I

104TH CONGRESS

1ST SESSION H. R. 2338

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

contributions to an individual training account.

IN THE HOUSE OF REPRESENTATIVES

SEPTEMBER 14, 1995

Mr. KLINK 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 an individual training account.

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 Training

5 Account Act of 1995’’.

6 SEC. 2. INDIVIDUAL TRAINING ACCOUNTS.

7 (a) IN GENERAL.—Part VII of subchapter B of chap8 ter 1 of the Internal Revenue Code of 1986 (relating to

9 additional itemized deductions for individuals) is amended
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1 by redesignating section 220 as section 221 and by insert2 ing after section 219 the following new section:

3 ‘‘SEC. 220. INDIVIDUAL TRAINING ACCOUNTS.

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

6 paid in cash for the taxable year by or on behalf of such

7 individual to an individual training account for the benefit

8 of such individual.

9 ‘‘(b) LIMITATIONS.—

10 ‘‘(1) MAXIMUM DEDUCTION.—The amount al11 lowed as a deduction under subsection (a) for any

12 taxable year shall not exceed the lesser of—

13 ‘‘(A) $2,000, or

14 ‘‘(B) the excess of $6,000 over the aggre15 gate amount in all individual training accounts

16 of the individual as of the close of the preceding

17 taxable year.

18 The preceding sentence shall be applied separately

19 for each individual.

20 ‘‘(2) NO DEDUCTION BEFORE BENEFICIARY AT21 TAINS AGE 18.—No deduction shall be allowed for

22 any contribution to an individual training account

23 established for the benefit of an individual who has

24 not attained age 18 before the close of the taxable

25 year for which such contribution is made.
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1 ‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur2 poses of this section:

3 ‘‘(1) INDIVIDUAL TRAINING ACCOUNT.—The

4 term ‘individual training account’ means a trust cre5 ated or organized in the United States exclusively

6 for the purpose of paying the qualified expenses of

7 the individual for whose benefit the trust is main8 tained, but only if the written governing instrument

9 creating the trust meets the following requirements:

10 ‘‘(A) Except in the case of a rollover con11 tribution described in subsection (d)(3), no con12 tribution will be accepted—

13 ‘‘(i) unless it is in cash, or

14 ‘‘(ii) in excess of the amount allowed

15 as a deduction under this section.

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

17 section 408(n)) or another person who dem18 onstrates to the satisfaction of the Secretary

19 that the manner in which that person will ad20 minister the trust will be consistent with the re21 quirements of this section.

22 ‘‘(C) No part of the trust assets will be in23 vested in life insurance contracts.

24 ‘‘(D) The interest of the individual in the

25 balance of his account is nonforfeitable.
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1 ‘‘(E) The assets of the trust shall not be

2 commingled with other property except in a

3 common trust fund or common investment

4 fund.

5 ‘‘(2) QUALIFIED EXPENSES.—The term ‘quali6 fied expenses’ means—

7 ‘‘(A) job training expenses, and

8 ‘‘(B) job-related relocation expenses.

9 ‘‘(3) JOB TRAINING EXPENSES.—

10 ‘‘(A) IN GENERAL.—The term ‘job training

11 expenses’ means—

12 ‘‘(i) tuition and fees required for the

13 enrollment or attendance of—

14 ‘‘(I) a student at an eligible edu15 cational institution, or

16 ‘‘(II) a worker in an applicable

17 training program,

18 ‘‘(ii) fees, books, supplies, and equip19 ment required for—

20 ‘‘(I) courses of instruction at an

21 eligible educational institution, or

22 ‘‘(II) for an applicable training

23 program, and

24 ‘‘(iii) a reasonable allowance for meals

25 and lodging while attending an eligible
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1 educational institution or an applicable

2 training program.

3 ‘‘(B) ELIGIBLE EDUCATIONAL INSTITU4 TION.—The term ‘eligible educational institu5 tion’ means—

6 ‘‘(i) an institution of higher education,

7 or

8 ‘‘(ii) a vocational school.

9 ‘‘(C) INSTITUTION OF HIGHER EDU10 CATION.—The term ‘institution of higher edu11 cation’ means the institutions described in sec12 tion 1201(a) or 481(a) of the Higher Education

13 Act of 1965.

14 ‘‘(D) VOCATIONAL SCHOOL.—The term

15 ‘vocational school’ means an area vocational

16 education school as defined in subparagraph

17 (C) or (D) of section 521(4) of the Carl D. Per18 kins Vocational and Applied Technology Edu19 cation Act to the extent such school is located

20 within any State (as defined in such section).

21 ‘‘(E) APPLICABLE TRAINING PROGRAM.—

22 The term ‘applicable training program’

23 means—
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1 ‘‘(i) any applicable program (as de2 fined in section 314(g) of the Job Training

3 Partnership Act), and

4 ‘‘(ii) any training program approved

5 under section 236 of the Trade Act of

6 1974.

7 ‘‘(4) DENIAL OF DEDUCTION FOR AMOUNTS

8 PAID FROM ACCOUNT.—If any amount paid or dis9 tributed from an individual training account is not

10 included in gross income by reason of being used to

11 pay any qualified expense, such expense shall not be

12 taken into account in determining the amount of any

13 deduction under section 212, 217, or any other pro14 vision of this chapter.

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

16 ‘‘(1) IN GENERAL.—Except as otherwise pro17 vided in this subsection, any amount paid or distrib18 uted out of an individual training account shall be

19 included in gross income of the payee or distributee

20 for the taxable year in which the payment or dis21 tribution is received to the extent such amount is

22 not used exclusively to pay the qualified expenses

23 paid during such taxable year by the individual for

24 whose benefit the account is established.
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1 ‘‘(2) EXCESS CONTRIBUTIONS RETURNED BE2 FORE DUE DATE OF RETURN.—Paragraph (1) shall

3 not apply to the distribution of any contribution paid

4 during a taxable year to an individual training ac5 count to the extent that such contribution exceeds

6 the amount allowable as a deduction under sub7 section (a) if—

8 ‘‘(A) such distribution is received on or be9 fore the day prescribed by law (including exten10 sions of time) for filing such individual’s return

11 for such taxable year,

12 ‘‘(B) no deduction is allowed under sub13 section (a) with respect to such excess contribu14 tion, and

15 ‘‘(C) such distribution is accompanied by

16 the amount of net income attributable to such

17 excess contribution.

18 Any net income described in subparagraph (C) shall

19 be included in the gross income of the individual for

20 the taxable year in which such excess contribution

21 was made.

22 ‘‘(3) ROLLOVERS.—Paragraph (1) shall not

23 apply to any amount paid or distributed out of an

24 individual training account to the individual for

25 whose benefit the account is maintained if the entire
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1 amount received (including money and any other

2 property) is paid into another individual training ac3 count for the benefit of such individual not later

4 than the 60th day after the day on which he received

5 the payment or distribution.

6 ‘‘(e) TAX TREATMENT OF ACCOUNTS.—

7 ‘‘(1) EXEMPTION FROM TAX.—An individual

8 training account is exempt from taxation under this

9 subtitle unless such account has ceased to be an in10 dividual training account by reason of paragraph

11 (2). Notwithstanding the preceding sentence, any

12 such account is subject to the taxes imposed by sec13 tion 511 (relating to imposition of tax on unrelated

14 business income of charitable, etc. organizations).

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

16 INDIVIDUAL ENGAGES IN PROHIBITED TRANS17 ACTION.—

18 ‘‘(A) IN GENERAL.—If the individual for

19 whose benefit an individual training account is

20 established engages in any transaction prohib21 ited by section 4975 with respect to the ac22 count, the account shall cease to be an individ23 ual training account as of the first day of the

24 taxable year during which such transaction oc25 curs.
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1 ‘‘(B) ACCOUNT TREATED AS DISTRIBUTING

2 ALL ITS ASSETS.—In any case in which any ac3 count ceases to be an individual training ac4 count by reason of subparagraph (A) as of the

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

6 subsection (d) shall apply as if there was a dis7 tribution on such first day in an amount equal

8 to the fair market value (on such first day) of

9 all assets in the account (on such first day) and

10 such distribution was not used to pay qualified

11 expenses.

12 ‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU13 RITY.—If, during any taxable year, the individual for

14 whose benefit an individual training account is es15 tablished uses the account or any portion thereof as

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

17 treated as distributed to the individual so using such

18 portion and not used to pay qualified expenses.

19 ‘‘(f) ADDITIONAL TAX ON CERTAIN AMOUNTS IN20 CLUDED IN GROSS INCOME.—

21 ‘‘(1) DISTRIBUTION NOT USED FOR QUALIFIED

22 EXPENSES.—In the case of any payment or distribu23 tion to which subsection (d)(1) applies, the tax li24 ability of the payee or distributee under this chapter

25 for the taxable year in which the payment or dis-
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1 tribution is received shall be increased by an amount

2 equal to 10 percent of the amount of the payment

3 or distribution which is includible in the gross in4 come of such payee or distributee for such taxable

5 year.

6 ‘‘(2) DISQUALIFICATION CASES.—If an amount

7 is includible in the gross income of an individual for

8 a taxable year because such amount is required to

9 be treated as a distribution under paragraph (2) or

10 (3) of subsection (e), such individual’s tax liability

11 under this chapter for such taxable year shall be in12 creased by an amount equal to 10 percent of such

13 amount required to be treated as a distribution and

14 included in his gross income.

15 ‘‘(3) DISABILITY OR DEATH CASES.—Para16 graphs (1) and (2) shall not apply if the payment

17 or distribution is made after the individual for whose

18 benefit the individual training account is maintained

19 becomes disabled within the meaning of section

20 72(m)(7) or dies.

‘‘(4) DISTRIBUTIONS AFTER AGE 591 21 ⁄2.—Para22 graphs (1) and (2) shall not apply if the payment

23 or distribution is made after the date the individual

24 for whose benefit the individual training account is

maintained attains age 591 25 ⁄2.
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1 ‘‘(g) COMMUNITY PROPERTY LAWS.—This section

2 shall be applied without regard to any community property

3 laws.

4 ‘‘(h) CUSTODIAL ACCOUNTS.—For purposes of this

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

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

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

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

9 which he will administer the account will be consistent

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

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

12 constitute an individual training account described in sub13 section (c)(1). For purposes of this title, in the case of

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

15 preceding sentence, the custodian of such account shall be

16 treated as the trustee thereof.

17 ‘‘(i) REPORTS.—The trustee of an individual training

18 account shall make such reports regarding such account

19 to the Secretary and to the individual for whose benefit

20 the account is maintained with respect to contributions,

21 distributions, and such other matters as the Secretary

22 may require under regulations. The reports required by

23 this subsection shall be filed at such time and in such

24 manner and furnished to such individuals at such time and

25 in such manner as may be required by those regulations.’’
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1 (b) DEDUCTION ALLOWED IN ARRIVING AT AD2 JUSTED GROSS INCOME.—Subsection (a) of section 62 of

3 such Code (relating to retirement savings) is amended by

4 inserting after paragraph (15) the following new para5 graph:

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

7 deduction allowed by section 220 (relating to individ8 ual training accounts).’’

9 (c) TAX ON EXCESS CONTRIBUTIONS.—Section 4973

10 of such Code (relating to tax on excess contributions to

11 individual retirement accounts, certain section 403(b) con12 tracts, and certain individual retirement annuities) is

13 amended—

14 (1) by inserting ‘‘INDIVIDUAL TRAINING AC15 COUNTS,’’ after ‘‘ACCOUNTS,’’ in the heading of such

16 section,

17 (2) by striking ‘‘or’’ at the end of paragraph

18 (1) of subsection (a),

19 (3) by redesignating paragraph (2) of sub20 section (a) as paragraph (3) and by inserting after

21 paragraph (1) the following new paragraph:

22 ‘‘(2) an individual training account (within the

23 meaning of section 220(c)(1)), or’’, and

24 (4) by adding at the end the following new sub25 section:
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1 ‘‘(d) EXCESS CONTRIBUTIONS TO INDIVIDUAL

2 TRAINING ACCOUNTS.—For purposes of this section, in

3 the case of an individual training account, the term ‘excess

4 contributions’ means the amount by which the amount

5 contributed for the taxable year to the account exceeds

6 the amount allowable as a deduction under section 220

7 for such taxable year. For purposes of this subsection, any

8 contribution which is distributed out of the individual

9 training account in a distribution to which section

10 220(d)(2) applies shall be treated as an amount not con11 tributed.’’

12 (d) TAX ON PROHIBITED TRANSACTIONS.—Section

13 4975 of such Code (relating to prohibited transactions)

14 is amended—

15 (1) by adding at the end of subsection (c) the

16 following new paragraph:

17 ‘‘(4) SPECIAL RULE FOR INDIVIDUAL TRAINING

18 ACCOUNTS.—An individual for whose benefit an indi19 vidual training account is established shall be ex20 empt from the tax imposed by this section with re21 spect to any transaction concerning such account

22 (which would otherwise be taxable under this sec23 tion) if, with respect to such transaction, the ac24 count ceases to be an individual training account by
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1 reason of the application of section 220(e)(2)(A) to

2 such account.’’, and

3 (2) by inserting ‘‘, an individual training ac4 count described in section 220(c)(1),’’ in subsection

5 (e)(1) after ‘‘described in section 408(a)’’.

6 (e) FAILURE TO PROVIDE REPORTS ON INDIVIDUAL

7 TRAINING ACCOUNTS.—Section 6693 of such Code (relat8 ing to failure to provide reports on individual retirement

9 accounts or annuities) is amended—

10 (1) by inserting ‘‘OR ON INDIVIDUAL TRAINING

11 ACCOUNTS’’ after ‘‘ANNUITIES’’ in the heading of

12 such section, and

13 (2) by adding at the end of subsection (a) the

14 following new sentence: ‘‘The person required by sec15 tion 220(i) to file a report regarding an individual

16 training account at the time and in the manner re17 quired by such section shall pay a penalty of $50 for

18 each failure, unless it is shown that such failure is

19 due to reasonable cause.’’.

20 (f) CLERICAL AMENDMENTS.—

21 (1) The table of sections for part VII of sub22 chapter B of chapter 1 of such Code is amended by

23 striking the item relating to section 220 and insert24 ing the following new items:

‘‘Sec. 220. Individual training accounts.

‘‘Sec. 221. Cross reference.’’
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1 (2) The table of sections for chapter 43 of such

2 Code is amended by striking the item relating to sec3 tion 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.’’

4 (3) The table of sections for subchapter B of

5 chapter 68 of such Code is amended by striking the

6 item relating to section 6693 and inserting the fol7 lowing new item:

‘‘Sec. 6693. Failure to provide reports on individual retirement

accounts or annuities or on individual training accounts.’’

8 (g) EFFECTIVE DATE.—The amendments made by

9 this section shall apply to contributions made for taxable

10 years beginning after December 31, 1995.

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