I
106TH CONGRESS
1ST SESSION
H. R. 7
To amend the Internal Revenue Code of 1986 to allow tax-free expenditures
from education individual retirement accounts for elementary and second-
ary school expenses, to increase the maximum annual amount of contribu-
tions to such accounts, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MARCH 1, 1999
Mr. HULSHOF (for himself and Mr. LIPINSKI) 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 allow tax-
free expenditures from education individual retirement
accounts for elementary and secondary school expenses,
to increase the maximum annual amount of contributions
to such accounts, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Education Savings and School Excellence Act of 1999’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
SEC. 2. MODIFICATIONS TO EDUCATION INDIVIDUAL RE-
TIREMENT ACCOUNTS.
(a) TAX-FREE EXPENDITURES
FOR ELEMENTARY
AND SECONDARY SCHOOL EXPENSES.—
(1) IN GENERAL.—Section 530(b)(2) (defining
qualified higher education expenses) is amended to
read as follows:
‘‘(2) QUALIFIED EDUCATION EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
education expenses’ means—
‘‘(i) qualified higher education ex-
penses (as defined in section 529(e)(3));
and
‘‘(ii) qualified elementary and second-
ary education expenses (as defined in para-
graph (4)).
Such expenses shall be reduced as provided in
section 25A(g)(2).
‘‘(B) QUALIFIED
STATE
TUITION
PRO-
GRAMS.—Such term shall include amounts paid
or incurred to purchase tuition credits or cer-
tificates, or to make contributions to an ac-
count, under a qualified State tuition program
(as defined in section 529(b)) for the benefit of
the beneficiary of the account.’’.
(2) QUALIFIED ELEMENTARY AND SECONDARY
EDUCATION EXPENSES.—Section 530(b) (relating to
definitions and special rules) is amended by adding
at the end the following new paragraph:
‘‘(4) QUALIFIED ELEMENTARY AND SECONDARY
EDUCATION EXPENSES.—
‘‘(A) IN GENERAL.—The term ‘qualified el-
ementary and secondary education expenses’
means—
‘‘(i) expenses for tuition, fees, aca-
demic tutoring, special needs services,
books, supplies, computer equipment (in-
cluding related software and services), and
other equipment which are incurred in con-
nection with the enrollment or attendance
of the designated beneficiary of the trust
as an elementary or secondary school stu-
dent at a public, private, or religious
school, or
‘‘(ii) expenses for room and board,
uniforms, 
transportation, 
and 
supple-
mentary items and services (including ex-
tended day programs) which are required
or provided by a public, private, or reli-
gious school in connection with such enroll-
ment or attendance.
‘‘(B) 
SPECIAL
RULE
FOR
HOMESCHOOLING.—Such term shall include ex-
penses described in subparagraph (A)(i) in con-
nection 
with 
education 
provided 
by
homeschooling if the requirements of any appli-
cable State or local law are met with respect to
such education.
‘‘(C) SCHOOL.—The term ‘school’ means
any school which provides elementary education
or secondary education (kindergarten through
grade 12), as determined under State law.’’.
(3) CONFORMING
AMENDMENTS.—Subsections
(b)(1) and (d)(2) of section 530 are each amended
by striking ‘‘higher’’ each place it appears in the
text and heading thereof.
(b) MAXIMUM ANNUAL CONTRIBUTIONS.—Sections
530(b)(1)(A)(iii) and 4973(e)(1)(A) are each amended by
striking ‘‘$500’’ and inserting ‘‘$2,000’’.
(c) WAIVER OF AGE LIMITATIONS FOR CHILDREN
WITH SPECIAL NEEDS.—
(1) Section 530(b)(1) (defining education indi-
vidual retirement account) is amended by adding at
the end the following flush sentence:
‘‘The age limitations in subparagraphs (A) and (E)
shall not apply to any designated beneficiary with
special needs (as determined under regulations pre-
scribed by the Secretary).’’.
(2) Section 530(d)(5) is amended by striking
‘‘who has not attained age 30 as of such date’’ and
inserting ‘‘who, as of such date, either has not at-
tained age 30 or has special needs (as determined
under regulations prescribed by the Secretary)’’.
(3) Section 530(d)(6) is amended by striking all
that follows ‘‘old beneficiary’’ and inserting ‘‘and, as
of the date of such change, either has not attained
age 30 or has special needs (as so determined).’’
(d) CORPORATIONS PERMITTED TO CONTRIBUTE TO
ACCOUNTS.—Section 530(c)(1) (relating to reduction in
permitted contributions based on adjusted gross income)
is amended by striking ‘‘The maximum amount which a
contributor’’ and inserting ‘‘In the case of a contributor
who is an individual, the maximum amount the contribu-
tor’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1999.
SEC. 3. EXCLUSION FROM GROSS INCOME OF EDUCATION
DISTRIBUTIONS 
FROM 
QUALIFIED 
STATE
TUITION PROGRAMS.
(a) IN GENERAL.—Section 529(c)(3)(B) (relating to
distributions) is amended to read as follows:
‘‘(B) 
DISTRIBUTIONS
FOR
QUALIFIED
HIGHER EDUCATION EXPENSES.—
‘‘(i) IN GENERAL.—No amount shall
be includible in gross income under sub-
paragraph (A) if the qualified higher edu-
cation expenses of the designated bene-
ficiary during the taxable year are not less
than the aggregate distributions during the
taxable year.
‘‘(ii) DISTRIBUTIONS
IN
EXCESS
OF
EXPENSES.—If such aggregate distribu-
tions exceed such expenses during the tax-
able year, the amount otherwise includible
in gross income under subparagraph (A)
shall be reduced by the amount which
bears the same ratio to the amount so in-
cludible (without regard to this subpara-
graph) as such expenses bear to such ag-
gregate distributions.
‘‘(iii) ELECTION
TO
WAIVE
EXCLU-
SION.—A taxpayer may elect to waive the
application of this subparagraph for any
taxable year.
‘‘(iv) IN-KIND
DISTRIBUTIONS.—Any
benefit furnished to a designated bene-
ficiary under a qualified State tuition pro-
gram shall be treated as a distribution to
the beneficiary for purposes of this para-
graph.
‘‘(v) DISALLOWANCE
OF
EXCLUDED
AMOUNTS AS CREDIT OR DEDUCTION.—No
deduction or credit shall be allowed to the
taxpayer under any other section of this
chapter for any qualified higher education
expenses to the extent taken into account
in determining the amount of the exclusion
under this paragraph.’’.
(b) DEFINITION OF QUALIFIED HIGHER EDUCATION
EXPENSES.—Section 529(e)(3)(A) (defining qualified
higher education expenses) is amended to read as follows:
‘‘(A) IN
GENERAL.—The term ‘qualified
higher education expenses’ means expenses for
tuition, fees, academic tutoring, special needs
services, books, supplies, computer equipment
(including related software and services), and
other equipment which are incurred in connec-
tion with the enrollment or attendance of the
designated beneficiary at an eligible educational
institution.’’.
(c) COORDINATION WITH EDUCATION CREDITS.—
Section 25A(e)(2) (relating to coordination with exclu-
sions) is amended—
(1) by inserting ‘‘a qualified State tuition pro-
gram or’’ before ‘‘an education individual retirement
account’’; and
(2) by striking ‘‘section 530(d)(2)’’ and insert-
ing ‘‘section 529(c)(3)(B) or 530(d)(2)’’.
(d) ELIGIBLE EDUCATIONAL INSTITUTIONS PER-
MITTED TO MAINTAIN QUALIFIED TUITION PROGRAMS.—
(1) IN GENERAL.—Section 529(b)(1) (defining
qualified State tuition program) is amended by in-
serting ‘‘or by one or more eligible educational insti-
tutions’’ after ‘‘maintained by a State or agency or
instrumentality thereof’’.
(2) PRIVATE
QUALIFIED
TUITION
PROGRAMS
LIMITED TO PREPAID PLANS.—Section 529(b)(1) is
amended by adding at the end the following flush
sentence:
‘‘Clause (ii) of subparagraph (A) shall only apply to
a program established and maintained by a State or
any agency or instrumentality thereof.’’.
(3) TAX ON EXCESS CONTRIBUTIONS.—
(A) IN GENERAL.—Section 4973(a) (relat-
ing to tax imposed) is amended by striking ‘‘or’’
at the end of paragraph (3), inserting ‘‘or’’ at
the end of paragraph (4), and inserting after
paragraph (4) the following new paragraph:
‘‘(5) a private qualified tuition program (as de-
fined in subsection (g)),’’.
(B) EXCESS CONTRIBUTIONS DEFINED.—
Section 4973 is amended by adding at the end
the following new subsection:
‘‘(g) EXCESS CONTRIBUTIONS TO PRIVATE QUALI-
FIED TUITION PROGRAM.—For purposes of this section—
‘‘(1) IN
GENERAL.—In the case of private
qualified tuition programs, the term ‘excess con-
tributions’ means, with respect to any one bene-
ficiary, the amount contributed to a private qualified
tuition program for any taxable year if any amount
is contributed during such year for the benefit of
such beneficiary to a qualified tuition program (as
defined in section 529) other than a private qualified
tuition program.
‘‘(2) PRIVATE QUALIFIED TUITION PROGRAM.—
The term ‘private qualified tuition program’ means
a qualified tuition program (as defined in section
529) not established and maintained by a State or
any agency or instrumentality thereof.’’.
(4) TECHNICAL AMENDMENTS.—
(A) The text of sections 25A(e)(2),
72(e)(9), 
529, 
530(b)(2)(B), 
and
4973(e)(1)(B), as previously amended by this
Act, are each amended by striking ‘‘qualified
State tuition program’’ each place it appears
and inserting ‘‘qualified tuition program’’.
(B)(i) The heading of section 529 is
amended to read as follows:
‘‘SEC. 529. QUALIFIED TUITION PROGRAMS.’’.
(ii) The item relating to section 529 in the
table of sections for part VIII of subchapter F
of chapter 1 is amended by striking ‘‘State’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1999.
SEC. 4. PERMANENT EXTENSION OF EXCLUSION FOR EM-
PLOYER-PROVIDED 
EDUCATIONAL 
ASSIST-
ANCE.
Section 127 (relating to educational assistance pro-
grams) is amended by striking subsection (d) and by re-
designating subsection (e) as subsection (d).
SEC. 5. ADDITIONAL INCREASE IN ARBITRAGE REBATE EX-
CEPTION FOR GOVERNMENTAL BONDS USED
TO FINANCE EDUCATION FACILITIES.
(a) IN GENERAL.—Section 148(f)(4)(D)(vii) (relat-
ing to increase in exception for bonds financing public
school capital expenditures) is amended by striking
‘‘$5,000,000’’ the second place it appears and inserting
‘‘$10,000,000’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to obligations issued after De-
cember 31, 1999.
SEC. 6. EXCLUSION OF CERTAIN AMOUNTS RECEIVED
UNDER 
THE 
NATIONAL 
HEALTH 
CORPS
SCHOLARSHIP PROGRAM AND THE F. ED-
WARD HEBERT ARMED FORCES HEALTH PRO-
FESSIONS SCHOLARSHIP AND FINANCIAL AS-
SISTANCE PROGRAM.
(a) IN GENERAL.—Section 117(c) (relating to the ex-
clusion from gross income amounts received as a qualified
scholarship) is amended—