I
105TH CONGRESS
1ST SESSION
H. R. 53
To amend the Internal Revenue Code of 1986 to establish a Higher Education
Accumulation Program (HEAP) under which individuals are allowed
a deduction for contributions to HEAP accounts.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 7, 1997
Ms. ESHOO (for herself, Mr. ROTHMAN, Mr. FARR of California, Mr.
UNDERWOOD, Mr. HASTINGS of Florida, Mr. KENNEDY of Rhode Island,
Mr. FROST, Ms. NORTON, Mr. MENENDEZ, Ms. JACKSON-LEE of Texas,
and Mr. GREEN) 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 establish
a Higher Education Accumulation Program (HEAP)
under which individuals are allowed a deduction for con-
tributions to HEAP accounts.
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 Ac-
cumulation Program Act of 1997’’.
SEC. 2. DEDUCTION FOR CONTRIBUTIONS TO HEAP AC-
COUNTS.
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
additional itemized deductions for individuals) is amended
by redesignating section 221 as section 222 and by insert-
ing after section 220 the following new section:
‘‘SEC. 221. HIGHER EDUCATION ACCUMULATION PROGRAM
(HEAP) ACCOUNTS.
‘‘(a) DEDUCTION ALLOWED.—In the case of an indi-
vidual, there shall be allowed as a deduction an amount
equal to the amount paid in cash for the taxable year by
the taxpayer to a HEAP account established for the pur-
pose of accumulating funds to pay the educational ex-
penses of any child of the taxpayer.
‘‘(b) LIMITATIONS.—
‘‘(1) MAXIMUM DEDUCTION.—The amount al-
lowable as a deduction under subsection (a) to the
taxpayer for any taxable year shall not exceed
$5,000 ($2,500 in the case of a married individual
filing a separate return) for amounts paid for the
benefit of each child of the taxpayer. In no event
shall the amount allowable as a deduction under
subsection (a) to the taxpayer for any taxable year
exceed $15,000 ($7,500 in the case of a married in-
dividual filing a separate return).
‘‘(2) DEDUCTION MAY NOT EXCEED COMPENSA-
TION.—The amount allowable as a deduction under
subsection (a) shall not exceed the amount of com-
pensation (as defined in section 219(f)) includible in
the taxpayer’s gross income for the taxable year.
‘‘(3) ACCOUNT MAY NOT BE ESTABLISHED FOR
BENEFIT OF MORE THAN 1 INDIVIDUAL.—A HEAP
account may not be established for the benefit of
more than 1 individual.
‘‘(4) NO DEDUCTION AFTER BENEFICIARY AT-
TAINS AGE 18.—No deduction shall be allowed for
any payment to a HEAP account established for the
benefit of an individual who has attained age 18 be-
fore the close of the calendar year in which such
payment is made.
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) HEAP ACCOUNT.—The term ‘HEAP ac-
count’ means a trust created or organized in the
United States exclusively for the purpose of paying
the educational expenses of a child of the taxpayer,
but only if the written governing instrument creating
the trust meets the following requirements:
‘‘(A) No contribution will be accepted un-
less it is in cash, and contributions will not be
accepted for the taxable year in excess of
$5,000.
‘‘(B) The trustee is a bank (as defined in
section 408(n)) or another person who dem-
onstrates to the satisfaction of the Secretary
that the manner in which that person will ad-
minister the trust will be consistent with the re-
quirements of this section.
‘‘(C) No part of the trust assets will be in-
vested in life insurance contracts.
‘‘(D) The assets of the trust shall not be
commingled with other property except in a
common trust fund or common investment
fund.
‘‘(E) On the termination date—
‘‘(i) the balance in the account shall
be distributed to the individual for whose
benefit the account is established, or
‘‘(ii) at the election of such individual,
such account shall be treated for purposes
of this title as an individual retirement ac-
count.
‘‘(2) CHILD.—The term ‘child’ has the meaning
given such term by section 151(c)(3).
‘‘(3) TERMINATION
DATE.—The term ‘termi-
nation date’ means—
‘‘(A) the date the beneficiary attains age
25,
‘‘(B) if the beneficiary is at least a half-
time student on the date referred to in subpara-
graph (A), the last day of the last school year
for which the beneficiary is at least a half-time
student, or
‘‘(C) the date of the beneficiary’s death.
‘‘(4) 
EDUCATIONAL
EXPENSES.—The 
term
‘educational expenses’ means—
‘‘(A) tuition and fees required for the en-
rollment or attendance of a student at an eligi-
ble educational institution,
‘‘(B) fees, books, supplies, and equipment
required for courses of instruction at an eligible
educational institution, and
‘‘(C) a reasonable allowance for meals and
lodging while attending an eligible educational
institution.
‘‘(5) ELIGIBLE EDUCATIONAL INSTITUTION.—
The term ‘eligible educational institution’ means—
‘‘(A) an institution of higher education, or
‘‘(B) a vocational school.
‘‘(6) INSTITUTION OF HIGHER EDUCATION.—
The term ‘institution of higher education’ means the
institutions described in section 1201(a) or 481(a)
of the Higher Education Act of 1965.
‘‘(7) VOCATIONAL
SCHOOL.—The term ‘voca-
tional school’ means an area vocational education
school as defined in subparagraph (C) or (D) of sec-
tion 521(4) of the Carl D. Perkins Vocational and
Applied Technology Education Act to the extent
such school is located within any State (as defined
in such section).
‘‘(8) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—A taxpayer shall be deemed to have made a
contribution on the last day of the preceding taxable
year if the contribution is made on account of such
taxable year and is made not later than the time
prescribed by law for filing the return for such tax-
able year (including extensions thereof).
‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, any amount paid from a
HEAP account shall be included in the gross income
of the beneficiary of such account for the taxable
year in which the payment is received.
‘‘(2) AMOUNTS
USED
FOR
EDUCATION
EX-
PENSES.—If any payment from a HEAP account is
used to pay the educational expenses of the bene-
ficiary of such account—
‘‘(A) paragraph (1) shall not apply, but
‘‘(B) 1⁄10th of such amount shall be in-
cluded in gross income of the beneficiary of
such account for the taxable year in which the
payment is received and for each of the 9 tax-
able years thereafter.
‘‘(3) EXCESS CONTRIBUTIONS RETURNED BE-
FORE DUE DATE OF RETURN.—Paragraph (1) shall
not apply to the distribution of any contribution
made during a taxable year to a HEAP account to
the extent that such contribution exceeds the
amount allowable as a deduction under subsection
(a) if—
‘‘(A) such distribution is received on or be-
fore the day prescribed by law (including exten-
sions of time) for filing such individual’s return
for such taxable year,
‘‘(B) no deduction is allowed under sub-
section (a) with respect to such excess contribu-
tion, and
‘‘(C) such distribution is accompanied by
the amount of net income attributable to such
excess contribution.
Any net income described in subparagraph (C) shall
be included in the gross income of the individual for
the taxable year in which such excess contribution
was made.
‘‘(4) TREATMENT AS INDIVIDUAL RETIREMENT
PLAN NOT SUBJECT TO INCOME TAX INCLUSION.—
The treatment described in subsection (c)(1)(E)(ii)
shall not be treated as a distribution for purposes of
this subsection.
‘‘(e) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) EXEMPTION
FROM
TAX.—A HEAP ac-
count is exempt from taxation under this subtitle
unless such account has ceased to be a HEAP ac-
count by reason of paragraph (2) or (3). Notwith-
standing the preceding sentence, any such account is
subject to the taxes imposed by section 511 (relating
to imposition of tax on unrelated business income of
charitable, etc. organizations).
‘‘(2) LOSS OF EXEMPTION OF ACCOUNT WHERE
INDIVIDUAL
ENGAGES
IN
PROHIBITED
TRANS-
ACTION.—
‘‘(A) IN GENERAL.—If the individual for
whose benefit a HEAP account is established or
any individual who contributes to such account
engages in any transaction prohibited by section
4975 with respect to the account, the account
shall cease to be a HEAP account as of the
first day of the taxable year (of the individual
so engaging in such transaction) during which
such transaction occurs.
‘‘(B) ACCOUNT TREATED AS DISTRIBUTING
ALL ITS ASSETS.—In any case in which any ac-
count ceases to be a HEAP account by reason
of subparagraph (A) as of the first day of any
taxable year, paragraph (1) of subsection (d)
shall apply as if there was a distribution on
such first day in an amount equal to the fair
market value (on such first day) of all assets in
the account (on such first day).
‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU-
RITY.—If, during any taxable year, the individual for
whose benefit a HEAP account is established, or any
individual who contributes to such account, uses the
account or any portion thereof as security for a loan,
the portion so used shall be treated as distributed to
the individual so using such portion.
‘‘(f) ADDITIONAL
TAX
ON
CERTAIN
DISTRIBU-
TIONS.—
‘‘(1) DISTRIBUTION
NOT
USED
FOR
EDU-
CATIONAL
EXPENSES.—If any payment from a
HEAP account is used for any purpose other than
the payment of the education expenses of the bene-
ficiary of such account, the tax liability under this
chapter of such beneficiary for the taxable year in
which the payment is received shall be increased by
an amount equal to 10 percent of such payment.
‘‘(2) DISTRIBUTIONS ON TERMINATION OF AC-
COUNT.—
‘‘(A) IN
GENERAL.—Paragraph (1) shall
be applied by substituting ‘5 percent’ for ‘10
percent’ in the case of any distribution made on
the termination date to the beneficiary of the
account.
‘‘(B) ACCOUNT BECOMING AN INDIVIDUAL
RETIREMENT ACCOUNT.—If—
‘‘(i) the election under subsection
(c)(1)(E)(ii) is made with respect to any
account, and
‘‘(ii) the termination date occurs other
than by reason of the death of the account
beneficiary,
the tax liability under this chapter of such ben-
eficiary for the taxable year which includes the
termination date shall be increased by an
amount equal to 20 percent of the balance in
such account on such date.
‘‘(3) DISABILITY
OR
DEATH
CASES.—Para-
graphs (1) and (2)(A) shall not apply if the distribu-
tion is made after the account beneficiary becomes
disabled within the meaning of section 72(m)(7) or
dies.
‘‘(4) DISQUALIFICATION CASES.—Any amount
treated under paragraph (2) or (3) of subsection (e)
as distributed from a HEAP account shall be treat-
ed as a distribution to which the tax imposed by
paragraph (1) applies.
‘‘(g) COMMUNITY PROPERTY LAWS.—This section
shall be applied without regard to any community property
laws.
‘‘(h) CUSTODIAL ACCOUNTS.—For purposes of this
section, a custodial account shall be treated as a trust if
the assets of such account are held by a bank (as defined
in section 408(n)) or another person who demonstrates,
to the satisfaction of the Secretary, that the manner in
which he will administer the account will be consistent
with the requirements of this section, and if the custodial
account would, except for the fact that it is not a trust,
constitute a HEAP account described in subsection (c)(1).
For purposes of this title, in the case of a custodial ac-
count treated as a trust by reason of the preceding sen-
tence, the custodian of such account shall be treated as
the trustee thereof.
‘‘(i) REPORTS.—The trustee of a HEAP account
shall make such reports regarding such account to the
Secretary and to the individual for whose benefit the ac-
count is maintained with respect to contributions, dis-
tributions, 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 regulations.’’
(b) DEDUCTION ALLOWED
IN ARRIVING
AT AD-
JUSTED GROSS INCOME.—Subsection (a) of section 62 of
such Code (relating to retirement savings) is amended by
inserting after paragraph (16) the following new para-
graph:
‘‘(17) EDUCATION SAVINGS.—The deduction al-
lowed by section 221 (relating to HEAP accounts).’’.
(c) TAX ON EXCESS CONTRIBUTIONS.—Section 4973
of such Code (relating to tax on excess contributions to
individual retirement accounts, certain section 403(b) con-
tracts, and certain individual retirement annuities) is
amended—
(1) by inserting ‘‘HEAP
ACCOUNTS,’’ after
‘‘SAVINGS ACCOUNTS,’’ in the heading of such sec-
tion,
(2) by striking ‘‘or’’ at the end of paragraph
(1) of subsection (a),
(3) by redesignating paragraph (2) of sub-
section (a) as paragraph (3) and by inserting after
paragraph (1) the following new paragraph:
‘‘(2) a HEAP account (within the meaning of
section 221(c)(1)), or’’, and
(4) by adding at the end the following new sub-
section:
‘‘(e) EXCESS
CONTRIBUTIONS
TO
HEAP AC-
COUNTS.—For purposes of this section, in the case of a
HEAP account, the term ‘excess contributions’ means the
amount by which the amount contributed for the taxable
year to the account exceeds the amount allowable as a de-
duction under section 221 for such taxable year. For pur-
poses of this subsection, any contribution which is distrib-
uted out of the HEAP account in a distribution to which
section 221(d)(3) applies shall be treated as an amount
not contributed.’’
(d) TAX ON PROHIBITED TRANSACTIONS.—
(1) Subsection (c) of section 4975 of such Code
(relating to prohibited transactions) is amended by
adding at the end the following new paragraph:
‘‘(5) SPECIAL RULE FOR HEAP ACCOUNTS.—An
individual for whose benefit a HEAP account is es-
tablished and any contributor to such account 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 sec-
tion) if, with respect to such transaction, the ac-
count ceases to be a HEAP account by reason of the
application of section 221(e)(2)(A) to such account.’’
(2) Paragraph (1) of section 4975(e) of such
Code is amended by striking ‘‘or’’ at the end of sub-
paragraph (D), by redesignating subparagraph (E)
as subparagraph (F), and by inserting after sub-
paragraph (D) the following new subparagraph:
‘‘(E) a HEAP account described in section
221(c)(1), or’’.
(e) FAILURE TO PROVIDE REPORTS ON HEAP AC-
COUNTS.—
(1) Paragraph (2) of section 6693(a) of such
Code (relating to failure to provide reports on indi-
vidual retirement accounts or annuities) is amended
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 221(i) (relating to HEAP ac-
counts).’’.
(2) The heading for section 6693 of such Code
is amended to read as follows:
‘‘SEC. 6693. FAILURE TO PROVIDE REPORTS ON INDIVIDUAL
RETIREMENT PLANS AND CERTAIN OTHER
SAVINGS PLANS.’’
(f) CLERICAL AMENDMENTS.—
(1) The table of sections for part VII of sub-
chapter B of chapter 1 of such Code is amended by
striking the item relating to section 221 and insert-
ing the following new items:
‘‘Sec. 221. HEAP accounts.
‘‘Sec. 222. Cross reference.’’
(2) The table of sections for chapter 43 of such
Code is amended by striking the item relating to sec-
tion 4973 and inserting the following new item:
‘‘Sec. 4973. Tax on excess contributions to individual retirement
accounts, medical savings accounts, HEAP ac-
counts, certain 403(b) contracts, and certain indi-
vidual retirement annuities.’’
(3) The table of sections for subchapter B of
chapter 68 of such Code is amended by striking the
item relating to section 6693 and inserting the fol-
lowing new item:
‘‘Sec. 6693. Failure to provide reports on individual retirement
plans and certain other savings plans.’’
(g) EFFECTIVE DATE.—The amendments made by
this section shall apply to contributions made in taxable
years beginning after December 31, 1997.
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