June 23, 2005, Introduced by Senators THOMAS and HARDIMAN and referred to the Committee on Banking and Financial Institutions.
A bill to permit the establishment and maintenance of
individual or family development accounts; to provide for certain
tax deductions; 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 and who meets all of the following
criteria:
(i) Is 18 years of age or older.
(ii) Is a resident of this state.
(iii) Is a United States citizen or resident alien.
(b) "Community development organization" or "organization"
means a charitable organization exempt from taxation under section
501(c)(3) of the internal revenue code, 26 USC 501, that is
approved by the director of the department of labor and economic
growth or his or her designee to implement the individual or family
development account program.
(c) "Contributor" means a person that makes a deposit to an
individual or family development account and is not the account
holder.
(d) "Department" means the department of labor and economic
growth.
(e) "Director" means the director of the department of labor
and economic growth.
(f) "Education expenses" means tuition and fees required for
the enrollment or attendance of a student who is 18 years of age or
older, a resident of this state, and a United States citizen 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) A state-licensed vocational or technical education
program.
(iii) A state-licensed proprietary school.
(iv) An independent nonprofit college or university located in
this state.
(h) "Federal poverty level" means the most recent federal
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
authorized to act as fiduciary and under the supervision of the
office of financial and insurance services in the department of
labor and economic growth; or a national banking association or
federal savings and loan association or credit union authorized to
act as fiduciary in this state.
(j) "Individual or family development account" or "account"
means a financial instrument established pursuant to section 4.
(k) "Individual or family development account reserve fund" or
"reserve fund" means a fund created by an approved community
development organization to fund the costs incurred to administer a
program and to provide matching funds for money in an account.
(l) "Program" means the individual or family development
account program established in section 3.
(m) "Program contributor" means a person that makes a
contribution to an account reserve fund and is not either of the
following:
(i) The account holder.
(ii) A contributor that is exempt from taxation under section
501(c)(3) of the internal revenue code, 26 USC 501.
(n) "Small business" means a business that meets the criteria
set forth in 13 CFR 101-1205 for a business that has the same North
American industry classification systems (NAICS) code
classification of that business.
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, home ownership or
improvements, or small business capitalization as provided in
section 4.
(2) The department shall solicit proposals from community
development organizations to administer the accounts on a not-for-
profit basis. Community development organization proposals shall
include both of the following:
(a) A requirement that the individual or family account holder
match contributions of a community development organization by
contributing cash or volunteer work.
(b) A process for including account holders in decision making
regarding the investment of money in their accounts.
(3) In reviewing the proposals 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 a reserve fund.
(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.
(4) The department shall promulgate rules pursuant to the
administrative procedures act of 1969, 1969 PA 306, MCL 24.201 to
24.328, to implement this act.
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 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. 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 if the account is a family development
account for postsecondary education at an eligible educational
institution.
(b) First-time purchase of a primary residence by the
individual account holder or any member of the family who is 18
years of age or older, a resident of this state, and a United
States citizen if the account is a family development account.
(c) Major repairs or improvements to a primary residence of
the individual account holder or any member of the family who is 18
years of age or older, a resident of this state, and a United
States citizen if the account is a family development account.
(d) Start-up capitalization of a small business for the
individual account holder or any member of the family who is 18
years of age or older, a resident of this state, and a United
States citizen.
(2) A financial institution approved by the department may
accept deposits into individual or family development accounts. The
financial institution that accepts deposits shall certify to the
department and the community development organization that
administers each account, on forms prescribed by the department and
accompanied by any documentation required by the department, that
the accounts have been established pursuant to this act and that
deposits have been made on behalf of the account holder.
(3) A financial institution in which an account has been
established shall do all of the following:
(a) Keep the account in the name of both the account holder
and the administrator of the community development organization
that administers the account.
(b) Permit deposits to be made to the account by the
following, subject to the indicated conditions:
(i) The account holder.
(ii) A contributor, if the deposit is made on behalf of an
account holder. A deposit under this subparagraph may include money
to match the account holder's deposits.
(c) Provide that the accounts earn the market rate of
interest.
(d) Permit the account holder to withdraw money from the
account for any of the purposes listed in subsection (1).
(4) The maximum total of all deposits made into an account in
a tax year that is exempt from taxation for that tax year is
$2,500.00. The total maximum balance in an account that is exempt
from taxation is $5,000.00. Accumulated interest earned on an
account is not included for purposes of this subsection.
(5) If a contribution to an account will cause the account
balance to exceed the maximum total for a tax year or the maximum
balance in an account, the financial institution shall notify the
account holder or other contributor and the administrator of the
community development organization that administers the account
that making the deposit will cause the account balance to exceed
the statutory maximums. Deposits that exceed the maximums shall be
returned to the contributor who makes the contribution or shall be
returned on a pro rata basis among multiple contributors.
Sec. 5. (1) Money withdrawn during a tax year from an account
by an account holder that is not withdrawn pursuant to section 4 is
subject to the following:
(a) The first time an account holder withdraws money from an
account that is not withdrawn pursuant to section 4, a penalty of
15% of the amount of the withdrawal.
(b) The second time an account holder withdraws money from an
account that is not withdrawn pursuant to section 4, a penalty of
15% of the amount of the withdrawal and the account shall be closed
and the money in the account forfeited.
(2) Interest earned on an account shall be distributed
proportionately to the account holder and other contributors based
on the individual contributions of each.
(3) Penalties and money forfeited by an account holder under
subsection (1) shall be deposited in the individual or family
development account reserve fund of the community development
organization that administered the account.
(4) An account holder shall name at least 1 contingent
beneficiary at the time the account is established and may change
beneficiaries at any time. In the event of an account holder's
death, 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.
Sec. 6. (1) Money deposited in or withdrawn pursuant to
section 4 from an individual or family development account by an
account holder is exempt from taxation under the income tax act of
1967, 1967 PA 281, MCL 206.1 to 206.532, and under the single
business tax act, 1975 PA 228, MCL 208.1 to 208.145.
(2) Interest earned by a family development account is exempt
from taxation pursuant to the income tax act of 1967, 1967 PA 281,
MCL 206.1 to 206.532.
(3) A contributor may deduct the amount of contributions made
to accounts from the taxpayer's tax base as determined under
section 9 of the single business tax act, 1975 PA 228, MCL 208.9.
(4) The administrator of a community development organization
that administers an account, with the cooperation of the
participating financial institutions, shall submit the names of
contributors and the total amount that each contributor contributes
to a 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. The
department shall submit verification of qualified tax credits
claimed pursuant to this act to the department of treasury.
Sec. 7. This act is effective January 1, 2005.
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. 642.
(b) Senate Bill No. 641.