I
105TH CONGRESS
1ST SESSION
H. R. 1810
To amend the Internal Revenue Code of 1986 to provide tax incentives
for higher education.
IN THE HOUSE OF REPRESENTATIVES
JUNE 5, 1997
Ms. GRANGER (for herself, Ms. DUNN, Mr. PITTS, Mr. DELAY, Mr. SAM
JOHNSON of Texas, Mr. WELLER, Mr. RIGGS, Mr. WATTS of Oklahoma,
Mr. SHIMKUS, Mr. PAUL, Mr. COMBEST, Mr. THORNBERRY, Mr. SES-
SIONS, Mr. BRADY, and Mrs. MYRICK) 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 higher 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; AMENDMENT OF 1986 CODE.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Higher Education and Learning Promotion Act’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
SEC. 2. EDUCATION INVESTMENT ACCOUNTS.
(a) IN GENERAL.—Part VIII of subchapter F of
chapter 1 (relating to qualified State tuition programs)
is amended by adding at the end the following new section:
‘‘SEC. 530. EDUCATION INVESTMENT ACCOUNTS.
‘‘(a) GENERAL RULE.—An education investment ac-
count (hereafter in this section referred to as an ‘edu-
cation investment account’) shall be exempt from taxation
under this subtitle. Notwithstanding the preceding sen-
tence, the education investment account shall be subject
to the taxes imposed by section 511 (relating to imposition
of tax on unrelated business income of charitable organiza-
tions).
‘‘(b) LIMITATIONS ON ACCOUNTS.—
‘‘(1) ACCOUNT MAY NOT BE ESTABLISHED FOR
BENEFIT OF MORE THAN 1 INDIVIDUAL.—An edu-
cation investment account may not be established for
the benefit of more than 1 individual.
‘‘(2) SPECIAL RULE WHERE MORE THAN 1 AC-
COUNT.—If, at any time during a calendar year, 2
or more education investment accounts are main-
tained for the benefit of an individual, only the ac-
count first established shall be treated as an edu-
cation investment account for purposes of this sec-
tion. This paragraph shall not apply to the extent
more than 1 account exists solely by reason of a roll-
over contribution.
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) EDUCATION INVESTMENT ACCOUNT.—The
term ‘education investment account’ means a trust
created or organized in the United States exclusively
for the purpose of paying the qualified higher edu-
cation expenses of the account holder, but only if the
written governing instrument creating the trust
meets the following requirements:
‘‘(A) No contribution will be accepted—
‘‘(i) unless it is in cash or in securities
for which (as of the date of the contribu-
tion) market quotations are readily avail-
able on an established securities market,
‘‘(ii) except in the case of rollover con-
tributions from another education invest-
ment account, in excess of $1,500 for any
calendar year, and
‘‘(iii) after the date on which the ac-
count holder attains age 18.
‘‘(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 (other than
contracts the beneficiary of which is the trust
and the face amount of which does not exceed
the amount by which the maximum amount
which can be contributed to the education in-
vestment account exceeds the sum of the
amounts contributed to the account for all tax-
able years).
‘‘(D) The assets of the trust shall not be
commingled with other property except in a
common trust fund or common investment
fund.
‘‘(E) Any balance in the education invest-
ment account on the day after the date on
which the individual for whose benefit the trust
is established attains age 30 (or, if earlier, the
date on which such individual dies) shall be dis-
tributed within 30 days of such date to the ac-
count holder (or in the case of death, the bene-
ficiary).
‘‘(2) 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).
‘‘(3) QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
higher education expenses’ has the same mean-
ing given such term by section 529(e)(3), ex-
cept that such expenses shall be reduced by any
amount described in section 135(d)(1) (relating
to certain scholarships and veterans benefits).
‘‘(B) STATE TUITION PLANS.—Such term
shall include amounts paid or incurred to pur-
chase tuition credits or certificates, or to make
contributions to an account, under a qualified
State tuition program (as defined in section
529(b)).
‘‘(4) ELIGIBLE EDUCATIONAL INSTITUTION.—
The term ‘eligible educational institution’ has the
meaning given such term by section 135(c)(3).
‘‘(5) ACCOUNT
HOLDER.—The term ‘account
holder’ means the individual for whose benefit the
education investment account is established.
‘‘(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 education investment account shall be
included in gross income of the payee or distributee
for the taxable year in the manner prescribed by sec-
tion 72. For purposes of the preceding sentence,
rules similar to the rules of section 408(d)(2) shall
apply.
‘‘(2) DISTRIBUTION
USED
TO
PAY
EDU-
CATIONAL
EXPENSES.—Paragraph (1) shall not
apply to any payment or distribution out of an edu-
cation investment account to the extent such pay-
ment or distribution is used exclusively to pay the
qualified higher education expenses of the account
holder.
‘‘(3) SPECIAL
RULE
FOR
APPLYING
SECTION
2503.—If any payment or distribution from an edu-
cation investment account is used exclusively for the
payment to an eligible educational institution of the
qualified higher education expenses of the account
holder, such payment shall be treated as a qualified
transfer for purposes of section 2503(e).
‘‘(4) ADDITIONAL TAX FOR DISTRIBUTIONS NOT
USED FOR EDUCATIONAL EXPENSES.—
‘‘(A) IN GENERAL.—The tax imposed by
this chapter for any taxable year on any tax-
payer who receives a payment or distribution
from an education investment account which is
includible in gross income under paragraph (1)
shall be increased by 10 percent of the amount
which is so includible.
‘‘(B) EXCEPTION FOR DISABILITY, DEATH,
OR SCHOLARSHIP.—Subparagraph (A) shall not
apply if the payment or distribution is—
‘‘(i) made on account of the death or
disability of the account holder, or
‘‘(ii) made on account of a scholarship
(or allowance or payment described in sec-
tion 135(d)(1) (B) or (C)) received by the
account holder to the extent the amount of
the payment or distribution does exceed
the amount of the scholarship, allowance,
or payment.
‘‘(C) EXCESS CONTRIBUTIONS RETURNED
BEFORE
DUE
DATE
OF
RETURN.—Subpara-
graph (A) shall not apply to the distribution to
a contributor of any contribution paid during a
taxable year to an education investment account
to the extent that such contribution, when
added to previous contributions to the account
during the taxable year, exceeds $1,000 if—
‘‘(i) such distribution is received on or
before the day prescribed by law (including
extensions of time) for filing such contribu-
tor’s return for such taxable year, and
‘‘(ii) such distribution is accompanied
by the amount of net income attributable
to such excess contribution.
Any net income described in clause (ii) shall be
included in the gross income of the contributor
for the taxable year in which such excess con-
tribution was made.
‘‘(5) ROLLOVER
CONTRIBUTIONS.—Paragraph
(1) shall not apply to any amount paid or distrib-
uted from an education investment account to the
extent that the amount received is paid into another
education investment account for the benefit of the
account holder not later than the 60th day after the
day on which the holder receives the payment or dis-
tribution. The preceding sentence shall not apply to
any payment or distribution if it applied to any prior
payment or distribution during the 12-month period
ending on the date of the payment or distribution.
‘‘(6) SPECIAL
RULES
FOR
DEATH
AND
DI-
VORCE.—Rules similar to the rules of section 220(f)
(7) and (8) shall apply.
‘‘(e) TAX TREATMENT OF ACCOUNTS.—Rules similar
to the rules of paragraphs (2) and (4) of section 408(e)
shall apply to any education investment account, and any
amount treated as distributed under such rules shall be
treated as not used to pay qualified higher education ex-
penses.
‘‘(f) COMMUNITY PROPERTY LAWS.—This section
shall be applied without regard to any community property
laws.
‘‘(g) 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 an account described in subsection (b)(1). For
purposes of this title, in the case of a custodial account
treated as a trust by reason of the preceding sentence,
the custodian of such account shall be treated as the trust-
ee thereof.
‘‘(h) REPORTS.—The trustee of an education invest-
ment account shall make such reports regarding such ac-
count to the Secretary and to the account holder with re-
spect to contributions, distributions, and such other mat-
ters 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) TAX ON PROHIBITED TRANSACTIONS.—Section
4975 (relating to prohibited transactions) is amended—
(1) by adding at the end of subsection (c) the
following new paragraph:
‘‘(5) SPECIAL RULE FOR EDUCATION INVEST-
MENT ACCOUNTS.—An individual for whose benefit
an education investment account is established 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 section) if,