II

104TH CONGRESS

1ST SESSION S. 159

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

contributions to individual investment accounts, and for other purposes.

IN THE SENATE OF THE UNITED STATES

JANUARY 5, 1995

Mr. BREAUX introduced the following bill; which was read twice and referred

to the Committee on Finance

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 1995’’.

6 SEC. 2. ESTABLISHMENT OF INDIVIDUAL INVESTMENT

7 ACCOUNTS.

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 220 as section 221 and by insert2 ing after section 219 the following new section:

3 ‘‘SEC. 220. 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 1st-time homebuyer

21 distribution.

22 ‘‘(2) QUALIFIED 1ST-TIME HOMEBUYER DIS23 TRIBUTION.—For purposes of this subsection—

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

25 1st-time homebuyer distribution’ means any
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1 payment or distribution received by a 1st-time

2 homebuyer from an individual investment ac3 count to the extent such payment or distribu4 tion is used by the individual within 60 days to

5 pay qualified acquisition costs with respect to a

6 principal residence for such individual.

7 ‘‘(B) DOLLAR LIMITATION.—The aggre8 gate amount which may be treated as qualified

9 1st-time homebuyer distributions for all taxable

10 years shall not exceed $15,000.

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

12 principal residence described in subparagraph

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

14 qualified 1st-time homebuyer distribution.

15 ‘‘(D) DEFINITIONS.—For purposes of this

16 paragraph—

17 ‘‘(i) QUALIFIED ACQUISITION

18 COSTS.—The term ‘qualified acquisition

19 costs’ means the costs of acquiring, con20 structing, or reconstructing a residence.

21 Such term includes any usual or reason22 able settlement, financing, or other closing

23 costs.

24 ‘‘(ii) 1ST-TIME HOMEBUYER.—The

25 term ‘1st-time homebuyer’ means any indi-
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1 vidual if such individual had no present

2 ownership interest in a principal residence

3 during the 3-year period ending on the

4 date of acquisition of the principal resi5 dence to which this paragraph applies.

6 ‘‘(iii) PRINCIPAL RESIDENCE.—The

7 term ‘principal residence’ has the same

8 meaning as when used in section 1034.

9 ‘‘(3) TRANSFER OF ACCOUNT INCIDENT TO DI10 VORCE.—The transfer of an individual’s interest in

11 an individual investment account to his former

12 spouse under a divorce decree or under a written in13 strument incident to a divorce shall not be consid14 ered a taxable transfer made by such individual not15 withstanding any other provision of this subtitle, and

16 such interest at the time of the transfer shall be

17 treated as an individual investment account of such

18 spouse and not of such individual. Thereafter such

19 account shall be treated, for purposes of this sub20 title, as maintained for the benefit of such spouse.

21 ‘‘(d) TAX TREATMENT OF ACCOUNTS.—

22 ‘‘(1) EXEMPTION FROM TAX.—An individual in23 vestment account shall be exempt from taxation

24 under this subtitle unless such account has ceased to

25 be such an account by reason of paragraph (2). Not-
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1 withstanding the preceding sentence, any such ac2 count shall be subject to the taxes imposed by sec3 tion 511 (relating to imposition of tax on unrelated

4 business income of charitable, etc. organizations).

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

6 INDIVIDUAL ENGAGES IN PROHIBITED TRANS7 ACTION.—

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

9 year of the individual for whose benefit the indi10 vidual investment account is established, that

11 individual engages in any transaction prohibited

12 by section 4975 with respect to the account, the

13 account shall cease to be an individual invest14 ment account as of the first day of that taxable

15 year.

16 ‘‘(B) ACCOUNT TREATED AS DISTRIBUTING

17 ALL ITS ASSETS.—In any case in which any ac18 count ceases to be an individual investment ac19 count by reason of subparagraph (A) on the

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

21 subsection (c) shall be applied as if there were

22 a distribution on such first day in an amount

23 equal to the fair market value (on such first

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

25 day).
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1 ‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU2 RITY.—If, during any taxable year, an individual for

3 whose benefit an individual investment account is es4 tablished uses the account or any portion thereof as

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

6 treated as distributed to that individual.

7 ‘‘(4) ROLLOVER CONTRIBUTIONS.—Paragraph

8 (1) shall not apply to any amount paid or distrib9 uted out of an individual investment account to the

10 individual for whose benefit the account is main11 tained if such amount is paid into another individual

12 investment account for the benefit of such individual

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

14 he receives the payment or distribution.

15 ‘‘(e) COST-OF-LIVING ADJUSTMENT.—

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

17 year beginning in a calendar year after 1994, the

18 dollar amount contained in subsection (c)(2)(B)

19 shall be increased by an amount equal to—

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

21 ‘‘(B) the cost-of-living adjustment deter22 mined under section 1(f)(3) for the calendar

23 year in which the taxable year begins, by sub24 stituting ‘1994’ for ‘1989’ in subparagraph (B)

25 thereof.
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1 ‘‘(2) ROUNDING.—If any dollar amount (as in2 creased under paragraph (1)) is not a multiple of

3 $10, such dollar amount shall be increased to near4 est multiple of $10 (or, if such dollar amount is a

5 multiple of $5 and not of $10, such dollar amount

6 shall be increased to next higher multiple of $10).

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

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

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

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

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

12 which he will administer the account will be consistent

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

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

15 constitute an individual investment account described in

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

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

18 preceding sentence, the custodian of such account shall be

19 treated as the trustee thereof.

20 ‘‘(g) REPORTS.—The trustee of an individual invest21 ment account shall make such reports regarding such ac22 count to the Secretary and to the individual for whose ben23 efit the account is maintained with respect to contribu24 tions, distributions, and such other matters as the Sec25 retary may require under regulations. The reports re-
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1 quired by this subsection shall be filed at such time and

2 in such manner and furnished to such individuals at such

3 time and in such manner as may be required by those reg4 ulations.’’

5 (b) DEDUCTION ALLOWED IN ARRIVING AT AD6 JUSTED GROSS INCOME.—Subsection (a) of section 62 of

7 such Code (defining adjusted gross income) is amended

8 by adding at the end thereof the following new paragraph:

9 ‘‘(14) INDIVIDUAL INVESTMENT ACCOUNT CON10 TRIBUTIONS.—The deduction allowed by section 220

11 (relating to individual investment accounts).’’

12 (c) INDIVIDUAL INVESTMENT ACCOUNTS EXEMPT

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

14 11 of such Code is amended by redesignating section 2046

15 as section 2047 and by inserting after section 2045 the

16 following new section:

17 ‘‘SEC. 2046. INDIVIDUAL INVESTMENT ACCOUNTS.

18 ‘‘Notwithstanding any other provision of law, there

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

20 value of any individual investment account (as defined in

21 section 220(b)). Section 1014 shall not apply to such ac22 counts.’’

23 (d) NONRECOGNITION OF GAIN ON SALE OF PRIN24 CIPAL RESIDENCE WHERE AMOUNT EQUAL TO OTHER25 WISE TAXABLE GAIN DEPOSITED INTO INDIVIDUAL IN-
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1 VESTMENT ACCOUNT.—Part III of subchapter B of chap2 ter 1 of such Code is amended by inserting after section

3 121 the following new section:

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

5 RESIDENCE IF REINVESTMENT IN INDIVID6 UAL INVESTMENT ACCOUNT.

7 ‘‘(a) GENERAL RULE.—Gross income does not in8 clude gain from the sale or exchange of property if, during

9 the 5-year period ending on the date of the sale or ex10 change, such property has been owned and used by the

11 taxpayer as his principal residence for periods aggregating

12 3 years or more.

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

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

15 the amount paid in cash (during the 1-year period begin16 ning on the date of the sale or exchange) to an individual

17 investment account (as defined in section 220(b)) estab18 lished for the benefit of the taxpayer or his spouse.

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

20 APPLY.—Rules similar to the rules of section 121(d) shall

21 apply for purposes of determining ownership and use

22 under this section.’’

23 (e) TAX ON PROHIBITED TRANSACTIONS.—Section

24 4975 of such Code (relating to prohibited transactions)

25 is amended—
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1 (1) by adding at the end of subsection (c) the

2 following new paragraph:

3 ‘‘(4) SPECIAL RULE FOR INDIVIDUAL INVEST4 MENT ACCOUNTS.—An individual for whose benefit

5 an individual investment account is established shall

6 be exempt from the tax imposed by this section with

7 respect to any transaction concerning such account

8 (which would otherwise be taxable under this sec9 tion) if, with respect to such transaction, the ac10 count ceases to be an individual investment account

11 by reason of the application of section 220(d)(2)(A)

12 to such account.’’; and

13 (2) by inserting ‘‘or an individual investment

14 account described in section 220(b)’’ in subsection

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

16 (f) FAILURE TO PROVIDE REPORTS ON INDIVIDUAL

17 INVESTMENT ACCOUNTS.—Section 6693 of such Code (re18 lating to failure to provide reports on individual retirement

19 account or annuities) is amended—

20 (1) by inserting ‘‘OR ON INDIVIDUAL IN21 VESTMENT ACCOUNTS’’ after ‘‘ANNUITIES’’ in

22 the heading of such section; and

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

24 following: ‘‘The person required by section 220(g) to

25 file a report regarding an individual investment ac-
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1 count at the time and in the manner required by

2 such section shall pay a penalty of $50 for each fail3 ure unless it is shown that such failure is due to rea4 sonable cause.’’

5 (g) ADJUSTMENT OF BASIS OF RESIDENCE AC6 QUIRED THROUGH USE OF ACCOUNT.—Subsection (a) of

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

8 at the end of paragraph (23), by striking the period at

9 the end of paragraph (24) and inserting ‘‘; and’’, and by

10 adding at the end thereof the following new paragraph:

11 ‘‘(25) to the extent provided in section

12 220(c)(2)(C), in the case of a residence the acquisi13 tion of which was made in whole or in part with

14 funds from an individual investment account.’’

15 (h) CLERICAL AMENDMENTS.—

16 (1) The table of sections for part III of sub17 chapter B of chapter 1 of such Code is amended by

18 inserting after the item relating to section 121 the

19 following new item:

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

reinvestment in individual investment account.’’

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

22 striking the item relating to section 220 and insert23 ing the following:

‘‘Sec. 220. Individual investment accounts.

‘‘Sec. 221. Cross reference.’’
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1 (3) The table of sections for part III of sub2 chapter A of chapter 11 of such Code is amended by

3 striking the item relating to section 2046 and insert4 ing the following new items:

‘‘Sec. 2046. Individual investment accounts.

‘‘Sec. 2047. Disclaimers.’’

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

6 chapter 68 of such Code is amended by striking the

7 item relating to section 6693 and inserting the fol8 lowing:

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

accounts or annuities or on individual investment

accounts.’’

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

10 this section shall apply to taxable years beginning after

11 December 31, 1994.

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