I

104TH CONGRESS

2D SESSION H. R. 4004

To amend the Internal Revenue Code of 1986 to provide that no loan

may be made from a qualified employer plan using a credit card or

other intermediary and that loans from qualified employer plans shall

be taxed as a distribution unless the loan is used to purchase a first

home, to pay higher education or financially devastating medical expenses, or during periods of unemployment.

IN THE HOUSE OF REPRESENTATIVES

AUGUST 2, 1996

Mr. SCHUMER 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 provide

that no loan may be made from a qualified employer

plan using a credit card or other intermediary and that

loans from qualified employer plans shall be taxed as

a distribution unless the loan is used to purchase a

first home, to pay higher education or financially devastating medical expenses, or during periods of unemployment.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE.

2 This Act may be cited as the ‘‘401(k) Protection Act

3 of 1996’’.

4 SEC. 2. QUALIFIED EMPLOYER PLANS PROHIBITED FROM

5 MAKING LOANS THROUGH CREDIT CARDS

6 AND OTHER INTERMEDIARIES.

7 (a) IN GENERAL.—Subsection (a) of section 401 of

8 the Internal Revenue Code of 1986 is amended by adding

9 at the end the following new paragraph:

10 ‘‘(35) PROHIBITION OF LOANS THROUGH CRED11 IT CARDS AND OTHER INTERMEDIARIES.—A trust

12 shall not constitute a qualified trust under this sec13 tion if the plan makes any loan to any beneficiary

14 under the plan through the use of any credit card

15 or any other intermediary.’’

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

17 subsection (a) shall apply to plan years beginning after

18 the date of the enactment of this Act.

19 SEC. 3. LOANS FROM QUALIFIED EMPLOYER PLANS TREAT20 ED AS DISTRIBUTIONS UNLESS USED TO PUR21 CHASE A FIRST HOME, TO PAY HIGHER EDU22 CATION OR FINANCIALLY DEVASTATING

23 MEDICAL EXPENSES, OR DURING PERIODS

24 OF UNEMPLOYMENT.

25 (a) IN GENERAL.—Subsection (p) of section 72 of the

26 Internal Revenue Code of 1986 (relating to loans treated
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1 as distributions) is amended by redesignating paragraphs

2 (3), (4), and (5) as paragraphs (4), (5), and (6), respec3 tively, and by inserting after paragraph (2) the following

4 new paragraph:

5 ‘‘(3) EXCEPTION ONLY TO APPLY TO CERTAIN

6 LOANS.—Paragraph (2) shall apply to any loan only

7 if such loan is—

8 ‘‘(A) a qualified first-time homebuyer loan

9 (as defined in paragraph (7)),

10 ‘‘(B) a qualified higher education loan (as

11 defined in paragraph (8)),

12 ‘‘(C) a qualified medical expense loan (as

13 defined in paragraph (9)), or

14 ‘‘(D) a qualified unemployment loan (as

15 defined in paragraph (10)).’’

16 (b) DEFINITIONS.—Subsection (p) of section 72 of

17 such Code is amended by adding at the end the following

18 new paragraphs:

19 ‘‘(7) QUALIFIED FIRST-TIME HOMEBUYER

20 LOAN.—

21 ‘‘(A) IN GENERAL.—For purposes of para22 graph (3), the term ‘qualified first-time home23 buyer loan’ means any loan received by an indi24 vidual to the extent the amount of the loan is

25 used within a reasonable period to pay qualified
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1 acquisition costs with respect to a principal res2 idence of a first-time homebuyer who is such in3 dividual, the spouse of such individual, or any

4 child, grandchild, or ancestor of such individual

5 or the individual’s spouse.

6 ‘‘(B) QUALIFIED ACQUISITION COSTS.—

7 For purposes of this paragraph, the term

8 ‘qualified acquisition costs’ means the costs of

9 acquiring, constructing, or reconstructing a res10 idence. Such term includes any usual or reason11 able settlement, financing, or other closing

12 costs.

13 ‘‘(C) FIRST-TIME HOMEBUYER; OTHER

14 DEFINITIONS.—For purposes of this para15 graph—

16 ‘‘(i) FIRST-TIME HOMEBUYER.—The

17 term ‘first-time homebuyer’ means any in18 dividual if—

19 ‘‘(I) such individual (and if mar20 ried, such individual’s spouse) had no

21 present ownership interest in a prin22 cipal residence during the 2-year pe23 riod ending on the date of acquisition

24 of the principal residence to which

25 this paragraph applies, and
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1 ‘‘(II) subsection (h) or (k) of sec2 tion 1034 did not suspend the run3 ning of any period of time specified in

4 section 1034 with respect to such in5 dividual on the day before the date

6 the loan is received.

7 ‘‘(ii) PRINCIPAL RESIDENCE.—The

8 term ‘principal residence’ has the same

9 meaning as when used in section 1034.

10 ‘‘(iii) DATE OF ACQUISITION.—The

11 term ‘date of acquisition’ means the date—

12 ‘‘(I) on which a binding contract

13 to acquire the principal residence to

14 which subparagraph (A) applies is en15 tered into, or

16 ‘‘(II) on which construction or re17 construction of such a principal resi18 dence is commenced.

19 ‘‘(8) QUALIFIED HIGHER EDUCATION LOAN.—

20 For purposes of paragraph (3)—

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

22 higher education loan’ means any loan received

23 by an individual to the extent the amount of the

24 loan is used within a reasonable period to pay

25 expenses for tuition, fees, books, supplies, and
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1 equipment required for the enrollment or at2 tendance of—

3 ‘‘(i) the individual,

4 ‘‘(ii) the individual’s spouse, or

5 ‘‘(iii) any child (as defined in section

6 151(c)(3)), grandchild, or ancestor of the

7 individual or the individual’s spouse,

8 at an eligible educational institution (as defined

9 in section 135(c)(3)).

10 ‘‘(B) COORDINATION WITH SAVINGS BOND

11 PROVISIONS.—The amount of qualified higher

12 education expenses for any taxable year shall be

13 reduced by any amount excludable from gross

14 income under section 135.

15 ‘‘(9) QUALIFIED MEDICAL EXPENSE LOAN.—

16 The term ‘qualified medical expense loan’ means any

17 loan received by an individual to the extent the

18 amount of the loan does not exceed the amount al19 lowable as a deduction under section 213 to the indi20 vidual for amounts paid during the taxable year for

21 medical care (determined without regard to whether

22 the taxpayer itemizes deductions for such taxable

23 year).

24 ‘‘(10) QUALIFIED UNEMPLOYMENT LOAN.—The

25 term ‘qualified unemployment loan’ means any loan
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1 to an individual after separation from employment,

2 if—

3 ‘‘(A) such individual has received unem4 ployment compensation for 12 consecutive

5 weeks under any Federal or State unemploy6 ment compensation law by reason of such sepa7 ration, and

8 ‘‘(B) such loan is received during any tax9 able year during which such unemployment

10 compensation is paid or the succeeding taxable

11 year.

12 To the extent provided in regulations, a self-em13 ployed individual shall be treated as meeting the re14 quirements of subparagraph (A) if, under Federal or

15 State law, the individual would have received unem16 ployment compensation but for the fact the individ17 ual was self-employed.’’

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

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

20 the enactment of this Act.

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