I

105TH CONGRESS

1ST SESSION H. R. 984

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

MARCH 6, 1997

Mr. MCCRERY 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 1997’’.

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 221 as section 222 and by insert2 ing after section 220 the following new section:

3 ‘‘SEC. 221. 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

5 to pay qualified acquisition costs with respect

6 to a 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.
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1 ‘‘(ii) 1ST-TIME HOMEBUYER.—The

2 term ‘1st-time homebuyer’ means any indi3 vidual if such individual (and, if married,

4 such individual’s spouse) had no present

5 ownership interest in a principal residence

6 during the 3-year period ending on the

7 date of acquisition of the principal resi8 dence to which this paragraph applies.

9 ‘‘(iii) PRINCIPAL RESIDENCE.—The

10 term ‘principal residence’ has the same

11 meaning as when used in section 1034.

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 1997, 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.

4 ‘‘(2) ROUNDING.—If any dollar amount (as in5 creased under paragraph (1)) is not a multiple of

6 $10, such dollar amount shall be increased to near7 est multiple of $10 (or, if such dollar amount is a

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

9 shall be increased to next higher 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.
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1 ‘‘(g) REPORTS.—The trustee of an individual invest2 ment account shall make such reports regarding such ac3 count to the Secretary and to the individual for whose ben4 efit the account is maintained with respect to contribu5 tions, distributions, and such other matters as the Sec6 retary may require under regulations. The reports re7 quired by this subsection shall be filed at such time and

8 in such manner and furnished to such individuals at such

9 time and in such manner as may be required by those reg10 ulations.’’

11 (b) DEDUCTION ALLOWED IN ARRIVING AT AD12 JUSTED GROSS INCOME.—Subsection (a) of section 62 of

13 such Code (defining adjusted gross income) is amended

14 by inserting after paragraph (16) the following new para15 graph:

16 ‘‘(17) INDIVIDUAL INVESTMENT ACCOUNT CON17 TRIBUTIONS.—The deduction allowed by section 221

18 (relating to individual investment accounts).’’

19 (c) INDIVIDUAL INVESTMENT ACCOUNTS EXEMPT

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

21 11 of such Code is amended by redesignating section 2046

22 as section 2047 and by inserting after section 2045 the

23 following new section:
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1 ‘‘SEC. 2046. INDIVIDUAL INVESTMENT ACCOUNTS.

2 ‘‘Notwithstanding any other provision of law, there

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

4 value of any individual investment account (as defined in

5 section 221(b)). Section 1014 shall not apply to such ac6 counts.’’

7 (d) NONRECOGNITION OF GAIN ON SALE OF PRIN8 CIPAL RESIDENCE WHERE AMOUNT EQUAL TO OTHER9 WISE TAXABLE GAIN DEPOSITED INTO INDIVIDUAL IN10 VESTMENT ACCOUNT.—Part III of subchapter B of chap11 ter 1 of such Code is amended by inserting after section

12 121 the following new section:

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

14 RESIDENCE IF REINVESTMENT IN INDIVID15 UAL INVESTMENT ACCOUNT.

16 ‘‘(a) GENERAL RULE.—Gross income does not in17 clude gain from the sale or exchange of property if, during

18 the 5-year period ending on the date of the sale or ex19 change, such property has been owned and used by the

20 taxpayer as his principal residence for periods aggregating

21 3 years or more.

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

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

24 the amount paid in cash (during the 1-year period begin25 ning on the date of the sale or exchange) to an individual
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1 investment account (as defined in section 221(b)) estab2 lished for the benefit of the taxpayer or his spouse.

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

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

5 apply for purposes of determining ownership and use

6 under this section.’’

7 (e) TAX ON PROHIBITED TRANSACTIONS.—Section

8 4975 of such Code (relating to prohibited transactions)

9 is amended—

10 (1) by adding at the end of subsection (c) the

11 following new paragraph:

12 ‘‘(5) SPECIAL RULE FOR INDIVIDUAL INVEST13 MENT ACCOUNTS.—An individual for whose benefit

14 an individual investment account is established shall

15 be exempt from the tax imposed by this section with

16 respect to any transaction concerning such account

17 (which would otherwise be taxable under this sec18 tion) if, with respect to such transaction, the ac19 count ceases to be an individual investment account

20 by reason of the application of section 221(d)(2)(A)

21 to such account.’’; and

22 (2) in subsection (e)(1), by striking ‘‘or’’ at the

23 end of subparagraph (D), by redesignating subpara24 graph (E) as subparagraph (F), and by inserting the

25 following new subparagraph after subparagraph (D):
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1 ‘‘(E) an individual investment account de2 scribed in section 221(b), or’’.

3 (f) FAILURE TO PROVIDE REPORTS ON INDIVIDUAL

4 INVESTMENT ACCOUNTS.—Section 6693 of such Code (re5 lating to failure to provide reports on individual retirement

6 account or annuities) is amended—

7 (1) by inserting ‘‘OR ON INDIVIDUAL IN8 VESTMENT ACCOUNTS’’ after ‘‘ANNUITIES’’ in

9 the heading of such section; and

10 (2) in subsection (a)(2), by striking ‘‘and’’ at

11 the end of subparagraph (A), by striking the period

12 at the end of subparagraph (B) and inserting ‘‘,

13 and’’, and by adding at the end the following new

14 paragraph:

15 ‘‘(C) section 221(g) (relating to individual

16 investment accounts).’’

17 (g) ADJUSTMENT OF BASIS OF RESIDENCE AC18 QUIRED THROUGH USE OF ACCOUNT.—Subsection (a) of

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

20 at the end of paragraph (25), by striking the period at

21 the end of paragraph (26) and inserting ‘‘, and’’, and by

22 adding at the end thereof the following new paragraph:
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1 ‘‘(27) to the extent provided in section

2 221(c)(2)(C), in the case of a residence the acquisi3 tion of which was made in whole or in part with

4 funds from an individual investment account.’’

5 (h) CLERICAL AMENDMENTS.—

6 (1) The table of sections for part III of sub7 chapter B of chapter 1 of such Code is amended by

8 inserting after the item relating to section 121 the

9 following new item:

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

reinvestment in individual investment account.’’

10 (2) The table of sections for part VII of sub11 chapter B of chapter 1 of such Code is amended by

12 striking the item relating to section 221 and insert13 ing the following:

‘‘Sec. 221. Individual investment accounts.

‘‘Sec. 222. Cross reference.’’

14 (3) The table of sections for part III of sub15 chapter A of chapter 11 of such Code is amended by

16 striking the item relating to section 2046 and insert17 ing the following new items:

‘‘Sec. 2046. Individual investment accounts.

‘‘Sec. 2047. Disclaimers.’’

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

19 chapter 68 of such Code is amended by striking the

20 item relating to section 6693 and inserting the fol21 lowing:
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‘‘Sec. 6693. Failure to provide reports on individual retirement

accounts or annuities or on individual investment

accounts; penalties relating to designated nondeductible contributions.’’

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

2 this section shall apply to taxable years beginning after

3 December 31, 1996.

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