which includes such date, or if such 
person is the estate of such bene-
ficiary, in such beneficiary’s gross in-
come for the last taxable year of such 
beneficiary. 
‘‘(ii) 
DEDUCTION
FOR
ESTATE 
TAXES.—An appropriate deduction shall be 
allowed under section 691(c) to any person 
(other than the decedent or the decedent’s 
spouse) with respect to amounts included 
in gross income under clause (i) by such 
person. 
‘‘(f) REPORTS.—The trustee of a lifelong learning ac-
count shall make such reports regarding such account to 
the Secretary and to the account beneficiary with respect 
to contributions, distributions, and such other matters as 
the Secretary may require under regulations. The reports 
required by this subsection shall be filed at such time and 
in such manner and furnished to such individuals at such 
time and in such manner as may be required by those reg-
ulations.’’. 
(b) TAX ON EXCESS CONTRIBUTIONS.—Section 4973 
of the Internal Revenue Code of 1986 is amended— 
(1) by striking ‘‘or’’ at the end of subsection 
(a)(4), by inserting ‘‘or’’ at the end of subsection 
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(a)(5), and by inserting after subsection (a)(5) the 
following new paragraph: 
‘‘(6) a lifelong learning account (within the 
meaning of section 36D(c)),’’, and 
(2) by adding at the end the following new sub-
section: 
‘‘(h) EXCESS CONTRIBUTIONS TO LIFELONG LEARN-
ING ACCOUNTS.—For purposes of this section, in the case 
of lifelong learning accounts (within the meaning of sec-
tion 36D(c)), the term ‘excess contributions’ means the 
sum of— 
‘‘(1) the aggregate amount contributed for the 
taxable year to the accounts (other than rollover 
contributions described in section 36D(e)(5)) which 
is not taken into account for purposes of deter-
mining the credit allowed under section 36D(a) or 
the amount excludable from the taxpayer’s gross in-
come under section 36D(b)(3), and 
‘‘(2) the amount determined under this sub-
section for the preceding taxable year, reduced by 
the sum of— 
‘‘(A) the distributions out of the accounts 
with respect to which additional tax was im-
posed under section 36D(e)(2)(A) for the tax-
able year, and 
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‘‘(B) the excess (if any) of— 
‘‘(i) the maximum amount of con-
tributions which may be taken into account 
under section 36D(a) for the taxable year, 
over 
‘‘(ii) the amount contributed to the 
accounts for the taxable year. 
For purposes of this subsection, any contribu-
tion which is distributed out of the lifelong 
learning account in a distribution to which sec-
tion 36D(e)(4) applies shall be treated as an 
amount not contributed.’’. 
(c) TAX ON PROHIBITED TRANSACTIONS.— 
(1) Paragraph (1) of section 4975(e) of the In-
ternal Revenue Code of 1986 (relating to prohibited 
transactions) is amended by redesignating subpara-
graph (G) as subparagraph (H), by striking ‘‘or’’ at 
the end of subparagraph (F), and by inserting after 
subparagraph (F) the following new subparagraph: 
‘‘(G) a lifelong learning account described 
in section 36D(c), or’’. 
(2) Subsection (c) of section 4975 of such Code 
is amended by adding at the end the following new 
paragraph: 
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‘‘(7) SPECIAL RULE FOR LIFELONG LEARNING 
ACCOUNTS.—An individual for whose benefit a life-
long learning account is established shall be exempt 
from the tax imposed by this section with respect to 
any transaction concerning such account (which 
would otherwise be taxable under this section) if, 
with respect to such transaction, the account ceases 
to be a lifelong learning account by reason of the ap-
plication of section 36D(d)(2) to such account.’’. 
(d) FAILURE TO PROVIDE REPORTS ON LIFELONG 
LEARNING ACCOUNTS.—Paragraph (2) of section 6693(a) 
of the Internal Revenue Code of 1986 is amended by re-
designating subparagraphs (A) through (E) as subpara-
graphs (B) through (F), respectively, and by inserting be-
fore subparagraph (B) (as so redesignated) the following 
new subparagraph: 
‘‘(A) section 36D(f) (relating to lifelong 
learning accounts),’’. 
(e) EXCLUSION FROM EMPLOYMENT TAXES.— 
(1) 
FEDERAL
INSURANCE
CONTRIBUTIONS 
ACT.—Subsection (a) of section 3121 of the Internal 
Revenue Code of 1986 is amended by striking ‘‘or’’ 
at the end of paragraph (22), by striking the period 
at the end of paragraph (23) and inserting ‘‘; or’’, 
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and by inserting after paragraph (23) the following 
new paragraph: 
‘‘(24) any payment made to or for the benefit 
of an employee if at the time of such payment it is 
reasonable to believe that the employee will be able 
to exclude such payment from income under section 
36D(b)(3).’’. 
(2) RAILROAD RETIREMENT TAX.—Subsection 
(e) of section 3231 of such Code is amended by add-
ing at the end the following new paragraph: 
‘‘(13) LEARNING ACCOUNT CONTRIBUTIONS.— 
The term ‘compensation’ shall not include any pay-
ment made to or for the benefit of an employee if 
at the time of such payment it is reasonable to be-
lieve that the employee will be able to exclude such 
payment from income under section 36D(b)(3).’’. 
(3) UNEMPLOYMENT TAX.—Subsection (b) of 
section 3306 of such Code is amended by striking 
‘‘or’’ at the end of paragraph (19), by striking the 
period at the end of paragraph (20) and inserting ‘‘; 
or’’, and by inserting after paragraph (20) the fol-
lowing new paragraph: 
‘‘(21) any payment made to or for the benefit 
of an employee if at the time of such payment it is 
reasonable to believe that the employee will be able 
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to exclude such payment from income under section 
36D(b)(3).’’. 
(4) WITHHOLDING TAX.—Subsection (a) of sec-
tion 3401 of such Code is amended by striking ‘‘or’’ 
at the end of paragraph (22), by striking the period 
at the end of paragraph (23) and inserting ‘‘; or’’, 
and by inserting after paragraph (23) the following 
new paragraph: 
‘‘(24) any payment made to or for the benefit 
of an employee if at the time of such payment it is 
reasonable to believe that the employee will be able 
to exclude such payment from income under section 
36D(b)(3).’’. 
(5) EMPLOYER CONTRIBUTIONS REQUIRED TO 
BE SHOWN ON W–2.—Subsection (a) of section 6051 
of such Code is amended by striking ‘‘and’’ at the 
end of paragraph (13), by striking the period at the 
end of paragraph (14) and inserting ‘‘, and’’, and by 
inserting after paragraph (14) the following new 
paragraph: 
‘‘(15) the amount contributed to any lifelong 
learning account (as defined in section 36D) on be-
half of such employee.’’. 
(6) SOCIAL
SECURITY
TRUST
FUNDS
HELD 
HARMLESS.—There is hereby appropriated (out of 
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any money in the Treasury not otherwise appro-
priated) for each fiscal year to each fund under the 
Social Security Act an amount equal to the reduc-
tion in the transfers to such fund for such fiscal 
year by reason of the amendment made by para-
graph (1). 
(f) EXEMPTION FROM ERISA REQUIREMENTS.— 
Subsection (b) of section 4 of the Employee Retirement 
Income Security Act of 1974 is amended by striking ‘‘or’’ 
at the end of paragraph (4), by striking the period at the 
end of paragraph (5) and inserting ‘‘; or’’, and by insert-
ing after paragraph (5) the following new paragraph: 
‘‘(6) such plan is maintained solely for the pur-
poses of establishing, and making contributions to, 
lifelong learning accounts (as defined in section 36D 
of the Internal Revenue Code of 1986) on behalf of 
employees.’’. 
(g) CONFORMING AMENDMENTS.— 
(1) The table of sections for subpart C of part 
IV of subchapter A of chapter 1 of the Internal Rev-
enue Code of 1986 is amended by inserting after the 
item relating to section 36C the following new item: 
‘‘Sec. 36D. Contributions to lifelong learning accounts.’’. 
(2) Section 6211(b)(4)(A) of such Code is 
amended by inserting ‘‘36D,’’ after ‘‘36C,’’. 
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(3) Section 1324(b)(2) of title 31, United 
States Code, is amended by inserting ‘‘36D,’’ after 
‘‘36C,’’. 
(h) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 3. CREDIT FOR EMPLOYER CONTRIBUTIONS TO LIFE-
LONG LEARNING ACCOUNTS AND ADMINIS-
TRATIVE EXPENSES OF CERTAIN SMALL EM-
PLOYERS. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of 
1986 (relating to business related credits) is amended by 
adding at the end the following new section: 
‘‘SEC. 45S. LIFELONG LEARNING ACCOUNTS CREDIT. 
‘‘(a) IN GENERAL.—For purposes of section 38, the 
lifelong learning accounts credit is the sum of— 
‘‘(1) the lifelong learning account contributions 
credit, and 
‘‘(2) in the case of an eligible employer, the 
small employer lifelong learning account administra-
tive costs credit. 
‘‘(b) LIFELONG LEARNING ACCOUNT CONTRIBU-
TIONS CREDIT.— 
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‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘lifelong learning account contribu-
tions credit’ means the amount equal to 25 percent 
of the aggregate amount paid or incurred by the tax-
payer during the taxable year as contributions to 
lifelong learning accounts (as defined in section 
36D) of employees of the taxpayer. 
‘‘(2) DOLLAR LIMITATION.—The amount of the 
contributions taken into account under paragraph 
(1) with respect to any employee for any taxable 
year shall not exceed $2,500. 
‘‘(c) SMALL EMPLOYER LIFELONG LEARNING AC-
COUNT ADMINISTRATIVE COSTS CREDIT.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘small employer lifelong learning ac-
count administrative costs credit’ means, in the case 
of an eligible employer, the amount equal to 50 per-
cent of the aggregate amount paid or incurred by 
the taxpayer during the taxable year as administra-
tive expenses in carrying out a program to make 
payments to the lifelong learning accounts (as de-
fined in section 36D) of employees of the taxpayer. 
‘‘(2) DOLLAR LIMITATION.—The amount of the 
credit determined under this subsection for any tax-
able year shall not exceed— 
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‘‘(A) $500 for the first credit year and 
each of the 2 taxable years immediately fol-
lowing the first credit year, and 
‘‘(B) zero for any other taxable year. 
‘‘(3) DEFINITIONS.—For purposes of this sub-
section— 
‘‘(A) ELIGIBLE EMPLOYER.—The term ‘eli-
gible employer’ has the meaning given such 
term by section 408(p)(2)(C)(i). 
‘‘(B) FIRST
CREDIT
YEAR.—The term 
‘first credit year’ means the first taxable year 
for which the taxpayer claims a credit under 
this section. 
‘‘(4) SPECIAL
RULES.—For purposes of this 
subsection, rules similar to the rules of paragraphs 
(1), (2), and (3) of section 45E(e) shall apply.’’. 
(b) CREDIT PART OF GENERAL BUSINESS CREDIT.— 
Section 38(b) of such Code is amended by striking ‘‘plus’’ 
at the end of paragraph (35), by striking the period at 
the end of paragraph (36) and inserting ‘‘, plus’’, and by 
adding at the end the following new paragraph: 
‘‘(37) the lifelong learning accounts credit de-
termined under section 45S.’’. 
(c) DEDUCTION
FOR
UNUSED
CREDIT.—Section 
196(c) of such Code is amended by striking ‘‘and’’ at the 
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end of paragraph (13), by striking the period at the end 
of paragraph (14) and inserting ‘‘, and’’, and by adding 
at the end the following new paragraph: 
‘‘(15) the lifelong learning accounts credit de-
termined under section 45S.’’. 
(d) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
of such Code is amended by adding at the end the fol-
lowing new item: 
‘‘Sec. 45S. Lifelong learning accounts credit.’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
Æ 
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