ration of the 3-month period beginning on the date
on which the account is established.’’
(b) ALLOWANCE OF DEDUCTION IN COMPUTING AD-
JUSTED GROSS INCOME.—Subsection (a) of section 62 of
such Code (defining adjusted gross income) is amended
by inserting after paragraph (15) the following new para-
graph:
‘‘(16) CONTRIBUTIONS
TO
INVESTMENT
SAV-
INGS ACCOUNTS.—The deduction allowed by section
220(a).’’
(c) CONTRIBUTION NOT SUBJECT TO GIFT TAX.—
Section 2503 of such Code (relating to taxable gifts) is
amended by adding at the end the following new sub-
section:
‘‘(h) INVESTMENT SAVINGS ACCOUNTS.—Any con-
tribution made by an individual to an investment savings
account described in section 220(c) which is allowable as
a deduction under section 220 shall not be treated as a
transfer of property by gift for purposes of this chapter.’’
(d) TAX ON EXCESS CONTRIBUTIONS.—Section 4973
of such Code (relating to tax on excess contributions to
individual retirement accounts, certain section 403(b) con-
tracts, and certain individual retirement annuities) is
amended—
(1) in subsection (a), by striking ‘‘or’’ at the
end of paragraph (1), by redesignating paragraph
(2) as paragraph (3), and by inserting after para-
graph (1) the following new paragraph:
‘‘(2) an investment savings account (within the
meaning of section 220(c)), or’’, and
(2) by adding at the end the following new sub-
section:
‘‘(d) EXCESS CONTRIBUTIONS TO INVESTMENT SAV-
INGS ACCOUNTS.—For purposes of this section, in the
case of an investment savings account, the term ‘excess
contributions’ means the amount by which the amount
contributed for the taxable year to the account exceeds
the amount allowable as a deduction under section 220
for such taxable year. For purposes of this subsection, any
contribution which is distributed out of the investment
savings account in a distribution to which section
220(d)(3) applies shall be treated as an amount not con-
tributed.’’
(e) TAX ON PROHIBITED TRANSACTIONS.—Section
4975 of such Code (relating to prohibited transactions)
is amended—
(1) by adding at the end of subsection (c) the
following new paragraph:
‘‘(4) SPECIAL RULE FOR INVESTMENT SAVINGS
ACCOUNTS.—An individual for whose benefit an in-
vestment savings 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 investment savings account by reason of the ap-
plication of section 220(e)(2)(A) to such account.’’,
and
(2) in subsection (e)(1), by inserting ‘‘, an in-
vestment savings account described in section
220(c),’’ after ‘‘described in section 408(a)’’.
(f) FAILURE TO PROVIDE REPORTS ON INVESTMENT
SAVINGS ACCOUNTS.—Subsection (a) of section 6693 of
such Code (relating to failure to provide reports on indi-
vidual retirement accounts or annuities) is amended by
adding at the end the following new sentence: ‘‘The person
required by section 220(i) to file a report regarding an
investment savings account at the time and in the manner
required by such section shall pay a penalty of $50 for
each failure, unless it is shown that such failure is due
to reasonable cause.’’
(g) ADDITIONAL PENALTIES.—Part I of subchapter
B of chapter 68 of such Code (relating to assessable pen-
alties) is amended by adding at the end the following new
section:
‘‘SEC. 6716. PROMOTION OF NONQUALIFIED INVESTMENT
AS ELIGIBLE FOR DOMESTIC INVESTMENT
ECONOMIC GROWTH EXCLUSION OR DEDUC-
TION.
‘‘(a) IMPOSITION OF PENALTY.—If any person—
‘‘(1) makes a statement that an investment or
account is eligible for an exclusion under section 137
or deduction under section 220, and
‘‘(2) at the time such statement is made, there
was no reasonable basis for such statement,
such person shall pay a penalty equal to twice the aggre-
gate amount of exclusions and deductions taken by other
persons under such sections in reliance on such statement.
‘‘(b) PENALTY
IN
ADDITION
TO
OTHER
PEN-
ALTIES.—The penalty imposed by subsection (a) shall be
in addition to any other penalty provided by law.’’
(h) CLERICAL AMENDMENTS.—
(1) The table of sections for part VII of sub-
chapter B of chapter 1 of such Code is amended by
striking the item relating to section 220 and insert-
ing the following new items:
‘‘Sec. 220. Contributions to investment savings accounts.
‘‘Sec. 221. Cross reference.’’
(2)(A) The section heading for section 4973 of
such Code is amended to read as follows:
‘‘SEC. 4973. TAX ON EXCESS CONTRIBUTIONS TO INDIVID-
UAL RETIREMENT ACCOUNTS, INVESTMENT
SAVINGS ACCOUNTS, CERTAIN 403(b) CON-
TRACTS, AND CERTAIN INDIVIDUAL RETIRE-
MENT ANNUITIES.’’
(B) The table of sections for chapter 43 of such
Code is amended by striking the item relating to sec-
tion 4973 and inserting the following new item:
‘‘Sec. 4973. Tax on excess contributions to individual retirement
accounts, investment savings accounts, certain
403(b) contracts, and certain individual retirement
annuities.’’
(3)(A) The section heading for section 6693 of
such Code is amended to read as follows:
‘‘SEC. 6693. FAILURE TO PROVIDE REPORTS ON INDIVIDUAL
RETIREMENT ACCOUNTS OR ANNUITIES OR
ON INVESTMENT SAVINGS ACCOUNTS; PEN-
ALTIES RELATING TO DESIGNATED NON-
DEDUCTIBLE CONTRIBUTIONS.’’
(B) The table of sections for subchapter B of
chapter 68 of such Code is amended by striking the
item relating to section 6693 and inserting the fol-
lowing new item: