Individual Investment Account Act of 2005 - Amends the Internal Revenue Code to allow an individual taxpayer a tax deduction from gross income (whether or not the taxpayer itemizes deductions) for cash contributions to an individual investment account. Permits tax free distributions up to $15,000 from such accounts for the purchase of a principal residence by a first-time homebuyer. Allows an annual inflation adjustment to the $15,000 limit beginning in 2006.
Excludes individual investment accounts from the calculation of the gross estate for estate tax purposes.
Excludes from gross income gain from the sale of a principal residence if such gain is reinvested in an individual investment account.
[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 339 Introduced in House (IH)]
109th CONGRESS
1st Session
H. R. 339
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
January 25, 2005
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 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
2005''.
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 224 as
section 225 and by inserting after section 223 the following new
section:
``SEC. 224. 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 first-
time homebuyer distribution.
``(2) Qualified first-time homebuyer distribution.--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 aggregate amount
which may be treated as qualified first-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 first-time
homebuyer distribution.
``(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.--Subsection (c)(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 2005, 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 determined
under section 1(f)(3) for the calendar year in which
the taxable year begins by substituting `calendar year
2004' for `calendar year 1992' 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.
``(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 inserting before the last sentence the following
new paragraph:
``(21) Individual investment account contributions.--The
deduction allowed by section 224 (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 224(b)). Section 1014 shall
not apply to such accounts.''.
(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 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 beginning on the date of the sale or exchange) to an
individual investment account (as defined in section 224(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.--
(1) Paragraph (1) of section 4975(e) of such Code (relating
to prohibited transactions) is amended by redesignating
subparagraphs (F) and (G) as subparagraphs (G) and (H),
respectively, and by inserting the following new subparagraph
after subparagraph (E):
``(F) an individual investment account described in
section 224(b), ''.
(2) Subsection (c) of section 4975 of such Code is amended
by adding at the end the following new paragraph:
``(7) 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 224(d)(2)(A) to such account.''.
(f) Failure to Provide Reports on Individual Investment Accounts.--
Paragraph (2) of section 6693(a) of such Code is amended by
redesignating subparagraphs (D) and (E) as subparagraphs (E) and (F),
respectively, and by inserting after subparagraph (C) the following new
subparagraph:
``(D) section 224(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 (30), by striking the period
at the end of paragraph (31) and inserting ``, and'', and by adding at
the end thereof the following new paragraph:
``(32) to the extent provided in section 224(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 224 and inserting the following:
``Sec. 224. Individual investment accounts.
``Sec. 225. 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.''.
(i) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2004.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
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