June 29, 2005, Introduced by Reps. Hunter, Tobocman, Mayes, Kolb, Green, Lipsey, McConico, Murphy, Clemente, Dillon, Farrah, Hune, Leland and Lemmons, III and referred to the Committee on Banking and Financial Services.
A bill to permit the establishment and maintenance of
individual or family development accounts; to provide for certain
tax deductions and tax credits; to prescribe the requirements of
and restrictions on individual or family development accounts; and
to provide penalties and remedies.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 1. This act shall be known and may be cited as the
"individual or family development account program act".
Sec. 2. As used in this act:
(a) "Account holder" means a person who is the owner of an
individual or family development account or the family if the
account is a family account.
(b) "Community development organization" or "organization"
means, except as otherwise provided in this subdivision, a
charitable organization exempt from taxation under section
501(c)(3) of the internal revenue code, that is approved by the
director of the department of treasury or his or her designee to
implement the individual or family development account program. For
purposes of administering individual or family development accounts
established under section 4(2)(c) for start-up capitalization of a
business, "community development organization" means a
microenterprise loan fund or a microenterprise development
organization.
(c) "Contributor" means a person that makes a contribution to
an individual or family development account reserve fund and is not
an account holder.
(d) "Department" means the department of treasury.
(e) "Director" means the state treasurer.
(f) "Education expenses" means tuition and fees required for
the enrollment or attendance of a student at an eligible
educational institution, and expenses for fees, books, supplies,
and equipment required for courses of instruction at an eligible
educational institution.
(g) "Eligible educational institution" means any of the
following:
(i) A college, university, community college, or junior college
described in section 4, 5, or 6 of article VIII of the state
constitution of 1963 or established under section 7 of article VIII
of the state constitution of 1963.
(ii) An independent nonprofit college or university located in
this state.
(iii) A state-licensed vocational or technical education
program.
(iv) A state-licensed proprietary school.
(h) "Federal poverty level" means the poverty guidelines
published annually in the federal register by the United States
department of health and human services under its authority to
revise the poverty line under section 673(2) of subtitle B of title
VI of the omnibus budget reconciliation act of 1981, Public Law 97-
35, 42 USC 9902.
(i) "Financial institution" means a state chartered bank,
savings and loan association, credit union, or trust company; or a
national banking association or federal savings and loan
association or credit union.
(j) "Financial literacy" means that term as defined in the
financial literacy act.
(k) "Individual or family development account" or "account"
means an account established pursuant to section 4.
(l) "Individual or family development account reserve fund" or
"reserve fund" means a fund created by an approved community
development organization to provide matching funds pursuant to
section 3(2).
(m) "Program" means the individual or family development
account program established in section 3.
Sec. 3. (1) The individual or family development account
program is established within the department. The program shall
provide eligible individuals and families with an opportunity to
establish accounts to be used for education, first-time purchase of
a primary residence, or business capitalization as provided in
section 4.
(2) The department shall authorize community development
organizations to administer the accounts on a not-for-profit basis.
The department shall require that community development
organizations that administer accounts do all of the following:
(a) Establish and administer 1 or more reserve funds to
provide matching funds for account holders pursuant to individual
or family development account match agreements.
(b) Develop and implement individual or family development
account match agreements to be used with account holders that
include at least all of the following:
(i) The purpose for which the account holder's account is
established.
(ii) The schedule of deposits that the account holder will make
to the account.
(iii) The proposed amount of matching funds from the community
development organization and the projected date when those matching
funds will be provided.
(c) Develop a process for including account holders in
decision making regarding the investment of money in their
accounts.
(d) Develop a partnership with all account holders with whom
the community organization has an individual or family development
account match agreement to assist the account holder to effectively
utilize the funds available through the account and to offer
support services to maximize the opportunities provided by the
individual or family development account program.
(3) In reviewing the qualifications of community development
organizations, the department shall consider all of the following
factors:
(a) The not-for-profit status of the organization.
(b) The fiscal accountability of the organization.
(c) The ability of the organization to provide or raise money
for matching contributions.
(d) The ability of the organization to establish and
administer reserve funds.
(e) The significance and quality of proposed auxiliary
services.
(f) The relationship of proposed auxiliary services to the
goals of the individual or family development account program.
Sec. 4. (1) An individual or family whose household income is
less than or equal to 200% of the federal poverty level for an
individual or for that family's family size may establish an
individual or family development account with a financial
institution for the purpose of accumulating and withdrawing money
for qualified expenses.
(2) An account holder who establishes an account shall enter
into an individual or family development account match agreement
with a community development organization and shall declare the
purpose for which the account is established. An account may be
established only to pay qualified expenses as provided in this
subsection. The account holder may withdraw money from the account
without penalty for any of the following qualified expenses:
(a) Educational expenses for the individual account holder or
any member of the family who is 17 years of age or older if the
account is an account for educational purposes.
(b) First-time purchase of a primary residence by the
individual account holder or any member or members of the family if
the account is an account for the purchase of a primary residence.
(c) Start-up capitalization of a business for the individual
account holder or any member of the family of the account holder
who is 18 years of age or older if the account is an account for
capitalization of a business.
(3) An account established under this section shall be an
account that requires 2 signatures for withdrawals. The 2 required
signatures shall be those of the account holder and an
administrator of the community development organization with which
the account holder has an individual or family development account
match agreement.
(4) Distributions by a community development organization
shall be made on behalf of an account holder pursuant to individual
or family development account match agreements at the same time
that an account holder withdraws money to pay qualified expenses.
Distributions by a community development organization pursuant to
an individual or family development account match agreement shall
not exceed a match of $5.00 for every $1.00 withdrawn from an
account by an account holder to pay expenses for a purpose
described in section 4(2).
(5) Distributions under subsection (4) shall be made by check
to the order of the account holder and the entity the account
holder is paying.
(6) A community development organization may use not more than
5% of the money in the reserve funds established under this act to
administer a program established pursuant to section 3.
(7) A financial institution in which an account has been
established shall provide that the accounts earn at least the
market rate of interest.
(8) The maximum total of all deposits made into an account in
a tax year that may be claimed as a credit against the taxpayer's
tax liability for that tax year is $2,500.00. The total maximum
balance in an account shall not exceed $5,000.00. Accumulated
interest earned on an account is not included for purposes of
determining the maximum balance allowed under this subsection.
(9) Deposits to accounts that will cause the total in the
account to exceed the maximums under this section shall be returned
to the account holder.
Sec. 5. (1) Except as provided in subsection (4), if money is
withdrawn during a tax year from an account by an account holder
and is not withdrawn pursuant to section 4, all of the following
apply:
(a) The first time an account holder withdraws money from an
account that is not withdrawn pursuant to section 4, the account
holder is subject to a penalty of 10% of the amount of the
withdrawal and the amount withdrawn is added to the tax liability
of the taxpayer in the year of the withdrawal pursuant to section
272 of the income tax act of 1967, 1967 PA 281, MCL 206.272.
(b) The second time an account holder withdraws money from an
account that is not withdrawn pursuant to section 4, all of the
following apply:
(i) The account holder is subject to a penalty of 10% of the
amount of the withdrawal.
(ii) The amount withdrawn is added to the tax liability of the
taxpayer pursuant to section 272 of the income tax act of 1967,
1967 PA 281, MCL 206.272.
(iii) No money deposited into an account by the account holder
after the date of a withdrawal under this subdivision may be used
to calculate a credit under section 272 of the income tax act of
1967, 1967 PA 281, MCL 206.272.
(2) Penalties charged under subsection (1) shall be paid from
the account if there are sufficient funds in the account and shall
be deposited into the community development account reserve fund of
the community development organization with which the account
holder has an individual or family development account match
agreement.
(3) If an account holder withdraws money under subsection
(1)(b), all money remaining in the account after the withdrawal
shall be included in income in the tax year in which the withdrawal
is made.
(4) Money withdrawn by an account holder from an account for
any of the following purposes is not subject to the penalties
provided under subsections (1) and (3):
(a) To prevent the account holder from being evicted from his
or her home.
(b) To pay medical expenses of the account holder or the
account holder's family that are not covered by any health benefit
plan.
(5) An account holder shall name at least 1 contingent
beneficiary at the time the account is established and may change
beneficiaries at any time. If an account holder dies, the account
shall be transferred to a contingent beneficiary. If the named
beneficiary is deceased or otherwise cannot accept the transfer,
the money shall be transferred to the estate of the beneficiary.
(6) An account holder shall not make any withdrawals from an
account until after the account holder has completed a course in
financial literacy pursuant to the financial literacy act.
Sec. 6. (1) Money deposited in an individual or family
development account by an account holder to pay qualified expenses
may be used to calculate a credit under section 272 of the income
tax act of 1967, 1967 PA 281, MCL 206.272.
(2) Interest earned on a family development account is exempt
from taxation pursuant to section 30 of the income tax act of 1967,
1967 PA 281, MCL 206.30.
(3) An entity subject to the single business tax imposed by
the single business tax act, 1975 PA 228, MCL 208.1 to 208.145, may
claim a deduction under section 9 of the single business tax act,
1975 PA 228, MCL 208.9, equal to the contributions made to the
reserve fund of a community development organization against the
tax imposed by the single business tax act, 1975 PA 228, MCL 208.1
to 208.145.
(4) An individual who is not an account holder and who is
subject to the tax imposed by the income tax act of 1967, 1967 PA
281, MCL 206.1 to 206.532, may claim a deduction under section 30
of the income tax act of 1967, 1967 PA 281, MCL 206.30, equal to
the contributions made to the reserve fund of a community
development organization against the tax imposed by the income tax
act of 1967, 1967 PA 281, MCL 206.1 to 206.532.
(5) The administrator of a community development organization
that administers 1 or more reserve funds, with the cooperation of
the participating financial institutions, shall submit the names of
contributors and the total amount that each contributor contributes
to an individual or family development account reserve fund for
each tax year to the department. The director shall determine the
date by which the information shall be submitted to the department
by the administrator of the community development organization.
(6) Each account holder shall provide the community
development organization with which he or she has an individual or
family development account match agreement copies of all bank
statements issued relating to that account holder's account. At the
end of the tax year, the community development organization shall
give the account holder a letter on the organization's letterhead
that states the total amount, based on deposits, withdrawals,
addbacks, and any disallowed deposits made in the tax year, that
the account holder may claim as a credit under section 272 of the
income tax act of 1967, 1967 PA 281, MCL 206.272.
Sec. 7. This act takes effect January 1, 2006.
Enacting section 1. This act does not take effect unless all
of the following bills of the 93rd Legislature are enacted into
law:
(a) Senate Bill No. _____ or House Bill No. 5021(request no.
03358'05).
(b) Senate Bill No. _____ or House Bill No. 5022(request no.
03609'05).