Individual Training Account Act of 1994

Summary: Individual Training Account Act of 1994 - Amends the Internal Revenue Code to allow an individual a deduction for amounts paid yearly into an individual training account for the benefit of such individual. Describes such account as one to pay the expenses of job training and job-related relocation.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Individual Training Account Act of 
1994''.

SEC. 2. INDIVIDUAL TRAINING ACCOUNTS.

    (a) In General.--Part VII of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to additional itemized 
deductions for individuals) is amended by redesignating section 220 as 
section 221 and by inserting after section 219 the following new 
section:

``SEC. 220. INDIVIDUAL TRAINING ACCOUNTS.

    ``(a) Deduction Allowed.--In the case of an individual, there shall 
be allowed as a deduction the amount paid in cash for the taxable year 
by or on behalf of such individual to an individual training account 
for the benefit of such individual.
    ``(b) Limitations.--
            ``(1) Maximum deduction.--The amount allowed as a deduction 
        under subsection (a) for any taxable year shall not exceed the 
        lesser of--
                    ``(A) $2,000, or
                    ``(B) the excess of $6,000 over the aggregate 
                amount in all individual training accounts of the 
                individual as of the close of the preceding taxable 
                year.
        The preceding sentence shall be applied separately for each 
        individual.
            ``(2) No deduction before beneficiary attains age 18.--No 
        deduction shall be allowed for any contribution to an 
        individual training account established for the benefit of an 
        individual who has not attained age 18 before the close of the 
        taxable year for which such contribution is made.
    ``(c) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Individual training account.--The term `individual 
        training account' means a trust created or organized in the 
        United States exclusively for the purpose of paying the 
        qualified expenses of the individual for whose benefit the 
        trust is maintained, but only if the written governing 
        instrument creating the trust meets the following requirements:
                    ``(A) Except in the case of a rollover contribution 
                described in subsection (d)(3), no contribution will be 
                accepted--
                            ``(i) unless it is in cash, or
                            ``(ii) in excess of the amount allowed as a 
                        deduction under this section.
                    ``(B) The trustee is a bank (as defined in section 
                408(n)) or another person who demonstrates to the 
                satisfaction of the Secretary that the manner in which 
                that person will administer the trust will be 
                consistent with the requirements of this section.
                    ``(C) No part of the trust assets will be invested 
                in life insurance contracts.
                    ``(D) The interest of the individual in the balance 
                of his account is nonforfeitable.
                    ``(E) The assets of the trust shall not be 
                commingled with other property except in a common trust 
                fund or common investment fund.
            ``(2) Qualified expenses.--The term `qualified expenses' 
        means--
                    ``(A) job training expenses, and
                    ``(B) job-related relocation expenses.
            ``(3) Job training expenses.--
                    ``(A) In general.--The term `job training expenses' 
                means--
                            ``(i) tuition and fees required for the 
                        enrollment or attendance of--
                                    ``(I) a student at an eligible 
                                educational institution, or
                                    ``(II) a worker in an applicable 
                                training program,
                            ``(ii) fees, books, supplies, and equipment 
                        required for--
                                    ``(I) courses of instruction at an 
                                eligible educational institution, or
                                    ``(II) for an applicable training 
                                program, and
                            ``(iii) a reasonable allowance for meals 
                        and lodging while attending an eligible 
                        educational institution or an applicable 
                        training program.
                    ``(B) Eligible educational institution.--The term 
                `eligible educational institution' means--
                            ``(i) an institution of higher education, 
                        or
                            ``(ii) a vocational school.
                    ``(C) Institution of higher education.--The term 
                `institution of higher education' means the 
                institutions described in section 1201(a) or 481(a) of 
                the Higher Education Act of 1965.
                    ``(D) Vocational school.--The term `vocational 
                school' means an area vocational education school as 
                defined in subparagraph (C) or (D) of section 521(4) of 
                the Carl D. Perkins Vocational and Applied Technology 
                Education Act to the extent such school is located 
                within any State (as defined in such section).
                    ``(E) Applicable training program.--The term 
                `applicable training program' means--
                            ``(i) any applicable program (as defined in 
                        section 314(g) of the Job Training Partnership 
                        Act), and
                            ``(ii) any training program approved under 
                        section 236 of the Trade Act of 1974.
            ``(4) Denial of deduction for amounts paid from account.--
        If any amount paid or distributed from an individual training 
        account is not included in gross income by reason of being used 
        to pay any qualified expense, such expense shall not be taken 
        into account in determining the amount of any deduction under 
        section 212, 217, or any other provision of this chapter.
    ``(d) Tax Treatment of Distributions.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, any amount paid or distributed out of an individual 
        training account shall be included in gross income of the payee 
        or distributee for the taxable year in which the payment or 
        distribution is received to the extent such amount is not used 
        exclusively to pay the qualified expenses paid during such 
        taxable year by the individual for whose benefit the account is 
        established.
            ``(2) Excess contributions returned before due date of 
        return.--Paragraph (1) shall not apply to the distribution of 
        any contribution paid during a taxable year to an individual 
        training account to the extent that such contribution exceeds 
        the amount allowable as a deduction under subsection (a) if--
                    ``(A) such distribution is received on or before 
                the day prescribed by law (including extensions of 
                time) for filing such individual's return for such 
                taxable year,
                    ``(B) no deduction is allowed under subsection (a) 
                with respect to such excess contribution, and
                    ``(C) such distribution is accompanied by the 
                amount of net income attributable to such excess 
                contribution.
        Any net income described in subparagraph (C) shall be included 
        in the gross income of the individual for the taxable year in 
        which such excess contribution was made.
            ``(3) Rollovers.--Paragraph (1) shall not apply to any 
        amount paid or distributed out of a individual training account 
        to the individual for whose benefit the account is maintained 
        if the entire amount received (including money and any other 
        property) is paid into another individual training account for 
        the benefit of such individual not later than the 60th day 
        after the day on which he received the payment or distribution.
    ``(e) Tax Treatment of Accounts.--
            ``(1) Exemption from tax.--An individual training account 
        is exempt from taxation under this subtitle unless such account 
        has ceased to be an individual training account by reason of 
        paragraph (2). Notwithstanding the preceding sentence, any such 
        account is subject to the taxes imposed by section 511 
        (relating to imposition of tax on unrelated business income of 
        charitable, etc. organizations).
            ``(2) Loss of exemption of account where individual engages 
        in prohibited transaction.--
                    ``(A) In general.--If the individual for whose 
                benefit an individual training account is established 
                engages in any transaction prohibited by section 4975 
                with respect to the account, the account shall cease to 
                be an individual training account as of the first day 
                of the taxable year during which such transaction 
                occurs.
                    ``(B) Account treated as distributing all its 
                assets.--In any case in which any account ceases to be 
                an individual training account by reason of 
                subparagraph (A) as of the first day of any taxable 
                year, paragraph (1) of subsection (d) shall apply as if 
                there was a distribution on such first day in an amount 
                equal to the fair market value (on such first day) of 
                all assets in the account (on such first day) and such 
                distribution was not used to pay qualified expenses.
            ``(3) Effect of pledging account as security.--If, during 
        any taxable year, the individual for whose benefit an 
        individual training account is established uses the account or 
        any portion thereof as security for a loan, the portion so used 
        shall be treated as distributed to the individual so using such 
        portion and not used to pay qualified expenses.
    ``(f) Additional Tax on Certain Amounts Included in Gross Income.--
            ``(1) Distribution not used for qualified expenses.--In the 
        case of any payment or distribution to which subsection (d)(1) 
        applies, the tax liability of the payee or distributee under 
        this chapter for the taxable year in which the payment or 
        distribution is received shall be increased by an amount equal 
        to 10 percent of the amount of the payment or distribution 
        which is includible in the gross income of such payee or 
        distributee for such taxable year.
            ``(2) Disqualification cases.--If an amount is includible 
        in the gross income of an individual for a taxable year because 
        such amount is required to be treated as a distribution under 
        paragraph (2) or (3) of subsection (e), such individual's tax 
        liability under this chapter for such taxable year shall be 
        increased by an amount equal to 10 percent of such amount 
        required to be treated as a distribution and included in his 
        gross income.
            ``(3) Disability or death cases.--Paragraphs (1) and (2) 
        shall not apply if the payment or distribution is made after 
        the individual for whose benefit the individual training 
        account is maintained becomes disabled within the meaning of 
        section 72(m)(7) or dies.
            ``(4) Distributions after age 59\1/2\.--Paragraphs (1) and 
        (2) shall not apply if the payment or distribution is made 
        after the date the individual for whose benefit the individual 
        training account is maintained attains age 59\1/2\.
    ``(g) Community Property Laws.--This section shall be applied 
without regard to any community property laws.
    ``(h) Custodial Accounts.--For purposes of this section, a 
custodial account shall be treated as a trust if the assets of such 
account are held by a bank (as defined in section 408(n)) or another 
person who demonstrates, to the satisfaction of the Secretary, that the 
manner in which he will administer the account will be consistent with 
the requirements of this section, and if the custodial account would, 
except for the fact that it is not a trust, constitute an individual 
training account described in subsection (c)(1). For purposes of this 
title, in the case of a custodial account treated as a trust by reason 
of the preceding sentence, the custodian of such account shall be 
treated as the trustee thereof.
    ``(i) Reports.--The trustee of an individual training account shall 
make such reports regarding such account to the Secretary and to the 
individual for whose benefit the account is maintained with respect to 
contributions, distributions, and such other matters as the Secretary 
may require under regulations. The reports required by this subsection 
shall be filed at such time and in such manner and furnished to such 
individuals at such time and in such manner as may be required by those 
regulations.''
    (b) Deduction Allowed in Arriving at Adjusted Gross Income.--
Subsection (a) of section 62 of such Code (relating to retirement 
savings) is amended by inserting after paragraph (15) the following new 
paragraph:
            ``(16) Individual training accounts.--The deduction allowed 
        by section 220 (relating to individual training accounts).''
    (c) Tax on Excess Contributions.--Section 4973 of such Code 
(relating to tax on excess contributions to individual retirement 
accounts, certain section 403(b) contracts, and certain individual 
retirement annuities) is amended--
            (1) by inserting ``individual training accounts,'' after 
        ``accounts,'' in the heading of such section,
            (2) by striking ``or'' at the end of paragraph (1) of 
        subsection (a),
            (3) by redesignating paragraph (2) of subsection (a) as 
        paragraph (3) and by inserting after paragraph (1) the 
        following new paragraph:
            ``(2) an individual training account (within the meaning of 
        section 220(c)(1)), or'', and
            (4) by adding at the end the following new subsection:
    ``(d) Excess Contributions to Individual Training Accounts.--For 
purposes of this section, in the case of an individual training 
account, the term `excess contributions' means the amount by which the 
amount contributed for the taxable year to the account exceeds the 
amount allowable as a deduction under section 220 for such taxable 
year. For purposes of this subsection, any contribution which is 
distributed out of the individual training account in a distribution to 
which section 220(d)(2) applies shall be treated as an amount not 
contributed.''
    (d) Tax on Prohibited Transactions.--Section 4975 of such Code 
(relating to prohibited transactions) is amended--
            (1) by adding at the end of subsection (c) the following 
        new paragraph:
            ``(4) Special rule for individual training accounts.--An 
        individual for whose benefit an individual training account is 
        established shall be exempt from the tax imposed by this 
        section with respect to any transaction concerning such account 
        (which would otherwise be taxable under this section) if, with 
        respect to such transaction, the account ceases to be an 
        individual training account by reason of the application of 
        section 220(e)(2)(A) to such account.'', and
            (2) by inserting ``, an individual training account 
        described in section 220(c)(1),'' in subsection (e)(1) after 
        ``described in section 408(a)''.
    (e) Failure To Provide Reports on Individual Training Accounts.--
Section 6693 of such Code (relating to failure to provide reports on 
individual retirement accounts or annuities) is amended--
            (1) by inserting ``or on individual training accounts'' 
        after ``annuities'' in the heading of such section, and
            (2) by adding at the end of subsection (a) the following 
        new sentence: ``The person required by section 220(i) to file a 
        report regarding an individual training account at the time and 
        in the manner required by such section shall pay a penalty of 
        $50 for each failure, unless it is shown that such failure is 
        due to reasonable cause.''.
    (f) Clerical Amendments.--
            (1) The table of sections for part VII of subchapter B of 
        chapter 1 of such Code is amended by striking the item relating 
        to section 220 and inserting the following new items:

                              ``Sec. 220. Individual training accounts.
                              ``Sec. 221. Cross reference.''
            (2) The table of sections for chapter 43 of such Code is 
        amended by striking the item relating to section 4973 and 
        inserting the following new item:

                              ``Sec. 4973. Tax on excess contributions 
                                        to individual retirement 
                                        accounts, individual training 
                                        accounts, certain 403(b) 
                                        contracts, and certain 
                                        individual retirement 
                                        annuities.''
            (3) The table of sections for subchapter B of chapter 68 of 
        such Code is amended by striking the item relating to section 
        6693 and inserting the following new item:

                              ``Sec. 6693. Failure to provide reports 
                                        on individual retirement 
                                        accounts or annuities or on 
                                        individual training accounts.''
    (g) Effective Date.--The amendments made by this section shall 
apply to contributions made for taxable years beginning after December 
31, 1994.