I

104TH CONGRESS

1ST SESSION H. R. 1389

To amend the Internal Revenue Code of 1986 to expand the availability

of, and amount of, deductible individual retirement account contributions,

and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

APRIL 4, 1995

Mr. HINCHEY (for himself, Mr. SANDERS, Mr. BROWN of California, Mr.

FROST, Mr. FATTAH, Mr. OWENS, Ms. VELA ́ZQUEZ, Mr. UNDERWOOD,

and Mr. MARTINEZ) introduced the following bill; which was referred to

the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to expand

the availability of, and amount of, deductible individual

retirement account contributions, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Middle Class Flexible

5 Savings Act of 1995’’.
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1 SEC. 2. HIGHER MAXIMUM IRA DEDUCTION AND INCOME

2 PHASEOUT LIMITS; INFLATION ADJUSTMENT

3 OF MAXIMUM IRA DEDUCTION AND PHASE4 OUT LIMITS.

5 (a) HIGHER MAXIMUM IRA DEDUCTION.—

6 (1) IN GENERAL.—The following provisions of

7 the Internal Revenue Code of 1986 are each amend8 ed by striking ‘‘$2,000’’ and inserting ‘‘$3,000’’:

9 (A) Subsections (b)(1)(A) and (c)(2) of

10 section 219.

11 (B) Subsections (a)(1), (b), and (j) of sec12 tion 408.

13 (2) CONFORMING AMENDMENT.—Sections

14 219(c)(2) and 408(d)(5) of such Code are each

15 amended by striking ‘‘$2,250’’ and inserting

16 ‘‘$3,500’’.

17 (b) HIGHER INCOME PHASEOUT LIMITS.—

18 (1) Subparagraph (B) of section 219(g)(3) of

19 such Code is amended—

20 (A) by striking ‘‘$40,000’’ and inserting

21 ‘‘$60,000’’, and

22 (B) by striking ‘‘$25,000’’ and inserting

23 ‘‘$40,000’’.

24 (2) Clause (ii) of section 219(g)(2)(A) of such

25 Code is amended to read as follows:

26 ‘‘(ii) $15,000.’’
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1 (c) INFLATION ADJUSTMENT OF MAXIMUM IRA DE2 DUCTION AND INCOME PHASEOUT LIMITS.—Section 219

3 of such Code is amended by inserting after subsection (f)

4 the following new subsection:

5 ‘‘(g) INFLATION ADJUSTMENT OF MAXIMUM DEDUC6 TION AND INCOME PHASEOUT LIMITS.—

7 ‘‘(1) IN GENERAL.—In the case of any taxable

8 year beginning in a calendar year after 1995, each

9 applicable dollar amount shall be increased by an

10 amount equal to—

11 ‘‘(A) such dollar amount, multiplied by

12 ‘‘(B) the cost-of-living adjustment under

13 section 1(f)(3) for the calendar year in which

14 the taxable year begins, determined by sub15 stituting ‘calendar year 1994’ for ‘calendar year

16 1992’ in subparagraph (B) thereof.

17 ‘‘(2) APPLICABLE DOLLAR AMOUNT.—For pur18 poses of paragraph (1), the term ‘applicable dollar

19 amount’ means—

20 ‘‘(A) the $3,000 amount in subsections

21 (b)(1)(A), (c)(2), and (c)(3) of this section and

22 in subsections (a)(1), (b), and (j) of section

23 408,

24 ‘‘(B) the $3,500 amount in subsection

25 (c)(2) of this section and in section 408(d)(5),
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1 ‘‘(C) the $60,000 and $40,000 amounts in

2 subsection (g)(3)(B), and

3 ‘‘(D) the $15,000 amount in subsection

4 (g)(2)(A)(ii).

5 ‘‘(3) ROUNDING.—If any amount as adjusted

6 under paragraph (1) is not a multiple of $50, such

7 amount shall be rounded to the nearest multiple of

8 $50.’’

9 (d) EFFECTIVE DATE.—The amendments made by

10 this section shall apply to taxable years beginning after

11 December 31, 1994.

12 SEC. 3. IRA FOR NONWORKING SPOUSE WITH YOUNG CHIL13 DREN COMPUTED ON BASIS OF COMPENSA14 TION OF BOTH SPOUSES.

15 (a) IN GENERAL.—Subsection (c) of section 219 of

16 the Internal Revenue Code of 1986 (relating to special

17 rules for certain married individuals) is amended by add18 ing at the end thereof the following new paragraph:

19 ‘‘(3) HIGHER LIMIT FOR SPOUSE WITH YOUNG

20 CHILDREN.—

21 ‘‘(A) IN GENERAL.—In the case of a quali22 fying spouse, the amount allowable as a deduc23 tion under paragraph (1) shall not exceed the

24 lesser of—

25 ‘‘(i) $3,000, or
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1 ‘‘(ii) the sum of—

2 ‘‘(I) the compensation includible

3 in such individual’s gross income for

4 the taxable year, plus

5 ‘‘(II) the compensation includible

6 in the gross income of such individ7 ual’s spouse for the taxable year re8 duced by the amount allowable as a

9 deduction under subsection (a) to

10 such spouse for such taxable year.

11 ‘‘(B) QUALIFYING SPOUSE.—For purposes

12 of subparagraph (A), the term ‘qualifying

13 spouse’ means any spouse of an individual if—

14 ‘‘(i) such individual and spouse file a

15 joint return for the taxable year,

16 ‘‘(ii) such spouse has less than $1,000

17 of compensation (determined without re18 gard to section 911) for the taxable year,

19 and

20 ‘‘(iii) such spouse has a child (as de21 fined in section 151(c)(3)) who has not at22 tained age 6 as of the close of such taxable

23 year and who is a dependent (as defined in

24 section 152) of the taxpayer for such

25 year.’’
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to taxable years beginning after

3 December 31, 1994.

4 SEC. 4. PENALTY-FREE WITHDRAWALS FROM CERTAIN

5 PLANS TO PAY EDUCATIONAL EXPENSES,

6 MEDICAL EXPENSES, BUSINESS START-UP EX7 PENSES, AND FIRST-TIME HOMEBUYER EX8 PENSES.

9 (a) EDUCATIONAL EXPENSES AND BUSINESS START10 UP EXPENSES.—

11 (1) IN GENERAL.—Paragraph (2) of section

12 72(t) of the Internal Revenue Code of 1986 (relating

13 to exceptions to 10-percent additional tax on early

14 distributions from qualified retirement plans) is

15 amended by adding at the end thereof the following

16 new subparagraph:

17 ‘‘(D) DISTRIBUTIONS FROM CERTAIN

18 PLANS FOR EDUCATIONAL EXPENSES AND BUSI19 NESS START-UP EXPENSES.—

20 ‘‘(i) IN GENERAL.—Distributions to

21 an individual from an individual retirement

22 plan, or from amounts attributable to em23 ployer contributions made pursuant to

24 elective deferrals described in subpara25 graph (A) or (C) of section 402(g)(3) or
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1 section 501(c)(18)(D)(iii) to the extent

2 such distributions do not exceed the sum

3 of—

4 ‘‘(I) the qualified higher edu5 cation expenses (as defined in para6 graph (6)) of the taxpayer for the tax7 able year, and

8 ‘‘(II) the start-up expenditures

9 (as defined in section 195(c)) of the

10 taxpayer for the taxable year.

11 ‘‘(ii) ADJUSTED GROSS INCOME

12 LIMIT.—Clause (i) shall apply to distribu13 tions from an individual retirement plan

14 only if the adjusted gross income of the

15 distributee for the taxable year in which

16 the distribution occurs does not exceed—

17 ‘‘(I) $60,000 in the case of an

18 unmarried individual,

19 ‘‘(II) $80,000 in the case of a

20 joint return, and

21 ‘‘(III) $40,000 in the case of a

22 married individual filing a separate

23 return.’’

24 (2) QUALIFIED HIGHER EDUCATION EXPENSES

25 DEFINED.—Section 72(t) of such Code is amended
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1 by adding at the end thereof the following new para2 graph:

3 ‘‘(6) QUALIFIED HIGHER EDUCATION EX4 PENSES.—For purposes of paragraph (2)(D)—

5 ‘‘(A) IN GENERAL.—The term ‘qualified

6 higher education expenses’ means tuition, fees,

7 books, supplies, and equipment required for the

8 enrollment or attendance of—

9 ‘‘(i) the taxpayer,

10 ‘‘(ii) the taxpayer’s spouse, or

11 ‘‘(iii) a child (as defined in section

12 151(c)(3)) of the taxpayer,

13 at an eligible educational institution (as defined

14 in section 135(c)(3)).

15 ‘‘(B) COORDINATION WITH SAVINGS BOND

16 PROVISIONS.—The amount of qualified higher

17 education expenses for any taxable year shall be

18 reduced by any amount excludable from gross

19 income under section 135.’’

20 (b) CATASTROPHIC ILLNESS EXPENSES.—Subpara21 graph (A) of section 72(t)(3) of such Code is amended

22 to read as follows:

23 ‘‘(A) CERTAIN EXCEPTIONS NOT TO APPLY

24 TO INDIVIDUAL RETIREMENT PLANS.—
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1 ‘‘(i) IN GENERAL.—Except as pro2 vided in clause (ii), subparagraphs (A)(v),

3 (B), and (C) of paragraph (2) shall not

4 apply to distributions from an individual

5 retirement plan.

6 ‘‘(ii) DISTRIBUTIONS FOR MEDICAL

7 EXPENSES FROM CERTAIN INDIVIDUAL RE8 TIREMENT PLANS.—Subparagraph (B) of

9 paragraph (2) shall apply to distributions

10 from an individual retirement plan if the

11 adjusted gross income of the distributee

12 for the taxable year in which the distribu13 tion occurs does not exceed the applicable

14 limitation under paragraph (2)(D).’’

15 (c) PENALTY-FREE DISTRIBUTIONS FOR CERTAIN

16 UNEMPLOYED INDIVIDUALS.—Paragraph (2) of section

17 72(t) of such Code (as amended by the preceding provi18 sions of this section) is amended further by adding at the

19 end the following new subparagraph:

20 ‘‘(E) DISTRIBUTIONS TO UNEMPLOYED IN21 DIVIDUALS.—A distribution from an individual

22 retirement plan to an individual after separa23 tion from employment, if—

24 ‘‘(i) such individual has received un25 employment compensation for 12 consecu-
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1 tive weeks under any Federal or State un2 employment compensation law by reason of

3 such separation, and

4 ‘‘(ii) such distributions are made dur5 ing any taxable year during which such un6 employment compensation is paid or the

7 succeeding taxable year.’’

8 (d) EXPENSES FOR FIRST-TIME HOMEBUYERS.—

9 (1) IN GENERAL.—Paragraph (2) of section

10 72(t) of such Code (as amended by the preceding

11 provisions of this section) is amended further by

12 adding at the end the following new subparagraph:

13 ‘‘(F) DISTRIBUTIONS FROM INDIVIDUAL

14 RETIREMENT PLANS FOR FIRST-TIME HOME15 BUYERS.—

16 ‘‘(i) IN GENERAL.—Distributions to

17 an individual from an individual retirement

18 plan which are qualified first-time home19 buyer distributions (as defined in para20 graph (7)).

21 ‘‘(ii) ADJUSTED GROSS INCOME

22 LIMIT.—Clause (i) shall apply to distribu23 tions from an individual retirement plan

24 only if the adjusted gross income of the
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1 distributee for the taxable year in which

2 the distribution occurs does not exceed—

3 ‘‘(I) $60,000 in the case of an

4 unmarried individual,

5 ‘‘(II) $80,000 in the case of a

6 joint return, and

7 ‘‘(III) $40,000 in the case of a

8 married individual filing a separate

9 return.’’

10 (2) DEFINITION.—Section 72(t) of such Code

11 (as amended by the preceding provisions of this sec12 tion) is amended further by adding at the end the

13 following new paragraph:

14 ‘‘(7) QUALIFIED FIRST-TIME HOMEBUYER DIS15 TRIBUTIONS.—For purposes of paragraph

16 (2)(F)(i)—

17 ‘‘(A) IN GENERAL.—The term ‘qualified

18 first-time homebuyer distribution’ means any

19 payment or distribution received by an individ20 ual to the extent such payment or distribution

21 is used by the individual before the close of the

22 60th day after the day on which such payment

23 or distribution is received to pay qualified ac24 quisition costs with respect to a principal resi-
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1 dence of a first-time homebuyer who is such in2 dividual or such individual’s spouse.

3 ‘‘(B) QUALIFIED ACQUISITION COSTS.—

4 For purposes of this paragraph, the term

5 ‘qualified acquisition costs’ means the costs of

6 acquiring, constructing, or reconstructing a res7 idence. Such term includes any usual or reason8 able settlement, financing, or other closing

9 costs.

10 ‘‘(C) FIRST-TIME HOMEBUYER; OTHER

11 DEFINITIONS.—For purposes of this para12 graph—

13 ‘‘(i) FIRST-TIME HOMEBUYER.—The

14 term ‘first-time homebuyer’ means any in15 dividual if such individual (and if married,

16 such individual’s spouse) had no present

17 ownership interest in a principal residence

18 during the 10-year period ending on the

19 date of acquisition of the principal resi20 dence to which this paragraph applies.

21 ‘‘(ii) PRINCIPAL RESIDENCE.—The

22 term ‘principal residence’ has the same

23 meaning as when used in section 1034.

24 ‘‘(iii) DATE OF ACQUISITION.—The

25 term ‘date of acquisition’ means the date—
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1 ‘‘(I) on which a binding contract

2 to acquire the principal residence to

3 which subparagraph (A) applies is en4 tered into, or

5 ‘‘(II) on which construction or re6 construction of such a principal resi7 dence is commenced.

8 ‘‘(D) SPECIAL RULE WHERE DELAY IN AC9 QUISITION.—If any distribution from any indi10 vidual retirement plan fails to meet the require11 ments of subparagraph (A) solely by reason of

12 a delay or cancellation of the purchase or con13 struction of the residence, the amount of the

14 distribution may be contributed to an individual

15 retirement plan as provided in section

16 408(d)(3)(A)(i) (determined by substituting

17 ‘120 days’ for ‘60 days’ in such section), except

18 that—

19 ‘‘(i) section 408(d)(3)(B) shall not be

20 applied to such contribution, and

21 ‘‘(ii) such amount shall not be taken

22 into account in determining whether sec23 tion 408(d)(3)(A)(i) applies to any other

24 amount.’’

25 (e) CONFORMING AMENDMENTS.—
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1 (1) Section 401(k)(2)(B)(i) of such Code is

2 amended by striking ‘‘or’’ at the end of subclause

3 (III), by striking ‘‘and’’ at the end of subclause (IV)

4 and inserting ‘‘or’’, and by inserting after subclause

5 (IV) the following new subclause:

6 ‘‘(V) the date on which distribu7 tions for qualified higher education

8 expenses (as defined in section

9 72(t)(6)) or start-up expenses (as de10 fined in section 195(c)) or qualified

11 first-time homebuyer distributions (as

12 defined in section 72(t)(7)(A)) are

13 made, and’’.

14 (2) Section 403(b)(11) of such Code is amend15 ed by striking ‘‘or’’ at the end of subparagraph (A),

16 by striking the period at the end of subparagraph

17 (B) and inserting ‘‘, or’’, and by inserting after sub18 paragraph (B) the following new subparagraph:

19 ‘‘(C) for the payment of qualified higher

20 education expenses (as defined in section

21 72(t)(6)), start-up expenses (as defined in sec22 tion 195(c)), or qualified acquisition costs (as

23 defined in section 72(t)(7)) with respect to a

24 principal residence (as so defined) of a first25 time homebuyer (as so defined).’’
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1 (f) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to payments and distributions after

3 the date of the enactment of this Act.

4 SEC. 5. MINIMUM TAX ON FOREIGN AND FOREIGN-OWNED

5 CORPORATIONS.

6 (a) IN GENERAL.—Subchapter A of chapter 1 of the

7 Internal Revenue Code of 1986 (relating to determination

8 of tax liability) is amended by adding at the end thereof

9 the following new part:

10 ‘‘PART VIII—MINIMUM TAX ON CERTAIN FOREIGN

11 AND FOREIGN-OWNED CORPORATIONS

‘‘Sec. 59B. Minimum tax on certain foreign and foreign-owned

corporations.

12 ‘‘SEC. 59B. MINIMUM TAX ON CERTAIN FOREIGN AND FOR13 EIGN-OWNED CORPORATIONS.

14 ‘‘(a) IMPOSITION OF TAX.—In the case of a corpora15 tion to which this section applies, there is hereby imposed

16 (in addition to any other tax imposed by this subtitle) a

17 tax equal to the excess (if any) of—

18 ‘‘(1) 35 percent of the product of—

19 ‘‘(A) 9 percent, and

20 ‘‘(B) an amount equal to 75 percent of the

21 gross receipts of the taxpayer from the sale or

22 leasing of property manufactured by the tax23 payer or by any foreign person that is a related

24 party of the taxpayer, over
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1 ‘‘(2) the aggregate tax imposed under sections

2 11, 55, and 1201 for such year.

3 ‘‘(b) TAXPAYERS TO WHICH SECTION APPLIES.—

4 This section shall apply to a corporation for the taxable

5 year if—

6 ‘‘(1) such corporation is—

7 ‘‘(A) a domestic corporation which is 25-

8 percent foreign-owned, or

9 ‘‘(B) a foreign corporation engaged in a

10 trade or business within the United States, and

11 ‘‘(2) the gross receipts from the sale or leasing

12 of property manufactured by such corporation or by

13 any foreign person that is a related party of such

14 corporation are greater than the lesser of—

15 ‘‘(A) $2,000,000, or

16 ‘‘(B) an amount equal to 10 percent of the

17 total gross receipts of such corporation.

18 ‘‘(c) DEFINITIONS.—For purposes of this section, the

19 term ‘25-percent foreign-owned’, ‘foreign person’, and ‘re20 lated party’ have the respective meanings given such terms

21 by section 6038A(c).’’

22 (b) CLERICAL AMENDMENT.—The table of parts for

23 such subchapter A is amended by adding at the end there24 of the following new item:

‘‘Part VIII. Minimum tax on certain foreign and foreign-owned

corporations.’’
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 1994.

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