I
105TH CONGRESS
1ST SESSION
H. R. 984
To amend the Internal Revenue Code of 1986 to allow a deduction for
contributions to individual investment accounts, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MARCH 6, 1997
Mr. MCCRERY 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 individual investment ac-
counts, and for other purposes.
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 Investment
Account Act of 1997’’.
SEC. 2. ESTABLISHMENT OF INDIVIDUAL INVESTMENT 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 221 as section 222 and by insert-
ing after section 220 the following new section:
‘‘SEC. 221. INDIVIDUAL INVESTMENT ACCOUNTS.
‘‘(a) DEDUCTION ALLOWED.—In the case of an indi-
vidual, there shall be allowed as a deduction an amount
equal to the aggregate amount paid in cash for the taxable
year by such individual to an individual investment ac-
count established for the benefit of such individual.
‘‘(b) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) INDIVIDUAL INVESTMENT ACCOUNT.—The
term ‘individual investment account’ means a trust
created or organized in the United States for the ex-
clusive benefit of an 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 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 any collectible (as defined in section
408(m)).
‘‘(D) The assets of the trust will not be
commingled with other property except in a
common trust fund or common investment
fund.
‘‘(2) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—A taxpayer shall be deemed to have made a
contribution on the last day of a 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).
‘‘(c) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, any amount distributed out
of an individual investment account shall be included
in gross income by the distributee unless such
amount is part of a qualified 1st-time homebuyer
distribution.
‘‘(2) QUALIFIED
1ST-TIME
HOMEBUYER
DIS-
TRIBUTION.—For purposes of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
1st-time homebuyer distribution’ means any
payment or distribution received by a 1st-time
homebuyer from an individual investment ac-
count to the extent such payment or distribu-
tion is used by the individual within 60 days
to pay qualified acquisition costs with respect
to a principal residence for such individual.
‘‘(B) DOLLAR
LIMITATION.—The aggre-
gate amount which may be treated as qualified
1st-time homebuyer distributions for all taxable
years shall not exceed $15,000.
‘‘(C) BASIS REDUCTION.—The basis of any
principal residence described in subparagraph
(A) shall be reduced by the amount of any
qualified 1st-time homebuyer distribution.
‘‘(D) DEFINITIONS.—For purposes of this
paragraph—
‘‘(i) 
QUALIFIED
ACQUISITION
COSTS.—The term ‘qualified acquisition
costs’ means the costs of acquiring, con-
structing, or reconstructing a residence.
Such term includes any usual or reason-
able settlement, financing, or other closing
costs.
‘‘(ii) 
1ST-TIME
HOMEBUYER.—The
term ‘1st-time homebuyer’ means any indi-
vidual if such individual (and, if married,
such individual’s spouse) had no present
ownership interest in a principal residence
during the 3-year period ending on the
date of acquisition of the principal resi-
dence to which this paragraph applies.
‘‘(iii) PRINCIPAL
RESIDENCE.—The
term ‘principal residence’ has the same
meaning as when used in section 1034.
‘‘(3) TRANSFER OF ACCOUNT INCIDENT TO DI-
VORCE.—The transfer of an individual’s interest in
an individual investment account to his former
spouse under a divorce decree or under a written in-
strument incident to a divorce shall not be consid-
ered a taxable transfer made by such individual not-
withstanding any other provision of this subtitle, and
such interest at the time of the transfer shall be
treated as an individual investment account of such
spouse and not of such individual. Thereafter such
account shall be treated, for purposes of this sub-
title, as maintained for the benefit of such spouse.
‘‘(d) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) EXEMPTION FROM TAX.—An individual in-
vestment account shall be exempt from taxation
under this subtitle unless such account has ceased to
be such an account by reason of paragraph (2). Not-
withstanding the preceding sentence, any such ac-
count shall be 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, during any taxable
year of the individual for whose benefit the indi-
vidual investment account is established, that
individual engages in any transaction prohibited
by section 4975 with respect to the account, the
account shall cease to be an individual invest-
ment account as of the first day of that taxable
year.
‘‘(B) ACCOUNT TREATED AS DISTRIBUTING
ALL ITS ASSETS.—In any case in which any ac-
count ceases to be an individual investment ac-
count by reason of subparagraph (A) on the
first day of any taxable year, paragraph (1) of
subsection (c) shall be applied as if there were
a distribution 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).
‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU-
RITY.—If, during any taxable year, an individual for
whose benefit an individual investment 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 that individual.
‘‘(4) ROLLOVER
CONTRIBUTIONS.—Subsection
(c)(1) shall not apply to any amount paid or distrib-
uted out of an individual investment account to the
individual for whose benefit the account is main-
tained if such amount is paid into another individual
investment account for the benefit of such individual
not later than the 60th day after the day on which
he receives the payment or distribution.
‘‘(e) COST-OF-LIVING ADJUSTMENT.—
‘‘(1) IN GENERAL.—In the case of any taxable
year beginning in a calendar year after 1997, the
$15,000 amount contained in subsection (c)(2)(B)
shall be increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘SEC. 2046. INDIVIDUAL INVESTMENT ACCOUNTS.
‘‘Notwithstanding any other provision of law, there
shall be excluded from the value of the gross estate of the
value of any individual investment account (as defined in
section 221(b)). Section 1014 shall not apply to such ac-
counts.’’
(d) NONRECOGNITION OF GAIN ON SALE OF PRIN-
CIPAL RESIDENCE WHERE AMOUNT EQUAL TO OTHER-
WISE TAXABLE GAIN DEPOSITED INTO INDIVIDUAL IN-
VESTMENT ACCOUNT.—Part III of subchapter B of chap-
ter 1 of such Code is amended by inserting after section
121 the following new section:
‘‘SEC. 121A. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL
RESIDENCE IF REINVESTMENT IN INDIVID-
UAL INVESTMENT ACCOUNT.
‘‘(a) GENERAL RULE.—Gross income does not in-
clude gain from the sale or exchange of property if, during
the 5-year period ending on the date of the sale or ex-
change, such property has been owned and used by the
taxpayer as his principal residence for periods aggregating
3 years or more.
‘‘(b) LIMITATION.—The amount of gain excluded
from gross income under subsection (a) shall not exceed
the amount paid in cash (during the 1-year period begin-
ning on the date of the sale or exchange) to an individual
investment account (as defined in section 221(b)) estab-
lished for the benefit of the taxpayer or his spouse.
‘‘(c) CERTAIN RULES ON OWNERSHIP AND USE TO
APPLY.—Rules similar to the rules of section 121(d) shall
apply for purposes of determining ownership and use
under this section.’’
(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:
‘‘(5) SPECIAL RULE FOR INDIVIDUAL INVEST-
MENT ACCOUNTS.—An individual for whose benefit
an individual investment account is established 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 sec-
tion) if, with respect to such transaction, the ac-
count ceases to be an individual investment account
by reason of the application of section 221(d)(2)(A)
to such account.’’; and
(2) in subsection (e)(1), by striking ‘‘or’’ at the
end of subparagraph (D), by redesignating subpara-
graph (E) as subparagraph (F), and by inserting the
following new subparagraph after subparagraph (D):
‘‘(E) an individual investment account de-
scribed in section 221(b), or’’.
(f) FAILURE TO PROVIDE REPORTS ON INDIVIDUAL
INVESTMENT ACCOUNTS.—Section 6693 of such Code (re-
lating to failure to provide reports on individual retirement
account or annuities) is amended—
(1) by inserting ‘‘OR
ON
INDIVIDUAL
IN-
VESTMENT
ACCOUNTS’’ after ‘‘ANNUITIES’’ in
the heading of such section; and
(2) in subsection (a)(2), by striking ‘‘and’’ at
the end of subparagraph (A), by striking the period
at the end of subparagraph (B) and inserting ‘‘,
and’’, and by adding at the end the following new
paragraph:
‘‘(C) section 221(g) (relating to individual
investment accounts).’’
(g) ADJUSTMENT
OF BASIS
OF RESIDENCE AC-
QUIRED THROUGH USE OF ACCOUNT.—Subsection (a) of
section 1016 of such Code is amended by striking ‘‘and’’
at the end of paragraph (25), by striking the period at
the end of paragraph (26) and inserting ‘‘, and’’, and by
adding at the end thereof the following new paragraph:
‘‘(27) to the extent provided in section
221(c)(2)(C), in the case of a residence the acquisi-
tion of which was made in whole or in part with
funds from an individual investment account.’’
(h) CLERICAL AMENDMENTS.—
(1) The table of sections for part III of sub-
chapter B of chapter 1 of such Code is amended by
inserting after the item relating to section 121 the
following new item:
‘‘Sec. 121A. Exclusion of gain from sale of principal residence if
reinvestment in individual investment account.’’
(2) 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:
‘‘Sec. 221. Individual investment accounts.
‘‘Sec. 222. Cross reference.’’
(3) The table of sections for part III of sub-
chapter A of chapter 11 of such Code is amended by
striking the item relating to section 2046 and insert-
ing the following new items:
‘‘Sec. 2046. Individual investment accounts.
‘‘Sec. 2047. Disclaimers.’’
(4) 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:
‘‘Sec. 6693. Failure to provide reports on individual retirement
accounts or annuities or on individual investment
accounts; penalties relating to designated non-
deductible contributions.’’
(i) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
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