I

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.

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

3 SECTION 1. TAX TREATMENT OF INDIVIDUAL TRAINING AC4 COUNTS.

5 (a) IN GENERAL.—Part VII of subchapter B of chap6 ter 1 of the Internal Revenue Code of 1986 (relating to

7 additional itemized deductions for individuals) is amended

8 by redesignating section 220 as section 221 and by insert9 ing after section 219 the following new section:
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1 ‘‘SEC. 220. INDIVIDUAL TRAINING ACCOUNTS.

2 ‘‘(a) ALLOWANCE OF DEDUCTION.—

3 ‘‘(1) IN GENERAL.—In the case of an individual

4 who is a qualified account holder, there shall be al5 lowed as a deduction an amount equal to the

6 amounts paid in cash for the taxable year by or on

7 behalf of such individual to any individual training

8 account for such individual’s benefit.

9 ‘‘(2) LIMITATION.—

10 ‘‘(A) ANNUAL CONTRIBUTIONS.—The

11 amount allowable as a deduction to any individ12 ual for any taxable year by reason of paragraph

13 (1) shall not exceed the lesser of—

14 ‘‘(i) $2,000, or

15 ‘‘(ii) an amount equal to the com16 pensation includible in the individual’s

17 gross income for such taxable year.

18 ‘‘(B) ACCOUNT CEILING.—No amount

19 shall be allowable as a deduction to any individ20 ual by reason of paragraph (1) with respect to

21 any amount paid to any individual training ac22 count for such individual’s benefit if, at the

23 time of such payment, the sum of the amounts

24 in all individual training accounts of such indi25 vidual (including the amount of such payment)

26 exceeds $12,000.
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1 ‘‘(3) ROLLOVERS.—No deduction shall be al2 lowed under this section with respect to any rollover

3 contribution.

4 ‘‘(b) TAX TREATMENT OF DISTRIBUTIONS.—

5 ‘‘(1) INCLUSION OF AMOUNTS IN GROSS IN6 COME.—Except as otherwise provided in this sub7 section, any amount paid or distributed out of an in8 dividual training account shall be included in gross

9 income by the payee or distributee, as the case may

10 be, under rules similar to the rules of section 72 and

11 408(d)(2).

12 ‘‘(2) EXCLUSION OF QUALIFIED TRAINING DIS13 TRIBUTIONS.—Paragraph (1) does not apply to any

14 qualified training distribution.

15 ‘‘(3) ROLLOVERS.—Rules similar to the rules of

16 section 408(d)(3) shall apply for purposes of this

17 section.

18 ‘‘(4) SPECIAL RULES.—Rules similar to the

19 rules of paragraphs (4) and (5) of section 408(d)

20 shall apply for purposes of this section.

21 ‘‘(c) QUALIFIED TRAINING DISTRIBUTION.—For

22 purposes of this section—

23 ‘‘(1) IN GENERAL.—The term ‘qualified train24 ing distribution’ means any amount paid or distrib25 uted out of an individual training account which
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1 would otherwise be includible in gross income, to the

2 extent that such payment or distribution is used ex3 clusively to pay qualified training expenses for a

4 qualified account holder.

5 ‘‘(2) QUALIFIED TRAINING EXPENSES.—For

6 purposes of this subsection—

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

8 training expenses’ means tuition, fees, books,

9 supplies, and equipment required for the enroll10 ment or attendance of a qualified account hold11 er at an eligible educational institution (as de12 fined in section 135(c)(3)).

13 ‘‘(B) COORDINATION WITH SAVINGS BOND

14 PROVISIONS.—The amount of qualified training

15 expenses for any qualified account holder for

16 any taxable year shall be reduced by the excess

17 (if any) of—

18 ‘‘(i) any amount excludable from gross

19 income under section 135 for such taxable

20 year, over

21 ‘‘(ii) the amount of qualified higher

22 education expenses (within the meaning of

23 section 135) paid by such account holder

24 during such taxable year for any other in25 dividual.
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1 ‘‘(d) QUALIFIED ACCOUNT HOLDER.—For purposes

2 of this section—

3 ‘‘(1) IN GENERAL.—The term ‘qualified account

4 holder’ means, with respect to any individual train5 ing account, the account holder if such account hold6 er worked at least half-time for at least 6 months

7 during the applicable period.

8 ‘‘(2) APPLICABLE PERIOD.—The term ‘applica9 ble period’ means—

10 ‘‘(A) with respect to any amount paid to

11 any individual training account, the 1-year pe12 riod ending on the date of such payment, and

13 ‘‘(B) with respect to any distribution from

14 an individual training account and any qualified

15 training expenses (determined without regard to

16 this paragraph), the 1-year period ending on

17 the earlier of—

18 ‘‘(i) the date of such distribution, or

19 ‘‘(ii) the date on which the qualified

20 account holder began the course of study

21 to which such expenses relate.

22 ‘‘(3) SELF-EMPLOYED.—Any self-employed in23 dividual shall be treated as working at least half24 time to the extent provided by regulations.

25 ‘‘(e) TAX TREATMENT OF ACCOUNTS.—
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1 ‘‘(1) IN GENERAL.—Any individual training ac2 count is exempt from taxation under this subtitle

3 unless such account has ceased to be an individual

4 training account by reason of paragraph (2) and ex5 cept for periods to which paragraph (3) applies. Not6 withstanding the preceding sentence, any such ac7 count is subject to the taxes imposed by section 511

8 (relating to imposition of tax on unrelated business

9 income of charitable, etc., organizations).

10 ‘‘(2) LOSS OF EXEMPTION IN CASE OF PROHIB11 ITED TRANSACTIONS.—For purposes of this section,

12 rules similar to the rules of section 408(e) shall

13 apply.

14 ‘‘(3) LOSS OF EXEMPTION DURING PERIODS

15 WHEN ACCOUNT CEILING EXCEEDED.—An individual

16 training account of an individual shall not be exempt

17 from taxation under this subtitle by reason of para18 graph (1) for any period during which the sum of

19 the amounts in all individual training accounts of

20 such individual exceeds $12,000.

21 ‘‘(f) INDIVIDUAL TRAINING ACCOUNT.—For pur22 poses of this title, the term ‘individual training account’

23 means a trust created or organized in the United States

24 for the exclusive benefit of an individual or his bene-
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1 ficiaries, but only if the written governing instrument cre2 ating the trust meets the following requirements:––

3 ‘‘(1) Except in the case of a rollover contribu4 tion described in subsection (b)(3), no contribution

5 will be accepted unless it is in cash, and contribu6 tions will not be accepted for the taxable year in ex7 cess of $2,000. ––

8 ‘‘(2) The trustee is a bank (as defined in sec9 tion 408(n)) or such other person who demonstrates

10 to the satisfaction of the Secretary that the manner

11 in which such other person will administer the trust

12 will be consistent with the requirements of this sec13 tion.

14 ‘‘(3) No part of the trust funds will be invested

15 in life insurance contracts.

16 ‘‘(4) The interest of an individual in the bal17 ance in his account is nonforfeitable.

18 ‘‘(5) The assets of the trust will not be commin19 gled with other property except in a common trust

20 fund or common investment fund.

21 ‘‘(6) Under regulations prescribed by the Sec22 retary, rules similar to the rules of section 401(a)(9)

23 and the incidental death benefit requirements of sec24 tion 401(a) shall apply to the distribution of the en-
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1 tire interest of an individual for whose benefit the

2 trust is maintained.

3 ‘‘(g) OTHER DEFINITIONS AND SPECIAL RULES.—

4 ‘‘(1) COMPENSATION.—The term ‘compensa5 tion’ has the meaning given such term by section

6 219(f)(1).

7 ‘‘(2) MARRIED INDIVIDUALS.—The maximum

8 deduction under subsection (a) shall be computed

9 separately for each individual, and this section shall

10 be applied without regard to any community prop11 erty laws.

12 ‘‘(3) TIME WHEN CONTRIBUTIONS DEEMED

13 MADE.—For purposes of this section, a taxpayer

14 shall be deemed to have made a contribution to an

15 individual training account on the last day of the

16 preceding taxable year if the contribution is made on

17 account of such taxable year and is made not later

18 than the time prescribed by law for filing the return

19 for such taxable year (not including extensions

20 thereof).

21 ‘‘(4) EMPLOYER PAYMENTS.—For purposes of

22 this title, any amount paid by an employer to an in23 dividual training account shall be treated as pay24 ment of compensation to the employee (other than a

25 self-employed individual who is an employee within
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1 the meaning of section 401(c)(1)) includible in his

2 gross income in the taxable year for which the

3 amount was contributed, whether or not a deduction

4 for such payment is allowable under this section to

5 the employee.

6 ‘‘(5) CUSTODIAL ACCOUNTS.—For purposes of

7 this section, a custodial account shall be treated as

8 a trust if the assets of such account are held by a

9 bank (as defined in section 408(n)) or another per10 son who demonstrates, to the satisfaction of the Sec11 retary, that the manner in which such person will

12 administer the account will be consistent with the re13 quirements of this section, and if the custodial ac14 count would, except for the fact that it is not a

15 trust, constitute an individual training account de16 scribed in this section. For purposes of this title, in

17 the case of a custodial account treated as a trust by

18 reason of the preceding sentence, the custodian of

19 such account shall be treated as the trustee thereof.

20 ‘‘(6) REPORTS.—The trustee of an individual

21 training account shall make such reports regarding

22 such account to the Secretary and to the individual

23 for whom the account is maintained with respect to

24 contributions (and the years to which they relate),

25 distributions, and such other matters as the Sec-
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1 retary may require under regulations. The reports

2 required by this paragraph—

3 ‘‘(A) shall be filed at such time and in

4 such manner as the Secretary prescribes in

5 such regulations, and

6 ‘‘(B) shall be furnished to individuals—

7 ‘‘(i) not later than January 31 of the

8 calendar year following the calendar year

9 to which such reports relate, and

10 ‘‘(ii) in such manner as the Secretary

11 prescribes in such regulations.

12 ‘‘(7) INVESTMENT IN COLLECTIBLES TREATED

13 AS DISTRIBUTIONS.—Rules similar to the rules of

14 section 408(m) shall apply for purposes of this sec15 tion.

16 ‘‘(h) PENALTY FOR DISTRIBUTIONS NOT USED FOR

17 QUALIFIED TRAINING EXPENSES.—

18 ‘‘(1) IN GENERAL.—If any amount is distrib19 uted from an individual training account and is not

20 used exclusively to pay qualified training expenses

21 for a qualified account holder, the tax imposed by

22 this chapter for the taxable year of such distribution

23 shall be increased by 20 percent of the portion of

24 such amount which is includible in gross income.
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1 ‘‘(2) EXCEPTIONS FOR REQUIRED DISTRIBU2 TIONS, DISTRIBUTIONS BY REASON OF DEATH, AND

3 DISABILITY.—Paragraph (1) shall not apply to dis4 tributions which are—

5 ‘‘(A) made pursuant to subsection (f)(6),

6 ‘‘(B) made to a beneficiary (or the estate

7 of the account holder) on or after the death of

8 the account holder, or

9 ‘‘(C) attributable to an account holder’s

10 being disabled within the meaning of section

11 72(m)(7).

12 ‘‘(i) INFLATION ADJUSTMENT.—In the case of any

13 taxable year beginning after 1997, the $2,000 amount in

14 subsection (a)(2)(A)(i) and the $12,000 amounts in sub15 section (a)(2)(B) and subsection (e)(3) shall each be in16 creased by an amount equal to—

17 ‘‘(1) such dollar amount, multiplied by

18 ‘‘(2) the cost-of-living adjustment determined

19 under section (1)(f)(3) for the calendar year in

20 which the taxable year begins, by substituting ‘1996’

21 for ‘1992’.

22 If any amount as adjusted under the preceding sentence

23 is not a multiple of $50, such amount shall be rounded

24 to the nearest multiple of $50.’’
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1 (b) DEDUCTION ALLOWABLE WHETHER OR NOT

2 TAXPAYER ITEMIZES.—Subsection (a) of section 62 of

3 such Code (relating to adjusted gross income defined) is

4 amended by inserting after paragraph (15) the following

5 new paragraph:

6 ‘‘(16) INDIVIDUAL TRAINING ACCOUNTS.—The

7 deduction allowed by section 220.’’

8 (c) CONFORMING AMENDMENTS.—

9 (1) TAX ON EXCESS CONTRIBUTIONS.—

10 (A) TAX IMPOSED.—Subsection (a) of sec11 tion 4973 of such Code is amended by striking

12 ‘‘or’’ at the end of paragraph (1), adding ‘‘or’’

13 at the end of paragraph (2), and inserting after

14 paragraph (2) the following new paragraph:

15 ‘‘(3) an individual training account (within the

16 meaning of section 220(f)),’’

17 (B) EXCESS CONTRIBUTIONS.—Section

18 4973 of such Code is amended by adding at the

19 end the following new subsection:

20 ‘‘(d) INDIVIDUAL TRAINING ACCOUNTS.—For pur21 poses of this section, in the case of an individual training

22 account, the term ‘excess contributions’ means the sum

23 of—

24 ‘‘(1) the excess (if any) of—
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1 ‘‘(A) the amount contributed for the tax2 able year to the account (other than a rollover

3 contribution to which section 220(b)(3) ap4 plies), over

5 ‘‘(B) the amount allowable as a deduction

6 under section 220 for such contributions, and

7 ‘‘(2) the amount determined under this sub8 section for the preceding taxable year reduced by the

9 sum of—

10 ‘‘(A) the distributions out of the account

11 for the taxable year which were included in the

12 gross income of the payee under section

13 220(b)(1),

14 ‘‘(B) the distributions out of the account

15 for the taxable year to which rules similar to

16 the rules of section 408(d)(5) apply by reason

17 of section 220(b)(4), and

18 ‘‘(C) the excess (if any) of the maximum

19 amount allowable as a deduction under section

20 220 for the taxable year over the amount con21 tributed to the account for the taxable year.

22 For purposes of this subsection, any contribution which

23 is distributed from the individual training account in a dis24 tribution to which rules similar to the rules of section
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1 408(d)(4) apply by reason of section 220(b)(4) shall be

2 treated as an amount not contributed.’’

3 (C) HEADING.—The heading of section

4 4973 of such Code is amended by inserting

5 ‘‘INDIVIDUAL TRAINING ACCOUNTS,’’ after

6 ‘‘CONTRACTS,’’.

7 (2) TAX ON PROHIBITED TRANSACTIONS.—Sec8 tion 4975 of such Code is amended—

9 (A) by adding at the end of subsection (c)

10 the following new paragraph:

11 ‘‘(4) SPECIAL RULE FOR INDIVIDUAL TRAINING

12 ACCOUNTS.—An individual for whose benefit an indi13 vidual training account is established and any con14 tributor to such account shall be exempt from the

15 tax imposed by this section with respect to any

16 transaction concerning such account (which would

17 otherwise be taxable under this section) if, with re18 spect to such transaction, the account ceases to be

19 an individual training account by reason of the ap20 plication of section 220(e)(2) to such account.’’, and

21 (B) by inserting ‘‘, an individual training

22 account described in section 220(f),’’ in sub23 section (e)(1) after ‘‘described in section

24 408(a)’’.
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1 (3) INFORMATION RELATING TO CERTAIN

2 TRUSTS AND ANNUITY PLANS.—Subsection (c) of

3 section 6047 of such Code is amended—

4 (A) by inserting ‘‘or section 220’’ after

5 ‘‘section 219’’, and

6 (B) by inserting ‘‘, of any individual train7 ing account described in section 220(f),’’, after

8 ‘‘section 408(a)’’.

9 (4) INSPECTION OF APPLICATIONS FOR TAX EX10 EMPTION.—Clause (i) of section 6104(a)(1)(B) of

11 such Code is amended by inserting ‘‘an individual

12 training account described in section 220(f),’’ after

13 ‘‘section 408(a),’’.

14 (5) FAILURE TO PROVIDE REPORTS ON INDI15 VIDUAL TRAINING ACCOUNTS.—Section 6693 of such

16 Code is amended—

17 (A) by inserting ‘‘OR ON INDIVIDUAL

18 TRAINING ACCOUNTS’’ after ‘‘ANNUITIES’’

19 in the heading of such section, and

20 (B) by adding at the end of subsection (a)

21 the following new sentence: ‘‘The person re22 quired by section 220(g)(6) to file a report re23 garding an individual training account at the

24 time and in the manner required by such sec25 tion shall pay a penalty of $50 for each failure
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1 unless it is shown that such failure is due to

2 reasonable cause.’’

3 (d) CLERICAL AMENDMENTS.—

4 (1) The table of sections for part VII of sub5 chapter B of chapter 1 is amended by striking the

6 item relating to section 220 and inserting the follow7 ing new items:

‘‘Sec. 220. Individual training accounts.

‘‘Sec. 221. Cross reference.’’

8 (2) The table of sections for chapter 43 of such

9 Code is amended by striking the item relating to sec10 tion 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.’’

11 (3) The table of sections for part I of sub12 chapter B of chapter 68 of such Code is amended

13 by striking the item relating to section 6693 and in14 serting 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.’’

15 (e) EFFECTIVE DATE.—The amendments made by

16 this section shall apply to taxable years beginning after

17 the date of the enactment of this Act.

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