II

107TH CONGRESS

1ST SESSION S. 1059

To amend the Internal Revenue Code of 1986 to provide that certain postsecondary educational benefits provided by an employer to children of employees shall be excludable from gross income as a scholarship.

IN THE SENATE OF THE UNITED STATES

JUNE 19, 2001

Mr. BAYH introduced the following bill; which was read twice and referred to

the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to provide

that certain postsecondary educational benefits provided

by an employer to children of employees shall be excludable from gross income as a scholarship.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
2

•S 1059 IS

1 SECTION 1. CERTAIN POSTSECONDARY EDUCATIONAL

2 BENEFITS PROVIDED BY AN EMPLOYER TO

3 CHILDREN OF EMPLOYEES EXCLUDABLE

4 FROM GROSS INCOME AS A SCHOLARSHIP.

5 (a) IN GENERAL.—Section 117 of the Internal Rev6 enue Code of 1986 (relating to qualified scholarships) is

7 amended by adding at the end the following:

8 ‘‘(e) EMPLOYER-PROVIDED POST-SECONDARY EDU9 CATIONAL BENEFITS PROVIDED TO CHILDREN OF EM10 PLOYEES.—

11 ‘‘(1) IN GENERAL.—In determining whether

12 any amount is a qualified scholarship for purposes

13 of subsection (a), the fact that such amount is pro14 vided in connection with an employment relationship

15 shall be disregarded if—

16 ‘‘(A) such amount is provided by the em17 ployer to a child (as defined in section

18 151(c)(3)) of an employee of such employer,

19 ‘‘(B) such amount is provided pursuant to

20 a plan which meets the nondiscrimination re21 quirements of subsection (d)(3), and

22 ‘‘(C) amounts provided under such plan

23 are in addition to any other compensation pay24 able to employees and such plan does not pro25 vide employees with a choice between such

26 amounts and any other benefit.
3

•S 1059 IS

1 For purposes of subparagraph (C), the business

2 practices of the employer (as well as such plan) shall

3 be taken into account.

4 ‘‘(2) DOLLAR LIMITATIONS.—

5 ‘‘(A) PER CHILD.—The amount excluded

6 from the gross income of the employee by rea7 son of paragraph (1) for a taxable year with re8 spect to amounts provided to each child of such

9 employee shall not exceed $2,000.

10 ‘‘(B) AGGREGATE LIMIT.—The amount ex11 cluded from the gross income of the employee

12 by reason of paragraph (1) for a taxable year

13 (after the application of subparagraph (A))

14 shall not exceed the excess of the dollar amount

15 contained in section 127(a)(2) over the amount

16 excluded from the employee’s gross income

17 under section 127 for such year.

18 ‘‘(3) PRINCIPAL SHAREHOLDERS AND OWN19 ERS.—Paragraph (1) shall not apply to any amount

20 provided to any child of any individual if such indi21 vidual (or such individual’s spouse) owns (on any

22 day of the year) more than 5 percent of the stock

23 or of the capital or profits interest in the employer.
4

•S 1059 IS

1 ‘‘(4) SPECIAL RULES OF APPLICATION.—In the

2 case of an amount which is treated as a qualified

3 scholarship by reason of this subsection—

4 ‘‘(A) subsection (a) shall be applied with5 out regard to the requirement that the recipient

6 be a candidate for a degree, and

7 ‘‘(B) subsection (b)(2)(A) shall be applied

8 by substituting ‘section 529(e)(5)’ for ‘section

9 170(b)(1)(A)(ii)’.

10 ‘‘(5) DEFINITION; CERTAIN OTHER RULES TO

11 APPLY.—

12 ‘‘(A) EMPLOYEE.—For purposes of this

13 subsection, the term ‘employee’ has the same

14 meaning given such term in section 127.

15 ‘‘(B) CERTAIN OTHER RULES TO APPLY.—

16 Rules similar to the rules of paragraphs (4),

17 (5), and (7) of section 127(c) shall apply for

18 purposes of this subsection.’’

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

20 this section shall apply to taxable years beginning after

21 the date of enactment of this Act.

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