I

104TH CONGRESS

1ST SESSION H. R. 1328

To amend the Internal Revenue Code of 1986 to provide that no amount

shall be includible in gross income by reason of participation in a State

prepaid tuition program.

IN THE HOUSE OF REPRESENTATIVES

MARCH 28, 1995

Mr. ENGLISH of Pennsylvania (for himself and Mr. DOYLE) introduced the

following bill; which was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to provide

that no amount shall be includible in gross income by

reason of participation in a State prepaid tuition program.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Tuition Account

5 Assistance Act of 1995’’.
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1 SEC. 2. TREATMENT OF PARTICIPATION IN STATE PREPAID

2 TUITION PROGRAM.

3 (a) IN GENERAL.—Part III of subchapter B of chap4 ter 1 of the Internal Revenue Code of 1986 (relating to

5 items specifically excluded from gross income) is amended

6 by redesignating section 137 as section 138 and by insert7 ing after section 136 the following new section:

8 ‘‘SEC. 137. TREATMENT OF PARTICIPATION IN STATE PRE9 PAID TUITION PROGRAM.

10 ‘‘(a) GENERAL RULE.—No amount shall be includ11 ible in the gross income of any person by reason of—

12 ‘‘(1) education furnished to a designated bene13 ficiary pursuant to a qualified State prepaid tuition

14 program, or

15 ‘‘(2) earnings on any amount paid to such a

16 program for the purchase of tuition credits for a

17 designated beneficiary.

18 ‘‘(b) QUALIFIED STATE PREPAID TUITION PRO19 GRAM.—For purposes of this section—

20 ‘‘(1) IN GENERAL.—The term ‘qualified State

21 prepaid tuition program’ means a program estab22 lished and maintained by a State or any agency

23 thereof under which—

24 ‘‘(A) an individual may purchase tuition

25 credits for tuition for the undergraduate edu26 cation of a designated beneficiary,
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1 ‘‘(B) the value of the tuition credits is not

2 limited to the amounts paid for such credits

3 and earnings thereon,

4 ‘‘(C) the individual has no authority to di5 rect the investment of amounts paid to the pro6 gram, and

7 ‘‘(D) the requirements of paragraph (3)

8 are met with respect to any refund of amounts

9 paid to the program.

10 Subparagraph (B) shall not apply to tuition at an

11 institution of higher education which is not required

12 by the laws of such State to participate in such pro13 gram.

14 ‘‘(2) TREATMENT OF EXCESS TUITION CRED15 ITS.—A program shall not fail to be treated as a

16 qualified State prepaid tuition program by reason of

17 permitting tuition credits to be used other than for

18 tuition for an undergraduate education if—

19 ‘‘(A) the only other purposes for which

20 such credits may be used are—

21 ‘‘(i) for tuition for a graduate degree

22 program of the designated beneficiary, or

23 ‘‘(ii) for education expenses (other

24 than tuition) of such beneficiary, and
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1 ‘‘(B) the program provides a significant re2 duction in the value of such credits if used for

3 such other purposes.

4 ‘‘(3) RESTRICTIONS ON REFUNDS.—A refund

5 meets the requirements of this paragraph if the re6 fund meets the requirements of any of the following

7 subparagraphs.

8 ‘‘(A) DEATH OR DISABILITY OF DES9 IGNATED BENEFICIARY.—A refund meets the

10 requirements of this subparagraph if the refund

11 is made on account of the death or disability of

12 the designated beneficiary.

13 ‘‘(B) SCHOLARSHIPS.—A refund meets the

14 requirements of this subparagraph if the refund

15 is made on account of a scholarship received by

16 the designated beneficiary and the amount of

17 the refund does not exceed the amount of the

18 scholarship which is used for tuition.

19 ‘‘(C) FAILURE TO GAIN ADMISSION.—A re20 fund meets the requirements of this subpara21 graph if the refund is made on account of the

22 failure of the designated beneficiary to gain ad23 mission to an institution of higher education

24 (after making a good faith attempt, as deter25 mined by the program, to gain admission) and
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1 the amount of the refund does not exceed 90

2 percent of the value of the designated bene3 ficiary’s account.

4 ‘‘(D) OTHER WITHDRAWALS FROM PAR5 TICIPATION.—A refund meets the requirements

6 of this subparagraph if the refund is made on

7 account of a termination of participation in the

8 qualified State prepaid tuition program (other

9 than for a reason described in any of the pre10 ceding subparagraphs) and the amount of the

11 refund does not exceed the lesser of—

12 ‘‘(i) 90 percent of the value of the

13 designated beneficiary’s account, or

14 ‘‘(ii) the aggregate amount paid to

15 such program for the benefit of the des16 ignated beneficiary.

17 ‘‘(c) OTHER DEFINITIONS.—For purposes of this

18 section—

19 ‘‘(1) TUITION CREDIT.—The term ‘tuition cred20 it’ means the amount of tuition which is paid by the

21 qualified State prepaid tuition program reason of

22 payments to such program.

23 ‘‘(2) TUITION.—The term ‘tuition’ means tui24 tion and related expenses (as defined in section

25 117(b)(2)).
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1 ‘‘(3) DESIGNATED BENEFICIARY.—The term

2 ‘designated beneficiary’ means the individual des3 ignated at the commencement of participation in the

4 qualified State prepaid tuition program (or any sub5 stitute beneficiary to the extent provided by the pro6 gram) as the beneficiary of amounts paid (or to be

7 paid) to the program.

8 ‘‘(4) VALUE OF DESIGNATED BENEFICIARY’S

9 ACCOUNT.—The value of a designated beneficiary’s

10 account is an amount equal to the sum of—

11 ‘‘(A) the aggregate amount paid to the

12 qualified State prepaid tuition program for the

13 benefit of such designated beneficiary, plus

14 ‘‘(B) such amount’s pro rata share of the

15 earnings (if any) on the aggregate amount paid

16 to such program for all designated beneficiaries.

17 ‘‘(5) PERSON.—The term ‘person’ includes a

18 State and any agency of a State.’’

19 (b) CLERICAL AMENDMENT.—The table of sections

20 for such part III is amended by striking the last item and

21 inserting the following new items:

‘‘Sec. 137. Treatment of participation in State prepaid tuition

program.

‘‘Sec. 138. Cross references to other Acts.’’
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years ending after Sep3 tember 30, 1993.

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