Guidance Under Section 529A: Qualified ABLE Programs, 35602-35620 [2015-15280]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 80, Number 119 (Monday, June 22, 2015)]
[Proposed Rules]
[Pages 35602-35620]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-15280]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1, 25, 26, and 301

[REG-102837-15]
RIN 1545-BM68


Guidance Under Section 529A: Qualified ABLE Programs

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations under section 529A 
of the Internal Revenue Code that provide guidance regarding programs 
under The Stephen Beck, Jr., Achieving a Better Life Experience Act of 
2014. Section 529A provides rules under which States or State agencies 
or instrumentalities may establish and maintain a new type of tax-
favored savings program through which contributions may be made to the 
account of an eligible disabled individual to meet qualified disability 
expenses. These accounts also receive favorable treatment for purposes 
of certain means-tested Federal programs. In addition, these proposed 
regulations provide corresponding amendments to regulations under 
sections 511 and 513, with respect to unrelated business taxable 
income, sections 2501, 2503, 2511, 2642 and 2652, with respect to gift 
and generation-skipping transfer taxes, and section 6011, with respect 
to reporting requirements. This document also provides notice of a 
public hearing on these proposed regulations.

DATES: Comments must be received by September 21, 2015. Outlines of 
topics to be discussed at the public hearing scheduled for October 14, 
2015, at 10 a.m., must be received by September 21, 2015.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-102837-15), Room 
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
102837-

[[Page 35603]]

15), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue 
NW., Washington, DC, or sent electronically via the Federal eRulemaking 
Portal at https://www.regulations.gov (IRS REG-102837-15). The public 
hearing will be held in the Auditorium, Internal Revenue Building, 1111 
Constitution Avenue NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations 
under section 529A, Taina Edlund or Terri Harris, (202) 317-4541, or 
Sean Barnett, (202) 317-5800; concerning the proposed estate and gift 
tax regulations, Theresa Melchiorre, (202) 317-4643; concerning the 
reporting provisions under section 529A, Mark Bond, (202) 317-6844; 
concerning submissions of comments, the hearing, and/or to be placed on 
the building access list to attend the hearing, call Regina Johnson, 
(202) 317-6901 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has been submitted to the Office of Management and Budget 
for review and approval in accordance with the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information 
should be sent to the Office of Management and Budget, Attn: Desk 
Officer for the Department of the Treasury, Office of Information and 
Regulatory Affairs, Washington, DC 20503, with copies to the Internal 
Revenue Service, Attn: IRS Reports Clearance Officer, 
SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the collection of 
information should be received by August 21, 2015.
    Comments are specifically requested concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the Internal Revenue Service, 
including whether the information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information;
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collection of 
information may be minimized, including through forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    The collection of information in the proposed regulations is in 
Sec. Sec.  1.529A-2, 1.529A-5, 1.529A-6 and 1.529A-7. The collection of 
information flows from sections 529A(d)(1), (d)(2), (d)(3), (e)(1) and 
(e)(2) of the Internal Revenue Code (Code). Section 529A(d)(1) requires 
qualified ABLE programs to provide reports to the Secretary and to 
designated beneficiaries with respect to contributions, distributions, 
the return of excess contributions, and such other matters as the 
Secretary may require. Section 529(d)(2) provides that the Secretary 
shall make available to the public reports containing aggregate 
information, by diagnosis and other relevant characteristics, on 
contributions and distributions from the qualified ABLE program. 
Section 529(d)(3) requires qualified ABLE programs to provide notice to 
the Secretary upon the establishment of an ABLE account, containing the 
name and State of residence of the designated beneficiary and such 
other information as the Secretary may require. Section 529A(e)(1) 
requires that a disability certification with respect to certain 
individuals be filed with the Secretary. Section 529A(e)(2) provides 
that the disability certification include a certification to the 
satisfaction of the Secretary that the individual has a medically 
determinable physical or mental impairment that occurred before the 
date on which the individual attained age 26 and also include a copy of 
a physician's diagnosis. The burden under Sec. Sec.  1.529A-5 and 
1.529A-6 is reflected in the burden under the new Form 5498-QA, ``ABLE 
Account Contribution Information,'' and the new Form 1099-QA, 
``Distributions from ABLE Accounts,'' respectively.
    The expected recordkeepers are programs described in section 529A, 
established and maintained by a State or a State agency or 
instrumentality and individuals with ABLE accounts.
    Estimated number of recordkeepers: 10,050.
    Estimated average annual burden hours per recordkeeper: 1.6 hours.
    Estimated total annual recordkeeping burden: 16,080.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
return information are confidential, as required by 26 U.S.C. 6103.

Background

    The Stephen Beck, Jr., Achieving a Better Life Experience (ABLE) 
Act of 2014, enacted on December 19, 2014, as part of The Tax Increase 
Prevention Act of 2014 (Pub. L. 113-295), added section 529A to the 
Internal Revenue Code. Congress recognized the special financial 
burdens borne by families raising children with disabilities and the 
fact that increased financial needs generally continue throughout the 
disabled person's lifetime. Section 101 of the ABLE Act confirms that 
one of the purposes of the Act is to ``provide secure funding for 
disability-related expenses on behalf of designated beneficiaries with 
disabilities that will supplement, but not supplant, benefits'' 
otherwise available to those individuals, whether through private 
sources, employment, public programs, or otherwise. Prior to the 
enactment of the ABLE Act, various types of tax-advantaged savings 
arrangements existed, but none adequately served the goal of promoting 
saving for these financial needs. Section 529A allows the creation of a 
qualified ABLE program by a State (or agency or instrumentality 
thereof) under which a separate ABLE account may be established for a 
disabled individual who is the designated beneficiary and owner of that 
account. Generally, contributions to that account are subject to both 
an annual and a cumulative limit, and, when made by a person other than 
the designated beneficiary, are treated as non-taxable gifts to the 
designated beneficiary. Distributions made from an ABLE account for 
qualified disability expenses of the designated beneficiary are not 
included in the designated beneficiary's gross income. The earnings 
portion of distributions from the ABLE account in excess of the 
qualified disability expenses is includible in the gross income of the 
designated beneficiary. An ABLE account may be used for the long-term 
benefit and/or short-term needs of the designated beneficiary.
    Section 103 of the ABLE Act, while not a tax provision, is critical 
to achieving the goal of the ABLE Act of providing financial resources 
for the benefit of disabled individuals. Because so many of the 
programs that provide essential financial, occupational, and other 
resources and services to disabled individuals are available only to 
persons whose resources and income do not exceed relatively low dollar 
limits, section 103 generally provides that a designated beneficiary's 
ABLE account (specifically, its account balance, contributions to the 
account, and

[[Page 35604]]

distributions from the account) is disregarded for purposes of 
determining the designated beneficiary's eligibility for and the amount 
of any assistance or benefit provided under certain means-tested 
Federal programs. However, in the case of the Supplemental Security 
Income program under title XVI of the Social Security Act, 
distributions for certain housing expenses are not disregarded, and the 
balance (including earnings) in an ABLE account is considered a 
resource of the designated beneficiary to the extent that balance 
exceeds $100,000. Section 103 also addresses the impact of an excess 
balance in an ABLE account on the designated beneficiary's eligibility 
under the Supplemental Security Income program and Medicaid.
    Finally, section 104 of the ABLE Act addresses the treatment of 
ABLE accounts in bankruptcy proceedings.
    Notice 2015-18, 2015-12 IRB 765 (March 23, 2015), provides that the 
section 529A guidance will confirm that the owner of the ABLE account 
is the designated beneficiary of the account, and that the person with 
signature authority over (if not the designated beneficiary of) the 
account may neither have nor acquire any beneficial interest in the 
ABLE account and must administer that account for the benefit of the 
designated beneficiary of that account. The Notice further provides 
that, in the event that state legislation creating ABLE programs 
enacted in accordance with section 529A prior to issuance of guidance 
does not fully comport with the guidance when issued, the Treasury 
Department and the IRS intend to provide transition relief to provide 
sufficient time to allow States to implement the changes necessary to 
avoid the disqualification of the program and of the ABLE accounts 
already established under the program.
    The Treasury Department and the IRS reiterate that States that 
enact legislation creating an ABLE program in accordance with section 
529A, and those individuals establishing ABLE accounts in accordance 
with such legislation, will not fail to receive the benefits of section 
529A merely because the legislation or the account documents do not 
fully comport with the final regulations when they are issued. The 
Treasury Department and the IRS intend to provide transition relief to 
enable those State programs and accounts to be brought into compliance 
with the requirements in the final regulations, including providing 
sufficient time after issuance of the final regulations in order for 
changes to be implemented.

Explanation of Provisions

Qualification as an ABLE program

    The proposed regulations provide guidance on the requirements a 
program must satisfy in order to be a qualified ABLE program described 
in section 529A. Specifically, in addition to other requirements, the 
program must: Be established and maintained by a State or a State's 
agency or instrumentality; permit the establishment of an ABLE account 
only for a designated beneficiary who is a resident of that State, or a 
State contracting with that State for purposes of the ABLE program; 
permit the establishment of an ABLE account only for a designated 
beneficiary who is an eligible individual; limit a designated 
beneficiary to only one ABLE account, wherever located; permit 
contributions to an ABLE account established to meet the qualified 
disability expenses of the account's designated beneficiary; limit the 
nature and amount of contributions that can be made to an ABLE account; 
require a separate accounting for the ABLE account of each designated 
beneficiary with an ABLE account in the program; limit the designated 
beneficiary to no more than two opportunities in any calendar year to 
provide investment direction, whether directly or indirectly, for the 
ABLE account; and prohibit the pledging of an interest in an ABLE 
account as security for a loan.
    Because each qualified ABLE program will have significant 
administrative obligations beyond what is required for the 
administration of qualified tuition programs under section 529 (on 
which section 529A was loosely modeled), and because the frequency of 
distributions from the ABLE accounts is likely to be far greater than 
those made from qualified tuition accounts, the proposed regulations 
expressly allow a qualified ABLE program or any of its contractors to 
contract with one or more Community Development Financial Institutions 
(CDFIs) that commonly serve disabled individuals and their families to 
provide one or more required services. For example, a CDFI could 
provide screening and verification of disabilities, certification of 
the qualified purpose of distributions, debit card services to 
facilitate distributions, and social data collection and reporting. A 
CDFI also may be able to obtain grants to defray the cost of 
administering the program. In general, if certified by the Treasury 
Department, a CDFI may receive a financial assistance award from the 
CDFI Fund that was established within the Treasury Department in 1994 
to promote community development in economically distressed communities 
through investments in CDFIs across the country.

Established and Maintained

    The proposed regulations provide that a program is established by a 
State, or its agency or instrumentality, if the program is initiated by 
State statute or regulation, or by an act of a State official or agency 
with the authority to act on behalf of the State. A program is 
maintained by a State or its agency or instrumentality if: All the 
terms and conditions of the program are set by the State or its agency 
or instrumentality, and the State or its agency or instrumentality is 
actively involved on an ongoing basis in the administration of the 
program, including supervising all decisions relating to the investment 
of assets contributed to the program. The proposed regulations set 
forth factors that are relevant in determining whether a State, or its 
agency or instrumentality, is actively involved in the administration 
of the program. Included in the factors is the manner and extent to 
which it is permissible for the program to contract out for 
professional and financial services.

Establishment of an ABLE Account

    The proposed regulations provide that, consistent with the 
definition of a designated beneficiary in section 529A(e)(3), the 
designated beneficiary of an ABLE account is the eligible individual 
who establishes the account or an eligible individual who succeeded the 
original designated beneficiary. The proposed regulations also provide 
that the designated beneficiary is the owner of that account.
    The Treasury Department and the IRS recognize, however, that 
certain eligible individuals may be unable to establish an account 
themselves. Therefore, the proposed regulations clarify that, if the 
eligible individual cannot establish the account, the eligible 
individual's agent under a power of attorney or, if none, his or her 
parent or legal guardian may establish the ABLE account for that 
eligible individual. For purposes of these proposed regulations, 
because each of these individuals would be acting on behalf of the 
designated beneficiary, references to actions of the designated 
beneficiary, such as opening or managing the ABLE account, are deemed 
to include the actions of any other such individual with signature 
authority over the ABLE account. The proposed regulations also provide 
that, consistent with Notice 2015-18, a person other than the 
designated beneficiary with signature authority

[[Page 35605]]

over the account of the designated beneficiary may neither have, nor 
acquire, any beneficial interest in the account during the designated 
beneficiary's lifetime and must administer the account for the benefit 
of the designated beneficiary.
    At the time an ABLE account is created for a designated 
beneficiary, the designated beneficiary must provide evidence that the 
designated beneficiary is an eligible individual as defined in section 
529A(e)(1). Section 529A(e)(1) provides that an individual is an 
eligible individual for a taxable year if, during that year, either the 
individual is entitled to benefits based on blindness or disability 
under title II or XVI of the Social Security Act and the blindness or 
disability occurred before the date on which the individual attained 
age 26, or a disability certification meeting specified requirements is 
filed with the Secretary. If an individual is asserting he or she is 
entitled to benefits based on blindness or disability under title II or 
XVI of the Social Security Act and the blindness or disability occurred 
before the date on which the individual attained age 26, the proposed 
regulations provide that each qualified ABLE program may determine the 
evidence required to establish the individual's eligibility. For 
example, a qualified ABLE program could require the individual to 
provide a copy of a benefit verification letter from the Social 
Security Administration and allow the individual to certify, under 
penalties of perjury, that the blindness or disability occurred before 
the date on which the individual attained age 26.
    Alternatively, the designated beneficiary must submit the 
disability certification when opening the ABLE account. Consistent with 
section 529A(e)(2), the proposed regulations provide that a disability 
certification is a certification by the designated beneficiary that he 
or she: (1) Has a medically determinable physical or mental impairment, 
which results in marked or severe functional limitations, and which (i) 
can be expected to result in death or (ii) has lasted or can be 
expected to last for a continuous period of not less than 12 months; or 
(2) is blind (within the meaning of section 1614(a)(2) of the Social 
Security Act) and that such blindness or disability occurred before the 
date on which the individual attained age 26. The certification must 
include a copy of the individual's diagnosis relating to the 
individual's relevant impairment or impairments, signed by a licensed 
physician (as defined in section 1861(r) of the Social Security Act, 42 
U.S.C. 1395x(r)). Consistent with other IRS filing requirements, the 
proposed regulations also provide that the certification must be signed 
under penalties of perjury.
    While evidence of an individual's eligibility based on entitlement 
to Social Security benefits should be objectively verifiable, the 
sufficiency of a disability certification that an individual is an 
eligible individual for purposes of section 529A might not be as easy 
to establish. Nevertheless, the Treasury Department and the IRS wish to 
facilitate an eligible individual's ability to establish an ABLE 
account without undue delay. Therefore, the proposed regulations 
provide that an eligible individual must present the disability 
certification, accompanied by the diagnosis, to the qualified ABLE 
program to demonstrate eligibility to establish an ABLE account. The 
proposed regulations further provide that the disability certification 
will be deemed to be filed with the Secretary once the qualified ABLE 
program has received the disability certification or a disability 
certification has been deemed to have been received under the rules of 
the qualified ABLE program, which information the qualified ABLE 
program, as discussed further below, will file with the IRS in 
accordance with the filing requirements under Sec.  1.529A-5(c)(2)(iv).

Disability Determination

    Consistent with section 529A(g)(4), the Treasury Department and the 
IRS have consulted with the Commissioner of Social Security regarding 
disability certifications and determinations of disability. For 
purposes of the disability certification, the proposed regulations 
provide that the phrase ``marked and severe functional limitations'' 
means the standard of disability in the Social Security Act for 
children claiming benefits under the Supplemental Security Income for 
the Aged, Blind, and Disabled (SSI) program based on disability, but 
without regard to the age of the individual. This phrase refers to a 
level of severity of an impairment that meets, medically equals, or 
functionally equals the listings in the Listing of Impairments (the 
listings) in appendix 1 of subpart P of 20 CFR part 404. (See 20 CFR 
416.906, 416.924 and 416.926a). This listing developed and used by the 
Social Security Administration describes for each of the major body 
systems impairments that cause marked and severe functional 
limitations. Most body system sections are in two parts: an 
introduction, followed by the specific listings. The introduction 
contains information relevant to the use of the listings with respect 
to that body system, such as examples of common impairments in the body 
system and definitions used in the listings for that body system. The 
introduction may also include specific criteria for establishing a 
diagnosis, confirming the existence of an impairment, or establishing 
that an impairment satisfies the criteria of a particular listing with 
respect to the body system. The specific listings that follow the 
introduction for each body system specify the objective medical and 
other findings needed to satisfy the criteria of that listing. Most of 
the listed impairments are permanent or expected to result in death, 
although some listings state a specific period of time for which an 
impairment will meet the listing.
    An impairment is medically equivalent to a listing if it is at 
least equal in severity and duration to the severity and duration of 
any listing. An impairment that does not meet or medically equal any 
listing may result in limitations that functionally equal the listings 
if it results in marked limitations in two domains of functioning or an 
extreme limitation in one domain of functioning, as explained in 20 CFR 
416.926a. In addition, the proposed regulations provide that certain 
conditions, specifically those listed in the Compassionate Allowances 
Conditions list maintained by the Social Security Administration, are 
deemed to meet the requirements of an impairment sufficient for a 
disability certification without a physician's diagnosis, provided that 
the condition was present before the date on which the individual 
attained age 26. The proposed regulations also provide the flexibility 
from time to time to identify additional impairments that will be 
deemed to meet these requirements. The Treasury Department and the IRS 
request comments on what other conditions should be deemed to meet the 
requirements of section 529A(e)(2)(A)(i).

Change in Eligible Individual Status

    The Treasury Department and the IRS recognize that there may be 
circumstances in which a designated beneficiary ceases to be an 
eligible individual but subsequently regains that status. Consequently, 
the Treasury Department and the IRS believe that it is appropriate to 
permit continuation of the ABLE account (albeit with some changes in 
the applicable rules) during the period in which a designated 
beneficiary is not an eligible individual as long as the designated 
beneficiary was an eligible individual when the account was 
established. Therefore, if at any time a designated beneficiary no 
longer meets the definition of an eligible

[[Page 35606]]

individual, his or her ABLE account remains an ABLE account to which 
all of the provisions of the ABLE Act continue to apply, and no 
(taxable) distribution of the account balance is deemed to occur. 
However, the proposed regulations provide that, beginning on the first 
day of the taxable year following the taxable year in which the 
designated beneficiary ceased to be an eligible individual, no 
contributions to the ABLE account may be accepted. If the designated 
beneficiary subsequently again becomes an eligible individual, then 
additional contributions may be accepted subject to the applicable 
annual and cumulative limits. In this way, the Treasury Department and 
the IRS intend to prevent a deemed distribution of the ABLE account 
(and preserve the account's qualification as an ABLE account for all 
purposes) if, for example, the disease that caused the impairment goes 
into a temporary remission, and to preserve the ABLE account with its 
tax-free distributions for qualified disability expenses if the 
impairment resumes and once again qualifies the designated beneficiary 
as an eligible individual. Note that expenses will not be qualified 
disability expenses if they are incurred at a time when a designated 
beneficiary is neither disabled nor blind within the meaning of Sec.  
1.529A-1(b)(9)(A) or Sec.  1.529A-2(e)(1)(i).
    The proposed regulations provide flexibility regarding annual 
recertifications. A qualified ABLE program generally must require 
annual recertifications that the designated beneficiary continues to 
satisfy the definition of an eligible individual. However, a qualified 
ABLE program may deem an annual recertification to have been provided 
in appropriate circumstances. For example, a qualified ABLE program may 
permit certification by an individual that he or she has a permanent 
disability to be considered to meet the annual requirement to present a 
certification to the qualified ABLE program. In other cases, a program 
may require all of the same evidence needed for the initial disability 
certification when the account was established, may require a statement 
under penalties of perjury that nothing has changed that would change 
the original disability certification, or may incorporate some other 
method of ensuring that the designated beneficiary continuously 
qualifies as an eligible individual. Alternatively, a qualified ABLE 
program may identify certain impairments or categories of impairments 
for which recertifications will be deemed to have been made annually to 
the qualified ABLE program unless and until the qualified ABLE program 
provides otherwise (for example, if a cure is discovered for a disease 
that causes an impairment). An initial certification or recertification 
that meets the requirements of the qualified ABLE program will be 
deemed to have met the requirement of section 529A(e)(1)(B). The 
Treasury Department and the IRS request comments regarding how a 
qualified ABLE program will be able to demonstrate eligibility in 
subsequent years if it allows deemed recertifications.

Contributions to an ABLE Account

    The proposed regulations provide that, as a general rule, all 
contributions to an ABLE account must be made in cash. The proposed 
regulations provide that a qualified ABLE program may accept cash 
contributions in the form of cash or a check, money order, credit card 
payment, or other similar method of payment. In addition, the proposed 
regulations provide that the total contributions to an ABLE account in 
the designated beneficiary's taxable year, other than amounts received 
in rollovers and program-to-program transfers, must not exceed the 
amount of the annual per-donee gift tax exclusion under section 2503(b) 
in effect for that calendar year (currently $14,000) in which the 
designated beneficiary's taxable year begins. Finally, a qualified ABLE 
program must provide adequate safeguards to ensure that total 
contributions to an ABLE account (including the proceeds from a 
preexisting ABLE account) do not exceed that State's limit for 
aggregate contributions under its qualified tuition program.
    To implement these requirements, the proposed regulations provide 
that a qualified ABLE program must return contributions in excess of 
the annual gift tax exclusion (excess contributions) to the 
contributor(s), along with all net income attributable to those excess 
contributions. Similarly, the proposed regulations also require the 
return of all contributions, along with all net income attributable to 
those contributions, that caused an ABLE account to exceed the limit 
established by the State for its qualified tuition program (excess 
aggregate contributions). If an excess contribution or excess aggregate 
contribution is returned to a contributor other than the designated 
beneficiary, the qualified ABLE program must notify the designated 
beneficiary of such return at the time of the return. The proposed 
regulations further provide that such returns of excess contributions 
and excess aggregate contributions must be received by the 
contributor(s) on or before the due date (including extensions) of the 
designated beneficiary's income tax return for the year in which the 
excess contributions were made or in the year the excess aggregate 
contributions caused amounts in the ABLE account to exceed the limit in 
effect under section 529A(b)(6), respectively. The proposed regulations 
provide rules for determining the net income attributable to a 
contribution made to an ABLE account, and also provide that these 
excess contributions and excess aggregate contributions must be 
returned to contributors on a last-in, first-out basis. In the case of 
contributions that exceed the annual gift tax exclusion, a failure to 
return such excess contributions within the time period discussed in 
this paragraph will result in the imposition on the designated 
beneficiary of a 6 percent excise tax under section 4973(a)(6) on the 
amount of excess contributions. As part of a planned revision of IRA 
regulations, the Treasury Department and the IRS intend to propose 
regulations under section 4973 to reflect that ABLE accounts are 
subject to section 4973.

Application of Gift Tax to Contributions to an ABLE Account

    Gift tax consequences may arise from contributions to an ABLE 
account even though the aggregate amount of such contributions to an 
ABLE account from all contributors may not exceed the annual exclusion 
amount under section 2503(b) applicable to any single contributor. 
Specifically, if a contributor makes other gifts to a designated 
beneficiary in addition to the gift to the designated beneficiary's 
ABLE account, the contributor's total gifts made to the designated 
beneficiary in that year could give rise to a gift tax liability.
    Contributions may be made by any person. The term person is defined 
in section 7701(a)(1) to include an individual, trust, estate, 
partnership, association, company, or corporation. Therefore, for 
purposes of section 529A(b)(1)(A), a person would include an individual 
and each of the entities described in section 7701(a)(1). Under section 
2501(a)(1), the gift tax applies only to gifts by individuals, but it 
also applies to gifts made directly or indirectly. As a result, a gift 
made by a trust, estate, association, company, corporation, or 
partnership is treated as having been made by the owner(s) of that 
entity. For example, a gift from a corporation to a designated 
beneficiary is treated as a gift from the shareholders of the 
corporation to the designated beneficiary. See Example (1) of

[[Page 35607]]

Sec.  25.2511-1(h). Accordingly, the proposed regulations provide that, 
for purposes of sections 529A(b)(1)(A) and 529A(c)(1)(C), a 
contribution by a corporation is treated as a gift by its shareholders 
and a contribution by a partnership is treated as a gift by its 
partners. This rule also applies to trusts, estates, associations, and 
companies. See section 2511 and Sec.  25.2511-1(c).
    The legislative history of section 529A suggests that a ``person'' 
described in section 529A(b)(1)(A) includes the designated beneficiary 
of an ABLE account. See 160 Cong. Rec. H7051, H8317, H8318, H8321, 
H8322 (2014). A person may transfer his or her property into an 
account, such as a bank account or a trust, for his or her benefit and 
retain dominion and control over the property transferred. Because an 
individual cannot make a transfer of property to himself or herself and 
a transfer of property is a fundamental requirement for a completed 
gift, this type of transfer from a person's own property cannot be 
treated as a completed gift for tax purposes. See Sec.  25.2511-2(b) 
and (c). Therefore, the proposed regulations provide that any 
contribution by a designated beneficiary to a qualified ABLE program 
benefitting the designated beneficiary is not treated as a completed 
gift. Because the designated beneficiary remains the owner of the 
account for purposes of chapter 12, if the designated beneficiary 
transfers the funds in the account to another person as permitted under 
these proposed regulations, the designated beneficiary making the 
transfer is the donor for purposes of chapter 12 and the transferor for 
generation-skipping transfer tax purposes of chapter 13.

Distributions

    If distributions from an ABLE account do not exceed the designated 
beneficiary's qualified disability expenses, no amount is includible in 
the designated beneficiary's gross income. Otherwise, the earnings 
portion of the distributions from the ABLE account as determined in the 
manner provided under section 72, reduced by the product of such 
earnings portion and the ratio of the amount of the distributions for 
qualified disability expenses to total distributions, is includible in 
the gross income of the designated beneficiary to the extent not 
otherwise excluded from gross income. As required by section 
529A(c)(1)(D), the proposed regulations provide that, for purposes of 
applying section 72 to amounts distributed from an ABLE account: (1) 
all distributions during a taxable year are treated as one 
distribution; and (2) the value of the contract, income on the 
contract, and investment in the contract are computed as of the close 
of the calendar year in which the designated beneficiary's taxable year 
begins.
    The proposed regulations also provide that, in addition to the 
income tax on the portion of a distribution included in gross income, 
an additional tax of 10 percent of the amount includible in gross 
income is imposed. This additional tax does not apply, however, to 
distributions on or after the designated beneficiary's death or to 
returns of excess contributions, excess aggregate contributions, or 
contributions to additional purported ABLE accounts made by the due 
date (including extensions) of the designated beneficiary's tax return 
for the year in which the relevant contributions were made.
    Section 529A(c)(1)(C) addresses the tax consequences of the 
rollover of an ABLE account to an ABLE account for the same designated 
beneficiary maintained under a different State's qualified ABLE 
program, as well as a change of designated beneficiary. The proposed 
regulations describe with respect to these two situations the 
circumstances in which amounts will not be includible in income. The 
first is any change of designated beneficiary if the new designated 
beneficiary is both (1) an eligible individual for his or her taxable 
year in which the change is made and (2) a sibling of the former 
designated beneficiary. For purposes of these proposed regulations, a 
sibling also includes step-siblings and half-siblings, whether by blood 
or by adoption. The proposed regulations provide that a qualified ABLE 
program must permit a change of designated beneficiary, as long as the 
change is made prior to the death of the former designated beneficiary 
and as long as the successor designated beneficiary is an eligible 
individual. Because the designated beneficiary will be subject to gift 
and/or generation-skipping transfer tax if the successor designated 
beneficiary is not a sibling of the designated beneficiary, the 
Treasury Department and the IRS request comments regarding whether the 
final regulations should permit States to require that a successor 
designated beneficiary also must be a sibling of the designated 
beneficiary.
    The second situation in which a distribution is not included in 
gross income arises if a distribution to the designated beneficiary of 
the ABLE account is paid, not later than the 60th day after the date of 
the distribution, to another (or the same) ABLE account for the benefit 
of the designated beneficiary or for the benefit of an eligible 
individual who is a sibling of the designated beneficiary. However, the 
preceding sentence does not apply to such a distribution that occurs 
within 12 months of a previous rollover to another ABLE account for the 
same designated beneficiary.
    The Treasury Department and the IRS have been asked whether a 
qualified tuition account under section 529 may be rolled into an ABLE 
account for the same designated beneficiary free of tax. Because such a 
distribution to the ABLE account would not constitute a qualified 
higher education expense under section 529, the Treasury Department and 
the IRS do not believe they have the authority to allow such a transfer 
on a tax-free basis.
    In addition, the proposed regulations authorize a qualified ABLE 
program to allow program-to-program transfers to effectuate a change of 
qualified ABLE program or a change of designated beneficiary to another 
eligible individual. Such a direct transfer is neither a distribution 
taxed in accordance with section 72 nor an excess contribution. A 
program-to-program transfer also could be accomplished, if permitted by 
the qualified ABLE program, through a check delivered to the designated 
beneficiary but negotiable only by the qualified State program under 
which the new ABLE account is being established.
    The Treasury Department and the IRS recognize that moving funds by 
use of a program-to-program transfer may be preferable to moving them 
by a rollover because a rollover, even if made within the permissible 
60-day period, may jeopardize the designated beneficiary's eligibility 
for certain benefits under various means-tested programs. Moreover, a 
direct program-to-program transfer could facilitate the efficient 
transfer of all relevant information regarding the application of 
contribution limits and the total amount of accumulated earnings that 
will also apply to the new account. The Treasury Department and the IRS 
request comments as to whether and to what extent a qualified ABLE 
program should be permitted to require that funds from another State's 
ABLE program be accepted only through program-to-program transfers.

Qualified Disability Expenses

    Section 529A(e)(5) defines a qualified disability expense. 
Consistent with that subsection, the proposed regulations provide that 
qualified disability expenses are expenses that relate to the 
designated beneficiary's blindness or disability and are for the 
benefit of that

[[Page 35608]]

designated beneficiary in maintaining or improving his or her health, 
independence, or quality of life. Such expenses include, but are not 
limited to, expenses for education, housing, transportation, employment 
training and support, assistive technology and personal support 
services, health, prevention and wellness, financial management and 
administrative services, legal fees, expenses for oversight and 
monitoring, funeral and burial expenses, and other expenses that may be 
identified from time to time in future guidance published in the 
Internal Revenue Bulletin. As previously stated, expenses incurred at a 
time when a designated beneficiary is neither disabled nor blind within 
the meaning of the proposed regulations are not qualified disability 
expenses.
    In order to implement the legislative purpose of assisting eligible 
individuals in maintaining or improving their health, independence, or 
quality of life, the Treasury Department and the IRS conclude that the 
term ``qualified disability expenses'' should be broadly construed to 
permit the inclusion of basic living expenses and should not be limited 
to expenses for items for which there is a medical necessity or which 
provide no benefits to others in addition to the benefit to the 
eligible individual. For example, expenses for common items such as 
smart phones could be considered qualified disability expenses if they 
are an effective and safe communication or navigation aid for a child 
with autism. The Treasury Department and the IRS request comments 
regarding what types of expenses should be considered qualified 
disability expenses and under what circumstances. The proposed 
regulations authorize the identification of additional types of 
qualified disability expenses in guidance published in the Internal 
Revenue Bulletin. See Sec.  601.601(d)(2). A qualified ABLE program 
must establish safeguards to distinguish between distributions used for 
the payment of qualified disability expenses and other distributions, 
and to permit the identification of the amounts distributed for housing 
expenses as that term is defined for purposes of the Supplemental 
Security Income program of the Social Security Administration.

Limitation on Number of ABLE Accounts of a Designated Beneficiary

    Section 529A(c)(4) generally provides that, except with respect to 
certain rollovers, once an ABLE account has been established for a 
designated beneficiary, no account subsequently established for that 
same designated beneficiary may qualify as an ABLE account. The 
proposed regulations provide that, except with respect to rollovers and 
program-to-program transfers, no designated beneficiary may have more 
than one ABLE account in existence at the same time, but provides that 
a prior ABLE account that has been closed does not prohibit the 
subsequent creation of another ABLE account for the same designated 
beneficiary. A qualified ABLE program must obtain a verification from 
the eligible individual, signed under penalties of perjury, that he or 
she has no other ABLE account (except in the case of a rollover or 
program-to-program transfer). The proposed regulations provide that, in 
the event that any additional ABLE account is opened for a designated 
beneficiary with an ABLE account already in existence, only the first 
such account created for that designated beneficiary qualifies as an 
ABLE account, and each other account is treated for all purposes as 
being an account of the designated beneficiary that is not an ABLE 
account under a qualified ABLE program. The proposed regulations also 
provide, however, that a return, in accordance with the rules that 
apply to returns of excess contributions and excess aggregate 
contributions under Sec.  1.529A-2(g)(4), of the entire balance of a 
second or other subsequent account received by the contributor(s) on or 
before the due date (including extensions) for filing the designated 
beneficiary's income tax return for the year in which the account was 
opened and contributions to the second or subsequent account were made 
will not be treated as a gift or distribution to the designated 
beneficiary for purposes of section 529A.
    The prohibition of multiple ABLE accounts, however, does not apply 
to prevent a timely rollover or program-to-program transfer of the 
designated beneficiary's account to an ABLE account under a different 
qualified ABLE program.

Residency Requirements

    Consistent with section 529A(b)(1)(C), the proposed regulations 
require that an ABLE account for a designated beneficiary may be 
established only under the qualified ABLE program of the State in which 
that designated beneficiary is a resident or with which the State of 
the designated beneficiary's residence has contracted for the provision 
of ABLE accounts. If a State does not establish and maintain a 
qualified ABLE program, it may contract with another State to provide 
an ABLE program for its residents. The statute is silent as to whether 
a designated beneficiary must move his or her existing ABLE account 
when the designated beneficiary changes his or her residence. The 
Treasury Department and the IRS are concerned about imposing undue 
administrative burdens and costs on designated beneficiaries who 
frequently change State residency, such as members of military 
families. Therefore, the proposed regulations provide that a qualified 
ABLE program may permit a designated beneficiary to continue to 
maintain his or her ABLE account that was created in that State, even 
after the designated beneficiary is no longer a resident of that State. 
However, in order to enforce the one ABLE account limitation and in 
accordance with section 529A(g)(1), the proposed regulations provide 
that, other than in the case of a rollover or a program-to-program 
transfer of a designated beneficiary's ABLE account, a qualified ABLE 
program must require the designated beneficiary to verify, under 
penalties of perjury, when creating an ABLE account that the account 
being established is the designated beneficiary's only ABLE account. 
For example, the eligible individual could be required to check a box 
providing such verification on a form used to establish the account. 
The Treasury Department and the IRS are concerned that without such 
safeguards individuals could inadvertently establish two accounts with 
adverse tax consequences due to the loss of ABLE account status for the 
second account and expect qualified ABLE programs to establish 
safeguards to ensure that the required limit of one ABLE account per 
designated beneficiary is not violated.

Investment Direction

    Section 529A(b)(4) states that a program shall not be treated as a 
qualified ABLE program unless it provides that the designated 
beneficiary may directly or indirectly direct the investment of any 
contributions to the program or any earnings thereon no more than two 
times in any calendar year. A program will not violate this requirement 
merely because it permits a designated beneficiary or a person with 
signature authority over a designated beneficiary's account to serve as 
one of the program's board members or employees, or as a board member 
or employee of a contractor that the program hires to perform 
administrative services.

Cap on Contributions

    Section 529A(b)(6) provides that a qualified ABLE program must 
provide adequate safeguards to prevent aggregate

[[Page 35609]]

contributions on behalf of a designated beneficiary in excess of the 
limit established by the State under section 529(b)(6) relating to 
Qualified State Tuition Programs. The proposed regulations provide a 
safe harbor that permits a qualified ABLE program to satisfy this 
requirement regarding total cumulative contributions if the program 
prohibits any additional contributions to an account as soon as the 
account balance reaches the specified contribution limit under such 
State's program established under section 529. Once the account balance 
falls below the prescribed limit, contributions may resume, subject to 
the same limitation. The Treasury Department and the IRS believe that 
recommencement of contributions is appropriate based on the nature and 
purposes of the ABLE program.

Gift and Generation-Skipping Transfer (GST) Taxes

    The proposed regulations provide that contributions to an ABLE 
account by a person other than the designated beneficiary are treated 
as completed gifts to the designated beneficiary of the account, and 
that such gifts are neither gifts of a future interest nor a qualified 
transfer under section 2503(e). Accordingly, no distribution from an 
ABLE account to the designated beneficiary of that account is treated 
as a taxable gift. Finally, neither gift nor GST taxes apply to the 
change of designated beneficiary of an ABLE account, as long as the new 
designated beneficiary is an eligible individual who is a sibling of 
the former designated beneficiary.

Distribution on Death

    The proposed regulations provide that, upon the death of the 
designated beneficiary, all amounts remaining in the ABLE account are 
includible in the designated beneficiary's gross estate for purposes of 
the estate tax. See section 2031. Further, the proposed regulations 
cross-reference section 2053 for purposes of determining the 
deductibility by the designated beneficiary's estate of amounts payable 
from the ABLE account to satisfy claims by creditors such as a State 
and also cross-reference section 2652(a)(1) for treatment of the 
deceased designated beneficiary as the transferor of any property 
remaining in the ABLE account that may pass to a beneficiary.
    Pursuant to section 529A(f), a qualified ABLE program must provide 
that, upon the designated beneficiary's death, any State may file a 
claim (either with the person with signature authority over the ABLE 
account or the executor of the designated beneficiary's estate as 
defined in section 2203) for the amount of the total medical assistance 
paid for the designated beneficiary under the State's Medicaid plan 
after the establishment of the ABLE account. The amount paid in 
satisfaction of such a claim is not a taxable distribution from the 
ABLE account. Further, the amount is to be paid only after the payment 
of all outstanding payments due for the qualified disability expenses 
of the designated beneficiary and is to be reduced by the amount of all 
premiums paid by or on behalf of the designated beneficiary to a 
Medicaid Buy-In program under that State's Medicaid plan.

Unrelated Business Taxable Income and Filing Requirements

    A qualified ABLE program generally is exempt from income taxation. 
A qualified ABLE program, however, is subject to the taxes imposed by 
section 511 relating to the imposition of tax on unrelated business 
taxable income (``UBTI''). For purposes of this tax, certain 
administrative and other fees do not constitute unrelated business 
income to the ABLE program. A qualified ABLE program is not required to 
file Form 990, ``Return of Organization Exempt From Income Tax,'' but 
will be required to file Form 990-T, ``Exempt Organization Business 
Income Tax Return,'' if a filing would be required under the rules of 
Sec. Sec.  1.6012-2(e) and 1.6012-3(a)(5) if the ABLE program were an 
organization described in those sections.

Reporting Requirements

    The proposed regulations set forth recordkeeping and reporting 
requirements. A qualified ABLE program must maintain records that 
enable the program to account to the Secretary with respect to all 
contributions, distributions, returns of excess contributions or 
additional accounts, income earned, and account balances for any 
designated beneficiary's ABLE account. In addition, a qualified ABLE 
program must report to the Secretary the establishment of each ABLE 
account, including the name and residence of the designated 
beneficiary, and other relevant information regarding the account that 
is included on the new Form 5498-QA, ``ABLE Account Contribution 
Information.'' It is anticipated that the qualified ABLE program will 
report if the eligible individual has presented an adequate disability 
certification, accompanied by a diagnosis, to demonstrate eligibility 
to establish an account. Information regarding distributions will be 
reported on the new Form 1099-QA, ``Distributions from ABLE Accounts.'' 
The proposed regulations contain more detail on how the information 
must be reported.
    In addition, section 529A(b)(3) requires that a qualified ABLE 
program provide separate accounting for each designated beneficiary. 
Separate accounting requires that contributions for the benefit of a 
designated beneficiary, as well as earnings attributable to those 
contributions, are allocated to that designated beneficiary's account. 
Whether or not a program ordinarily provides each designated 
beneficiary an annual account statement showing the income and 
transactions related to the account, the program must give this 
information to the designated beneficiary upon request.
    Section 529A(d)(4) provides that States are required to submit 
electronically to the Commissioner of Social Security, on a monthly 
basis and in the manner specified by the Commissioner of Social 
Security, statements on relevant distributions and account balances 
from all ABLE accounts. The report of the Committee on Ways and Means 
(H.R. Rep. No. 113-614, pt. 1, at 15 (2014)) indicates that States 
should work with the Commissioner of Social Security to identify data 
elements for the monthly reports, including the type of qualified 
disability expenses.

Effective Date/Applicability Date

    These regulations are proposed to be effective as of the date of 
publication of the Treasury decision adopting these rules as final 
regulations in the Federal Register. These rules, when adopted as final 
regulations, will apply to taxable years beginning after December 31, 
2014. The reporting requirements of Sec. Sec.  1.529A-5 through 1.529A-
7 will apply to information returns required to be filed, and payee 
statements required to be furnished, after December 31, 2015. Until the 
issuance of final regulations, taxpayers and qualified ABLE programs 
may rely on these proposed regulations.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866, as supplemented by Executive Order 13563. It has also been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to this regulation and, because the 
regulation does not impose a collection of information on small

[[Page 35610]]

entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. This regulation, if adopted, would primarily affect states and 
individuals and therefore would not have a significant economic impact 
on a substantial number of small entities. Therefore, a regulatory 
flexibility analysis is not required. Pursuant to section 7805(f) of 
the Internal Revenue Code, this notice of proposed rulemaking will be 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small businesses.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any comments that are timely submitted 
to the IRS as prescribed in this preamble under the ``Addresses'' 
heading. The Treasury Department and the IRS request comments on all 
aspects of the proposed rules. All comments will be available at 
www.regulations.gov or upon request. A public hearing will be scheduled 
if requested in writing by any person that timely submits written or 
electronic comments. If a public hearing is scheduled, notice of the 
date, time, and place for the hearing will be published in the Federal 
Register.
    A public hearing has been scheduled for October 14, 2015, beginning 
at 10:00 a.m. in the Auditorium, Internal Revenue Building, 1111 
Constitution Avenue NW., Washington, DC. Due to building security 
procedures, visitors must enter at the Constitution Avenue entrance. In 
addition, all visitors must present photo identification to enter the 
building. Because of access restrictions, visitors will not be admitted 
beyond the immediate entrance area more than 30 minutes before the 
hearing starts. For information about having your name placed on the 
building access list to attend the hearing, see the FOR FURTHER 
INFORMATION CONTACT section of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit written 
comments by September 21, 2015, and an outline of the topics to be 
discussed and the time to be devoted to each topic (signed original and 
eight (8) copies) by September 21, 2015. Submit a signed paper original 
and eight (8) copies or an electronic copy. A period of 10 minutes will 
be allotted to each person for making comments. An agenda showing the 
scheduling of the speakers will be prepared after the deadline for 
receiving outlines has passed. Copies of the agenda will be available 
free of charge at the hearing.

Drafting Information

    The principal authors of these regulations are Terri Harris and 
Sean Barnett, Office of Associate Chief Counsel (Tax Exempt and 
Government Entities). However, other personnel from the Treasury 
Department and the IRS participated in the development of these 
regulations.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 25

    Gift taxes, Reporting and recordkeeping requirements.

26 CFR Part 26

    Estate taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR parts 1, 25, 26 and 301 are proposed to be 
amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding an 
entry in numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *

    Sections 1.529A-1 through 1.529A-7 also issued under 26 U.S.C. 
529A(g). * * *

0
Par. 2. Section 1.511-2 is amended by adding paragraph (e) to read as 
follows:


Sec.  1.511-2  Organizations subject to tax.

* * * * *
    (e) ABLE programs--(1) Unrelated business taxable income. A 
qualified ABLE program described in section 529A generally is exempt 
from income taxation, but is subject to taxes imposed by section 511 
relating to the imposition of tax on unrelated business income. A 
qualified ABLE program is required to file Form 990-T, ``Exempt 
Organization Business Income Tax Return,'' if such filing would be 
required under the rules of Sec. Sec.  1.6012-2(e) and 1.6012-3(a)(5) 
if the ABLE program were an organization described in those sections.
    (2) Effective/applicability dates. This paragraph (e) applies to 
taxable years beginning after December 31, 2014.
0
Par. 3. Section 1.513-1 is amended by adding Example 4 to paragraph 
(d)(4)(i) to read as follows:


Sec.  1.513-1  Definition of unrelated trade or business.

* * * * *
    (d) * * *
    (4) * * *
    (i) * * *
    Example 4. P is a qualified ABLE program described in section 
529A. P receives amounts in order to open or maintain ABLE accounts, 
as administrative or maintenance fees and other similar fees 
including service charges. Because the payment of these amounts are 
essential to the operation of a qualified ABLE program, the income 
generated from the activity does not constitute gross income from an 
unrelated trade or business.
* * * * *
0
Par. 4. An undesignated center heading is added immediately following 
Sec.  1.528-10 and Sec. Sec.  1.529A-0 through 1.529A-7 are added to 
read as follows:
Sec.
* * * * *

Qualified Able Programs

1.529A-0 Table of contents.
1. 529A-1 Exempt status of qualified ABLE program and definitions.
1.529A-2 Qualified ABLE program.
1.529A-3 Tax treatment.
1.529A-4 Gift, estate, and generation-skipping transfer taxes.
1.529A-5 Reporting of the establishment of and contributions to an 
ABLE account.
1.529A-6 Reporting of distributions from and termination of an ABLE 
account.
1.529A-7 Electronic furnishing of statements to designated 
beneficiaries and contributors.
* * * * *


Sec.  1.529A-0  Table of contents.

    This section lists the following captions contained in Sec. Sec.  
1.529A-1 through 1.529A-7.


Sec.  1.529A-1  Exempt status of qualified ABLE program and 
definitions.

    (a) In general.
    (b) Definitions.
    (1) ABLE account.
    (2) Contracting State.
    (3) Contribution.
    (4) Designated beneficiary.
    (5) Disability certification.
    (6) Distribution.
    (7) Earnings.
    (8) Earnings ratio.
    (9) Eligible individual.
    (10) Excess contribution.
    (11) Excess aggregate contribution.
    (12) Investment in the account.
    (13) Member of the family.
    (14) Program-to-program transfer.
    (15) Qualified ABLE program.
    (16) Qualified disability expenses.
    (17) Rollover.

[[Page 35611]]

    (c) Effective/applicability date.


Sec.  1.529A-2  Qualified ABLE program.

    (a) In general.
    (b) Established and maintained by a State or agency or 
instrumentality of a State.
    (1) Established.
    (2) Maintained.
    (3) Community Development Financial Institutions (CDFIs).
    (c) Establishment of an ABLE account.
    (1) In general.
    (2) Only one ABLE account.
    (3) Beneficial interest.
    (d) Eligible individual.
    (1) In general.
    (2) Frequency of recertification.
    (3) Loss of qualification as an eligible individual.
    (e) Disability certification.
    (1) In general.
    (2) Marked and severe functional limitations.
    (3) Compassionate allowance list.
    (4) Additional guidance.
    (5) Restriction on use of certification.
    (f) Change of designated beneficiary.
    (g) Contributions.
    (1) Permissible property.
    (2) Annual contributions limit.
    (3) Cumulative limit.
    (4) Return of excess contributions and excess aggregate 
contributions.
    (h) Qualified disability expenses.
    (1) In general.
    (2) Example.
    (i) Separate accounting.
    (j) Program-to-program transfers.
    (k) Carryover of attributes.
    (l) Investment direction.
    (m) No pledging of interest as security.
    (n) No sale or exchange.
    (o) Change of residence.
    (p) Post-death payments.
    (q) Reporting requirements.
    (r) Effective/applicability date.


Sec.  1.529A-3  Tax treatment.

    (a) Taxation of distributions.
    (b) Additional exclusions from gross income.
    (1) Rollover.
    (2) Program-to-program transfers.
    (3) Change in designated beneficiary.
    (4) Payments to creditors post-death.
    (c) Computation of earnings.
    (d) Additional tax on amounts includible in gross income.
    (1) In general.
    (2) Exceptions.
    (e) Tax on excess contributions.
    (f) Filing requirements.
    (g) Effective/applicability date.


Sec.  1.529A-4  Gift, estate, and generation-skipping transfer taxes.

    (a) Contributions.
    (1) In general.
    (2) Generation-skipping transfer (GST) tax.
    (3) Designated beneficiary as contributor.
    (b) Distributions.
    (c) Change of designated beneficiary.
    (d) Transfer tax on death of designated beneficiary.
    (e) Effective/applicability date.


Sec.  1.529A-5  Reporting of the establishment of and contributions to 
an ABLE account.

    (a) In general.
    (b) Additional definitions.
    (1) Filer.
    (2) TIN.
    (c) Requirement to file return.
    (1) Form of return.
    (2) Information included on return.
    (3) Time and manner of filing return.
    (d) Requirement to furnish statement.
    (1) In general.
    (2) Time and manner of furnishing statement.
    (3) Copy of Form 5498-QA.
    (e) Request for TIN of designated beneficiary.
    (f) Penalties.
    (1) Failure to file return.
    (2) Failure to furnish TIN.
    (g) Effective/applicability date.


Sec.  1.529A-6  Reporting of distributions from and termination of an 
ABLE account.

    (a) In general.
    (b) Requirement to file return.
    (1) Form of return.
    (2) Information included on return.
    (3) Time and manner of filing return.
    (c) Requirement to furnish statement.
    (1) In general.
    (2) Time and manner of furnishing statement.
    (3) Copy of Form 1099-QA.
    (d) Request for TIN of contributor(s).
    (e) Penalties.
    (1) Failure to file return.
    (2) Failure to furnish TIN.
    (f) Effective/applicability date.


Sec.  1.529A-7  Electronic furnishing of statements to designated 
beneficiaries and contributors.

    (a) Electronic furnishing of statements.
    (1) In general.
    (2) Consent.
    (3) Required disclosures.
    (4) Format.
    (5) Notice.
    (6) Access period.
    (b) Effective/applicability date.


Sec.  1.529A-1  Exempt status of qualified ABLE program and 
definitions.

    (a) In general. A qualified ABLE program described in section 529A 
is exempt from income tax, except for the tax imposed under section 511 
on the unrelated business taxable income of that program.
    (b) Definitions. For purposes of section 529A, this section and 
Sec. Sec.  1.529A-2 through 1.529A-7--
    (1) ABLE account means an account established under a qualified 
ABLE program and owned by the designated beneficiary of that account.
    (2) Contracting State means a State without a qualified ABLE 
program of its own, which, in order to make ABLE accounts available to 
its residents who are eligible individuals, contracts with another 
State having such a program.
    (3) Contribution means any payment directly allocated to an ABLE 
account for the benefit of a designated beneficiary.
    (4) Designated beneficiary means the individual who is the owner of 
the ABLE account and who either established the account at a time when 
he or she was an eligible individual or who has succeeded the former 
designated beneficiary in that capacity (successor designated 
beneficiary). If the designated beneficiary is not able to exercise 
signature authority over his or her ABLE account or chooses to 
establish an ABLE account but not exercise signature authority, 
references to the designated beneficiary with respect to his or her 
actions include actions by the designated beneficiary's agent under a 
power of attorney or, if none, a parent or legal guardian of the 
designated beneficiary.
    (5) Disability certification means a certification deemed 
sufficient by the Secretary to establish a certain level of physical or 
mental impairment that meets the requirements described in Sec.  
1.529A-2(e).
    (6) Distribution means any payment from an ABLE account. A program-
to-program transfer is not a distribution.
    (7) Earnings attributable to an account are the excess of the total 
account balance on a particular date over the investment in the account 
as of that date.
    (8) Earnings ratio means the amount of earnings attributable to the 
account as of the last day of the calendar year in which the designated 
beneficiary's taxable year begins, divided by the total account balance 
on that same date, after taking into account all distributions made 
during that calendar year and all contributions received during that 
same year other than those (if any) returned in accordance with Sec.  
1.529A-2(g)(4).
    (9) Eligible individual for a taxable year means an individual who 
either:
    (i) Is entitled during that taxable year to benefits based on 
blindness or disability under title II or XVI of the Social Security 
Act, provided that such

[[Page 35612]]

blindness or disability occurred before the date on which the 
individual attained age 26 (and, for this purpose, an individual is 
deemed to attain age 26 on his or her 26th birthday); or
    (ii) Is the subject of a disability certification filed with the 
Secretary for that taxable year.
    (10) Excess contribution means the amount by which the amount 
contributed during the taxable year of the designated beneficiary to an 
ABLE account exceeds the limit in effect under section 2503(b) for the 
calendar year in which the taxable year of the designated beneficiary 
begins.
    (11) Excess aggregate contribution means the amount contributed 
during the taxable year of the designated beneficiary that causes the 
total of amounts contributed since the establishment of the ABLE 
account (or of an ABLE account for the same designated beneficiary that 
was rolled into the current ABLE account) to exceed the limit in effect 
under section 529(b)(6). In the context of the safe harbor in Sec.  
1.529A-2(g)(3), however, excess aggregate contribution means a 
contribution that causes the account balance to exceed the limit in 
effect under section 529(b)(6).
    (12) Investment in the account means the sum of all contributions 
made to the account, reduced by the aggregate amount of contributions 
included in distributions, if any, made from the account. In the case 
of a rollover into an ABLE account the amount included as investment in 
the recipient account is not the full amount of the rollover 
contribution, but instead is equal to the amount of the rollover 
contribution that constituted the investment in the account from which 
the rollover was made.
    (13) Member of the family means a sibling, whether by blood or by 
adoption. Such term includes a brother, sister, stepbrother, 
stepsister, half-brother, and half-sister.
    (14) Program-to-program transfer means the direct transfer of the 
entire balance of an ABLE account into an ABLE account of the same 
designated beneficiary in which the transferor ABLE account is closed 
upon completion of the transfer, or of part or all of the balance to an 
ABLE account of another eligible individual who is a member of the 
family of the former designated beneficiary, without any intervening 
distribution or deemed distribution to the designated beneficiary.
    (15) Qualified ABLE program means a program established and 
maintained by a State, or agency or instrumentality of a State, under 
which an ABLE account may be established by and for the benefit of the 
account's designated beneficiary who is an eligible individual, and 
that meets the requirements described in Sec.  1.529A-2.
    (16) Qualified disability expenses means any expenses incurred at a 
time when the designated beneficiary is an eligible individual that 
relate to the blindness or disability of the designated beneficiary of 
an ABLE account, including expenses that are for the benefit of the 
designated beneficiary in maintaining or improving his or her health, 
independence, or quality of life. See Sec.  1.529A-2(h). Any expenses 
incurred at a time when a designated beneficiary is neither disabled 
nor blind within the meaning of Sec.  1.529-1(b)(9)(A) or Sec.  1.529-
2(e)(1)(i) are not qualified disability expenses.
    (17) Rollover means a contribution to an ABLE account of a 
designated beneficiary (or of an eligible individual who is a member of 
the family of the designated beneficiary) of all or a portion of an 
amount withdrawn from the designated beneficiary's ABLE account, 
provided the contribution is made within 60 days of the date of the 
withdrawal and, in the case of a rollover to the designated 
beneficiary's ABLE account, no rollover has been made to an ABLE 
account of the designated beneficiary within the prior 12 months.
    (c) Effective/applicability date. This section applies to taxable 
years beginning after December 31, 2014.


Sec.  1.529A-2  Qualified ABLE program.

    (a) In general. A qualified ABLE program is a program established 
and maintained by a State, or an agency or instrumentality of a State, 
that satisfies all of the requirements of this section and under 
which--
    (1) An ABLE account may be established for the purpose of meeting 
the qualified disability expenses of the designated beneficiary of the 
account;
    (2) The designated beneficiary must be a resident of such State or 
a resident of a Contracting State (as residence is determined under the 
law of the State of the designated beneficiary's residence);
    (3) A designated beneficiary is limited to only one ABLE account at 
a time except as otherwise provided with respect to program-to-program 
transfers and rollovers;
    (4) Any person may make contributions to such an ABLE account, 
subject to the limitations described in paragraph (g) of this section; 
and
    (5) Distributions (other than rollovers and returns of 
contributions as described in paragraph (g)(4) of this section) may be 
made only to or for the benefit of the designated beneficiary of the 
ABLE account.
    (b) Established and maintained by a State or agency or 
instrumentality of a State--(1) Established. A program is established 
by a State or its agency or instrumentality if the program is initiated 
by State statute or regulation or by an act of a State official or 
agency with the authority to act on behalf of the State.
    (2) Maintained. A program is maintained by a State or an agency or 
instrumentality of a State if--
    (i) The State or its agency or instrumentality sets all of the 
terms and conditions of the program, including but not limited to who 
may contribute to the program, who may be a designated beneficiary of 
the program, and what benefits the program may provide; and
    (ii) The State or its agency or instrumentality is actively 
involved on an ongoing basis in the administration of the program, 
including supervising the implementation of decisions relating to the 
investment of assets contributed under the program. Factors that are 
relevant in determining whether a State or its agency or 
instrumentality is actively involved in the administration of the 
program include, but are not limited to: Whether the State or its 
agency or instrumentality provides services to designated beneficiaries 
that are not provided to persons who are not designated beneficiaries; 
whether the State or its agency or instrumentality establishes detailed 
operating rules for administering the program; whether officials of the 
State or its agency or instrumentality play a substantial role in the 
operation of the program, including selecting, supervising, monitoring, 
auditing, and terminating the relationship with any private contractors 
that provide services under the program; whether the State or its 
agency or instrumentality holds the private contractors that provide 
services under the program to the same standards and requirements that 
apply when private contractors handle funds that belong to the State or 
its agency or instrumentality or provide services to the State or its 
agency or instrumentality; whether the State or its agency or 
instrumentality provides funding for the program; and whether the State 
or its agency or instrumentality acts as trustee or holds program 
assets directly or for the benefit of the designated beneficiaries. For 
example, if the State or its agency or instrumentality thereof 
exercises the same authority over the funds invested in the program as 
it does over the investments in or pool of funds of a State employees' 
defined benefit pension plan, then the

[[Page 35613]]

State or its agency or instrumentality will be considered actively 
involved on an ongoing basis in the administration of the program.
    (3) Community Development Financial Institutions (CDFIs). Some or 
all of the services described in paragraphs (b)(2)(i) and (ii) of this 
section may be performed by one or more Community Development Financial 
Institutions (CDFIs) with whom the State (or its agency or 
instrumentality) contracts for that purpose.
    (c) Establishment of an ABLE account--(1) In general. Except as 
otherwise provided in this paragraph (c), a qualified ABLE program must 
provide that an ABLE account may be established only for an eligible 
individual under a qualified ABLE program of the State in which the 
eligible individual is a resident. The qualified ABLE program also may 
allow the establishment of an ABLE account for an eligible individual 
who is a resident of a Contracting State as defined in Sec.  1.529A-
1(b)(2). If an eligible individual is unable to establish an ABLE 
account on his or her own behalf, the ABLE account may be established 
on behalf of the eligible individual by the eligible individual's agent 
under a power of attorney or, if none, by a parent or legal guardian of 
the eligible individual.
    (2) Only one ABLE account--(i) In general. Except in the case of 
rollovers or program-to-program transfers, a designated beneficiary is 
limited to one ABLE account at a time, regardless of where located. To 
ensure that this requirement is met, a qualified ABLE program must 
obtain a verification, signed under penalties of perjury, that the 
eligible individual has no other existing ABLE account (other than an 
ABLE account that will terminate with the rollover or program-to-
program transfer into the new ABLE account) before that program can 
permit the establishment of an ABLE account for that eligible 
individual. In the case of a rollover, the ABLE account from which 
amounts were rolled must be closed as of the 60th day after the amount 
was distributed from the ABLE account in order for the account that 
received the rollover to be treated as an ABLE account.
    (ii) Treatment of additional accounts. Except in the case of 
rollovers or program-to-program transfers, if an ABLE account is 
established for a designated beneficiary who already has an ABLE 
account in existence, an additional account will not be treated as an 
ABLE account. However, if all contributions made to that account are 
returned in accordance with the rules that apply to excess 
contributions and excess aggregate contributions under paragraph (g)(4) 
of this section, the additional account will be treated as never having 
been established.
    (3) Beneficial interest. The eligible individual for whose benefit 
an ABLE account is established is the designated beneficiary of the 
account. A person other than the designated beneficiary with signature 
authority over the account of the designated beneficiary may neither 
have nor acquire any beneficial interest in the account during the 
lifetime of the designated beneficiary and must administer the account 
for the benefit of the designated beneficiary of the account.
    (d) Eligible individual--(1) In general. Whether an individual is 
an eligible individual (as defined in Sec.  1.529A-1(b)(9)) is 
determined for each taxable year, and that determination applies for 
the entire year. A qualified ABLE program must specify the 
documentation that an individual must provide, both at the time an ABLE 
account is established for that individual and thereafter, in order to 
ensure that the designated beneficiary of the ABLE account is, and 
continues to be, an eligible individual. For purposes of determining 
whether an individual is an eligible individual, a disability 
certification will be deemed to be filed with the Secretary once the 
qualified ABLE program has received the disability certification (as 
described in paragraph (e) of this section) or a disability 
certification has been deemed to have been received under the rules of 
the qualified ABLE program, which information the qualified ABLE 
program will file in accordance with the filing requirements under 
Sec.  1.529A-5(c)(2)(iv).
    (2) Frequency of recertification--(i) In general. A qualified ABLE 
program may choose different methods of ensuring a designated 
beneficiary's status as an eligible individual and may impose different 
periodic recertification requirements for different types of 
impairments.
    (ii) Considerations. In developing its rules on recertification, a 
qualified ABLE program may take into consideration whether an 
impairment is incurable and, if so, the likelihood that a cure may be 
found in the future. For example, a qualified ABLE program may provide 
that the initial certification will be deemed to be valid for a stated 
number of years, which may vary with the type of impairment. If the 
qualified ABLE program imposes an enforceable obligation on the 
designated beneficiary or other person with signature authority over 
the ABLE account to promptly report changes in the designated 
beneficiary's condition that would result in the designated 
beneficiary's failing to satisfy the definition of eligible individual, 
the program also may provide that a certification is valid until the 
end of the taxable year in which the change in the designated 
beneficiary's condition occurred.
    (3) Loss of qualification as an eligible individual. If the 
designated beneficiary of an ABLE account ceases to be an eligible 
individual, then for each taxable year in which the designated 
beneficiary is not an eligible individual, the account will continue to 
be an ABLE account, the designated beneficiary will continue to be the 
designated beneficiary of the ABLE account (and will be referred to as 
such), and the ABLE account will not be deemed to have been 
distributed. However, beginning on the first day of the designated 
beneficiary's first taxable year for which the designated beneficiary 
does not satisfy the definition of an eligible individual, additional 
contributions to the designated beneficiary's ABLE account must not be 
accepted by the qualified ABLE program. Additionally, no amounts 
incurred during that year and each subsequent year in which the 
designated beneficiary does not satisfy the definition of an eligible 
individual will be qualified disability expenses. If the designated 
beneficiary subsequently again becomes an eligible individual, 
contributions to the designated beneficiary's ABLE account again may be 
accepted subject to the contribution limits under section 529A, and 
expenses incurred that meet the definition of a qualified disability 
expense will be qualified disability expenses.
    (e) Disability certification--(1) In general. Except as provided in 
paragraph (e)(3) of this section or additional guidance described in 
paragraph (e)(4) of this section, a disability certification with 
respect to an individual is a certification signed under penalties of 
perjury by the individual, or by the other individual establishing (or 
with signature authority over) the ABLE account for the individual, 
that--
    (i) The individual--
    (A) Has a medically determinable physical or mental impairment that 
results in marked and severe functional limitations (as defined in 
paragraph (e)(2) of this section), and that--
    (1) Can be expected to result in death; or
    (2) Has lasted or can be expected to last for a continuous period 
of not less than 12 months; or

[[Page 35614]]

    (B) Is blind (within the meaning of section 1614(a)(2) of the 
Social Security Act);
    (ii) Such blindness or disability occurred before the date on which 
the individual attained age 26 (and, for this purpose, an individual is 
deemed to attain age 26 on his or her 26th birthday); and
    (iii) Includes a copy of the individual's diagnosis relating to the 
individual's relevant impairment or impairments, signed by a physician 
meeting the criteria of section 1861(r)(1) of the Social Security Act 
(42 U.S.C. 1395x(r)).
    (2) Marked and severe functional limitations. For purposes of 
paragraph (e)(1) of this section, the phrase ``marked and severe 
functional limitations'' means the standard of disability in the Social 
Security Act for children claiming Supplemental Security Income for the 
Aged, Blind, and Disabled (SSI) benefits based on disability (see 20 
CFR 416.906). Specifically, this is a level of severity that meets, 
medically equals, or functionally equals the severity of any listing in 
appendix 1 of subpart P of 20 CFR part 404, but without regard to age. 
(See 20 CFR 416.906, 416.924 and 416.926a.) Such phrase also includes 
any impairment or standard of disability identified in future guidance 
published in the Internal Revenue Bulletin (see Sec.  601.601(d)(2) of 
this chapter). Consistent with the regulations of the Social Security 
Administration, the level of severity is determined by taking into 
account the effect of the individual's prescribed treatment. (See 20 
CFR 416.930.)
    (3) Compassionate allowance list. Conditions listed in the ``List 
of Compassionate Allowances Conditions'' maintained by the Social 
Security Administration (at www.socialsecurity.gov/compassionateallowances/conditions.htm) are deemed to meet the 
requirements of section 529A(e)(1)(B) regarding the filing of a 
disability certification, if the condition was present before the date 
on which the individual attained age 26. To establish that an 
individual with such a condition meets the definition of an eligible 
individual, the individual must identify the condition and certify to 
the qualified ABLE program both the presence of the condition and its 
onset prior to age 26, in a manner specified by the qualified ABLE 
program.
    (4) Additional guidance. Additional guidance on conditions deemed 
to meet the requirements of section 529A(e)(1)(B) may be identified in 
future guidance published in the Internal Revenue Bulletin. See Sec.  
601.601(d)(2) of this chapter.
    (5) Restriction on use of certification. No inference may be drawn 
from a disability certification described in this paragraph (e) for 
purposes of establishing eligibility for benefits under title II, XVI, 
or XIX of the Social Security Act.
    (f) Change of designated beneficiary. A qualified ABLE program must 
permit a change in the designated beneficiary of an ABLE account, but 
only during the life of the designated beneficiary. At the time of the 
change, the successor designated beneficiary must be an eligible 
individual.
    (g) Contributions--(1) Permissible property. Except in the case of 
program-to-program transfers, contributions to an ABLE account may only 
be made in cash. A qualified ABLE program may allow cash contributions 
to be made in the form of a check, money order, credit card, electronic 
transfer, or similar method.
    (2) Annual contributions limit. A qualified ABLE program must 
provide that no contribution to an ABLE account will be accepted to the 
extent such contribution, when added to all other contributions 
(whether from the designated beneficiary or one or more other persons) 
to that ABLE account made during the designated beneficiary's taxable 
year causes the total of such contributions to exceed the amount in 
effect under section 2503(b) for the calendar year in which the 
designated beneficiary's taxable year begins. For this purpose, 
contributions do not include rollovers or program-to-program transfers.
    (3) Cumulative limit--(i) In general. A qualified ABLE program 
maintained by a State or its agency or instrumentality must provide 
adequate safeguards to prevent aggregate contributions on behalf of a 
designated beneficiary in excess of the limit established by that State 
under section 529(b)(6). For purposes of the preceding sentence, 
aggregate contributions include contributions to any prior ABLE account 
maintained by any State or its agency or instrumentality for the same 
designated beneficiary or any prior designated beneficiary.
    (ii) Safe harbor. A qualified ABLE program maintained by a State or 
its agency or instrumentality satisfies the requirement in paragraph 
(g)(3)(i) of this section if it refuses to accept any additional 
contribution to an ABLE account once the balance in that account 
reaches the limit established by that State under section 529(b)(6). 
Once the account balance falls below such limit, additional 
contributions again may be accepted, subject to the limits under this 
paragraph (g)(3)(i) of this section.
    (4) Return of excess contributions and excess aggregate 
contributions. If an excess contribution as defined in Sec.  1.529A-
1(b)(10) or an excess aggregate contribution as defined in Sec.  
1.529A-1(b)(11) is allocated to or deposited into the ABLE account of a 
designated beneficiary, a qualified ABLE program must return that 
excess contribution or excess aggregate contribution, including all net 
income attributable to that excess contribution or excess aggregate 
contribution, as determined under the rules set forth in Sec.  1.408-11 
(treating an IRA as an ABLE account and returned contributions under 
section 408(d)(4) as excess contributions or excess aggregate 
contributions), to the person or persons who made that contribution. An 
excess contribution or excess aggregate contribution must be returned 
to its contributor(s) on a last-in-first-out basis until the entire 
excess contribution or excess aggregate contribution, along with all 
net income attributable to such contribution, has been returned. 
Returned contributions must be received by the contributor(s) on or 
before the due date (including extensions) for the Federal income tax 
return of the designated beneficiary for the taxable year in which the 
excess contribution or excess aggregate contribution was made. See 
Sec.  1.529A-3(e) for income tax considerations for the contributor(s). 
If an excess contribution or excess aggregate contribution and the net 
income attributable to the excess contribution or excess aggregate 
contribution are returned to a contributor other than the designated 
beneficiary, the qualified ABLE program must notify the designated 
beneficiary of such return at the time of the return.
    (h) Qualified disability expenses--(1) In general. Qualified 
disability expenses, as defined in Sec.  1.529A-1(b)(16), are expenses 
incurred that relate to the blindness or disability of the designated 
beneficiary of the ABLE account and are for the benefit of that 
designated beneficiary in maintaining or improving his or her health, 
independence, or quality of life. Such expenses include, but are not 
limited to, expenses related to the designated beneficiary's education, 
housing, transportation, employment training and support, assistive 
technology and related services, personal support services, health, 
prevention and wellness, financial management and administrative 
services, legal fees, expenses for oversight and monitoring, and 
funeral and burial expenses, as well

[[Page 35615]]

as other expenses that may be identified from time to time in future 
guidance published in the Internal Revenue Bulletin. See Sec.  
601.601(d)(2) of this chapter. Qualified disability expenses include 
basic living expenses and are not limited to items for which there is a 
medical necessity or which solely benefit a disabled individual. A 
qualified ABLE program must establish safeguards to distinguish between 
distributions used for the payment of qualified disability expenses and 
other distributions, and to permit the identification of the amounts 
distributed for housing expenses as that term is defined for purposes 
of the Supplemental Security Income program of the Social Security 
Administration.
    (2) Example. The following example illustrates this paragraph (h):

    Example. B, an individual, has a medically determined mental 
impairment that causes marked and severe limitations on her ability 
to navigate and communicate. A smart phone would enable B to 
navigate and communicate more safely and effectively, thereby 
helping her to maintain her independence and to improve her quality 
of life. Therefore, the expense of buying, using, and maintaining a 
smart phone that is used by B would be considered a qualified 
disability expense.

    (i) Separate accounting. A program will not be treated as a 
qualified ABLE program unless it provides separate accounting for each 
ABLE account. Separate accounting requires that contributions for the 
benefit of a designated beneficiary and any earnings attributable 
thereto must be allocated to that designated beneficiary's account. 
Whether or not a program provides each designated beneficiary an annual 
account statement showing the total account balance, the investment in 
the account, the accrued earnings, and the distributions from the 
account, the program must give this information to the designated 
beneficiary upon request.
    (j) Program-to-program transfers. A qualified ABLE program may 
permit a change of qualified ABLE program or a change of designated 
beneficiary by means of a program-to-program transfer as defined in 
Sec.  1.529A-1(b)(14). In that event, subject to any contrary 
provisions or limitations adopted by the qualified ABLE program, rules 
similar to the rules of Sec.  1.401(a)(31)-1, Q&A-3 and 4 (which apply 
for purposes of a direct rollover from a qualified plan to an eligible 
retirement plan) apply for purposes of determining whether an amount is 
paid in the form of a program-to-program transfer.
    (k) Carryover of attributes. Upon a rollover or program-to-program 
transfer, all of the attributes of the former ABLE account relevant for 
purposes of calculating the investment in the account and applying the 
annual and cumulative limits on contributions are applicable to the 
recipient ABLE account. The portion of the rollover or transfer amount 
that constituted investment in the account from which the distribution 
or transfer was made is added to investment in the recipient ABLE 
account. Similarly, the portion of the rollover or transfer amount that 
constituted earnings of the account from which the distribution or 
transfer was made is added to the earnings of the recipient ABLE 
account.
    (l) Investment direction. A program will not be treated as a 
qualified ABLE program unless it provides that the designated 
beneficiary of an ABLE account established under such program may 
direct, whether directly or indirectly, the investment of any 
contributions to the program (or any earnings thereon) no more than two 
times in any calendar year.
    (m) No pledging of interest as security. A program will not be 
treated as a qualified ABLE program unless the terms of the program, or 
a state statute or regulation that governs the program, prohibit any 
interest in the program or any portion thereof from being used as 
security for a loan. This restriction includes, but is not limited to, 
a prohibition on the use of any interest in the ABLE program as 
security for a loan used to purchase such interest in the program.
    (n) No sale or exchange. A qualified ABLE program must ensure that 
no interest in an ABLE account may be sold or exchanged.
    (o) Change of residence. A qualified ABLE program may continue to 
maintain the ABLE account of a designated beneficiary after that 
designated beneficiary changes his or her residence to another State.
    (p) Post-death payments. A qualified ABLE program must provide that 
a portion or all of the balance remaining in the ABLE account of a 
deceased designated beneficiary must be distributed to a State that 
files a claim against the designated beneficiary or the ABLE account 
itself with respect to benefits provided to the designated beneficiary 
under that State's Medicaid plan established under title XIX of the 
Social Security Act. The payment of such claim (if any) will be made 
only after providing for the payment from the designated beneficiary's 
ABLE account of all outstanding payments due for his or her qualified 
disability expenses, and will be limited to the amount of the total 
medical assistance paid for the designated beneficiary after the 
establishment of the ABLE account (the date on which the ABLE account, 
or any ABLE account from which amounts were rolled or transferred to 
the ABLE account of the same designated beneficiary, was opened) over 
the amount of any premiums paid, whether from the ABLE account or 
otherwise by or on behalf of the designated beneficiary, to a Medicaid 
Buy-In program under any such State Medicaid plan.
    (q) Reporting requirements. A qualified ABLE program must comply 
with all applicable reporting requirements, including without 
limitation those described in Sec. Sec.  1.529A-5 through 1.529A-7.
    (r) Effective/applicability dates. This section applies to taxable 
years beginning after December 31, 2014.


Sec.  1.529A-3  Tax treatment.

    (a) Taxation of distributions. Each distribution from an ABLE 
account consists of earnings (computed in accordance with paragraph (c) 
of this section) and investment in the account. If the total amount 
distributed from an ABLE account to or for the benefit of the 
designated beneficiary of that ABLE account during his or her taxable 
year does not exceed the qualified disability expenses of the 
designated beneficiary for that year, no amount distributed is 
includible in the gross income of the designated beneficiary for that 
year. If the total amount distributed from an ABLE account to or for 
the benefit of the designated beneficiary of that ABLE account during 
his or her taxable year exceeds the qualified disability expenses of 
the designated beneficiary for that year, the distributions from the 
ABLE account, except to the extent excluded from gross income under 
this section or any other provision of chapter 1 of the Internal 
Revenue Code, must be included in the gross income of the designated 
beneficiary in the manner provided under this section and section 72. 
In such a case, the earnings portion of the distribution includible in 
gross income is equal to the earnings portion of the distribution 
reduced by an amount that bears the same ratio to the earnings portion 
as the amount of qualified disability expenses during the year bears to 
the total distributions during the year. For this purpose, all amounts 
relevant under section 72 are determined as of December 31 of the year 
in which the designated beneficiary's taxable year begins, and all 
amounts distributed from an ABLE account to or for the benefit of the 
designated beneficiary during his or her taxable year are treated as 
one distribution. If an excess contribution or excess aggregate 
contribution is

[[Page 35616]]

returned within the time period required in Sec.  1.529A-2(g)(4), any 
net income distributed is includible in the gross income of the 
contributor(s) in the taxable year in which the excess contribution or 
excess aggregate contribution was made.
    (b) Additional exclusions from gross income--(1) Rollover. A 
rollover as defined in Sec.  1.529A-1(b)(17) is not includible in gross 
income under paragraph (a) of this section.
    (2) Program-to-program transfers. A program-to-program transfer as 
defined in Sec.  1.529A-1(b)(14) is not a distribution and is not 
includible in gross income under paragraph (a) of this section.
    (3) Change of designated beneficiary--(i) In general. A change of 
designated beneficiary of an ABLE account is not treated as a 
distribution for purposes of section 529A, and is not includible in 
gross income under paragraph (a) of this section, if the successor 
designated beneficiary is--
    (A) An eligible individual for such calendar year; and
    (B) A member of the family of the former designated beneficiary.
    (ii) Other designated beneficiary changes. In the case of any 
change of designated beneficiary not described in paragraph (b)(3)(i) 
of this section, the former designated beneficiary of that ABLE account 
will be treated as having received a distribution of the fair market 
value of the assets in that ABLE account on the date on which the 
change is made to the new designated beneficiary.
    (4) Payments to creditors post-death. Distributions made after the 
death of the designated beneficiary in payment of outstanding 
obligations due for qualified disability expenses of the designated 
beneficiary are not includible in the gross income of the designated 
beneficiary or his or her estate. Included among these obligations is 
the post-death payment of any part of a claim filed against the 
designated beneficiary or the ABLE account by a State under a State 
Medicaid plan.
    (c) Computation of earnings. The earnings portion of a distribution 
is equal to the product of the amount of the distribution and the 
earnings ratio, as defined in Sec.  1.529A-1(b)(8). The balance of the 
distribution (the amount of the distribution minus the earnings portion 
of that distribution) is the portion of that distribution that 
constitutes the return of investment in the account.
    (d) Additional tax on amounts includible in gross income--(1) In 
general. If any amount of a distribution from an ABLE account is 
includible in the gross income of a person for any taxable year under 
paragraph (a) of this section (the ``includible amount''), the tax 
imposed on that person by Chapter 1 of the Internal Revenue Code shall 
be increased by an amount equal to 10 percent of the includible amount.
    (2) Exceptions--(i) Distributions on or after the death of the 
designated beneficiary. Paragraph (d)(1) of this section does not apply 
to any distribution made from the ABLE account on or after the death of 
the designated beneficiary to the estate of the designated beneficiary, 
to an heir or legatee of the designated beneficiary, or to a creditor 
described in paragraph (b)(4) of this section.
    (ii) Returned excess contributions and additional accounts. 
Paragraph (d)(1) of this section does not apply to any return made in 
accordance with Sec.  1.529A-2(g)(4) of an excess contribution, excess 
aggregate contribution, or additional account.
    (e) Tax on excess contributions. Under section 4973(h), a 
contribution to an ABLE account in excess of the annual contributions 
limit described in Sec.  1.529A-2(g)(2) is subject to an excise tax in 
an amount equal to 6 percent of the excess contribution. However, if 
the excess contribution is returned in accordance with the provisions 
of Sec.  1.529A-2(g)(4), it is treated as an amount not contributed.
    (f) Filing requirements. A qualified ABLE program is not required 
to file Form 990, ``Return of Organization Exempt From Income Tax,'' 
Form 1041, ``U.S. Income Tax Return for Estates and Trusts,'' or Form 
1120, ``U.S. Corporation Income Tax Return.'' However, a qualified ABLE 
program is required to file Form 990-T, ``Exempt Organization Business 
Income Tax Return,'' if such filing would be required under the rules 
of Sec. Sec.  1.6012-2(e) and 1.6012-3(a)(5) if the ABLE program were 
an organization described in those sections.
    (g) Effective/applicability dates. This section applies to taxable 
years beginning after December 31, 2014.


Sec.  1.529A-4  Gift, estate, and generation-skipping transfer taxes.

    (a) Contributions--(1) In general. Each contribution by a person to 
an ABLE account other than by the designated beneficiary of that 
account is treated as a completed gift to the designated beneficiary of 
the account for gift tax purposes. Under the applicable gift tax rules, 
a contribution from a corporation, partnership, trust, estate, or other 
entity is treated as a gift by the shareholders, partners, or other 
beneficial owners in proportion to their respective ownership interests 
in the entity. See Sec.  25.2511-1(c) and (h). A gift into an ABLE 
account is not treated as either a gift of a future interest in 
property, or a qualified transfer under section 2503(e). To the extent 
a contributor's gifts to the designated beneficiary, including gifts 
paid into the designated beneficiary's ABLE account, do not exceed the 
annual limit in section 2503(b), the contribution is not subject to 
gift tax. This provision, however, does not change any other provision 
applicable to the transfer. For example, a contribution by the employer 
of the designated beneficiary's parent continues to constitute earned 
income to the parent and then a gift by the parent to the designated 
beneficiary.
    (2) Generation-skipping transfer (GST) tax. To the extent the 
contribution into an ABLE account is a nontaxable gift for gift tax 
purposes, the inclusion ratio for purposes of the GST tax will be zero 
pursuant to section 2642(c)(1).
    (3) Designated beneficiary as contributor. A designated beneficiary 
may make a contribution to fund his or her own ABLE account. That 
contribution is not a gift. However, in the event of any change of 
designated beneficiary, the portion of the then fair market value of 
the ABLE account attributable to that contribution and any earnings 
attributable to that contribution will constitute a gift by the 
designated beneficiary to the successor designated beneficiary, and the 
usual gift and GST tax rules will apply.
    (b) Distributions. No distribution from an ABLE account to or for 
the benefit of the designated beneficiary is treated as a taxable gift 
to that designated beneficiary.
    (c) Change of designated beneficiary. Neither gift tax nor 
generation-skipping transfer tax applies to a change of designated 
beneficiary if the successor designated beneficiary is both an eligible 
individual and a member of the family (as described in Sec.  1.529A-
1(b)(13)) of the designated beneficiary. The previous sentence does not 
apply to any other change of designated beneficiary.
    (d) Transfer tax on death of designated beneficiary. Upon the death 
of the designated beneficiary, the designated beneficiary's ABLE 
account is includible in his or her gross estate for estate tax 
purposes under section 2031. The payment of outstanding qualified 
disability expenses and the payment of certain claims made by a State 
under its Medicaid plan may be deductible for estate tax purposes if 
the requirements of section 2053 are satisfied.
    (e) Effective/applicability date. This section applies to taxable 
years beginning after December 31, 2014.

[[Page 35617]]

Sec.  1.529A-5  Reporting of the establishment of and contributions to 
an ABLE account.

    (a) In general. A filer defined in paragraph (b)(1) of this section 
must, with respect to each ABLE account--
    (1) File an annual information return, as described in paragraph 
(c) of this section, with the Internal Revenue Service; and
    (2) Furnish an annual statement, as described in paragraph (d) of 
this section, to the designated beneficiary of the ABLE account.
    (b) Additional definitions. In addition to the definitions in Sec.  
1.529A-1(b), the following definitions also apply for purposes of this 
section--
    (1) Filer means the State or its agency or instrumentality that 
establishes and maintains the qualified ABLE program under which an 
ABLE account is established. The filing may be done by either an 
officer or employee of the State or its agency or instrumentality 
having control of the qualified ABLE program, or the officer's or 
employee's designee.
    (2) TIN means taxpayer identification number as defined in section 
7701(a)(41).
    (c) Requirement to file return--(1) Form of return. For purposes of 
reporting the information described in paragraph (c)(2) of this 
section, the filer must file Form 5498-QA, ``ABLE Account Contribution 
Information,'' or any successor form, together with Form 1096, ``Annual 
Summary and Transmittal of U.S. Information Returns.''
    (2) Information included on return. With respect to each ABLE 
account, the filer must include on the return--
    (i) The name, address, and TIN of the designated beneficiary of the 
ABLE account;
    (ii) The name, address, and TIN of the filer;
    (iii) Information regarding the establishment of the ABLE account, 
as required by the form and its instructions;
    (iv) Information regarding the disability certification or other 
basis for eligibility of the designated beneficiary, as required by the 
form and its instructions. For further information regarding 
eligibility and disability certification, see Sec.  1.529A-2(d) and 
(e), respectively;
    (v) The total amount of any contributions made with respect to the 
ABLE account during the calendar year;
    (vi) The fair market value of the ABLE account as of the last day 
of the calendar year; and
    (vii) Any other information required by the form, its instructions, 
or published guidance. See Sec. Sec.  601.601(d) and 601.602 of this 
chapter.
    (3) Time and manner of filing return--(i) In general. Except as 
provided in paragraph (c)(3)(ii) of this section, the information 
returns required under this paragraph must be filed on or before May 31 
of the year following the calendar year with respect to which the 
return is being filed, in accordance with the forms and their 
instructions.
    (ii) Extensions of time. See Sec. Sec.  1.6081-1 and 1.6081-8 of 
this chapter for rules relating to extensions of time to file 
information returns required in this section.
    (iii) Electronic filing. See Sec.  301.6011-2 of this chapter for 
rules relating to electronic filing.
    (iv) Substitute forms. The filer may file the returns required 
under this paragraph (c) on a substitute form. A substitute form must 
comply with applicable revenue procedures (see Sec.  601.601(d)(2) of 
this chapter) or other guidance published by the IRS, including 
Publication 1179, ``General Rules and Specifications for Substitute 
Forms 1096, 1098, 1099, 5498, and Certain Other Information Returns.''
    (d) Requirement to furnish statement--(1) In general. The filer 
must furnish a statement to the designated beneficiary of the ABLE 
account for which it is required to file a Form 5498-QA (or any 
successor form). The statement must include--
    (i) The information required under paragraph (c)(2) of this 
section;
    (ii) A legend that identifies the statement as important tax 
information that is being furnished to the Internal Revenue Service; 
and
    (iii) The name and address of the office or department of the filer 
that is the information contact for questions regarding the ABLE 
account to which the Form 5498-QA relates.
    (2) Time and manner of furnishing statement--(i) In general. Except 
as provided in paragraph (d)(2)(ii) of this section, the filer must 
furnish the statement described in paragraph (d)(1) of this section to 
the designated beneficiary on or before March 15 of the year following 
the calendar year with respect to which the statement is being 
furnished. If mailed, the statement must be sent to the designated 
beneficiary's last known address. The statement may be furnished 
electronically, as provided in Sec.  1.529A-7.
    (ii) Extensions of time. The Internal Revenue Service may grant an 
extension of time to furnish statements required in this section upon a 
showing of good cause. See the instructions to Form 5498-QA.
    (3) Copy of Form 5498-QA. The filer may satisfy the requirement of 
this paragraph (d) by furnishing either a copy of Form 5498-QA (or 
successor form) or another document that contains the information 
required by paragraph (d)(1) of this section, if the document complies 
with applicable revenue procedures (see Sec.  601.601(d)(2) of this 
chapter) or other guidance published by the IRS relating to substitute 
statements, including Publication 1179, ``General Rules and 
Specifications for Substitute Forms 1096, 1098, 1099, 5498, and Certain 
Other Information Returns.''
    (e) Request for TIN of designated beneficiary. The filer must 
request the TIN of the designated beneficiary at the time the ABLE 
account is opened if the filer does not already have a record of the 
designated beneficiary's correct TIN. The filer must clearly notify the 
designated beneficiary that the law requires the designated beneficiary 
to furnish a TIN so that it may be included on an information return to 
be filed by the filer. The designated beneficiary may provide his or 
her TIN in any manner including orally, in writing, or electronically. 
If the TIN is furnished in writing, no particular form is required. 
Form W-9, ``Request for Taxpayer Identification Number and 
Certification,'' may be used, or the request may be incorporated into 
the forms related to the establishment of the ABLE account.
    (f) Penalties--(1) Failure to file return. The section 6693 penalty 
may apply to the filer that fails to file information returns at the 
time and in the manner required by this section, unless it is shown 
that such failure is due to reasonable cause. See section 6693 and the 
regulations thereunder.
    (2) Failure to furnish TIN. The section 6723 penalty may apply to 
any designated beneficiary who fails to furnish his or her TIN to the 
filer. See section 6723, and the regulations thereunder, for rules 
relating to the penalty for failure to furnish a TIN.
    (g) Effective/applicability date. The rules of this section apply 
to information returns required to be filed, and payee statements 
required to be furnished, after December 31, 2015.


Sec.  1.529A-6  Reporting of distributions from and termination of an 
ABLE account.

    (a) In general. The filer as defined in Sec.  1.529A-5(b)(1) must, 
with respect to each ABLE account from which any distribution is made 
or which is terminated during the calendar year--
    (1) File an annual information return, as described paragraph (b) 
of this section, with the Internal Revenue Service; and
    (2) Furnish an annual statement, as described in paragraph (c) of 
this

[[Page 35618]]

section, to the designated beneficiary of the ABLE account and to each 
contributor who received a returned contribution in accordance with 
Sec.  1.529A-2(g)(4) attributable to the calendar year.
    (b) Requirement to file return--(1) Form of return. For purposes of 
reporting the information in paragraph (b)(2) of this section, the 
filer must file Form 1099-QA, ``Distributions from ABLE Accounts,'' or 
any successor form, together with Form 1096, ``Annual Summary and 
Transmittal of U.S. Information Returns.''
    (2) Information included on return. The filer must include on the 
return--
    (i) The name, address, and TIN of the designated beneficiary of the 
ABLE account or of any contributor who received a returned contribution 
in accordance with Sec.  1.529A-2(g)(4) attributable to the calendar 
year, as applicable;
    (ii) The name, address, and TIN of the filer;
    (iii) The aggregate amount of distributions from the ABLE account 
during the calendar year;
    (iv) Information as to basis and earnings with respect to such 
distributions or returns of contributions;
    (v) Information regarding termination (if any) of the ABLE account;
    (vi) Information regarding each rollover and any program-to-program 
transfer to or from the ABLE account during the designated 
beneficiary's taxable year;
    (vii) Whether the return is being furnished to the designated 
beneficiary or to a contributor; and
    (viii) Any other information required by the form, its 
instructions, or published guidance. See Sec. Sec.  601.601(d) and 
601.602 of this chapter.
    (3) Time and manner of filing return--(i) In general. Except as 
provided in paragraph (b)(3)(ii) of this section, the Forms 1099-QA and 
1096 must be filed on or before February 28 (March 31 if filing 
electronically) of the year following the calendar year with respect to 
which the return is being filed, in accordance with the forms and their 
instructions.
    (ii) Extensions of time. See Sec. Sec.  1.6081-1 and 1.6081-8 of 
this chapter for rules relating to extensions of time to file 
information returns required in this section.
    (iii) Electronic filing. See Sec.  301.6011-2 of this chapter for 
rules relating to electronic filing.
    (iv) Substitute forms. The filer may file the return required under 
this paragraph (b) on a substitute form. A substitute form must comply 
with applicable revenue procedures (see Sec.  601.601(d)(2) of this 
chapter) or other guidance published by the IRS, including Publication 
1179, ``General Rules and Specifications for Substitute Forms 1096, 
1098, 1099, 5498, and Certain Other Information Returns.''
    (c) Requirement to furnish statement--(1) In general. The filer 
must furnish a statement to the designated beneficiary and each 
contributor (if any) of the ABLE account for which it is required to 
file a Form 1099-QA (or any successor form). The statement must 
include--
    (i) The information required under paragraph (b)(2) of this 
section.
    (ii) A legend that identifies the statement as important tax 
information that is being furnished to the Internal Revenue Service;
    (iii) The name and address of the office or department of the filer 
that is the information contact for questions regarding the ABLE 
account to which the Form 1099-QA relates.
    (2) Time and manner of furnishing statement--(i) In general. Except 
as provided in paragraph (c)(2)(ii) of this section, a filer must 
furnish the statement described in paragraph (c)(1) of this section to 
the designated beneficiary on or before January 31 of the year 
following the calendar year with respect to which the statement is 
being furnished. If mailed, the statement must be sent to the 
recipient's last known address. The statement may be furnished 
electronically, as provided in Sec.  1.529A-7.
    (ii) Extensions of time. The Internal Revenue Service may grant an 
extension of time to furnish statements required in this section upon a 
showing of good cause. See the instructions to Form 1099-QA.
    (3) Copy of Form 1099-QA. A filer may satisfy the requirement of 
this paragraph (c) by furnishing either a copy of Form 1099-QA (or 
successor form) or another document that contains the information 
required by paragraph (c)(1) of this section and that complies with 
applicable revenue procedures (see Sec.  601.601(d)(2) of this chapter) 
or other guidance published by the IRS relating to substitute 
statements, including Publication 1179, ``General Rules and 
Specifications for Substitute Forms 1096, 1098, 1099, 5498, and Certain 
Other Information Returns.''
    (d) Request for TIN of contributor(s). A filer must request the TIN 
for each contributor to the ABLE account at the time a contribution is 
made, if the filer does not already have a record of that person's 
correct TIN. The filer must clearly notify each contributor to the 
account that the law requires that person to furnish a TIN so that it 
may be included on an information return to be filed by the filer. The 
contributor may provide his or her TIN in any manner including orally, 
in writing, or electronically. If the TIN is furnished in writing, no 
particular form is required. Form W-9, ``Request for Taxpayer 
Identification Number and Certification,'' may be used, or the request 
may be incorporated into the forms related to the establishment of the 
ABLE account.
    (e) Penalties--(1) Failure to file return. The section 6693 penalty 
may apply to a filer that fails to file information returns at the time 
and in the manner required by this section, unless it is shown that 
such failure is due to reasonable cause. See section 6693 and the 
regulations thereunder.
    (2) Failure to furnish TIN. The section 6723 penalty may apply to 
any contributor who fails to furnish his or her TIN to the filer. See 
section 6723, and the regulations thereunder, for rules relating to the 
penalty for failure to furnish a TIN.
    (f) Effective/applicability date. The rules of this section apply 
to information returns required to be filed, and payee statements 
required to be furnished, after December 31, 2015.


Sec.  1.529A-7   Electronic furnishing of statements to designated 
beneficiaries and contributors.

    (a) Electronic furnishing of statements--(1) In general. A filer 
required under Sec.  1.529A-5 or Sec.  1.529A-6 of this chapter to 
furnish a written statement to a designated beneficiary of or 
contributor to an ABLE account may furnish the statement in an 
electronic format in lieu of a paper format. A filer who meets the 
requirements of paragraphs (a)(2) through (6) of this section is 
treated as furnishing the required statement.
    (2) Consent--(i) In general. The recipient of the statement must 
have affirmatively consented to receive the statement in an electronic 
format. The consent may be made electronically in any manner that 
reasonably demonstrates that the recipient can access the statement in 
the electronic format in which it will be furnished to the recipient. 
Alternatively, the consent may be made in a paper document if it is 
confirmed electronically.
    (ii) Withdrawal of consent. The consent requirement of this 
paragraph (a)(2) is not satisfied if the recipient withdraws the 
consent and the withdrawal takes effect before the statement is 
furnished. The filer may provide that a withdrawal of consent takes 
effect either on the date it is received by the filer or on another 
date

[[Page 35619]]

no more than 60 days later. The filer also may provide that a request 
for a paper statement will be treated as a withdrawal of consent.
    (iii) Change in hardware or software requirements. If a change in 
the hardware or software required to access the statement creates a 
material risk that the recipient will not be able to access the 
statement, the filer must, prior to changing the hardware or software, 
provide the recipient with a notice. The notice must describe the 
revised hardware and software required to access the statement and 
inform the recipient that a new consent to receive the statement in the 
revised electronic format must be provided to the filer if the 
recipient does not want to withdraw the consent. After implementing the 
revised hardware and software, the filer must obtain from the 
recipient, in the manner described in paragraph (a)(2)(i) of this 
section, a new consent or confirmation of consent to receive the 
statement electronically.
    (iv) Examples. For purposes of the following examples that 
illustrate the rules of this paragraph (a)(2), assume that the 
requirements of Sec.  1.529A-7(a)(3) have been met:

    Example 1. Filer F sends Recipient R a letter stating that R may 
consent to receive statements required under Sec.  1.529A-5 or Sec.  
1.529A-6 electronically on a Web site instead of in a paper format. 
The letter contains instructions explaining how to consent to 
receive the statements electronically by accessing the Web site, 
downloading the consent document, completing the consent document, 
and emailing the completed consent back to F. The consent document 
posted on the Web site uses the same electronic format that F will 
use for the electronically furnished statements. R reads the 
instructions and submits the consent in the manner provided in the 
instructions. R has consented to receive the statements 
electronically in the manner described in paragraph (a)(2)(i) of 
this section.
    Example 2. Filer F sends Recipient R an email stating that R may 
consent to receive statements required under Sec.  1.529A-5 or Sec.  
1.529A-6 electronically instead of in a paper format. The email 
contains an attachment instructing R how to consent to receive the 
statements electronically. The email attachment uses the same 
electronic format that F will use for the electronically furnished 
statements. R opens the attachment, reads the instructions, and 
submits the consent in the manner provided in the instructions. R 
has consented to receive the statements electronically in the manner 
described in paragraph (a)(2)(i) of this section.
    Example 3. Filer F posts a notice on its Web site stating that 
Recipient R may receive statements required under Sec.  1.529A-5 or 
Sec.  1.529A-6 electronically instead of in a paper format. The Web 
site contains instructions on how R may access a secure Web page and 
consent to receive the statements electronically. By accessing the 
secure Web page and giving consent, R has consented to receive the 
statements electronically in the manner described in paragraph 
(a)(2)(i) of this section.

    (3) Required disclosures--(i) In general. Prior to, or at the time 
of, a recipient's consent, the filer must provide to the recipient a 
clear and conspicuous disclosure statement containing each of the 
disclosures described in paragraphs (a)(3)(ii) through (viii) of this 
section.
    (ii) Paper statement. The recipient must be informed that the 
statement will be furnished on paper if the recipient does not consent 
to receive it electronically.
    (iii) Scope and duration of consent. The recipient must be informed 
of the scope and duration of the consent. For example, the recipient 
must be informed whether the consent applies to statements furnished 
every year after the consent is given until it is withdrawn in the 
manner described in paragraph (a)(3)(v)(A) of this section, or only to 
the statement required to be furnished on or before the due date 
immediately following the date on which the consent is given.
    (iv) Post-consent request for a paper statement. The recipient must 
be informed of any procedure for obtaining a paper copy of the 
recipient's statement after giving the consent and whether a request 
for a paper statement will be treated as a withdrawal of consent.
    (v) Withdrawal of consent. The recipient must be informed that--
    (A) The recipient may withdraw a consent by writing (electronically 
or on paper) to the person or department whose name, mailing address, 
and email address is provided in the disclosure statement;
    (B) The filer will confirm, in writing (either electronically or on 
paper), the withdrawal and the date on which it takes effect; and
    (C) A withdrawal of consent does not apply to a statement that was 
furnished electronically in the manner described in this paragraph (a) 
before the date on which the withdrawal of consent takes effect.
    (vi) Notice of termination. The recipient must be informed of the 
conditions under which a filer will cease furnishing statements 
electronically to the recipient.
    (vii) Updating information. The recipient must be informed of the 
procedures for updating the information needed by the filer to contact 
the recipient. The filer must inform the recipient of any change in the 
filer's contact information.
    (viii) Hardware and software requirements. The recipient must be 
provided with a description of the hardware and software required to 
access, print, and retain the statement, and the date when the 
statement will no longer be available on the Web site.
    (4) Format. The electronic version of the statement must contain 
all required information and comply with applicable revenue procedures 
or other guidance published by the IRS relating to substitute 
statements to recipients, including Publication 1179, ``General Rules 
and Specifications for Substitute Forms 1096, 1098, 1099, 5498, and 
Certain Other Information Returns.''
    (5) Notice--(i) In general. If the statement is furnished on a Web 
site, the filer must notify the recipient that the statement is posted 
on a Web site. The notice may be delivered by mail, electronic mail, or 
in person. The notice must provide instructions on how to access and 
print the statement. The notice must include the following statement in 
capital letters, ``IMPORTANT TAX RETURN DOCUMENT AVAILABLE.'' If the 
notice is provided by electronic mail, the foregoing statement must be 
on the subject line of the electronic mail.
    (ii) Undeliverable electronic address. If an electronic notice 
described in paragraph (a)(5)(i) of this section is returned as 
undeliverable, and the correct electronic address cannot be obtained 
from the filer's records or from the recipient, then the filer must 
furnish the notice by mail or in person within 30 days after the 
electronic notice is returned.
    (iii) Corrected statements. If the filer has corrected a 
recipient's statement that was furnished electronically, the filer must 
furnish the corrected statement to the recipient electronically. If the 
recipient's statement was furnished though a Web site posting and the 
filer has corrected the statement, the filer must notify the recipient 
that it has posted the corrected statement on the Web site within 30 
days of such posting in the manner described in paragraph (a)(5)(i) of 
this section. The corrected statement or the notice must be furnished 
by mail or in person if--
    (A) An electronic notice of the Web site posting of an original 
statement or the corrected statement was returned as undeliverable; and
    (B) The recipient has not provided a new email address.
    (6) Access period. Statements furnished on a Web site must be 
retained on the Web site through October 15 of the year following the

[[Page 35620]]

calendar year to which the statements relate (or the first business day 
after such October 15 if October 15 falls on a Saturday, Sunday, or 
legal holiday). The filer must maintain access to corrected statements 
that are posted on the Web site through October 15 of the year 
following the calendar year to which the statements relate (or the 
first business day after such October 15 if October 15 falls on a 
Saturday, Sunday, or legal holiday) or the date 90 days after the 
corrected statements are posted, whichever is later. The rules in this 
paragraph (a)(6) do not replace the filer's obligation to keep records 
under section 6001 and Sec.  1.6001-1(a) of this chapter.
    (b) Effective/applicability date. This section applies to 
statements required to be furnished after December 31, 2015.

PART 25--GIFT TAXES

0
Par. 5. The authority citation for part 25 continues to read in part as 
follows:

    Authority:  26 U.S.C. 7805* * *

0
Par. 6. Section 25.2501-1 is amended by adding a sentence at the end of 
paragraph (a)(1) to read as follows:


Sec.  25.2501-1  Imposition of Tax.

    (a) * * *
    (1) * * * For gift tax rules related to an ABLE account established 
under section 529A, see regulations promulgated thereunder.
* * * * *
0
Par. 7. Section 25.2503-3 is amended by adding a sentence at the end of 
paragraph (a) to read as follows:


Sec.  25.2503-3  Future interests in property.

    (a) * * * A contribution to an ABLE account established under 
section 529A is not a future interest.
* * * * *
0
Par. 8. Section 25.2503-6 is amended by adding a sentence at the end of 
paragraph (a) to read as follows:


Sec.  25.2503-6  Exclusion for certain qualified transfers to tuition 
or medical expenses.

    (a) * * * A contribution to an ABLE account established under 
section 529A is not a qualified transfer.
* * * * *
0
Par. 9. Section 25.2511-2 is amended by adding a sentence at the end of 
paragraph (a) to read as follows:


Sec.  25.2511-2  Cessation of donor's dominion and control.

    (a) * * * For gift tax rules related to an ABLE account established 
under section 529A, see regulations promulgated thereunder.
* * * * *

PART 26--ESTATE TAXES

0
Par. 10. The authority citation for part 26 continues to read in part 
as follows:

    Authority:  26 U.S.C. 7805* * *

0
Par. 11. Section 26.2642-1 is amended by adding a sentence at the end 
of paragraph (a) to read as follows:


Sec.  26.2642-1  Inclusion ratio.

    (a) * * * For generation-skipping transfer tax rules related to an 
ABLE account established under section 529A, see regulations 
promulgated thereunder.
* * * * *
0
Par. 12. Section 26.2652-1 is amended by adding a sentence at the end 
of paragraph (a)(1) to read as follows:


Sec.  26.2652-1  Transferor defined; other definitions.

    (a) * * *
    (1) * * * For generation-skipping transfer tax rules related to an 
ABLE account established under section 529A, see regulations 
promulgated thereunder.
* * * * *

PART 301--REPORTING AND RECORDKEEPING REQUIREMENTS

0
Par. 13. The authority citation for part 301 continues to read in part 
as follows:

    Authority:  26 U.S.C. 7805* * *


Sec.  301.6011-2  [Amended]

0
Par. 14. Section 301.6011-2 is amended by adding the word ``series'' 
after ``5498'' in the first sentence of paragraph (b)(1).

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2015-15280 Filed 6-19-15; 8:45 am]
 BILLING CODE 4830-01-P