
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document affected by Public Law 106-554 Section 1(a)(7)]
[Document affected by Public Law 106-554 Section 1(a)(7)]
[Document affected by Public Law 106-554 Section 1(a)(7)]
[CITE: 26USC138]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
               Subchapter B--Computation of Taxable Income
 
         PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
 
Sec. 138. Medicare+Choice MSA


(a) Exclusion

    Gross income shall not include any payment to the Medicare+Choice 
MSA of an individual by the Secretary of Health and Human Services under 
part C of title XVIII of the Social Security Act.

(b) Medicare+Choice MSA

    For purposes of this section, the term ``Medicare+Choice MSA'' means 
an Archer MSA (as defined in section 220(d))--
        (1) which is designated as a Medicare+Choice MSA,
        (2) with respect to which no contribution may be made other 
    than--
            (A) a contribution made by the Secretary of Health and Human 
        Services pursuant to part C of title XVIII of the Social 
        Security Act, or
            (B) a trustee-to-trustee transfer described in subsection 
        (c)(4),

        (3) the governing instrument of which provides that trustee-to-
    trustee transfers described in subsection (c)(4) may be made to and 
    from such account, and
        (4) which is established in connection with an MSA plan 
    described in section 1859(b)(3) of the Social Security Act.

(c) Special rules for distributions

          (1) Distributions for qualified medical expenses

        In applying section 220 to a Medicare+Choice MSA--
            (A) qualified medical expenses shall not include amounts 
        paid for medical care for any individual other than the account 
        holder, and
            (B) section 220(d)(2)(C) shall not apply.

            (2) Penalty for distributions from Medicare+
             Choice MSA not used for qualified medical expenses 
                      if minimum balance not maintained

        (A) In general

            The tax imposed by this chapter for any taxable year in 
        which there is a payment or distribution from a Medicare+Choice 
        MSA which is not used exclusively to pay the qualified medical 
        expenses of the account holder shall be increased by 50 percent 
        of the excess (if any) of--
                (i) the amount of such payment or distribution, over
                (ii) the excess (if any) of--
                    (I) the fair market value of the assets in such MSA 
                as of the close of the calendar year preceding the 
                calendar year in which the taxable year begins, over
                    (II) an amount equal to 60 percent of the deductible 
                under the Medicare+
                Choice MSA plan covering the account holder as of 
                January 1 of the calendar year in which the taxable year 
                begins.

        Section 220(f)(4) shall not apply to any payment or distribution 
        from a Medicare+
        Choice MSA.

        (B) Exceptions

            Subparagraph (A) shall not apply if the payment or 
        distribution is made on or after the date the account holder--
                (i) becomes disabled within the meaning of section 
            72(m)(7), or
                (ii) dies.

        (C) Special rules

            For purposes of subparagraph (A)--
                (i) all Medicare+Choice MSAs of the account holder shall 
            be treated as 1 account,
                (ii) all payments and distributions not used exclusively 
            to pay the qualified medical expenses of the account holder 
            during any taxable year shall be treated as 1 distribution, 
            and
                (iii) any distribution of property shall be taken into 
            account at its fair market value on the date of the 
            distribution.

              (3) Withdrawal of erroneous contributions

        Section 220(f)(2) and paragraph (2) of this subsection shall not 
    apply to any payment or distribution from a Medicare+Choice MSA to 
    the Secretary of Health and Human Services of an erroneous 
    contribution to such MSA and of the net income attributable to such 
    contribution.

                  (4) Trustee-to-trustee transfers

        Section 220(f)(2) and paragraph (2) of this subsection shall not 
    apply to any trustee-to-trustee transfer from a Medicare+Choice MSA 
    of an account holder to another Medicare+
    Choice MSA of such account holder.

(d) Special rules for treatment of account after death of account holder

    In applying section 220(f)(8)(A) to an account which was a 
Medicare+Choice MSA of a decedent, the rules of section 220(f) shall 
apply in lieu of the rules of subsection (c) of this section with 
respect to the spouse as the account holder of such Medicare+Choice MSA.

(e) Reports

    In the case of a Medicare+Choice MSA, the report under section 
220(h)--
        (1) shall include the fair market value of the assets in such 
    Medicare+Choice MSA as of the close of each calendar year, and
        (2) shall be furnished to the account holder--
            (A) not later than January 31 of the calendar year following 
        the calendar year to which such reports relate, and
            (B) in such manner as the Secretary prescribes in such 
        regulations.

(f) Coordination with limitation on number of taxpayers having Archer 
        MSAs

    Subsection (i) of section 220 shall not apply to an individual with 
respect to a Medicare+Choice MSA, and Medicare+Choice MSA's shall not be 
taken into account in determining whether the numerical limitations 
under section 220(j) are exceeded.

(Added Pub. L. 105-33, title IV, Sec. 4006(a), Aug. 5, 1997, 111 Stat. 
332; amended Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec. 202(a)(3), 
(b)(6), (10)], Dec. 21, 2000, 114 Stat. 2763, 2763A-628, 2763A-629.)

                       References in Text

    The Social Security Act, referred to in subsecs. (a) and (b)(2)(A), 
is act Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended. Part C of title 
XVIII of the Act is classified generally to part C (Sec. 1395w-21 et 
seq.) of subchapter XVIII of chapter 7 of Title 42, The Public Health 
and Welfare. Section 1859 of the Act is classified to section 1395w-28 
of Title 42. For complete classification of this Act to the Code, see 
section 1305 of Title 42 and Tables.


                            Prior Provisions

    A prior section 138 was renumbered section 139 of this title.


                               Amendments

    2000--Subsec. (b). Pub. L. 106-554, Sec. 1(a)(7) [title II, 
Sec. 202(b)(10)], substituted ``an Archer MSA'' for ``a Archer MSA'' in 
introductory provisions.
    Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec. 202(a)(3)], 
substituted ``Archer MSA'' for ``medical savings account'' in 
introductory provisions.
    Subsec. (f). Pub. L. 106-554, Sec. 1(a)(7) [title II, 
Sec. 202(b)(6)], substituted ``Archer MSAs'' for ``medical savings 
accounts'' in heading.


                             Effective Date

    Section 4006(c) of Pub. L. 105-33 provided that: ``The amendments 
made by this section [enacting this section, amending sections 220 and 
4973 of this title, and renumbering former section 138 of this title as 
section 139 of this title] shall apply to taxable years beginning after 
December 31, 1998.''

                  Section Referred to in Other Sections

    This section is referred to in section 4973 of this title; title 42 
section 1395w-23.
