I
104TH CONGRESS
1ST SESSION
H. R. 950
To amend title IV of the Social Security Act to remove the barriers and
disincentives in the program of aid to families with dependent children
that prevent recipients of such aid from moving toward self-sufficiency,
and to provide for the establishment of demonstration projects designed
to determine the social, psychological, and economic effects of providing
to individuals with limited means an opportunity to accumulate assets,
and the extent to which an asset-based welfare policy may be used
to enable individuals with low income to achieve economic self-sufficiency.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 15, 1995
Mr. HALL of Ohio (for himself, Mr. EMERSON, and Mrs. COLLINS of Illinois)
introduced the following bill; which was referred to the Committee on
Ways and Means and, in addition, to the Committee on Economic and
Educational Opportunities, for a period to be subsequently determined by
the Speaker, in each case for consideration of such provisions as fall with-
in the jurisdiction of the committee concerned
A BILL
To amend title IV of the Social Security Act to remove
the barriers and disincentives in the program of aid
to families with dependent children that prevent recipi-
ents of such aid from moving toward self-sufficiency,
and to provide for the establishment of demonstration
projects designed to determine the social, psychological,
and economic effects of providing to individuals with
limited means an opportunity to accumulate assets, and
the extent to which an asset-based welfare policy may
be used to enable individuals with low income to achieve
economic self-sufficiency.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Microenterprise and
Asset Development Act’’.
TITLE I—MICROENTERPRISE
AND ASSET DEVELOPMENT
SEC. 101. DISREGARD OF INCOME AND RESOURCES DES-
IGNATED FOR EDUCATION, TRAINING, AND
EMPLOYABILITY.
(a) 
DISREGARD
AS
RESOURCE.—Section
402(a)(7)(B) of the Social Security Act (42 U.S.C.
602(a)(7)(B)) is amended—
(1) by striking ‘‘or’’ before ‘‘(iv)’’; and
(2) by inserting ‘‘, or (v) in the case of a family
receiving aid under the State plan (and a family not
receiving such aid but which received such aid in at
least 1 of the preceding 4 months or became ineli-
gible for such aid during the preceding 12 months
because of excessive earnings), any amount not to
exceed $10,000 in a qualified asset account (as de-
fined in section 406(i)) of such family’’ before
‘‘; and’’.
(b) DISREGARD AS INCOME.—
(1) IN GENERAL.—Section 402(a)(8)(A) of such
Act (42 U.S.C. 602(a)(8)(A)) is amended—
(A) by striking ‘‘and’’ at the end of clause
(vii); and
(B) by inserting after clause (viii) the fol-
lowing new clause:
‘‘(ix) shall disregard any interest or
income earned on a qualified asset account
(as defined in section 406(i)); and’’.
(2) NONRECURRING LUMP SUM EXEMPT FROM
LUMP SUM RULE.—Section 402(a)(17) of such Act
(42 U.S.C. 602(a)(17)) is amended by adding at the
end the following: ‘‘; and that this paragraph shall
not apply to earned or unearned income received in
a month on a nonrecurring basis to the extent that
such income is placed in a qualified asset account
(as defined in section 406(i)) the total amounts in
which, after such placement, does not exceed
$10,000;’’.
(3) 
TREATMENT
AS
INCOME.—Section
402(a)(7) of such Act (42 U.S.C. 602(a)(7)) is
amended—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (B);
(B) by striking the semicolon at the end of
subparagraph (C) and inserting ‘‘; and’’; and
(C) by adding at the end the following new
subparagraph:
‘‘(D) shall treat as income any distribu-
tions from a qualified asset account (as defined
in section 406(i)(1)) which do not meet the def-
inition of a qualified distribution under section
406(i)(2);’’.
(c) QUALIFIED ASSET ACCOUNTS.—Section 406 of
such Act (42 U.S.C. 606) is amended by adding at the
end the following:
‘‘(i)(1) The term ‘qualified asset account’ means a
mechanism approved by the State (such as individual re-
tirement accounts, escrow accounts, or savings bonds) that
allows savings of a family receiving aid to families with
dependent children to be used for qualified distributions.
‘‘(2) The term ‘qualified distributions’ means dis-
tributions for expenses directly related to 1 or more of
the following purposes:
‘‘(A) The attendance of a member of the family
at any education or training program.
‘‘(B) The improvement of the employability (in-
cluding self-employment) of a member of the family
(such as through the purchase of an automobile).
‘‘(C) The purchase of a home for the family.
‘‘(D) A change of the family residence.’’.
(d) STUDY OF USE OF QUALIFIED ASSET ACCOUNTS;
REPORT.—The Secretary of Health and Human Services
shall conduct a study of the use of qualified asset accounts
established pursuant to the amendments made by this sec-
tion, and shall report on such study and any recommenda-
tions for modifications of such amendments to the Com-
mittee on Finance of the Senate and the Committee on
Ways and Means of the House of Representatives not later
than January 1, 1997.
(e) REPORT
ON AFDC ASSET LIMIT
ON AUTO-
MOBILES.—Within 3 months after the date of the enact-
ment of this section, the Secretary of Health and Human
Services shall submit to the Congress a report on—
(1) the need to revise the limitation, established
in regulations pursuant to section 402(a)(7)(B)(i) of
the Social Security Act, on the value of a family
automobile required to be disregarded by a State in
determining the eligibility of the family for aid to
families with dependent children under the State
plan approved under part A of title IV of such Act;
and
(2) the extent to which such a revision would
increase the employability of recipients of such aid.
(f) EFFECTIVE DATE.—The amendments made by
this section shall take effect on October 1, 1995.
SEC. 102. DISREGARD OF INCOME AND RESOURCES RELAT-
ED TO SELF-EMPLOYMENT.
(a) STATE PLAN REQUIREMENTS.—Section 402(a)
of the Social Security Act (42 U.S.C. 602(a)) is amend-
ed—
(1) by striking ‘‘and’’ at the end of paragraph
(44);
(2) by striking the period at the end of para-
graph (45) and inserting ‘‘; and’’; and
(3) by inserting after paragraph (45) the fol-
lowing:
‘‘(46) provide that the State agency—
‘‘(A)(i) shall not include as a resource of
the family of which a child referred to in para-
graph (7)(A) is a member, for purposes of
paragraph (7)(B), the first $10,000 of the net
worth (assets reduced by liabilities with respect
thereto) of all microenterprises (as defined in
section 406(j)(1)) owned, in whole or in part,
by the child or by a relative or other individual
referred to in paragraph (7)(A), for a period
not to exceed 2 years; and
‘‘(ii) shall take into consideration as
earned income of the family of which the child
is a member, only the net profits (as defined in
section 406(j)(2)) of such microenterprises, for
a period not to exceed 2 years; and
‘‘(B) shall ensure that caseworkers are
able to properly advise recipients of aid under
the State plan of the option of microenterprise
as a legitimate route towards self-sufficiency,
and that caseworkers encourage recipients of
such aid who are interested in starting a
microenterprise to participate in a program de-
signed to assist them in such effort.’’.
(b) DEFINITIONS.—Section 406 of such Act (42
U.S.C. 606), as amended by section 101(c) of this Act,
is amended by adding at the end the following:
‘‘(j)(1) The term ‘microenterprise’ means a commer-
cial enterprise which has 5 or fewer employees, 1 or more
of whom owns the enterprise.
‘‘(2) The term ‘net profits’ means, with respect to
a microenterprise, the gross receipts of the business,
minus—
‘‘(A) payments of principal or interest on a loan
to the microenterprise;
‘‘(B) transportation expenses;
‘‘(C) inventory costs;
‘‘(D) expenditures to purchase capital equip-
ment;
‘‘(E) cash retained by the microenterprise for
future use by the business;
‘‘(F) taxes paid by reason of the business;
‘‘(G) if the business is covered under a policy
of insurance against loss—
‘‘(i) the premiums paid for such insurance;
and
‘‘(ii) the losses incurred by the business
that are not reimbursed by the insurer solely by
reason of the existence of a deductible with re-
spect to the insurance policy;
‘‘(H) the reasonable costs of obtaining 1 motor
vehicle necessary for the conduct of the business;
and
‘‘(I) the other expenses of the business.’’.
(c) INCLUSION OF MICROENTERPRISE TRAINING AND
ACTIVITIES IN THE JOBS PROGRAM.—
(1) IN GENERAL.—Section 482(d)(1) of such
Act (42 U.S.C. 682(d)(1)) is amended by adding at
the end the following:
‘‘(C) The services and activities referred to in sub-
paragraph (A)—
‘‘(i) in the case that at least 3 percent of the
adult recipients of aid under the State plan approved
under part A (as of the close of the immediately pre-
ceding 
fiscal 
year) 
elect 
to 
participate 
in
microenterprise activities, shall include programs de-
scribed in paragraph (4); or
‘‘(ii) in the case that not more than 3 percent
of the adult recipients of such aid elect to partici-
pate in microenterprise activities, may include pro-
grams described in paragraph (4).’’.
(2) 
MICROENTERPRISE
PROGRAMS.—Section
482(d) of such Act (42 U.S.C. 682(d)) is amended
by adding at the end the following:
‘‘(4) The programs described in this paragraph are
programs of public and private organizations, agencies,
and other entities (including nonprofit and for-profit enti-
ties) to enable such entities to facilitate economic develop-
ment by—
‘‘(A) providing technical assistance, advice, and
business support services (including assistance, ad-
vice, and support relating to business planning, fi-
nancing, marketing, and other microenterprise devel-
opment activities) to owners of microenterprises and
persons developing microenterprises; and
‘‘(B) providing general support (such as peer
support and self-esteem programs) to owners of
microenterprises 
and 
persons 
developing
microenterprises.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to payments under part A of title
IV of the Social Security Act for calendar quarters begin-
ning on or after October 1, 1995.
TITLE II—DEMONSTRATION
PROJECTS
SEC. 201. FINDINGS.
The Congress finds that—
(1) traditional welfare programs in the United
States have provided millions of low-income persons
with critically needed food, health, and cash benefits,
and such programs should be improved and contin-
ued;
(2) while such programs have sustained millions
of low-income persons, too rarely have such pro-
grams been successful in promoting and supporting
the transition to economic self-sufficiency;
(3) millions of Americans continue to live in
poverty and continue to receive public assistance;
(4) in addition to the social costs of poverty,
the economic costs to the Federal Government to
provide basic necessities to the poor exceeds
$120,000,000,000 each year;
(5) poverty is a loss of human resources and an
assault on human dignity;
(6) poverty rates remain high and welfare de-
pendency continues, in part, because welfare theory
has taken for granted that a certain level of income
or consumption is necessary for one’s economic well-
being when, in fact, very few people manage to
spend or consume their way out of poverty;
(7) economic well-being does not come primarily
through income, spending, and consumption, but is
instead achieved through savings, investment, and
accumulation of assets, since assets can improve eco-
nomic stability, connect people with a viable and
hopeful future, stimulate development of human and
other capital, enable people to focus and specialize,
yield personal, social, and political dividends, and en-
hance the welfare of offspring;
(8) income-based welfare policy should be com-
plemented with asset-based welfare policy, because
while income-based policies ensure that present con-
sumption needs (such as food, child care, rent, cloth-
ing, and health care) are met, asset-based policies
can provide the means to achieve economic self-suffi-
ciency and, accordingly, to leave public assistance;
(9) the Federal Government spends more than
$160,000,000,000 each year to provide middle- and
upper-income persons with many incentives to accu-
mulate savings and assets (especially tax subsidies
for home equity accumulation and retirement pen-
sion accounts), but such benefits are beyond the
reach of most low-income persons;
(10) under current welfare policies, poor fami-
lies must deplete most of their assets before qualify-
ing for public assistance;
(11) the Federal Government should develop
policies that promote higher rates of personal sav-
ings and net private domestic investment, both of
which fall behind the levels attained in other highly
developed industrial nations; and
(12) the Federal Government should undertake
an asset-based welfare policy demonstration project
to determine the social, psychological, and economic
effects of asset accumulation opportunities for low-
income persons and to determine if such a policy
could provide a new foundation for anti-poverty poli-
cies and programs in the United States.
SEC. 202. INDIVIDUAL DEVELOPMENT ACCOUNTS.
(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 DEVELOPMENT ACCOUNTS.
‘‘(a) DEDUCTION ALLOWED.—In the case of an eligi-
ble individual, there shall be allowed as a deduction the
sum of amounts paid in cash (other than assistance pro-
vided under section 203(g) of the Individual Development
Account Demonstration Act) during the taxable year by
or on behalf of such individual to an individual develop-
ment account established for the purpose of accumulating
funds to pay the qualified expenses of such individual.
‘‘(b) LIMITATIONS.—
‘‘(1) ACCOUNT MAY NOT BE ESTABLISHED FOR
BENEFIT OF MORE THAN 1 INDIVIDUAL.—An indi-
vidual development account may not be established
for the benefit of more than 1 individual.
‘‘(2) ELIGIBLE INDIVIDUAL TREATED AS ELIGI-
BLE
INDIVIDUAL
ONLY
WITH
RESPECT
TO
AC-
COUNT.—If, at any time during a calendar year, 2
or more individual development accounts are main-
tained for the benefit of an eligible individual, such
individual shall be treated as an eligible individual
for the calendar year only with respect to the 1st of
such accounts.
‘‘(3) MAXIMUM
DEDUCTION
PER
ACCOUNT.—
The amount allowable as a deduction under sub-
section (a) to an eligible individual for amounts paid
to an individual development account for any taxable
year shall not exceed $2,000.
‘‘(4) ADJUSTMENT OF DOLLAR AMOUNT LIMI-
TATIONS FOR INFLATION.—
‘‘(A) IN
GENERAL.—In the case of any
taxable year beginning in a calendar year after
1996, the dollar amount contained in paragraph
(3) and subsection (c)(3)(A) shall be increased
by an amount equal to—
‘‘(i) such dollar amount, multiplied by
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(f)(3) for the cal-
endar year in which the taxable year be-
gins by substituting ‘calendar year 1995’
for ‘calendar year 1992’ in subparagraph
(B) thereof.
‘‘(B) ROUNDING.—If any amount as ad-
justed under subparagraph (A) is not a multiple
of $500, such amount shall be rounded to the
next lowest multiple of $500.
‘‘(5) DENIAL
OF
DEDUCTION
FOR
AMOUNTS
TRANSFERRED FROM ANOTHER IDA.—No deduction
shall be allowed under this section with respect to
any amount paid into an individual development ac-
count pursuant to subsection (c)(1)(E).
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) QUALIFIED EXPENSES.—The term ‘quali-
fied expenses’ means 1 or more of the following, as
provided by the organization providing assistance to
the individual under section 203(g) of the Individual
Development Account Demonstration Act:
‘‘(A) POST-SECONDARY
EDUCATION
EX-
PENSES.—Post-secondary educational expenses
paid from an individual development account di-
rectly to an eligible educational institution. For
purposes of this subparagraph—
‘‘(i) IN
GENERAL.—The term ‘post-
secondary educational expenses’ means—
‘‘(I) tuition and fees required for
the enrollment or attendance of a stu-
dent at an eligible educational institu-
tion,
‘‘(II) fees, books, supplies, and
equipment required for courses of in-
struction at an eligible educational in-
stitution, and
‘‘(III) a reasonable allowance for
meals, lodging, transportation, and
child care, while attending an eligible
educational institution.
‘‘(ii) ELIGIBLE EDUCATIONAL INSTI-
TUTION.—The term ‘eligible educational
institution’ means the following:
‘‘(I) INSTITUTION
OF
HIGHER
EDUCATION.—An institution described
in section 481(a)(1) or 1201(a) of the
Higher Education Act of 1965 (20
U.S.C. 1088(a)(1) or 1141(a)), as
such sections are in effect on the date
of the enactment of this section.
‘‘(II) 
POSTSECONDARY
VOCA-
TIONAL
EDUCATION
SCHOOL.—An
area vocational education school (as
defined in subparagraph (C) or (D) of
section 521(4) of the Carl D. Perkins
Vocational and Applied Technology
Education Act (20 U.S.C. 2471(4)))
which is in any State (as defined in
section 521(33) of such Act), as such
sections are in effect on the date of
the enactment of this section.
‘‘(B) FIRST-HOME
PURCHASE.—Qualified
acquisition costs with respect to a qualified
principal residence for a qualified first-time
homebuyer, if paid from an individual develop-
ment account directly to the persons to whom
the amounts are due. For purposes of this sub-
paragraph—
‘‘(i) 
QUALIFIED
ACQUISITION
COSTS.—The term ‘qualified acquisition
costs’ means the costs of acquiring, con-
structing, or reconstructing a residence.
The term includes any usual or reasonable
settlement, financing, or other closing
costs.
‘‘(ii) QUALIFIED
PRINCIPAL
RESI-
DENCE.—The term ‘qualified principal res-
idence’ means a principal residence (within
the meaning of section 1034), the qualified
acquisition costs of which do not exceed
110 percent of the average area purchase
price applicable to such residence (deter-
mined in accordance with paragraphs (2)
and (3) of section 143(e)).
‘‘(iii) QUALIFIED FIRST-TIME HOME-
BUYER.—
‘‘(I) IN
GENERAL.—The term
‘qualified first-time homebuyer’ means
a taxpayer (and, if married, the tax-
payer’s spouse) who has no present
ownership interest in a principal resi-
dence during the 3-year period ending
on the date of acquisition of the prin-
cipal residence to which this subpara-
graph applies.
‘‘(II) DATE
OF
ACQUISITION.—
The term ‘date of acquisition’ means
the date on which a binding contract
to acquire, construct, or reconstruct
the principal residence to which this
subparagraph applies is entered into.
‘‘(C) 
BUSINESS
CAPITALIZATION.—
Amounts paid from an individual development
account directly to a business capitalization ac-
count which is established in a federally insured
financial institution and is restricted to use
solely for business capitalization expenses. For
purposes of this subparagraph—
‘‘(i) QUALIFIED
BUSINESS
CAPITAL-
IZATION EXPENSES.—The term ‘qualified
business capitalization expenses’ means
qualified expenses for the capitalization of
a qualified business pursuant to a qualified
plan.
‘‘(ii) 
QUALIFIED
EXPENSES.—The
term ‘qualified expenses’ means expenses
included in a qualified plan, including cap-
ital plant, equipment, working capital, and
inventory expenses.
‘‘(iii) 
QUALIFIED
BUSINESS.—The
term ‘qualified business’ means any busi-
ness that does not contravene any law or
public policy (as determined by the Sec-
retary).
‘‘(iv) QUALIFIED
PLAN.—The term
‘qualified plan’ means a business plan
which—
‘‘(I) is approved by a financial in-
stitution, or by a nonprofit loan fund
having demonstrated fiduciary integ-
rity,
‘‘(II) includes a description of
services or goods to be sold, a market-
ing plan, and projected financial
statements, and
‘‘(III) may require the eligible in-
dividual to obtain the assistance of an
experienced entreprenurial advisor.
‘‘(D) RETIREMENT EXPENSES.—Expenses
for which amounts may be distributed from an
individual retirement plan, subject to the same
requirements and limitations as apply to such
amounts.
‘‘(E) TRANSFERS
TO
IDA’S
OF
FAMILY
MEMBERS.—Amounts paid from an individual
development account directly into another such
account established for the benefit of an eligible
individual who is—
‘‘(i) the taxpayers spouse, or
‘‘(ii) any dependent of the taxpayer
with respect to whom the taxpayer is al-
lowed a deduction under section 151.
‘‘(2) ELIGIBLE INDIVIDUAL.—The term ‘eligible
individual’ means an individual for whom assistance
is (or at any prior time was) provided under section
203(g) of the Individual Development Account Dem-
onstration Act.
‘‘(3) INDIVIDUAL
DEVELOPMENT
ACCOUNT.—
The term ‘individual development account’ means a
trust created or organized in the United States ex-
clusively for the purpose of paying the qualified ex-
penses of an eligible individual, but only if the writ-
ten governing instrument creating the trust meets
the following requirements:
‘‘(A) No contribution will be accepted un-
less it is in cash.
‘‘(B) The trustee is a federally insured fi-
nancial institution.
‘‘(C) The assets of the account will be in-
vested in accordance with the direction of the
eligible individual, within the guidelines estab-
lished pursuant to section 203(j)(1)(A)(ii) of
the Individual Development Account Dem-
onstration Act.
‘‘(D) The assets of the trust will not be
commingled with other property except in a
common trust fund or common investment
fund.
‘‘(E) Except as provided in subparagraph
(F), any amount in the account which is attrib-
utable to assistance provided under section
203(g) of the Individual Development Account
Demonstration Act may be paid or distributed
out of the account only for the purpose of pay-
ing the qualified expenses of the eligible individ-
ual.
‘‘(F) Any balance in the account on the
day after the date on which the individual for
whose benefit the trust is established dies will
be distributed within 30 days of such date as
directed by such individual to another individual
development account established for the benefit
of an eligible individual.
‘‘(4) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—A taxpayer shall be deemed to have made a
contribution 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 tax-
able year (including extensions thereof).
‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, any amount paid or distrib-
uted out of an individual development account shall
be included in gross income of the payee or distribu-
tee for the taxable year in which the payment or dis-
tribution is received to the extent such amount is
not the return of a contribution for which no deduc-
tion was allowed under subsection (a).
‘‘(2) DISTRIBUTION USED TO PAY QUALIFIED
EXPENSES.—Paragraph (1) shall not apply to any
payment or distribution out of an individual develop-
ment account to the extent such payment or dis-
tribution is used exclusively to pay the qualified ex-
penses incurred by the eligible individual for whose
benefit the account is established.
‘‘(e) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) EXEMPTION
FROM
TAX.—An individual
development account is exempt from taxation under
this subtitle unless such account has ceased to be an
individual development account by reason of para-
graph (2). Notwithstanding the preceding sentence,
any such account is subject to the taxes imposed by
section 511 (relating to imposition of tax on unre-
lated business income of charitable, etc. organiza-
tions).
‘‘(2) LOSS OF EXEMPTION OF ACCOUNT WHERE
INDIVIDUAL
ENGAGES
IN
PROHIBITED
TRANS-
ACTION.—
‘‘(A) IN GENERAL.—If the individual for
whose benefit an individual development ac-
count is established or any individual who con-
tributes to such account engages in any trans-
action prohibited by section 4975 with respect
to the account, the account shall cease to be an
individual development account as of the 1st
day of the taxable year (of the individual so en-
gaging in such transaction) during which such
transaction occurs.
‘‘(B) ACCOUNT TREATED AS DISTRIBUTING
ALL ITS ASSETS.—In any case in which any ac-
count ceases to be an individual development
account by reason of subparagraph (A) as of
the 1st day of any taxable year—
‘‘(i) all assets in the account on such
1st day which are attributable to assist-
ance provided under section 203(g) of the
Individual Development Account Dem-
onstration Act shall be paid into the gen-
eral fund of the Treasury of the United
States, and
‘‘(ii) paragraph (1) of subsection (d)
shall apply as if there was a distribution
on such 1st day in an amount equal to the
fair market value of all other assets in the
account on such 1st day.
‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU-
RITY.—If, during any taxable year, the individual for
whose benefit an individual development account is
established, or any individual who contributes to
such account, uses the account or any portion there-
of as security for a loan—
‘‘(A) an amount equal to the part of the
portion so used which is attributable to assist-
ance provided under section 203(g) of the Indi-
vidual Development Account Demonstration Act
shall be paid into the general fund of the Treas-
ury of the United States, and
‘‘(B) the remaining part of the portion so
used shall be treated as distributed to the indi-
vidual so using such portion.
‘‘(f) ADDITIONAL TAX ON CERTAIN AMOUNTS IN-
CLUDED IN GROSS INCOME.—
‘‘(1) DISTRIBUTION NOT USED FOR QUALIFIED
EXPENSES.—In the case of any payment or distribu-
tion to which subsection (d)(1) applies, the tax li-
ability of each payee or distributee under this chap-
ter for the taxable year in which the payment or dis-
tribution is received shall be increased by an amount
equal to 10 percent of the amount of the distribution
which is includible in the gross income of such payee
or distributee for such taxable year.
‘‘(2) DISQUALIFICATION CASES.—If an amount
is includible in the gross income of an individual for
a taxable year because such amount is required to
be treated as a distribution under paragraph (2) or
(3) of subsection (e), such individual’s tax liability
under this chapter for such taxable year shall be in-
creased by an amount equal to 10 percent of such
amount required to be treated as a distribution and
included in such individual’s gross income.
‘‘(3) DISABILITY
OR
DEATH
CASES.—Para-
graphs (1) and (2) shall not apply if the payment
or distribution is made after the individual for whose
benefit the individual development account becomes
disabled within the meaning of section 72(m)(7) or
dies.
‘‘(g) COMMUNITY PROPERTY LAWS.—This section
shall be applied without regard to any community property
laws.
‘‘(h) CUSTODIAL ACCOUNTS.—For purposes of this
section, a custodial account shall be treated as a trust if
the assets of such account are held by a bank (as defined
in section 408(n)) or another person who demonstrates,
to the satisfaction of the Secretary, that the manner in
which he will administer the account will be consistent
with the requirements of this section, and if the custodial
account would, except for the fact that it is not a trust,
constitute an individual development account described in
subsection (c)(2). For purposes of this title, in the case
of a custodial account treated as a trust by reason of the
preceding sentence, the custodian of such account shall be
treated as the trustee thereof.
‘‘(i) REPORTS.—The trustee of an individual develop-
ment account shall—
‘‘(1) prepare reports regarding the account with
respect to contributions, distributions, and any other
matter required by the Secretary under regulations,
and
‘‘(2) submit such reports, at the time and in
the manner prescribed by the Secretary in regula-
tions, to—
‘‘(A) the individual for whose benefit the
account is maintained,
‘‘(B) the organization providing assistance
to the individual under section 203(g) of the In-
dividual Development Account Demonstration
Act, and
‘‘(C) the Secretary.’’
(b) DEDUCTION ALLOWED
IN ARRIVING
AT AD-
JUSTED GROSS INCOME.—Paragraph (7) of section 62(a)
of such Code (relating to retirement savings) is amend-
ed—
(1) by inserting ‘‘OR
INDIVIDUAL
DEVELOP-
MENT’’ after ‘‘RETIREMENT’’ in the heading of such
paragraph, and
(2) by inserting before the period at the end the
following: ‘‘and the deduction allowed by section 220
(relating to individual development accounts)’’.
(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) INDIVIDUAL DEVELOPMENT ACCOUNTS.—Any
contribution made by an individual to an individual devel-
opment account described in section 220(c)(3) which is al-
lowable 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 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:
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.’’
(f) SPECIAL RULE FOR DETERMINING AMOUNTS OF
SUPPORT FOR DEPENDENT.—Subsection (b) of section
152 of such Code (relating to definition of dependent) is
amended by adding at the end the following new para-
graph:
‘‘(6) A distribution from an individual develop-
ment account described in section 220(c)(3) to the
individual for whose benefit such account has been
established shall not be taken into account in deter-
mining support for purposes of this section to the
extent such distribution is excluded from gross in-
come of such individual under section 220(d)(2).’’
(g) 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. Individual development accounts.
‘‘Sec. 221. Cross references.’’
(2) 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:
‘‘Sec. 6693. Failure to provide reports on individual retirement
accounts or annuities or on individual development
accounts.’’
(h) EFFECTIVE DATE.—The amendments made by
this section shall apply to contributions made after Janu-
ary 1, 1995.
SEC. 203. INDIVIDUAL DEVELOPMENT ACCOUNT DEM-
ONSTRATION PROJECTS.
(a) PURPOSE.—The purpose of this section is to pro-
vide for the establishment of demonstration projects de-
signed to determine—
(1) the social, psychological, and economic ef-
fects of providing to individuals with limited means
an opportunity to accumulate assets; and
(2) the extent to which an asset-based welfare
policy may be used to enable individuals with low in-
come to achieve economic self-sufficiency.
(b) APPLICATIONS.—
(1) SUBMISSION.—Not later than April 1,
1995, any organization may submit to the Secretary
of the Treasury (in this section referred to as the
‘‘Secretary’’) an application to conduct a demonstra-
tion project under this section.
(2) CONTENTS.—The application shall con-
tain—
(A) a description of the demonstration
project;