[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 1133 Reported in Senate (RS)]






                                                       Calendar No. 311
105th CONGRESS
  2d Session
                                S. 1133

                          [Report No. 105-164]

     To amend the Internal Revenue Code of 1986 to allow tax-free 
    expenditures from education individual retirement accounts for 
 elementary and secondary school expenses and to increase the maximum 
            annual amount of contributions to such accounts.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 31, 1997

Mr. Coverdell (for himself, Mr. Lott, Mr. Nickles, Mr. Mack, Mr. Craig, 
  Mr. McConnell, Mr. Roth, Mr. Gramm, Mr. Abraham, Mr. Ashcroft, Mr. 
Allard, Mr. Bennett, Mr. Bond, Mr. Brownback, Mr. Coats, Mr. Domenici, 
Mr. DeWine, Mr. Faircloth, Mr. Gorton, Mr. Grams, Mr. Gregg, Mr. Hagel, 
 Mr. Hatch, Mr. Helms, Mr. Hutchinson, Mrs. Hutchison, Mr. Inhofe, Mr. 
 Lieberman, Mr. McCain, Mr. Murkowski, Mr. Roberts, Mr. Sessions, Mr. 
  Shelby, Mr. Smith of New Hampshire, Mr. Torricelli, Mr. Warner, Mr. 
 Cochran, Mr. Kyl, Mr. Thompson, Mr. Burns, Mr. D'Amato, Mr. Santorum, 
  Mr. Thomas, and Mr. Frist) introduced the following bill; which was 
          read twice and referred to the Committee on Finance

                           February 19, 1998

  Reported by Mr. Roth, under authority of the order of the Senate of 
   February 12, 1998, with an amendment and an amendment to the title
 [Strike out all after the enacting clause and insert the part printed 
                               in italic]

_______________________________________________________________________

                                 A BILL


 
     To amend the Internal Revenue Code of 1986 to allow tax-free 
    expenditures from education individual retirement accounts for 
 elementary and secondary school expenses and to increase the maximum 
            annual amount of contributions to such accounts.

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

<DELETED>SECTION 1. SHORT TITLE.</DELETED>

<DELETED>    This Act may be cited as the ``Parent and Student Savings 
Account PLUS Act''.</DELETED>

<DELETED>SEC. 2. MODIFICATIONS TO EDUCATION INDIVIDUAL RETIREMENT 
              ACCOUNTS.</DELETED>

<DELETED>    (a) Tax-Free Expenditures for Elementary and Secondary 
School Expenses.--</DELETED>
        <DELETED>    (1) In general.--Section 530(b)(2) of the Internal 
        Revenue Code of 1986 is amended to read as follows:</DELETED>
        <DELETED>    ``(2) Qualified education expenses.--</DELETED>
                <DELETED>    ``(A) In general.--The term `qualified 
                education expenses' means--</DELETED>
                        <DELETED>    ``(i) qualified higher education 
                        expenses (as defined in section 529(e)(3)), 
                        and</DELETED>
                        <DELETED>    ``(ii) qualified elementary and 
                        secondary education expenses (as defined in 
                        paragraph (4)).</DELETED>
                <DELETED>Such expenses shall be reduced as provided in 
                section 25A(g)(2).</DELETED>
                <DELETED>    ``(B) Qualified state 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 State 
                tuition program (as defined in section 529(b)) for the 
                benefit of the beneficiary of the account.''</DELETED>
        <DELETED>    (2) Qualified elementary and secondary education 
        expenses.--Section 530(b) of such Code is amended by adding at 
        the end the following new paragraph:</DELETED>
        <DELETED>    ``(4) Qualified elementary and secondary education 
        expenses.--</DELETED>
                <DELETED>    ``(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.</DELETED>
                <DELETED>    ``(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.</DELETED>
                <DELETED>    ``(C) School.--The term `school' means any 
                school which provides elementary education or secondary 
                education (through grade 12), as determined under State 
                law.''</DELETED>
        <DELETED>    (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.</DELETED>
<DELETED>    (b) Increase in Maximum Annual Contributions.--</DELETED>
        <DELETED>    (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''.</DELETED>
        <DELETED>    (2) Conforming amendments.--</DELETED>
                <DELETED>    (A) Section 530(d)(4)(C) of such Code is 
                amended by striking ``$500'' and inserting 
                ``$2,000''.</DELETED>
                <DELETED>    (B) Section 4973(e)(1)(A) of such Code is 
                amended by striking ``$500'' and inserting 
                ``$2,000''.</DELETED>
<DELETED>    (c) Effective Date; References.--</DELETED>
        <DELETED>    (1) Effective date.--The amendments made by this 
        section shall take effect as if included in the amendments made 
        by section 213 of the Taxpayer Relief Act of 1997.</DELETED>
        <DELETED>    (2) References.--Any reference in this section to 
        any section of the Internal Revenue Code of 1986 shall be a 
        reference to such section as added by the Taxpayer Relief Act 
        of 1997.</DELETED>

SECTION 1. SHORT TITLE; AMENDMENT TO 1986 CODE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Parent and Student 
Savings Account PLUS Act''.
    (b) Amendment to 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) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; amendment to 1986 Code; table of contents.

                 TITLE I--TAX INCENTIVES FOR EDUCATION

Sec. 101. Modifications to education individual retirement accounts.
Sec. 102. Exclusion from gross income of education distributions from 
                            qualified State tuition programs.
Sec. 103. Extension of exclusion for employer-provided educational 
                            assistance.
Sec. 104. Additional increase in arbitrage rebate exception for 
                            governmental bonds used to finance 
                            education facilities.
Sec. 105. Exclusion of certain amounts received under the National 
                            Health Corps Scholarship program.

                           TITLE II--REVENUE

Sec. 201. Clarification of deduction for deferred compensation.
Sec. 202. Modification to foreign tax credit carryback and carryover 
                            periods.

                 TITLE I--TAX INCENTIVES FOR EDUCATION

SEC. 101. MODIFICATIONS TO EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.

    (a) Tax-Free Expenditures for Elementary and Secondary School 
Expenses.--
            (1) In general.--Section 530(b)(2) (defining qualified 
        higher education expenses) 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) 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 state 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 State 
                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) (relating to definitions and special 
        rules) 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--
                            ``(i) expenses for tuition, fees, academic 
                        tutoring, special needs services, books, 
                        supplies, computer equipment (including related 
                        software and services), and other equipment 
                        which are incurred in connection with the 
                        enrollment or attendance of the designated 
                        beneficiary of the trust as an elementary or 
                        secondary school student at a public, private, 
                        or religious school, or
                            ``(ii) expenses for room and board, 
                        uniforms, transportation, and supplementary 
                        items and services (including extended day 
                        programs) which are required or provided by a 
                        public, private, or religious school in 
                        connection with such enrollment or attendance.
                    ``(B) Special rule for homeschooling.--Such term 
                shall include expenses described in subparagraph (A)(i) 
                in connection with education provided by 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 (kindergarten through grade 12), as 
                determined under State law.''
            (3) Special rules for applying exclusion to elementary and 
        secondary expenses.--Section 530(d)(2) (relating to 
        distributions for qualified higher education expenses) is 
        amended by adding at the end the following new subparagraph:
                    ``(D) Special rules for elementary and secondary 
                expenses.--
                            ``(i) In general.--The aggregate amount of 
                        qualified elementary and secondary education 
                        expenses taken into account for purposes of 
                        this paragraph with respect to any education 
                        individual retirement account for all taxable 
                        years shall not exceed the sum of the aggregate 
                        contributions to such account for taxable years 
                        beginning after December 31, 1998, and before 
                        January 1, 2003, and earnings on such 
                        contributions.
                            ``(ii) Special operating rules.--For 
                        purposes of clause (i)--
                                    ``(I) the trustee of an education 
                                individual retirement account shall 
                                keep separate accounts with respect to 
                                contributions and earnings described in 
                                clause (i), and
                                    ``(II) if there are distributions 
                                in excess of qualified elementary and 
                                secondary education expenses for any 
                                taxable year, such excess distributions 
                                shall be allocated first to 
                                contributions and earnings not 
                                described in clause (i).''
            (4) Conforming amendments.--Subsections (b)(1) and (d)(2) 
        of section 530 are each amended by striking ``higher'' each 
        place it appears in the text and heading thereof.
    (b) Maximum Annual Contributions.--
            (1) In general.--Section 530(b)(1)(A)(iii) (defining 
        education individual retirement account) is amended by striking 
        ``$500'' and inserting ``the contribution limit for such 
        taxable year''.
            (2) Contribution limit.--Section 530(b) (relating to 
        definitions and special rules), as amended by subsection 
        (a)(2), is amended by adding at the end the following new 
        paragraph:
            ``(5) Contribution limit.--The term `contribution limit' 
        means $500 ($2,000 in the case of any taxable year beginning 
        after December 31, 1998, and ending before January 1, 2003).''
            (3) Conforming amendments.--
                    (A) Section 530(d)(4)(C) is amended by striking 
                ``$500'' and inserting ``the contribution limit for 
                such taxable year''.
                    (B) Section 4973(e)(1)(A) is amended by striking 
                ``$500'' and inserting ``the contribution limit (as 
                defined in section 530(b)(5)) for such taxable year''.
    (c) Waiver of Age Limitations for Children With Special Needs.--
Section 530(b)(1) (defining education individual retirement account) is 
amended by adding at the end the following flush sentence:
        ``The age limitations in the preceding sentence shall not apply 
        to any designated beneficiary with special needs (as determined 
        under regulations prescribed by the Secretary).''
    (d) Corporations Permitted To Contribute to Accounts.--Section 
530(c)(1) (relating to reduction in permitted contributions based on 
adjusted gross income) is amended by striking ``The maximum amount 
which a contributor'' and inserting ``In the case of a contributor who 
is an individual, the maximum amount the contributor''.
    (e) No Double Benefit.--Section 530(d)(2) (relating to 
distributions for qualified education expenses), as amended by 
subsection (a)(3), is amended by adding at the end the following new 
subparagraph:
                    ``(E) Disallowance of excluded amounts as credit or 
                deduction.--No deduction or credit shall be allowed to 
                the taxpayer under any other section of this chapter 
                for any qualified education expenses to the extent 
                taken into account in determining the amount of the 
                exclusion under this paragraph.''
    (f) Technical Corrections.--
            (1)(A) Section 530(b)(1)(E) (defining education individual 
        retirement account) is amended to read as follows:
                    ``(E) Any balance to the credit of the designated 
                beneficiary on the date on which the beneficiary 
                attains age 30 shall be distributed within 30 days 
                after such date to the beneficiary or, if the 
                beneficiary dies before attaining age 30, shall be 
                distributed within 30 days after the date of death to 
                the estate of such beneficiary.''
            (B) Section 530(d) (relating to tax treatment of 
        distributions) is amended by adding at the end the following 
        new paragraph:
            ``(8) Deemed distribution on required distribution date.--
        In any case in which a distribution is required under 
        subsection (b)(1)(E), any balance to the credit of a designated 
        beneficiary as of the close of the 30-day period referred to in 
        such subsection for making such distribution shall be deemed 
        distributed at the close of such period.''
            (2)(A) Section 530(d)(1) is amended by striking ``section 
        72(b)'' and inserting ``section 72''.
            (B) Section 72(e) (relating to amounts not received as 
        annuities) is amended by inserting after paragraph (8) the 
        following new paragraph:
            ``(9) Extension of paragraph (2)(b) to qualified state 
        tuition programs and educational individual retirement 
        accounts.--Notwithstanding any other provision of this 
        subsection, paragraph (2)(B) shall apply to amounts received 
        under a qualified State tuition program (as defined in section 
        529(b)) or under an education individual retirement account (as 
        defined in section 530(b)). The rule of paragraph (8)(B) shall 
        apply for purposes of this paragraph.''
            (3) Section 530(d)(4)(B) (relating to exceptions) is 
        amended by striking ``or'' at the end of clause (ii), by 
        striking the period at the end of clause (iii) and inserting 
        ``, or'', and by adding at the end the following new clause:
                            ``(iv) an amount which is includible in 
                        gross income solely because the taxpayer 
                        elected under paragraph (2)(C) to waive the 
                        application of paragraph (2) for the taxable 
                        year.''
    (g) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 1998.
            (2) Technical corrections.--The amendments made by 
        subsection (f) shall take effect as if included in the 
        amendments made by section 213 of the Taxpayer Relief Act of 
        1997.

SEC. 102. EXCLUSION FROM GROSS INCOME OF EDUCATION DISTRIBUTIONS FROM 
              QUALIFIED STATE TUITION PROGRAMS.

    (a) In General.--Section 529(c)(3)(B) (relating to distributions) 
is amended to read as follows:
                    ``(B) Distributions for qualified higher education 
                expenses.--
                            ``(i) In general.--No amount shall be 
                        includible in gross income under subparagraph 
                        (A) if the qualified higher education expenses 
                        of the designated beneficiary during the 
                        taxable year are not less than the aggregate 
                        distributions during the taxable year.
                            ``(ii) Distributions in excess of 
                        expenses.--If such aggregate distributions 
                        exceed such expenses during the taxable year, 
                        the amount otherwise includible in gross income 
                        under subparagraph (A) shall be reduced by the 
                        amount which bears the same ratio to the amount 
                        so includible (without regard to this 
                        subparagraph) as such expenses bear to such 
aggregate distributions.
                            ``(iii) Election to waive exclusion.--A 
                        taxpayer may elect to waive the application of 
                        this subparagraph for any taxable year.
                            ``(iv) In-kind distributions.--Any benefit 
                        furnished to a designated beneficiary under a 
                        qualified State tuition program shall be 
                        treated as a distribution to the beneficiary 
                        for purposes of this paragraph.
                            ``(v) Disallowance of excluded amounts as 
                        credit or deduction.--No deduction or credit 
                        shall be allowed to the taxpayer under any 
                        other section of this chapter for any qualified 
                        higher education expenses to the extent taken 
                        into account in determining the amount of the 
                        exclusion under this paragraph.''
    (b) Definition of Qualified Higher Education Expenses.--Section 
529(e)(3)(A) (defining qualified higher education expenses) is amended 
to read as follows:
                    ``(A) In general.--The term `qualified higher 
                education expenses' means expenses for tuition, fees, 
                academic tutoring, special needs services, books, 
                supplies, computer equipment (including related 
                software and services), and other equipment which are 
                incurred in connection with the enrollment or 
                attendance of the designated beneficiary at an eligible 
                educational institution.''
    (c) Coordination With Education Credits.--Section 25A(e)(2) 
(relating to coordination with exclusions) is amended--
            (1) by inserting ``a qualified State tuition program or'' 
        before ``an education individual retirement account'', and
            (2) by striking ``section 530(d)(2)'' and inserting 
        ``section 529(c)(3)(B) or 530(d)(2)''.
    (d) Technical Correction.--Section 529(c)(3)(A) is amended by 
striking ``section 72(b)'' and inserting ``section 72''.
    (e) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 1998.
            (2) Technical correction.--The amendment made by subsection 
        (d) shall take effect as if included in the amendments made by 
        section 211 of the Taxpayer Relief Act of 1997.

SEC. 103. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED EDUCATIONAL 
              ASSISTANCE.

    (a) In General.--Section 127(d) (relating to termination of 
exclusion for educational assistance programs) is amended by striking 
``May 31, 2000'' and inserting ``December 31, 2002''.
    (b) Repeal of Limitation on Graduate Education.--The last sentence 
of section 127(c)(1) (defining educational assistance) 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 amendment made by subsection (a) shall 
        apply to expenses paid with respect to courses beginning after 
        May 31, 2000.
            (2) Graduate education.--The amendment made by subsection 
        (b) shall apply to expenses paid with respect to courses 
        beginning after December 31, 1997.

SEC. 104. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION FOR 
              GOVERNMENTAL BONDS USED TO FINANCE EDUCATION FACILITIES.

    (a) In General.--Section 148(f)(4)(D)(vii) (relating to increase in 
exception for bonds financing public school capital expenditures) is 
amended by striking ``$5,000,000'' the second place it appears and 
inserting ``$10,000,000''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to obligations issued after December 31, 1998.

SEC. 105. EXCLUSION OF CERTAIN AMOUNTS RECEIVED UNDER THE NATIONAL 
              HEALTH CORPS SCHOLARSHIP PROGRAM.

    (a) In General.--Section 117(c) (relating to the exclusion from 
gross income amounts received as a qualified scholarship) is amended--
            (1) by striking ``Subsections (a)'' and inserting the 
        following:
            ``(1) In general.--Except as provided in paragraph (2), 
        subsections (a)''; and
            (2) by adding at the end the following new paragraph:
            ``(2) National health corps scholarship program.--Paragraph 
        (1) shall not apply to any amount received by an individual 
        under the National Health Corps Scholarship Program under 
        section 338A(g)(1)(A) of the Public Health Service Act.''
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to amounts received in taxable years beginning after December 31, 
1993.

                           TITLE II--REVENUE

SEC. 201. CLARIFICATION OF DEDUCTION FOR DEFERRED COMPENSATION.

    (a) In General.--Section 404(a) (relating to deduction for 
contributions of an employer to an employee's trust or annuity plan and 
compensation under a deferred-payment plan) is amended by adding at the 
end the following new paragraph:
            ``(11) Determinations relating to deferred compensation.--
                    ``(A) In general.--For purposes of determining 
                under this section--
                            ``(i) whether compensation of an employee 
                        is deferred compensation, and
                            ``(ii) when deferred compensation is paid,
                no amount shall be treated as received by the employee, 
                or paid, until it is actually received by the employee.
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                to severance pay.''
    (b) Effective Date.--
            (1) In general.--The amendment made by subsection (a) shall 
        apply to taxable years ending after the date of the enactment 
        of this Act.
            (2) Change in method of accounting.--In the case of any 
        taxpayer required by the amendment made by subsection (a) to 
        change its method of accounting for its first taxable year 
        ending after the date of the enactment of this Act--
                    (A) such change shall be treated as initiated by 
                the taxpayer,
                    (B) such change shall be treated as made with the 
                consent of the Secretary of the Treasury, and
                    (C) the net amount of the adjustments required to 
                be taken into account by the taxpayer under section 481 
                of the Internal Revenue Code of 1986 shall be taken 
                into account in such first taxable year.

SEC. 202. MODIFICATION TO FOREIGN TAX CREDIT CARRYBACK AND CARRYOVER 
              PERIODS.

    (a) In General.--Section 904(c) (relating to limitation on credit) 
is amended--
            (1) by striking ``in the second preceding taxable year,'', 
        and
            (2) by striking ``or fifth'' and inserting ``fifth, sixth, 
        or seventh''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to credits arising in taxable years beginning after December 31, 
1999.
            Amend the title so as to read: ``A bill to amend the 
        Internal Revenue Code of 1986 to allow tax-free expenditures 
        from education individual retirement accounts for elementary 
        and secondary school expenses and to increase the maximum 
        annual amount of contributions to such accounts, and for other 
        purposes.''.




                                                       Calendar No. 311

105th CONGRESS

  2d Session

                                S. 1133

                          [Report No. 105-164]

_______________________________________________________________________

                                 A BILL

     To amend the Internal Revenue Code of 1986 to allow tax-free 
    expenditures from education individual retirement accounts for 
 elementary and secondary school expenses and to increase the maximum 
            annual amount of contributions to such accounts.

_______________________________________________________________________

                           February 19, 1998

  Reported under authority of the order of the Senate of February 12, 
         1998, with an amendment and an amendment to the title