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104TH CONGRESS

1ST SESSION H. R. 726

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

IN THE HOUSE OF REPRESENTATIVES

JANUARY 30, 1995

Mr. ORTON 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

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 1995’’.

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
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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.
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1 ‘‘(2) QUALIFIED HOME EQUITY PARTICIPATION

2 ARRANGEMENT.—For purposes of this subsection—

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

4 home equity participation arrangement’ means

5 an arrangement—

6 ‘‘(i) under which the trustee of an in7 dividual retirement plan, at the direction of

8 the eligible participant, shall acquire an

9 ownership interest in any dwelling unit

10 which within a reasonable period of time

11 (determined at the time the arrangement is

12 executed) is to be used as the principal res13 idence for a first-time homebuyer, and

14 ‘‘(ii) which meets the requirements of

15 subparagraph (B) of this paragraph.

16 ‘‘(B) OWNERSHIP INTEREST REQUIRE17 MENT.—An arrangement shall meet the re18 quirements of this subparagraph if the owner19 ship interest described in subparagraph (A)—

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

21 (and, in the case of an arrangement which

22 is not otherwise at arm’s length, the trust23 ee’s fee interest would be reasonable in an

24 arm’s length arrangement),
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1 ‘‘(ii) by its terms requires repayment

2 in full upon the sale or other transfer of

3 the dwelling unit, and

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

5 any loan secured by any interest in the

6 dwelling unit.

7 ‘‘(3) DEFINITIONS.—For purposes of this sub8 section—

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

10 ‘eligible participant’ means an individual on

11 whose behalf an individual retirement plan is

12 established.

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

14 ‘first-time homebuyer’ means an individual

15 who—

16 ‘‘(i) is an eligible participant or quali17 fied family member, and

18 ‘‘(ii) had (and if married, such indi19 vidual’s spouse had) no present ownership

20 interest in a principal residence at any

21 time during the 36-month period before

22 the date of the arrangement.

23 ‘‘(C) QUALIFIED FAMILY MEMBER.—The

24 term ‘qualified family member’ means a child

25 (as defined in section 151(c)(3)), parent, or
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1 grandparent of the eligible participant (or such

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

3 apply in determining if an individual is a parent

4 or grandparent of an eligible participant (or

5 such participant’s spouse).

6 ‘‘(D) ACQUISITION; ETC.—

7 ‘‘(i) ACQUISITION.—The term ‘acqui8 sition’ includes construction, reconstruc9 tion, and improvement related to such ac10 quisition.

11 ‘‘(ii) ACQUISITION COST.—The term

12 ‘acquisition cost’ has the meaning given

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

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

15 ‘principal residence’ has the same meaning as

16 when used in section 1034.’’.

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

18 this section shall apply to arrangements entered into after

19 the date of the enactment of this Act.

20 SEC. 4. LOANS USED TO ACQUIRE PRINCIPAL RESIDENCES

21 FOR FIRST-TIME HOMEBUYERS.

22 (a) INDIVIDUAL RETIREMENT PLANS.—Section

23 408(e) of the Internal Revenue Code of 1986 (relating to

24 tax treatment of accounts and annuities) is amended by

25 adding at the end thereof the following new paragraph:
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1 ‘‘(7) LOANS USED TO PURCHASE A HOME FOR

2 FIRST-TIME HOMEBUYERS.—

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

4 not apply to any qualified home purchase loan

5 made by an individual retirement plan.

6 ‘‘(B) QUALIFIED HOME PURCHASE

7 LOAN.—For purposes of this paragraph, the

8 term ‘qualified home purchase loan’ means a

9 loan—

10 ‘‘(i) made by the trustee of an individ11 ual retirement plan at the direction of the

12 individual on whose behalf such plan is es13 tablished,

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

15 for the acquisition of a dwelling unit which

16 within a reasonable period of time (deter17 mined at the time the loan is made) is to

18 be used as the principal residence for a

19 first-time homebuyer,

20 ‘‘(iii) which by its terms requires re21 payment in full not later than the earlier

22 of—

23 ‘‘(I) the date which is 15 years

24 after the date of acquisition of the

25 dwelling unit, or
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1 ‘‘(II) the date of the sale or other

2 transfer of the dwelling unit,

3 ‘‘(iv) which by its terms treats any

4 amount remaining unpaid in the taxable

5 year beginning after the period described

6 in clause (iii) as distributed in such taxable

7 year to the individual on whose behalf such

8 plan is established and subject to section

9 72(t)(1), and

10 ‘‘(v) which bears interest from the

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

12 percentage points below, and not more

13 than 2 percentage points above, the rate

14 for comparable United States Treasury ob15 ligations on such date.

16 Nothing in this paragraph shall be construed to

17 require such a loan to be secured by the dwell18 ing unit.

19 ‘‘(C) DEFINITIONS.—For purposes of this

20 paragraph—

21 ‘‘(i) FIRST-TIME HOMEBUYER.—The

22 term ‘first-time homebuyer’ has the mean23 ing given such term by section

24 4975(h)(3)(B).
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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 1034.

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)).’’.
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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.

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