I

103D CONGRESS

1ST SESSION H. R. 2603

To amend the Internal Revenue Code of 1986 to provide transition relief

for nonprofit student loan funding corporations.

IN THE HOUSE OF REPRESENTATIVES

JULY 1, 1993

Mr. NEAL of Massachusetts (for himself and Mr. MOAKLEY) 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 provide

transition relief for nonprofit student loan funding

corporations.

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

3 SECTION 1. ELECTION TO CEASE STATUS AS QUALIFIED

4 SCHOLARSHIP FUNDING CORPORATION.

5 ‘‘(a) IN GENERAL.—Subsection (d) of section 150 of

6 the Internal Revenue Code of 1986 (relating to definitions

7 and special rules) is amended by adding at the end thereof

8 the following new paragraph:

9 ‘‘(3) ELECTION TO CEASE STATUS AS QUALI10 FIED SCHOLARSHIP FUNDING CORPORATION.—
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1 ‘‘(A) IN GENERAL.—Any bond outstanding

2 on the date of the issuer’s election under this

3 paragraph (and any bond issued to refund such

4 a bond) shall not fail—

5 ‘‘(i) to be qualified scholarship fund6 ing bond; or

7 ‘‘(ii) to be a qualified student loan

8 bond—

9 (or similar provisions of prior law) merely be10 cause the issuer ceases to be described in para11 graph (2) if the issuer meets the requirements

12 of subparagraphs (B) and (C), or engages in a

13 transaction described in subparagraph (B), of

14 this paragraph.

15 ‘‘(B) ASSETS AND LIABILITIES OF ISSUER

16 TRANSFERRED TO TAXABLE SUBSIDIARY.—The

17 requirements of this subparagraph are met by

18 an issuer if—

19 ‘‘(i) all of the student loan notes of

20 the issuer are transferred to another cor21 poration within a reasonable period after

22 the election is made under this paragraph;

23 ‘‘(ii) such other corporation assumes

24 or otherwise provides for the payment of

25 all of the qualified scholarship funding
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1 bond indebtedness of the issuer within a

2 reasonable period after the election is

3 made under this paragraph;

4 ‘‘(iii) to the extent permitted by law,

5 such other corporation assumes all of the

6 responsibilities, and succeeds to all of the

7 rights, of the issuer under the issuer’s

8 agreements with the Secretary of Edu9 cation in respect of student loans;

10 ‘‘(iv) immediately after such transfer,

11 the issuer holds all of the stock in such

12 other corporation; and

13 ‘‘(v) such other corporation is not ex14 empt from tax under this chapter.

15 ‘‘(C) ISSUER TO OPERATE AS ORGANIZA16 TION DESCRIBED IN SECTION 501(c)(3)—The re17 quirements of this subparagraph are met by an

18 issuer if, after the transfer referred to in sub19 paragraph (B), the issuer is described in section

20 501(c)(3) and exempt from tax under section

21 501(a).

22 ‘‘(D) COORDINATION WITH TAX ON EX23 CESS BUSINESS HOLDINGS.—For purposes of

24 section 4943, the corporation to which the is25 suer makes the transfer referred to in subpara-
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1 graph (B) shall be treated as a functionally re2 lated business (as defined in section 4942(j)(4))

3 with respect to the issuer so long as more than

4 50 percent of the gross income of such corpora5 tion is derived from, or more than 50 percent

6 of the assets (by value) of such corporation con7 sists of, student loan notes incurred under the

8 Higher Education Act of 1965.

9 ‘‘(E) ELECTION.—An election under this

10 paragraph may be revoked only with the con11 sent of the Secretary.’’

12 (b) EFFECTIVE DATE.—the amendment made by this

13 section shall take effect on the date of the enactment of

14 this Act.

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