I

106TH CONGRESS

1ST SESSION H. R. 7

To amend the Internal Revenue Code of 1986 to allow tax-free expenditures

from education individual retirement accounts for elementary and secondary school expenses, to increase the maximum annual amount of contributions to such accounts, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

MARCH 1, 1999

Mr. HULSHOF (for himself and Mr. LIPINSKI) 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 allow taxfree expenditures from education individual retirement

accounts for elementary and secondary school expenses,

to increase the maximum annual amount of contributions

to such accounts, and for other purposes.

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 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Education Savings and School Excellence Act of 1999’’.

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend-
2

•HR 7 IH

1 ment or repeal is expressed in terms of an amendment

2 to, or repeal of, a section or other provision, the reference

3 shall be considered to be made to a section or other provi4 sion of the Internal Revenue Code of 1986.

5 SEC. 2. MODIFICATIONS TO EDUCATION INDIVIDUAL RE6 TIREMENT ACCOUNTS.

7 (a) TAX-FREE EXPENDITURES FOR ELEMENTARY

8 AND SECONDARY SCHOOL EXPENSES.—

9 (1) IN GENERAL.—Section 530(b)(2) (defining

10 qualified higher education expenses) is amended to

11 read as follows:

12 ‘‘(2) QUALIFIED EDUCATION EXPENSES.—

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

14 education expenses’ means—

15 ‘‘(i) qualified higher education ex16 penses (as defined in section 529(e)(3));

17 and

18 ‘‘(ii) qualified elementary and second19 ary education expenses (as defined in para20 graph (4)).

21 Such expenses shall be reduced as provided in

22 section 25A(g)(2).

23 ‘‘(B) QUALIFIED STATE TUITION PRO24 GRAMS.—Such term shall include amounts paid

25 or incurred to purchase tuition credits or cer-
3

•HR 7 IH

1 tificates, or to make contributions to an ac2 count, under a qualified State tuition program

3 (as defined in section 529(b)) for the benefit of

4 the beneficiary of the account.’’.

5 (2) QUALIFIED ELEMENTARY AND SECONDARY

6 EDUCATION EXPENSES.—Section 530(b) (relating to

7 definitions and special rules) is amended by adding

8 at the end the following new paragraph:

9 ‘‘(4) QUALIFIED ELEMENTARY AND SECONDARY

10 EDUCATION EXPENSES.—

11 ‘‘(A) IN GENERAL.—The term ‘qualified el12 ementary and secondary education expenses’

13 means—

14 ‘‘(i) expenses for tuition, fees, aca15 demic tutoring, special needs services,

16 books, supplies, computer equipment (in17 cluding related software and services), and

18 other equipment which are incurred in con19 nection with the enrollment or attendance

20 of the designated beneficiary of the trust

21 as an elementary or secondary school stu22 dent at a public, private, or religious

23 school, or

24 ‘‘(ii) expenses for room and board,

25 uniforms, transportation, and supple-
4

•HR 7 IH

1 mentary items and services (including ex2 tended day programs) which are required

3 or provided by a public, private, or reli4 gious school in connection with such enroll5 ment or attendance.

6 ‘‘(B) SPECIAL RULE FOR

7 HOMESCHOOLING.—Such term shall include ex8 penses described in subparagraph (A)(i) in con9 nection with education provided by

10 homeschooling if the requirements of any appli11 cable State or local law are met with respect to

12 such education.

13 ‘‘(C) SCHOOL.—The term ‘school’ means

14 any school which provides elementary education

15 or secondary education (kindergarten through

16 grade 12), as determined under State law.’’.

17 (3) CONFORMING AMENDMENTS.—Subsections

18 (b)(1) and (d)(2) of section 530 are each amended

19 by striking ‘‘higher’’ each place it appears in the

20 text and heading thereof.

21 (b) MAXIMUM ANNUAL CONTRIBUTIONS.—Sections

22 530(b)(1)(A)(iii) and 4973(e)(1)(A) are each amended by

23 striking ‘‘$500’’ and inserting ‘‘$2,000’’.

24 (c) WAIVER OF AGE LIMITATIONS FOR CHILDREN

25 WITH SPECIAL NEEDS.—
5

•HR 7 IH

1 (1) Section 530(b)(1) (defining education indi2 vidual retirement account) is amended by adding at

3 the end the following flush sentence:

4 ‘‘The age limitations in subparagraphs (A) and (E)

5 shall not apply to any designated beneficiary with

6 special needs (as determined under regulations pre7 scribed by the Secretary).’’.

8 (2) Section 530(d)(5) is amended by striking

9 ‘‘who has not attained age 30 as of such date’’ and

10 inserting ‘‘who, as of such date, either has not at11 tained age 30 or has special needs (as determined

12 under regulations prescribed by the Secretary)’’.

13 (3) Section 530(d)(6) is amended by striking all

14 that follows ‘‘old beneficiary’’ and inserting ‘‘and, as

15 of the date of such change, either has not attained

16 age 30 or has special needs (as so determined).’’

17 (d) CORPORATIONS PERMITTED TO CONTRIBUTE TO

18 ACCOUNTS.—Section 530(c)(1) (relating to reduction in

19 permitted contributions based on adjusted gross income)

20 is amended by striking ‘‘The maximum amount which a

21 contributor’’ and inserting ‘‘In the case of a contributor

22 who is an individual, the maximum amount the contribu23 tor’’.
6

•HR 7 IH

1 (e) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 1999.

4 SEC. 3. EXCLUSION FROM GROSS INCOME OF EDUCATION

5 DISTRIBUTIONS FROM QUALIFIED STATE

6 TUITION PROGRAMS.

7 (a) IN GENERAL.—Section 529(c)(3)(B) (relating to

8 distributions) is amended to read as follows:

9 ‘‘(B) DISTRIBUTIONS FOR QUALIFIED

10 HIGHER EDUCATION EXPENSES.—

11 ‘‘(i) IN GENERAL.—No amount shall

12 be includible in gross income under sub13 paragraph (A) if the qualified higher edu14 cation expenses of the designated bene15 ficiary during the taxable year are not less

16 than the aggregate distributions during the

17 taxable year.

18 ‘‘(ii) DISTRIBUTIONS IN EXCESS OF

19 EXPENSES.—If such aggregate distribu20 tions exceed such expenses during the tax21 able year, the amount otherwise includible

22 in gross income under subparagraph (A)

23 shall be reduced by the amount which

24 bears the same ratio to the amount so in25 cludible (without regard to this subpara-
7

•HR 7 IH

1 graph) as such expenses bear to such ag2 gregate distributions.

3 ‘‘(iii) ELECTION TO WAIVE EXCLU4 SION.—A taxpayer may elect to waive the

5 application of this subparagraph for any

6 taxable year.

7 ‘‘(iv) IN-KIND DISTRIBUTIONS.—Any

8 benefit furnished to a designated bene9 ficiary under a qualified State tuition pro10 gram shall be treated as a distribution to

11 the beneficiary for purposes of this para12 graph.

13 ‘‘(v) DISALLOWANCE OF EXCLUDED

14 AMOUNTS AS CREDIT OR DEDUCTION.—No

15 deduction or credit shall be allowed to the

16 taxpayer under any other section of this

17 chapter for any qualified higher education

18 expenses to the extent taken into account

19 in determining the amount of the exclusion

20 under this paragraph.’’.

21 (b) DEFINITION OF QUALIFIED HIGHER EDUCATION

22 EXPENSES.—Section 529(e)(3)(A) (defining qualified

23 higher education expenses) is amended to read as follows:

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

25 higher education expenses’ means expenses for
8

•HR 7 IH

1 tuition, fees, academic tutoring, special needs

2 services, books, supplies, computer equipment

3 (including related software and services), and

4 other equipment which are incurred in connec5 tion with the enrollment or attendance of the

6 designated beneficiary at an eligible educational

7 institution.’’.

8 (c) COORDINATION WITH EDUCATION CREDITS.—

9 Section 25A(e)(2) (relating to coordination with exclu10 sions) is amended—

11 (1) by inserting ‘‘a qualified State tuition pro12 gram or’’ before ‘‘an education individual retirement

13 account’’; and

14 (2) by striking ‘‘section 530(d)(2)’’ and insert15 ing ‘‘section 529(c)(3)(B) or 530(d)(2)’’.

16 (d) ELIGIBLE EDUCATIONAL INSTITUTIONS PER17 MITTED TO MAINTAIN QUALIFIED TUITION PROGRAMS.—

18 (1) IN GENERAL.—Section 529(b)(1) (defining

19 qualified State tuition program) is amended by in20 serting ‘‘or by one or more eligible educational insti21 tutions’’ after ‘‘maintained by a State or agency or

22 instrumentality thereof’’.

23 (2) PRIVATE QUALIFIED TUITION PROGRAMS

24 LIMITED TO PREPAID PLANS.—Section 529(b)(1) is
9

•HR 7 IH

1 amended by adding at the end the following flush

2 sentence:

3 ‘‘Clause (ii) of subparagraph (A) shall only apply to

4 a program established and maintained by a State or

5 any agency or instrumentality thereof.’’.

6 (3) TAX ON EXCESS CONTRIBUTIONS.—

7 (A) IN GENERAL.—Section 4973(a) (relat8 ing to tax imposed) is amended by striking ‘‘or’’

9 at the end of paragraph (3), inserting ‘‘or’’ at

10 the end of paragraph (4), and inserting after

11 paragraph (4) the following new paragraph:

12 ‘‘(5) a private qualified tuition program (as de13 fined in subsection (g)),’’.

14 (B) EXCESS CONTRIBUTIONS DEFINED.—

15 Section 4973 is amended by adding at the end

16 the following new subsection:

17 ‘‘(g) EXCESS CONTRIBUTIONS TO PRIVATE QUALI18 FIED TUITION PROGRAM.—For purposes of this section—

19 ‘‘(1) IN GENERAL.—In the case of private

20 qualified tuition programs, the term ‘excess con21 tributions’ means, with respect to any one bene22 ficiary, the amount contributed to a private qualified

23 tuition program for any taxable year if any amount

24 is contributed during such year for the benefit of

25 such beneficiary to a qualified tuition program (as
10

•HR 7 IH

1 defined in section 529) other than a private qualified

2 tuition program.

3 ‘‘(2) PRIVATE QUALIFIED TUITION PROGRAM.—

4 The term ‘private qualified tuition program’ means

5 a qualified tuition program (as defined in section

6 529) not established and maintained by a State or

7 any agency or instrumentality thereof.’’.

8 (4) TECHNICAL AMENDMENTS.—

9 (A) The text of sections 25A(e)(2),

10 72(e)(9), 529, 530(b)(2)(B), and

11 4973(e)(1)(B), as previously amended by this

12 Act, are each amended by striking ‘‘qualified

13 State tuition program’’ each place it appears

14 and inserting ‘‘qualified tuition program’’.

15 (B)(i) The heading of section 529 is

16 amended to read as follows:

17 ‘‘SEC. 529. QUALIFIED TUITION PROGRAMS.’’.

18 (ii) The item relating to section 529 in the

19 table of sections for part VIII of subchapter F

20 of chapter 1 is amended by striking ‘‘State’’.

21 (e) EFFECTIVE DATE.—The amendments made by

22 this section shall apply to taxable years beginning after

23 December 31, 1999.
11

•HR 7 IH

1 SEC. 4. PERMANENT EXTENSION OF EXCLUSION FOR EM2 PLOYER-PROVIDED EDUCATIONAL ASSIST3 ANCE.

4 Section 127 (relating to educational assistance pro5 grams) is amended by striking subsection (d) and by re6 designating subsection (e) as subsection (d).

7 SEC. 5. ADDITIONAL INCREASE IN ARBITRAGE REBATE EX8 CEPTION FOR GOVERNMENTAL BONDS USED

9 TO FINANCE EDUCATION FACILITIES.

10 (a) IN GENERAL.—Section 148(f)(4)(D)(vii) (relat11 ing to increase in exception for bonds financing public

12 school capital expenditures) is amended by striking

13 ‘‘$5,000,000’’ the second place it appears and inserting

14 ‘‘$10,000,000’’.

15 (b) EFFECTIVE DATE.—The amendment made by

16 subsection (a) shall apply to obligations issued after De17 cember 31, 1999.

18 SEC. 6. EXCLUSION OF CERTAIN AMOUNTS RECEIVED

19 UNDER THE NATIONAL HEALTH CORPS

20 SCHOLARSHIP PROGRAM AND THE F. ED21 WARD HEBERT ARMED FORCES HEALTH PRO22 FESSIONS SCHOLARSHIP AND FINANCIAL AS23 SISTANCE PROGRAM.

24 (a) IN GENERAL.—Section 117(c) (relating to the ex25 clusion from gross income amounts received as a qualified

26 scholarship) is amended—
12

•HR 7 IH

1 (1) by striking ‘‘Subsections (a)’’ and inserting

2 the following:

3 ‘‘(1) IN GENERAL.—Except as provided in para4 graph (2), subsections (a)’’; and

5 (2) by adding at the end the following new

6 paragraph:

7 ‘‘(2) EXCEPTIONS.—Paragraph (1) shall not

8 apply to any amount received by an individual

9 under—

10 ‘‘(A) the National Health Corps Scholar11 ship Program under section 338A(g)(1)(A) of

12 the Public Health Service Act; or

13 ‘‘(B) the Armed Forces Health Professions

14 Scholarship and Financial Assistance Program

15 under subchapter I of chapter 105 of title 10,

16 United States Code.’’.

17 (b) EFFECTIVE DATE.—The amendments made by

18 subsection (a) shall apply to amounts received in taxable

19 years beginning after December 31, 1993.

Æ