I 

108TH CONGRESS 

1ST SESSION H. R. 3397

To amend the Internal Revenue Code of 1986 to allow a deduction for 

contributions to individual investment accounts, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

OCTOBER 29, 2003

Mr. MCCRERY 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 a 

deduction for contributions to individual investment accounts, 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 ‘‘Individual Investment 

5 Account Act of 2003’’. 

6 SEC. 2. ESTABLISHMENT OF INDIVIDUAL INVESTMENT AC7 COUNTS. 

8 (a) IN GENERAL.—Part VII of subchapter B of chap9 ter 1 of the Internal Revenue Code of 1986 (relating to 

10 additional itemized deductions for individuals) is amended 
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1 by redesignating section 223 as section 224 and by insert2 ing after section 222 the following new section: 

3 ‘‘SEC. 223. INDIVIDUAL INVESTMENT ACCOUNTS. 

4 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi5 vidual, there shall be allowed as a deduction an amount 

6 equal to the aggregate amount paid in cash for the taxable 

7 year by such individual to an individual investment ac8 count established for the benefit of such individual. 

9 ‘‘(b) DEFINITIONS AND SPECIAL RULES.—For pur10 poses of this section—

11 ‘‘(1) INDIVIDUAL INVESTMENT ACCOUNT.—The 

12 term ‘individual investment account’ means a trust 

13 created or organized in the United States for the ex14 clusive benefit of an individual, but only if the writ15 ten governing instrument creating the trust meets 

16 the following requirements: 

17 ‘‘(A) No contribution will be accepted un18 less it is in cash. 

19 ‘‘(B) The trustee is a bank (as defined in 

20 section 408(n)) or another person who dem21 onstrates to the satisfaction of the Secretary 

22 that the manner in which that person will ad23 minister the trust will be consistent with the re24 quirements of this section. 
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1 ‘‘(C) No part of the trust assets will be in2 vested in any collectible (as defined in section 

3 408(m)). 

4 ‘‘(D) The assets of the trust will not be 

5 commingled with other property except in a 

6 common trust fund or common investment 

7 fund. 

8 ‘‘(2) TIME WHEN CONTRIBUTIONS DEEMED

9 MADE.—A taxpayer shall be deemed to have made a 

10 contribution on the last day of a taxable year if the 

11 contribution is made on account of such taxable year 

12 and is made not later than the time prescribed by 

13 law for filing the return for such taxable year (not 

14 including extensions thereof). 

15 ‘‘(c) TAX TREATMENT OF DISTRIBUTIONS.—

16 ‘‘(1) IN GENERAL.—Except as otherwise pro17 vided in this subsection, any amount distributed out 

18 of an individual investment account shall be included 

19 in gross income by the distributee unless such 

20 amount is part of a qualified first-time homebuyer 

21 distribution. 

22 ‘‘(2) QUALIFIED FIRST-TIME HOMEBUYER DIS23 TRIBUTION.—For purposes of this subsection—
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1 ‘‘(A) IN GENERAL.—The term ‘qualified 

2 first-time homebuyer distribution’ has the 

3 meaning given to such term by section 72(t)(8). 

4 ‘‘(B) DOLLAR LIMITATION.—The aggre5 gate amount which may be treated as qualified 

6 first-time homebuyer distributions for all tax7 able years shall not exceed $15,000. 

8 ‘‘(C) BASIS REDUCTION.—The basis of any 

9 principal residence described in subparagraph 

10 (A) shall be reduced by the amount of any 

11 qualified first-time homebuyer distribution.

12 ‘‘(3) TRANSFER OF ACCOUNT INCIDENT TO DI13 VORCE.—The transfer of an individual’s interest in 

14 an individual investment account to his former 

15 spouse under a divorce decree or under a written in16 strument incident to a divorce shall not be consid17 ered a taxable transfer made by such individual not18 withstanding any other provision of this subtitle, and 

19 such interest at the time of the transfer shall be 

20 treated as an individual investment account of such 

21 spouse and not of such individual. Thereafter such 

22 account shall be treated, for purposes of this sub23 title, as maintained for the benefit of such spouse.

24 ‘‘(d) TAX TREATMENT OF ACCOUNTS.—
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1 ‘‘(1) EXEMPTION FROM TAX.—An individual in2 vestment account shall be exempt from taxation 

3 under this subtitle unless such account has ceased to 

4 be such an account by reason of paragraph (2). Not5 withstanding the preceding sentence, any such ac6 count shall be subject to the taxes imposed by sec7 tion 511 (relating to imposition of tax on unrelated 

8 business income of charitable, etc. organizations). 

9 ‘‘(2) LOSS OF EXEMPTION OF ACCOUNT WHERE

10 INDIVIDUAL ENGAGES IN PROHIBITED TRANS11 ACTION.—

12 ‘‘(A) IN GENERAL.—If, during any taxable 

13 year of the individual for whose benefit the indi14 vidual investment account is established, that 

15 individual engages in any transaction prohibited 

16 by section 4975 with respect to the account, the 

17 account shall cease to be an individual invest18 ment account as of the first day of that taxable 

19 year. 

20 ‘‘(B) ACCOUNT TREATED AS DISTRIBUTING

21 ALL ITS ASSETS.—In any case in which any ac22 count ceases to be an individual investment ac23 count by reason of subparagraph (A) on the 

24 first day of any taxable year, paragraph (1) of 

25 subsection (c) shall be applied as if there were 
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1 a distribution on such first day in an amount 

2 equal to the fair market value (on such first 

3 day) of all assets in the account (on such first 

4 day). 

5 ‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU6 RITY.—If, during any taxable year, an individual for 

7 whose benefit an individual investment account is es8 tablished uses the account or any portion thereof as 

9 security for a loan, the portion so used shall be 

10 treated as distributed to that individual. 

11 ‘‘(4) ROLLOVER CONTRIBUTIONS.—Subsection 

12 (c)(1) shall not apply to any amount paid or distrib13 uted out of an individual investment account to the 

14 individual for whose benefit the account is main15 tained if such amount is paid into another individual 

16 investment account for the benefit of such individual 

17 not later than the 60th day after the day on which 

18 he receives the payment or distribution. 

19 ‘‘(e) COST-OF-LIVING ADJUSTMENT.—

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

21 year beginning in a calendar year after 2003, the 

22 $15,000 amount contained in subsection (c)(2)(B) 

23 shall be increased by an amount equal to—

24 ‘‘(A) such dollar amount, multiplied by 
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1 ‘‘(B) the cost-of-living adjustment deter2 mined under section 1(f)(3) for the calendar 

3 year in which the taxable year begins by sub4 stituting ‘calendar year 2002’ for ‘calendar year 

5 1992’ in subparagraph (B) thereof.

6 ‘‘(2) ROUNDING.—If any dollar amount (as in7 creased under paragraph (1)) is not a multiple of 

8 $10, such dollar amount shall be increased to near9 est multiple of $10. 

10 ‘‘(f) CUSTODIAL ACCOUNTS.—For purposes of this 

11 section, a custodial account shall be treated as a trust if 

12 the assets of such account are held by a bank (as defined 

13 in section 408(n)) or another person who demonstrates, 

14 to the satisfaction of the Secretary, that the manner in 

15 which he will administer the account will be consistent 

16 with the requirements of this section, and if the custodial 

17 account would, except for the fact that it is not a trust, 

18 constitute an individual investment account described in 

19 subsection (b). For purposes of this title, in the case of 

20 a custodial account treated as a trust by reason of the 

21 preceding sentence, the custodian of such account shall be 

22 treated as the trustee thereof.

23 ‘‘(g) REPORTS.—The trustee of an individual invest24 ment account shall make such reports regarding such ac25 count to the Secretary and to the individual for whose ben-
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1 efit the account is maintained with respect to contribu2 tions, distributions, and such other matters as the Sec3 retary may require under regulations. The reports re4 quired by this subsection shall be filed at such time and 

5 in such manner and furnished to such individuals at such 

6 time and in such manner as may be required by those reg7 ulations.’’

8 (b) DEDUCTION ALLOWED IN ARRIVING AT AD9 JUSTED GROSS INCOME.—Subsection (a) of section 62 of 

10 such Code (defining adjusted gross income) is amended 

11 by inserting after paragraph (18) the following new para12 graph: 

13 ‘‘(19) INDIVIDUAL INVESTMENT ACCOUNT CON14 TRIBUTIONS.—The deduction allowed by section 223 

15 (relating to individual investment accounts).’’

16 (c) INDIVIDUAL INVESTMENT ACCOUNTS EXEMPT

17 FROM ESTATE TAX.—Part III of subchapter A of chapter 

18 11 of such Code is amended by redesignating section 2046 

19 as section 2047 and by inserting after section 2045 the 

20 following new section:

21 ‘‘SEC. 2046. INDIVIDUAL INVESTMENT ACCOUNTS. 

22 ‘‘Notwithstanding any other provision of law, there 

23 shall be excluded from the value of the gross estate the 

24 value of any individual investment account (as defined in
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1 section 223(b)). Section 1014 shall not apply to such ac2 counts.’’

3 (d) NONRECOGNITION OF GAIN ON SALE OF PRIN4 CIPAL RESIDENCE WHERE AMOUNT EQUAL TO OTHER5 WISE TAXABLE GAIN DEPOSITED INTO INDIVIDUAL IN6 VESTMENT ACCOUNT.—Part III of subchapter B of chap7 ter 1 of such Code is amended by inserting after section 

8 121 the following new section: 

9 ‘‘SEC. 121A. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL 

10 RESIDENCE IF REINVESTMENT IN INDI11 VIDUAL INVESTMENT ACCOUNT. 

12 ‘‘(a) GENERAL RULE.—Gross income does not in13 clude gain from the sale or exchange of property if, during 

14 the 5-year period ending on the date of the sale or ex15 change, such property has been owned and used by the 

16 taxpayer as his principal residence for periods aggregating 

17 2 years or more. 

18 ‘‘(b) LIMITATION.—The amount of gain excluded 

19 from gross income under subsection (a) shall not exceed 

20 the amount paid in cash (during the 1-year period begin21 ning on the date of the sale or exchange) to an individual 

22 investment account (as defined in section 223(b)) estab23 lished for the benefit of the taxpayer or his spouse. 

24 ‘‘(c) CERTAIN RULES ON OWNERSHIP AND USE TO

25 APPLY.—Rules similar to the rules of section 121(d) shall 
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1 apply for purposes of determining ownership and use 

2 under this section.’’

3 (e) TAX ON PROHIBITED TRANSACTIONS.—

4 (1) Paragraph (1) of section 4975(e) of such 

5 Code (relating to prohibited transactions) is amend6 ed by striking ‘‘or’’ at the end of subparagraph (E), 

7 by redesignating subparagraph (F) as subparagraph 

8 (G), and by inserting the following new subpara9 graph after subparagraph (E): 

10 ‘‘(F) an individual investment account de11 scribed in section 223(b), or’’. 

12 (2) Subsection (c) of section 4975 of such Code 

13 is amended by adding at the end the following new 

14 paragraph: 

15 ‘‘(6) SPECIAL RULE FOR INDIVIDUAL INVEST16 MENT ACCOUNTS.—An individual for whose benefit 

17 an individual investment account is established shall 

18 be exempt from the tax imposed by this section with 

19 respect to any transaction concerning such account 

20 (which would otherwise be taxable under this sec21 tion) if, with respect to such transaction, the ac22 count ceases to be an individual investment account 

23 by reason of the application of section 223(d)(2)(A) 

24 to such account.’’
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1 (f) FAILURE TO PROVIDE REPORTS ON INDIVIDUAL

2 INVESTMENT ACCOUNTS.—Paragraph (2) of section 

3 6693(a) of such Code is amended by redesignating sub4 paragraphs (C) and (D) as subparagraphs (D) and (E), 

5 respectively, and by inserting after subparagraph (B) the 

6 following new subparagraph: 

7 ‘‘(C) section 223(g) (relating to individual 

8 investment accounts),’’. 

9 (g) ADJUSTMENT OF BASIS OF RESIDENCE AC10 QUIRED THROUGH USE OF ACCOUNT.—Subsection (a) of 

11 section 1016 of such Code is amended by striking ‘‘and’’ 

12 at the end of paragraph (27), by striking the period at 

13 the end of paragraph (28) and inserting ‘‘, and’’, and by 

14 adding at the end thereof the following new paragraph: 

15 ‘‘(29) to the extent provided in section 

16 223(c)(2)(C), in the case of a residence the acquisi17 tion of which was made in whole or in part with 

18 funds from an individual investment account.’’

19 (h) CLERICAL AMENDMENTS.—

20 (1) The table of sections for part III of sub21 chapter B of chapter 1 of such Code is amended by 

22 inserting after the item relating to section 121 the 

23 following new item:

‘‘Sec. 121A. Exclusion of gain from sale of principal residence if 

reinvestment in individual investment account.’’
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1 (2) The table of sections for part VII of sub2 chapter B of chapter 1 of such Code is amended by 

3 striking the item relating to section 222 and insert4 ing the following:

‘‘Sec. 222. Individual investment accounts. 

‘‘Sec. 223. Cross reference.’’

5 (3) The table of sections for part III of sub6 chapter A of chapter 11 of such Code is amended by 

7 striking the item relating to section 2046 and insert8 ing the following new items:

‘‘Sec. 2046. Individual investment accounts. 

‘‘Sec. 2047. Disclaimers.’’

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

10 this section shall apply to taxable years beginning after 

11 December 31, 2002.

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