HF 2228 (LSB 5075YH (7) 83)

HOUSE FILE 2228

BY  RANTS

A BILL FOR

An Act providing for the establishment of a home ownership savings plan trust, providing an exemption from state individual income tax and state inheritance tax, and including a retroactive applicability date provision.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  NEW SECTION.  12G.1  Definitions.
  As used in this chapter, unless the context otherwise requires:
   1.  “Acquisition indebtedness” has the same meaning as defined in section 163 of the Internal Revenue Code.
   2.  “Administrative fund” means the administrative fund established under section 12G.4.
   3.  “Beneficiary” means an individual designated in a participation agreement as the intended recipient of advance payments of home ownership acquisition costs made on behalf of the individual to the trust.
   4.  “Benefits” means the payment by the trust of home ownership acquisition costs on behalf of a beneficiary for the purchase of the beneficiary’s first home.
   5.  “First home” means the first real estate purchased by an individual that meets the requirements of a principal residence as that term is defined in section 121 of the Internal Revenue Code.
   6.  “Home acquisition costs” means the certified costs incurred by an individual in the purchase of a first home including the amount of down payment required to secure a mortgage or other instrument of indebtedness, the amount of acquisition indebtedness, and the transaction costs incurred in the purchase of the first home.
   7.  “Internal Revenue Code” means the same as defined in section 422.3.
   8.  “Participant” means an individual, or an individual’s legal representative, who has entered into a participation agreement under this chapter for the advance payment of home acquisition costs on behalf of a beneficiary.
   9.  “Participation agreement” means an agreement between a participant and the trust entered into pursuant to this chapter.
   10.  “Program fund” means the program fund established under section 12G.4.
   11.  “Refund penalty” means the amount assessed by the treasurer of state for cancellation of a participation agreement.
   12.  “Trust” means the home ownership savings plan trust created under section 12G.2.
    Sec. 2.  NEW SECTION.  12G.2  Home ownership savings plan trust created.
   1.  A home ownership savings plan trust is created within the office of the treasurer of state.
   2.  The treasurer of state is the trustee of the trust, and shall have all powers necessary to carry out and effectuate the purposes, objectives, and provisions of this chapter pertaining to the trust. Such powers include the power to do all of the following:
   a.  Make and enter into contracts or agreements with various entities as necessary for the administration of the trust or the implementation of this chapter.
   b.  Carry out the duties and obligations of the trust pursuant to this chapter.
   c.  Accept grants, gifts, legislative appropriations, and other moneys from the state, any unit of federal, state, or local government, or any other person, firm, partnership, or corporation which the treasurer of state shall deposit into the administrative fund or the program fund.
   d.  Carry out studies and projections in order to advise participants regarding present and estimated home acquisition costs and levels of financial participation in the trust required in order to enable participants to achieve their funding objectives.
   e.  Participate in any federal, state, or local governmental program for the benefit of the trust.
   f.  Procure insurance against any loss in connection with the property, assets, or activities of the trust.
   g.  Enter into participation agreements with participants.
   h.  Make payments to participants or beneficiaries, pursuant to participation agreements on behalf of beneficiaries.
   i.  Make refunds to participants upon the termination of participation agreements, and partial nonqualified distributions to participants, pursuant to the provisions, limitations, and restrictions set forth in this chapter.
   j.  Invest moneys from the program fund in any investments which are determined by the treasurer of state to be appropriate.
   k.  Engage investment advisors, if necessary, to assist in the investment of trust assets.
   l.  Contract for goods and services and engage personnel as necessary, including consultants, actuaries, managers, legal counsel, and auditors for the purpose of rendering professional, managerial, and technical assistance and advice to the treasurer of state regarding trust administration and operation.
   m.  Establish, impose, and collect administrative fees and charges in connection with transactions of the trust, and provide for reasonable service charges, including penalties for cancellations and late payments with respect to participation agreements.
   n.  Administer the funds of the trust.
   o.  Adopt rules pursuant to chapter 17A for the administration of the trust and for the implementation of the powers described in this subsection.
    Sec. 3.  NEW SECTION.  12G.3  Participation agreements.
   1.  The trust may enter into participation agreements with participants on behalf of beneficiaries pursuant to the provisions of this section.
   2.  a.  Each participation agreement may require a participant to agree to invest a specific amount of money in the trust for a specific period of time for the benefit of a specific beneficiary.
   b.  A participant shall not be required to make an annual contribution on behalf of a beneficiary.
   c.  (1)  Contributions made to the trust on behalf of a beneficiary may be deducted from the computation of Iowa net income pursuant to section 422.7, subsection 54.
   (2)  The maximum amount of contributions to the trust that may be deducted shall not exceed two thousand dollars per beneficiary per year.
   (3)  The director of the department of revenue shall adjust the maximum contribution amount annually to reflect increases in the consumer price index.
   d.  Participation agreements may be amended to provide for adjusted levels of payments based upon changed circumstances or changes in home acquisition plans.
   3.  The execution of a participation agreement by the trust shall not guarantee in any way that home acquisition costs will be equal to any projections and estimates provided by the trust or that the beneficiary named in any participation agreement will qualify for the financing necessary to purchase a first home.
   4.  a.  A participant may request the treasurer of state to change the beneficiary named in a participation agreement. However, a beneficiary may not be changed unless the new beneficiary is eligible to participate. The treasurer of state shall adopt rules for changing beneficiaries in compliance with the provisions of this chapter.
   b.  Participation agreements may be freely amended in order to enable participants to increase or decrease the level of participation, change the designation of beneficiaries, and carry out similar matters as authorized by rules adopted by the treasurer of state.
   5.  a.  A participation agreement shall provide for the cancellation of the agreement. Such cancellation shall only be effective upon the fulfillment of the terms and conditions of the agreement, and upon the payment of applicable refund penalties, fees, and costs as set forth and contained in rules adopted by the treasurer of state.
   b.  A participant may cancel a participation agreement at will. Upon cancellation of a participation agreement and after the payment of applicable refund penalties, fees, and costs, a participant shall be entitled to the return of the participant’s account balance.
    Sec. 4.  NEW SECTION.  12G.4  Program and administrative funds —— investment and payments.
   1.  The treasurer of state shall segregate moneys received by the trust into a program fund and an administrative fund.
   2.  All moneys paid by participants in connection with participation agreements shall be deposited as received into separate accounts within the program fund.
   3.  The treasurer shall only accept contributions to the trust made in the form of cash.
   4.  A participant or beneficiary shall not provide investment direction regarding program contributions or earnings held by the trust.
   5.  Moneys accrued by participants in the program fund of the trust may be used for the payment of home acquisition costs.
   6.  Payments from the trust may be made to an institution, a participant, or a beneficiary.
    Sec. 5.  NEW SECTION.  12G.5  Repayment —— treatment of income —— ownership and transfer of moneys.
   1.  A participant retains ownership of all payments made under a participation agreement up to the date of utilization for payment of home acquisition costs for the beneficiary.
   2.  All income derived from the investment of the payments made by the participant is considered to be held in trust for the benefit of the beneficiary.
   3.  If the program is terminated prior to payment of home acquisition costs for the beneficiary, the participant is entitled to a refund of the participant’s account balance.
   4.  An institution receiving payments toward home acquisition costs from the fund shall obtain ownership of the payments at the time each payment is made to the institution.
   5.  Any amounts which may be paid to any person pursuant to the home ownership savings plan trust which are not listed in this section are owned by the trust.
   6.  A participant may transfer ownership rights to another eligible individual, including a gift of the ownership rights to a minor beneficiary. The transfer shall be made and the property distributed in accordance with rules adopted by the treasurer of state or with the terms of the participation agreement.
   7.  A participant’s interest in the trust shall not be used as security for a loan.
    Sec. 6.  NEW SECTION.  12G.6  Annual audited financial report.
   1.  The treasurer of state shall submit an annual audited financial report, prepared in accordance with generally accepted accounting principles, on the operations of the trust by November 1 to the governor and the general assembly.
   2.  The annual audit shall be made either by the auditor of state or by an independent certified public accountant designated by the auditor of state and shall include direct and indirect costs attributable to the use of outside consultants, independent contractors, and any other persons who are not state employees.
   3.  The annual audit shall be supplemented by all of the following information prepared by the treasurer of state:
   a.  Any related studies or evaluations prepared in the preceding year.
   b.  A summary of the benefits provided by the trust including the number of participants and beneficiaries in the trust.
   c.  Any other information which is relevant in order to make a full, fair, and effective disclosure of the operations of the trust.
    Sec. 7.  NEW SECTION.  12G.7  Income tax treatment.
   1.  State income tax treatment of the home ownership savings plan trust shall be as provided in section 422.7, subsections 54 and 55.
   2.  State inheritance tax treatment of interests in the home ownership savings plan trust shall be as provided in section 450.4, subsection 11.
    Sec. 8.  NEW SECTION.  12G.8  Property rights to assets in trust.
   1.  The assets of the trust shall at all times be preserved, invested, and expended solely and only for the purposes of the trust and shall be held in trust for the participants and beneficiaries.
   2.  No property rights in the trust shall exist in favor of the state.
   3.  The assets of the trust shall not be transferred or used by the state for any purposes other than the purposes of the trust.
    Sec. 9.  NEW SECTION.  12G.9  Construction.
  This chapter shall be construed liberally in order to effectuate its purpose.
    Sec. 10.  Section 422.7, Code Supplement 2009, is amended by adding the following new subsections:
   NEW SUBSECTION.  54.  a.  Subtract the amount of a contribution to the home ownership savings plan trust under a participation agreement with the treasurer of state, not to exceed the maximum amount that may be deducted for Iowa income tax purposes under section 12G.3, subsection 2, paragraph “c”.
   b.  Add the amount resulting from the cancellation of a participation agreement refunded to the taxpayer as a participant in the home ownership savings plan trust to the extent previously deducted as a contribution to the trust under paragraph “a”.
   c.  Add the amount resulting from a withdrawal made by a taxpayer from the home ownership savings plan trust for purposes other than the payment of home acquisition costs, to the extent such amount was previously deducted as a contribution to the trust under paragraph “a”. For purposes of this paragraph, “home acquisition costs” has the same meaning as defined in section 12G.1.
   NEW SUBSECTION.  55.  Subtract, to the extent included, income from interest and earnings received from the home ownership savings plan trust created in chapter 12G.
    Sec. 11.  Section 450.4, Code 2009, is amended by adding the following new subsection:
   NEW SUBSECTION.  11.  On the value of any interest in the home ownership savings plan trust, as described in chapter 12G, to the same extent to which the value of the interest is excluded from the decedent’s gross estate for federal estate tax purposes.
    Sec. 12.  RETROACTIVE APPLICABILITY.  The section of this Act amending Code section 422.7 applies retroactively to January 1, 2010, for tax years beginning on or after that date.
EXPLANATION
   This bill establishes a home ownership savings plan trust modeled after the Iowa educational savings plan trust contained in Code chapter 12D. The bill provides for the creation of the home ownership savings plan trust in new Code chapter 12G and authorizes the treasurer of state to administer the Code chapter by way of several specified powers and duties.
   The objective of the home ownership savings plan trust is to provide a mechanism for making contributions on behalf of a beneficiary into an account which will be invested and managed by the treasurer of state, with the accumulated funds payable to or on behalf of a beneficiary at a future date for purposes of acquiring a first home.
   The bill provides for entering into a participation agreement requiring a participant to agree to invest a specific amount of money in the trust for a specific period of time for the benefit of a specific beneficiary. The bill limits the maximum contribution that may be deducted for Iowa income tax purposes to $2,000 per beneficiary annually, adjusted to reflect increases in the consumer price index.
   The bill provides for amending participation agreements, substituting beneficiaries, and cancellation of agreements, and states that the execution of a participation agreement by the trust does not guarantee that home ownership costs will be equal to projections and estimates provided by the trust or that the beneficiary named in any participation agreement will qualify for any other financing necessary to purchase a first home.
   The bill provides for the segregation of moneys received by the trust into a program fund and an administrative fund, with all moneys paid by participants deposited into separate accounts within the program fund.
   The bill specifies that contributions to the trust can only be made in cash, and that the contributions may be used for the payment of home acquisition costs. Payments can be made to an institution, the participant, or to the beneficiary. 
   The bill specifies circumstances under which ownership rights can be transferred and provides that a participant cannot utilize the participant’s interest in the trust as security for a loan.
   The bill provides for an annual audited financial report to be submitted by the treasurer of state to the governor and the general assembly.
   The bill allows income tax exemptions for contributions to the trust and for interest and earnings from the trust and specifies the amounts that may be deducted from net income for purposes of computing Iowa individual income tax liability and provides for inheritance tax exemptions in certain cases.
   The income tax exemptions apply retroactively to January 1, 2010, for tax years beginning on or after that date.