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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 (16) the following new para-
graph:
‘‘(17) CONTRIBUTIONS
TO
INVESTMENT
SAV-
INGS ACCOUNTS.—The deduction allowed by section
221(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 221(c) which is allowable as
a deduction under section 221 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—
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(1) in subsection (a), by striking ‘‘or’’ at the
end of paragraph (2), by redesignating paragraph
(3) as paragraph (4), and by inserting after para-
graph (2) the following new paragraph:
‘‘(3) an investment savings account (within the
meaning of section 221(c)), or’’, and
(2) by adding at the end the following new sub-
section:
‘‘(e) 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 221
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
221(d)(3) applies shall be treated as an amount not con-
tributed.’’
(e) TAX ON PROHIBITED TRANSACTIONS.—
(A) Section 4975 of such Code (relating to
prohibited transactions) is amended by adding
at the end of subsection (c) the following new
paragraph:
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‘‘(5) 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 221(e)(2)(A) to such account.’’,
and
(B) Paragraph (1) of section 4975(e) of
such Code is amended by striking ‘‘or’’ at the
end of subparagraph (D), by redesignating sub-
paragraph (E) as subparagraph (F), and by in-
serting after subparagraph (D) the following
new subparagraph:
‘‘(E) an investment savings account de-
scribed in section 221(c), or’’.
(f) FAILURE TO PROVIDE REPORTS ON INVESTMENT
SAVINGS ACCOUNTS.—Paragraph (2) of section 6693(a)
of such Code (relating to failure to provide reports on indi-
vidual retirement accounts or annuities) is amended by
striking ‘‘and’’ at the end of subparagraph (A), by striking
the period at the end of subparagraph (B) and inserting
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‘‘, and’’, and by adding at the end the following new sub-
paragraph:
‘‘(C) section 221(i) (relating to investment
savings accounts).’’
(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 138
or deduction under section 221, 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.—
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(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 221 and insert-
ing the following new items:
‘‘Sec. 221. Contributions to investment savings accounts.
‘‘Sec. 222. 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, MEDICAL SAV-
INGS ACCOUNTS, INVESTMENT SAVINGS AC-
COUNTS, CERTAIN 403(b) CONTRACTS, AND
CERTAIN INDIVIDUAL RETIREMENT ANNU-
ITIES.’’
(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, medical savings accounts, investment sav-
ings 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: