II

106TH CONGRESS

1ST SESSION S. 1994

To amend the Internal Revenue Code of 1986 to provide assistance to firsttime homebuyers.

IN THE SENATE OF THE UNITED STATES

NOVEMBER 19, 1999

Mr. KERRY (for himself and Mr. BRYAN) 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 provide

assistance to first-time homebuyers.

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 ‘‘First-time Homebuyer

5 Affordability Act of 1999’’.

6 SEC. 2. FINDINGS AND POLICY.

7 (a) FINDINGS.—The Congress finds that—

8 (1) it is desirable to make funds available from

9 individual retirement plans to encourage first time

10 home ownership, and
2

•S 1994 IS

1 (2) the tax and penalty on the premature with2 drawal of funds from individual retirement plans are

3 substantial impediments to making such funds avail4 able for that purpose.

5 (b) POLICY.—It is the policy of the Congress to re6 move impediments to home investment by first-time home7 buyers by permitting owners of individual retirement plans

8 to direct the trustees of such plans to invest plan funds

9 as home equity or debt in the homes of such owners or

10 in the home of family members who are first-time home11 buyers.

12 SEC. 3. CERTAIN RETIREMENT PLANS AUTHORIZED TO

13 MAKE EQUITY INVESTMENTS IN PRINCIPAL

14 RESIDENCES FOR FIRST-TIME HOMEBUYERS.

15 (a) EXEMPTION FROM PROHIBITED TRANSACTION

16 RULES.—Section 4975 of the Internal Revenue Code of

17 1986 (relating to tax on prohibited transactions) is

18 amended by redesignating subsections (h) and (i) as sub19 sections (i) and (j), respectively, and by inserting after

20 subsection (g) the following new subsection:

21 ‘‘(h) SPECIAL RULE FOR HOME EQUITY PARTICIPA22 TION ARRANGEMENTS.—

23 ‘‘(1) IN GENERAL.—The prohibitions provided

24 in subsection (c) shall not apply to any qualified

25 home equity participation arrangement to the extent
3

•S 1994 IS

1 that the amount paid to acquire the ownership inter2 est referred to paragraph (2)(A) does not exceed

3 $10,000.

4 ‘‘(2) QUALIFIED HOME EQUITY PARTICIPATION

5 ARRANGEMENT.—For purposes of this subsection—

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

7 home equity participation arrangement’ means

8 an arrangement—

9 ‘‘(i) under which the trustee of an in10 dividual retirement plan, at the direction of

11 the eligible participant, shall acquire an

12 ownership interest in any dwelling unit

13 which within a reasonable period of time

14 (determined at the time the arrangement is

15 executed) is to be used as the principal res16 idence for a first-time homebuyer, and

17 ‘‘(ii) which meets the requirements of

18 subparagraph (B).

19 ‘‘(B) OWNERSHIP INTEREST REQUIRE20 MENT.—An arrangement shall meet the re21 quirements of this subparagraph if the owner22 ship interest described in subparagraph (A)—

23 ‘‘(i) is a fee interest in such property

24 (and, in the case of an arrangement which

25 is not otherwise at arm’s length, the trust-
4

•S 1994 IS

1 ee’s fee interest would be reasonable in an

2 arm’s length arrangement),

3 ‘‘(ii) by its terms requires repayment

4 in full upon the sale or other transfer of

5 the dwelling unit, and

6 ‘‘(iii) may not be used as security for

7 any loan secured by any interest in the

8 dwelling unit.

9 ‘‘(3) DEFINITIONS.—For purposes of this

10 subsection—

11 ‘‘(A) ELIGIBLE PARTICIPANT.—The term

12 ‘eligible participant’ means an individual on

13 whose behalf an individual retirement plan is

14 established.

15 ‘‘(B) FIRST-TIME HOMEBUYER.—The term

16 ‘first-time homebuyer’ means an individual

17 who—

18 ‘‘(i) is an eligible participant or quali19 fied family member, and

20 ‘‘(ii) had (and if married, such indi21 vidual’s spouse had) no present ownership

22 interest in a principal residence at any

23 time during the 24-month period before

24 the date of the arrangement.
5

•S 1994 IS

1 ‘‘(C) QUALIFIED FAMILY MEMBER.—The

2 term ‘qualified family member’ means a child

3 (as defined in section 151(c)(3)), parent, or

4 grandparent of the eligible participant (or such

5 participant’s spouse). Section 152(b)(2) shall

6 apply in determining if an individual is a parent

7 or grandparent of an eligible participant (or

8 such participant’s spouse).

9 ‘‘(D) ACQUISITION; ETC.—

10 ‘‘(i) ACQUISITION.—The term ‘acqui11 sition’ includes construction, reconstruc12 tion, and improvement related to such ac13 quisition.

14 ‘‘(ii) ACQUISITION COST.—The term

15 ‘acquisition cost’ has the meaning given

16 such term by section 143(k)(3).

17 ‘‘(E) PRINCIPAL RESIDENCE.—The term

18 ‘principal residence’ has the same meaning as

19 when used in section 121.’’.

20 (b) EFFECTIVE DATE.—The amendment made by

21 this section shall apply to arrangements entered into after

22 the date of the enactment of this Act.
6

•S 1994 IS

1 SEC. 4. LOANS USED TO ACQUIRE PRINCIPAL RESIDENCES

2 FOR FIRST-TIME HOMEBUYERS.

3 (a) INDIVIDUAL RETIREMENT PLANS.—Section

4 408(e) of the Internal Revenue Code of 1986 (relating to

5 tax treatment of accounts and annuities) is amended by

6 adding at the end thereof the following new paragraph:

7 ‘‘(7) LOANS USED TO PURCHASE A HOME FOR

8 FIRST-TIME HOMEBUYERS.—

9 ‘‘(A) IN GENERAL.—Paragraph (3) shall

10 not apply to any qualified home purchase loan

11 made by an individual retirement plan.

12 ‘‘(B) QUALIFIED HOME PURCHASE

13 LOAN.—For purposes of this paragraph, the

14 term ‘qualified home purchase loan’ means a

15 loan—

16 ‘‘(i) made by the trustee of an indi17 vidual retirement plan at the direction of

18 the individual on whose behalf such plan is

19 established,

20 ‘‘(ii) the proceeds of which are used

21 for the acquisition of a dwelling unit which

22 within a reasonable period of time (deter23 mined at the time the loan is made) is to

24 be used as the principal residence for a

25 first-time homebuyer,
7

•S 1994 IS

1 ‘‘(iii) which by its terms requires in2 terest on the loan to be paid not less fre3 quently than monthly,

4 ‘‘(iv) which by its terms requires re5 payment in full not later than the earlier

6 of—

7 ‘‘(I) the date which is 15 years

8 after the date of acquisition of the

9 dwelling unit, or

10 ‘‘(II) the date of the sale or other

11 transfer of the dwelling unit,

12 ‘‘(v) which by its terms treats—

13 ‘‘(I) any amount required to be

14 paid under clause (iii) during any tax15 able year which is not paid at the

16 time required to be paid, and

17 ‘‘(II) any amount remaining un18 paid as of the beginning of the taxable

19 year beginning after the period de20 scribed in clause (iv),

21 as distributed during such taxable year to

22 the individual on whose behalf such plan is

23 established and subject to section 72(t)(1),

24 and
8

•S 1994 IS

1 ‘‘(vi) which bears interest from the

2 date of the loan at a rate not less than 2

3 percentage points below, and not more

4 than 2 percentage points above, the rate

5 for comparable United States Treasury ob6 ligations on such date.

7 Nothing in this paragraph shall be construed to

8 require such a loan to be secured by the dwell9 ing unit.

10 ‘‘(C) LIMITATION ON AMOUNT OF

11 LOANS.—The amount of borrowings to which

12 paragraph (3) does not apply by reason of this

13 paragraph shall not exceed $10,000.

14 ‘‘(D) DENIAL OF INTEREST DEDUCTION.—

15 No deduction shall be allowed under this chap16 ter for interest on any qualified home purchase

17 loan.

18 ‘‘(E) DEFINITIONS.—For purposes of this

19 paragraph—

20 ‘‘(i) FIRST-TIME HOMEBUYER.—The

21 term ‘first-time homebuyer’ has the mean22 ing given such term by section

23 4975(h)(3)(B).
9

•S 1994 IS

1 ‘‘(ii) ACQUISITION.—The term ‘acqui2 sition’ has the meaning given such term by

3 section 4975(h)(3)(D)(i).

4 ‘‘(iii) PRINCIPAL RESIDENCE.—The

5 term ‘principal residence’ has the same

6 meaning as when used in section 121.

7 ‘‘(iv) DATE OF ACQUISITION.—The

8 term ‘date of acquisition’ means the date—

9 ‘‘(I) on which a binding contract

10 to acquire the principal residence to

11 which subparagraph (B) applies is en12 tered into, or

13 ‘‘(II) on which construction, re14 construction, or improvement of such

15 a principal residence is commenced.’’.

16 (b) PROHIBITED TRANSACTION.—Section 4975(d) of

17 the Internal Revenue Code of 1986 (relating to exemptions

18 from tax on prohibited transactions) is amended by strik19 ing ‘‘or’’ at the end of paragraph (14), by striking the

20 period at the end of paragraph (15) and inserting ‘‘; or’’,

21 and by inserting after paragraph (15) the following new

22 paragraph:

23 ‘‘(16) any loan that is a qualified home pur24 chase loan (as defined in section 408(e)(7)(B)).’’.
10

•S 1994 IS

1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to loans made after the date of

3 the enactment of this Act.

Æ