[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3103 Introduced in House (IH)]







105th CONGRESS
  2d Session
                                H. R. 3103

  To amend the Internal Revenue Code of 1986 to increase the standard 
   deduction for married individuals, to exclude certain amounts of 
interest and dividends from gross income, to increase the deduction for 
 the health insurance costs of self-employed individuals, and to allow 
          private colleges to establish prepaid tuition plans.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            January 27, 1998

   Mr. Pitts (for himself, Ms. Granger, Mr. Sununu, Mr. Hulshof, Mr. 
   Blunt, Mr. Cook, Mr. Pickering, Mr. Bob Schaffer of Colorado, Mr. 
    Snowbarger, Mr. Brady, Mr. Cooksey, Mr. Rogan, Mr. Peterson of 
  Pennsylvania, Mr. Watkins, Mr. Cannon, Mr. Pease, Mr. Redmond, Mr. 
  Aderholt, Mrs. Emerson, Mr. Shimkus, Mr. Hutchinson, and Mr. Ryun) 
 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 increase the standard 
   deduction for married individuals, to exclude certain amounts of 
interest and dividends from gross income, to increase the deduction for 
 the health insurance costs of self-employed individuals, and to allow 
          private colleges to establish prepaid tuition plans.

    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 ``Family Reinvestment and Shaping Our 
Future Act''.

SEC. 2. INCREASE IN BASIC STANDARD DEDUCTION FOR MARRIED INDIVIDUALS.

    (a) In General.--Paragraph (2) of section 63(c) of the Internal 
Revenue Code of 1986 (relating to standard deduction) is amended--
            (1) by striking ``$5,000'' in subparagraph (A) and 
        inserting ``twice the dollar amount in effect under 
        subparagraph (C) for the taxable year'',
            (2) by adding ``or'' at the end of subparagraph (B),
            (3) by striking ``in the case of'' and all that follows in 
        subparagraph (C) and inserting ``in any other case.'', and
            (4) by striking subparagraph (D).
    (b) Technical Amendment.--Subparagraph (B) of section 1(f)(6) of 
such Code is amended by striking ``subsection (c)(4) of section 63 (as 
it applies to subsections (c)(5)(A) and (f) of such section)'' and 
inserting ``section 63(c)(4)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

SEC. 3. PARTIAL EXCLUSION OF DIVIDENDS AND INTEREST RECEIVED BY 
              INDIVIDUALS.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to amounts specifically 
excluded from gross income) is amended by inserting after section 115 
the following new section:

``SEC. 116. PARTIAL EXCLUSION OF DIVIDENDS AND INTEREST RECEIVED BY 
              INDIVIDUALS.

    ``(a) Exclusion From Gross Income.--Gross income does not include 
the sum of the amounts received during the taxable year by an 
individual as--
            ``(1) dividends from domestic corporations, or
            ``(2) interest.
    ``(b) Limitations.--
            ``(1) Maximum amount.--The aggregate amount excluded under 
        subsection (a) for any taxable year shall not exceed $200 ($400 
        in the case of a joint return).
            ``(2) Certain dividends excluded.--Subsection (a)(1) shall 
        not apply to any dividend from a corporation which, for the 
        taxable year of the corporation in which the distribution is 
        made, or for the next preceding taxable year of the 
        corporation, is a corporation exempt from tax under section 501 
        (relating to certain charitable, etc., organizations) or 
        section 521 (relating to farmers' cooperative associations).
    ``(c) Interest.--For purposes of this section, the term `interest' 
means--
            ``(1) interest on deposits with a bank (as defined in 
        section 581),
            ``(2) amounts (whether or not designated as interest) paid 
        in respect of deposits, investment certificates, or 
        withdrawable or repurchasable shares, by--
                    ``(A) a mutual savings bank, cooperative bank, 
                domestic building and loan association, industrial loan 
                association or bank, or credit union, or
                    ``(B) any other savings or thrift institution which 
                is chartered and supervised under Federal or State law,
        the deposits or accounts in which are insured under Federal or 
        State law or which are protected and guaranteed under State 
        law,
            ``(3) interest on--
                    ``(A) evidences of indebtedness (including bonds, 
                debentures, notes, and certificates) issued by a 
                domestic corporation in registered form, and
                    ``(B) to the extent provided in regulations 
                prescribed by the Secretary, other evidences 
of indebtedness issued by a domestic corporation of a type offered by 
corporations to the public,
            ``(4) interest on obligations of the United States, a 
        State, or a political subdivision of a State (not excluded from 
        gross income of the taxpayer under any other provision of law), 
        and
            ``(5) interest attributable to participation shares in a 
        trust established and maintained by a corporation established 
        pursuant to Federal law.
    ``(d) Special Rules.--For purposes of this section--
            ``(1) Distributions from regulated investment companies and 
        real estate investment trusts.--Subsection (a) shall apply with 
        respect to distributions by--
                    ``(A) regulated investment companies to the extent 
                provided in section 854(c), and
                    ``(B) real estate investment trusts to the extent 
                provided in section 857(c).
            ``(2) Distributions by a trust.--For purposes of subsection 
        (a), the amount of dividends and interest properly allocable to 
        a beneficiary under section 652 or 662 shall be deemed to have 
        been received by the beneficiary ratably on the same date that 
        the dividends and interest were received by the estate or 
        trust.
            ``(3) Certain nonresident aliens ineligible for 
        exclusion.--In the case of a nonresident alien individual, 
        subsection (a) shall apply only--
                    ``(A) in determining the tax imposed for the 
                taxable year pursuant to section 871(b)(1) and only in 
                respect of dividends and interest which are effectively 
                connected with the conduct of a trade or business 
                within the United States, or
                    ``(B) in determining the tax imposed for the 
                taxable year pursuant to section 877(b).''.
    (b) Conforming Amendments.--
            (1) The table of sections for part III of subchapter B of 
        chapter 1 of such Code is amended by inserting after the item 
        relating to section 115 the following new item:

                              ``Sec. 116. Partial exclusion of 
                                        dividends and interest received 
                                        by individuals.''.
            (2) Paragraph (2) of section 265(a) of such Code is amended 
        by inserting before the period at the end the following: ``, or 
        to purchase or carry obligations or shares, or to make 
        deposits, to the extent the interest thereon is excludable from 
        gross income under section 116''.
            (3) Subsection (c) of section 584 of such Code is amended 
        by adding at the end the following new flush sentence:
``The proportionate share of each participant in the amount of 
dividends or interest received by the common trust fund and to which 
section 116 applies shall be considered for purposes of such section as 
having been received by such participant.''.
            (4) Subsection (a) of section 643 of such Code is amended 
        by redesignating paragraph (7) as paragraph (8) and by 
        inserting after paragraph (6) the following new paragraph:
            ``(7) Dividends or interest.--There shall be included the 
        amount of any dividends or interest excluded from gross income 
        pursuant to section 116.''.
            (5) Section 854 of such Code is amended by adding at the 
        end the following new subsection:
    ``(c) Treatment Under Section 116.--
            ``(1) In general.--For purposes of section 116, in the case 
        of any dividend (other than a dividend described in subsection 
        (a)) received from a regulated investment company which meets 
        the requirements of section 852 for the taxable year in which 
        it paid the dividend--
                    ``(A) the entire amount of such dividend shall be 
                treated as a dividend if the sum of the aggregate 
                dividends and the aggregate interest received by such 
                company during the taxable year equals or exceeds 75 
                percent of its gross income, or
                    ``(B) if subparagraph (A) does not apply, there 
                shall be taken into account under section 116 only the 
                portion of such dividend which bears the same ratio to 
                the amount of such dividend as the sum of the aggregate 
                dividends received and aggregate interest received 
                bears to gross income.
        For purposes of the preceding sentence, gross income and 
        aggregate interest received shall each be reduced by so much of 
        the deduction allowable by section 163 for the taxable year as 
        does not exceed aggregate interest received for the taxable 
        year.
            ``(2) Notice to shareholders.--The amount of any 
        distribution by a regulated investment company which may be 
        taken into account as a dividend for purposes of the exclusion 
        under section 116 shall not exceed the amount so designated by 
        the company in a written notice to its shareholders mailed not 
later than 60 days after the close of its taxable year.
            ``(3) Definitions.--For purposes of this subsection--
                    ``(A) The term `gross income' does not include gain 
                from the sale or other disposition of stock or 
                securities.
                    ``(B) The term `aggregate dividends' includes only 
                dividends received from domestic corporations other 
                than dividends described in section 116(b)(2). In 
                determining the amount of any dividend for purposes of 
                this subparagraph, the rules provided in section 
                116(d)(1) (relating to certain distributions) shall 
                apply.
                    ``(C) The term `interest' has the meaning given 
                such term by section 116(c).''.
            (6) Subsection (c) of section 857 of such Code is amended 
        to read as follows:
    ``(c) Limitations Applicable to Dividends Received From Real Estate 
Investment Trusts.--
            ``(1) In general.--For purposes of section 116 (relating to 
        an exclusion for dividends and interest received by 
        individuals) and section 243 (relating to deductions for 
        dividends received by corporations), a dividend received from a 
        real estate investment trust which meets the requirements of 
        this part shall not be considered as a dividend.
            ``(2) Treatment as interest.--For purposes of section 116, 
        in the case of a dividend (other than a capital gain dividend, 
        as defined in subsection (b)(3)(C)) received from a real estate 
        investment trust which meets the requirements of this part for 
        the taxable year in which it paid the dividend--
                    ``(A) such dividend shall be treated as interest if 
                the aggregate interest received by the real estate 
                investment trust for the taxable year equals or exceeds 
                75 percent of its gross income, or
                    ``(B) if subparagraph (A) does not apply, the 
                portion of such dividend which bears the same ratio to 
                the amount of such dividend as the aggregate interest 
                received bears to gross income shall be treated as 
                interest.
            ``(3) Adjustments to gross income and aggregate interest 
        received.--For purposes of paragraph (2)--
                    ``(A) gross income does not include the net capital 
                gain,
                    ``(B) gross income and aggregate interest received 
                shall each be reduced by so much of the deduction 
                allowable by section 163 for the taxable year (other 
                than for interest on mortgages on real property owned 
                by the real estate investment trust) as does not exceed 
                aggregate interest received by the taxable year, and
                    ``(C) gross income shall be reduced by the sum of 
                the taxes imposed by paragraphs (4), (5), and (6) of 
                section 857(b).
            ``(4) Interest.--The term `interest' has the meaning given 
        such term by section 116(c).
            ``(5) Notice to shareholders.--The amount of any 
        distribution by a real estate investment trust which may be 
        taken into account as interest for purposes of the exclusion 
        under section 116 shall not exceed the amount so designated by 
        the trust in a written notice to its shareholders mailed not 
        later than 60 days after the close of its taxable year.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

SEC. 4. DEDUCTION FOR 100 PERCENT OF THE HEALTH INSURANCE COSTS OF 
              SELF-EMPLOYED INDIVIDUALS.

    (a) In General.--Paragraph (1) of section 162(l) of the Internal 
Revenue Code of 1986 (relating to special rules for health insurance 
costs of self-employed individuals) is amended to read as follows:
            ``(1) Allowance of deduction.--In the case of an individual 
        who is an employee within the meaning of section 401(c)(1), 
        there shall be allowed as a deduction under this section an 
        amount equal to the amount paid during the taxable year for 
        insurance which constitutes medical care for the taxpayer, his 
        spouse, and dependents.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1997.

SEC. 5. EXCLUSION FROM GROSS INCOME OF EDUCATION DISTRIBUTIONS FROM 
              QUALIFIED TUITION PROGRAMS; COVERAGE OF PRIVATE PROGRAMS.

    (a) Exclusion.--
            (1) In general.--Subparagraph (B) of section 529(c)(3) of 
        the Internal Revenue Code of 1986 (relating to distributions) 
        is amended to read as follows:
                    ``(B) Distributions for qualified higher education 
                expenses.--If a distributee elects the application of 
                this subparagraph for any taxable year--
                            ``(i) no amount shall be includible in 
                        gross income by reason of a distribution which 
                        consists of providing a benefit to the 
                        distributee which, if paid for by the 
                        distributee, would constitute payment of a 
                        qualified higher education expense, and
                            ``(ii) the amount which (but for the 
                        election) would be includible in gross income 
                        by reason of any other distribution shall not 
                        be so includible in an amount which bears the 
                        same ratio to the amount which would be so 
                        includible as the amount of the qualified 
                        higher education expenses of the distributee 
                        bears to the amount of the distribution.''.
            (2) Additional tax on amounts not used for higher education 
        expenses.--Section 529 of such Code is amended by adding at the 
        end the following new subsection:
    ``(f) Additional Tax for Distributions Not Used for Educational 
Expenses.--
            ``(1) In general.--The tax imposed by section 530(d)(4) 
        shall apply to payments and distributions from qualified 
        tuition programs in the same manner as such tax applies to 
        education individual retirement accounts.
            ``(2) Excess contributions returned before due date of 
        return.--Paragraph (1) shall not apply to the distribution to a 
        contributor of any contribution paid during a taxable year to a 
        qualified tuition program to the extent that such contribution 
        exceeds the limitation in section 4973(e) if such distribution 
        (and the net income with respect to such excess contribution) 
        meets requirements comparable to the requirements of clauses 
        (i) and (ii) of section 530(d)(4)(C).''.
            (3) Coordination with education credits.--Section 25A(e)(2) 
        of such Code is amended by inserting ``529(c)(3)(B) or'' before 
        ``530(d)(2)''.
            (4) Effective date.--The amendments made by this subsection 
        shall apply to distributions after December 31, 1997, for 
        education furnished in academic periods beginning after such 
        date.
    (b) Eligible Educational Institutions Permitted To Maintain 
Qualified Tuition Programs.--
            (1) In general.--Paragraph (1) of section 529(b) of such 
        Code (defining qualified State tuition program) is amended by 
        inserting ``or by 1 or more eligible educational institutions'' 
        after ``maintained by a State or agency or instrumentality 
        thereof''.
            (2) Limitation on contributions to qualified tuition 
        programs not maintained by a state.--Subsection (b) of section 
        529 of such Code is amended by adding at the end the following 
        new paragraph:
            ``(8) Limitation on contributions to qualified tuition 
        programs not maintained by a state.--In the case of a program 
        not maintained by a State or agency or instrumentality thereof, 
        such program shall not be treated as a qualified tuition 
        program unless it limits the annual contribution to the program 
        on behalf of a designated beneficiary to $5,000.''.
            (3) Tax on excess contributions.--
                    (A) In general.--Subsection (a) of section 4973 of 
                such Code is amended by striking ``or'' at the end of 
                paragraph (3), by redesignating paragraph (4) as 
                paragraph (5), and by inserting after paragraph (3) the 
                following new paragraph:
            ``(4) a qualified tuition program (as defined in section 
        529) not maintained by a State or any agency or instrumentality 
        thereof, or''.
                    (B) Excess contributions defined.--Section 4973(e) 
                of such Code is amended to read as follows:
    ``(e) Excess Contributions to Private Qualified Tuition Program and 
Education Individual Retirement Accounts.--For purposes of this 
section--
            ``(1) In general.--In the case of private education 
        investment accounts maintained for the benefit of any 1 
        beneficiary, the term `excess contributions' means the amount 
        by which the amount contributed for the taxable year to such 
        accounts exceeds $5,000.
            ``(2) Private education investment account.--For purposes 
        of paragraph (1), the term `private education investment 
        account' means--
                    ``(A) a qualified tuition program (as defined in 
                section 529) not maintained by a State or any agency or 
                instrumentality thereof, and
                    ``(B) an education individual retirement account 
                (as defined in section 530).
            ``(3) Special rules.--For purposes of paragraph (1), the 
        following contributions shall not be taken into account:
                    ``(A) Any contribution which is distributed out of 
                the education individual retirement account in a 
                distribution to which section 530(d)(4)(C) applies.
                    ``(B) Any contribution to a qualified tuition 
                program (as so defined) described in section 
                530(b)(2)(B) from any such account.
                    ``(C) Any rollover contribution.''.
            (4) Conforming amendments.--
                    (A) Paragraph (2) of section 26(b) of such Code is 
                amended by redesignating subparagraphs (E) through (Q) 
                as subparagraphs (F) through (R), respectively, and by 
                inserting after subparagraph (D) the following new 
                subparagraph:
                    ``(E) section 529(f) (relating to additional tax on 
                certain distributions from qualified tuition 
                programs),''.
                    (B) The text and headings of sections 529 and 530 
                of such Code are amended by striking ``qualified State 
                tuition program'' each place it appears and inserting 
                ``qualified tuition program''.
                    (C)(i) The section heading of section 529 of such 
                Code is amended to read as follows:

``SEC. 529. QUALIFIED TUITION PROGRAMS.''.

                    (ii) The item relating to section 529 of such Code 
                in the table of sections for part VIII of subchapter F 
                of chapter 1 is amended by striking ``State''.
            (5) Effective date.--The amendments made by this subsection 
        shall take effect on January 1, 1998.
    (c) Change of Qualified Tuition Program or of Designated 
Beneficiary.--
            (1) In general.--Clause (i) of section 529(c)(3)(C) of such 
        Code is amended by inserting ``to another qualified tuition 
        program for the benefit of the designated beneficiary or'' 
        after ``transferred''.
            (2) Inclusion of siblings as member of family.--Paragraph 
        (2) of section 529(e) of such Code is amended by inserting 
        before the period at the end the following: ``, except that 
        such term shall include any sibling (whether by the whole or 
        half blood) of the designated beneficiary''.
            (3) Effective date.--The amendments made by this subsection 
        shall take effect on January 1, 1998.
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