[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[S. 1212 Introduced in Senate (IS)]







104th CONGRESS
  1st Session
                                S. 1212

To provide for the establishment of demonstration projects designed to 
  determine the social, civic, psychological, and economic effects of 
providing to individuals and families with limited means an opportunity 
  to accumulate assets, and to determine the extent to which an asset-
  based welfare policy may be used to enable individuals and families 
         with low income to achieve economic self-sufficiency.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

            September 6 (legislative day, September 5), 1995

Mr. Coats (for himself and Ms. Moseley-Braun) introduced the following 
  bill; which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To provide for the establishment of demonstration projects designed to 
  determine the social, civic, psychological, and economic effects of 
providing to individuals and families with limited means an opportunity 
  to accumulate assets, and to determine the extent to which an asset-
  based welfare policy may be used to enable individuals and families 
         with low income to achieve economic self-sufficiency.
    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION. 1. SHORT TITLE.

    This Act may be cited as the ``Assets for Independence Act''.

SEC. 2. FINDINGS.

    The Congress finds that--
            (1) traditional welfare programs in the United States have 
        provided millions of low-income persons with critically needed 
        food, health, and cash benefits, and such programs should be 
        improved and continued;
            (2) while such programs have sustained millions of low-
        income persons, too rarely have such programs been successful 
        in promoting and supporting the transition to economic self-
        sufficiency;
            (3) millions of Americans continue to live in poverty and 
        continue to receive public assistance;
            (4) in addition to the social costs of poverty, the 
        economic costs to the Federal Government to provide basic 
        necessities to the poor exceeds $120,000,000,000 each year;
            (5) poverty is a loss of human resources and an assault on 
        human dignity;
            (6) poverty rates remain high and welfare dependency 
        continues, in part, because welfare theory has taken for 
        granted that a certain level of income or consumption is 
        necessary for one's economic well-being when, in fact, very few 
        people manage to spend or consume their way out of poverty;
            (7) economic well-being does not come solely from income, 
        spending, and consumption, but also requires savings, 
        investment, and accumulation of assets, since assets can 
        improve economic stability, connect people with a viable and 
        hopeful future, stimulate development of human and other 
        capital, enable people to focus and specialize, yield personal, 
        social, and political dividends, and enhance the welfare of 
        offspring;
            (8) income-based welfare policy should be complemented with 
        asset-based welfare policy, because while income-based policies 
        ensure that present consumption needs (including food, child 
        care, rent, clothing, and health care) are met, asset-based 
        policies provide the means to achieve economic self-sufficiency 
        and, accordingly, to leave public assistance;
            (9) there is reason to believe that the financial returns, 
        including increased income, tax revenue, and decreased welfare 
        cash assistance, of individual development accounts will far 
        exceed the cost of the investment;
            (10) the Federal Government spends more than 
        $160,000,000,000 each year to provide middle- and upper-income 
        persons with incentives to accumulate savings and assets 
        (including tax subsidies for home equity accumulation and 
        retirement pension accounts), but such benefits are beyond the 
        reach of most low-income persons;
            (11) under current welfare policies, poor families must 
        deplete most of their assets before qualifying for public 
        assistance;
            (12) the Federal Government should develop policies that 
        promote higher rates of personal savings and net private 
        domestic investment, both of which fall behind the levels 
        attained in other highly developed industrial nations; and
            (13) the Federal Government should undertake an asset-based 
        welfare policy demonstration project to determine the social, 
        civic, psychological, and economic effects of asset 
        accumulation opportunities for low-income persons, families, 
        and communities, and to determine if such a policy could 
        provide a new foundation for antipoverty policies and programs 
        in the United States.

SEC. 3. INDIVIDUAL DEVELOPMENT ACCOUNT DEMONSTRATION PROJECTS.

    (a) Purpose.--The purpose of this section is to provide for the 
establishment of demonstration projects designed to determine--
            (1) the social, civic, psychological, and economic effects 
        of providing to individuals and families with limited means an 
        incentive to accumulate assets;
            (2) the extent to which an asset-based welfare policy that 
        promotes saving for education, homeownership, and 
        microenterprise may be used to enable individuals and families 
        with low income to achieve economic self-sufficiency; and
            (3) the extent to which an asset-based welfare policy 
        improves the community in which participating individuals and 
        families live.
    (b) Applications.--
            (1) Submission.--
                    (A) In general.--Not later than 12 months after the 
                date of the enactment of this Act, a qualified entity 
                may submit to the Secretary an application to conduct a 
                demonstration project under this section.
                    (B) Qualified entity.--For purposes of this Act, 
                the term ``qualified entity'' means either--
                            (i) a not-for-profit organization described 
                        in section 501(c)(3) of the Internal Revenue 
                        Code of 1986 and exempt from taxation under 
                        section 501(a) of such Code; or
                            (ii) a State or local government agency 
                        submitting an application under such 
                        subparagraph jointly with an organization 
                        described in clause (i).
            (2) Criteria.--In considering whether to approve any 
        application to conduct a demonstration project under this 
        section, the Secretary shall assess the following:
                    (A) Sufficiency of project.--The degree to which 
                the project described in the application appears likely 
                to aid project participants in achieving economic self-
                sufficiency through activities requiring qualified 
                expenses (as defined in section 529(c)(1) of the 
                Internal Revenue Code of 1986, as added by section 4 of 
                this Act). In making such assessment, the Secretary 
                shall consider the overall quality of project 
                activities in making any particular kind or combination 
                of qualified expenses (as so defined) to be an 
                essential feature of any project.
                    (B) Administrative ability.--The ability of the 
                applicant to responsibly administer the project.
                    (C) Ability to assist participants.--The ability of 
                the applicant to assist project participants to achieve 
                economic self-sufficiency through the development of 
                assets.
                    (D) Commitment of non-federal funds.--The aggregate 
                amount of direct funds from non-Federal public sector 
                and private sources that are formally committed to the 
                project.
                    (E) Adequacy of plan for providing information for 
                evaluation.--The adequacy of the plan for providing 
                information relevant to an evaluation of the project.
                    (F) Other factors.--Such other factors as the 
                Secretary may specify.
            (3) Preferences.--In considering an application to conduct 
        a demonstration project under this section, the Secretary shall 
        give preference to any application that--
                    (A) demonstrates the willingness and ability to 
                select individuals described in subsection (e) who are 
                predominantly from households in which a child (or 
                children) is living with the child's biological or 
                adoptive mother or father, legal guardian, or a 
                responsible adult relative with whom the child 
                regularly resides;
                    (B) provides a commitment of non-Federal funds with 
                a proportionately greater amount of funds committed by 
                private sector sources; and
                    (C) targets such individuals residing within 1 or 
                more relatively well-defined communities or 
                neighborhoods that experience low rates of income or 
                employment.
            (4) Approval.--Not later than 15 months after the date of 
        the enactment of this Act, the Secretary shall, on a 
        competitive basis, approve such applications to conduct 
        demonstration projects under this section as the Secretary 
        deems appropriate, taking into account the assessments required 
        by paragraphs (2) and (3). The Secretary is encouraged to 
        ensure that the applications that are approved involve a wide 
        range of communities (both rural and urban) and diverse 
        populations.
    (c) Demonstration Authority; Annual Grants.--
            (1) Demonstration authority.--If the Secretary approves an 
        application to conduct a demonstration project under this 
        section, the Secretary shall, not later than 16 months after 
        the date of the
         enactment of this Act, authorize the applicant to conduct the 
project for 4 project years in accordance with the approved application 
and this section.
            (2) Grant authority.--For each project year of a 
        demonstration project conducted under this section, the 
        Secretary shall make a grant to the qualified entity authorized 
        to conduct the project on the first day of the project year in 
        an amount not to exceed the greater of--
                    (A) the aggregate amount of funds committed by non-
                Federal sources; or
                    (B) $1,000,000.
            (3) Limitation on grant amounts per project.--The amount of 
        each grant for a project approved under this section shall not 
        exceed $10,000,000.
    (d) Reserve Fund.--
            (1) Establishment.--Each qualified entity grantee under 
        this section shall establish a Reserve Fund which shall be 
        maintained in accordance with this subsection.
            (2) Amounts in reserve fund.--
                    (A) In general.--As soon after receipt as is 
                practicable, a qualified entity grantee shall deposit 
                in the Reserve Fund established under paragraph (1)--
                            (i) all funds provided to the qualified 
                        entity grantee by any public or private source 
                        in connection with the demonstration project; 
                        and
                            (ii) the proceeds from any investment made 
                        under paragraph (3)(B).
                    (B) Individual development account penalties.--
                            (i) Penalty amounts authorized to be 
                        appropriated for payment to the reserve fund.--
                        With respect to the Reserve Fund established by 
                        a qualified entity grantee that provides 
                        financial assistance under subsection (g) to 
                        any individual who pays, or from whose 
                        individual development account is paid, a 
                        penalty amount, there is hereby appropriated to 
                        the Reserve Fund, without fiscal year 
                        limitation, an amount equal to such penalty 
                        amount.
                            (ii) Payment to reserve fund of penalty 
                        amounts appropriated therefore.--The Secretary 
                        shall make quarterly estimated payments to the 
                        Reserve Fund of any penalty amount appropriated 
                        pursuant to clause (i).
                    (C) Uniform accounting regulations.--The Secretary 
                shall prescribe regulations with respect to accounting 
                for amounts in Reserve Funds.
            (3) Use of reserve fund.--
                    (A) In general.--A qualified entity grantee shall 
                use the amounts in the Reserve Fund established under 
                paragraph (1) to--
                            (i) assist participants in the 
                        demonstration project in obtaining the skills 
                        and information necessary to achieve economic 
                        self-sufficiency through activities requiring 
                        qualified expenses (as so defined);
                            (ii) provide financial assistance in 
                        accordance with subsection (g) to individuals 
                        selected by the qualified entity grantee to 
                        participate in the project;
                            (iii) administer the project; and
                            (iv) provide the research organization 
                        evaluating the project under subsection (k) 
                        with such information with respect to the 
                        project as may be required for the evaluation.
                    (B) Authority to invest funds.--
                            (i) Guidelines.--The Secretary shall 
                        establish guidelines for investing amounts in 
                        Reserve Funds in a manner that provides high 
                        liquidity and low risk.
                            (ii) Investment.--A qualified entity 
                        grantee shall invest the amounts in its Reserve 
                        Fund that are not immediately needed to carry 
                        out the provisions of subparagraph (A), in 
                        accordance with guidelines established under 
                        clause (i).
                    (C) Limitation on uses.--Not more than 7.5 percent 
                of the amounts provided to a qualified entity grantee 
                under subsection (c)(2) shall be used by the qualified 
                entity grantee for the purposes described in clauses 
                (i), (iii), and (iv) of paragraph (3)(A), except that 
                if 2 or more qualified entities are jointly 
                administering a project, no qualified entity grantee 
                shall use more than its proportional share for such 
                purposes.
            (4) Unused federal grant funds transferred to the secretary 
        when project terminates.--Notwithstanding paragraph (3), upon 
        the termination of any demonstration project authorized under 
        this section, the qualified entity grantee conducting the 
        project shall transfer to the Secretary an amount equal to--
                    (A) the amounts in its Reserve Fund at time of the 
                termination; multiplied by
                    (B) a percentage equal to--
                            (i) the aggregate amount of grants made to 
                        the qualified entity grantee under subsection 
                        (c)(2); divided by
                            (ii) the aggregate amount of all moneys 
                        provided to the qualified entity grantee by all 
                        sources to conduct the project.
    (e) Eligibility for Assistance.--
            (1) In general.--Any individual who is a member of a 
        household that meets the following requirements shall be 
        eligible for assistance under a demonstration project conducted 
        under this section:
                    (A) Income test.--The adjusted gross income of the 
                household did not exceed the income limits established 
                under section 32(b)(2) of the Internal Revenue Code of 
                1986.
                    (B) Net worth test.--
                            (i) In general.--The net worth of the 
                        household, as of the close of the calendar year 
                        preceding the determination of eligibility, 
                        does not exceed $20,000.
                            (ii) Determination of net worth.--For 
                        purposes of clause (i), the net worth of a 
                        household is the amount equal to--
                                    (I) the aggregate market value of 
                                all assets that are owned in whole or 
                                in part by any member of the household, 
                                minus
                                    (II) the obligations or debts of 
                                any member of the household.
            (2) Individuals unable to complete the project.--The 
        Secretary shall establish such regulations as are necessary, 
        including prohibiting eligibility for further assistance under 
        a demonstration project conducted under this section, to ensure 
        compliance with this section if an individual participating in 
        the demonstration project moves from the community in which the 
        project is conducted or is otherwise unable to continue 
        participating in the project.
    (f) Selection of Individuals To Receive Assistance.--From among the 
individuals eligible for assistance under a demonstration project 
conducted under this section, each qualified entity grantee shall 
select the individuals--
            (1) whom the qualified entity grantee deems to be best 
        suited to receive such assistance; and
            (2) to whom the qualified entity grantee will provide 
        financial assistance in accordance with subsection (g).
    (g) Provision of Financial Assistance.--
            (1) In general.--Not less than once a month during each 
        project year, each qualified entity grantee under this section 
        shall deposit in the individual development account of each 
        individual participating in the project an amount--
                    (A) from the grant made under subsection (c)(2), 
                equal to the amount of earned income (as defined in 
                section 911(d)(2) of the Internal Revenue Code of 1986) 
                deposited during the month by the individual in the 
                individual's development account, and
                    (B) from the non-Federal funds described in 
                subsection (b)(2)(D), equal to the amount described in 
                subparagraph (A).
            (2) Limitation on financial assistance to individual.--Not 
        more than $2,000 from a grant made under subsection (c)(2) 
        shall be provided to any 1 individual.
            (3) Limitation on financial assistance to household.--Not 
        more than $4,000 from a grant made under subsection (c)(2) 
        shall be provided to any 1 household.
            (4) Withdrawal of funds.--The Secretary shall establish 
        such regulations as may be necessary to ensure that funds held 
        in an individual development account are not withdrawn except 
        for 1 or more of the qualified expenses specified in section 
        529(c)(1) of the Internal Revenue Code of 1986 (as added by 
        section 4 of this Act). Such regulations shall include a 
        requirement that a responsible official of the qualified entity 
        grantee conducting a project approve such withdrawal in 
        writing.
    (h) Local Control Over Demonstration Projects.--Each qualified 
entity grantee under this section shall, subject to the provisions of 
subsection (j), have sole authority over the administration of the 
project. The Secretary may prescribe only such regulations with respect 
to demonstration projects under this section as are necessary to ensure 
compliance with the approved applications and this section.
    (i) Semiannual Progress Reports.--
            (1) In general.--Each qualified entity grantee under this 
        section shall prepare semiannual reports on the progress of the 
        project. Each report shall specify for the semiannual period 
        covered by the report the following information:
                    (A) The number of individuals making a deposit into 
                an individual development account.
                    (B) Information on the amounts in the Reserve Fund 
                established with respect to the project.
                    (C) The amounts deposited in the individual 
                development accounts.
                    (D) The amounts withdrawn from the individual 
                development accounts and the purposes for which such 
                amounts were withdrawn.
                    (E) The balances remaining in the individual 
                development accounts.
                    (F) Such other information as the Secretary may 
                require to evaluate the project.
            (2) Submission of reports.--The qualified entity grantee 
        shall submit each report required to be prepared under 
        paragraph (1) to--
                    (A) the Secretary; and
                    (B) the Treasurer (or equivalent official) of the 
                State in which the project is conducted, if the State 
                or local government committed funds to the 
                demonstration project.
            (3) Timing.--The first report required by paragraph (1) 
        shall be submitted at the end of the 7-month period beginning 
        on the date the Secretary authorized the qualified entity 
        grantee to conduct the demonstration project, and subsequent 
        reports shall be submitted every 6 months thereafter, until the 
        conclusion of the project.
    (j) Sanctions.--
            (1) Authority to terminate demonstration project.--If the 
        Secretary determines that a qualified entity grantee under this 
        section is not operating the project in accordance with the 
        grantee's application or this section (and has not implemented 
        any corrective recommendations directed by the Secretary), the 
        Secretary shall terminate such grantee's authority to conduct 
        the project.
            (2) Actions required upon termination.--If the Secretary 
        terminates the authority to conduct a demonstration project, 
        the Secretary--
                    (A) shall suspend the project;
                    (B) shall take control of the Reserve Fund 
                established pursuant to subsection (d);
                    (C) shall make every effort to identify another 
                qualified entity willing and able to conduct the 
                project in accordance with the approved application 
                (or, as modified, if necessary to incorporate the 
                recommendations) and this section;
                    (D) shall, if the Secretary identifies such an 
                entity--
                            (i) authorize the entity to conduct the 
                        project in accordance with the approved 
                        application (or, as modified, if necessary, to 
                        incorporate the recommendations) and this 
                        section;
                            (ii) transfer to the entity control over 
                        the Reserve Fund established pursuant to 
                        subsection (d); and
                            (iii) consider, for purposes of this 
                        section--
                                    (I) such other entity to be the 
                                qualified entity originally authorized 
                                to conduct the project; and
                                    (II) the date of such authorization 
                                to be the date of the original 
                                authorization; and
                    (E) if, by the end of the 1-year period beginning 
                on the date of the termination, the Secretary has not 
                found such a qualified entity, shall--
                            (i) terminate the project; and
                            (ii) from the amount remaining in the 
                        Reserve Fund established as part of the 
                        project, remit to each source that provided 
                        funds under subsection (b)(2)(D) to the entity 
                        originally authorized to conduct the project, 
                        an amount that bears the same ratio to the 
                        amount so remaining as the amount provided by 
                        the source under subsection (b)(2)(D) bears to 
                        the amount provided by all such sources under 
                        subsection (b)(2)(D).
    (k) Evaluations.--
            (1) In general.--Not later than 16 months after the date of 
        the enactment of this Act, the Secretary shall enter into a 
        contract with an independent research organization to evaluate, 
        individually and as a group, all qualified entities and sources 
        participating in the demonstration projects conducted under 
        this section.
            (2) Factors to evaluate.--In evaluating any demonstration 
        project conducted under this section, the research organization 
        shall address the following factors:
                    (A) The savings account characteristics (such as 
                threshold amounts and match rates) required to 
                stimulate participation in the demonstration project, 
                and how such characteristics vary among different 
                populations or communities.
                    (B) What service configurations of the qualified 
                entity grantee (such as peer support, structured 
                planning exercises, mentoring, and case management) 
                increase the rate and consistency of participation in 
                the demonstration project and how such configurations 
                vary among different populations or communities.
                    (C) The economic, civic, psychological, and social 
                effects of asset accumulation, and how such effects 
                vary among different populations or communities.
                    (D) The effects of individual development accounts 
                on savings rates, homeownership, level
                 of education attained, and self-employment, and how 
such effects vary among different populations or communities.
                    (E) The potential financial returns to the Federal 
                Government and to other public sector and private 
                sector investors in individual development accounts 
                over a 5-year and 10-year period of time.
                    (F) The lessons to be learned from the 
                demonstration projects conducted under this section and 
                if a permanent program of individual development 
                accounts should be established.
                    (G) Such other factors as may be prescribed by the 
                Secretary.
            (3) Methodological requirements.--In evaluating any 
        demonstration project conducted under this section, the 
        research organization shall--
                    (A) to the extent possible, use control groups to 
                compare participants with nonparticipants;
                    (B) before, during, and after the project, obtain 
                such quantitative data as are necessary to evaluate the 
                project thoroughly; and
                    (C) develop a qualitative assessment, derived from 
                sources such as in-depth interviews, of how asset 
                accumulation affects individuals and families.
            (4) Reports by the secretary.--
                    (A) Interim reports.--Not less than once during the 
                12-month period beginning on the date of the enactment 
                of this Act, and during each 12-month period thereafter 
                until all demonstration projects conducted under this 
                section are completed, the Secretary shall submit to 
                the Congress an interim report setting forth the 
                results of the evaluations conducted pursuant to this 
                subsection.
                    (B) Final reports.--Not later than 12 months after 
                the conclusion of all demonstration projects conducted 
                under this section, the Secretary shall submit to the 
                Congress a final report setting forth the results and 
                findings of evaluations conducted pursuant to this 
                subsection.
            (5) Evaluation expenses.--The Secretary shall expend such 
        sums as may be necessary to carry out the purposes of this 
        subsection.
    (l) Definitions.--As used in this section:
            (1) Applicable period.--The term ``applicable period'' 
        means, with respect to amounts to be paid from a grant made for 
        a project year, the calendar year immediately preceding the 
        calendar year in which the grant is made.
            (2) Household.--The term ``household'' means all 
        individuals who share use of a dwelling unit as primary 
        quarters for living and eating separate from other individuals.
            (3) Individual development account.--The term ``individual 
        development account'' has the same meaning given such term in 
        section 529 of the Internal Revenue Code of 1986, as added by 
        section 4 of this Act.
            (4) Penalty amount.--The term ``penalty amount'' means any 
        of the following:
                    (A) Financial assistance forfeited.--Any amount 
                paid into the general fund of the Treasury of the 
                United States under section 529(e) of the Internal 
                Revenue Code of 1986 (as so added).
                    (B) 10 percent addition to tax.--Any additional tax 
                imposed by section 529(f) of the Internal Revenue Code 
                of 1986 (as so added).
                    (C) Other excise or penalty taxes.--Any tax imposed 
                with respect to an individual development account by 
                section 4973, 4975, or 6693 of the Internal Revenue 
                Code of 1986.
            (5) Project year.--The term ``project year'' means, with 
        respect to a demonstration project, any of the 4 consecutive 
        12-month periods beginning on the date the project is 
        originally authorized to be conducted.
            (6) Qualified savings of the individual for the period.--
        The term ``qualified savings of the individual for the period'' 
        means the aggregate of the amounts contributed by the 
        individual to the individual development account of the 
        individual during the period.
            (7) Secretary.--The term ``Secretary'' means the Secretary 
        of Health and Human Services.
    (m) Authorization of Appropriations.--To carry out this section, 
the following amounts are authorized to be appropriated:
            (1) $20,000,000 for fiscal year 1996.
            (2) $30,000,000 for fiscal year 1997.
            (3) $30,000,000 for fiscal year 1998.
            (4) $20,000,000 for fiscal year 1999.

SEC. 4. INDIVIDUAL DEVELOPMENT ACCOUNTS.

    (a) In General.--Subchapter F of chapter 1 of the Internal Revenue 
Code of 1986 (relating to exempt organizations) is amended by adding at 
the end the following new part:

              ``PART VIII--INDIVIDUAL DEVELOPMENT ACCOUNTS
``Sec. 529. Individual development accounts.
``SEC. 529. INDIVIDUAL DEVELOPMENT ACCOUNTS.

    ``(a) Establishment of Accounts.--
            ``(1) In general.--An individual development account may be 
        established by or on behalf of an eligible individual for the 
        purpose of accumulating funds to pay the qualified expenses of 
        such individual.
            ``(2) Eligible individual.--
                    ``(A) In general.--The term `eligible individual' 
                means an individual for whom assistance is (or at any 
                prior time was) provided by a qualified entity grantee 
                under section 3(g) of the Assets for Independence Act.
                    ``(B) Qualified entity.--The term `qualified 
                entity' has the meaning given such term by section 
                3(b)(1)(B) of such Act.
    ``(b) Limitations.--
            ``(1) Account to benefit 1 individual.--An individual 
        development account may not be established for the benefit of 
        more than 1 individual.
            ``(2) Multiple accounts.--If, at any time during a calendar 
        year, 2 or more individual development accounts are maintained 
        for the benefit of an eligible individual, such individual 
        shall be treated as an eligible individual for the calendar 
        year only with respect to the 1st of such accounts.
            ``(3) Annual limit.--Contributions to an individual 
        development account for any taxable year shall not exceed 
        $2,000. No contribution to the account under section 3(g) of 
        the Assets for Independence Act shall be taken into account for 
        purposes of this paragraph.
            ``(4) Contributions to be from earned income.--An eligible 
        individual may only contribute to an account such amounts as 
        are derived from earned income, as defined in section 
        911(d)(2).
    ``(c) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualified expenses.--The term `qualified expenses' 
        means 1 or more of the following, as provided by the qualified 
        entity providing assistance to the individual under section 
        3(g) of the Assets for Independence Act:
                    ``(A) Postsecondary educational expenses.--
                Postsecondary educational expenses paid from an 
                individual development account directly to an eligible 
                educational institution. For purposes of this 
                subparagraph--
                            ``(i) In general.--The term `post-secondary 
                        educational expenses' means--
                                    ``(I) tuition and fees required for 
                                the enrollment or attendance of a 
                                student at an eligible educational 
                                institution, and
                                    ``(II) fees, books, supplies, and 
                                equipment required for courses of 
                                instruction at an eligible educational 
                                institution.
                            ``(ii) Eligible educational institution.--
                        The term `eligible educational institution' 
                        means the following:
                                    ``(I) Institution of higher 
                                education.--An institution described in 
                                section 481(a)(1) or 1201(a) of the 
                                Higher Education Act of 1965 (20 U.S.C. 
                                1088(a)(1) or 1141(a)), as such 
                                sections are in effect on the date of 
                                the enactment of this section.
                                    ``(II) Postsecondary vocational 
                                education school.--An area vocational 
                                education school (as defined in 
                                subparagraph (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 enactment of this section.
                    ``(B) First-home purchase.--Qualified acquisition 
                costs with respect to a qualified principal residence 
                for a qualified first-time homebuyer, if paid from an 
                individual development account directly to the persons 
                to whom the amounts are due. For purposes of this 
                subparagraph--
                            ``(i) Qualified acquisition costs.--The 
                        term `qualified acquisition costs' means the 
                        costs of acquiring, constructing, or 
                        reconstructing a residence. The term includes 
                        any usual or reasonable settlement, financing, 
                        or other closing costs.
                            ``(ii) Qualified principal residence.--The 
                        term `qualified principal residence' means a 
                        principal residence (within the meaning of 
                        section 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)).
                            ``(iii) Qualified first-time homebuyer.--
                                    ``(I) In general.--The term 
                                `qualified first-time homebuyer' means 
                                a taxpayer (and, if married, the 
                                taxpayer's spouse) who 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 
                                subparagraph applies.
                                    ``(II) Date of acquisition.--The 
                                term `date of acquisition' means the 
                                date on which a binding contract to 
                                acquire, construct, or reconstruct the 
                                principal residence to which this 
                                subparagraph applies is entered into.
                    ``(C) Business capitalization.--Amounts paid from 
                an individual development account directly to a 
                business capitalization account which is established in 
                a federally insured financial institution and is 
                restricted to use solely for qualified business 
                capitalization expenses. For purposes of this 
                subparagraph--
                            ``(i) Qualified business capitalization 
                        expenses.--The term `qualified business 
                        capitalization expenses' means qualified 
                        expenditures for the capitalization of a 
                        qualified business pursuant to a qualified 
                        plan.
                            ``(ii) Qualified expenditures.--The term 
                        `qualified expenditures' means expenditures 
                        included in a qualified plan, including 
                        capital, plant, equipment, working capital, and 
                        inventory expenses.
                            ``(iii) Qualified business.--The term 
                        `qualified business' means any business that 
                        does not contravene any law or public policy 
                        (as determined by the Secretary).
                            ``(iv) Qualified plan.--The term `qualified 
                        plan' means a business plan which--
                                    ``(I) is approved by a financial 
                                institution, or by a nonprofit loan 
                                fund having demonstrated fiduciary 
                                integrity,
                                    ``(II) includes a description of 
                                services or goods to be sold, a 
                                marketing plan, and projected financial 
                                statements, and
                                    ``(III) may require the eligible 
                                individual to obtain the assistance of 
                                an experienced entrepreneurial advisor.
                    ``(D) Transfers to idas of family members.--Amounts 
                paid from an individual development account directly 
                into another such account established for the benefit 
                of an eligible individual who is--
                            ``(i) the taxpayer's spouse, or
                            ``(ii) any dependent of the taxpayer with 
                        respect to whom the taxpayer is allowed a 
                        deduction under section 151.
            ``(2) Individual development account.--The term `individual 
        development account' means a trust created or organized in the 
        United States exclusively for the purpose of paying the 
        qualified expenses of an eligible individual, but only if the 
        written governing instrument creating the trust meets the 
        following requirements:
                    ``(A) No contribution will be accepted unless it is 
                in cash or by check.
                    ``(B) The trustee is a federally insured financial 
                institution.
                    ``(C) The assets of the account will be invested in 
                accordance with the direction of the eligible 
                individual after consultation with the qualified entity 
                providing assistance to the individual under section 
                3(g) of the Assets for Independence Act.
                    ``(D) The assets of the trust will not be 
                commingled with other property except in a common trust 
                fund or common investment fund.
                    ``(E) Except as provided in subparagraph (F), any 
                amount in the account which is attributable to 
                assistance provided under section 3(g) of the Assets 
                for Independence Act may be paid or distributed out of 
                the account only for the purpose of paying the 
                qualified expenses of the eligible individual.
                    ``(F) Any balance in the account on the day after 
                the date on which the individual for whose benefit the 
                trust is established dies shall be distributed within 
                30 days of such date as directed by such individual to 
                another individual development account established for 
                the benefit of an eligible individual.
            ``(3) Time when contributions deemed made.--A taxpayer 
        shall be deemed to have made a contribution 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 (including extensions thereof).
    ``(d) Tax Treatment of Distributions.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, any amount paid or distributed out of an individual 
        development account attributable to assistance provided under 
        section 3(g) of the Assets for Independence Act (including 
        earnings attributable to such assistance) shall be included in 
        gross income of the payee or distributee
         for the taxable year in the manner provided in section 72.
            ``(2) Distribution used to pay qualified expenses.--A 
        payment or distribution out of an individual development 
        account attributable to assistance provided under section 3(g) 
        of the Assets for Independence Act shall not be included in 
        gross income to the extent such payment or distribution is used 
        exclusively to pay the qualified expenses incurred by the 
        eligible individual for whose benefit the account is 
        established.
            ``(3) Ordering rules.--Any distribution from an individual 
        development account shall not be treated as made from the 
        accumulated contributions made to the account by the eligible 
        individual (including earnings attributable to such 
        contributions) until all other amounts to the credit of the 
        eligible individual have been distributed.
    ``(e) Tax Treatment of Accounts.--
            ``(1) Exemption from tax.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), an individual development account is 
                exempt from taxation under this title unless such 
                account has ceased to be an individual development 
                account by reason of paragraph (2). Notwithstanding the 
                preceding sentence, any such account is subject to the 
                taxes imposed by section 511 (relating to imposition of 
                tax on unrelated business income of charitable, etc. 
                organizations).
                    ``(B) Certain earnings taxed as grantor trust.--An 
                eligible individual shall be treated for purposes of 
                this title as the owner of the individual development 
                account established by or on behalf of such individual 
                and shall be subject to tax thereon with respect to the 
                earnings attributable to contributions made to the 
                account by the eligible individual in accordance with 
                subpart E of part I of subchapter J of this chapter 
                (relating to grantors and others treated as substantial 
                owners).
            ``(2) Loss of exemption of account where individual engages 
        in prohibited transaction.--
                    ``(A) In general.--If an eligible individual or 
                qualified entity engages in any transaction prohibited 
                by section 4975 with respect to such individual's 
                account, the account shall cease to be an individual 
                development account as of the 1st day of the taxable 
                year of such individual during which such transaction 
                occurs.
                    ``(B) Account treated as distributing all its 
                assets.--In any case in which any account ceases to be 
                an individual development account by reason of 
                subparagraph (A) as of the 1st day of any taxable 
                year--
                            ``(i) all assets in the account on such 1st 
                        day which are attributable to assistance 
                        provided under section 3(g) of the Assets for 
                        Independence Act shall be paid into the general 
                        fund of the Treasury of the United States, and
                            ``(ii) the remaining assets shall be 
                        treated as distributed on such 1st day.
            ``(3) Effect of pledging account as security.--If, during 
        any taxable year, an eligible individual or qualified entity 
        uses such individual's account or any portion thereof as 
        security for a loan--
                    ``(A) an amount equal to the part of the portion so 
                used which is attributable to assistance provided under 
                section 3(g) of the Assets for Independence Act shall 
                be paid into the general fund of the Treasury of the 
                United States, and
                    ``(B) the remaining part of the portion so used 
                shall be treated as distributed to the eligible 
                individual.
            ``(4) Effect of lien or other seizure of account.--If, 
        during any taxable year, a lien is placed on an individual 
        development account, or the account is otherwise seized 
        pursuant to legal or administrative process--
                    ``(A) an amount equal to the part of the portion so 
                seized which is attributable to assistance provided 
                under section 3(g) of the Assets for Independence Act 
                shall be paid into the general fund of the Treasury of 
                the United States, and
                    ``(B) the remaining part of the portion so seized 
                shall be treated as distributed to the eligible 
                individual.
    ``(f) Additional Tax on Certain Amounts Included in Gross Income.--
            ``(1) Distribution not used for qualified expenses.--In the 
        case of any payment or distribution not used exclusively to pay 
        qualified expenses incurred by the eligible individual for 
        whose benefit the individual development account is 
        established, the tax liability of each payee or distributee 
        under this chapter for the taxable year in which the payment or 
        distribution is received shall be increased by an amount equal 
        to 10 percent of the amount of the payment or distribution.
            ``(2) Disability or death cases.--Paragraph (1) shall not 
        apply if the payment or distribution is made after the 
        individual for whose benefit the individual development account 
        becomes disabled within the meaning of section 72(m)(7) or 
        dies.
    ``(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 such person 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 development account described in subsection (c)(2). 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 development account 
shall--
            ``(1) prepare reports regarding the account with respect to 
        contributions, distributions, and any other matter required by 
        the Secretary under regulations, and
            ``(2) submit such reports, at the time and in the manner 
        prescribed by the Secretary in regulations, to--
                    ``(A) the eligible individual for whose benefit the 
                account is maintained,
                    ``(B) the qualified entity providing assistance to 
                the individual under section 3(g) of the Assets for 
                Independence Act, and
                    ``(C) the Secretary.''
    (b) Deduction Allowed Against Gross Income.--Subsection (a) of 
section 62 (defining adjusted gross income) is amended by inserting 
after paragraph (15) the following new paragraph:
            ``(16) Individual development accounts.--Except as provided 
        in section 529, contributions to an individual development 
        account established to provide assistance to the taxpayer under 
        section 3(g) of the Assets for Independence Act.''
    (c) Contribution Not Subject to Gift Tax.--Section 2503 of such 
Code (relating to taxable gifts) is amended by adding at the end the 
following new subsection:
    ``(h) Individual Development Accounts.--Any contribution made by an 
individual or qualified entity to an individual development account 
described in section 529(c)(2) shall not be treated as a transfer of 
property by gift for purposes of this chapter.''
    (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 development accounts.--An 
        eligible individual for whose benefit an individual development 
        account is established and any contributor to such account 
        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 section) if, with respect to 
        such transaction, the account ceases to be an individual 
        development account by reason of the application of section 
        529(e)(2)(A) to such account.'', and
            (2) by inserting ``, an individual development account 
        described in section 529(c)(2),'' in subsection (e)(1) after 
        ``described in section 408(a)''.
    (e) Failure To Provide Reports on Individual Development 
Accounts.--Section 6693 of such Code (relating to failure to provide 
reports on individual retirement accounts or annuities) is amended--
            (1) by inserting ``or on individual development 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 section 529(i) to file a 
        report regarding an individual development account at the time 
        and in the manner required 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) Special Rule for Determining Amounts of Support for 
Dependent.--Subsection (b) of section 152 of such Code (relating to 
definition of dependent) is amended by adding at the end the following 
new paragraph:
            ``(6) A distribution from an individual development account 
        described in section 529(c)(2) to the eligible individual for 
        whose benefit such account has been established shall not be 
        taken into account in determining support for purposes of this 
        section to the extent such distribution is excluded from gross 
        income of such individual under section 529(d)(2).''
    (g) Clerical Amendments.--
            (1) The table of parts for subchapter F of chapter 1 of 
        such Code is amended by inserting at the end the following new 
        item:

                              ``Part VIII. Individual development 
                                        accounts.''
            (2) 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 following new item:

                              ``Sec. 6693. Failure to provide reports 
                                        on individual retirement 
                                        accounts or annuities or on 
                                        individual development 
                                        accounts.''
    (h) Effective Date.--The amendments made by this section shall 
apply to contributions made after the date of the enactment of this 
Act.

SEC. 5. FUNDS IN INDIVIDUAL DEVELOPMENT ACCOUNTS OF DEMONSTRATION 
              PROJECT PARTICIPANTS DISREGARDED FOR PURPOSES OF ALL 
              MEANS-TESTED FEDERAL PROGRAMS.

    Notwithstanding any Federal law (other than the Internal Revenue 
Code of 1986) that requires consideration of 1 or more financial 
circumstances of an individual, for the purpose of determining 
eligibility to receive, or the amount of, any assistance or benefit 
authorized by such law to be provided to or for the benefit of such 
individual, funds (including interest accruing) in an individual 
development account (as defined in section 529 of the Internal Revenue 
Code of 1986, as added by section 4 of this Act) shall be disregarded 
for such purpose with respect to any period during which such 
individual participates in a demonstration project conducted under 
section 3 of this Act (or would be participating in such a project but 
for the suspension of the project).
                                 <all>
S 1212 IS----2
S 1212 IS----3
S 1212 IS----4