I
107TH CONGRESS
1ST SESSION
H. R. 538
To amend the Internal Revenue Code of 1986 to provide tax incentives
for education.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 8, 2001
Ms. GRANGER (for herself, Mr. BURR of North Carolina, Mr. PITTS, Mr.
FORD, Mr. SESSIONS, Mr. BONILLA, Mr. WATKINS, Mr. HINCHEY, Mr.
BLUNT, Mr. PAUL, Mr. MCHUGH, Mr. COMBEST, Mr. DOOLITTLE, and
Mrs. KELLY) 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
tax incentives for education.
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 ‘‘Higher Education Af-
fordability Act’’.
SEC. 2. EXCLUSION FROM GROSS INCOME OF EDUCATION
DISTRIBUTIONS FROM QUALIFIED TUITION
PROGRAMS; COVERAGE OF PRIVATE PRO-
GRAMS.
(a) EXCLUSION.—
(1) IN GENERAL.—Subparagraph (B) of section
529(c)(3) of the Internal Revenue Code of 1986 (re-
lating to distributions) is amended to read as fol-
lows:
‘‘(B) 
DISTRIBUTIONS
FOR
QUALIFIED
HIGHER
EDUCATION
EXPENSES.—If a dis-
tributee elects the application of this subpara-
graph for any taxable year—
‘‘(i) no amount shall be includible in
gross income by reason of a distribution
which consists of providing a benefit to the
distributee which, if paid for by the dis-
tributee, would constitute payment of a
qualified higher education expense, and
‘‘(ii) the amount which (but for the
election) would be includible in gross in-
come by reason of any other distribution
shall not be so includible in an amount
which bears the same ratio to the amount
which would be so includible as the amount
of the qualified higher education expenses
of the distributee bears to the amount of
the distribution.’’
(2) ADDITIONAL TAX ON AMOUNTS NOT USED
FOR HIGHER EDUCATION EXPENSES.—Section 529
of such Code is amended by adding at the end the
following new subsection:
‘‘(f) ADDITIONAL TAX
FOR DISTRIBUTIONS NOT
USED FOR EDUCATIONAL EXPENSES.—
‘‘(1) IN GENERAL.—The tax imposed by section
530(d)(4) shall apply to payments and distributions
from qualified tuition programs in the same manner
as such tax applies to education individual retire-
ment accounts.
‘‘(2) EXCESS CONTRIBUTIONS RETURNED BE-
FORE DUE DATE OF RETURN.—Paragraph (1) shall
not apply to the distribution to a contributor of any
contribution paid during a taxable year to a quali-
fied tuition program to the extent that such con-
tribution exceeds the limitation in section 4973(e) if
such distribution (and the net income with respect
to such excess contribution) meets requirements
comparable to the requirements of clauses (i) and
(ii) of section 530(d)(4)(C).’’
(3) COORDINATION
WITH
EDUCATION
CRED-
ITS.—Section 25A(e)(2) of such Code is amended by
inserting ‘‘529(c)(3)(B) or’’ before ‘‘530(d)(2)’’.
(4) CONFORMING AMENDMENT.—Paragraph (2)
of section 26(b) of such Code is amended by redesig-
nating subparagraphs (E) through (Q) as subpara-
graphs (F) through (R), respectively, and by insert-
ing after subparagraph (D) the following new sub-
paragraph:
‘‘(E) section 529(f) (relating to additional
tax on certain distributions from qualified tui-
tion programs),’’.
(5) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to distributions after
December 31, 2000, for education furnished in aca-
demic periods beginning after such date.
(b) ELIGIBLE EDUCATIONAL INSTITUTIONS PER-
MITTED TO MAINTAIN QUALIFIED TUITION PROGRAMS.—
(1) IN
GENERAL.—Paragraph (1) of section
529(b) of such Code (defining qualified State tuition
program) is amended by inserting ‘‘or by one or
more eligible educational institutions’’ after ‘‘main-
tained by a State or agency or instrumentality there-
of’’.
(2) PRIVATE
QUALIFIED
TUITION
PROGRAMS
LIMITED TO BENEFIT PLANS.—Clause (ii) of section
529(b)(1)(A) of such Code is amended by inserting
‘‘in the case of a program established and main-
tained by a State or agency or instrumentality there-
of,’’ before ‘‘may make’’.
(3) CONFORMING AMENDMENTS.—
(A) 
Sections 
72(e)(9), 
135(c)(2)(C),
135(d)(1)(D), 529, 530(b)(2)(B), 4973(e), and
6693(a)(2)(C) of such Code are each amended
by striking ‘‘qualified State tuition’’ each place
it appears and inserting ‘‘qualified tuition’’.
(B) The headings for sections 72(e)(9) and
135(c)(2)(C) of such Code are each amended by
striking ‘‘QUALIFIED STATE TUITION’’ and in-
serting ‘‘QUALIFIED TUITION’’.
(C) The headings for sections 529(b) and
530(b)(2)(B) of such Code are each amended
by striking ‘‘QUALIFIED STATE TUITION’’ and
inserting ‘‘QUALIFIED TUITION’’.
(D) The heading for section 529 of such
Code is amended by striking ‘‘STATE’’.
(E) The item relating to section 529 in the
table of sections for part VIII of subchapter F
of chapter 1 of such Code is amended by strik-
ing ‘‘State’’.
(4) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years begin-
ning after December 31, 2000.
(c) CHANGE OF QUALIFIED TUITION PROGRAM OR
OF DESIGNATED BENEFICIARY.—
(1) 
IN
GENERAL.—Clause 
(i) 
of 
section
529(c)(3)(C) of such Code is amended by inserting
‘‘to another qualified tuition program for the benefit
of the designated beneficiary or’’ after ‘‘trans-
ferred’’.
(2) INCLUSION OF SIBLINGS AS MEMBER OF
FAMILY.—Paragraph (2) of section 529(e) of such
Code is amended by striking ‘‘and’’ at the end of
subparagraph (B), by striking the period at the end
of subparagraph (C) and inserting ‘‘; and’’, and by
adding at the end the following new subparagraph:
‘‘(D) any sibling (whether by the whole or
half blood) of the designated beneficiary.’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years begin-
ning after December 31, 2000.
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