To amend the Internal Revenue Code of 1986 to permit private educational institutions to maintain qualified tuition programs which are comparable to qualified State tuition programs, and for other purposes.

Summary: Amends the Internal Revenue Code to permit private educational institutions to maintain qualified tuition programs which are comparable to qualified State tuition programs.  Revises provisions concerning distributions for qualified education expenses.

SECTION 1. ELIGIBLE EDUCATIONAL INSTITUTIONS PERMITTED TO MAINTAIN 
              QUALIFIED TUITION PROGRAMS; OTHER MODIFICATIONS OF 
              QUALIFIED TUITION PROGRAMS.

    (a) Eligible Educational Institutions Permitted To Maintain 
Qualified Tuition Programs.--
            (1) In general.--Paragraph (1) of section 529(b) of the 
        Internal Revenue Code of 1986 (defining qualified State tuition 
        program) is amended by inserting ``or by 1 or more eligible 
        educational institutions'' after ``maintained by a State or 
        agency or instrumentality thereof''.
            (2) Technical amendments.--
                    (A) Section 72(e)(9) of such Code is amended--
                            (i) in the heading, by striking ``qualified 
                        state tuition programs'' and inserting 
                        ``qualified tuition programs'', and
                            (ii) in the text, by striking ``qualified 
                        State tuition program'' and inserting 
                        ``qualified tuition program''.
                    (B) Subsections (c)(2)(C) and (d)(1)(D) of section 
                135 of such Code are amended by striking ``qualified 
                State tuition program'' and inserting ``qualified 
                tuition program''.
                    (C) Section 529 of such Code is amended--
                            (i) by striking ``qualified State tuition 
                        program'' each place it appears and inserting 
                        ``qualified tuition program'', and
                            (ii) in subsection (c)(3)(D), by striking 
                        ``qualified State tuition programs'' and 
                        inserting ``qualified tuition programs''.
                    (D) Section 530(b)(2)(B) of such Code is amended--
                            (i) in the heading, by striking ``Qualified 
                        state tuition programs'' and inserting 
                        ``Qualified tuition programs'', and
                            (ii) in the text, by striking ``qualified 
                        State tuition program'' and inserting 
                        ``qualified tuition program''.
                    (E) Section 4973(e)(1)(B) of such Code is amended 
                by striking ``qualified State tuition program'' and 
                inserting ``qualified tuition program''.
                    (F) Section 6693(a)(2)(C) of such Code is amended 
                by striking ``qualified State tuition programs'' and 
                inserting ``qualified tuition programs''.
                    (G)(i) The section heading of section 529 of such 
                Code is amended to read as follows:

``SEC. 529. QUALIFIED TUITION PROGRAMS.''.

                    (ii) The item relating to section 529 of such Code 
                in the table of sections for part VIII of subchapter F 
                of chapter 1 of such Code is amended by striking 
                ``State''.
    (b) Exclusion From Gross Income of Distributions Allocable to 
Qualified Higher Education Expenses.--
            (1) In general.--Subparagraph (B) of section 529(c)(3) of 
        such Code (relating to distributions) is amended to read as 
        follows:
                    ``(B) Distributions for qualified higher education 
                expenses.--If a distributee elects the application of 
                this subparagraph for any taxable year--
                            ``(i) no amount shall be includible in 
                        gross income by reason of a distribution which 
                        consists of providing a benefit to the 
                        distributee which, if paid for by the 
                        distributee, would constitute payment of a 
                        qualified higher education expense, and
                            ``(ii) the amount which (but for the 
                        election) would be includible in gross income 
                        by reason of any other distribution shall not 
                        be so includible in an amount which bears the 
                        same ratio to the amount which would be so 
                        includible as the amount of the qualified 
                        higher education expenses of the distributee 
                        bears to the amount of the distribution.''.
            (2) Distributions treated as first being attributable to 
        income.--Subparagraph (A) of section 529(c)(3) of such Code is 
        amended to read as follows:
                    ``(A) In general.--Any distribution from a 
                qualified tuition program--
                            ``(i) shall be includible in the gross 
                        income of the distributee to the extent 
                        allocable to income under the program, and
                            ``(ii) shall not be includible in gross 
                        income to the extent allocable to investment in 
                        the contract.
                For purposes of the preceding sentence, rules similar 
                to the rules of section 72(e)(3) shall apply.''.
    (c) Change of Qualified Tuition Program.--Clause (i) of section 
529(c)(3)(C) of such Code is amended by inserting ``to another 
qualified tuition program for the benefit of the designated beneficiary 
or'' after ``transferred''.
    (d) Effective Date.--The amendments made by this section shall take 
effect on January 1, 2000.