II

105TH CONGRESS

1ST SESSION S. 218

To invest in the future American workforce and to ensure that all Americans

have access to higher education by providing tax relief for investment

in a college education and by encouraging savings for college costs,

and for other purposes.

IN THE SENATE OF THE UNITED STATES

JANUARY 28, 1997

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

to the Committee on Finance

A BILL

To invest in the future American workforce and to ensure

that all Americans have access to higher education by

providing tax relief for investment in a college education

and by encouraging savings for college costs, 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 This Act may be cited as the ‘‘Growing the Economy

5 for Tomorrow: Assuring Higher Education is Affordable

6 and Dependable Act’’.
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1 SEC. 2. FINDINGS.

2 The Congress finds that—

3 (1) since 1980 the cost of public college tuition

4 and fees has increased nearly three times faster than

5 the median household income;

6 (2) in 1995, 8.4 percent of the median house7 hold income was required to pay for the average cost

8 of public college tuition and fees whereas 4.5 percent

9 of such income was required to pay for such cost in

10 1980;

11 (3) in 1995, 36.5 percent of the median house12 hold income was required to pay for the average cost

13 of private college tuition and fees whereas 20.4 per14 cent of such income was required to pay for such

15 cost in 1980;

16 (4) educating America’s future workforce is one

17 of the best investments we as a society can make

18 and one of the best measurements of future eco19 nomic well-being; and

20 (5) the Federal Government should renew and

21 strengthen its longstanding commitment to seeing

22 that young people desiring to go to college are not

23 turned away because of the cost.
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1 TITLE I—TAX INCENTIVES FOR

2 HIGHER EDUCATION

3 SEC. 100. AMENDMENT OF 1986 CODE.

4 Except as otherwise expressly provided, whenever in

5 this title an amendment or repeal is expressed in terms

6 of an amendment to, or repeal of, a section or other provi7 sion, the reference shall be considered to be made to a

8 section or other provision of the Internal Revenue Code

9 of 1986.

10 Subtitle A—Tax Relief for Higher

11 Education Costs

12 SEC. 101. DEDUCTION FOR HIGHER EDUCATION EXPENSES.

13 (a) DEDUCTION ALLOWED.—Part VII of subchapter

14 B of chapter 1 is amended by redesignating section 221

15 as section 222 and by inserting after section 220 the fol16 lowing new section:

17 ‘‘SEC. 221. HIGHER EDUCATION TUITION AND FEES; INTER18 EST ON STUDENT LOANS.

19 ‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of an

20 individual, there shall be allowed as a deduction an

21 amount equal to the sum of—

22 ‘‘(1) the qualified higher education expenses,

23 plus

24 ‘‘(2) interest on qualified higher education

25 loans, paid by the taxpayer during the taxable year.
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1 ‘‘(b) QUALIFIED HIGHER EDUCATION EXPENSES.—

2 For purposes of this section—

3 ‘‘(1) QUALIFIED HIGHER EDUCATION EX4 PENSES.—

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

6 higher education expenses’ means tuition and

7 fees required for the enrollment or attendance

8 of—

9 ‘‘(i) the taxpayer,

10 ‘‘(ii) the taxpayer’s spouse, or

11 ‘‘(iii) any dependent of the taxpayer

12 with respect to whom the taxpayer is al13 lowed a deduction under section 151,

14 as an eligible student at an institution of higher

15 education.

16 ‘‘(B) EXCEPTION FOR EDUCATION INVOLV17 ING SPORTS, ETC.—Such term does not include

18 expenses with respect to any course or other

19 education involving sports, games, or hobbies

20 unless such expenses—

21 ‘‘(i) are part of a degree program, or

22 ‘‘(ii) are deductible under this chapter

23 without regard to this section.

24 ‘‘(C) EXCEPTION FOR NONACADEMIC

25 FEES.—Such term does not include any student
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1 activity fees, athletic fees, insurance expenses,

2 or other expenses unrelated to a student’s aca3 demic course of instruction.

4 ‘‘(D) ELIGIBLE STUDENT.—For purposes

5 of subparagraph (A), the term ‘eligible student’

6 means a student who meets the requirements of

7 section 484(a)(1) of the Higher Education Act

8 of 1965 (20 U.S.C. 1091(a)(1)).

9 ‘‘(2) DOLLAR LIMITATION.—

10 ‘‘(A) IN GENERAL.—The amount taken

11 into account under paragraph (1) for any tax12 able year shall not exceed $10,000.

13 ‘‘(B) PHASE-IN.—In the case of taxable

14 years beginning in 1997, 1998, and 1999, sub15 paragraph (A) shall be applied by substituting

16 ‘$5,000’ for ‘$10,000’.

17 ‘‘(3) LIMITATION BASED ON MODIFIED AD18 JUSTED GROSS INCOME.—

19 ‘‘(A) IN GENERAL.—If the modified ad20 justed gross income of the taxpayer for the tax21 able year exceeds $70,000 ($100,000 in the

22 case of a joint return), the amount which would

23 (but for this paragraph) be taken into account

24 under paragraph (1) shall be reduced (but not

25 below zero) by the amount which bears the
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1 same ratio to the amount which would be taken

2 into account as such excess bears to $20,000.

3 ‘‘(B) INFLATION ADJUSTMENT.—In the

4 case of any taxable year beginning in a calendar

5 year after 1997, the $70,000 and $100,000

6 amounts contained in subparagraph (A) shall

7 be increased by an amount equal to—

8 ‘‘(i) such dollar amount, multiplied by

9 ‘‘(ii) the cost-of-living adjustment

10 under section 1(f)(3) for the calendar year

11 in which the taxable year begins, except

12 that section 1(f)(3)(B) shall be applied by

13 substituting ‘1996’ for ‘1992’.

14 ‘‘(C) ROUNDING.—If any amount as ad15 justed under subparagraph (B) is not a mul16 tiple of $50, such amount shall be rounded to

17 the nearest multiple of $50 (or if such amount

18 is a multiple of $25, such amount shall be

19 rounded to the next highest multiple of $50).

20 ‘‘(D) MODIFIED ADJUSTED GROSS IN21 COME.—The term ‘modified adjusted gross in22 come’ means the adjusted gross income of the

23 taxpayer for the taxable year determined—

24 ‘‘(i) without regard to this section and

25 sections 911, 931, and 933, and
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1 ‘‘(ii) after the application of sections

2 86, 135, 219, 222, and 469.

3 ‘‘(4) INSTITUTION OF HIGHER EDUCATION.—

4 The term ‘institution of higher education’ means an

5 institution which—

6 ‘‘(A) is described in section 481 of the

7 Higher Education Act of 1965 (20 U.S.C.

8 1088), and

9 ‘‘(B) is eligible to participate in programs

10 under title IV of such Act.

11 ‘‘(c) QUALIFIED HIGHER EDUCATION LOAN.—For

12 purposes of this section—

13 ‘‘(1) IN GENERAL.—The term ‘qualified higher

14 education loan’ means a loan to a student which is—

15 ‘‘(A) made, insured, or guaranteed by the

16 Federal Government,

17 ‘‘(B) made by a State or a political sub18 division of a State,

19 ‘‘(C) made from the proceeds of a qualified

20 student loan bond under section 144(b), or

21 ‘‘(D) made by an institution of higher edu22 cation (as defined in section 1201(a) of the

23 Higher Education Act of 1965 (20 U.S.C.

24 1141(a))).

25 ‘‘(2) LIMITATION.—
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1 ‘‘(A) IN GENERAL.—The amount of inter2 est on a qualified higher education loan which

3 is taken into account under subsection (a)(2)

4 shall be reduced by the amount which bears the

5 same ratio to such amount of interest as—

6 ‘‘(i) the proceeds from such loan not

7 used for qualified higher education ex8 penses, bears to

9 ‘‘(ii) the total proceeds from such

10 loan.

11 ‘‘(B) QUALIFIED HIGHER EDUCATION EX12 PENSES.—For purposes of subparagraph (A),

13 the term ‘qualified higher education expenses’

14 has the meaning given such term by subsection

15 (b), except that—

16 ‘‘(i) such term shall include reason17 able living expenses while away from home,

18 and

19 ‘‘(ii) the limitations of paragraphs (2)

20 and (3) of subsection (b) shall not apply.

21 ‘‘(d) COORDINATION WITH OTHER PROVISIONS.—

22 ‘‘(1) NO DOUBLE BENEFIT.—

23 ‘‘(A) IN GENERAL.—No deduction shall be

24 allowed under subsection (a) for qualified high25 er education expenses or interest on qualified
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1 higher education loans with respect to which a

2 deduction is allowed under any other provision

3 of this chapter.

4 ‘‘(B) PAYMENTS FROM EXCLUDABLE

5 AMOUNTS.—A deduction shall be allowed under

6 subsection (a)(1) for qualified higher education

7 expenses only to the extent the amount of such

8 expenses exceeds the sum of—

9 ‘‘(i) amounts excludable under section

10 135 for the taxable year, plus

11 ‘‘(ii) the excess of—

12 ‘‘(I) amounts excludable under

13 sections 117 and 222(d)(2) for the

14 taxable year, reduced (but not below

15 zero) by—

16 ‘‘(II) reasonable expenses paid or

17 incurred during the taxable year for

18 meals and lodging of the taxpayer,

19 spouse, or dependent while an eligible

20 student at an institution of higher

21 education, plus

22 ‘‘(iii) educational assistance allow23 ances under chapter 30, 31, 32, 34, or 35

24 of title 38, United States Code, plus
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1 ‘‘(iv) payments (other than a gift, be2 quest, devise, or inheritance within the

3 meaning of section 102(a)) for educational

4 expenses, or attributable to attendance at

5 an eligible educational institution, which

6 are exempt from income taxation by any

7 law of the United States.

8 ‘‘(2) QUALIFIED RESIDENCE INTEREST.—If a

9 deduction is allowed under subsection (a)(2) for in10 terest which is also qualified residence interest under

11 section 163(h), such interest shall not be taken into

12 account under section 163(h).

13 ‘‘(e) SPECIAL RULES.—

14 ‘‘(1) ELECTION.—If a deduction is allowable

15 under more than one provision of this chapter with

16 respect to qualified higher education expenses, the

17 taxpayer may elect the provision under which the de18 duction is allowed.

19 ‘‘(2) LIMITATION ON TAXABLE YEAR OF DE20 DUCTION.—

21 ‘‘(A) IN GENERAL.—A deduction shall be

22 allowed under subsection (a)(1) for any taxable
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1 year only to the extent the qualified higher edu2 cation expenses are in connection with attend3 ance at an institution of higher education dur4 ing the taxable year.

5 ‘‘(B) CERTAIN PREPAYMENTS ALLOWED.—

6 Subparagraph (A) shall not apply to qualified

7 higher education expenses paid during a taxable

8 year which are in connection with attendance at

9 an institution of higher education which begins

10 during the first 2 months of the following tax11 able year.

12 ‘‘(3) NO DEDUCTION FOR MARRIED INDIVID13 UALS FILING SEPARATE RETURNS.—If the taxpayer

14 is a married individual (within the meaning of sec15 tion 7703), this section shall apply only if the tax16 payer and his spouse file a joint return for the tax17 able year.

18 ‘‘(4) REGULATIONS.—The Secretary may pre19 scribe such regulations as may be necessary or ap20 propriate to carry out this section, including regula21 tions requiring recordkeeping and information re22 porting.’’

23 (b) DEDUCTION ALLOWED IN COMPUTING AD24 JUSTED GROSS INCOME.—Section 62(a) is amended by in25 serting after paragraph (16) the following new paragraph:
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1 ‘‘(17) HIGHER EDUCATION TUITION AND

2 FEES.—The deduction allowed by section 221.’’

3 (c) CONFORMING AMENDMENT.—The table of sec4 tions for part VII of subchapter B of chapter 1 is amended

5 by striking the item relating to section 221 and inserting:

‘‘Sec. 221. Higher education tuition and fees; interest on student

loans.

‘‘Sec. 222. Cross reference.’’

6 (d) EFFECTIVE DATES.—The amendments made by

7 this section shall apply to taxable years beginning after

8 December 31, 1996.

9 SEC. 102. EXCLUSION FOR SCHOLARSHIPS AND FELLOW10 SHIPS.

11 (a) IN GENERAL.—Subsections (a) and (b) of section

12 117 (defining qualified scholarships) are amended to read

13 as follows:

14 ‘‘(a) GENERAL RULE.—Gross income does not in15 clude any amount received as a qualified scholarship or

16 fellowship by an individual who is a candidate for a degree

17 at an educational organization described in section

18 170(b)(1)(A)(ii).

19 ‘‘(b) QUALIFIED SCHOLARSHIP OR FELLOWSHIP.—

20 For purposes of this section—

21 ‘‘(1) IN GENERAL.—The term ‘qualified schol22 arship or fellowship’ means any amount received—
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1 ‘‘(A) as a scholarship at an educational or2 ganization described in section 170(b)(1)(A)(ii),

3 or

4 ‘‘(B) as a fellowship grant.

5 Such term includes the value of any contributed

6 services and accommodations included in such schol7 arship or grant.

8 ‘‘(2) ADDITIONAL EXPENSES.—The term ‘quali9 fied scholarship or fellowship’ includes any amount

10 received to cover expenses for travel, research, cleri11 cal help, or equipment which are incident to a schol12 arship or fellowship grant described in paragraph

13 (1), but only to the extent that the amount is so ex14 pended by the recipient.’’

15 (b) EXTENSION TO CERTAIN INDIVIDUALS WHO ARE

16 NOT DEGREE CANDIDATES.—

17 (1) IN GENERAL.—Section 117 is amended by

18 adding at the end the following new subsection:

19 ‘‘(e) INDIVIDUALS WHO ARE NOT DEGREE CAN20 DIDATES.—

21 ‘‘(1) IN GENERAL.—Subsection (a) shall apply

22 to an individual who is not a candidate for a degree

23 at an educational organization described in section

24 170(b)(1)(A)(ii) if the grantor of the scholarship

25 is—
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1 ‘‘(A) an organization described in section

2 501(c)(3) which is exempt from tax under sec3 tion 501(a),

4 ‘‘(B) a foreign government,

5 ‘‘(C) an international organization, or a bi6 national or multinational educational and cul7 tural foundation or commission created or con8 tinued pursuant to the Mutual Educational and

9 Cultural Exchange Act of 1961, or

10 ‘‘(D) the United States or an instrumen11 tality or agency thereof or a State or possession

12 of the United States or any political subdivision

13 thereof.

14 ‘‘(2) LIMITATION.—The amounts described in

15 subsection (b)(1) which may be excluded under sub16 section (a) in the case of an individual described in

17 paragraph (1) shall not exceed the product of—

18 ‘‘(A) $300, and

19 ‘‘(B) the number of months for which the

20 recipient received amounts under the scholar21 ship or fellowship grant during the taxable year,

22 except that not more than 36 months (whether

23 or not consecutive) may be taken into account

24 under this subsection with respect to any indi25 vidual for all taxable years.’’
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1 (2) CONFORMING AMENDMENT.—The second

2 sentence of section 1441(b) is amended to read as

3 follows: ‘‘The items of income referred to in sub4 section (a) from which tax shall be deducted and

5 withheld at the rate of 14 percent are amounts

6 which are received by a nonresident alien individual

7 who is temporarily present in the United States as

8 a nonimmigrant under subparagraph (F), (J), (M),

9 or (Q) of section 101(a)(15) of the Immigration and

10 Nationality Act and which are incident to a qualified

11 scholarship or fellowship to which section 117(a) ap12 plies, but only to the extent such amounts are in13 cludable in gross income.’’

14 (c) REQUIREMENT OF FUTURE SERVICE AS A FED15 ERAL EMPLOYEE.—Section 117(c) is amended—

16 (1) by striking ‘‘Subsections’’ and inserting:

17 ‘‘(1) IN GENERAL.—Subsections’’, and

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

19 paragraph:

20 ‘‘(2) FEDERAL GRANTS FOR TUITION AND RE21 LATED EXPENSES NOT INCLUDABLE MERELY BE22 CAUSE THERE IS REQUIREMENT OF FUTURE SERV23 ICE AS FEDERAL EMPLOYEE.—

24 ‘‘(A) IN GENERAL.—If—
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1 ‘‘(i) an amount received by an individ2 ual under a Federal program would be ex3 cludable under subsection (a) as a scholar4 ship or fellowship grant but for the fact

5 that the individual is required to perform

6 future service as a Federal employee, and

7 ‘‘(ii) the individual establishes that, in

8 accordance with the terms of the grant,

9 such amount was used for qualified tuition

10 and related expenses,

11 gross income shall not include such amount.

12 ‘‘(B) QUALIFIED TUITION AND RELATED

13 EXPENSES DEFINED.—For purposes of this

14 paragraph—

15 ‘‘(i) IN GENERAL.—The term ‘quali16 fied tuition and related expenses’ means—

17 ‘‘(I) tuition and fees required for

18 the enrollment or attendance of a stu19 dent at an institution of higher edu20 cation, and

21 ‘‘(II) fees, books, supplies, and

22 equipment required for courses of in23 struction at an institution of higher

24 education.
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1 ‘‘(ii) INSTITUTION OF HIGHER EDU2 CATION.—The term ‘institution of higher

3 education’ means an educational institu4 tion in any State which—

5 ‘‘(I) admits as regular students

6 only individuals having a certificate of

7 graduation from a high school, or the

8 recognized equivalent of such a certifi9 cate,

10 ‘‘(II) is legally authorized within

11 such State to provide a program of

12 education beyond high school,

13 ‘‘(III) provides an educational

14 program for which it awards a bach15 elor’s or higher degree, provides a

16 program which is acceptable for full

17 credit toward such a degree, or offers

18 a program of training to prepare stu19 dents for gainful employment in a rec20 ognized health profession, and

21 ‘‘(IV) is a public or other non22 profit institution.

23 ‘‘(C) SERVICE AS FEDERAL EMPLOYEE.—

24 For purposes of this paragraph, service in a
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1 health manpower shortage area shall be treated

2 as service as a Federal employee.’’

3 (d) CONFORMING AMENDMENTS.—

4 (1)(A) The heading for section 117 is amended

5 by adding ‘‘OR FELLOWSHIPS’’ after ‘‘SCHOLAR6 SHIPS’’.

7 (B) The item relating to section 117 in the

8 table of sections for part III of subchapter B of

9 chapter 1 is amended by inserting ‘‘or fellowships’’

10 after ‘‘scholarships’’.

11 (2) Sections 74(a) and 135(d)(1)(A) are each

12 amended by inserting ‘‘or fellowships’’ after ‘‘schol13 arships’’.

14 (3) Sections 4941(d)(2)(G)(ii) and 4945(g)(1)

15 are each amended by striking ‘‘which would be sub16 ject to the provisions of section 117(a) (as in effect

17 on the day before the date of the enactment of the

18 Tax Reform Act of 1986)’’ and inserting ‘‘which are

19 subject to the provisions of section 117(a)’’.

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

21 this section shall apply to taxable years beginning after

22 December 31, 1996.
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1 SEC. 103. EMPLOYER-PROVIDED EDUCATIONAL ASSIST2 ANCE PROGRAMS.

3 (a) PERMANENT EXTENSION.—Section 127 (relating

4 to exclusion for educational assistance programs) is

5 amended by striking subsection (d) and by redesignating

6 subsection (e) as subsection (d).

7 (b) REPEAL OF LIMITATION ON GRADUATE EDU8 CATION.—The last sentence of section 127(c)(1) of such

9 Code is amended by striking ‘‘, and such term also does

10 not include any payment for, or the provision of any bene11 fits with respect to, any graduate level course of a kind

12 normally taken by an individual pursuing a program lead13 ing to a law, business, medical, or other advanced aca14 demic or professional degree’’.

15 (c) EFFECTIVE DATES.—

16 (1) EXTENSION.—The amendments made by

17 subsection (a) shall apply to taxable years beginning

18 after December 31, 1996.

19 (2) GRADUATE EDUCATION.—The amendment

20 made by subsection (b) shall apply with respect to

21 expenses relating to courses beginning after June

22 30, 1996.
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1 Subtitle B—Encouraging Savings

2 for Higher Education Costs

3 SEC. 111. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE

4 USED WITHOUT PENALTY TO PAY HIGHER

5 EDUCATION EXPENSES.

6 (a) IN GENERAL.—Paragraph (2) of section 72(t)

7 (relating to exceptions to 10-percent additional tax on

8 early distributions from qualified retirement plans) is

9 amended by adding at the end the following new subpara10 graph:

11 ‘‘(E) DISTRIBUTIONS FROM CERTAIN

12 PLANS FOR EDUCATIONAL EXPENSES.—Dis13 tributions to an individual from an individual

14 retirement plan, or from amounts attributable

15 to employer contributions made pursuant to

16 elective deferrals described in subparagraph (A)

17 or (C) of section 402(g)(3) or section

18 501(c)(18)(D)(iii), to the extent such distribu19 tions do not exceed the qualified higher edu20 cation expenses (as defined in paragraph (6)) of

21 the taxpayer for the taxable year.’’

22 (b) DEFINITION.—Section 72(t) is amended by add23 ing at the end the following new paragraph:

24 ‘‘(7) QUALIFIED HIGHER EDUCATION EX25 PENSES.—For purposes of paragraph (2)(E)—
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1 ‘‘(A) IN GENERAL.—The term ‘qualified

2 higher education expenses’ means tuition, fees,

3 books, supplies, and equipment required for the

4 enrollment or attendance of—

5 ‘‘(i) the taxpayer,

6 ‘‘(ii) the taxpayer’s spouse, or

7 ‘‘(iii) any child (as defined in section

8 151(c)(3)), grandchild, or ancestor of the

9 taxpayer or the taxpayer’s spouse,

10 at an eligible educational institution (as defined

11 in section 135(c)(3)).

12 ‘‘(B) COORDINATION WITH OTHER EXCLU13 SIONS.—The amount of qualified higher edu14 cation expenses for any taxable year shall be re15 duced by the sum of—

16 ‘‘(i) any amount excludable from gross

17 income under section 135, plus

18 ‘‘(ii) the excess of—

19 ‘‘(I) amounts excludable under

20 section 222(d)(2) for the taxable year,

21 reduced (but not below zero) by—

22 ‘‘(II) reasonable expenses paid or

23 incurred during the taxable year for

24 meals and lodging of the taxpayer,

25 spouse, or dependent while an eligible
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1 student at an institution of higher

2 education.

3 For purposes of this subparagraph, the terms

4 ‘eligible student’ and ‘institution of higher edu5 cation’ have the meanings given such terms by

6 section 221.’’

7 (c) CONFORMING AMENDMENTS.—

8 (1) Section 401(k)(2)(B)(i) is amended by

9 striking ‘‘or’’ at the end of subclause (III), by strik10 ing ‘‘and’’ at the end of subclause (IV) and inserting

11 ‘‘or’’, and by inserting after subclause (IV) the fol12 lowing new subclause:

13 ‘‘(V) the date on which distribu14 tions for qualified higher education

15 expenses (as defined in section

16 72(t)(7)) are made, and’’.

17 (2) Section 403(b)(11) is amended by striking

18 ‘‘or’’ at the end of subparagraph (A), by striking the

19 period at the end of subparagraph (B) and inserting

20 ‘‘, or’’, and by inserting after subparagraph (B) the

21 following new subparagraph:

22 ‘‘(C) for the payment of qualified higher

23 education expenses (as defined in section

24 72(t)(7)).’’
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1 (d) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to payments and distributions after

3 the date of the enactment of this Act.

4 SEC. 112. EDUCATION SAVINGS ACCOUNTS.

5 (a) IN GENERAL.—Part VII of subchapter B of chap6 ter 1 (relating to additional itemized deductions for indi7 viduals), as amended by section 101, is amended by redes8 ignating section 222 as section 223 and by inserting after

9 section 221 the following new section:

10 ‘‘SEC. 222. EDUCATION SAVINGS ACCOUNTS.

11 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi12 vidual, there shall be allowed as a deduction the sum of—

13 ‘‘(1) amounts paid in cash, and

14 ‘‘(2) the fair market value of stocks, bonds, or

15 other securities which are readily tradeable on an es16 tablished securities market and which are trans17 ferred,

18 during the calendar year which ends with or within the

19 taxable year by such individual to an education savings

20 account established for the purpose of accumulating funds

21 to pay the educational expenses of an eligible individual.

22 ‘‘(b) LIMITATIONS.—

23 ‘‘(1) MAXIMUM DEDUCTION PER ACCOUNT.—

24 The amount allowable as a deduction under sub25 section (a) to an individual for amounts paid or
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1 transferred to an education savings account for any

2 calendar year shall not exceed $2,000.

3 ‘‘(2) LIMITATION BASED ON MODIFIED AD4 JUSTED GROSS INCOME.—

5 ‘‘(A) IN GENERAL.—If the modified ad6 justed gross income of the taxpayer for the tax7 able year exceeds $70,000 ($100,000 in the

8 case of a joint return), the amount which would

9 (but for this paragraph) be taken into account

10 under subsection (a) shall be reduced (but not

11 below zero) by the amount which bears the

12 same ratio to the amount which would be taken

13 into account as such excess bears to $20,000.

14 ‘‘(B) MODIFIED ADJUSTED GROSS IN15 COME.—The term ‘modified adjusted gross in16 come’ means the adjusted gross income of the

17 taxpayer for the taxable year determined—

18 ‘‘(i) without regard to this section and

19 sections 221, 911, 931, and 933, and

20 ‘‘(ii) after the application of sections

21 86, 135, 219, and 469.

22 ‘‘(C) NONDEDUCTIBLE CONTRIBUTIONS.—

‘‘For nondeductible contributions to education

savings accounts, see subsection (k).

23 ‘‘(3) LIMITATIONS ON ACCOUNTS.—
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1 ‘‘(A) ACCOUNT MAY NOT BE ESTABLISHED

2 FOR BENEFIT OF MORE THAN 1 INDIVIDUAL.—

3 An education savings account may not be estab4 lished for the benefit of more than 1 individual.

5 ‘‘(B) ELIGIBLE INDIVIDUAL TREATED AS

6 ELIGIBLE INDIVIDUAL ONLY WITH RESPECT TO

7 1 ACCOUNT.—If, at any time during a calendar

8 year, 2 or more education savings accounts are

9 maintained for the benefit of an eligible individ10 ual, such individual shall be treated as an eligi11 ble individual for the calendar year only with

12 respect to the first of such accounts.

13 ‘‘(4) NO DEDUCTION AFTER BENEFICIARY AT14 TAINS AGE 19.—No deduction shall be allowed for

15 any contribution to an education savings account es16 tablished for the benefit of an eligible individual who

17 has attained age 19 before the close of the calendar

18 year in which such contribution is made.

19 ‘‘(5) ADJUSTMENT OF DOLLAR AMOUNT LIMI20 TATIONS FOR INFLATION.—

21 ‘‘(A) IN GENERAL.—In the case of any cal22 endar year after 1997, the $70,000 and

23 $100,000 amounts under paragraph (2), shall

24 each be increased by an amount equal to—

25 ‘‘(i) such dollar amount, multiplied by
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1 ‘‘(ii) the cost-of-living adjustment de2 termined under section 1(f)(3) for such

3 calendar year by substituting ‘calendar

4 year 1996’ for ‘calendar year 1992’ in sub5 paragraph (B) thereof.

6 ‘‘(B) ROUNDING.—The rounding rules of

7 section 221(b)(3)(C) shall apply to any increase

8 under subparagraph (A).

9 ‘‘(6) ROLLOVER CONTRIBUTIONS.—Paragraph

10 (1) shall not apply to any rollover contribution de11 scribed in subsection (c)(2)(F)(i)(II) or (d)(3)(B).

12 ‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur13 poses of this section—

14 ‘‘(1) ELIGIBLE INDIVIDUAL.—The term ‘eligible

15 individual’ means an individual who is—

16 ‘‘(A) a child (within the meaning of section

17 153(e)(3)) of the taxpayer or of a brother, sis18 ter, stepbrother, or stepsister of the taxpayer,

19 ‘‘(B) an individual with respect to whom

20 the taxpayer has been appointed guardian by a

21 court of competent jurisdiction, or

22 ‘‘(C) a descendant of a child of the tax23 payer.
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1 ‘‘(2) EDUCATION SAVINGS ACCOUNT.—The

2 term ‘education savings account’ means a trust cre3 ated or organized in the United States exclusively

4 for the purpose of paying the educational expenses

5 of an eligible individual, but only if the written gov6 erning instrument creating the trust meets the fol7 lowing requirements:

8 ‘‘(A) No contribution will be accepted un9 less it is in cash, stocks, bonds, or other securi10 ties which are readily tradeable on an estab11 lished securities market, and, except in the case

12 of contributions from another education savings

13 account, contributions will not be accepted for

14 the taxable year in excess of $2,000.

15 ‘‘(B) The trustee is a bank (as defined in

16 section 408(n)) or another person who dem17 onstrates to the satisfaction of the Secretary

18 that the manner in which the person will ad19 minister the trust will be consistent with the re20 quirements of this section.

21 ‘‘(C) No part of the trust assets will be in22 vested in life insurance contracts (other than

23 contracts the beneficiary of which is the trust

24 and the face amount of which does not exceed

25 the amount by which the maximum amount
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1 which can be contributed to the account exceeds

2 the sum of the amounts contributed to the ac3 count for all taxable years).

4 ‘‘(D) The assets of the account may be in5 vested in accordance with the direction of the

6 individual contributing to the account, but, if

7 more than one individual has made contribu8 tions to the account, the consent of all such in9 dividuals shall be required for any such direc10 tion.

11 ‘‘(E) The assets of the trust shall not be

12 commingled with other property except in a

13 common trust fund or common investment

14 fund.

15 ‘‘(F)(i) Any balance in the account on the

16 day after the date on which the individual for

17 whose benefit the trust is established attains

18 age 30 (or, if earlier, the date on which such

19 individual dies) shall be distributed within 30

20 days of such date—

21 ‘‘(I) in accordance with paragraph (5)

22 to each of the individuals who have con23 tributed to the trust, or
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1 ‘‘(II) as directed by such individuals,

2 to another education savings account es3 tablished for the benefit of an eligible indi4 vidual who has not attained age 30 or to

5 an eligible educational institution.

6 ‘‘(ii) If an individual is at least a half-time

7 student at an eligible educational institution at

8 the time the individual attains age 30, clause (i)

9 shall not apply until the individual ceases to be

10 such a student.

11 ‘‘(3) TIME WHEN CONTRIBUTIONS DEEMED

12 MADE.—A taxpayer shall be deemed to have made a

13 contribution on the last day of the preceding taxable

14 year if the contribution is made on account of such

15 taxable year and is made not later than the time

16 prescribed by law for filing the return for such tax17 able year (including extensions thereof).

18 ‘‘(4) STOCK, ETC., TO BE VALUED AS OF

19 TRANSFER DATE.—The fair market value of stocks,

20 bonds, and other securities shall be determined as of

21 the date on which they are transferred to the ac22 count. If the date of transfer falls on a Saturday,

23 Sunday, or public legal holiday, then the fair market

24 value shall be determined by reference to the last
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1 preceding day on which they could have been traded

2 on an established securities market.

3 ‘‘(5) DISTRIBUTION OF BALANCE IN ACCOUNT

4 TO CONTRIBUTORS.—The Secretary shall prescribe

5 regulations describing the manner in which any bal6 ance in the education savings account shall be dis7 tributed under paragraph (2)(F)(i)(I) among the

8 contributors to the account. Any division of the bal9 ance in the account shall reflect—

10 ‘‘(A) the amount of net income of the ac11 count which is attributable to the contributions

12 of each such individual, and

13 ‘‘(B) a proper allocation of any amounts

14 previously distributed from the account for edu15 cational expenses among the contributions

16 which were made before any such distribution

17 (including the net income of the account which

18 was attributable to such contributions and

19 earned before any such distribution).

20 ‘‘(6) EDUCATIONAL EXPENSES.—The term

21 ‘educational expenses’ means—

22 ‘‘(A) tuition and fees required for the en23 rollment or attendance of a student at an eligi24 ble educational institution,
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1 ‘‘(B) fees, books, supplies, and equipment

2 required for courses of instruction at an eligible

3 educational institution, and

4 ‘‘(C) a reasonable allowance for meals and

5 lodging while attending an eligible educational

6 institution.

7 ‘‘(7) ELIGIBLE EDUCATIONAL INSTITUTION.—

8 The term ‘eligible educational institution’ means an

9 institution of higher education described in section

10 481(a) of the Higher Education Act of 1965.

11 ‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—

12 ‘‘(1) IN GENERAL.—Except as otherwise pro13 vided in this subsection, any amount paid or distrib14 uted out of an education savings account shall be in15 cluded in gross income of the payee or distributee

16 for the taxable year in which the payment or dis17 tribution is received to the extent such amount is

18 not the return of a contribution for which no deduc19 tion was allowed under subsection (a) (as deter20 mined in the same manner as provided under section

21 72).

22 ‘‘(2) DISTRIBUTION USED TO PAY EDU23 CATIONAL EXPENSES.—Paragraph (1) shall not

24 apply to any payment or distribution out of an edu25 cation savings account to the extent such payment
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1 or distribution is used exclusively to pay the edu2 cational expenses incurred by the individual for

3 whose benefit the account is established.

4 ‘‘(3) DISTRIBUTIONS TO ANOTHER ACCOUNT OR

5 TO ELIGIBLE EDUCATIONAL INSTITUTION.—

6 ‘‘(A) IN GENERAL.—Paragraph (1) shall

7 not apply to any distribution under subsection

8 (c)(2)(F)(i)(II).

9 ‘‘(B) ROLLOVER CONTRIBUTIONS.—Para10 graph (1) shall not apply to any distribution—

11 ‘‘(i) from an education savings ac12 count of the individual for whose benefit

13 the account is established which, within 60

14 days of such distribution, is paid to an15 other such account of such individual, or

16 ‘‘(ii) which is not described in sub17 paragraph (A) and which, as directed by

18 individuals who have contributed to the ac19 count, is paid to another education savings

20 account established for the benefit of an el21 igible individual who is a member of the

22 family (within the meaning of section

23 2032A(e)(2)) of the account holder.

24 ‘‘(4) EXCESS CONTRIBUTIONS RETURNED BE25 FORE DUE DATE OF RETURN.—Paragraph (1) does
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1 not apply to the distribution of any contribution paid

2 during a taxable year to an education savings ac3 count to the extent that such contribution exceeds

4 the amount allowable as a deduction under sub5 section (a) if—

6 ‘‘(A) such distribution is received on or be7 fore the day prescribed by law (including exten8 sions of time) for filing such individual’s return

9 for such taxable year,

10 ‘‘(B) no deduction is allowed under sub11 section (a) with respect to such excess contribu12 tion, and

13 ‘‘(C) such distribution is accompanied by

14 the amount of net income attributable to such

15 excess contribution.

16 Any net income described in subparagraph (C) shall

17 be included in the gross income of the individual for

18 the taxable year in which such excess contribution

19 was made.

20 ‘‘(e) TAX TREATMENT OF ACCOUNTS.—

21 ‘‘(1) EXEMPTION FROM TAX.—An education

22 savings account is exempt from taxation under this

23 subtitle unless such account has ceased to be an

24 education savings account by reason of paragraph

25 (2) or (3). Notwithstanding the preceding sentence,
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1 any such account is subject to the taxes imposed by

2 section 511 (relating to imposition of tax on unre3 lated business income of charitable, etc. organiza4 tions).

5 ‘‘(2) LOSS OF EXEMPTION OF ACCOUNT WHERE

6 INDIVIDUAL ENGAGES IN PROHIBITED TRANS7 ACTION.—

8 ‘‘(A) IN GENERAL.—If the individual for

9 whose benefit an education savings account is

10 established or any individual who contributes to

11 such account engages in any transaction prohib12 ited by section 4975 with respect to the ac13 count, the account shall cease to be an edu14 cation savings account as of the first day of the

15 taxable year (of the individual so engaging in

16 such transaction) during which such transaction

17 occurs.

18 ‘‘(B) ACCOUNT TREATED AS DISTRIBUTING

19 ALL ITS ASSETS.—In any case in which any ac20 count ceases to be an education savings account

21 by reason of subparagraph (A) as of the first

22 day of any taxable year, paragraph (1) of sub23 section (d) shall apply as if there was a dis24 tribution on such first day in an amount equal
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1 to the fair market value (on such first day) of

2 all assets in the account (on such first day).

3 ‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU4 RITY.—If, during any taxable year, the individual for

5 whose benefit an education savings account is estab6 lished, or any individual who contributes to such ac7 count, uses the account or any portion thereof as se8 curity for a loan, the portion so used shall be treated

9 as distributed to the individual so using such por10 tion.

11 ‘‘(f) ADDITIONAL TAX ON CERTAIN AMOUNTS IN12 CLUDED IN GROSS INCOME.—

13 ‘‘(1) DISTRIBUTION NOT USED FOR EDU14 CATIONAL EXPENSES.—In the case of any payment

15 or distribution to which subsection (d)(1) applies,

16 the tax liability of each payee or distributee under

17 this chapter for the taxable year in which the pay18 ment or distribution is received shall be increased by

19 an amount equal to 10 percent of the amount of the

20 distribution which is includible in the gross income

21 of such payee or distributee for such taxable year.

22 ‘‘(2) DISQUALIFICATION CASES.—If an amount

23 is includible in the gross income of an individual for

24 a taxable year because such amount is required to

25 be treated as a distribution under paragraph (2) or
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1 (3) of subsection (e), such individual’s tax liability

2 under this chapter for such taxable year shall be in3 creased by an amount equal to 10 percent of such

4 amount required to be treated as a distribution and

5 included in the individual’s gross income.

6 ‘‘(3) DISABILITY OR DEATH CASES AND UNEM7 PLOYMENT.—Paragraphs (1) and (2) shall not apply

8 if the payment or distribution—

9 ‘‘(A) is made after the individual for whose

10 benefit the education savings account becomes

11 disabled within the meaning of section 72(m)(7)

12 or dies, or

13 ‘‘(B) is made to an individual who is a

14 contributor after separation from employment

15 if—

16 ‘‘(i) such individual has received un17 employment compensation for 12 consecu18 tive weeks under any Federal or State un19 employment compensation law by reason of

20 such separation, and

21 ‘‘(ii) such distributions are made dur22 ing any taxable year during which such un23 employment compensation is paid or the

24 succeeding taxable year.
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1 To the extent provided in regulations, a self-em2 ployed individual shall be treated as meeting the re3 quirements of subparagraph (B)(i) if, under Federal

4 or State law, the individual would have received un5 employment compensation but for the fact the indi6 vidual was self-employed.

7 ‘‘(g) COMMUNITY PROPERTY LAWS.—This section

8 shall be applied without regard to any community property

9 laws.

10 ‘‘(h) CUSTODIAL ACCOUNTS.—For purposes of this

11 section, a custodial account shall be treated as a trust if

12 the assets of such account are held by a bank (as defined

13 in section 408(n)) or another person who demonstrates,

14 to the satisfaction of the Secretary, that the manner in

15 which he will administer the account will be consistent

16 with the requirements of this section, and if the custodial

17 account would, except for the fact that it is not a trust,

18 constitute an education savings account described in sub19 section (c)(2). For purposes of this title, in the case of

20 a custodial account treated as a trust by reason of the

21 preceding sentence, the custodian of such account shall be

22 treated as the trustee thereof.

23 ‘‘(i) REPORTS.—The trustee of an education savings

24 account shall make such reports regarding such account

25 to the Secretary and to the individual for whose benefit
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1 the account is maintained with respect to contributions,

2 distributions, and such other matters as the Secretary

3 may require under regulations. The reports required by

4 this subsection shall be filed at such time and in such

5 manner and furnished to such individuals at such time and

6 in such manner as may be required by those regulations.

7 ‘‘(j) COORDINATION WITH FEDERAL MEANS-TESTED

8 PROGRAMS.—For purposes of any Federal means-tested

9 program, the balance in any education savings account

10 (and any income from such account) shall not be treated

11 as an asset (or income) of the individual for whom the

12 account is established or any parent of such individual.

13 ‘‘(k) DEFINITIONS AND RULES RELATING TO NON14 DEDUCTIBLE CONTRIBUTIONS TO EDUCATION SAVINGS

15 ACCOUNTS.—

16 ‘‘(1) IN GENERAL.—Subject to the provisions of

17 this subsection, designated nondeductible contribu18 tions may be made on behalf of an individual to an

19 education savings account.

20 ‘‘(2) LIMITS ON AMOUNTS WHICH MAY BE CON21 TRIBUTED.—

22 ‘‘(A) IN GENERAL.—The amount of the

23 designated nondeductible contributions made on

24 behalf of any individual for any taxable year
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1 shall not exceed the nondeductible limit for

2 such taxable year.

3 ‘‘(B) NONDEDUCTIBLE LIMIT.—For pur4 poses of this paragraph—

5 ‘‘(i) IN GENERAL.—The term ‘non6 deductible limit’ means the excess of—

7 ‘‘(I) the amount allowable as a

8 deduction under this section (deter9 mined without regard to subsection

10 (b)(2)), over

11 ‘‘(II) the amount allowable as a

12 deduction under this section (deter13 mined with regard to subsection

14 (b)(2)).

15 ‘‘(ii) TAXPAYER MAY ELECT TO TREAT

16 DEDUCTIBLE CONTRIBUTIONS AS NON17 DEDUCTIBLE.—If a taxpayer elects not to

18 deduct an amount which (without regard

19 to this clause) is allowable as a deduction

20 under this section for any taxable year, the

21 nondeductible limit for such taxable year

22 shall be increased by such amount.

23 ‘‘(C) DESIGNATED NONDEDUCTIBLE CON24 TRIBUTIONS.—
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1 ‘‘(i) IN GENERAL.—For purposes of

2 this paragraph, the term ‘designated non3 deductible contribution’ means any con4 tribution to an education savings account

5 for the taxable year which is designated (in

6 such manner as the Secretary may pre7 scribe) as a contribution for which a de8 duction is not allowable under this section.

9 ‘‘(ii) DESIGNATION.—Any designation

10 under clause (i) shall be made on the re11 turn of tax imposed by chapter 1 for the

12 taxable year.

13 ‘‘(3) TIME WHEN CONTRIBUTIONS MADE.—In

14 determining for which taxable year a designated

15 nondeductible contribution is made, the rule of sub16 section (c)(3) shall apply.

17 ‘‘(4) INDIVIDUAL REQUIRED TO REPORT

18 AMOUNT OF DESIGNATED NONDEDUCTIBLE CON19 TRIBUTIONS.—

20 ‘‘(A) IN GENERAL.—Any individual who—

21 ‘‘(i) makes a designated nondeductible

22 contribution to any education savings ac23 count for any taxable year, or
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1 ‘‘(ii) receives any amount from any

2 education savings account for any taxable

3 year,

4 shall include on his return of the tax imposed

5 by chapter 1 for such taxable year and any suc6 ceeding taxable year (or on such other form as

7 the Secretary may prescribe for any such tax8 able year) information described in subpara9 graph (B).

10 ‘‘(B) INFORMATION REQUIRED TO BE SUP11 PLIED.—The following information is described

12 in this subparagraph:

13 ‘‘(i) The amount of designated non14 deductible contributions for the taxable

15 year.

16 ‘‘(ii) The amount of distributions from

17 education savings accounts for the taxable

18 year.

19 ‘‘(iii) The excess (if any) of—

20 ‘‘(I) the aggregate amount of

21 designated nondeductible contribu22 tions for all preceding taxable years,

23 over

24 ‘‘(II) the aggregate amount of

25 distributions from education savings
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1 accounts which was excludable from

2 gross income for such taxable years.

3 ‘‘(iv) The aggregate balance of the

4 education savings account of the individual

5 as of the close of the calendar year in

6 which the taxable year begins.

7 ‘‘(v) Such other information as the

8 Secretary may prescribe.’’

9 (b) DEDUCTION ALLOWED IN ARRIVING AT AD10 JUSTED GROSS INCOME.—Paragraph (7) of section 62(a)

11 (relating to retirement savings) is amended—

12 (1) by inserting ‘‘OR EDUCATION’’ after ‘‘RE13 TIREMENT’’ in the heading of such paragraph, and

14 (2) by inserting before the period at the end the

15 following: ‘‘and the deduction allowed by section 222

16 (relating to education savings accounts)’’.

17 (c) TAX ON EXCESS CONTRIBUTIONS.—Section 4973

18 (relating to tax on excess contributions to individual re19 tirement accounts, certain section 403(b) contracts, and

20 certain individual retirement annuities) is amended—

21 (1) by inserting ‘‘EDUCATION SAVINGS AC22 COUNTS,’’ after ‘‘SAVINGS ACCOUNTS,’’ in the

23 heading of such section,

24 (2) by striking ‘‘or’’ at the end of paragraph

25 (2) of subsection (a),
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1 (3) by redesignating paragraph (3) of sub2 section (a) as paragraph (4) and by inserting after

3 paragraph (2) the following new paragraph:

4 ‘‘(3) an education savings account (within the

5 meaning of section 222(c)(2)), or’’, and

6 (4) by adding at the end the following new sub7 section:

8 ‘‘(e) EXCESS CONTRIBUTIONS TO EDUCATION SAV9 INGS ACCOUNTS.—For purposes of this section, in the

10 case of an education savings account, the term ‘excess con11 tributions’ means the amount by which the amount con12 tributed for the taxable year to the account exceeds the

13 amount allowable as a deduction under section 222 for

14 such taxable year. For purposes of this subsection, any

15 contribution which is distributed out of the education sav16 ings account in a distribution to which section 222(d)(4)

17 applies shall be treated as an amount not contributed.’’

18 (d) CONTRIBUTION NOT SUBJECT TO GIFT TAX.—

19 Section 2503 (relating to taxable gifts) is amended by

20 adding at the end the following new subsection:

21 ‘‘(h) EDUCATION SAVINGS ACCOUNTS.—Any con22 tribution (including any rollover contribution) made by an

23 individual to an education savings account described in

24 section 222(c)(2) which is allowable as a deduction under
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1 section 222 shall not be treated as a transfer of property

2 by gift for purposes of this chapter.’’

3 (e) TAX ON PROHIBITED TRANSACTIONS.—Section

4 4975 (relating to prohibited transactions) is amended—

5 (1) by adding at the end of subsection (c) the

6 following new paragraph:

7 ‘‘(5) SPECIAL RULE FOR EDUCATION SAVINGS

8 ACCOUNTS.—An individual for whose benefit an edu9 cation savings account is established and any con10 tributor to such account shall be exempt from the

11 tax imposed by this section with respect to any

12 transaction concerning such account (which would

13 otherwise be taxable under this section) if, with re14 spect to such transaction, the account ceases to be

15 an education savings account by reason of the appli16 cation of section 222(e)(2)(A) to such account.’’;

17 and

18 (2) in subsection (e)(1), by striking ‘‘or’’ at the

19 end of subparagraph (D), by redesignating subpara20 graph (E) as subparagraph (F), and by inserting

21 after subparagraph (D) the following new subpara22 graph:

23 ‘‘(E) an education savings account de24 scribed in section 222(c)(2), or’’.
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1 (f) FAILURE TO PROVIDE REPORTS ON EDUCATION

2 SAVINGS ACCOUNTS.—Section 6693 (relating to failure to

3 provide reports on individual retirement accounts or annu4 ities) is amended—

5 (1) by inserting ‘‘OR ON EDUCATION SAV6 INGS ACCOUNTS’’ after ‘‘ANNUITIES’’ in the

7 heading of such section, and

8 (2) in subsection (a)(2), by striking ‘‘and’’ at

9 the end of subparagraph (A), by striking the period

10 at the end of subparagraph (B) and inserting ‘‘,

11 and’’, and by adding at the end the following new

12 subparagraph:

13 ‘‘(C) section 222(i) (relating to education

14 savings accounts).’’

15 (g) SPECIAL RULE FOR DETERMINING AMOUNTS OF

16 SUPPORT FOR DEPENDENT.—Subsection (b) of section

17 152 (relating to definition of dependent) is amended by

18 adding at the end the following new paragraph:

19 ‘‘(6) A distribution from an education savings

20 account described in section 222(c)(2) to the individ21 ual for whose benefit such account has been estab22 lished shall not be taken into account in determining

23 support for purposes of this section to the extent

24 such distribution is excluded from gross income of

25 such individual under section 222(d)(2).’’
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1 (h) CLERICAL AMENDMENTS.—

2 (1) The table of sections for part VII of sub3 chapter B of chapter 1 is amended by striking the

4 item relating to section 222 and inserting the follow5 ing new items:

‘‘Sec. 222. Education savings accounts.

‘‘Sec. 223. Cross reference.’’

6 (2) The table of sections for chapter 43 is

7 amended by striking the item relating to section

8 4973 and inserting the following new item:

‘‘Sec. 4973. Tax on excess contributions to individual retirement

accounts, medical savings accounts, education savings accounts, certain 403(b) contracts, and certain

individual retirement annuities.’’

9 (3) The table of sections for subchapter B of

10 chapter 68 is amended by striking the item relating

11 to section 6693 and inserting the following new

12 item:

‘‘Sec. 6693. Failure to provide reports on individual retirement

accounts or annuities or on education savings accounts.’’

13 (i) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to taxable years beginning after

15 December 31, 1996.

16 SEC. 113. INCREASE IN INCOME LIMITS FOR SAVINGS BOND

17 EXCLUSION.

18 (a) IN GENERAL.—Paragraph (2) of section 135(b)

19 is amended to read as follows:
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1 ‘‘(2) LIMITATION BASED ON MODIFIED AD2 JUSTED GROSS INCOME.—

3 ‘‘(A) IN GENERAL.—If the modified ad4 justed gross income of the taxpayer for the tax5 able year exceeds $70,000 ($100,000 in the

6 case of a joint return), the amount which would

7 (but for this paragraph) be excludable from

8 gross income under subsection (a) shall be re9 duced (but not below zero) by the amount

10 which bears the same ratio to the amount which

11 would be so excludable as such excess bears to

12 $20,000.

13 ‘‘(B) INFLATION ADJUSTMENT.—In the

14 case of any taxable year beginning in a calendar

15 year after 1997, the $70,000 and $100,000

16 amounts contained in subparagraph (A) shall

17 be increased by an amount equal to—

18 ‘‘(i) such dollar amount, multiplied by

19 ‘‘(ii) the cost-of-living adjustment

20 under section 1(f)(3) for the calendar year

21 in which the taxable year begins, deter22 mined by substituting ‘1996’ for ‘1992’ in

23 subparagraph (B) thereof.
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1 ‘‘(C) ROUNDING.—If any amount as ad2 justed under subparagraph (B) is not a mul3 tiple of $50, such amount shall be rounded to

4 the nearest multiple of $50 (or if such amount

5 is a multiple of $25, such amount shall be

6 rounded to the next highest multiple of $50).’’

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

8 this section shall apply to taxable years beginning after

9 December 31, 1996.

10 TITLE II—SCHOLARSHIPS FOR

11 ACADEMIC ACHIEVEMENT

12 SEC. 201. ACADEMIC ACHIEVEMENT SCHOLARSHIPS.

13 (a) SCHOLARSHIPS.—The Secretary of Education is

14 authorized to award scholarships for academic year 1998–

15 1999 and succeeding academic years to each student in

16 a State who graduated in the top 5 percent of such stu17 dent’s graduating class from secondary school in academic

18 year 1997–1998 or a succeeding academic year.

19 (b) AMOUNT.—Each scholarship awarded under this

20 section shall be in the amount of $1,000.

21 (c) NUMBER AND USE.—Each student described in

22 subsection (a) may receive a maximum of 2 scholarships

23 under this section for use at any institution of higher edu24 cation during any 4 academic years.
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•S 218 IS

1 (d) CONTINUING ELIGIBILITY.—In order to be eligi2 ble to receive a second scholarship under this section, a

3 student shall maintain a 3.0 grade point average on a 4.0

4 grade point scale during such student’s first year of study

5 at an institution of higher education.

6 (e) LIMITATION BASED ON MODIFIED ADJUSTED

7 GROSS INCOME.—

8 (1) IN GENERAL.—The Secretary of Education

9 shall not award a scholarship to a student under this

10 section if the modified adjusted gross income of the

11 parents of such student in the case of a dependent

12 student, or the student in the case of an independ13 ent student, for the most recent taxable year ending

14 before the academic year for which the scholarship

15 is awarded exceeds $70,000 ($100,000 in the case

16 of a joint return).

17 (2) MODIFIED ADJUSTED GROSS INCOME.—The

18 term ‘‘modified adjusted gross income’’ means the

19 adjusted gross income of the taxpayer for the tax20 able year determined without regard to sections 911,

21 931, and 933 of the Internal Revenue Code of 1986.

22 (3) ADJUSTMENT OF DOLLAR AMOUNT LIMITA23 TIONS FOR INFLATION.—

24 (A) IN GENERAL.—In the case of any cal25 endar year after 1997, the $70,000 and
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1 $100,000 amounts under paragraph (1), shall

2 each be increased by an amount equal to—

3 (i) such dollar amount, multiplied by

4 (ii) the cost-of-living adjustment de5 termined under section 1(f)(3) of the In6 ternal Revenue Code of 1986 for such cal7 endar year by substituting ‘‘calendar year

8 1996’’ for ‘‘calendar year 1992’’ in sub9 paragraph (B) of such section.

10 (B) ROUNDING.—The rounding rules of

11 section 220(b)(3)(C) of the Internal Revenue

12 Code of 1986 shall apply to any increase under

13 subparagraph (A).

14 (f) REGULATIONS.—The Secretary of Education shall

15 promulgate regulations regarding the notification concern16 ing, payment of, and continuing eligibility for, scholarships

17 under this section.

18 SEC. 202. DEFINITIONS.

19 For the purpose of this title—

20 (1) the term ‘‘institution of higher education’’

21 has the meaning given such term in section 1201 of

22 the Higher Education Act of 1965 (20 U.S.C.

23 1141);
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1 (2) the term ‘‘secondary school’’ has the mean2 ing given such term in section 14101 of the Elemen3 tary and Secondary Education Act of 1965 (20

4 U.S.C. 8801); and

5 (3) the term ‘‘State’’ means each of the several

6 States of the United States and the District of Co7 lumbia.

8 SEC. 203. AUTHORIZATION OF APPROPRIATIONS.

9 There are authorized to be appropriated

10 $130,000,000 for fiscal year 1998 and $260,000,000 for

11 each of the 4 succeeding fiscal years.

12 TITLE III—DEFICIT NEUTRALITY

13 SEC. 301. SENSE OF THE SENATE.

14 It is the sense of the Senate that—

15 (1) this Act will not increase the budget deficit

16 of the United States; and

17 (2) the costs of carrying out this Act should be

18 paid by closing corporate tax loopholes.

Æ