[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 330 Introduced in Senate (IS)]







105th CONGRESS
  1st Session
                                 S. 330

  To amend the Internal Revenue Code of 1986 to allow a deduction for 
    contributions to individual investment accounts, and for other 
                               purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           February 13, 1997

Mr. Breaux (for himself and Mr. Shelby) introduced the following bill; 
     which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to allow a deduction for 
    contributions to individual investment accounts, and for other 
                               purposes.

    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 ``Individual Investment Account Act of 
1997''.

SEC. 2. ESTABLISHMENT OF INDIVIDUAL INVESTMENT ACCOUNTS.

    (a) In General.--Part VII of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to additional itemized 
deductions for individuals) is amended by redesignating section 221 as 
section 222 and by inserting after section 220 the following new 
section:

``SEC. 221. INDIVIDUAL INVESTMENT ACCOUNTS.

    ``(a) Deduction Allowed.--In the case of an individual, 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 account established for the benefit of such individual.
    ``(b) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Individual investment account.--The term `individual 
        investment account' means a trust created or organized in the 
        United States for the exclusive benefit of an 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.
                    ``(B) The trustee is a bank (as defined in section 
                408(n)) or another person who demonstrates to the 
                satisfaction of the Secretary that the manner in which 
                that person will administer the trust will be 
                consistent with the requirements of this section.
                    ``(C) No part of the trust assets will be invested 
                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 provided in this 
        subsection, any amount distributed out of an individual 
        investment account shall be included in gross income by the 
        distributee unless such amount is part of a qualified 1st-time 
        homebuyer distribution.
            ``(2) Qualified 1st-time homebuyer distribution.--For 
        purposes of this subsection--
                    ``(A) In general.--The term `qualified 1st-time 
                homebuyer distribution' means any payment or 
distribution received by a 1st-time homebuyer from an individual 
investment account to the extent such payment or distribution is used 
by the individual within 60 days to pay qualified acquisition costs 
with respect to a principal residence for such individual.
                    ``(B) Dollar limitation.--The aggregate amount 
                which may be treated as qualified 1st-time homebuyer 
                distributions for all taxable years shall not exceed 
                $15,000.
                    ``(C) Basis reduction.--The basis of any principal 
                residence described in subparagraph (A) shall be 
                reduced by the amount of any qualified 1st-time 
                homebuyer distribution.
                    ``(D) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Qualified acquisition costs.--The 
                        term `qualified acquisition costs' means the 
                        costs of acquiring, constructing, or 
                        reconstructing a residence. Such term includes 
                        any usual or reasonable settlement, financing, 
                        or other closing costs.
                            ``(ii) 1st-time homebuyer.--The term `1st-
                        time homebuyer' means any individual if such 
                        individual had 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 paragraph 
                        applies.
                            ``(iii) Principal residence.--The term 
                        `principal residence' has the same meaning as 
                        when used in section 1034.
            ``(3) Transfer of account incident to divorce.--The 
        transfer of an individual's interest in an individual 
        investment account to his former spouse under a divorce decree 
        or under a written instrument incident to a divorce shall not 
        be considered a taxable transfer made by such individual 
        notwithstanding 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 subtitle, as maintained for the benefit of 
        such spouse.
    ``(d) Tax Treatment of Accounts.--
            ``(1) Exemption from tax.--An individual investment account 
        shall be exempt from taxation under this subtitle unless such 
        account has ceased to be such an account by reason of paragraph 
        (2). Notwithstanding the preceding sentence, any such account 
        shall be 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 of account where individual engages 
        in prohibited transaction.--
                    ``(A) In general.--If, during any taxable year of 
                the individual for whose benefit the individual 
                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 investment account as of the first day 
                of that taxable year.
                    ``(B) Account treated as distributing all its 
                assets.--In any case in which any account ceases to be 
                an individual investment account 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 security.--If, during 
        any taxable year, an individual for whose benefit an individual 
        investment account is established 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.--Paragraph (1) shall not 
        apply to any amount paid or distributed out of an individual 
        investment account to the individual for whose benefit the 
        account is maintained if such amount is paid into another 
        individual investment account for the benefit of such 
        individual not later than the 60th day after the day on which 
        he receives the payment or distribution.
    ``(e) Cost-of-Living Adjustment.--
            ``(1) In general.--In the case of any taxable year 
        beginning in a calendar year after 1997, the dollar 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 determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, by substituting `1996' for 
                `1989' in subparagraph (B) thereof.
            ``(2) Rounding.--If any dollar amount (as increased under 
        paragraph (1)) is not a multiple of $10, such dollar amount 
        shall be increased to nearest multiple of $10 (or, if such 
        dollar amount is a multiple of $5 and not of $10, such dollar 
        amount shall be increased to next higher 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 investment 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 Adjusted Gross Income.--
Subsection (a) of section 62 of such Code (defining adjusted gross 
income) is amended by adding after paragraph (16) the following new 
paragraph:
            ``(17) Individual investment account contributions.--The 
        deduction allowed by section 221 (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 the value of any individual 
investment account (as defined in section 221(b)). Section 1014 shall 
not apply to such account.''
    (d) Nonrecognition of Gain on Sale of Principal Residence Where 
Amount Equal to Otherwise Taxable Gain Deposited Into Individual 
Investment Account.--Part III of subchapter B of chapter 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 INDIVIDUAL INVESTMENT ACCOUNT.

    ``(a) General Rule.--Gross income does not include gain from the 
sale or exchange of property if, during the 5-year period ending on the 
date of the sale or exchange, such property has been owned and used by 
the taxpayer as his principal residence for periods aggregating 3 years 
or more.
    ``(b) Limitation.--The amount of gain excluded from gross income 
under subsection (a) shall not exceed the amount paid in cash (during 
the 1-year period beginning on the date of the sale or exchange) to an 
individual investment account (as defined in section 221(b)) 
established for the benefit of the taxpayer or his spouse.
    ``(c) Certain Rules On Ownership and Use To Apply.--Rules similar 
to the rules of section 121(d) shall apply for purposes of determining 
ownership and use under this section.''
    (e) Tax on Prohibited Transactions.--Section 4975 of such Code 
(relating to prohibited transactions) is amended--
            (1) by adding at the end of subsection (c) the following 
        new paragraph:
            ``(5) Special rule for individual investment accounts.--An 
        individual for whose benefit an individual investment account 
        is established shall be exempt from the tax imposed by this 
        section with respect to any transaction concerning such account 
        (which would otherwise be taxable under this section) if, with 
        respect to such transaction, the account ceases to be an 
        individual investment account by reason of the application of 
        section 221(d)(2)(A) to such account.''; and
            (2) in subsection (e)(1), by striking ``or'' at the end of 
        subparagraph (D), by redesignating subparagraph (E) as 
        subparagraph (F) and by inserting after subparagraph (D) the 
        following new subparagraph:
                    ``(E) an individual investment account described in 
                section 221(b), or''.
    (f) Failure To Provide Reports on Individual Investment Accounts.--
Section 6693 of such Code (relating to failure to provide reports on 
individual retirement account or annuities) is amended--
            (1) by inserting ``or on individual investment accounts'' 
        after ``annuities'' in the heading of such section; and
            (2) in subsection (a), by striking ``and'' at the end of 
        subparagraph (A), by striking the period at the end of 
        subparagraph (B) and inserting ``, and'', and by adding at the 
        end the following new subparagraph:
                    ``(C) section 221(g) (relating to individual 
                investment accounts).''
    (g) Adjustment of Basis of Residence Acquired Through Use of 
Account.--Subsection (a) of section 1016 of such Code is amended by 
striking ``and'' at the end of paragraph (25), by striking the period 
at the end of paragraph (26) and inserting ``; and'', and by adding at 
the end the following new paragraph:
            ``(27) to the extent provided in section 221(c)(2)(C), in 
        the case of a residence the acquisition 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 subchapter 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 subchapter B of 
        chapter 1 of such Code is amended by striking the item relating 
        to section 221 and inserting the following:

                              ``Sec. 221. Individual investment 
                                        accounts.
                              ``Sec. 222. Cross reference.''
            (3) The table of sections for part III of subchapter A of 
        chapter 11 of such Code is amended by striking the item 
        relating to section 2046 and inserting the following new items:

                              ``Sec. 2046. Individual investment 
                                        accounts.
                              ``Sec. 2047. Disclaimers.''
            (4) The table of sections for subchapter B of chapter 68 of 
        such Code is amended by striking the item relating to section 
        6693 and inserting the following:

                              ``Sec. 6693. Failure to provide reports 
                                        on individual retirement 
                                        accounts or annuities or on 
                                        individual investment accounts; 
                                        penalties relating to 
                                        designated nondeductible 
                                        contributions.''
    (i) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.
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