I
107TH CONGRESS
1ST SESSION
H. R. 2260
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
JUNE 20, 2001
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 2001’’.
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 222 as section 223 and by insert-
ing after section 221 the following new section:
‘‘SEC. 222. 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 first-time homebuyer
distribution.
‘‘(2) QUALIFIED FIRST-TIME HOMEBUYER DIS-
TRIBUTION.—For purposes of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
first-time homebuyer distribution’ has the
meaning given to such term by section 72(t)(8).
‘‘(B) DOLLAR
LIMITATION.—The aggre-
gate amount which may be treated as qualified
first-time homebuyer distributions for all tax-
able 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 first-time homebuyer distribution.
‘‘(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 2001, the
$15,000 amount contained in subsection (c)(2)(B)
shall be increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar
year in which the taxable year begins by sub-
stituting ‘calendar year 2000’ for ‘calendar year
1992’ in subparagraph (B) thereof.
‘‘(2) ROUNDING.—If any dollar amount (as in-
creased under paragraph (1)) is not a multiple of
$10, such dollar amount shall be increased to near-
est multiple of $10.
‘‘(f) 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 investment account described in
subsection (b). 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.
‘‘(g) REPORTS.—The trustee of an individual invest-
ment account shall make such reports regarding such ac-
count to the Secretary and to the individual for whose ben-
efit the account is maintained with respect to contribu-
tions, distributions, and such other matters as the Sec-
retary may require under regulations. The reports re-
quired 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 reg-
ulations.’’
(b) DEDUCTION ALLOWED
IN ARRIVING
AT AD-
JUSTED GROSS INCOME.—Subsection (a) of section 62 of
such Code (defining adjusted gross income) is amended
by inserting after paragraph (17) the following new para-
graph:
‘‘(18) INDIVIDUAL INVESTMENT ACCOUNT CON-
TRIBUTIONS.—The deduction allowed by section 222
(relating to individual investment accounts).’’
(c) INDIVIDUAL INVESTMENT ACCOUNTS EXEMPT
FROM ESTATE TAX.—Part III of subchapter A of chapter
11 of such Code is amended by redesignating section 2046
as section 2047 and by inserting after section 2045 the
following new section:
‘‘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 222(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 
INDI-
VIDUAL 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
2 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 222(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
(f) FAILURE TO PROVIDE REPORTS ON INDIVIDUAL
INVESTMENT
ACCOUNTS.—Paragraph (2) of section
6693(a) of such Code is amended by redesignating sub-
paragraphs (C) and (D) as subparagraphs (D) and (E),
respectively, and by inserting after subparagraph (B) the
following new subparagraph:
‘‘(C) section 222(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 (26), by striking the period at
the end of paragraph (27) and inserting ‘‘, and’’, and by
adding at the end thereof the following new paragraph:
‘‘(28) to the extent provided in section
222(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 222 and insert-
ing the following:
‘‘Sec. 222. Individual investment accounts.
‘‘Sec. 223. 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.’’
(i) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2000.
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