CONTRIBUTION LIMITATION NOT REDUCED FOR PART-YEAR COVERAGE.

SEC. 305. CONTRIBUTION LIMITATION NOT REDUCED FOR PART-YEAR COVERAGE.(a) Increase in Limit for Individuals Becoming Eligible Individuals After Beginning of the Year.—Subsection (b) of section 223 (relating to limitations) is amended by adding at the end the following new paragraph:“(8) Increase in limit for individuals becoming eligible individuals after the beginning of the year.—“(A) In general.—For purposes of computing the limitation under paragraph (1) for any taxable year, an individual who is an eligible individual during the last month of such taxable year shall be treated—“(i) as having been an eligible individual during each of the months in such taxable year, and“(ii) as having been enrolled, during each of the months such individual is treated as an eligible individual solely by reason of clause (i), in the same high deductible health plan in which the individual was enrolled for the last month of such taxable year.“(B) Failure to maintain high deductible health plan coverage.—“(i) In general.—If, at any time during the testing period, the individual is not an eligible individual, then—“(I) gross income of the individual for the taxable year in which occurs the first month in the testing period for which such individual is not an eligible individual is increased by the aggregate amount of all contributions to the health savings account of the individual which could not have been made but for subparagraph (A), and“(II) the tax imposed by this chapter for any taxable year on the individual shall be increased by 10 percent of the amount of such increase.“(ii) Exception for disability or death.—Subclauses (I) and (II) of clause (i) shall not apply if the individual ceased to be an eligible individual by 120 STAT. 2951 reason of the death of the individual or the individual becoming disabled (within the meaning of section 72(m)(7)).“(iii) Testing period.—The term ‘testing period’ means the period beginning with the last month of the taxable year referred to in subparagraph (A) and ending on the last day of the 12th month following such month.”.(b) Effective Date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2006.