with respect to such transaction, the account ceases
to be an education investment account by reason of
the application of section 530 to such account.’’; and
(2) in subsection (e)(1), by striking ‘‘or’’ at the
end of subparagraph (D), by redesignating subpara-
graph (E) as subparagraph (F), and by inserting
after subparagraph (D) the following new subpara-
graph:
‘‘(E) a education investment account de-
scribed in section 530, or’’.
(c) FAILURE TO PROVIDE REPORTS ON EDUCATION
INVESTMENT ACCOUNTS.—Section 6693 (relating to fail-
ure to provide reports on individual retirement accounts
or annuities) is amended—
(1) by inserting ‘‘OR
ON
EDUCATION
IN-
VESTMENT
ACCOUNTS’’ after ‘‘ANNUITIES’’ in
the heading of such section, and
(2) in subsection (a)(2), by striking ‘‘and’’ at
the end of subparagraph (A), by striking the period
at the end of subparagraph (B) and inserting ‘‘,
and’’, and by adding at the end the following new
subparagraph:
‘‘(C) section 530(h) (relating to education
investment accounts).’’
(d) COORDINATION WITH SAVINGS BOND EXCLU-
SION.—Section 135(d)(1) is amended by striking ‘‘or’’ at
the end of subparagraph (C), by striking the period at the
end of subparagraph (D) and inserting ‘‘, or’’, and by in-
serting at the end the following new subparagraph:
‘‘(E) a payment or distribution from an
education investment account (as defined in
section 530).’’
(e) CLERICAL AMENDMENTS.—
(1) The table of sections for part VIII of sub-
chapter F of chapter 1 is amended by adding at the
end the following new item:
‘‘Sec. 530. Education investment accounts.’’
(2)(A) The heading for part VIII of subchapter
F of chapter 1 is amended to read as follows:
‘‘PART VIII—HIGHER EDUCATION SAVINGS
ENTITIES’’.
(B) The table of parts for subchapter F of
chapter 1 is amended by striking the item relating
to part VIII and inserting:
‘‘Part VIII. Higher education savings entities.’’
(3) The table of sections for subchapter B of
chapter 68 is amended by striking the item relating
to section 6693 and inserting the following new
item:
‘‘Sec. 6693. Failure to provide reports on individual retirement
accounts or annuities or on education investment
accounts.’’
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 3. EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE
PROGRAMS.
(a) PERMANENT EXTENSION.—Section 127 of the
Internal Revenue Code of 1986 (relating to exclusion for
educational assistance programs) is amended by striking
subsection (d) and by redesignating subsection (e) as sub-
section (d).
(b) EFFECTIVE DATES.—The amendments made by
subsection (a) shall apply to taxable years beginning after
December 31, 1996.
SEC. 4. MODIFICATIONS OF TAX TREATMENT OF QUALI-
FIED STATE TUITION PROGRAMS.
(a) EXCLUSION OF DISTRIBUTIONS USED FOR EDU-
CATIONAL
PURPOSES.—Subparagraph (B) of section
529(c)(3) is amended to read as follows:
‘‘(B) 
DISTRIBUTIONS
FOR
QUALIFIED
HIGHER
EDUCATION
EXPENSES.—Subpara-
graph (A) shall not apply to any distribution to
the extent—
‘‘(i) the distribution is used exclusively
to pay qualified higher education expenses
of the distributee, or
‘‘(ii) the distribution consists of pro-
viding a benefit to the distributee which, if
paid for by the distributee, would con-
stitute payment of a qualified higher edu-
cation expense.’’
(b) QUALIFIED HIGHER EDUCATION EXPENSES TO
INCLUDE
ROOM
AND
BOARD.—Section 529(e)(3) is
amended to read as follows:
‘‘(3) QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—The term ‘qualified higher education ex-
penses’ means the cost of attendance (within the
meaning of section 472 of the Higher Education Act
of 1965 (20 U.S.C. 1087ll), as in effect on the date
of the enactment of the Higher Education Learning
and Promotion Act) of a designated beneficiary at
an eligible educational institution (as defined in sec-
tion 135(c)(3)).’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
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