II

106TH CONGRESS

1ST SESSION S. 387

To amend the Internal Revenue Code of 1986 to provide an exclusion from

gross income for distributions from qualified State tuition programs

which are used to pay education expenses.

IN THE SENATE OF THE UNITED STATES

FEBRUARY 8, 1999

Mr. MCCONNELL (for himself, Mr. GRAHAM, Mr. BUNNING, Mr. MACK, Mr.

BREAUX, Mr. DEWINE, Mr. SMITH of Oregon, Mr. ROBB, Mr. LUGAR,

Mr. COCHRAN, Ms. LANDRIEU, Mr. MURKOWSKI, Mr. STEVENS, Mr.

COVERDELL, Mr. WARNER, Mr. SMITH of New Hampshire, Mr. BAYH,

Mr. BYRD, and Mr. KERREY) 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

an exclusion from gross income for distributions from

qualified State tuition programs which are used to pay

education expenses.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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•S 387 IS

1 SECTION 1. EXCLUSION FROM GROSS INCOME OF EDU2 CATION DISTRIBUTIONS FROM QUALIFIED

3 STATE TUITION PROGRAMS.

4 (a) IN GENERAL.—Section 529(c)(3)(B) of the Inter5 nal Revenue Code of 1986 (relating to distributions) is

6 amended to read as follows:

7 ‘‘(B) DISTRIBUTIONS FOR QUALIFIED

8 HIGHER EDUCATION EXPENSES.—

9 ‘‘(i) IN GENERAL.—No amount shall

10 be includible in gross income under sub11 paragraph (A) if the qualified higher edu12 cation expenses of the designated bene13 ficiary during the taxable year are not less

14 than the aggregate distributions during the

15 taxable year.

16 ‘‘(ii) DISTRIBUTIONS IN EXCESS OF

17 EXPENSES.—If such aggregate distribu18 tions exceed such expenses during the tax19 able year, the amount otherwise includible

20 in gross income under subparagraph (A)

21 shall be reduced by the amount which

22 bears the same ratio to the amount so in23 cludible (without regard to this subpara24 graph) as such expenses bear to such ag25 gregate distributions.
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1 ‘‘(iii) ELECTION TO WAIVE EXCLU2 SION.—A taxpayer may elect to waive the

3 application of this subparagraph for any

4 taxable year.

5 ‘‘(iv) IN-KIND DISTRIBUTIONS.—Any

6 benefit furnished to a designated bene7 ficiary under a qualified State tuition pro8 gram shall be treated as a distribution to

9 the beneficiary for purposes of this para10 graph.

11 ‘‘(v) DISALLOWANCE OF EXCLUDED

12 AMOUNTS AS CREDIT OR DEDUCTION.—No

13 deduction or credit shall be allowed to the

14 taxpayer under any other section of this

15 chapter for any qualified higher education

16 expenses to the extent taken into account

17 in determining the amount of the exclusion

18 under this paragraph.’’.

19 (b) COORDINATION WITH EDUCATION CREDITS.—

20 Section 25A(e)(2) of the Internal Revenue Code of 1986

21 (relating to coordination with exclusions) is amended—

22 (1) by inserting ‘‘a qualified State tuition pro23 gram or’’ before ‘‘an education individual retirement

24 account’’; and
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•S 387 IS

1 (2) by striking ‘‘section 530(d)(2)’’ and insert2 ing ‘‘section 529(c)(3)(B) or 530(d)(2)’’.

3 (c) COORDINATION WITH EDUCATION SAVINGS

4 BONDS.—Subparagraph (B) of section 135(d)(2) of the

5 Internal Revenue Code of 1986 (relating to coordination

6 with other higher education benefits) is amended by strik7 ing ‘‘section 530(d)(2)’’ and inserting ‘‘section

8 529(c)(3)(B) or 530(d)(2)’’.

9 (d) EFFECTIVE DATE.—The amendments made by

10 this section shall apply to taxable years beginning after

11 December 31, 1998.

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