HOUSE BILL No. 5027

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).