109
property shall be treated as a qualified business if
and only if substantially all of the rental of such
property is by renewal community businesses or by
residents of a renewal community.
‘‘(4) TREATMENT OF BUSINESS HOLDING IN-
TANGIBLES.—The term ‘qualified business’ shall not
include any trade or business consisting predomi-
nantly of the development or holding of intangibles
for sale or license.
‘‘(5) CERTAIN
BUSINESSES
EXCLUDED.—The
term ‘qualified business’ shall not include—
‘‘(A) any trade or business consisting of
the operation of any facility described in section
144(c)(6)(B), and
‘‘(B) any trade or business the principal
activity of which is farming (within the meaning
of subparagraph (A) or (B) of section
2032A(e)(5)), but only if, as of the close of the
preceding taxable year, the sum of—
‘‘(i) the aggregate unadjusted bases
(or, if greater, the fair market value) of
the assets owned by the taxpayer which are
used in such a trade or business, and
110
‘‘(ii) the aggregate value of assets
leased by the taxpayer which are used in
such a trade or business,
exceeds $500,000.
‘‘(6) CONTROLLED GROUPS.—For purposes of
paragraph (5)(B), all persons treated as a single em-
ployer under subsection (a) or (b) of section 52 shall
be treated as a single taxpayer.
‘‘(e) NONQUALIFIED FINANCIAL PROPERTY.—For
purposes of this section, the term ‘nonqualified financial
property’ means debt, stock, partnership interests, op-
tions, futures contracts, forward-contracts, warrants, no-
tional principal contracts, annuities, and other similar
property specified in regulations; except that such term
shall not include—
‘‘(1) reasonable amounts of working capital
held in cash, cash equivalents, or debt instruments
with a term of 18 months or less, or
‘‘(2) debt instruments described in section
1221(4).
‘‘PART III—FAMILY DEVELOPMENT ACCOUNTS
‘‘Sec. 1400H. Family development accounts.
‘‘Sec. 1400I. Demonstration program to provide matching con-
tributions to family development accounts in certain
renewal communities.
‘‘Sec. 1400J. Designation of earned income tax credit payments
for deposit to family development account.
111
‘‘SEC. 1400H. FAMILY DEVELOPMENT ACCOUNTS FOR RE-
NEWAL COMMUNITY EITC RECIPIENTS.
‘‘(a) ALLOWANCE OF DEDUCTION.—
‘‘(1) IN GENERAL.—There shall be allowed as a
deduction—
‘‘(A) in the case of a qualified individual,
the amount paid in cash for the taxable year by
such individual to any family development ac-
count for such individual’s benefit, and
‘‘(B) in the case of any person other than
a qualified individual, the amount paid in cash
for the taxable year by such person to any fam-
ily development account for the benefit of a
qualified individual.
No deduction shall be allowed under this paragraph
for any amount deposited in a family development
account under section 1400I (relating to demonstra-
tion program to provide matching amounts in re-
newal communities).
‘‘(2) LIMITATION.—
‘‘(A) IN GENERAL.—The amount allowable
as a deduction to any individual for any taxable
year by reason of paragraph (1)(A) shall not
exceed the lesser of—
‘‘(i) $2,000, or
112
‘‘(ii) an amount equal to the com-
pensation includible in the individual’s
gross income for such taxable year.
‘‘(B) PERSONS DONATING TO FAMILY DE-
VELOPMENT
ACCOUNTS
OF
OTHERS.—The
amount allowable as a deduction to any person
for any taxable year by reason of paragraph
(1)(B) shall not exceed $1,000 with respect to
any qualified individual.
‘‘(3) SPECIAL RULES FOR CERTAIN MARRIED
INDIVIDUALS.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual to whom this subparagraph applies for
the taxable year, the limitation of subparagraph
(A) of paragraph (2) shall be equal to the lesser
of—
‘‘(i) the dollar amount in effect under
paragraph (2)(A)(i) for the taxable year,
or
‘‘(ii) the sum of—
‘‘(I) the compensation includible
in such individual’s gross income for
the taxable year, plus—
‘‘(II) the compensation includible
in the gross income of such individ-
113
ual’s spouse for the taxable year re-
duced by the amount allowed as a de-
duction under paragraph (1) to such
spouse for such taxable year.
‘‘(B) INDIVIDUALS
TO
WHOM
SUBPARA-
GRAPH (A) APPLIES.—Subparagraph (A) shall
apply to any individual if—
‘‘(i) such individual files a joint return
for the taxable year, and
‘‘(ii) the amount of compensation (if
any) includible in such individual’s gross
income for the taxable year is less than the
compensation includible in the gross in-
come of such individual’s spouse for the
taxable year.
‘‘(4) ROLLOVERS.—No deduction shall be al-
lowed under this section with respect to any rollover
contribution.
‘‘(b) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) INCLUSION
OF
AMOUNTS
IN
GROSS
IN-
COME.—Except as otherwise provided in this sub-
section, any amount paid or distributed out of a
family development account shall be included in
gross income by the payee or distributee, as the case
may be.
114
‘‘(2) EXCLUSION OF QUALIFIED FAMILY DEVEL-
OPMENT DISTRIBUTIONS.—Paragraph (1) shall not
apply to any qualified family development distribu-
tion.
‘‘(3) SPECIAL
RULES.—Rules similar to the
rules of paragraphs (4) and (5) of section 408(d)
shall apply for purposes of this section.
‘‘(c) QUALIFIED FAMILY DEVELOPMENT DISTRIBU-
TION.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified family
development distribution’ means any amount paid or
distributed out of a family development account
which would otherwise be includible in gross income,
to the extent that such payment or distribution is
used exclusively to pay qualified family development
expenses for the holder of the account or the spouse
or dependent (as defined in section 152) of such
holder.
‘‘(2) QUALIFIED
FAMILY
DEVELOPMENT
EX-
PENSES.—The term ‘qualified family development
expenses’ means any of the following:
‘‘(A) Qualified postsecondary educational
expenses.
‘‘(B) First-home purchase costs.
115
‘‘(C) 
Qualified 
business 
capitalization
costs.
‘‘(D) Qualified medical expenses.
‘‘(E) Qualified rollovers.
‘‘(3) 
QUALIFIED
POSTSECONDARY
EDU-
CATIONAL EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
postsecondary 
educational 
expenses’ 
means
postsecondary educational expenses paid to an
eligible educational institution.
‘‘(B) POSTSECONDARY EDUCATIONAL EX-
PENSES.—The term ‘postsecondary educational
expenses’ means tuition, fees, room, board,
books, supplies, and equipment required for the
enrollment or attendance of a student at an eli-
gible educational institution.
‘‘(C) ELIGIBLE
EDUCATIONAL
INSTITU-
TION.—The term ‘eligible educational institu-
tion’ means the following:
‘‘(i) INSTITUTION
OF
HIGHER
EDU-
CATION.—An institution described in sec-
tion 481(a)(1) or 1201(a) of the Higher
Education 
Act 
of 
1965 
(20 
U.S.C.
1088(a)(1), 1141(a)), as such sections are
116
in effect on the date of the enactment of
this section.
‘‘(ii) POSTSECONDARY
VOCATIONAL
EDUCATION SCHOOL.—An area vocational
education school (as defined in subpara-
graph (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 en-
actment of this section.
‘‘(D) COORDINATION WITH SAVINGS BOND
PROVISIONS.—The amount of qualified post-
secondary educational expenses for any taxable
year shall be reduced by any amount excludable
from gross income under section 135.
‘‘(4) FIRST-HOME PURCHASE COSTS.—
‘‘(A) IN GENERAL.—The term ‘first-home
purchase costs’ means qualified acquisition
costs with respect to a qualified principal resi-
dence for a qualified first-time homebuyer.
‘‘(B) QUALIFIED
ACQUISITION
COSTS.—
The term ‘qualified acquisition costs’ means the
costs of acquiring, constructing, or reconstruct-
117
ing a residence. Such term includes any usual
or reasonable settlement, financing, or other
closing costs.
‘‘(C) QUALIFIED PRINCIPAL RESIDENCE.—
The term ‘qualified principal residence’ means a
principal residence (within the meaning of sec-
tion 1034), the qualified acquisition costs of
which do not exceed 100 percent of the average
area purchase price applicable to such residence
(determined in accordance with paragraphs (2)
and (3) of section 143(e)).
‘‘(D) 
QUALIFIED
FIRST-TIME
HOME-
BUYER.—
‘‘(i) IN GENERAL.—The term ‘quali-
fied first-time homebuyer’ means an indi-
vidual if such individual (and, in the case
of a married individual, the individual’s
spouse) has no present ownership interest
in a principal residence during the 3-year
period ending on the date of acquisition of
the principal residence to which this sub-
section applies.
‘‘(ii) DATE
OF
ACQUISITION.—The
term ‘date of acquisition’ means the date
on which a binding contract to acquire,
118
construct, or reconstruct the principal resi-
dence to which this subsection applies is
entered into.
‘‘(5) QUALIFIED
BUSINESS
CAPITALIZATION
COSTS.—
‘‘(A) IN
GENERAL.—The term ‘qualified
business capitalization costs’ means qualified
expenditures for the capitalization of a qualified
business pursuant to a qualified plan.
‘‘(B) 
QUALIFIED
EXPENDITURES.—The
term ‘qualified expenditures’ means expendi-
tures included in a qualified plan, including
capital, plant, equipment, working capital, and
inventory expenses.
‘‘(C) QUALIFIED
BUSINESS.—The term
‘qualified business’ means any business that
does not contravene any law or public policy (as
determined by the Secretary).
‘‘(D) QUALIFIED PLAN.—The term ‘quali-
fied plan’ means a business plan which—
‘‘(i) is approved by a financial institu-
tion, or by a nonprofit loan fund having
demonstrated fiduciary integrity,
119
‘‘(ii) includes a description of services
or goods to be sold, a marketing plan, and
projected financial statements, and
‘‘(iii) may require the eligible individ-
ual to obtain the assistance of an experi-
enced entrepreneurial advisor.
‘‘(6) QUALIFIED
MEDICAL
EXPENSES.—The
term ‘qualified medical expenses’ means any amount
paid during the taxable year, not compensated for by
insurance or otherwise, for medical care (as defined
in section 213(d)) of the taxpayer, his spouse, or his
dependent (as defined in section 152).
‘‘(7) QUALIFIED ROLLOVERS.—The term ‘quali-
fied rollover’ means any amount paid from a family
development account of a taxpayer into another such
account established for the benefit of—
‘‘(A) such taxpayer, or
‘‘(B) any qualified individual who is—
‘‘(i) the spouse of such taxpayer, or
‘‘(ii) any dependent (as defined in sec-
tion 152) of the taxpayer. Rules similar to
the rules of section 408(d)(3) shall apply
for purposes of this paragraph.
‘‘(d) TAX TREATMENT OF ACCOUNTS.—
120
‘‘(1) IN GENERAL.—Any family development ac-
count is exempt from taxation under this subtitle
unless such account has ceased to be a family devel-
opment account by reason of paragraph (2). Not-
withstanding the preceding sentence, any such ac-
count is subject to the taxes imposed by section 511
(relating to imposition of tax on unrelated business
income of charitable, etc., organizations).
‘‘(2) LOSS OF EXEMPTION IN CASE OF PROHIB-
ITED TRANSACTIONS.—For purposes of this section,
rules similar to the rules of section 408(e) shall
apply.
‘‘(e) FAMILY DEVELOPMENT ACCOUNT.—For pur-
poses of this title, the term ‘family development account’
means a trust created or organized in the United States
for the exclusive benefit of a qualified individual or his
beneficiaries, but only if the written governing instrument
creating the trust meets the following requirements:
‘‘(1) Except in the case of a qualified rollover
(as defined in subsection (c)(7))—
‘‘(A) no contribution will be accepted un-
less it is in cash, and
‘‘(B) contributions will not be accepted for
the taxable year in excess of $2,000 (deter-
mined without regard to any contribution made
121
under section 1400I (relating to demonstration
program to provide matching amounts in re-
newal communities)).
‘‘(2) The trustee is a bank (as defined in sec-
tion 408(n)) or such other person who demonstrates
to the satisfaction of the Secretary that the manner
in which such other person will administer the trust
will be consistent with the requirements of this sec-
tion.
‘‘(3) No part of the trust funds will be invested
in life insurance contracts.
‘‘(4) The interest of an individual in the bal-
ance in his account is nonforfeitable.
‘‘(5) The assets of the trust will not be commin-
gled with other property except in a common trust
fund or common investment fund.
‘‘(6) Under regulations prescribed by the Sec-
retary, rules similar to the rules of section 401(a)(9)
and the incidental death benefit requirements of sec-
tion 401(a) shall apply to the distribution of the en-
tire interest of an individual for whose benefit the
trust is maintained.
‘‘(f) QUALIFIED INDIVIDUAL.—For purposes of this
section, the term ‘qualified individual’ means, for any tax-
able year, an individual—
122
‘‘(1) who is a bona fide resident of a renewal
community throughout the taxable year, and
‘‘(2) to whom a credit was allowed under sec-
tion 32 for the preceding taxable year.
‘‘(g) OTHER DEFINITIONS AND SPECIAL RULES.—
‘‘(1) COMPENSATION.—The term ‘compensa-
tion’ has the meaning given such term by section
219(f)(1).
‘‘(2) MARRIED
INDIVIDUALS.—The maximum
deduction under subsection (a) shall be computed
separately for each individual, and this section shall
be applied without regard to any community prop-
erty laws.
‘‘(3) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—For purposes of this section, a taxpayer
shall be deemed to have made a contribution to a
family development account 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 taxable year (not including extensions
thereof).
‘‘(4) EMPLOYER PAYMENTS.—For purposes of
this title, any amount paid by an employer to a fam-
ily development account shall be treated as payment
123
of compensation to the employee (other than a self-
employed individual who is an employee within the
meaning of section 401(c)(1)) includible in his gross
income in the taxable year for which the amount was
contributed, whether or not a deduction for such
payment is allowable under this section to the em-
ployee.
‘‘(5) ZERO BASIS.—The basis of an individual
in any family development account of such individual
shall be zero.
‘‘(6) 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 per-
son who demonstrates, to the satisfaction of the Sec-
retary, that the manner in which such person will
administer the account will be consistent with the re-
quirements of this section, and if the custodial ac-
count would, except for the fact that it is not a
trust, constitute a family development account de-
scribed in this section. 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.
124
‘‘(7) REPORTS.—The trustee of a family devel-
opment account shall make such reports regarding
such account to the Secretary and to the individual
for whom the account is maintained with respect to
contributions (and the years to which they relate),
distributions, and such other matters as the Sec-
retary may require under regulations. The reports
required by this paragraph—
‘‘(A) shall be filed at such time and in
such manner as the Secretary prescribes in
such regulations, and
‘‘(B) shall be furnished to individuals—
‘‘(i) not later than January 31 of the
calendar year following the calendar year
to which such reports relate, and
‘‘(ii) in such manner as the Secretary
prescribes in such regulations.
‘‘(8) INVESTMENT IN COLLECTIBLES TREATED
AS DISTRIBUTIONS.—Rules similar to the rules of
section 408(m) shall apply for purposes of this sec-
tion.
‘‘(h) PENALTY FOR DISTRIBUTIONS NOT USED FOR
QUALIFIED FAMILY DEVELOPMENT EXPENSES.—
‘‘(1) IN GENERAL.—If any amount is distrib-
uted from a family development account and is not