[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3897 Introduced in House (IH)]
103d CONGRESS
2d Session
H. R. 3897
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
February 24, 1994
Ms. Eshoo 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 contributions to HEAP accounts.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Higher Education Accumulation
Program Act of 1994''.
SEC. 2. DEDUCTION FOR CONTRIBUTIONS TO HEAP ACCOUNTS.
(a) In General.--Part VII of subchapter B of chapter 1 of the
Internal Revenue Code of 1986 (relating to additional itemized
deductions for individuals) is amended by redesignating section 220 as
section 221 and by inserting after section 219 the following new
section:
``SEC. 220. HIGHER EDUCATION ACCUMULATION PROGRAM (HEAP) ACCOUNTS.
``(a) Deduction Allowed.--In the case of an individual, 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 purpose of accumulating funds to pay the educational expenses of
any child of the taxpayer.
``(b) Limitations.--
``(1) Maximum deduction.--The amount allowable 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 individual filing a separate return).
``(2) Deduction may not exceed compensation.--The amount
allowable as a deduction under subsection (a) shall not exceed
the amount of compensation (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 attains 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 before the close of the calendar year in which such
payment is made.
``(c) Definitions and Special Rules.--For purposes of this
section--
``(1) HEAP account.--The term `HEAP account' 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 unless 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 demonstrates to the
satisfaction of the Secretary that the manner in which
that person will administer the trust will be
consistent with the requirements of this section.
``(C) No part of the trust assets will be invested
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 account.
``(2) Child.--The term `child' has the meaning given such
term by section 151(c)(3).
``(3) Termination date.--The term `termination 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 subparagraph (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 enrollment
or attendance of a student at an eligible 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 `vocational school'
means an area vocational education school as defined in
subparagraph (C) or (D) of section 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 taxable
year (including extensions thereof).
``(d) Tax Treatment of Distributions.--
``(1) In general.--Except as otherwise provided 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 expenses.--If any payment
from a HEAP account is used to pay the educational expenses of
the beneficiary of such account--
``(A) paragraph (1) shall not apply, but
``(B) \1/10\th of such amount shall be included 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 taxable years thereafter.
``(3) Excess contributions returned before 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 before
the day prescribed by law (including extensions of
time) for filing such individual's return for such
taxable year,
``(B) no deduction is allowed under subsection (a)
with respect to such excess contribution, 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) shall not be treated as a distribution for purposes
of this subsection or subsection (f).
``(e) Tax Treatment of Accounts.--
``(1) Exemption from tax.--A HEAP account is exempt from
taxation under this subtitle unless such account has ceased to
be a HEAP account by reason of paragraph (2) or (3).
Notwithstanding 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 transaction.--
``(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 account 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 security.--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 Distributions.--
``(1) Distribution not used for educational expenses.--If
any payment from a HEAP account is used for any purpose other
than the payment of the education expenses of the beneficiary
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 account.--Paragraph
(1) shall be applied by substituting `5 percent' for `10
percent' in the case of any distribution made on the
termination date (other than by reason of the beneficiary's
death).
``(3) Disability or death cases.--Paragraphs (1) and (2)
shall not apply if the distribution 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 treated 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 account treated as a trust by reason of the preceding
sentence, 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 account is maintained with respect to
contributions, distributions, 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 Adjusted Gross Income.--
Paragraph (7) of section 62(a) of such Code (relating to retirement
savings) is amended--
(1) by inserting ``or education'' after ``retirement'' in
the heading of such paragraph, and
(2) by inserting before the period at the end thereof the
following: ``and the deduction allowed by section 220 (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) contracts, and certain individual
retirement annuities) is amended--
(1) by inserting ``heap accounts,'' after ``accounts,'' in
the heading of such section,
(2) by striking out ``or'' at the end of paragraph (1) of
subsection (a),
(3) by redesignating paragraph (2) of subsection (a) as
paragraph (3) and by inserting after paragraph (1) the
following new paragraph:
``(2) a HEAP account (within the meaning of section
220(c)(1)), or'', and
(4) by adding at the end thereof the following new
subsection:
``(d) Excess Contributions to HEAP Accounts.--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 deduction under
section 220 for such taxable year. For purposes of this subsection, any
contribution which is distributed out of the HEAP account in a
distribution to which section 220(d)(3) applies shall be treated as an
amount not contributed.''
(d) Tax on Prohibited Transactions.--Section 4975 of such Code
(relating to prohibited transactions) is amended--
(1) by adding at the end of subsection (c) the following
new paragraph:
``(4) Special rule for heap accounts.--An individual for
whose benefit a HEAP 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, with
respect to such transaction, the account ceases to be a HEAP
account by reason of the application of section 220(e)(2)(A) to
such account.'', and
(2) by inserting ``, a HEAP account described in section
220(c)(1),'' in subsection (e)(1) after ``described in section
408(a)''.
(e) Failure To Provide Reports on HEAP Accounts.--Section 6693 of
such Code (relating to failure to provide reports on individual
retirement accounts or annuities) is amended--
(1) by inserting ``or on heap accounts'' after
``annuities'' in the heading of such section, and
(2) by adding at the end of subsection (a) the following
new sentence: ``The person required by section 220(i) to file a
report regarding a HEAP account at the time and in the manner
required by such section shall pay a penalty of $50 for each
failure, unless it is shown that such failure is due to
reasonable cause.''.
(f) Clerical Amendments.--
(1) The table of sections for part VII of subchapter B of
chapter 1 of such Code is amended by striking out the item
relating to section 220 and inserting in lieu thereof the
following new items:
``Sec. 220. HEAP accounts.
``Sec. 221. Cross reference.''
(2) The table of sections for chapter 43 of such Code is
amended by striking out the item relating to section 4973 and
inserting in lieu thereof the following new item:
``Sec. 4973. Tax on excess contributions
to individual retirement
accounts, HEAP accounts,
certain 403(b) contracts, and
certain individual retirement
annuities.''
(3) The table of sections for subchapter B of chapter 68 of
such Code is amended by striking out the item relating to
section 6693 and inserting in lieu thereof the following new
item:
``Sec. 6693. Failure to provide reports
on individual retirement
accounts or annuities or on
HEAP accounts.''
(g) Effective Date.--The amendments made by this section shall
apply to contributions made in taxable years beginning after December
31, 1994.
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