To amend the Internal Revenue Code of 1986 to permit private educational institutions to maintain qualified tuition programs and to provide that distributions from such programs which are used to pay educational expenses shall not be includible in gross income.

Summary: College Savings Protection Act- Amends the Internal Revenue Code to: (1) permit private educational institutions to maintain qualified tuition programs; and (2) exclude distributions from such programs which are used to pay educational expenses from gross income.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``College Savings Protection Act''.

SEC. 2. MODIFICATIONS TO QUALIFIED TUITION PROGRAMS.

    (a) Eligible Educational Institutions Permitted To Maintain 
Qualified Tuition Programs.--
            (1) In general.--Section 529(b)(1) of the Internal Revenue 
        Code of 1986 (defining qualified State tuition program) is 
        amended by inserting ``or by one or more eligible educational 
        institutions'' after ``maintained by a State or agency or 
        instrumentality thereof''.
            (2) Private qualified tuition programs limited to benefit 
        plans.--Clause (ii) of section 529(b)(1)(A) of such Code is 
        amended by inserting ``in the case of a program established and 
        maintained by a State or agency or instrumentality thereof,'' 
        before ``may make''.
            (3) Conforming amendments.--
                    (A) Sections 72(e)(9), 135(c)(2)(C), 135(d)(1)(D), 
                529, 530(b)(2)(B), 4973(e), and 6693(a)(2)(C) of such 
                Code are each amended by striking ``qualified State 
                tuition'' each place it appears and inserting 
                ``qualified tuition''.
                    (B) The headings for sections 72(e)(9) and 
                135(c)(2)(C) of such Code are each amended by striking 
                ``qualified state tuition'' and inserting ``qualified 
                tuition''.
                    (C) The headings for sections 529(b) and 
                530(b)(2)(B) of such Code are each amended by striking 
                ``Qualified state tuition'' and inserting ``Qualified 
                tuition''.
                    (D) The heading for section 529 of such Code is 
                amended by striking ``state''.
                    (E) The item relating to section 529 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 Education Distributions From 
Qualified Tuition Programs.--
            (1) In general.--Section 529(c)(3)(B) of such Code 
        (relating to distributions) is amended to read as follows:
                    ``(B) Distributions for qualified higher education 
                expenses.--For purposes of this paragraph--
                            ``(i) In-kind distributions.--No amount 
                        shall be includible in gross income under 
                        subparagraph (A) 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.
                            ``(ii) Cash distributions.--In the case of 
                        distributions not described in clause (i), if--
                                    ``(I) such distributions do not 
                                exceed the qualified higher education 
                                expenses (reduced by expenses described 
                                in clause (i)), no amount shall be 
                                includible in gross income, and
                                    ``(II) in any other case, the 
                                amount otherwise includible in gross 
                                income shall be reduced by an amount 
                                which bears the same ratio to such 
                                amount as such expenses bear to such 
                                distributions.
                            ``(iii) Treatment as distributions.--Any 
                        benefit furnished to a designated beneficiary 
                        under a qualified tuition program shall be 
                        treated as a distribution to the beneficiary 
                        for purposes of this paragraph.
                            ``(iv) Coordination with hope and lifetime 
                        learning credits.--The total amount of 
                        qualified higher education expenses with 
                        respect to an individual for the taxable year 
                        shall be reduced--
                                    ``(I) as provided in section 
                                25A(g)(2), and
                                    ``(II) by the amount of such 
                                expenses which were taken into account 
                                in determining the credit allowed to 
                                the taxpayer or any other person under 
                                section 25A.
                            ``(v) Coordination with education 
                        individual retirement accounts.--If, with 
                        respect to an individual for any taxable year--
                                    ``(I) the aggregate distributions 
                                to which clauses (i) and (ii) and 
                                section 530(d)(2)(A) apply, exceed
                                    ``(II) the total amount of 
                                qualified higher education expenses 
                                otherwise taken into account under 
                                clauses (i) and (ii) (after the 
                                application of clause (iv)) for such 
                                year,
                        the taxpayer shall allocate such expenses among 
                        such distributions for purposes of determining 
                        the amount of the exclusion under clauses (i) 
                        and (ii) and section 530(d)(2)(A).''.
            (2) Conforming amendments.--
                    (A) Section 135(d)(2)(B) of such Code is amended by 
                striking ``the exclusion under section 530(d)(2)'' and 
                inserting ``the exclusions under sections 
                529(c)(3)(B)(i) and 530(d)(2)''.
                    (B) Section 221(e)(2)(A) of such Code is amended by 
                inserting ``529,'' after ``135,''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2000.