Bill Text: IA HF464 | 2019-2020 | 88th General Assembly | Introduced

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Bill Title: A bill for an act providing for the establishment of recreation savings accounts and a related individual income tax exemption, and including applicability provisions.

Spectrum: Partisan Bill (Republican 1-0)

Status: (Introduced - Dead) 2020-01-22 - Subcommittee reassigned: Hagenow, Hein and Jacoby. H.J. 122. [HF464 Detail]

Download: Iowa-2019-HF464-Introduced.html

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House File 464 - Introduced
HOUSE FILE 464
BY BOSSMAN
A BILL FOR
An Act providing for the establishment of recreation savings
accounts and a related individual income tax exemption, and
including applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
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Section 1. Section 422.7, Code 2019, is amended by adding
the following new subsection:
NEW SUBSECTION . 48. a. Subtract the sum of the following
amounts:
(1) The amount of contributions made by an account holder
during the tax year to the account holder’s recreation savings
accounts, not to exceed two thousand dollars per year.
(2) To the extent included, income from interest received
from the account holder’s recreation savings accounts.
b. Add, to the extent previously deducted under paragraph
“a” , the amount withdrawn during the tax year from an account
holder’s recreation savings account for purposes other than
the payment or reimbursement of the designated beneficiary’s
eligible recreation costs. For purposes of this paragraph,
the transfer of amounts between different recreation savings
accounts of the same account holder by a person other than the
account holder shall not cause such transfer to be considered
a withdrawal.
c. For any amount considered a withdrawal required to be
added to net income pursuant to paragraph “b” , the account
holder shall be assessed a penalty equal to ten percent of
the amount of the withdrawal. The penalty shall not apply
to withdrawals made by reason of the death of the account
holder, or to withdrawals made pursuant to a garnishment,
level, or other order, including but not limited to an order in
bankruptcy code, 11 U.S.C. §101 et seq.
d. For purposes of this subsection, “account holder” ,
“designated beneficiary” , “eligible recreation costs” , and
“recreation savings account” mean the same as defined in section
541C.2.
Sec. 2. NEW SECTION . 541C.1 Short title.
This chapter may be cited as the “Iowa Recreation Savings
Account Act” .
Sec. 3. NEW SECTION . 541C.2 Definitions.
As used in this chapter, unless the context otherwise
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requires:
1. “Account holder” means an individual who establishes,
either individually or jointly with the individual’s spouse, a
recreation savings account pursuant to section 541C.3.
2. “Department” means the department of revenue.
3. “Designated beneficiary” means an individual meeting the
requirements of section 541C.3, subsection 2, and designated
by an account holder as beneficiary of the account holder’s
recreation savings account pursuant to section 541C.3,
subsection 2.
4. a. “Eligible recreation costs” means a cost, fee, tax,
or payment incurred by, or charged or assigned to, a designated
beneficiary for the purchase of any of the following:
(1) Sport or recreational equipment, as defined in section
423.3, subsection 68.
(2) Clothing worn in conjunction with sport, exercise, or
recreation.
(3) Personal wellness services, including but not limited
to a fitness club or gym membership, or consultation with a
personal trainer.
(4) Organized or unorganized sports, lessons, programs, or
other recreational activities.
b. “Eligible recreation costs” includes any cost, fee, tax,
or payment as provided in paragraph “a” , which is made for the
direct benefit of the designated beneficiary, the designated
beneficiary’s spouse, or a dependent child of the designated
beneficiary.
5. “Financial institution” means the same as defined in
section 541B.2.
6. “Individual” means a natural person.
7. “Recreation savings account” means an account that
meets the requirements of sections 541C.3 and 541C.4 and that
was established for the purpose of paying or reimbursing a
designated beneficiary’s eligible recreation costs.
8. “Resident” means the same as defined in section 422.4.
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Sec. 4. NEW SECTION . 541C.3 Recreation savings account.
1. Establishment of account.
a. Beginning January 1, 2020, an individual may open an
interest-bearing savings account with a financial institution
and designate the entire account as a recreation savings
account for the purpose of paying or reimbursing a designated
beneficiary’s eligible recreation costs. The recreation
savings account designation shall be made no later than April
30 of the year following the tax year during which the account
is opened, on forms provided by the department.
b. A married couple electing to file a joint Iowa individual
income tax return may establish a joint recreation savings
account. Married taxpayers electing to file separate tax
returns or separately on a combined tax return for Iowa tax
purposes shall not establish or maintain a joint recreation
savings account.
c. An individual may establish more than one recreation
savings account, provided each account has a different
designated beneficiary.
2. Designation of beneficiary.
a. The account holder shall designate one individual as
beneficiary of the recreation savings account. The designation
shall be made on forms provided by the department and no later
than April 30 of the year following the tax year during which
the account is opened. The account holder may change the
designated beneficiary of the recreation savings account at any
time.
b. The account holder and designated beneficiary of a
recreation savings account may be the same individual.
c. An individual may be the designated beneficiary of more
than one recreation savings account.
d. The designated beneficiary of a recreation savings
account must be a resident.
Sec. 5. NEW SECTION . 541C.4 Account administration ——
account holder responsibilities.
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1. Account contributions. Contributions to a recreation
savings account may be made by any person in the form of cash.
There is no limitation on the amount of contributions that may
be made to or retained in a recreation savings account.
2. Account expenses. The account holder shall not use funds
held in a recreation savings account to pay expenses, if any,
of administering the account, except that all fees and charges
assessed by the financial institution may be deducted from the
account by the financial institution where the account is held.
3. Required reports. The account holder shall submit the
following information to the department:
a. An annual report for the recreation savings account
on forms furnished by the department. The report shall be
included with the Iowa income tax return of the account holder.
b. A copy of the federal internal revenue service form
1099, or other similar federal internal revenue service income
reporting form, if any, issued for the recreation savings
account to the account holder by the financial institution
where the account is held. The form shall be included with the
Iowa income tax return of the account holder.
c. Upon a withdrawal of funds from a recreation savings
account, a transaction report on forms furnished by the
department.
4. Withdrawal of funds. The account holder may withdraw
funds from a recreation savings account at any time.
Sec. 6. NEW SECTION . 541C.5 Financial institution
protections.
Nothing in this chapter shall be construed to require a
financial institution to do any of the following, or to be
responsible or liable for any of the following:
1. Designate or label within the financial institution’s
account contracts, systems, or in any other manner, an account
as a recreation savings account.
2. Ascertain or verify the purpose of a withdrawal of funds
from a recreation savings account, or track the destination or
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use of the withdrawn funds.
3. Allocate funds in a recreation savings account to a
designated beneficiary or among joint account holders.
4. Report any information to the department or any other
governmental agency.
5. Determine or ensure that an account satisfies the
requirements to be a recreation savings account.
6. Determine or ensure that funds withdrawn from a
recreation savings account are used for the payment or
reimbursement of a designated beneficiary’s eligible recreation
costs.
7. Report or remit taxes or penalties related to the
ownership or use of a recreation savings account.
8. Include the name of a beneficiary in the title of a
recreation savings account, or document the change of any
beneficiary to a recreation savings account.
Sec. 7. NEW SECTION . 541C.6 Tax considerations.
The state income tax treatment of a recreation savings
account shall be as provided in section 422.7, subsection 48.
Sec. 8. NEW SECTION . 541C.7 Rules and forms.
1. The department shall adopt rules to implement and
administer this chapter, including but not limited to rules
that identify transactions which qualify as eligible recreation
costs.
2. The department shall create and make available forms
to be used in complying with this chapter, including but not
limited to the following:
a. A form for designating an account as a recreation savings
account pursuant to section 541C.3, subsection 1, paragraph
“a” .
b. A form for designating an individual as beneficiary
of a recreation savings account pursuant to section 541C.3,
subsection 2, paragraph “a” .
c. A recreation savings account annual report as required in
section 541C.4, subsection 3, paragraph “a” . The report shall
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require, at a minimum, a list of transactions occurring on the
account during the tax year, and shall identify any supporting
documentation to be included with the report or maintained by
the taxpayer.
d. A transaction report as required in section 541C.4,
subsection 3, paragraph “c” , which report shall require, at a
minimum, information regarding the eligible recreation costs
to which any withdrawn funds were applied, and information
regarding the amount of funds remaining, if any, in a
recreation savings account.
Sec. 9. APPLICABILITY. The following provision of this Act
applies to tax years beginning on or after January 1, 2020:
The section of this Act enacting section 422.7, subsection
48.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
This bill allows individuals, on or after January 1, 2020,
to open an interest-bearing savings account with a state or
federally chartered bank, savings and loan association, credit
union, or trust company in this state and designate the account
as a recreation savings account (account) for the purpose of
financing eligible recreation costs. “Eligible recreation
costs” is defined as a cost, fee, tax, or payment incurred by
the beneficiary of the account (designated beneficiary) for the
purchase of sport or recreational equipment, personal wellness
services, or recreational activities for the benefit of the
designated beneficiary’s immediate family. The account may
be established individually, or jointly with a spouse if the
married couple files a joint Iowa income tax return.
To establish the account, the bill requires the account
holder to submit certain forms to the department of revenue
(department) designating the account as a recreation savings
account, and identifying the designated beneficiary. These
designation forms must be submitted no later than April 30 of
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the year following the tax year during which the account is
opened. An individual may establish more than one account,
provided each account has a different designated beneficiary.
The account holder may change the designated beneficiary at any
time, and may designate himself or herself as the designated
beneficiary. In addition, an individual may be the designated
beneficiary of more than one account. The designated
beneficiary must be a resident of Iowa.
Contributions to an account may be made in the form of cash
by any person and in any amount. There is no limitation on the
amount that may be retained in an account. In addition, the
account holder may withdraw funds from an account at any time.
Account funds shall not be used to pay expenses, if any, of
administering the account, except that fees and charges may be
deducted from the account by the financial institution where
the account is held. The bill requires an account holder to
submit certain reports to the department, including an annual
report for the account, a transaction report upon a withdrawal
of funds from the account, and a copy of any federal Internal
Revenue Service form 1099 or other similar income statement
issued for the account.
The bill provides protection to financial institutions from
being required to perform, and from being responsible or liable
for, certain activities as described in the bill with respect
to accounts. The bill requires the department to create forms
required to be filed by account holders, and to adopt rules to
implement and administer the bill, including but not limited
to rules identifying transactions which qualify as “eligible
recreation costs”.
The bill provides two individual income tax incentives
relating to the accounts. First, an account holder is
allowed to deduct from the individual income tax the amount of
contributions made during the year by the account holder to
the account holder’s accounts, not to exceed $2,000 per year.
Second, the bill exempts from the individual income tax any
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interest received from the account holder’s accounts.
The bill requires an account holder to add to net income for
purposes of calculating the individual income tax any amount
of a nonqualified withdrawal from an account to the extent it
was previously deducted as a contribution. Amounts transferred
between different accounts of the same account holder by
a person other than the account holder are not considered
nonqualified withdrawals. Nonqualified withdrawals required to
be added to net income are also subject to a penalty equal to 10
percent of the nonqualified withdrawal, unless the withdrawal
was made by reason of the death of the account holder, or was
made pursuant to a garnishment, levy, or other order, including
an order in bankruptcy following a filing for protection under
the federal bankruptcy code.
The tax provisions of the bill apply to tax years beginning
on or after January 1, 2020.
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