Chapter 1000 Oregon Laws 1999

Session Law

AN ACT

HB 3600

Relating to individual development accounts.

Be It Enacted by the People of the State of Oregon:

SECTION 1. As used in this section and sections 2 to 8 of this 1999 Act, unless the context requires otherwise:

(1) "Account holder" means a member of a lower income household who is the named depositor of an individual development account.

(2) "Fiduciary organization" means a nonprofit, fund raising organization that is exempt from taxation under section 501(c)(3) of the Internal Revenue Code as amended and in effect on January 1, 1999.

(3) "Financial institution" means an organization regulated under ORS chapters 706 to 716, 722 or 723.

(4) "Individual development account" means a contract between an account holder and a fiduciary organization, for the deposit of funds into a financial institution by the account holder, and the deposit of matching funds into the financial institution by the fiduciary organization, to allow the account holder to accumulate assets for use toward achieving a specific purpose approved by the fiduciary organization.

(5) "Lower income household" means a household having an income equal to or less than 80 percent of the median household income for the area as determined by the Housing and Community Services Department. In making the determination, the department shall give consideration to any data on area household income published by the United States Department of Housing and Urban Development.

SECTION 2. The Legislative Assembly finds that:

(1) The problem of poverty will not be solved solely by government programs and income subsidies.

(2) Family economic well-being does not come solely from income, spending or consumption, but instead requires savings, investment and the accumulation of assets.

(3) It is appropriate for the state to institute an asset-based antipoverty strategy.

(4) The state has an opportunity to take advantage of private and federal resources by making the transition to an asset-based antipoverty strategy. Those resources include, but are not limited to, the Assets for Independence Act (42 U.S.C. 604) and the Workforce Investment Act (P.L. 105-220).

(5) Investment through an individual development account system will help lower income households obtain the assets they need to succeed. Communities and this state will experience resultant economic and social benefits accruing from the promotion of job training and higher education, home ownership and small business development.

(6) It is desirable for this state to enact legislation that enables an authorized fiduciary organization sufficient flexibility to receive private, state and federal moneys for individual development accounts. The Legislative Assembly should periodically review the provisions of sections 2 to 8 of this 1999 Act to ensure that this state maximizes the receipt of available federal moneys for individual development accounts.

SECTION 3. (1) A person who qualifies to become an account holder may enter into an agreement with a fiduciary organization for the establishment of an individual development account.

(2) A person qualifies to become an account holder if the person is a member of a lower income household that has a net worth of less than $20,000. As used in this subsection, "net worth" means the value of all assets owned in whole or part by household members, other than equity in a residence, minus the total debts and obligations of household members, all as measured at the time that the person applies to establish the account.

(3) A person applying to establish an account must enroll in a personal development plan developed by the person and the fiduciary organization. The plan must provide the person with appropriate financial counseling, career or business planning and other services designed to increase the independence of the person and the person's household through achievement of the account's approved purpose.

(4) Notwithstanding subsection (1) of this section, a fiduciary organization may refuse to allow a qualified person to establish an account if establishment of the account would result in the members of a lower income household having more than one account. Notwithstanding subsection (1) of this section, a fiduciary organization shall refuse to allow a qualified person to establish an account if establishment of the account would result in the members of a lower income household having more than two accounts.

SECTION 4. (1) A person may establish an individual development account only for a purpose approved by a fiduciary organization. Purposes that the fiduciary organization may approve are:

(a) The acquisition of post-secondary education or job training. If the account holder has established the account for the benefit of a household member who is under the age of 18 years, an approved purpose may include the payment of extracurricular nontuition expenses designed to prepare the member for post-secondary education or job training.

(b) The purchase of a primary residence. In addition to payment on the purchase price of the residence, account moneys may be used to pay any usual or reasonable settlement, financing or other closing costs. The account holder must not have owned or held any interest in a residence during the three years prior to making the purchase. However, this three-year period shall not apply to displaced homemakers or other individuals who have lost home ownership as a result of divorce.

(c) The capitalization of a small business. Account moneys may be used for capital, plant, equipment and inventory expenses or for working capital pursuant to a business plan. The business plan must have been developed by a financial institution, nonprofit microenterprise program or other qualified agent demonstrating business expertise and have been approved by the fiduciary organization. The business plan must include a description of the services or goods to be sold, a marketing plan and projected financial statements.

(2)(a) If an emergency occurs, an account holder may withdraw all or part of the account holder's deposits to an individual development account for a purpose not described in subsection (1) of this section. As used in this paragraph, an emergency includes making payments for necessary medical expenses, to avoid eviction of the account holder from the account holder's residence and for necessary living expenses following a loss of employment.

(b) The account holder must reimburse the account for the amount withdrawn under this subsection within 12 months after the date of the withdrawal. Failure of an account holder to make a timely reimbursement to the account is grounds for removing the account holder from the individual development account program. Until the reimbursement has been made in full, an account holder may not withdraw any matching deposits or accrued interest on matching deposits from the account.

(3) If an account holder withdraws moneys from an individual development account for other than an approved purpose, the fiduciary organization may remove the account holder from the program.

(4) If an account holder moves from the area where the program is conducted or is otherwise unable to continue in the program, the fiduciary organization may remove the account holder from the program.

(5) If an account holder is removed from the program under subsection (2), (3) or (4) of this section, all matching deposits in the account and all interest earned on matching deposits shall revert to the fiduciary organization. The fiduciary organization shall use the reverted funds as a source of matching deposits for other accounts.

SECTION 5. (1) Notwithstanding section 12 of this 1999 Act, a fiduciary organization selected under section 6 of this 1999 Act may qualify as the recipient of account contributions that qualify the contributor for a tax credit under section 12 of this 1999 Act only if the fiduciary organization structures the accounts to have the following features:

(a) The fiduciary organization matches amounts deposited by the account holder according to a formula established by the fiduciary organization. The fiduciary organization shall deposit not less than $1 nor more than $5 into the account for each $1 deposited by the account holder.

(b) The matching deposits by the fiduciary organization to the individual development account are placed in either:

(A) A savings account jointly held by the account holder and the fiduciary organization and requiring the signatures of both for withdrawals; or

(B) A savings account that is controlled by the fiduciary organization and is separate from the savings account of the account holder.

(2) Deposits by a fiduciary organization to an account shall not exceed $2,000 in any 12-month period. A fiduciary organization may designate a lower amount as a limit on annual matching deposits to an account.

(3) The total amount paid into an individual development account during its existence, including amounts from deposits, matching deposits and interest or investment earnings, may not exceed $20,000.

SECTION 6. The Housing and Community Services Department may select fiduciary organizations to administer moneys directed by the state to individual development account purposes. In making the selections, the department shall consider factors including, but not limited to:

(1) The ability of the fiduciary organization to implement and administer the individual development account program, including the ability to verify account holder eligibility, certify that matching deposits are used only for approved purposes and exercise general fiscal accountability;

(2) The capacity of the fiduciary organization to provide or raise matching funds for the deposits of account holders;

(3) The capacity of the fiduciary organization to provide financial counseling and other related services to account holders; and

(4) The links that the fiduciary organization has to other activities and programs designed to increase the independence of this state's lower income households through education and training, home ownership and small business development.

SECTION 7. (1) Subject to Housing and Community Services Department rules, a fiduciary organization has sole authority over, and responsibility for, the administration of individual development accounts. The responsibility of the fiduciary organization extends to all aspects of the account program, including marketing to participants, soliciting matching contributions, counseling account holders, providing financial literacy education, and conducting required verification and compliances activities. The fiduciary organization may establish program provisions as the organization believes necessary to ensure account holder compliance with the provisions of sections 3 and 4 of this 1999 Act. Notwithstanding sections 1 (5) and 3 (2) of this 1999 Act, a fiduciary organization may establish income and net worth limitations for account holders that are lower than the income and net worth limitations established by sections 1 (5) and 3 (2) of this 1999 Act.

(2) A fiduciary organization may act in partnership with other entities, including businesses, government agencies, nonprofit organizations, community development corporations, community action programs, housing authorities and congregations to assist in the fulfillment of fiduciary organization responsibilities under this section and sections 4, 5 and 6 of this 1999 Act.

(3) A fiduciary organization may use a reasonable portion of moneys allocated to the individual development account program for administration, operation and evaluation purposes.

(4) A fiduciary organization selected to administer moneys directed by the state to individual development account purposes or receiving tax deductible contributions shall provide the Housing and Community Services Department with an annual report of the fiduciary organization's individual development account program activity. The report shall be filed no later than 90 days after the end of the fiscal year of the fiduciary organization. The report shall include, but is not limited to:

(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; and

(e) Any other information the department may require for the purpose of making a return on investment analysis.

(5) The department may make all reasonable and necessary rules to ensure fiduciary organization compliance with this section and sections 4, 5 and 6 of this 1999 Act.

SECTION 8. The Housing and Community Services Department shall begin the process to select fiduciary organizations to administer moneys directed by the state to individual development account purposes no later than 90 days after the effective date of this 1999 Act. State agencies shall render all necessary cooperation to the department, and the fiduciary organizations selected by the department, to expedite the process of preparing the fiduciary organization to administer individual development accounts.

SECTION 9. Section 10 of this 1999 Act is added to and made a part of ORS chapter 316.

SECTION 10. (1) In addition to the other modifications to federal taxable income contained in this chapter, there shall be subtracted from federal taxable income the amount of taxpayer deposits to an individual development account established by the taxpayer under section 4 of this 1999 Act.

(2) Matching deposits made by a fiduciary organization to an individual development account, and interest accruing on account holder deposits and matching deposits, are exempt from taxation until withdrawn by the taxpayer.

(3) Moneys withdrawn by the taxpayer from an individual development account for an approved purpose, as described under section 4 of this 1999 Act, are exempt from taxation under this chapter. A withdrawal by a taxpayer for a purpose other than an approved purpose is taxable under this chapter.

SECTION 11. Section 12 of this 1999 Act is added to and made a part of ORS chapter 315.

SECTION 12. (1) A credit against taxes otherwise due under ORS chapter 316, 317 or 318 shall be allowed for donations to a fiduciary organization for distribution to individual development accounts established under section 4 of this 1999 Act. The credit shall equal the lesser of $25,000 or 25 percent of the donation amount.

(2) If a credit allowed under this section is claimed, the amount upon which the credit is based that is allowed or allowable as a deduction from federal taxable income under section 170 of the Internal Revenue Code shall be added to federal taxable income in determining Oregon taxable income. As used in this subsection, the amount upon which a credit is based is the allowed credit divided by 25 percent.

(3) The allowable tax credit that may be used in any one tax year shall not exceed the tax liability of the taxpayer.

(4) Any tax credit otherwise allowable under this section that is not used by the taxpayer in a particular year may be carried forward and offset against the taxpayer's tax liability for the next succeeding tax year. Any tax credit remaining unused in the next succeeding tax year may be carried forward and used in the second succeeding tax year. Any tax credit not used in the second succeeding tax year may be carried forward and used in the third succeeding tax year, but may not be carried forward for any tax year thereafter.

SECTION 13. (1) In addition to the report required under section 7 (4) of this 1999 Act, each fiduciary organization authorized to administer an individual development account shall report quarterly to the Housing and Community Services Department for the calendar quarters ending after October 1, 2000, and before October 1, 2001. The report shall summarize the amounts of deposits made to individual development accounts by account holders, the amounts of deposit withdrawals for approved purposes, the amounts of deposit withdrawals for non-approved purposes, the number and size of donations and the determination of whether the donor is a corporation. The department may require that the report contain additional information as requested by the Legislative Revenue Office. The fiduciary organization must file the report not more than 30 days after the end of the calendar quarter. The department shall promptly forward report information quarterly to the Legislative Revenue Office.

(2) Based on any available information, the Legislative Revenue Office shall estimate the total revenue impact of tax deductions allowed under section 10 (1) of this 1999 Act for the biennium ending June 30, 2001. The revenue office shall report on the estimated revenue impact to an appropriate interim committee of the Seventieth Legislative Assembly before December 31, 2000.

(3) Based on any available information, the Legislative Revenue Office shall estimate the total revenue impact of tax credits allowed under section 12 (1) of this 1999 Act for the biennium ending June 30, 2001. The revenue office shall report on the estimated revenue impact to an appropriate interim committee of the Seventieth Legislative Assembly before December 31, 2000.

SECTION 14. (1) Notwithstanding section 10 of this 1999 Act, if the Legislative Revenue Office reports under section 13 (2) of this 1999 Act that the revenue impact of tax deductions under section 10 (1) of this 1999 Act for the biennium ending June 30, 2001, is likely to exceed $250,000, a deduction shall not be allowed under section 10 of this 1999 Act for any deposits made on or after January 1, 2001, and on or before December 31, 2002.

(2) Notwithstanding section 12 of this 1999 Act, if the Legislative Revenue Office reports under section 13 (3) of this 1999 Act that the revenue impact of tax credits under section 12 (1) of this 1999 Act for the biennium ending June 30, 2001, is likely to exceed $500,000, a credit shall not be allowed under section 12 of this 1999 Act for donations made on or after January 1, 2001, and on or before December 31, 2002.

SECTION 15. Sections 8, 13 and 14 of this 1999 Act are repealed on January 1, 2004. The repeal of section 14 of this 1999 Act does not allow a taxpayer to file for any deduction or credit under section 10 or 12 of this 1999 Act that was prohibited under section 14 of this 1999 Act.

Approved by the Governor August 20, 1999

Filed in the office of Secretary of State August 23, 1999

Effective date October 23, 1999

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