I
104TH CONGRESS
1ST SESSION
H. R. 2338
To amend the Internal Revenue Code of 1986 to allow a deduction for
contributions to an individual training account.
IN THE HOUSE OF REPRESENTATIVES
SEPTEMBER 14, 1995
Mr. KLINK 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 an individual training account.
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 ‘‘Individual Training
Account Act of 1995’’.
SEC. 2. INDIVIDUAL TRAINING 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 TRAINING ACCOUNTS.
‘‘(a) DEDUCTION ALLOWED.—In the case of an indi-
vidual, there shall be allowed as a deduction the amount
paid in cash for the taxable year by or on behalf of such
individual to an individual training account for the benefit
of such individual.
‘‘(b) LIMITATIONS.—
‘‘(1) MAXIMUM DEDUCTION.—The amount al-
lowed as a deduction under subsection (a) for any
taxable year shall not exceed the lesser of—
‘‘(A) $2,000, or
‘‘(B) the excess of $6,000 over the aggre-
gate amount in all individual training accounts
of the individual as of the close of the preceding
taxable year.
The preceding sentence shall be applied separately
for each individual.
‘‘(2) NO DEDUCTION BEFORE BENEFICIARY AT-
TAINS AGE 18.—No deduction shall be allowed for
any contribution to an individual training account
established for the benefit of an individual who has
not attained age 18 before the close of the taxable
year for which such contribution is made.
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section:
‘‘(1) INDIVIDUAL
TRAINING
ACCOUNT.—The
term ‘individual training account’ means a trust cre-
ated or organized in the United States exclusively
for the purpose of paying the qualified expenses of
the individual for whose benefit the trust is main-
tained, but only if the written governing instrument
creating the trust meets the following requirements:
‘‘(A) Except in the case of a rollover con-
tribution described in subsection (d)(3), no con-
tribution will be accepted—
‘‘(i) unless it is in cash, or
‘‘(ii) in excess of the amount allowed
as a deduction under this section.
‘‘(B) The trustee is a bank (as defined in
section 408(n)) or another person who dem-
onstrates to the satisfaction of the Secretary
that the manner in which that person will ad-
minister the trust will be consistent with the re-
quirements of this section.
‘‘(C) No part of the trust assets will be in-
vested in life insurance contracts.
‘‘(D) The interest of the individual in the
balance of his account is nonforfeitable.
‘‘(E) The assets of the trust shall not be
commingled with other property except in a
common trust fund or common investment
fund.
‘‘(2) QUALIFIED EXPENSES.—The term ‘quali-
fied expenses’ means—
‘‘(A) job training expenses, and
‘‘(B) job-related relocation expenses.
‘‘(3) JOB TRAINING EXPENSES.—
‘‘(A) IN GENERAL.—The term ‘job training
expenses’ means—
‘‘(i) tuition and fees required for the
enrollment or attendance of—
‘‘(I) a student at an eligible edu-
cational institution, or
‘‘(II) a worker in an applicable
training program,
‘‘(ii) fees, books, supplies, and equip-
ment required for—
‘‘(I) courses of instruction at an
eligible educational institution, or
‘‘(II) for an applicable training
program, and
‘‘(iii) a reasonable allowance for meals
and lodging while attending an eligible
educational institution or an applicable
training program.
‘‘(B) ELIGIBLE
EDUCATIONAL
INSTITU-
TION.—The term ‘eligible educational institu-
tion’ means—
‘‘(i) an institution of higher education,
or
‘‘(ii) a vocational school.
‘‘(C) 
INSTITUTION
OF
HIGHER
EDU-
CATION.—The term ‘institution of higher edu-
cation’ means the institutions described in sec-
tion 1201(a) or 481(a) of the Higher Education
Act of 1965.
‘‘(D) VOCATIONAL
SCHOOL.—The term
‘vocational school’ means an area vocational
education school as defined in subparagraph
(C) or (D) of section 521(4) of the Carl D. Per-
kins Vocational and Applied Technology Edu-
cation Act to the extent such school is located
within any State (as defined in such section).
‘‘(E) APPLICABLE TRAINING PROGRAM.—
The 
term 
‘applicable 
training 
program’
means—
‘‘(i) any applicable program (as de-
fined in section 314(g) of the Job Training
Partnership Act), and
‘‘(ii) any training program approved
under section 236 of the Trade Act of
1974.
‘‘(4) DENIAL
OF
DEDUCTION
FOR
AMOUNTS
PAID FROM ACCOUNT.—If any amount paid or dis-
tributed from an individual training account is not
included in gross income by reason of being used to
pay any qualified expense, such expense shall not be
taken into account in determining the amount of any
deduction under section 212, 217, or any other pro-
vision of this chapter.
‘‘(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 training account shall be
included in gross income of the payee or distributee
for the taxable year in which the payment or dis-
tribution is received to the extent such amount is
not used exclusively to pay the qualified expenses
paid during such taxable year by the individual for
whose benefit the account is established.
‘‘(2) EXCESS CONTRIBUTIONS RETURNED BE-
FORE DUE DATE OF RETURN.—Paragraph (1) shall
not apply to the distribution of any contribution paid
during a taxable year to an individual training ac-
count to the extent that such contribution exceeds
the amount allowable as a deduction under sub-
section (a) if—
‘‘(A) such distribution is received on or be-
fore the day prescribed by law (including exten-
sions of time) for filing such individual’s return
for such taxable year,
‘‘(B) no deduction is allowed under sub-
section (a) with respect to such excess contribu-
tion, and
‘‘(C) such distribution is accompanied by
the amount of net income attributable to such
excess contribution.
Any net income described in subparagraph (C) shall
be included in the gross income of the individual for
the taxable year in which such excess contribution
was made.
‘‘(3) ROLLOVERS.—Paragraph (1) shall not
apply to any amount paid or distributed out of an
individual training account to the individual for
whose benefit the account is maintained if the entire
amount received (including money and any other
property) is paid into another individual training ac-
count for the benefit of such individual not later
than the 60th day after the day on which he received
the payment or distribution.
‘‘(e) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) EXEMPTION
FROM
TAX.—An individual
training account is exempt from taxation under this
subtitle unless such account has ceased to be an in-
dividual training account by reason of paragraph
(2). Notwithstanding the preceding sentence, any
such account is subject to the taxes imposed by sec-
tion 511 (relating to imposition of tax on unrelated
business income of charitable, etc. organizations).
‘‘(2) LOSS OF EXEMPTION OF ACCOUNT WHERE
INDIVIDUAL
ENGAGES
IN
PROHIBITED
TRANS-
ACTION.—
‘‘(A) IN GENERAL.—If the individual for
whose benefit an individual training account is
established engages in any transaction prohib-
ited by section 4975 with respect to the ac-
count, the account shall cease to be an individ-
ual training account as of the first day of the
taxable year during which such transaction oc-
curs.
‘‘(B) ACCOUNT TREATED AS DISTRIBUTING
ALL ITS ASSETS.—In any case in which any ac-
count ceases to be an individual training ac-
count by reason of subparagraph (A) as of the
first day of any taxable year, paragraph (1) of
subsection (d) shall apply as if there was a dis-
tribution on such first day in an amount equal
to the fair market value (on such first day) of
all assets in the account (on such first day) and
such distribution was not used to pay qualified
expenses.
‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU-
RITY.—If, during any taxable year, the individual for
whose benefit an individual training account is es-
tablished uses the account or any portion thereof as
security for a loan, the portion so used shall be
treated as distributed to the individual so using such
portion and not used to pay qualified expenses.
‘‘(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 the payee or distributee under this chapter
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 payment
or distribution which is includible in the gross in-
come 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 his 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 training account is maintained
becomes disabled within the meaning of section
72(m)(7) or dies.
‘‘(4) DISTRIBUTIONS AFTER AGE 591⁄2.—Para-
graphs (1) and (2) shall not apply if the payment
or distribution is made after the date the individual
for whose benefit the individual training account is
maintained attains age 591⁄2.
‘‘(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 training account described in sub-
section (c)(1). 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 training
account shall make such reports regarding such account
to the Secretary and to the individual for whose benefit
the account is maintained with respect to contributions,
distributions, and such other matters as the Secretary
may require under regulations. The reports required by
this subsection shall be filed at such time and in such
manner and furnished to such individuals at such time and
in such manner as may be required by those regulations.’’
(b) DEDUCTION ALLOWED
IN ARRIVING
AT AD-
JUSTED GROSS INCOME.—Subsection (a) of section 62 of
such Code (relating to retirement savings) is amended by
inserting after paragraph (15) the following new para-
graph:
‘‘(16) INDIVIDUAL TRAINING ACCOUNTS.—The
deduction allowed by section 220 (relating to individ-
ual training accounts).’’
(c) 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) by inserting ‘‘INDIVIDUAL
TRAINING
AC-
COUNTS,’’ after ‘‘ACCOUNTS,’’ in the heading of such
section,
(2) by striking ‘‘or’’ at the end of paragraph
(1) of subsection (a),
(3) by redesignating paragraph (2) of sub-
section (a) as paragraph (3) and by inserting after
paragraph (1) the following new paragraph:
‘‘(2) an individual training account (within the
meaning of section 220(c)(1)), or’’, and
(4) by adding at the end the following new sub-
section:
‘‘(d) EXCESS
CONTRIBUTIONS
TO
INDIVIDUAL
TRAINING ACCOUNTS.—For purposes of this section, in
the case of an individual training 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 individual
training account in a distribution to which section
220(d)(2) applies shall be treated as an amount not con-
tributed.’’
(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:
‘‘(4) SPECIAL RULE FOR INDIVIDUAL TRAINING
ACCOUNTS.—An individual for whose benefit an indi-
vidual training account is established shall be ex-
empt from the tax imposed by this section with re-
spect to any transaction concerning such account
(which would otherwise be taxable under this sec-
tion) if, with respect to such transaction, the ac-
count ceases to be an individual training account by
reason of the application of section 220(e)(2)(A) to
such account.’’, and
(2) by inserting ‘‘, an individual training ac-
count described in section 220(c)(1),’’ in subsection
(e)(1) after ‘‘described in section 408(a)’’.
(e) FAILURE TO PROVIDE REPORTS ON INDIVIDUAL
TRAINING ACCOUNTS.—Section 6693 of such Code (relat-
ing to failure to provide reports on individual retirement
accounts or annuities) is amended—
(1) by inserting ‘‘OR ON INDIVIDUAL TRAINING
ACCOUNTS’’ after ‘‘ANNUITIES’’ in the heading of
such section, and
(2) by adding at the end of subsection (a) the
following new sentence: ‘‘The person required by sec-
tion 220(i) to file a report regarding an individual
training account at the time and in the manner re-
quired 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) 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 training accounts.
‘‘Sec. 221. Cross reference.’’
(2) 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, individual training accounts, certain
403(b) contracts, and certain individual retirement
annuities.’’
(3) 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 training ac-
counts.’’
(g) EFFECTIVE DATE.—The amendments made by
this section shall apply to contributions made for taxable
years beginning after December 31, 1995.
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