I

106TH CONGRESS

1ST SESSION H. R. 1611

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

APRIL 28, 1999

Mr. MCCRERY (for himself, Mr. ENGLISH, and Mr. TAUZIN) 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 1999’’.

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 222 as section 223 and by insert2 ing after section 221 the following new section:

3 ‘‘SEC. 222. 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 1999, 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 1998’ 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 (17) the following new para12 graph:

13 ‘‘(18) INDIVIDUAL INVESTMENT ACCOUNT CON14 TRIBUTIONS.—The deduction allowed by section 222

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 of the

24 value of any individual investment account (as defined in
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1 section 222(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 222(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 222(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 222(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 222(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 (26), by striking the period at

13 the end of paragraph (27) and inserting ‘‘, and’’, and by

14 adding at the end thereof the following new paragraph:

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

16 222(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, 1998.

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