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[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3157 Introduced in House (IH)]

104th CONGRESS
  2d Session
                                H. R. 3157

 To amend the Internal Revenue Code of 1986 to allow the establishment 
                    of individual training accounts.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                             March 22, 1996

Mr. Torricelli 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 allow the establishment 
                    of individual training accounts.

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

SECTION 1. TAX TREATMENT OF 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) Allowance of Deduction.--
            ``(1) In general.--In the case of an individual who is a 
        qualified account holder, there shall be allowed as a deduction 
        an amount equal to the amounts paid in cash for the taxable 
        year by or on behalf of such individual to any individual 
        training account for such individual's benefit.
            ``(2) Limitation.--
                    ``(A) Annual contributions.--The amount allowable 
                as a deduction to any individual for any taxable year 
                by reason of paragraph (1) shall not exceed the lesser 
                of--
                            ``(i) $2,000, or
                            ``(ii) an amount equal to the compensation 
                        includible in the individual's gross income for 
                        such taxable year.
                    ``(B) Account ceiling.--No amount shall be 
                allowable as a deduction to any individual by reason of 
                paragraph (1) with respect to any amount paid to any 
                individual training account for such individual's 
                benefit if, at the time of such payment, the sum of the 
                amounts in all individual training accounts of such 
                individual (including the amount of such payment) 
                exceeds $12,000.
            ``(3) Rollovers.--No deduction shall be allowed under this 
        section with respect to any rollover contribution.
    ``(b) Tax Treatment of Distributions.--
            ``(1) Inclusion of amounts in gross income.--Except as 
        otherwise provided in this subsection, any amount paid or 
        distributed out of an individual training account shall be 
        included in gross income by the payee or distributee, as the 
        case may be, under rules similar to the rules of section 72 and 
        408(d)(2).
            ``(2) Exclusion of qualified training distributions.--
        Paragraph (1) does not apply to any qualified training 
        distribution.
            ``(3) Rollovers.--Rules similar to the rules of section 
        408(d)(3) shall apply for purposes of this section.
            ``(4) Special rules.--Rules similar to the rules of 
        paragraphs (4) and (5) of section 408(d) shall apply for 
        purposes of this section.
    ``(c) Qualified Training Distribution.--For purposes of this 
section--
            ``(1) In general.--The term `qualified training 
        distribution' means any amount paid or distributed out of an 
        individual training account which would otherwise be includible 
        in gross income, to the extent that such payment or 
        distribution is used exclusively to pay qualified training 
        expenses for a qualified account holder.
            ``(2) Qualified training expenses.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `qualified training 
                expenses' means tuition, fees, books, supplies, and 
                equipment required for the enrollment or attendance of 
                a qualified account holder at an eligible educational 
                institution (as defined in section 135(c)(3)).
                    ``(B) Coordination with savings bond provisions.--
                The amount of qualified training expenses for any 
                qualified account holder for any taxable year shall be 
                reduced by the excess (if any) of--
                            ``(i) any amount excludable from gross 
                        income under section 135 for such taxable year, 
                        over
                            ``(ii) the amount of qualified higher 
                        education expenses (within the meaning of 
                        section 135) paid by such account holder during 
                        such taxable year for any other individual.
    ``(d) Qualified Account Holder.--For purposes of this section--
            ``(1) In general.--The term `qualified account holder' 
        means, with respect to any individual training account, the 
        account holder if such account holder worked at least half-time 
        for at least 6 months during the applicable period.
            ``(2) Applicable period.--The term `applicable period' 
        means--
                    ``(A) with respect to any amount paid to any 
                individual training account, the 1-year period ending 
                on the date of such payment, and
                    ``(B) with respect to any distribution from an 
                individual training account and any qualified training 
                expenses (determined without regard to this paragraph), 
                the 1-year period ending on the earlier of--
                            ``(i) the date of such distribution, or
                            ``(ii) the date on which the qualified 
                        account holder began the course of study to 
                        which such expenses relate.
            ``(3) Self-employed.--Any self-employed individual shall be 
        treated as working at least half-time to the extent provided by 
        regulations.
    ``(e) Tax Treatment of Accounts.--
            ``(1) In general.--Any 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) and except for periods to which paragraph (3) 
        applies. 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 in case of prohibited 
        transactions.--For purposes of this section, rules similar to 
        the rules of section 408(e) shall apply.
            ``(3) Loss of exemption during periods when account ceiling 
        exceeded.--An individual training account of an individual 
        shall not be exempt from taxation under this subtitle by reason 
        of paragraph (1) for any period during which the sum of the 
        amounts in all individual training accounts of such individual 
        exceeds $12,000.
    ``(f) Individual Training Account.--For purposes of this title, the 
term `individual training account' means a trust created or organized 
in the United States for the exclusive benefit of an individual or his 
beneficiaries, but only if the written governing instrument creating 
the trust meets the following requirements:--
            ``(1) Except in the case of a rollover contribution 
        described in subsection (b)(3), no contribution will be 
        accepted unless it is in cash, and contributions will not be 
        accepted for the taxable year in excess of $2,000. --
            ``(2) The trustee is a bank (as defined in section 408(n)) 
        or such other person who demonstrates to the satisfaction of 
        the Secretary that the manner in which such other person will 
        administer the trust will be consistent with the requirements 
        of this section.
            ``(3) No part of the trust funds will be invested in life 
        insurance contracts.
            ``(4) The interest of an individual in the balance in his 
        account is nonforfeitable.
            ``(5) The assets of the trust will not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
            ``(6) Under regulations prescribed by the Secretary, rules 
        similar to the rules of section 401(a)(9) and the incidental 
        death benefit requirements of section 401(a) shall apply to the 
        distribution of the entire interest of an individual for whose 
        benefit the trust is maintained.
    ``(g) Other Definitions and Special Rules.--
            ``(1) Compensation.--The term `compensation' has the 
        meaning given such term by section 219(f)(1).
            ``(2) Married individuals.--The maximum deduction under 
        subsection (a) shall be computed separately for each 
        individual, and this section shall be applied without regard to 
        any community property laws.
            ``(3) Time when contributions deemed made.--For purposes of 
        this section, a taxpayer shall be deemed to have made a 
        contribution to an individual training account on the last day 
        of the preceding taxable year if the contribution is made on 
        account of such taxable year and is made not later than the 
        time prescribed by law for filing the return for such taxable 
        year (not including extensions thereof).
            ``(4) Employer payments.--For purposes of this title, any 
        amount paid by an employer to an individual training account 
        shall be treated as payment of compensation to the employee 
        (other than a self-employed individual who is an employee 
        within the meaning of section 401(c)(1)) includible in his 
gross income in the taxable year for which the amount was contributed, 
whether or not a deduction for such payment is allowable under this 
section to the employee.
            ``(5) 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 such person 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 this section. 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.
            ``(6) Reports.--The trustee of an individual training 
        account shall make such reports regarding such account to the 
        Secretary and to the individual for whom the account is 
        maintained with respect to contributions (and the years to 
        which they relate), distributions, and such other matters as 
        the Secretary may require under regulations. The reports 
        required by this paragraph--
                    ``(A) shall be filed at such time and in such 
                manner as the Secretary prescribes in such regulations, 
                and
                    ``(B) shall be furnished to individuals--
                            ``(i) not later than January 31 of the 
                        calendar year following the calendar year to 
                        which such reports relate, and
                            ``(ii) in such manner as the Secretary 
                        prescribes in such regulations.
            ``(7) Investment in collectibles treated as 
        distributions.--Rules similar to the rules of section 408(m) 
        shall apply for purposes of this section.
    ``(h) Penalty for Distributions Not Used For Qualified Training 
Expenses.--
            ``(1) In general.--If any amount is distributed from an 
        individual training account and is not used exclusively to pay 
        qualified training expenses for a qualified account holder, the 
        tax imposed by this chapter for the taxable year of such 
        distribution shall be increased by 20 percent of the portion of 
        such amount which is includible in gross income.
            ``(2) Exceptions for required distributions, distributions 
        by reason of death, and disability.--Paragraph (1) shall not 
        apply to distributions which are--
                    ``(A) made pursuant to subsection (f)(6),
                    ``(B) made to a beneficiary (or the estate of the 
                account holder) on or after the death of the account 
                holder, or
                    ``(C) attributable to an account holder's being 
                disabled within the meaning of section 72(m)(7).
    ``(i) Inflation Adjustment.--In the case of any taxable year 
beginning after 1997, the $2,000 amount in subsection (a)(2)(A)(i) and 
the $12,000 amounts in subsection (a)(2)(B) and subsection (e)(3) shall 
each be increased by an amount equal to--
            ``(1) such dollar amount, multiplied by
            ``(2) the cost-of-living adjustment determined under 
        section (1)(f)(3) for the calendar year in which the taxable 
        year begins, by substituting `1996' for `1992'.
If any amount as adjusted under the preceding sentence is not a 
multiple of $50, such amount shall be rounded to the nearest multiple 
of $50.''
    (b) Deduction Allowable Whether Or Not Taxpayer Itemizes.--
Subsection (a) of section 62 of such Code (relating to adjusted gross 
income defined) is amended by inserting after paragraph (15) the 
following new paragraph:
            ``(16) individual training accounts.--The deduction allowed 
        by section 220.''
    (c) Conforming Amendments.--
            (1) Tax on excess contributions.--
                    (A) Tax Imposed.--Subsection (a) of section 4973 of 
                such Code is amended by striking ``or'' at the end of 
                paragraph (1), adding ``or'' at the end of paragraph 
                (2), and inserting after paragraph (2) the following 
                new paragraph:
            ``(3) an individual training account (within the meaning of 
        section 220(f)),''
                    (B) Excess contributions.--Section 4973 of such 
                Code is amended by adding at the end the following new 
                subsection:
    ``(d) Individual Training Accounts.--For purposes of this section, 
in the case of an individual training account, the term `excess 
contributions' means the sum of--
            ``(1) the excess (if any) of--
                    ``(A) the amount contributed for the taxable year 
                to the account (other than a rollover contribution to 
                which section 220(b)(3) applies), over
                    ``(B) the amount allowable as a deduction under 
                section 220 for such contributions, and
            ``(2) the amount determined under this subsection for the 
        preceding taxable year reduced by the sum of--
                    ``(A) the distributions out of the account for the 
                taxable year which were included in the gross income of 
                the payee under section 220(b)(1),
                    ``(B) the distributions out of the account for the 
                taxable year to which rules similar to the rules of 
                section 408(d)(5) apply by reason of section 220(b)(4), 
                and
                    ``(C) the excess (if any) of the maximum amount 
                allowable as a deduction under section 220 for the 
                taxable year over the amount contributed to the account 
                for the taxable year.
For purposes of this subsection, any contribution which is distributed 
from the individual training account in a distribution to which rules 
similar to the rules of section 408(d)(4) apply by reason of section 
220(b)(4) shall be treated as an amount not contributed.''
                    (C) Heading.--The heading of section 4973 of such 
                Code is amended by inserting ``individual training 
                accounts,'' after ``contracts,''.
            (2) Tax on prohibited transactions.--Section 4975 of such 
        Code is amended--
                    (A) 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 and any contributor to such account 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) to 
        such account.'', and
                    (B) by inserting ``, an individual training account 
                described in section 220(f),'' in subsection (e)(1) 
                after ``described in section 408(a)''.
            (3) Information relating to certain trusts and annuity 
        plans.--Subsection (c) of section 6047 of such Code is 
        amended--
                    (A) by inserting ``or section 220'' after ``section 
                219'', and
                    (B) by inserting ``, of any individual training 
                account described in section 220(f),'', after ``section 
                408(a)''.
            (4) Inspection of applications for tax exemption.--Clause 
        (i) of section 6104(a)(1)(B) of such Code is amended by 
        inserting ``an individual training account described in section 
        220(f),'' after ``section 408(a),''.
            (5) Failure to provide reports on individual training 
        accounts.--Section 6693 of such Code is amended--
                    (A) by inserting ``or on individual training 
                accounts'' after ``annuities'' in the heading of such 
                section, and
                    (B) by adding at the end of subsection (a) the 
                following new sentence: ``The person required by 
                section 220(g)(6) 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.''
    (d) Clerical Amendments.--
            (1) The table of sections for part VII of subchapter B of 
        chapter 1 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, certain section 
                                        403(b) contracts, individual 
                                        training accounts, and certain 
                                        individual retirement 
                                        annuities.''
            (3) The table of sections for part I of 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; 
                                        overstatement of designated 
                                        nondeductible contributions.''
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.
                                 <all>
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