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 (16) the following new para-
graph:
‘‘(17) INDIVIDUAL TRAINING ACCOUNTS.—The
deduction allowed by section 221 (relating to individ-
ual training accounts).’’
(c) TAX ON EXCESS CONTRIBUTIONS.—
(1) Subsection (a) of 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 by striking ‘‘or’’ at the end of paragraph
(2), by redesignating paragraph (3) as paragraph
(4), and by inserting after paragraph (2) the follow-
ing new paragraph:
‘‘(3) an individual training account (within the
meaning of section 221(c)(1)), or’’.’’
(2) Section 4973 of such Code is amended by
adding at the end the following new subsection:
‘‘(e) 
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 221
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
221(d)(2) applies shall be treated as an amount not con-
tributed.’’
(3) The section heading for section 4973 of
such Code is amended to read as follows:
‘‘SEC. 4973. TAX ON EXCESS CONTRIBUTIONS TO CERTAIN
RETIREMENT ACCOUNTS, ETC.’’
(d) TAX ON PROHIBITED TRANSACTIONS.—
(1) Paragraph (1) of section 4975(e) of such
Code (relating to prohibited transactions) is amend-
ed by striking ‘‘or’’ at the end of subparagraph (D),
by redesignating subparagraph (E) as subparagraph
(F), and by inserting after subparagraph (D) the
following new subparagraph:
‘‘(E) an individual training account de-
scribed in section 221(c)(1), or’’.
(2) Subsection (c) of section 4975 of such Code
is amended by adding at the end the following new
paragraph:
‘‘(5) 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 221(e)(2)(A) to
such account.’’
(e) FAILURE TO PROVIDE REPORTS ON INDIVIDUAL
TRAINING ACCOUNTS.—
(1) Paragraph (2) of section 6693(a) of such
Code (relating to failure to provide reports) is
amended by striking ‘‘and’’ at the end of subpara-
graph (A), by striking the period at the end of sub-
paragraph (B) and inserting ‘‘, and’’, and by adding
at the end the following new subparagraph:
‘‘(C) section 221(i) (relating to individual
training accounts).’’
(2) The section heading for section 6693 of
such Code is amended to read as follows:
‘‘SEC. 6693. FAILURE TO PROVIDE REPORTS ON CERTAIN
RETIREMENT ACCOUNTS, ETC.’’
(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 221 and insert-
ing the following new items:
‘‘Sec. 221. Individual training accounts.
‘‘Sec. 222. 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 certain retirement ac-
counts, etc.’’
(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 certain retirement ac-
counts, etc.’’
(g) EFFECTIVE DATE.—The amendments made by
this section shall apply to contributions made for taxable
years beginning after December 31, 1997.
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