[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 1116 Introduced in Senate (IS)]







105th CONGRESS
  1st Session
                                S. 1116

 To amend the Internal Revenue Code of 1986 to provide tax incentives 
                             for education.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 31, 1997

Mr. Roth (for himself and Mr. Coverdell) introduced the following bill; 
     which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
 To amend the Internal Revenue Code of 1986 to provide tax incentives 
                             for education.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; AMENDMENT TO 1986 CODE; COORDINATION WITH 
              TAXPAYER RELIEF ACT OF 1997.

    (a) Short Title.--This Act may be cited as the ``Affordable 
Education Act''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment 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 
provision of the Internal Revenue Code of 1986.
    (c) Coordination With Taxpayer Relief Act of 1997.--Any reference 
in this Act to any section of the Internal Revenue Code of 1986 amended 
or added by the Taxpayer Relief Act of 1997 shall be a reference to 
such section as so amended or added.

SEC. 2. 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) 
        (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 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 except that section 
        529(f) shall be applied by reference to qualified higher 
        education expenses.
            ``(2) Excess contributions returned before due date of 
        return.--Subparagraph (A) 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) meet requirements comparable to the requirements 
        of section 530(d)(4)(C).''
            (3) Coordination with education credits.--Section 25A(e)(2) 
        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) (defining 
        qualified State tuition program) is amended by inserting ``or 
        by one 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 is amended by adding at the end the following new 
        paragraph:
            ``(9) 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 $2,000.''.
            (3) Tax on excess contributions.--
                    (A) In general.--Subsection (a) of section 4973 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) 
                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 $2,000.
            ``(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) 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 
                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 is 
                amended to read as follows:

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

                    (ii) The item relating to section 529 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.

SEC. 3. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED EDUCATIONAL 
              ASSISTANCE.

    (a) In General.--Section 127 (relating to educational assistance 
programs) is amended by striking subsection (d) and by redesignating 
subsection (e) as subsection (d).
    (b) Repeal of Limitation on Graduate Education.--The last sentence 
of section 127(c)(1) is amended by striking ``, and such term also does 
not include any payment for, or the provision of any benefits with 
respect to, any graduate level course of a kind normally taken by an 
individual pursuing a program leading to a law, business, medical, or 
other advanced academic or professional degree''.
    (c) Effective Dates.--
            (1) Extension.--The amendments made by subsection (a) shall 
        apply to taxable years beginning after December 31, 1996.
            (2) Graduate education.--The amendment made by subsection 
        (b) shall apply with respect to expenses relating to courses 
        beginning after December 31, 1996.

SEC. 4. INCREASE IN CONTRIBUTION LIMIT TO EDUCATION INDIVIDUAL 
              RETIREMENT ACCOUNTS; APPLICATION TO ELEMENTARY AND 
              SECONDARY EDUCATION.

    (a) Increase in Maximum Annual Contributions.--
            (1) In general.--Section 530(b)(1)(A)(iii) of the Internal 
        Revenue Code of 1986 is amended by striking ``$500'' and 
        inserting ``$2,000''.
            (2) Conforming amendments.--
                    (A) Section 530(d)(4)(C) of such Code is amended by 
                striking ``$500'' and inserting ``$2,000''.
                    (B) Section 4973(e)(1)(A) of such Code is amended 
                by striking ``$500'' and inserting ``$2,000''.
    (b) Tax-Free Expenditures for Elementary and Secondary School 
Expenses.--
            (1) In general.--Section 530(b)(2) of the Internal Revenue 
        Code of 1986 is amended to read as follows:
            ``(2) Qualified education expenses.--
                    ``(A) In general.--The term `qualified education 
                expenses' means--
                            ``(i) qualified higher education expenses 
                        (as defined in section 529(e)(3)), and
                            ``(ii) in the case of taxable years 
                        beginning after December 31, 2000, qualified 
                        elementary and secondary education expenses (as 
                        defined in paragraph (4)).
                Such expenses shall be reduced as provided in section 
                25A(g)(2).
                    ``(B) Qualified tuition programs.--Such term shall 
                include amounts paid or incurred to purchase tuition 
                credits or certificates, or to make contributions to an 
                account, under a qualified tuition program (as defined 
                in section 529(b)) for the benefit of the beneficiary 
                of the account.''
            (2) Qualified elementary and secondary education 
        expenses.--Section 530(b) of such Code is amended by adding at 
        the end the following new paragraph:
            ``(4) Qualified elementary and secondary education 
        expenses.--
                    ``(A) In general.--The term `qualified elementary 
                and secondary education expenses' means tuition, fees, 
                tutoring, special needs services, books, supplies, 
                equipment, transportation, and supplementary expenses 
                required for the enrollment or attendance of the 
                designated beneficiary of the trust at a public, 
                private, or sectarian school.
                    ``(B) Special rule for homeschooling.--Such term 
                shall include expenses described in subparagraph (A) 
                required for education provided for homeschooling if 
                the requirements of any applicable State or local law 
                are met with respect to such education.
                    ``(C) School.--The term `school' means any school 
                which provides elementary education or secondary 
                education (through grade 12), as determined under State 
                law.''
            (3) Conforming amendments.--Subsections (b)(1) and (d)(2) 
        of section 530 of such Code are each amended by striking 
        ``higher'' each place it appears in the text and heading 
        thereof.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.
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