I

106TH CONGRESS

2D SESSION H. R. 4993

To amend the Internal Revenue Code of 1986 to exclude from gross income

gain from the sale of securities which are used to pay for higher education expenses.

IN THE HOUSE OF REPRESENTATIVES

JULY 27, 2000

Mr. KNOLLENBERG (for himself, Mr. HORN, Mr. MCHUGH, and Mr. CAMP)

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 exclude

from gross income gain from the sale of securities which

are used to pay for higher education expenses.

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

3 SECTION 1. EXCLUSION FROM GROSS INCOME FOR GAIN

4 FROM SALE OF SECURITIES USED TO PAY

5 HIGHER EDUCATION EXPENSES.

6 (a) IN GENERAL.—Part III of subchapter B of chap7 ter 1 of the Internal Revenue Code of 1986 (relating to

8 items specifically excluded from gross income) is amended
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1 by redesignating section 139 as section 139A and by in2 serting after section 138 the following new section:

3 ‘‘SEC. 139. EXCLUSION FROM GROSS INCOME FOR GAIN

4 FROM SALE OF SECURITIES USED TO PAY

5 HIGHER EDUCATION EXPENSES.

6 ‘‘(a) GENERAL RULE.—In the case of an individual

7 who elects the application of this section and who pays

8 qualified higher education expenses during the taxable

9 year, no amount shall be includible in gross income by rea10 son of the sale during such year of any qualified security.

11 ‘‘(b) LIMITATION WHERE GAIN ON SALE OR EX12 CHANGE EXCEEDS HIGHER EDUCATION EXPENSES.—

13 ‘‘(1) IN GENERAL.—If—

14 ‘‘(A) the aggregate gain on the sale of any

15 qualified securities by the taxpayer during the

16 taxable year exceeds

17 ‘‘(B) the qualified higher education ex18 penses paid by the taxpayer during such taxable

19 year,

20 the amount excludable from gross income under sub21 section (a) shall not exceed the applicable fraction of

22 the amount excludable from gross income under sub23 section (a) without regard to this subsection.

24 ‘‘(2) APPLICABLE FRACTION.—For purposes of

25 subparagraph (A), the term ‘applicable fraction’
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1 means the fraction the numerator of which is the

2 amount described in paragraph (1)(B) and the de3 nominator of which is the amount described in para4 graph (1)(A).

5 ‘‘(c) DEFINITIONS AND SPECIAL RULE.—For pur6 poses of this section—

7 ‘‘(1) QUALIFIED SECURITY.—

8 ‘‘(A) IN GENERAL.—The term ‘qualified

9 security’ means any security (as defined in sec10 tion 1236(c)) which is traded on an established

11 securities market.

12 ‘‘(B) EXCEPTION.—Such term shall not in13 clude any security held in a qualified retirement

14 plan (as defined in section 4974(c)) or in an ac15 count or under an arrangement which is exempt

16 from tax under this title.

17 ‘‘(2) QUALIFIED HIGHER EDUCATION EX18 PENSES.—The term ‘qualified higher education ex19 penses’ has the meaning given such term by section

20 530(b)(2), reduced by the amount of such expenses

21 taken into account for purposes of any other provi22 sion of this chapter.

23 ‘‘(3) EXCLUSION NOT APPLICABLE TO GAIN

24 TREATED AS ORDINARY INCOME.—This section shall
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1 not apply to any gain which is treated as ordinary

2 income for purposes of this subtitle.’’.

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

4 for part III of subchapter B of chapter 1 of such Code

5 is amended by striking the item relating to section 139

6 and inserting the following new items:

‘‘Sec. 139. Exclusion from gross income for gain from sale of securities used to pay higher education expenses.

‘‘Sec. 139A. Cross references to other Acts.’’.

7 (c) EFFECTIVE DATE.—The amendments made by

8 this section shall apply to expenses paid after December

9 31, 2000 (in taxable years beginning after such date), for

10 education furnished in academic periods beginning after

11 such date.

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