Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Education Savings Act
for Public and Private Schools’’.
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) of the In-
ternal Revenue Code of 1986 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) but only with respect to
amounts in the account which are attributable
to contributions for any taxable year ending be-
fore January 1, 2003, and earnings on such
contributions.
‘‘(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) of such
Code 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 tuition, fees, tutoring, special needs serv-
ices, books, supplies, computer equipment (in-
cluding related software and services) and other
equipment, transportation, and supplementary
expenses required for the enrollment or attend-
ance of the designated beneficiary of the trust
at a public, private, or religious school.
‘‘(B) 
SPECIAL
RULE
FOR
HOME-
SCHOOLING.—Such term shall include expenses
described in subparagraph (A) required for edu-
cation provided for homeschooling if the re-
quirements of any applicable 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 (through grade 12), as
determined under State law.’’.
(3) CONFORMING
AMENDMENTS.—Subsections
(b)(1) and (d)(2) of section 530 of such Code are
each amended by striking ‘‘higher’’ each place it ap-
pears in the text and heading thereof.
(b) TEMPORARY INCREASE IN MAXIMUM ANNUAL
CONTRIBUTIONS.—
(1) IN GENERAL.—Section 530(b)(1)(A)(iii) of
the Internal Revenue Code of 1986 is amended by
striking ‘‘$500’’ and inserting ‘‘the contribution
limit for such taxable year’’.
(2) CONTRIBUTION LIMIT.—Section 530(b) of
such Code is amended by adding at the end the fol-
lowing new paragraph:
‘‘(4) CONTRIBUTION
LIMIT.—The term ‘con-
tribution limit’ means $2,500 ($500 in the case of
any taxable year ending after December 31, 2002).’’.
(3) CONFORMING AMENDMENTS.—
(A) Section 530(d)(4)(C) of such Code is
amended by striking ‘‘$500’’ and inserting ‘‘the
contribution limit for such taxable year’’.
(B) Section 4973(e)(1)(A) of such Code is
amended by striking ‘‘$500’’ and inserting ‘‘the
contribution 
limit 
(as 
defined 
in 
section
530(b)(4)) for such taxable year’’.
(c) WAIVER OF AGE LIMITATIONS FOR CHILDREN
WITH SPECIAL NEEDS.—Paragraph (1) of section 530(b)
of the Internal Revenue Code of 1986 is amended by add-
ing at the end the following flush sentence:
‘‘The age limitations in the preceding sentence shall
not apply to any designated beneficiary with special
needs (as determined under regulations prescribed
by the Secretary).’’.
(d) CORPORATIONS PERMITTED TO CONTRIBUTE TO
ACCOUNTS.—Paragraph (1) of section 530(c) of the Inter-
nal Revenue Code of 1986 is amended by striking ‘‘The
maximum amount which a contributor’’ and inserting ‘‘In
the case of a contributor who is an individual, the maxi-
mum amount the contributor’’.
(e) EFFECTIVE DATE; REFERENCES.—
(1) EFFECTIVE DATE.—The amendments made
by this section shall take effect as if included in the
amendments made by section 213 of the Taxpayer
Relief Act of 1997.
(2) REFERENCES.—Any reference in this sec-
tion to any section of the Internal Revenue Code of
1986 shall be a reference to such section as added
by the Taxpayer Relief Act of 1997.
SEC. 3. OVERRULING OF SCHMIDT BAKING COMPANY CASE.
(a) IN GENERAL.—The Internal Revenue Code of
1986 shall be applied without regard to the result reached
in the case of Schmidt Baking Company, Inc. v. Commis-
sioner of Internal Revenue, 107 T.C. 271 (1996).
(b) REGULATIONS.—The Secretary of the Treasury
or the Secretary’s delegate shall prescribe regulations to
reflect subsection (a).
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—Subsections (a) and (b) shall
apply to taxable years ending after October 8, 1997.
(2) CHANGE IN METHOD OF ACCOUNTING.—In
the case of any taxpayer required by this section to
change its method of accounting for its first taxable
year ending after October 8, 1997—
(A) such change shall be treated as initi-
ated by the taxpayer,
(B) such change shall be treated as made
with the consent of the Secretary of the Treas-
ury, and
(C) the net amount of the adjustments re-
quired to be taken into account by the taxpayer
under section 481 of the Internal Revenue Code
of 1986 shall be taken into account in such first
taxable year.
Passed the House of Representatives October 23,
1997.
Attest:
Clerk.