled within the meaning of section 72 (m)(7) or dies.
(C) Exception for distributions after medicare eligibility 
Subparagraph (A) shall not apply to any payment or distribution after the date on which the account holder attains the age specified in section 1811 of the Social Security Act.
(5) Rollover contribution 
An amount is described in this paragraph as a rollover contribution if it meets the requirements of subparagraphs (A) and (B).
(A) In general 
Paragraph (2) shall not apply to any amount paid or distributed from an Archer MSA to the account holder to the extent the amount received is paid into an Archer MSA or a health savings account (as defined in section 223 (d)) for the benefit of such holder not later than the 60th day after the day on which the holder receives the payment or distribution.
(B) Limitation 
This paragraph shall not apply to any amount described in subparagraph (A) received by an individual from an Archer MSA if, at any time during the 1-year period ending on the day of such receipt, such individual received any other amount described in subparagraph (A) from an Archer MSA which was not includible in the individuals gross income because of the application of this paragraph.
(6) Coordination with medical expense deduction 
For purposes of determining the amount of the deduction under section 213, any payment or distribution out of an Archer MSA for qualified medical expenses shall not be treated as an expense paid for medical care.
(7) Transfer of account incident to divorce 
The transfer of an individuals interest in an Archer MSA to an individuals 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 an Archer MSA with respect to which such spouse is the account holder.
(8) Treatment after death of account holder 

(A) Treatment if designated beneficiary is spouse 
If the account holders surviving spouse acquires such holders interest in an Archer MSA by reason of being the designated beneficiary of such account at the death of the account holder, such Archer MSA shall be treated as if the spouse were the account holder.
(B) Other cases 

(i) In general If, by reason of the death of the account holder, any person acquires the account holders interest in an Archer MSA in a case to which subparagraph (A) does not apply
(I) such account shall cease to be an Archer MSA 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 holder, in such persons gross income for the taxable year which includes such date, or if such person is the estate of such holder, in such holders gross income for the last taxable year of such holder.
(ii) Special rules
(I) Reduction of inclusion for pre-death 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 medical expenses which were incurred by the decedent before the date of the decedents 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 decedents spouse) with respect to amounts included in gross income under clause (i) by such person.
(g) Cost-of-living adjustment 
In the case of any taxable year beginning in a calendar year after 1998, each dollar amount in subsection (c)(2) shall be increased by an amount equal to
(1) such dollar amount, multiplied by
(2) the cost-of-living adjustment determined under section 1 (f)(3) for the calendar year in which such taxable year begins by substituting calendar year 1997 for calendar year 1992 in subparagraph (B) thereof.

If any increase under the preceding sentence is not a multiple of $50, such increase shall be rounded to the nearest multiple of $50.

(h) Reports 
The Secretary may require the trustee of an Archer MSA to make such reports regarding such account to the Secretary and to the account holder with respect to contributions, distributions, and such other matters as the Secretary determines appropriate. The reports required by this subsection shall be filed at such time and in such manner and furnished to such individuals at such time and in such manner as may be required by the Secretary.
(i) Limitation on number of taxpayers having Archer MSAs 

(1) In general 
Except as provided in paragraph (5), no individual shall be treated as an eligible individual for any taxable year beginning after the cut-off year unless
(A) such individual was an active MSA participant for any taxable year ending on or before the close of the cut-off year, or
(B) such individual first became an active MSA participant for a taxable year ending after the cut-off year by reason of coverage under a high deductible health plan of an MSA-participating employer.
(2) Cut-off year 
For purposes of paragraph (1), the term cut-off year means the earlier of
(A) calendar year 2007, or
(B) the first calendar year before 2007 for which the Secretary determines under subsection (j) that the numerical limitation for such year has been exceeded.
(3) Active MSA participant 
For purposes of this subsection
(A) In general 
The term active MSA participant means, with respect to any taxable year, any individual who is the account holder of any Archer MSA into which any contribution was made which was excludable from gross income under section 106 (b), or allowable as a deduction under this section, for such taxable year.
(B) Special rule for cut-off years before 2007 
In the case of a cut-off year before 2007
(i) an individual shall not be treated as an eligible individual for any month of such year or an active MSA participant under paragraph (1)(A) unless such individual is, on or before the cut-off date, covered under a high deductible health plan, and
(ii) an employer shall not be treated as an MSA-participating employer unless the employer, on or before the cut-off date, offered coverage under a high deductible health plan to any employee.
(C) Cut-off date 
For purposes of subparagraph (B)
(i) In general Except as otherwise provided in this subparagraph, the cut-off date is October 1 of the cut-off year.
(ii) Employees with enrollment periods after October 1 In the case of an individual described in subclause (I) of subsection (c)(1)(A)(iii), if the regularly scheduled enrollment period for health plans of the individuals employer occurs during the last 3 months of the cut-off year, the cut-off date is December 31 of the cut-off year.
(iii) Self-employed individuals In the case of an individual described in subclause (II) of subsection (c)(1)(A)(iii), the cut-off date is November 1 of the cut-off year.
(iv) Special rules for 1997 If 1997 is a cut-off year by reason of subsection (j)(1)(A)
(I) each of the cut-off dates under clauses (i) and (iii) shall be 1 month earlier than the date determined without regard to this clause, and
(II) clause (ii) shall be applied by substituting 4 months for 3 months.
(4) MSA-participating employer 
For purposes of this subsection, the term MSA-participating employer means any small employer if
(A) such employer made any contribution to the Archer MSA of any employee during the cut-off year or any preceding calendar year which was excludable from gross income under section 106 (b), or
(B) at least 20 percent of the employees of such employer who are eligible individuals for any month of the cut-off year by reason of coverage under a high deductible health plan of such employer each made a contribution of at least $100 to their Archer MSAs for any taxable year ending with or within the cut-off year which was allowable as a deduction under this section.
(5) Additional eligibility after cut-off year 
If the Secretary determines under subsection (j)(2)(A) that the numerical limit for the calendar year following a cut-off year described in paragraph (2)(B) has not been exceeded
(A) this subsection shall not apply to any otherwise eligible individual who is covered under a high deductible health plan during the first 6 months of the second calendar year following the cut-off year (and such individual shall be treated as an active MSA participant for purposes of this subsection if a contribution is made to any Archer MSA with respect to such coverage), and
(B) any employer who offers coverage under a high deductible health plan to any employee during such 6-month period shall be treated as an MSA-participating employer for purposes of this subsection if the requirements of paragraph (4) are met with respect to such coverage.

For purposes of this paragraph, subsection (j)(2)(A) shall be applied for 1998 by substituting 750,000 for 600,000.

(j) Determination of whether numerical limits are exceeded 

(1) Determination of whether limit exceeded for 1997 
The numerical limitation for 1997 is exceeded if, based on the reports required under paragraph (4), the number of Archer MSAs established as of
(A) April 30, 1997, exceeds 375,000, or
(B) June 30, 1997, exceeds 525,000.
(2) Determination of whether limit exceeded for 1998, 1999, 2001, 2002, 2004, 2005, or 2006 

(A) In general 
The numerical limitation for 1998, 1999, 2001, 2002, 2004, 2005, or 2006 is exceeded if the sum of
(i) the number of MSA returns filed on or before April 15 of such calendar year for taxable years ending with or within the preceding calendar year, plus
(ii) the Secretarys estimate (determined on the basis of the returns described in clause (i)) of the number of MSA returns for such taxable years which will be filed after such date,

exceeds 750,000 (600,000 in the case of 1998). For purposes of the preceding sentence, the term MSA return means any return on which any exclusion is claimed under section 106 (b) or any deduction is claimed under this section.

(B) Alternative computation of limitation 
The numerical limitation for 1998, 1999, 2001, 2002, 2004, 2005, or 2006 is also exceeded if the sum of
(i) 90 percent of the sum determined under subparagraph (A) for such calendar year, plus
(ii) the product of 2.5 and the number of Archer MSAs established during the portion of such year preceding July 1 (based on the reports required under paragraph (4)) for taxable years beginning in such year,

exceeds 750,000.

(C) No limitation for 2000 or 2003 
The numerical limitation shall not apply for 2000 or 2003.
(3) Previously uninsured individuals not included in determination 

(A) In general 
The determination of whether any calendar year is a cut-off year shall be made by not counting the Archer MSA of any previously uninsured individual.
(B) Previously uninsured individual 
For purposes of this subsection, the term previously uninsured individual means, with respect to any Archer MSA, any individual who had no health plan coverage (other than coverage referred to in subsection (c)(1)(B)) at any time during the 6-month period before the date such individuals coverage under the high deductible health plan commences.
(4) Reporting by MSA trustees 

(A) In general 
Not later than August 1 of 1997, 1998, 1999, 2001, 2002, 2004, 2005, and 2006, each person who is the trustee of an Archer MSA established before July 1 of such calendar year shall make a report to the Secretary (in such form and manner as the Secretary shall specify) which specifies
(i) the number of Archer MSAs established before such July 1 (for taxable years beginning in such calendar year) of which such person is the trustee,
(ii) the name and TIN of the account holder of each such account, and
(iii) the number of such accounts which are accounts of previously uninsured individuals.
(B) Additional report for 1997 
Not later than June 1, 1997, each person who is the trustee of an Archer MSA established before May 1, 1997, shall make an additional report described in subparagraph (A) but only with respect to accounts established before May 1, 1997.
(C) Penalty for failure to file report 
The penalty provided in section 6693 (a) shall apply to any report required by this paragraph, except that
(i) such section shall be applied by substituting $25 for $50, and
(ii) the maximum penalty imposed on any trustee shall not exceed $5,000.
(D) Aggregation of accounts 
To the extent practicable, in determining the number of Archer MSAs on the basis of the reports under this paragraph, all Archer MSAs of an individual shall be treated as 1 account and all accounts of individuals who are married to each other shall be treated as 1 account.
(5) Date of making determinations 
Any determination under this subsection that a calendar year is a cut-off year shall be made by the Secretary and shall be published not later than October 1 of such year.

26 USC 221 - Interest on education loans

(a) Allowance of deduction 
In the case of an individual, there shall be allowed as a deduction for the taxable year an amount equal to the interest paid by the taxpayer during the taxable year on any qualified education loan.
(b) Maximum deduction 

(1) In general 
Except as provided in paragraph (2), the deduction allowed by subsection (a) for the taxable year shall not exceed the amount determined in accordance with the following table: In the case of taxable years The dollar beginning in: amount is: 1998 $1,000 1999 $1,500 2000 $2,000 2001 or thereafter $2,500.
(2) Limitation based on modified adjusted gross income 

(A) In general 
The amount which would (but for this paragraph) be allowable as a deduction under this section shall be reduced (but not below zero) by the amount determined under subparagraph (B).
(B) Amount of reduction 
The amount determined under this subparagraph is the amount which bears the same ratio to the amount which would be so taken into account as
(i) the excess of
(I) the taxpayers modified adjusted gross income for such taxable year, over
(II) $50,000 ($100,000 in the case of a joint return), bears to
(ii) $15,000 ($30,000 in the case of a joint return).
(C) Modified adjusted gross income 
The term modified adjusted gross income means adjusted gross income determined
(i) without regard to this section and sections 199, 222, 911, 931, and 933, and
(ii) after application of sections 86, 135, 137, 219, and 469.
(c) Dependents not eligible for deduction 
No deduction shall be allowed by this section to an individual for the taxable year if a deduction under section 151 with respect to such individual is allowed to another taxpayer for the taxable year beginning in the calendar year in which such individuals taxable year begins.
(d) Definitions 
For purposes of this section
(1) Qualified education loan 
The term qualified education loan means any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses
(A) which are incurred on behalf of the taxpayer, the taxpayers spouse, or any dependent of the taxpayer as of the time the indebtedness was incurred,
(B) which are paid or incurred within a reasonable period of time before or after the indebtedness is incurred, and
(C) which are attributable to education furnished during a period during which the recipient was an eligible student.

Such term includes indebtedness used to refinance indebtedness which qualifies as a qualified education loan. The term qualified education loan shall not include any indebtedness owed to a person who is related (within the meaning of section 267 (b) or 707 (b)(1)) to the taxpayer or to any person by reason of a loan under any qualified employer plan (as defined in section 72 (p)(4)) or under any contract referred to in section 72 (p)(5).

(2) Qualified higher education expenses 
The term qualified higher education expenses means the cost of attendance (as defined in section 472 of the Higher Education Act of 1965, 20 U.S.C. 1087ll, as in effect on the day before the date of the enactment of the Taxpayer Relief Act of 1997) at an eligible educational institution, reduced by the sum of
(A) the amount excluded from gross income under section 127, 135, 529, or 530 by reason of such expenses, and
(B) the amount of any scholarship, allowance, or payment described in section 25A (g)(2).

For purposes of the preceding sentence, the term eligible educational institution has the same meaning given such term by section 25A (f)(2), except that such term shall also include an institution conducting an internship or residency program leading to a degree or certificate awarded by an institution of higher education, a hospital, or a health care facility which offers postgraduate training.

(3) Eligible student 
The term eligible student has the meaning given such term by section 25A (b)(3).
(4) Dependent 
The term dependent has the meaning given such term by section 152 (determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof).
(e) Special rules 

(1) Denial of double benefit 
No deduction shall be allowed under this section for any amount for which a deduction is allowable under any other provision of this chapter.
(2) Married couples must file joint return 
If the taxpayer is married at the close of the taxable year, the deduction shall be allowed under subsection (a) only if the taxpayer and the taxpayers spouse file a joint return for the taxable year.
(3) Marital status 
Marital status shall be determined in accordance with section 7703.
(f) Inflation adjustments 

(1) In general 
In the case of a taxable year beginning after 2002, the $50,000 and $100,000 amounts in subsection (b)(2) shall each be increased by an amount equal to
(A) such dollar amount, multiplied by
(B) 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 2001 for calendar year 1992 in subparagraph (B) thereof.
(2) Rounding 
If any amount as adjusted under paragraph (1) is not a multiple of $5,000, such amount shall be rounded to the next lowest multiple of $5,000.

26 USC 222 - Qualified tuition and related expenses

(a) Allowance of deduction 
In the case of an individual, there shall be allowed as a deduction an amount equal to the qualified tuition and related expenses paid by the taxpayer during the taxable year.
(b) Dollar limitations 

(1) In general 
The amount allowed as a deduction under subsection (a) with respect to the taxpayer for any taxable year shall not exceed the applicable dollar limit.
(2) Applicable dollar limit 

(A) 2002 and 2003 
In the case of a taxable year beginning in 2002 or 2003, the applicable dollar limit shall be equal to
(i) in the case of a taxpayer whose adjusted gross income for the taxable year does not exceed $65,000 ($130,000 in the case of a joint return), $3,000, and
(ii) in the case of any other taxpayer, zero.
(B) After 2003 
In the case of any taxable year beginning after 2003, the applicable dollar amount shall be equal to
(i) in the case of a taxpayer whose adjusted gross income for the taxable year does not exceed $65,000 ($130,000 in the case of a joint return), $4,000,
(ii) in the case of a taxpayer not described in clause (i) whose adjusted gross income for the taxable year does not exceed $80,000 ($160,000 in the case of a joint return), $2,000, and
(iii) in the case of any other taxpayer, zero.
(C) Adjusted gross income 
For purposes of this paragraph, adjusted gross income shall be determined
(i) without regard to this section and sections 199, 911, 931, and 933, and
(ii) after application of sections 86, 135, 137, 219, 221, and 469.
(c) No double benefit 

(1) In general 
No deduction shall be allowed under subsection (a) for any expense for which a deduction is allowed to the taxpayer under any other provision of this chapter.
(2) Coordination with other education incentives 

(A) Denial of deduction if credit elected 
No deduction shall be allowed under subsection (a) for a taxable year with respect to the qualified tuition and related expenses with respect to an individual if the taxpayer or any other person elects to have section 25A apply with respect to such individual for such year.
(B) Coordination with exclusions 
The total amount of qualified tuition and related expenses shall be reduced by the amount of such expenses taken into account in determining any amount excluded under section 135, 529 (c)(1), or 530 (d)(2). For purposes of the preceding sentence, the amount taken into account in determining the amount excluded under section 529 (c)(1) shall not include that portion of the distribution which represents a return of any contributions to the plan.
(3) Dependents 
No deduction shall be allowed under subsection (a) to any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individuals taxable year begins.
(d) Definitions and special rules 
For purposes of this section
(1) Qualified tuition and related expenses 
The term qualified tuition and related expenses has the meaning given such term by section 25A (f). Such expenses shall be reduced in the same manner as under section 25A (g)(2).
(2) Identification requirement 
No deduction shall be allowed under subsection (a) to a taxpayer with respect to the qualified tuition and related expenses of an individual unless the taxpayer includes the name and taxpayer identification number of the individual on the return of tax for the taxable year.
(3) Limitation on taxable year of deduction 

(A) In general 
A deduction shall be allowed under subsection (a) for qualified tuition and related expenses for any taxable year only to the extent such expenses are in connection with enrollment at an institution of higher education during the taxable year.
(B) Certain prepayments allowed 
Subparagraph (A) shall not apply to qualified tuition and related expenses paid during a taxable year if such expenses are in connection with an academic term beginning during such taxable year or during the first 3 months of the next taxable year.
(4) No deduction for married individuals filing separate returns 
If the taxpayer is a married individual (within the meaning of section 7703), this section shall apply only if the taxpayer and the taxpayers spouse file a joint return for the taxable year.
(5) Nonresident aliens 
If the taxpayer is a nonresident alien individual for any portion of the taxable year, this section shall apply only if such individual is treated as a resident alien of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013.
(6) Regulations 
The Secretary may prescribe such regulations as may be necessary or appropriate to carry out this section, including regulations requiring recordkeeping and information reporting.
(e) Termination 
This section shall not apply to taxable years beginning after December 31, 2007.

26 USC 223 - Health savings accounts

(a) Deduction allowed 
In the case of an individual who is an eligible individual for any month during the taxable year, there shall be allowed as a deduction for the taxable year an amount equal to the aggregate amount paid in cash during such taxable year by or on behalf of such individual to a health savings account of such individual.
(b) Limitations 

(1) In general 
The amount allowable as a deduction under subsection (a) to an individual for the taxable year shall not exceed the sum of the monthly limitations for months during such taxable year that the individual is an eligible individual.
(2) Monthly limitation 
The monthly limitation for any month is 1/12 of
(A) in the case of an eligible individual who has self-only coverage under a high deductible health plan as of the first day of such month, $2,250.
(B) in the case of an eligible individual who has family coverage under a high deductible health plan as of the first day of such month, $4,500.
(3) Additional contributions for individuals 55 or older 

(A) In general 
In the case of an individual who has attained age 55 before the close of the taxable year, the applicable limitation under subparagraphs (A) and (B) of paragraph (2) shall be increased by the additional contribution amount.
(B) Additional contribution amount 
For purposes of this section, the additional contribution amount is the amount determined in accordance with the following table: For taxable years The additional beginning in: contribution amount is: 2004 $500 2005 $600 2006 $700 2007 $800 2008 $900 2009 and thereafter $1,000.
(4) Coordination with other contributions 
The limitation which would (but for this paragraph) apply under this subsection to an individual for any taxable year shall be reduced (but not below zero) by the sum of
(A) the aggregate amount paid for such taxable year to Archer MSAs of such individual,
(B) the aggregate amount contributed to health savings accounts of such individual which is excludable from the taxpayers gross income for such taxable year under section 106 (d) (and such amount shall not be allowed as a deduction under subsection (a)), and
(C) the aggregate amount contributed to health savings accounts of such individual for such taxable year under section 408 (d)(9) (and such amount shall not be allowed as a deduction under subsection (a)).

Subparagraph (A) shall not apply with respect to any individual to whom paragraph (5) applies.

(5) Special rule for married individuals 
In the case of individuals who are married to each other, if either spouse has family coverage
(A) both spouses shall be treated as having only such family coverage (and if such spouses each have family coverage under different plans, as having the family coverage with the lowest annual deductible), and
(B) the limitation under paragraph (1) (after the application of subparagraph (A) and without regard to any additional contribution amount under paragraph (3))
(i) shall be reduced by the aggregate amount paid to Archer MSAs of such spouses for the taxable year, and
(ii) after such reduction, shall be divided equally between them unless they agree on a different division.
(6) Denial of deduction to dependents 
No deduction shall be allowed under this section to any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individuals taxable year begins.
(7) Medicare eligible individuals 
The limitation under this subsection for any month with respect to an individual shall be zero for the first month such individual is entitled to benefits under title XVIII of the Social Security Act and for each month thereafter.
(8) Increase in limit for individuals becoming eligible individuals after the beginning of the year 

(A) In general 
For purposes of computing the limitation under paragraph (1) for any taxable year, an individual who is an eligible individual during the last month of such taxable year shall be treated
(i) as having been an eligible individual during each of the months in such taxable year, and
(ii) as having been enrolled, during each of the months such individual is treated as an eligible individual solely by reason of clause (i), in the same high deductible health plan in which the individual was enrolled for the last month of such taxable year.
(B) Failure to maintain high deductible health plan coverage 

(i) In general If, at any time during the testing period, the individual is not an eligible individual, then
(I) gross income of the individual for the taxable year in which occurs the first month in the testing period for which such individual is not an eligible individual is increased by the aggregate amount of all contributions to the health savings account of the individual which could not have been made but for subparagraph (A), and
(II) the tax imposed by this chapter for any taxable year on the individual shall be increased by 10 percent of the amount of such increase.
(ii) Exception for disability or death Subclauses (I) and (II) of clause (i) shall not apply if the individual ceased to be an eligible individual by reason of the death of the individual or the individual becoming disabled (within the meaning of section 72 (m)(7)).
(iii) Testing period The term testing period means the period beginning with the last month of the taxable year referred to in subparagraph (A) and ending on the last day of the 12th month following such month.
(c) Definitions and special rules 
For purposes of this section
(1) Eligible individual 

(A) In general 
The term eligible individual means, with respect to any month, any individual if
(i) such individual is covered under a high deductible health plan as of the 1st day of such month, and
(ii) such individual is not, while covered under a high deductible health plan, covered under any health plan
(I) which is not a high deductible health plan, and
(II) which provides coverage for any benefit which is covered under the high deductible health plan.
(B) Certain coverage disregarded 
Subparagraph (A)(ii) shall be applied without regard to
(i) coverage for any benefit provided by permitted insurance,
(ii) coverage (whether through insurance or otherwise) for accidents, disability, dental care, vision care, or long-term care, and
(iii) for taxable years beginning after December 31, 2006, coverage under a health flexible spending arrangement during any period immediately following the end of a plan year of such arrangement during which unused benefits or contributions remaining at the end of such plan year may be paid or reimbursed to plan participants for qualified benefit expenses incurred during such period if
(I) the balance in such arrangement at the end of such plan year is zero, or
(II) the individual is making a qualified HSA distribution (as defined in section 106 (e)) in an amount equal to the remaining balance in such arrangement as of the end of such plan year, in accordance with rules prescribed by the Secretary.
(2) High deductible health plan 

(A) In general 
The term high deductible health plan means a health plan
(i) which has an annual deductible which is not less than
(I) $1,000 for self-only coverage, and
(II) twice the dollar amount in subclause (I) for family coverage, and
(ii) the sum of the annual deductible and the other annual out-of-pocket expenses required to be paid under the plan (other than for premiums) for covered benefits does not exceed
(I) $5,000 for self-only coverage, and
(II) twice the dollar amount in subclause (I) for family coverage.
(B) Exclusion of certain plans 
Such term does not include a health plan if substantially all of its coverage is coverage described in paragraph (1)(B).
(C) Safe harbor for absence of preventive care deductible 
A plan shall not fail to be treated as a high deductible health plan by reason of failing to have a deductible for preventive care (within the meaning of section 1871 of the Social Security Act, except as otherwise provided by the Secretary).
(D) Special rules for network plans 
In the case of a plan using a network of providers
(i) Annual out-of-pocket limitation Such plan shall not fail to be treated as a high deductible health plan by reason of having an out-of-pocket limitation for services provided outside of such network which exceeds the applicable limitation under subparagraph (A)(ii).
(ii) Annual deductible Such plans annual deductible for services provided outside of such network shall not be taken into account for purposes of subsection (b)(2).
(3) Permitted insurance 
The term permitted insurance means
(A) insurance if substantially all of the coverage provided under such insurance relates to
(i) liabilities incurred under workers compensation laws,
(ii) tort liabilities,
(iii) liabilities relating to ownership or use of property, or
(iv) such other similar liabilities as the Secretary may specify by regulations,
(B) insurance for a specified disease or illness, and
(C) insurance paying a fixed amount per day (or other period) of hospitalization.
(4) Family coverage 
The term family coverage means any coverage other than self-only coverage.
(5) Archer MSA 
The term Archer MSA has the meaning given such term in section 220 (d).
(d) Health savings account 
For purposes of this section
(1) In general 
The term health savings account means a trust created or organized in the United States as a health savings account exclusively for the purpose of paying the qualified medical expenses of the account beneficiary, but only if the written governing instrument creating the trust meets the following requirements:
(A) Except in the case of a rollover contribution described in subsection (f)(5) or section 220 (f)(5), no contribution will be accepted
(i) unless it is in cash, or
(ii) to the extent such contribution, when added to previous contributions to the trust for the calendar year, exceeds the sum of
(I) the dollar amount in effect under subsection (b)(2)(B), and
(II) the dollar amount in effect under subsection (b)(3)(B).
(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.
(2) Qualified medical expenses 

(A) In general 
The term qualified medical expenses means, with respect to an account beneficiary, amounts paid by such beneficiary for medical care (as defined in section 213 (d)1 for such individual, the spouse of such individual, and any dependent (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) of such individual, but only to the extent such amounts are not compensated for by insurance or otherwise.
(B) Health insurance may not be purchased from account 
Subparagraph (A) shall not apply to any payment for insurance.
(C) Exceptions 
Subparagraph (B) shall not apply to any expense for coverage under
(i) a health plan during any period of continuation coverage required under any Federal law,
(ii) a qualified long-term care insurance contract (as defined in section 7702B (b)),
(iii) a health plan during a period in which the individual is receiving unemployment compensation under any Federal or State law, or
(iv) in the case of an account beneficiary who has attained the age specified in section 1811 of the Social Security Act, any health insurance other than a medicare supplemental policy (as defined in section 1882 of the Social Security Act).
(3) Account beneficiary 
The term account beneficiary means the individual on whose behalf the health savings account was established.
(4) Certain rules to apply 
Rules similar to the following rules shall apply for purposes of this section:
(A) Section 219 (d)(2) (relating to no deduction for rollovers).
(B) Section 219 (f)(3) (relating to time when contributions deemed made).
(C) Except as provided in section 106 (d), section 219(f)(5) (relating to employer payments).
(D) Section 408 (g) (relating to community property laws).
(E) Section 408 (h) (relating to custodial accounts).
(e) Tax treatment of accounts 

(1) In general 
A health savings account is exempt from taxation under this subtitle unless such account has ceased to be a health savings 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 qualified medical expenses.
(f) Tax treatment of distributions 

(1) Amounts used for qualified medical expenses 
Any amount paid or distributed out of a health savings account which is used exclusively to pay qualified medical expenses of any account beneficiary shall not be includible in gross income.
(2) Inclusion of amounts not used for qualified medical expenses 
Any amount paid or distributed out of a health savings account which is not used exclusively to pay the qualified medical expenses of the account beneficiary shall be included in the gross income of such beneficiary.
(3) Excess contributions returned before due date of return 

(A) In general 
If any excess contribution is contributed for a taxable year to any health savings account of an individual, paragraph (2) shall not apply to distributions from the health savings accounts of such individual (to the extent such distributions do not exceed the aggregate excess contributions to all such accounts of such individual for such year) if
(i) such distribution is received by the individual on or before the last day prescribed by law (including extensions of time) for filing such individuals return for such taxable year, and
(ii) such distribution is accompanied by the amount of net income attributable to such excess contribution.

Any net income described in clause (ii) shall be included in the gross income of the individual for the taxable year in which it is received.

(B) Excess contribution 
For purposes of subparagraph (A), the term excess contribution means any contribution (other than a rollover contribution described in paragraph (5) or section 220 (f)(5)) which is neither excludable from gross income under section 106 (d) nor deductible under this section.
(4) Additional tax on distributions not used for qualified medical expenses 

(A) In general 
The tax imposed by this chapter on the account beneficiary for any taxable year in which there is a payment or distribution from a health savings account of such beneficiary which is includible in gross income under paragraph (2) shall be increased by 10 percent of the amount which is so includible.
(B) Exception for disability or death 
Subparagraph (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) or dies.
(C) Exception for distributions after medicare eligibility 
Subparagraph (A) shall not apply to any payment or distribution after the date on which the account beneficiary attains the age specified in section 1811 of the Social Security Act.
(5) Rollover contribution 
An amount is described in this paragraph as a rollover contribution if it meets the requirements of subparagraphs (A) and (B).
(A) In general 
Paragraph (2) shall not apply to any amount paid or distributed from a health savings account to the account beneficiary to the extent the amount received is paid into a health savings account for the benefit of such beneficiary not later than the 60th day after the day on which the beneficiary receives the payment or distribution.
(B) Limitation 
This paragraph shall not apply to any amount described in subparagraph (A) received by an individual from a health savings account if, at any time during the 1-year period ending on the day of such receipt, such individual received any other amount described in subparagraph (A) from a health savings account which was not includible in the individuals gross income because of the application of this paragraph.
(6) Coordination with medical expense deduction 
For purposes of determining the amount of the deduction under section 213, any payment or distribution out of a health savings account for qualified medical expenses shall not be treated as an expense paid for medical care.
(7) Transfer of account incident to divorce 
The transfer of an individuals interest in a health savings account to an individuals 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 health savings account with respect to which such spouse is the account beneficiary.
(8) Treatment after death of account beneficiary 

(A) Treatment if designated beneficiary is spouse 
If the account beneficiarys surviving spouse acquires such beneficiarys interest in a health savings account by reason of being the designated beneficiary of such account at the death of the account beneficiary, such health savings 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 beneficiarys interest in a health savings account in a case to which subparagraph (A) does not apply
(I) such account shall cease to be a health 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 if such person is not the estate of such beneficiary, in such persons gross income for the taxable year which includes such date, or if such person is the estate of such beneficiary, in such beneficiarys 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 medical expenses which were incurred by the decedent before the date of the decedents 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 decedents spouse) with respect to amounts included in gross income under clause (i) by such person.
(g) Cost-of-living adjustment 

(1) In general 
Each dollar amount in subsections (b)(2) and (c)(2)(A) shall be increased by an amount equal to
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined under section 1 (f)(3) for the calendar year in which such taxable year begins determined by substituting for calendar year 1992 in subparagraph (B) thereof
(i) except as provided in clause (ii), calendar year 1997, and
(ii) in the case of each dollar amount in subsection (c)(2)(A), calendar year 2003.

In the case of adjustments made for any taxable year beginning after 2007, section 1 (f)(4) shall be applied for purposes of this paragraph by substituting March 31 for August 31, and the Secretary shall publish the adjusted amounts under subsections (b)(2) and (c)(2)(A) for taxable years beginning in any calendar year no later than June 1 of the preceding calendar year.

(2) Rounding 
If any increase under paragraph (1) is not a multiple of $50, such increase shall be rounded to the nearest multiple of $50.
(h) Reports 
The Secretary may require
(1) the trustee of a health savings account to make such reports regarding such account to the Secretary and to the account beneficiary with respect to contributions, distributions, the return of excess contributions, and such other matters as the Secretary determines appropriate, and
(2) any person who provides an individual with a high deductible health plan to make such reports to the Secretary and to the account beneficiary with respect to such plan as the Secretary determines appropriate.

The reports required by this subsection shall be filed at such time and in such manner and furnished to such individuals at such time and in such manner as may be required by the Secretary.

[1] So in original. Probably should be followed by a second closing parenthesis.

26 USC 224 - Cross reference

For deductions in respect of a decedent, see section 691.