SB-0640, As Passed Senate, June 1, 2006

SUBSTITUTE FOR

SENATE BILL NO. 640

     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; to

provide for the promulgation of rules; 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) "Agency" means the Michigan state housing development

authority of the department of labor and economic growth.

     (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) "Director" means the executive director of the Michigan

state housing development authority of the department of labor and

economic growth.

     (e) "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.

     (f) "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.

     (g) "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.

     (h) "Fiduciary organization" or "organization" means a

charitable organization exempt from taxation under section

501(c)(3) of the internal revenue code that is approved by the

director of the agency or his or her designee to manage a reserve

fund. A fiduciary organization may also be a program site.

     (i) "Financial institution" means a state chartered bank,

state chartered savings 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 personal financial planning and

education.

     (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 an account established and managed by a

fiduciary organization housed at a financial institution. The

reserve fund holds money that will be used to match participant

savings based on a participant savings plan agreement.

     (m) "Program" means the individual or family development

account program established in section 3.

     (n) "Program site" means a charitable organization exempt from

taxation under section 501(c)(3) or 501(c)(14) of the internal

revenue code that is approved by the director or his or her

designee to implement the individual or family development account

program.

     Sec. 3. (1) The individual or family development account

program is established within the agency. 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 agency shall establish policies and procedures for the

program based on the policies and procedures adopted by the

department of human services to implement the individual

development account program under section 57k of the social welfare

act, 1939 PA 280, MCL 400.57k.

     (3) In reviewing the qualifications of fiduciary organizations

and program sites, the agency 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 significance and quality of proposed auxiliary

services to support the goals of the program.

     (e) The availability of a financial literacy program for

account holders.

     (f) The ability to maintain and manage necessary program data

for tracking account holders and participants in the program and

for development of reports as required under section 9.

     (4) The agency shall select fiduciary organizations to provide

technical assistance and support to program sites and establish and

manage reserve accounts on a not-for-profit basis. In reviewing the

qualifications of fiduciary organizations, the agency shall

consider the ability of the fiduciary organizations to do all of

the following:

     (a) Administer 1 or more reserve funds to provide matching

funds for account holders pursuant to participant savings plan

agreements.

     (b) Administer any money appropriated by this state for the

purposes of this act.

     (c) Collaborate with program sites on a regional basis.

     (d) Provide technical assistance and support to program sites

to assist them to effectively administer programs.

     (e) Work in conjunction with approved program sites to hold,

manage, and disburse match funds for accounts as provided in

section 5.

     (f) Maintain and manage necessary program data for tracking

account holders and participants in the program and for development

reports as required under section 9.

     (5) The agency shall select program sites to administer the

accounts on a not-for-profit basis. In reviewing the qualifications

of program sites, the agency shall consider the ability of the

program site to do all of the following:

     (a) Develop and implement participant savings plan 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 agreed-upon amount of matching funds and the projected

date when those matching funds will be provided.

     (iv) A plan to provide financial literacy; homeownership

training; education, career, or business planning assistance, if

appropriate; and any other services designed to increase the

independence of the account holder or the account holder's family

through the achievement of the designated purpose of the account.

     (b) Develop a partnership with all account holders with whom

the program site has a participant savings plan agreement to assist

the account holder to effectively make financial decisions relating

to the use of the funds available through the account and to offer

support services to maximize the opportunities provided by 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 apply to a program

site to establish an individual or family development account.

     (2) A program site may approve applications to the extent that

the program site has match funds available to meet match

commitments in participant savings plan agreements.

     (3) A program site may reject an application made under

subsection (1) if approving the application would result in the

establishment of an individual or family development account by 1

or more of the members of a family that has established an

individual or family development account for the same person for

the same purpose.

     (4) A household shall not have more than 1 account for the

same purpose if that purpose is a first-time purchase of a primary

residence or start-up capitalization of a business.

     (5) If the program site approves the individual's or the

family's application to establish an individual or family

development account, the individual shall do all of the following:

     (a) Establish the individual or family development account

with a financial institution.

     (b) Enter into a participant savings plan agreement with a

program site.

     (c) Declare, with the approval of the program site, the

purpose for which the account is established.

     (d) Any other criteria required by the program site.

     (6) An account may be established only to pay qualified

expenses as provided in subsection (7).

     (7) An account shall be established for 1 or more of the

following purposes:

     (a) To pay educational expenses for the individual account

holder who will be 17 years of age or older when the funds in the

account will be used if the account is an account for educational

purposes.

     (b) For the first-time purchase of a primary residence by the

individual account holder if the account is an account for the

purchase of a primary residence.

     (c) For start-up capitalization of a business for the

individual account holder who is 18 years of age or older if the

account is an account for capitalization of a business based on a

business plan approved by the program site.

     (8) 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 program site with which the account holder has

a participant savings plan agreement.

     Sec. 5. (1) A program site shall enter into a participant

savings plan agreement with each account holder who is approved to

establish an individual or family development account.

     (2) The program site shall provide matching funds for

contributions to an account by an account holder pursuant to a

participant savings plan agreement.

     (3) Matching fund distributions shall be made on behalf of an

account holder pursuant to participant savings plan agreements at

the same time that an account holder withdraws money to pay

qualified expenses. Matching distributions shall be at least a

match of $1.00 for every $1.00 withdrawn from an account by an

account holder to pay expenses for a purpose described in section

4(7) or for a purpose approved by the agency.

     (4) Matching distributions under this section shall be made by

check to the order of the account holder and the entity the account

holder is paying.

     Sec. 6. (1) Money withdrawn during a calendar year from an

individual or family development account by an account holder for a

purpose under section 4 shall be matched by the program site as

provided in the participant savings plan agreement between the

account holder and the program site.

     (2) 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.

     (3) A financial institution is not responsible for verifying

whether or not withdrawals from accounts held at that financial

institution are made in accordance with and for a purpose allowed

under section 4.

     Sec. 7. (1) An entity may claim a credit as provided under

section 36e of the single business tax act, 1975 PA 228, MCL

208.36e, equal to 75% of the contributions made to the reserve fund

of a fiduciary organization against the tax imposed by the single

business tax act, 1975 PA 228, MCL 208.1 to 208.145.

     (2) 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 credit under section 272 of

the income tax act of 1967, 1967 PA 281, MCL 206.272, equal to 75%

of the contributions made to the reserve fund of a fiduciary

organization against the tax imposed by the income tax act of 1967,

1967 PA 281, MCL 206.1 to 206.532.

     (3) The administrator of a fiduciary 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 calendar year to the agency. The director shall determine the

date by which the information shall be submitted to the agency.

     Sec. 8. (1) The total of all credits under section 36e of the

single business tax act, 1975 PA 228, MCL 208.36e, and section 272

of the income tax act of 1967, 1967 PA 281, MCL 206.272, shall not

exceed $1,000,000.00 per calendar year.

     (2) A taxpayer that makes a contribution to a reserve fund as

provided under section 7 shall apply to the agency for

certification that the contribution qualifies for a credit under

section 36e of the single business tax act, 1975 PA 228, MCL

208.36e, or section 272 of the income tax act of 1967, 1967 PA 281,

MCL 206.272. An application shall be approved or denied not more

than 45 days after receipt of the application. If the application

is not approved or denied 45 days after the application is received

by the agency, the application is considered approved and the

agency shall issue a certificate under this subsection. If the

agency approves an application under this section, the director or

his or her designee shall issue a certificate that states that the

taxpayer is eligible to claim a credit based on the contribution

and the amount of the credit. If an application is denied under

this section, a taxpayer is not prohibited from subsequently

applying under this section for another contribution.

     (3) In reviewing applications for credits, the agency shall

consider all of the following criteria:

     (a) The funds available to match contributions are deposited

into a reserve fund in the same year that the credit will be

claimed.

     (b) The approval of the credit will not exceed the annual

maximum amount under subsection (1).

     (c) The overall benefit to the program of the contribution for

which a credit is requested.

     (4) A taxpayer shall not claim a credit in excess of the

amount approved under subsection (2).

     (5) A taxpayer shall not claim a credit under both section 36e

of the single business tax act, 1975 PA 228, MCL 208.36e, and

section 272 of the income tax act of 1967, 1967 PA 281, MCL

206.272, for the same contributions.

     (6) A taxpayer shall attach the certificate received pursuant

to subsection (2) to the return filed under the single business tax

act, 1975 PA 228, MCL 208.1 to 208.145, or the income tax act of

1967, 1967 PA 281, MCL 206.1 to 206.532, on which a credit allowed

under section 36e of the single business tax act, 1975 PA 228, MCL

208.36e, or section 272 of the income tax act of 1967, 1967 PA 281,

MCL 206.272, is claimed.

     Sec. 9. (1) A fiduciary organization selected to administer an

individual or family development account program under this act

shall file an annual report with the agency of the fiduciary

organization’s individual development account program activity. The

report shall be filed no later than September 30 each year. The

report shall include, but is not limited to, all of the following:

     (a) The number of individual development accounts administered

by the fiduciary organization.

     (b) The amount of deposits and matching deposits for each

account.

     (c) The purpose of each account.

     (d) The number of withdrawals made.

     (e) The number of terminated accounts and the reasons for

termination.

     (f) Any other information the agency may require for the

purpose of making a return on investment analysis.

     (2) The agency shall file a report not later than December 31

each year with the clerk of the house of representatives and the

secretary of the senate that includes all of the information under

subsection (1) and copies of any changes in policies or procedures

used to administer this act that occurred during the year.

     Sec. 10. The Michigan state housing development authority may

promulgate rules as needed to implement this act under the

administrative procedures act of 1969, 1969 PA 306, MCL 24.201 to

24.328.

     Sec. 11. This act takes effect January 1, 2007.