text: SECTION 1. SHORT TITLE.
  
      This Act may be cited as the ``Individual Investment Account Act of 
  1999''.
  
  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 222 as 
  section 223 and by inserting after section 221 the following new 
  section:
  
  ``SEC. 222. 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 2000, 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 `1999' 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 (17) the following new 
  paragraph:
              ``(18) Individual investment account contributions.--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 the value of any individual 
  investment account (as defined in section 222(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 222(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:
              ``(6) 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 222(d)(2)(A) to such account.''; and
              (2) in subsection (e)(1), by striking ``or'' at the end of 
          subparagraph (E), by redesignating subparagraph (F) as 
          subparagraph (G) and by inserting after subparagraph (E) the 
          following new subparagraph:
                      ``(F) an individual investment account described in 
                  section 222(b), or''.
      (f) Failure To Provide Reports on Individual Investment Accounts.--
  Section 6693(a)(2) of such Code (relating to failure to provide reports 
  on individual retirement account or annuities) is amended by striking 
  ``and'' at the end of subparagraph (C), by striking the period at the 
  end of subparagraph (D) and inserting ``, and'', and by adding at the 
  end the following new subparagraph:
                      ``(E) section 222(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 (26), by striking the period 
  at the end of paragraph (27) and inserting ``; and'', and by adding at 
  the end the following new paragraph:
              ``(28) to the extent provided in section 222(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 222 and inserting the following:
  
                                ``Sec. 222. Individual investment 
                                          accounts.
                                ``Sec. 223. 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, 1999.
target: Exempts such accounts from estate tax.
  Excludes from gross income gain from the sale or exchange of property if, during the five-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as a principal residence for periods aggregating three years or more. Limits such exclusion to the amount paid to an individual investment account during the one-year period beginning on the date of the sale or exchange.
  Provides for adjusting the basis of a residence acquired through the use of an individual investment account.
feat_title: Individual Investment Account Act of 1999