I
105TH CONGRESS
1ST SESSION
H. R. 1355
To amend the Internal Revenue Code of 1986 to modify the tax treatment
of qualified State tuition programs.
IN THE HOUSE OF REPRESENTATIVES
APRIL 16, 1997
Mrs. THURMAN (for herself and Mr. SHAW) 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 modify
the tax treatment of qualified State tuition programs.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. MODIFICATIONS OF TAX TREATMENT OF
QUALIFIED STATE TUITION PROGRAMS.
(a) EXCLUSION OF DISTRIBUTIONS USED FOR EDU-
CATIONAL
PURPOSES.—Subparagraph (B) of section
529(c)(3) of the Internal Revenue Code of 1986 (relating
to treatment of distributions) is amended to read as
follows:
‘‘(B) 
DISTRIBUTIONS
FOR
QUALIFIED
HIGHER
EDUCATION
EXPENSES.—Subpara-
graph (A) shall not apply to any distribution to
the extent—
‘‘(i) the distribution is used exclusively
to pay qualified higher education expenses
of the distributee, or
‘‘(ii) the distribution consists of pro-
viding a benefit to the distributee which, if
paid for by the distributee, would con-
stitute payment of a qualified higher edu-
cation expense.’’
(b) QUALIFIED HIGHER EDUCATION EXPENSES TO
INCLUDE ROOM AND BOARD.—Section 529(e)(3) of the
Internal Revenue Code of 1986 (defining qualified higher
education expenses) is amended by adding at the end the
following: ‘‘Such term shall also include reasonable costs
(as determined under the qualified State tuition program)
incurred by the designated beneficiary for room and board
while attending such institution.’’
(c) ADDITIONAL MODIFICATIONS.—
(1) MEMBER
OF
FAMILY.—Paragraph (2) of
section 529(e) of the Internal Revenue Code of 1986
(relating to other definitions and special rules) is
amended to read as follows:
‘‘(2) MEMBER OF FAMILY.—The term ‘member
of family’ means—
‘‘(A) an individual who bears a relationship
to another individual which is a relationship de-
scribed in paragraphs (1) through (8) of section
152(a), and
‘‘(B) a spouse of any individual described
in subparagraph (A).’’
(2) ELIGIBLE
EDUCATIONAL
INSTITUTION.—
Section 529(e) of such Code is amended—
(A) in paragraph (3), by striking ‘‘(as de-
fined in section 135(c)(3))’’ and inserting
‘‘(within the meaning of paragraph (5))’’, and
(B) by adding at the end the following:
‘‘(5) ELIGIBLE EDUCATIONAL INSTITUTION.—
The term ‘eligible educational institution’ means an
institution—
‘‘(A) which is described in section 481 of
the Higher Education Act of 1965 (20 U.S.C.
1088), as in effect on the date of the enactment
of this paragraph, and
‘‘(B) which is eligible to participate in a
program under title IV of such Act.’’
(3) TECHNICAL AMENDMENTS.—
(A) Subparagraph (B) of section 529(e)(1)
of such Code is amended by striking ‘‘sub-
section (c)(2)(C)’’ and inserting ‘‘subsection
(c)(3)(C)’’.
(B) Subparagraph (C) of section 529(e)(1)
of such Code is amended by inserting ‘‘(or
agency or instrumentality thereof)’’ after ‘‘State
or local government’’.
(C) Paragraph (2) of section 1806(c) of
the Small Business Job Protection Act of 1996
is amended by striking so much of the first sen-
tence as follows subparagraph (B)(ii) and in-
serting the following:
‘‘then such program (as in effect on August 20,
1996) shall be treated as a qualified State tuition
program with respect to contributions (and earnings
allocable thereto) pursuant to contracts entered into
under such program before the first date on which
such program meets such requirements (determined
without regard to this paragraph) and the provisions
of such program (as so in effect) shall apply in lieu
of section 529(b) of the Internal Revenue Code of
1986 with respect to such contributions and
earnings.’’
(d) COORDINATION
WITH
EDUCATION
SAVINGS
BOND.—Section 135(c)(2) of the Internal Revenue Code
of 1986 (defining qualified higher education expenses) is
amended by adding at the end the following:
‘‘(C) 
CONTRIBUTIONS
TO
QUALIFIED
STATE TUITION PROGRAM.—Such term shall in-
clude any contribution to a qualified State tui-
tion program (as defined in section 529) on be-
half of a designated beneficiary (as so defined)
who is an individual described in subparagraph
(A).’’
(e) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to taxable years beginning after Decem-
ber 31, 1996.
(2) ADDITIONAL MODIFICATIONS.—The amend-
ments made by subsection (c) shall take effect as if
included in the amendments made by, and the provi-
sions of, section 1806 of the Small Business Job
Protection Act of 1996.
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