To amend the Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 to allow investments by certain retirement plans in principal residences of children and grandchildren of participants who are first-time homebuyers.

June 25, 2001

Mr. WATKINS of Oklahoma (for himself and Mrs. THURMAN) introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 to allow investments by certain retirement plans in principal residences of children and grandchildren of participants who are first-time homebuyers.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `First-time Homebuyer Down Payment Assistance Act'.

SEC. 2. EQUITY INVESTMENTS IN PRINCIPAL RESIDENCES FOR FIRST-TIME HOMEBUYERS BY CERTAIN RETIREMENT PLANS.

(a) EXEMPTION OF INVESTMENT FROM PROHIBITED TRANSACTION RULES- Section 4975 of the Internal Revenue Code of 1986 (relating to tax on prohibited transactions) is amended by redesignating subsections (h) and (i) as subsections (i) and (j), respectively, and by inserting after subsection (g) the following new subsection:

`(h) SPECIAL RULE FOR HOME EQUITY PARTICIPATION ARRANGEMENTS-

`(1) IN GENERAL- The prohibitions provided in subsection (c) shall not apply to any qualified home equity participation arrangement to the extent that the amount paid to acquire the ownership interest referred to paragraph (2)(A) does not exceed $10,000.

`(2) QUALIFIED HOME EQUITY PARTICIPATION ARRANGEMENT- For purposes of this subsection--

`(A) IN GENERAL- The term `qualified home equity participation arrangement' means an arrangement--

`(i) under which the trustee of a qualified plan, at the direction of the eligible participant, shall acquire an ownership interest in any dwelling unit which within a reasonable period of time (determined at the time the arrangement is executed) is to be used as the principal residence for a first-time homebuyer, and

`(ii) which meets the requirements of subparagraph (B).

`(B) OWNERSHIP INTEREST REQUIREMENT- An arrangement shall meet the requirements of this subparagraph if the ownership interest described in subparagraph (A)--

`(i) is a fee interest in such property (and, in the case of an arrangement which is not otherwise at arm's length, the trustee's fee interest would be reasonable in an arm's length arrangement),

`(ii) by its terms requires repayment in full upon the sale or other transfer of the dwelling unit, and

`(iii) may not be used as security for any loan secured by any interest in the dwelling unit.

`(3) DEFINITIONS- For purposes of this subsection--

`(A) ELIGIBLE PARTICIPANT- The term `eligible participant' means an individual on whose behalf a qualified plan is established.

`(B) QUALIFIED PLAN- The term `qualified plan' means an individual retirement plan or qualified cash or deferred arrangement described in section 401(k).

`(C) FIRST-TIME HOMEBUYER- The term `first-time homebuyer' means an individual who--

`(i) is an eligible participant or qualified family member, and

`(ii) had (and if married, such individual's spouse had) no present ownership interest in a principal residence at any time during the 2-year period before the date of the arrangement.

`(D) QUALIFIED FAMILY MEMBER- The term `qualified family member' means a child (as defined in section 151(c)(3)) or grandchild of the eligible participant (or such participant's spouse). Section 152(b)(2) shall apply in determining if an individual is a child or grandchild of an eligible participant (or such participant's spouse).

`(E) ACQUISITION; ETC-

`(i) ACQUISITION- The term `acquisition' includes construction, reconstruction, and improvement related to such acquisition.

`(ii) ACQUISITION COST- The term `acquisition cost' has the meaning given such term by section 143(k)(3).

`(F) PRINCIPAL RESIDENCE- The term `principal residence' has the same meaning as when used in section 121.'.

(b) INVESTMENT NOT A LOAN UNDER DISTRIBUTION RULES- Section 72(p) of such Code (relating to loans treated as distributions) is amended by adding at the end the following new paragraph:

`(6) SPECIAL RULE FOR HOME EQUITY PARTICIPATION ARRANGEMENTS- Paragraph (1) shall not apply to a qualified home equity participation arrangement to which section 4975(h)(1) applies.'.

(c) CONFORMING AMENDMENT- Section 408(b) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1108(b)) is amended by adding at the end the following new paragraph:

`(14) Any qualified home equity participation arrangement to which section 4975(h) of the Internal Revenue Code of 1986 applies to the extent that the requirements of paragraph (1) thereof are met.'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to arrangements entered into after the date of the enactment of this Act.

END