23 3 "(A) TAXPAYER WITH SEVERE SERVICE LIABILITY INSURANCE PROBLEM.-In the case of a taxpayer who has a severe service liability insur ance problem (as defined in paragraph (10)(E)) for the taxable year, the amount for such taxpayer determined under paragraph (1) shall not exceed the least of "(i) 5 percent of the gross receipts of the taxpayer for such taxable year from the furnishing of services with respect to which the taxpayer may incur any service liability, "(ii) the amount which when added to the balance of the taxpayer's service liability trust equals 15 percent of the taxpayer's average yearly gross receipts from the furnishing of services during the base period, or "(iii) $100,000. "(B) OTHER TAXPAYERS.-In the case of a taxpayer who does not have a severe service liability insurance problem for the taxable year, the amount determined under paragraph (1) shall not exceed the least of "(i) 2 percent of the gross receipts of furnishing of services with respect to which the taxpayer may incur any service liability, "(ii) the amount which, when added to the balance of the taxpayer's service liability trust equals 10 percent of the taxpayer's average yearly gross receipts from the furnishing of services during the base period, or "(iii) $25,000. "(C) BASE PERIOD.-For the purpose of this paragraph, the term 'base period' means the shorter of "(i) the period beginning with the earliest preceding taxable year for which the taxpayer elected to have this subsection apply and ending with the current taxable year, or "(ii) the 5-year period which includes the current taxable year and the 4 taxable years immediately preceding the current tax able year. "(4) TREATMENT OF DISTRIBUTIONS FROM A SERVICE LIABILITY TRUST. "(A) IN GENERAL.-If any amount in a 5 "(i) the amount of the distribution (other than amounts described in paragraph (5)(A) and rollover amounts described in paragraph (5)(C)) shall be included in the gross income of the taxpayer from whose trust the distri- "(ii) the distribution shall treated, for the purpose of determining the "(B) PENALTY FOR UNAUTHORIZED DISTRIBUTION.-Except as provided in paragraph (5), the liability of the taxpayer for the tax imposed by this chapter for the taxable year shall be in creased by an amount equal to 10 percent of the excess (if any) of— "(i) the amount distributed to the taxpayer for the taxable year from a service lia bility trust, over "(ii) the amount of the deductions allowable for the taxable year which are at tributable to service liability losses (within the meaning of paragraph (10)(C)). 6 "(5) EXCEPTIONS. "(A) CORRECTIVE WITHDRAWAL OF EXCESS CONTRIBUTIONS.-Subparagraph (B) of paragraph (4) shall not apply to amounts distributed from any service liability trust no later than the last day prescribed by law for filing the taxpayer's return with respect to the tax imposed by this chapter for the taxable year (including extensions thereof) to the extent that the amount of such distribution is not more than the excess of— "(i) the aggregate amount of payments by the taxpayer to such trust for the taxable year, over "(ii) the maximum amount of such pay ments which may be deducted under paragraph (3). "(B) CHANGE IN CIRCUMSTANCES.-Sub paragraph (B) of paragraph (4) shall not apply to a distribution from a service liability trust if the taxpayer establishes, in accordance with regulations prescribed by the Secretary, that- "(i) there was reasonable cause for the creation of the service liability trust, and "(ii) there has been a change in circumstances concerning the taxpayer so that the 7 continued maintenance of such a trust no longer serves a trade or business purpose. No exception shall be granted under this subparagraph while any amounts are accumulated by the taxpayer pursuant to the second sentence of section 537(b)(4). "(C) ROLLOVER AMOUNTS.-Subparagraph (B) of paragraph (4) shall not apply to a distribution from a service liability trust to the extent that all or any portion of the distribution is trans ferred by the taxpayer to another service liability trust of the taxpayer not later than the 90th day after the day on which he receives such distribu tion. This subparagraph shall not apply to any amount distributed from a service liability trust if at any time during the 1-year period ending on the day of such distribution any other distribution to the taxpayer was not subject to paragraph (4)(B) on account of this subparagraph. "(D) COMPLETE LIQUIDATION.-Subparagraph (B) of paragraph (4) shall not apply to a distribution from a service liability trust made on account of the liquidation of the trade or business of the taxpayer which may result in service liabili ty. The Secretary may prescribe regulations pro |