HOUSE BILL No. 4170

February 1, 2011, Introduced by Reps. Switalski, Liss, Lindberg, Tlaib, Oakes, Meadows and Womack and referred to the Committee on Judiciary.

A bill to amend 1967 PA 281, entitled

"Income tax act of 1967,"

by amending section 30 (MCL 206.30), as amended by 2009 PA 134.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 30. (1) "Taxable income" means, for a person other than a

corporation, estate, or trust, adjusted gross income as defined in

the internal revenue code subject to the following adjustments

under this section:

(a) Add gross interest income and dividends derived from

obligations or securities of states other than Michigan, in the

same amount that has been excluded from adjusted gross income less

related expenses not deducted in computing adjusted gross income

because of section 265(a)(1) of the internal revenue code.

(b) Add taxes on or measured by income to the extent the taxes

have been deducted in arriving at adjusted gross income.

United States government, the income of which this state is

prohibited from subjecting to a net income tax, to the extent that

the loss has been deducted in arriving at adjusted gross income.

(d) Deduct, to the extent included in adjusted gross income,

income derived from obligations, or the sale or exchange of

obligations, of the United States government that this state is

prohibited by law from subjecting to a net income tax, reduced by

any interest on indebtedness incurred in carrying the obligations

and by any expenses incurred in the production of that income to

the extent that the expenses, including amortizable bond premiums,

were deducted in arriving at adjusted gross income.

(e) Deduct, to the extent included in adjusted gross income,

compensation, including retirement benefits, received for services

in the armed forces of the United States.

(f) Deduct the following to the extent included in adjusted

gross income:

(i) Retirement or pension benefits received from a federal

public retirement system or from a public retirement system of or

created by this state or a political subdivision of this state.

(ii) Retirement or pension benefits received from a public

retirement system of or created by another state or any of its

political subdivisions if the income tax laws of the other state

permit a similar deduction or exemption or a reciprocal deduction

or exemption of a retirement or pension benefit received from a

public retirement system of or created by this state or any of the

political subdivisions of this state.

(iii) Social security benefits as defined in section 86 of the

internal revenue code.

(iv) Beginning on and after January 1, 2007, retirement or

pension benefits not deductible under subparagraph (i) or

subdivision (e) from any other retirement or pension system or

benefits from a retirement annuity policy in which payments are

made for life to a senior citizen, to a maximum of $42,240.00 for a

single return and $84,480.00 for a joint return. The maximum

amounts allowed under this subparagraph shall be reduced by the

amount of the deduction for retirement or pension benefits claimed

under subparagraph (i) or subdivision (e) and by the amount of a

deduction claimed under subdivision (r). For the 2008 tax year and

each tax year after 2008, the maximum amounts allowed under this

subparagraph shall be adjusted by the percentage increase in the

United States consumer price index for the immediately preceding

calendar year. The department shall annualize the amounts provided

in this subparagraph as necessary. As used in this subparagraph,

"senior citizen" means that term as defined in section 514.

(v) The amount determined to be the section 22 amount eligible

for the elderly and the permanently and totally disabled credit

provided in section 22 of the internal revenue code.

(g) Adjustments resulting from the application of section 271.

(h) Adjustments with respect to estate and trust income as

provided in section 36.

(i) Adjustments resulting from the allocation and

apportionment provisions of chapter 3.

(j) Deduct political contributions as described in section 4

of the Michigan campaign finance act, 1976 PA 388, MCL 169.204, or

2 USC 431, not in excess of $50.00 per annum, or $100.00 per annum

for a joint return.

(k) Deduct, to the extent included in adjusted gross income,

wages not deductible under section 280C of the internal revenue

code.

(l) Deduct the following payments made by the taxpayer in the

tax year:

(i) For the 2010 tax year and each tax year after 2010, the

amount of a charitable contribution made to the advance tuition

payment fund created under section 9 of the Michigan education

trust act, 1986 PA 316, MCL 390.1429.

(ii) The amount of payment made under an advance tuition

payment contract as provided in the Michigan education trust act,

1986 PA 316, MCL 390.1421 to 390.1442.

(iii) The amount of payment made under a contract with a private

sector investment manager that meets all of the following criteria:

(A) The contract is certified and approved by the board of

directors of the Michigan education trust to provide equivalent

benefits and rights to purchasers and beneficiaries as an advance

tuition payment contract as described in subparagraph (ii).

(B) The contract applies only for a state institution of

higher education as defined in the Michigan education trust act,

1986 PA 316, MCL 390.1421 to 390.1442, or a community or junior

college in Michigan.

qualified beneficiary in not less than 4 years after the date on

which the contract is entered into.

(D) The contract is entered into after either of the

following:

(I) The purchaser has had his or her offer to enter into an

advance tuition payment contract rejected by the board of directors

of the Michigan education trust, if the board determines that the

trust cannot accept an unlimited number of enrollees upon an

actuarially sound basis.

(II) The board of directors of the Michigan education trust

determines that the trust can accept an unlimited number of

enrollees upon an actuarially sound basis.

(m) If an advance tuition payment contract under the Michigan

education trust act, 1986 PA 316, MCL 390.1421 to 390.1442, or

another contract for which the payment was deductible under

subdivision (l) is terminated and the qualified beneficiary under

that contract does not attend a university, college, junior or

community college, or other institution of higher education, add

the amount of a refund received by the taxpayer as a result of that

termination or the amount of the deduction taken under subdivision

(l) for payment made under that contract, whichever is less.

(n) Deduct from the taxable income of a purchaser the amount

included as income to the purchaser under the internal revenue code

after the advance tuition payment contract entered into under the

Michigan education trust act, 1986 PA 316, MCL 390.1421 to

390.1442, is terminated because the qualified beneficiary attends

an institution of postsecondary education other than either a state

institution of higher education or an institution of postsecondary

education located outside this state with which a state institution

of higher education has reciprocity.

(o) Add, to the extent deducted in determining adjusted gross

income, the net operating loss deduction under section 172 of the

internal revenue code.

(p) Deduct a net operating loss deduction for the taxable year

as determined under section 172 of the internal revenue code

subject to the modifications under section 172(b)(2) of the

internal revenue code and subject to the allocation and

apportionment provisions of chapter 3 of this act for the taxable

year in which the loss was incurred.

(q) Deduct, to the extent included in adjusted gross income,

benefits from a discriminatory self-insurance medical expense

reimbursement plan.

(r) Beginning on and after January 1, 2007, a taxpayer who is

a senior citizen may deduct to the extent included in adjusted

gross income, interest, dividends, and capital gains received in

the tax year not to exceed $9,420.00 for a single return and

$18,840.00 for a joint return. The maximum amounts allowed under

this subdivision shall be reduced by the amount of a deduction

claimed for retirement benefits under subdivision (e) or a

deduction claimed under subdivision (f)(i), (ii), (iv), or (v). For

the 2008 tax year and each tax year after 2008, the maximum amounts

allowed under this subdivision shall be adjusted by the percentage

increase in the United States consumer price index for the

immediately preceding calendar year. The department shall annualize

the amounts provided in this subdivision as necessary. As used in

this subdivision, "senior citizen" means that term as defined in

section 514.

(s) Deduct, to the extent included in adjusted gross income,

all of the following:

(i) The amount of a refund received in the tax year based on

taxes paid under this act.

(ii) The amount of a refund received in the tax year based on

taxes paid under the city income tax act, 1964 PA 284, MCL 141.501

to 141.787.

(iii) The amount of a credit received in the tax year based on a

claim filed under sections 520 and 522 to the extent that the taxes

used to calculate the credit were not used to reduce adjusted gross

income for a prior year.

(t) Add the amount paid by the state on behalf of the taxpayer

in the tax year to repay the outstanding principal on a loan taken

on which the taxpayer defaulted that was to fund an advance tuition

payment contract entered into under the Michigan education trust

act, 1986 PA 316, MCL 390.1421 to 390.1442, if the cost of the

advance tuition payment contract was deducted under subdivision (l)

and was financed with a Michigan education trust secured loan.

(u) Deduct the amount calculated under section 30d.

(v) Deduct, to the extent included in adjusted gross income,

any amount, and any interest earned on that amount, received in the

tax year by a taxpayer who is a Holocaust victim as a result of a

settlement of claims against any entity or individual for any

recovered asset pursuant to the German act regulating unresolved

property claims, also known as Gesetz zur Regelung offener

Vermogensfragen, as a result of the settlement of the action

entitled In re: Holocaust victim assets litigation, CV-96-4849, CV-

96-5161, and CV-97-0461 (E.D. NY), or as a result of any similar

action if the income and interest are not commingled in any way

with and are kept separate from all other funds and assets of the

taxpayer. As used in this subdivision:

(i) "Holocaust victim" means a person, or the heir or

beneficiary of that person, who was persecuted by Nazi Germany or

any Axis regime during any period from 1933 to 1945.

(ii) "Recovered asset" means any asset of any type and any

interest earned on that asset including, but not limited to, bank

deposits, insurance proceeds, or artwork owned by a Holocaust

victim during the period from 1920 to 1945, withheld from that

Holocaust victim from and after 1945, and not recovered, returned,

or otherwise compensated to the Holocaust victim until after 1993.

(w) Deduct, to the extent not deducted in determining adjusted

gross income, both of the following:

(i) Contributions made by the taxpayer in the tax year less

qualified withdrawals made in the tax year from education savings

accounts, calculated on a per education savings account basis,

pursuant to the Michigan education savings program act, 2000 PA

161, MCL 390.1471 to 390.1486, not to exceed a total deduction of

$5,000.00 for a single return or $10,000.00 for a joint return per

tax year. The amount calculated under this subparagraph for each

education savings account shall not be less than zero.

(ii) The amount under section 30f.

(x) Add, to the extent not included in adjusted gross income,

the amount of money withdrawn by the taxpayer in the tax year from

education savings accounts, not to exceed the total amount deducted

under subdivision (w) in the tax year and all previous tax years,

if the withdrawal was not a qualified withdrawal as provided in the

Michigan education savings program act, 2000 PA 161, MCL 390.1471

to 390.1486. This subdivision does not apply to withdrawals that

are less than the sum of all contributions made to an education

savings account in all previous tax years for which no deduction

was claimed under subdivision (w), less any contributions for which

no deduction was claimed under subdivision (w) that were withdrawn

in all previous tax years.

(y) Deduct, to the extent included in adjusted gross income,

the amount of a distribution from individual retirement accounts

that qualify under section 408 of the internal revenue code if the

distribution is used to pay qualified higher education expenses as

that term is defined in the Michigan education savings program act,

2000 PA 161, MCL 390.1471 to 390.1486.

(z) Deduct, to the extent included in adjusted gross income,

an amount equal to the qualified charitable distribution made in

the tax year by a taxpayer to a charitable organization. The amount

allowed under this subdivision shall be equal to the amount

deductible by the taxpayer under section 170 of the internal

revenue code with respect to the qualified charitable distribution

in the tax year in which the taxpayer makes the distribution to the

qualified charitable organization, reduced by both the amount of

the deduction for retirement or pension benefits claimed by the

taxpayer under subdivision (f)(i), (ii), (iv), or (v) and by 2 times

the total amount of credits claimed under sections 260 and 261 for

the tax year. As used in this subdivision, "qualified charitable

distribution" means a distribution of assets to a qualified

charitable organization by a taxpayer not more than 60 days after

the date on which the taxpayer received the assets as a

distribution from a retirement or pension plan described in

subsection (8)(a). A distribution is to a qualified charitable

organization if the distribution is made in any of the following

circumstances:

(i) To an organization described in section 501(c)(3) of the

internal revenue code except an organization that is controlled by

a political party, an elected official or a candidate for an

elective office.

(ii) To a charitable remainder annuity trust or a charitable

remainder unitrust as defined in section 664(d) of the internal

revenue code; to a pooled income fund as defined in section

642(c)(5) of the internal revenue code; or for the issuance of a

charitable gift annuity as defined in section 501(m)(5) of the

internal revenue code. A trust, fund, or annuity described in this

subparagraph is a qualified charitable organization only if no

person holds any interest in the trust, fund, or annuity other than

1 or more of the following:

(A) The taxpayer who received the distribution from the

retirement or pension plan.

(B) The spouse of an individual described in sub-subparagraph

(A).

internal revenue code.

(aa) A taxpayer who is a resident tribal member may deduct, to

the extent included in adjusted gross income, all nonbusiness

income earned or received in the tax year and during the period in

which an agreement entered into between the taxpayer's tribe and

this state pursuant to section 30c of 1941 PA 122, MCL 205.30c, is

in full force and effect. As used in this subdivision:

(i) "Business income" means business income as defined in

section 4 and apportioned under chapter 3.

(ii) "Nonbusiness income" means nonbusiness income as defined

in section 14 and, to the extent not included in business income,

all of the following:

(A) All income derived from wages whether the wages are earned

within the agreement area or outside of the agreement area.

(B) All interest and passive dividends.

within the agreement area.

(D) All rents and royalties derived from tangible personal

property, to the extent the personal property is utilized within

the agreement area.

(E) Capital gains from the sale or exchange of real property

located within the agreement area.

(F) Capital gains from the sale or exchange of tangible

personal property located within the agreement area at the time of

sale.

(G) Capital gains from the sale or exchange of intangible

personal property.

(H) All pension income and benefits including, but not limited

to, distributions from a 401(k) plan, individual retirement

accounts under section 408 of the internal revenue code, or a

defined contribution plan, or payments from a defined benefit plan.

(I) All per capita payments by the tribe to resident tribal

members, without regard to the source of payment.

(J) All gaming winnings.

(iii) "Resident tribal member" means an individual who meets all

of the following criteria:

(A) Is an enrolled member of a federally recognized tribe.

(B) The individual's tribe has an agreement with this state

pursuant to section 30c of 1941 PA 122, MCL 205.30c, that is in

full force and effect.

within the agreement area as designated in the agreement under sub-

subparagraph (B).

(bb) For tax years that begin after December 31, 2006, deduct,

to the extent included in adjusted gross income, all or a portion

of the gain, as determined under this section, realized from an

initial equity investment of not less than $100,000.00 made by the

taxpayer before December 31, 2009, in a qualified business, if an

amount equal to the sum of the taxpayer's basis in the investment

as determined under the internal revenue code plus the gain, or a

portion of that amount, is reinvested in an equity investment in a

qualified business within 1 year after the sale or disposition of

the investment in the qualified business. If the amount of the

subsequent investment is less than the sum of the taxpayer's basis

from the prior equity investment plus the gain from the prior

equity investment, the amount of a deduction under this section

shall be reduced by the difference between the sum of the

taxpayer's basis from the prior equity investment plus the gain

from the prior equity investment and the subsequent investment. As

used in this subdivision:

(i) "Advanced automotive, manufacturing, and materials

technology" means any technology that involves 1 or more of the

following:

(A) Materials with engineered properties created through the

development of specialized process and synthesis technology.

(B) Nanotechnology, including materials, devices, or systems

at the atomic, molecular, or macromolecular level, with a scale

measured in nanometers.

systems integrating microelectronics with mechanical parts and a

scale measured in micrometers.

(D) Improvements to vehicle safety, vehicle performance,

vehicle production, or environmental impact, including, but not

limited to, vehicle equipment and component parts.

(E) Any technology that involves an alternative energy vehicle

or its components. "Alternative energy vehicle" means that term as

defined in section 2 of the Michigan next energy authority act,

2002 PA 593, MCL 207.822.

(F) A new technology, device, or system that enhances or

improves the manufacturing process of wood, timber, or

agricultural-based products.

(G) Advanced computing or electronic device technology related

to technology described under this subparagraph.

(H) Design, engineering, testing, or diagnostics related to

technology described under this subparagraph.

(I) Product research and development related to technology

described under this subparagraph.

(ii) "Advanced computing" means any technology used in the

design and development of 1 or more of the following:

(A) Computer hardware and software.

(B) Data communications.

(iii) "Alternative energy technology" means applied research or

commercialization of new or next generation technology in 1 or more

of the following:

(A) Alternative energy technology as that term is defined in

section 2 of the Michigan next energy authority act, 2002 PA 593,

MCL 207.822.

(B) Devices or systems designed and used solely for the

purpose of generating energy from agricultural crops, residue and

waste generated from the production and processing of agricultural

products, animal wastes, or food processing wastes, not including a

conventional gasoline or diesel fuel engine or a retrofitted

conventional gasoline or diesel fuel engine.

utilization of biomass for the production of specialty, commodity,

or foundational chemicals or of novel or economical commodity

materials through the application of biotechnology that minimizes,

complements, or replaces reliance on petroleum for the production.

(D) Advanced computing or electronic device technology related

to technology described under this subparagraph.

(E) Design, engineering, testing, or diagnostics related to

technology described under this subparagraph.

(F) Product research and development related to a technology

described under this subparagraph.

(iv) "Competitive edge technology" means 1 or more of the

following:

(A) Advanced automotive, manufacturing, and materials

technology.

(B) Alternative energy technology.

(D) Life sciences technology.

(v) "Electronic device technology" means any technology that

involves microelectronics, semiconductors, electronic equipment,

and instrumentation, radio frequency, microwave, and millimeter

electronics; optical and optic-electrical devices; or data and

digital communications and imaging devices.

(vi) "Homeland security and defense technology" means

technology that assists in the assessment of threats or damage to

the general population and critical infrastructure, protection of,

defense against, or mitigation of the effects of foreign or

domestic threats, disasters, or attacks, or support for crisis or

response management, including, but not limited to, 1 or more of

the following:

(A) Sensors, systems, processes, or equipment for

communications, identification and authentication, screening,

surveillance, tracking, and data analysis.

(B) Advanced computing or electronic device technology related

to technology described under this subparagraph.

avionics, airframe design, sensors, early warning systems, and

services related to the technology described in this subparagraph.

(D) Design, engineering, testing, or diagnostics related to

technology described under this subparagraph.

(E) Product research and development related to technology

described under this subparagraph.

(vii) "Life sciences technology" means any technology derived

from life sciences intended to improve human health or the overall

quality of human life, including, but not limited to, systems,

processes, or equipment for drug or gene therapies, biosensors,

testing, medical devices or instrumentation with a therapeutic or

diagnostic value, a pharmaceutical or other product that requires

United States food and drug administration approval or registration

prior to its introduction in the marketplace and is a drug or

medical device as defined by the federal food, drug, and cosmetic

act, 21 USC 301 to ~~399~~ 399a, or 1 or more of the following:

(A) Advanced computing or electronic device technology related

to technology described under this subparagraph.

(B) Design, engineering, testing, or diagnostics related to

technology or the commercial manufacturing of technology described

under this subparagraph.

described under this subparagraph.

(viii) "Life sciences" means science for the examination or

understanding of life or life processes, including, but not limited

to, all of the following:

(A) Bioengineering.

(B) Biomedical engineering.

(D) Proteomics.

(E) Molecular and chemical ecology.

(F) Biotechnology, including any technology that uses living

organisms, cells, macromolecules, microorganisms, or substances

from living organisms to make or modify a product for useful

purposes. Biotechnology or life sciences do not include any of the

following:

(I) Activities prohibited under section 2685 of the public

health code, 1978 PA 368, MCL 333.2685.

(II) Activities prohibited under section 2688 of the public

health code, 1978 PA 368, MCL 333.2688.

(III) Activities prohibited under section 2690 of the public

health code, 1978 PA 368, MCL 333.2690.

(IV) Activities prohibited under section 16274 of the public

health code, 1978 PA 368, MCL 333.16274.

(V) Stem cell research with human embryonic tissue.

(ix) "Qualified business" means a business that complies with

all of the following:

(A) The business is a seed or early stage business as defined

in section 3 of the Michigan early stage venture investment act of

2003, 2003 PA 296, MCL 125.2233.

(B) The business has its headquarters in this state, is

domiciled in this state, or has a majority of its employees working

a majority of their time in this state.

$10,000,000.00.

(D) The business has been in existence less than 5 years. This

sub-subparagraph does not apply to a business, the business

activity of which is derived from research at an institution of

higher education located within this state or an organization

exempt from federal taxation under section 501c(3) of the internal

revenue code and that is located within this state.

(E) The business is engaged only in competitive edge

technology.

(F) The business is certified by the Michigan strategic fund

as meeting the requirements of sub-subparagraphs (A) to (E) at the

time of each proposed investment.

(cc) For tax years that begin after December 31, 2010, deduct,

to the extent included in adjusted gross income, compensation

received in the tax year pursuant to the wrongful imprisonment

compensation act.

(2) Except as otherwise provided in subsection (7), a personal

exemption of $2,500.00 multiplied by the number of personal or

dependency exemptions allowable on the taxpayer's federal income

tax return pursuant to the internal revenue code shall be

subtracted in the calculation that determines taxable income.

(3) Except as otherwise provided in subsection (7), a single

additional exemption determined as follows shall be subtracted in

the calculation that determines taxable income in each of the

following circumstances:

(a) $1,800.00 for each taxpayer and every dependent of the

taxpayer who is 65 years of age or older. When a dependent of a

taxpayer files an annual return under this act, the taxpayer or

dependent of the taxpayer, but not both, may claim the additional

exemption allowed under this subdivision. As used in this

subdivision and subdivision (c), "dependent" means that term as

defined in section 30e.

(b) $1,800.00 for each taxpayer and every dependent of the

taxpayer who is a deaf person as defined in section 2 of the deaf

persons' interpreters act, 1982 PA 204, MCL 393.502; a paraplegic,

a quadriplegic, or a hemiplegic; a person who is blind as defined

in section 504; or a person who is totally and permanently disabled

as defined in section 522. When a dependent of a taxpayer files an

annual return under this act, the taxpayer or dependent of the

taxpayer, but not both, may claim the additional exemption allowed

under this subdivision.

compensation that amounts to 50% or more of adjusted gross income.

(d) For tax years beginning after 2007, $250.00 for each

taxpayer and every dependent of the taxpayer who is a qualified

disabled veteran. When a dependent of a taxpayer files an annual

return under this act, the taxpayer or dependent of the taxpayer,

but not both, may claim the additional exemption allowed under this

subdivision. As used in this subdivision:

(i) "Qualified disabled veteran" means a veteran with a

service-connected disability.

(ii) "Service-connected disability" means a disability incurred

or aggravated in the line of duty in the active military, naval, or

air service as described in 38 USC 101(16).

(iii) "Veteran" means a person who served in the active

military, naval, marine, coast guard, or air service and who was

discharged or released from his or her service with an honorable or

general discharge.

(4) An individual with respect to whom a deduction under

section 151 of the internal revenue code is allowable to another

federal taxpayer during the tax year is not considered to have an

allowable federal exemption for purposes of subsection (2), but may

subtract $1,500.00 in the calculation that determines taxable

income for a tax year.

(5) A nonresident or a part-year resident is allowed that

proportion of an exemption or deduction allowed under subsection

(2), (3), or (4) that the taxpayer's portion of adjusted gross

income from Michigan sources bears to the taxpayer's total adjusted

gross income.

(6) In calculating taxable income, a taxpayer shall not

subtract from adjusted gross income the amount of prizes won by the

taxpayer under the McCauley-Traxler-Law-Bowman-McNeely lottery act,

1972 PA 239, MCL 432.1 to 432.47.

(7) For each tax year, the personal exemption allowed under

subsection (2) shall be adjusted by multiplying the exemption for

the tax year beginning in 1997 by a fraction, the numerator of

which is the United States consumer price index for the state

fiscal year ending in the tax year prior to the tax year for which

the adjustment is being made and the denominator of which is the

United States consumer price index for the 1995-96 state fiscal

year. The resultant product shall be rounded to the nearest $100.00

increment. The personal exemption for the tax year shall be

determined by adding $200.00 to that rounded amount. As used in

this section, "United States consumer price index" means the United

States consumer price index for all urban consumers as defined and

reported by the United States department of labor, bureau of labor

statistics. For each tax year, the exemptions allowed under

subsection (3) shall be adjusted by multiplying the exemption

amount under subsection (3) for the tax year by a fraction, the

numerator of which is the United States consumer price index for

the state fiscal year ending the tax year prior to the tax year for

which the adjustment is being made and the denominator of which is

the United States consumer price index for the 1998-1999 state

fiscal year. The resultant product shall be rounded to the nearest

$100.00 increment.

(8) As used in subsection (1)(f), "retirement or pension

benefits" means distributions from all of the following:

(a) Except as provided in subdivision (d), qualified pension

trusts and annuity plans that qualify under section 401(a) of the

internal revenue code, including all of the following:

(i) Plans for self-employed persons, commonly known as Keogh or

HR10 plans.

(ii) Individual retirement accounts that qualify under section

408 of the internal revenue code if the distributions are not made

until the participant has reached 59-1/2 years of age, except in

the case of death, disability, or distributions described by

section 72(t)(2)(A)(iv) of the internal revenue code.

(iii) Employee annuities or tax-sheltered annuities purchased

under section 403(b) of the internal revenue code by organizations

exempt under section 501(c)(3) of the internal revenue code, or by

public school systems.

(iv) Distributions from a 401(k) plan attributable to employee

contributions mandated by the plan or attributable to employer

contributions.

(b) The following retirement and pension plans not qualified

under the internal revenue code:

(i) Plans of the United States, state governments other than

this state, and political subdivisions, agencies, or

instrumentalities of this state.

(ii) Plans maintained by a church or a convention or

association of churches.

(iii) All other unqualified pension plans that prescribe

eligibility for retirement and predetermine contributions and

benefits if the distributions are made from a pension trust.

spouse if those benefits qualified for a deduction prior to the

decedent's death. Benefits received by a surviving child are not

deductible.

(d) Retirement and pension benefits do not include:

(i) Amounts received from a plan that allows the employee to

set the amount of compensation to be deferred and does not

prescribe retirement age or years of service. These plans include,

but are not limited to, all of the following:

(A) Deferred compensation plans under section 457 of the

internal revenue code.

(B) Distributions from plans under section 401(k) of the

internal revenue code other than plans described in subdivision

(a)(iv).

internal revenue code other than plans described in subdivision

(a)(iii).

(ii) Premature distributions paid on separation, withdrawal, or

discontinuance of a plan prior to the earliest date the recipient

could have retired under the provisions of the plan.

(iii) Payments received as an incentive to retire early unless

the distributions are from a pension trust.

Enacting section 1. This amendatory act does not take effect

unless Senate Bill No. ____ or House Bill No. 4171(request no.

00775'11) of the 96th Legislature is enacted into law.