educational institution or an applicable
training program.
‘‘(B) ELIGIBLE
EDUCATIONAL
INSTITU-
TION.—The term ‘eligible educational institu-
tion’ means—
‘‘(i) an institution of higher education,
or
‘‘(ii) a vocational school.
‘‘(C) 
INSTITUTION
OF
HIGHER
EDU-
CATION.—The term ‘institution of higher edu-
cation’ means the institutions described in sec-
tion 1201(a) or 481(a) of the Higher Education
Act of 1965.
‘‘(D) VOCATIONAL
SCHOOL.—The term
‘vocational school’ means an area vocational
education school as defined in subparagraph
(C) or (D) of section 521(4) of the Carl D. Per-
kins Vocational and Applied Technology Edu-
cation Act to the extent such school is located
within any State (as defined in such section).
‘‘(E) APPLICABLE TRAINING PROGRAM.—
The 
term 
‘applicable 
training 
program’
means—
‘‘(i) any applicable program (as de-
fined in section 314(g) of the Job Training
Partnership Act), and
‘‘(ii) any training program approved
under section 236 of the Trade Act of
1974.
‘‘(4) DENIAL
OF
DEDUCTION
FOR
AMOUNTS
PAID FROM ACCOUNT.—If any amount paid or dis-
tributed from an individual training account is not
included in gross income by reason of being used to
pay any qualified expense, such expense shall not be
taken into account in determining the amount of any
deduction under section 212, 217, or any other pro-
vision of this chapter.
‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, any amount paid or distrib-
uted out of an individual training account shall be
included in gross income of the payee or distributee
for the taxable year in which the payment or dis-
tribution is received to the extent such amount is
not used exclusively to pay the qualified expenses
paid during such taxable year by the individual for
whose benefit the account is established.
‘‘(2) EXCESS CONTRIBUTIONS RETURNED BE-
FORE DUE DATE OF RETURN.—Paragraph (1) shall
not apply to the distribution of any contribution paid
during a taxable year to an individual training ac-
count to the extent that such contribution exceeds
the amount allowable as a deduction under sub-
section (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.
‘‘(3) ROLLOVERS.—Paragraph (1) shall not
apply to any amount paid or distributed out of a in-
dividual training account to the individual for whose
benefit the account is maintained if the entire
amount received (including money and any other
property) is paid into another individual training ac-
count for the benefit of such individual not later
than the 60th day after the day on which he received
the payment or distribution.
‘‘(e) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) EXEMPTION
FROM
TAX.—An individual
training account is exempt from taxation under this
subtitle unless such account has ceased to be an in-
dividual training account by reason of paragraph
(2). Notwithstanding the preceding sentence, any
such account is subject to the taxes imposed by sec-
tion 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 an individual training account is
established engages in any transaction prohib-
ited by section 4975 with respect to the ac-
count, the account shall cease to be an individ-
ual training account as of the first day of the
taxable year during which such transaction oc-
curs.
‘‘(B) ACCOUNT TREATED AS DISTRIBUTING
ALL ITS ASSETS.—In any case in which any ac-
count ceases to be an individual training ac-
count 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 dis-
tribution 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) and
such distribution was not used to pay qualified
expenses.
‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU-
RITY.—If, during any taxable year, the individual for
whose benefit an individual training account is es-
tablished 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 and not used to pay qualified expenses.
‘‘(f) ADDITIONAL TAX ON CERTAIN AMOUNTS IN-
CLUDED IN GROSS INCOME.—
‘‘(1) DISTRIBUTION NOT USED FOR QUALIFIED
EXPENSES.—In the case of any payment or distribu-
tion to which subsection (d)(1) applies, the tax li-
ability of the payee or distributee under this chapter
for the taxable year in which the payment or dis-