I
104TH CONGRESS
2D SESSION
H. R. 3157
To amend the Internal Revenue Code of 1986 to allow the establishment
of individual training accounts.
IN THE HOUSE OF REPRESENTATIVES
MARCH 22, 1996
Mr. TORRICELLI 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 the
establishment of individual training accounts.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. TAX TREATMENT OF INDIVIDUAL TRAINING AC-
COUNTS.
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
additional itemized deductions for individuals) is amended
by redesignating section 220 as section 221 and by insert-
ing after section 219 the following new section:
‘‘SEC. 220. INDIVIDUAL TRAINING ACCOUNTS.
‘‘(a) ALLOWANCE OF DEDUCTION.—
‘‘(1) IN GENERAL.—In the case of an individual
who is a qualified account holder, there shall be al-
lowed as a deduction an amount equal to the
amounts paid in cash for the taxable year by or on
behalf of such individual to any individual training
account for such individual’s benefit.
‘‘(2) LIMITATION.—
‘‘(A) 
ANNUAL
CONTRIBUTIONS.—The
amount allowable as a deduction to any individ-
ual for any taxable year by reason of paragraph
(1) shall not exceed the lesser of—
‘‘(i) $2,000, or
‘‘(ii) an amount equal to the com-
pensation includible in the individual’s
gross income for such taxable year.
‘‘(B) ACCOUNT
CEILING.—No amount
shall be allowable as a deduction to any individ-
ual by reason of paragraph (1) with respect to
any amount paid to any individual training ac-
count for such individual’s benefit if, at the
time of such payment, the sum of the amounts
in all individual training accounts of such indi-
vidual (including the amount of such payment)
exceeds $12,000.
‘‘(3) ROLLOVERS.—No deduction shall be al-
lowed under this section with respect to any rollover
contribution.
‘‘(b) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) INCLUSION
OF
AMOUNTS
IN
GROSS
IN-
COME.—Except as otherwise provided in this sub-
section, any amount paid or distributed out of an in-
dividual training account shall be included in gross
income by the payee or distributee, as the case may
be, under rules similar to the rules of section 72 and
408(d)(2).
‘‘(2) EXCLUSION OF QUALIFIED TRAINING DIS-
TRIBUTIONS.—Paragraph (1) does not apply to any
qualified training distribution.
‘‘(3) ROLLOVERS.—Rules similar to the rules of
section 408(d)(3) shall apply for purposes of this
section.
‘‘(4) SPECIAL
RULES.—Rules similar to the
rules of paragraphs (4) and (5) of section 408(d)
shall apply for purposes of this section.
‘‘(c) QUALIFIED
TRAINING
DISTRIBUTION.—For
purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified train-
ing distribution’ means any amount paid or distrib-
uted out of an individual training account which
would otherwise be includible in gross income, to the
extent that such payment or distribution is used ex-
clusively to pay qualified training expenses for a
qualified account holder.
‘‘(2) QUALIFIED
TRAINING
EXPENSES.—For
purposes of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
training expenses’ means tuition, fees, books,
supplies, and equipment required for the enroll-
ment or attendance of a qualified account hold-
er at an eligible educational institution (as de-
fined in section 135(c)(3)).
‘‘(B) COORDINATION WITH SAVINGS BOND
PROVISIONS.—The amount of qualified training
expenses for any qualified account holder for
any taxable year shall be reduced by the excess
(if any) of—
‘‘(i) any amount excludable from gross
income under section 135 for such taxable
year, over
‘‘(ii) the amount of qualified higher
education expenses (within the meaning of
section 135) paid by such account holder
during such taxable year for any other in-
dividual.
‘‘(d) QUALIFIED ACCOUNT HOLDER.—For purposes
of this section—
‘‘(1) IN GENERAL.—The term ‘qualified account
holder’ means, with respect to any individual train-
ing account, the account holder if such account hold-
er worked at least half-time for at least 6 months
during the applicable period.
‘‘(2) APPLICABLE PERIOD.—The term ‘applica-
ble period’ means—
‘‘(A) with respect to any amount paid to
any individual training account, the 1-year pe-
riod ending on the date of such payment, and
‘‘(B) with respect to any distribution from
an individual training account and any qualified
training expenses (determined without regard to
this paragraph), the 1-year period ending on
the earlier of—
‘‘(i) the date of such distribution, or
‘‘(ii) the date on which the qualified
account holder began the course of study
to which such expenses relate.
‘‘(3) SELF-EMPLOYED.—Any self-employed in-
dividual shall be treated as working at least half-
time to the extent provided by regulations.
‘‘(e) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) IN GENERAL.—Any individual training ac-
count is exempt from taxation under this subtitle
unless such account has ceased to be an individual
training account by reason of paragraph (2) and ex-
cept for periods to which paragraph (3) applies. Not-
withstanding the preceding sentence, any such ac-
count is subject to the taxes imposed by section 511
(relating to imposition of tax on unrelated business
income of charitable, etc., organizations).
‘‘(2) LOSS OF EXEMPTION IN CASE OF PROHIB-
ITED TRANSACTIONS.—For purposes of this section,
rules similar to the rules of section 408(e) shall
apply.
‘‘(3) LOSS
OF
EXEMPTION
DURING
PERIODS
WHEN ACCOUNT CEILING EXCEEDED.—An individual
training account of an individual shall not be exempt
from taxation under this subtitle by reason of para-
graph (1) for any period during which the sum of
the amounts in all individual training accounts of
such individual exceeds $12,000.
‘‘(f) INDIVIDUAL TRAINING ACCOUNT.—For pur-
poses of this title, the term ‘individual training account’
means a trust created or organized in the United States
for the exclusive benefit of an individual or his bene-
ficiaries, but only if the written governing instrument cre-
ating the trust meets the following requirements:––
‘‘(1) Except in the case of a rollover contribu-
tion described in subsection (b)(3), no contribution
will be accepted unless it is in cash, and contribu-
tions will not be accepted for the taxable year in ex-
cess of $2,000. ––
‘‘(2) The trustee is a bank (as defined in sec-
tion 408(n)) or such other person who demonstrates
to the satisfaction of the Secretary that the manner
in which such other person will administer the trust
will be consistent with the requirements of this sec-
tion.
‘‘(3) No part of the trust funds will be invested
in life insurance contracts.
‘‘(4) The interest of an individual in the bal-
ance in his account is nonforfeitable.
‘‘(5) The assets of the trust will not be commin-
gled with other property except in a common trust
fund or common investment fund.
‘‘(6) Under regulations prescribed by the Sec-
retary, rules similar to the rules of section 401(a)(9)
and the incidental death benefit requirements of sec-
tion 401(a) shall apply to the distribution of the en-
tire interest of an individual for whose benefit the
trust is maintained.
‘‘(g) OTHER DEFINITIONS AND SPECIAL RULES.—
‘‘(1) COMPENSATION.—The term ‘compensa-
tion’ has the meaning given such term by section
219(f)(1).
‘‘(2) MARRIED
INDIVIDUALS.—The maximum
deduction under subsection (a) shall be computed
separately for each individual, and this section shall
be applied without regard to any community prop-
erty laws.
‘‘(3) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—For purposes of this section, a taxpayer
shall be deemed to have made a contribution to an
individual training account on the last day of the
preceding taxable year if the contribution is made on
account of such taxable year and is made not later
than the time prescribed by law for filing the return
for such taxable year (not including extensions
thereof).
‘‘(4) EMPLOYER PAYMENTS.—For purposes of
this title, any amount paid by an employer to an in-
dividual training account shall be treated as pay-
ment of compensation to the employee (other than a
self-employed individual who is an employee within
retary may require under regulations. The reports
required by this paragraph—
‘‘(A) shall be filed at such time and in
such manner as the Secretary prescribes in
such regulations, and
‘‘(B) shall be furnished to individuals—
‘‘(i) not later than January 31 of the
calendar year following the calendar year
to which such reports relate, and
‘‘(ii) in such manner as the Secretary
prescribes in such regulations.
‘‘(7) INVESTMENT IN COLLECTIBLES TREATED
AS DISTRIBUTIONS.—Rules similar to the rules of
section 408(m) shall apply for purposes of this sec-
tion.
‘‘(h) PENALTY FOR DISTRIBUTIONS NOT USED FOR
QUALIFIED TRAINING EXPENSES.—
‘‘(1) IN GENERAL.—If any amount is distrib-
uted from an individual training account and is not
used exclusively to pay qualified training expenses
for a qualified account holder, the tax imposed by
this chapter for the taxable year of such distribution
shall be increased by 20 percent of the portion of
such amount which is includible in gross income.
‘‘(2) EXCEPTIONS
FOR
REQUIRED
DISTRIBU-
TIONS, DISTRIBUTIONS BY REASON OF DEATH, AND
DISABILITY.—Paragraph (1) shall not apply to dis-
tributions which are—
‘‘(A) made pursuant to subsection (f)(6),
‘‘(B) made to a beneficiary (or the estate
of the account holder) on or after the death of
the account holder, or
‘‘(C) attributable to an account holder’s
being disabled within the meaning of section
72(m)(7).
‘‘(i) INFLATION ADJUSTMENT.—In the case of any
taxable year beginning after 1997, the $2,000 amount in
subsection (a)(2)(A)(i) and the $12,000 amounts in sub-
section (a)(2)(B) and subsection (e)(3) shall each be in-
creased by an amount equal to—
‘‘(1) such dollar amount, multiplied by
‘‘(2) the cost-of-living adjustment determined
under section (1)(f)(3) for the calendar year in
which the taxable year begins, by substituting ‘1996’
for ‘1992’.
If any amount as adjusted under the preceding sentence
is not a multiple of $50, such amount shall be rounded
to the nearest multiple of $50.’’
(b) DEDUCTION ALLOWABLE WHETHER OR NOT
TAXPAYER ITEMIZES.—Subsection (a) of section 62 of
such Code (relating to adjusted gross income defined) is
amended by inserting after paragraph (15) the following
new paragraph:
‘‘(16) INDIVIDUAL TRAINING ACCOUNTS.—The
deduction allowed by section 220.’’
(c) CONFORMING AMENDMENTS.—
(1) TAX ON EXCESS CONTRIBUTIONS.—
(A) TAX IMPOSED.—Subsection (a) of sec-
tion 4973 of such Code is amended by striking
‘‘or’’ at the end of paragraph (1), adding ‘‘or’’
at the end of paragraph (2), and inserting after
paragraph (2) the following new paragraph:
‘‘(3) an individual training account (within the
meaning of section 220(f)),’’
(B) 
EXCESS
CONTRIBUTIONS.—Section
4973 of such Code is amended by adding at the
end the following new subsection:
‘‘(d) INDIVIDUAL TRAINING ACCOUNTS.—For pur-
poses of this section, in the case of an individual training
account, the term ‘excess contributions’ means the sum
of—
‘‘(1) the excess (if any) of—
‘‘(A) the amount contributed for the tax-
able year to the account (other than a rollover
contribution to which section 220(b)(3) ap-
plies), over
‘‘(B) the amount allowable as a deduction
under section 220 for such contributions, and
‘‘(2) the amount determined under this sub-
section for the preceding taxable year reduced by the
sum of—
‘‘(A) the distributions out of the account
for the taxable year which were included in the
gross income of the payee under section
220(b)(1),
‘‘(B) the distributions out of the account
for the taxable year to which rules similar to
the rules of section 408(d)(5) apply by reason
of section 220(b)(4), and
‘‘(C) the excess (if any) of the maximum
amount allowable as a deduction under section
220 for the taxable year over the amount con-
tributed to the account for the taxable year.
For purposes of this subsection, any contribution which
is distributed from the individual training account in a dis-
tribution to which rules similar to the rules of section
408(d)(4) apply by reason of section 220(b)(4) shall be
treated as an amount not contributed.’’
(C) HEADING.—The heading of section
4973 of such Code is amended by inserting
‘‘INDIVIDUAL TRAINING ACCOUNTS,’’ after
‘‘CONTRACTS,’’.
(2) TAX ON PROHIBITED TRANSACTIONS.—Sec-
tion 4975 of such Code is amended—
(A) by adding at the end of subsection (c)
the following new paragraph:
‘‘(4) SPECIAL RULE FOR INDIVIDUAL TRAINING
ACCOUNTS.—An individual for whose benefit an indi-
vidual training account is established and any con-
tributor to such account shall be exempt from the
tax imposed by this section with respect to any
transaction concerning such account (which would
otherwise be taxable under this section) if, with re-
spect to such transaction, the account ceases to be
an individual training account by reason of the ap-
plication of section 220(e)(2) to such account.’’, and
(B) by inserting ‘‘, an individual training
account described in section 220(f),’’ in sub-
section (e)(1) after ‘‘described in section
408(a)’’.