I

107TH CONGRESS

1ST SESSION H. R. 2041

To amend the Internal Revenue Code of 1986 to exclude from gross income

gain from the sale of securities which are used to pay for higher education expenses.

IN THE HOUSE OF REPRESENTATIVES

MAY 26 (legislative day, MAY 25), 2001

Mr. KNOLLENBERG 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 exclude

from gross income gain from the sale of securities which

are used to pay for higher education expenses.

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 ‘‘Equity in Education

5 Act of 2001’’.
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1 SEC. 2. EXCLUSION FROM GROSS INCOME FOR GAIN FROM

2 SALE OF SECURITIES USED TO PAY HIGHER

3 EDUCATION EXPENSES.

4 (a) IN GENERAL.—Part III of subchapter B of chap5 ter 1 of the Internal Revenue Code of 1986 (relating to

6 items specifically excluded from gross income) is amended

7 by redesignating section 139 as section 139A and by in8 serting after section 138 the following new section:

9 ‘‘SEC. 139. EXCLUSION FROM GROSS INCOME FOR GAIN

10 FROM SALE OF SECURITIES USED TO PAY

11 HIGHER EDUCATION EXPENSES.

12 ‘‘(a) GENERAL RULE.—In the case of an individual

13 who elects the application of this section and who pays

14 qualified higher education expenses during the taxable

15 year, no amount shall be includible in gross income by rea16 son of the sale during such year of any qualified security.

17 ‘‘(b) LIMITATION WHERE GAIN ON SALE OR EX18 CHANGE EXCEEDS HIGHER EDUCATION EXPENSES.—

19 ‘‘(1) IN GENERAL.—If—

20 ‘‘(A) the aggregate gain on the sale of any

21 qualified securities by the taxpayer during the

22 taxable year exceeds

23 ‘‘(B) the qualified higher education ex24 penses paid by the taxpayer during such taxable

25 year,
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1 the amount excludable from gross income under sub2 section (a) shall not exceed the applicable fraction of

3 the amount excludable from gross income under sub4 section (a) without regard to this subsection.

5 ‘‘(2) APPLICABLE FRACTION.—For purposes of

6 subparagraph (A), the term ‘applicable fraction’

7 means the fraction the numerator of which is the

8 amount described in paragraph (1)(B) and the de9 nominator of which is the amount described in para10 graph (1)(A).

11 ‘‘(c) DEFINITIONS AND SPECIAL RULE.—For pur12 poses of this section—

13 ‘‘(1) QUALIFIED SECURITY.—

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

15 security’ means any security (as defined in sec16 tion 1236(c)) which is traded on an established

17 securities market.

18 ‘‘(B) EXCEPTION.—Such term shall not in19 clude any security held in a qualified retirement

20 plan (as defined in section 4974(c)) or in an ac21 count or under an arrangement which is exempt

22 from tax under this title.

23 ‘‘(2) QUALIFIED HIGHER EDUCATION EX24 PENSES.—The term ‘qualified higher education ex25 penses’ has the meaning given such term by section
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1 530(b)(2), reduced by the amount of such expenses

2 taken into account for purposes of any other provi3 sion of this chapter.

4 ‘‘(3) EXCLUSION NOT APPLICABLE TO GAIN

5 TREATED AS ORDINARY INCOME.—This section shall

6 not apply to any gain which is treated as ordinary

7 income for purposes of this subtitle.’’.

8 (b) CLERICAL AMENDMENT.—The table of sections

9 for part III of subchapter B of chapter 1 of such Code

10 is amended by striking the item relating to section 139

11 and inserting the following new items:

‘‘Sec. 139. Exclusion from gross income for gain from sale of securities used to pay higher education expenses.

‘‘Sec. 139A. Cross references to other Acts.’’.

12 (c) EFFECTIVE DATE.—The amendments made by

13 this section shall apply to expenses paid after December

14 31, 2001 (in taxable years beginning after such date), for

15 education furnished in academic periods beginning after

16 such date.

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