II

106TH CONGRESS

1ST SESSION S. 1519

To amend the Internal Revenue Code of 1986 to provide that certain 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

AUGUST 5, 1999

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 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 1519 IS

1 SECTION 1. CERTAIN EDUCATIONAL BENEFITS PROVIDED

2 BY AN EMPLOYER TO CHILDREN OF EMPLOY3 EES EXCLUDABLE FROM GROSS INCOME AS A

4 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 EDUCATIONAL BENEFITS

9 PROVIDED TO CHILDREN OF EMPLOYEES.—

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

11 any amount is a qualified scholarship for purposes

12 of subsection (a), the fact that such amount is pro13 vided in connection with an employment relationship

14 shall be disregarded if—

15 ‘‘(A) such amount is provided by the em16 ployer to a child (as defined in section

17 161(c)(3)) of an employee of such employer,

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

19 a plan which meets the nondiscrimination re20 quirements of subsection (d)(3), and

21 ‘‘(C) amounts provided under such plan

22 are in addition to any other compensation pay23 able to employees and such plan does not pro24 vide employees with a choice between such

25 amounts and any other benefit.
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•S 1519 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.

24 ‘‘(4) DEGREE REQUIREMENT NOT TO APPLY.—

25 In the case of an amount which is treated as a quali-
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•S 1519 IS

1 fied scholarship by reason of this subsection, sub2 section (a) shall be applied without regard to the re3 quirement that the recipient be a candidate for a de4 gree.

5 ‘‘(5) CERTAIN OTHER RULES TO APPLY.—Rules

6 similar to the rules of paragraphs (4), (5), and (7)

7 of section 127(c) shall apply for purposes of this

8 subsection.’’

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

10 this section shall apply to taxable years beginning after

11 the date of enactment of this Act.

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