[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 930 Introduced in Senate (IS)]







105th CONGRESS
  1st Session
                                 S. 930

 To amend the Internal Revenue Code of 1986 to provide tax incentives 
                 for education, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                June 18 (Legislative day, June 17), 1997

  Ms. Collins 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, and for other purposes.

    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 ``College Affordability and Access Act 
of 1997''.

SEC. 2. EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE PROGRAMS.

    (a) Permanent Extension.--Section 127 of the Internal Revenue Code 
of 1986 (relating to exclusion for 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) of such Code 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 June 30, 1996.

SEC. 3. DEDUCTION FOR INTEREST ON EDUCATION LOANS.

    (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 221 as 
section 222 and by inserting after section 220 the following new 
section:

``SEC. 221. INTEREST ON EDUCATION LOANS.

    ``(a) Allowance of Deduction.--In the case of an individual, there 
shall be allowed as a deduction for the taxable year an amount equal to 
the interest paid by the taxpayer during the taxable year on any 
qualified education loan.
    ``(b) Maximum Deduction.--
            ``(1) In general.--Except as provided in paragraph (2), the 
        deduction allowed by subsection (a) for the taxable year shall 
        not exceed $2,750.
            ``(2) Limitation based on modified adjusted gross income.--
                    ``(A) In general.--If the modified adjusted gross 
                income of the taxpayer for the taxable year exceeds 
                $45,000 ($65,000 in the case of a joint return), the 
                amount which would (but for this paragraph) be 
                allowable as a deduction under this section shall be 
                reduced (but not below zero) by the amount which bears 
                the same ratio to the amount which would be so 
                allowable as such excess bears to $20,000.
                    ``(B) Modified adjusted gross income.--The term 
                `modified adjusted gross income' means adjusted gross 
                income determined--
                            ``(i) without regard to this section and 
                        sections 135, 911, 931, and 933, and
                            ``(ii) after application of sections 86, 
                        219, and 469.
                For purposes of sections 86, 135, 219, and 469, 
                adjusted gross income shall be determined without 
                regard to the deduction allowed under this section.
                    ``(C) Inflation adjustment.--In the case of any 
                taxable year beginning after 1998, the $45,000 and 
                $65,000 amounts referred to in subparagraph (A) shall 
                be increased by an amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section (1)(f)(3) for the 
                        calendar year in which the taxable year begins, 
                        by substituting `1997' for `1992'.
                    ``(D) Rounding.--If any amount as adjusted under 
                subparagraph (C) is not a multiple of $50, such amount 
                shall be rounded to the nearest multiple of $50.
    ``(c) Dependents Not Eligible for Deduction.--No deduction shall be 
allowed by this section to an individual for the taxable year if a 
deduction under section 151 with respect to such individual is allowed 
to another taxpayer for the taxable year beginning in the calendar year 
in which such individual's taxable year begins.
    ``(d) Definitions.--For purposes of this section--
            ``(1) Qualified education loan.--The term `qualified 
        education loan' means any indebtedness incurred to pay 
        qualified higher education expenses--
                    ``(A) which are incurred on behalf of the taxpayer,
                    ``(B) which are paid or incurred within a 
                reasonable period of time before or after the 
                indebtedness is incurred, and
                    ``(C) which are attributable to education furnished 
                during a period during which the taxpayer was at least 
                a half-time student.
        Such term includes indebtedness used to refinance indebtedness 
        which qualifies as a qualified education loan. The term 
        `qualified education loan' shall not include any indebtedness 
        owed to a person who is related (within the meaning of section 
        267(b) or 707(b)(1)) to the taxpayer.
            ``(2) Qualified higher education expenses.--The term 
        `qualified higher education expenses' means the cost of 
        attendance (as defined in section 472 of the Higher Education 
        Act of 1965, 20 U.S.C. 1087ll, as in effect on the day before 
        the date of the enactment of this Act) of the taxpayer at an 
        eligible educational institution, reduced by the sum of--
                    ``(A) the amount excluded from gross income under 
                section 135 by reason of such expenses, and
                    ``(B) the amount of the reduction described in 
                section 135(d)(1).
        For purposes of the preceding sentence, the term `eligible 
        educational institution' has the same meaning given such term 
        by section 135(c)(3), except that such term shall also include 
        an institution conducting an internship or residency program 
        leading to a degree or certificate awarded by an institution of 
        higher education, a hospital, or a health care facility which 
        offers postgraduate training.
            ``(3) Half-time student.--The term `half-time student' 
        means any individual who would be a student as defined in 
        section 151(c)(4) if `half-time' were substituted for `full-
        time' each place it appears in such section.
    ``(e) Special Rules.--
            ``(1) Denial of double benefit.--No deduction shall be 
        allowed under this section for any amount for which a deduction 
        is allowable under any other provision of this chapter.
            ``(2) Married couples must file joint return.--If the 
        taxpayer is married at the close of the taxable year, the 
        deduction shall be allowed under subsection (a) only if the 
        taxpayer and the taxpayer's spouse file a joint return for the 
        taxable year.
            ``(3) Marital status.--Marital status shall be determined 
        in accordance with section 7703.''
    (b) Deduction Allowed Whether or Not Taxpayer Itemizes Other 
Deductions.--Subsection (a) of section 62 of such Code is amended by 
inserting after paragraph (16) the following new paragraph:
            ``(17) Interest on education loans.--The deduction allowed 
        by section 221.''
    (c) Reporting Requirement.--
            (1) In general.--Subpart B of part III of subchapter A of 
        chapter 61 of such Code (relating to information concerning 
        transactions with other persons) is amended by inserting after 
        section 6050R the following new section:

``SEC. 6050S. RETURNS RELATING TO EDUCATION LOAN INTEREST RECEIVED IN 
              TRADE OR BUSINESS FROM INDIVIDUALS.

    ``(a) Education Loan Interest of $600 or More.--Any person--
            ``(1) who is engaged in a trade or business, and
            ``(2) who, in the course of such trade or business, 
        receives from any individual interest aggregating $600 or more 
        for any calendar year on 1 or more qualified education loans,
shall make the return described in subsection (b) with respect to each 
individual from whom such interest was received at such time as the 
Secretary may by regulations prescribe.
    ``(b) Form and Manner of Returns.--A return is described in this 
subsection if such return--
            ``(1) is in such form as the Secretary may prescribe,
            ``(2) contains--
                    ``(A) the name, address, and TIN of the individual 
                from whom the interest described in subsection (a)(2) 
                was received,
                    ``(B) the amount of such interest received for the 
                calendar year, and
                    ``(C) such other information as the Secretary may 
                prescribe.
    ``(c) Application to Governmental Units.--For purposes of 
subsection (a)--
            ``(1) Treated as persons.--The term `person' includes any 
        governmental unit (and any agency or instrumentality thereof).
            ``(2) Special rules.--In the case of a governmental unit or 
        any agency or instrumentality thereof--
                    ``(A) subsection (a) shall be applied without 
                regard to the trade or business requirement contained 
                therein, and
                    ``(B) any return required under subsection (a) 
                shall be made by the officer or employee appropriately 
                designated for the purpose of making such return.
    ``(d) Statements To Be Furnished to Individuals With Respect to 
Whom Information Is Required.--Every person required to make a return 
under subsection (a) shall furnish to each individual whose name is 
required to be set forth in such return a written statement showing--
            ``(1) the name and address of the person required to make 
        such return, and
            ``(2) the aggregate amount of interest described in 
        subsection (a)(2) received by the person required to make such 
        return from the individual to whom the statement is required to 
        be furnished.
The written statement required under the preceding sentence shall be 
furnished on or before January 31 of the year following the calendar 
year for which the return under subsection (a) was required to be made.
    ``(e) Qualified Education Loan Defined.--For purposes of this 
section, except as provided in regulations prescribed by the Secretary, 
the term `qualified education loan' has the meaning given such term by 
section 221(d)(1).
    ``(f) Returns Which Would Be Required To Be Made by 2 or More 
Persons.--Except to the extent provided in regulations prescribed by 
the Secretary, in the case of interest received by any person on behalf 
of another person, only the person first receiving such interest shall 
be required to make the return under subsection (a).''
            (2) Assessable penalties.--Section 6724(d) of such Code 
        (relating to definitions) is amended--
                    (A) in paragraph (1)(B), by redesignating clauses 
                (x) through (xv) as clauses (xi) through (xvi), 
                respectively, and by inserting after clause (ix) the 
                following new clause:
                            ``(x) section 6050S (relating to returns 
                        relating to education loan interest received in 
                        trade or business from individuals),'', and
                    (B) in paragraph (2), by striking ``or'' at the end 
                of the next to last subparagraph, by striking the 
                period at the end of the last subparagraph and 
                inserting ``, or'', and by adding at the end the 
                following new subparagraph:
                    ``(Z) section 6050S(d) (relating to returns 
                relating to education loan interest received in trade 
                or business from individuals).''
    (d) Clerical Amendment.--The table of sections for part VII of 
subchapter B of chapter 1 of such Code is amended by striking the last 
item and inserting the following new items:

                              ``Sec. 221. Interest on education loans.
                              ``Sec. 222. Cross reference.''
    (e) Effective Date.--The amendments made by this section shall 
apply to any qualified education loan (as defined in section 221(d)(1) 
of the Internal Revenue Code of 1986, as added by this section) 
incurred on, before, or after the date of the enactment of this Act, 
but only with respect to any loan interest payment due after December 
31, 1997.

SEC. 4. HIGHER EDUCATION SAVINGS ACCOUNTS.

    (a) In General.--Part VIII of subchapter F of chapter 1 of the 
Internal Revenue Code of 1986 (relating to qualified State tuition 
programs) is amended by adding at the end the following new section:

``SEC. 530. HIGHER EDUCATION SAVINGS ACCOUNTS.

    ``(a) General Rule.--A higher education savings account shall be 
exempt from taxation under this subtitle. Notwithstanding the preceding 
sentence, the higher education savings account shall be subject to the 
taxes imposed by section 511 (relating to imposition of tax on 
unrelated business income of charitable organizations).
    ``(b) Limitations on Accounts.--
            ``(1) Account may not be established for benefit of more 
        than 1 individual.--A higher education savings account may not 
        be established for the benefit of more than 1 individual.
            ``(2) Special rule where more than 1 account.--If, at any 
        time during a calendar year, 2 or more higher education savings 
        accounts are maintained for the benefit of an individual, only 
        the account first established shall be treated as a higher 
        education savings account for purposes of this section. This 
        paragraph shall not apply to the extent more than 1 account 
        exists solely by reason of a rollover contribution.
    ``(c) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Higher education savings account.--The term `higher 
        education savings account' means a trust created or organized 
        in the United States exclusively for the purpose of paying the 
        qualified higher education expenses of the account holder, but 
        only if the written governing instrument creating the trust 
        meets the following requirements:
                    ``(A) No contribution will be accepted--
                            ``(i) unless it is in cash,
                            ``(ii) except in the case of rollover 
                        contributions from another higher education 
                        savings account, in excess of $1,000 for any 
                        calendar year, and
                            ``(iii) after the date on which the account 
                        holder attains age 18.
                    ``(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 (other than contracts the 
                beneficiary of which is the trust and the face amount 
                of which does not exceed the amount by which the 
                maximum amount which can be contributed to the higher 
                education savings account exceeds the sum of the 
                amounts contributed to the account for all taxable 
                years).
                    ``(D) The assets of the trust shall not be 
                commingled with other property except in a common trust 
                fund or common investment fund.
                    ``(E) Any balance in the higher education savings 
                account on the day after the later of--
                            ``(i) the date on which the individual for 
                        whose benefit the trust is established attains 
                        age 30 (or, if earlier, the date on which such 
                        individual dies), or
                            ``(ii) if, on the date of attaining such 
                        age such individual is enrolled in an eligible 
                        educational institution, the date such 
                        enrollment ends,
                shall be distributed within 30 days of such date to the 
                account holder (or in the case of death, the 
                beneficiary).
            ``(2) Limitation based on modified adjusted gross income.--
                    ``(A) In general.--If the modified adjusted gross 
                income of the taxpayer for the taxable year exceeds 
                $45,000 ($65,000 in the case of a joint return), the 
                amount which would (but for this paragraph) be 
                allowable as a contribution under this section shall be 
                reduced (but not below zero) by the amount which bears 
                the same ratio to the amount which would be so 
                allowable as such excess bears to $20,000.
                    ``(B) Modified adjusted gross income.--The term 
                `modified adjusted gross income' means adjusted gross 
                income determined--
                            ``(i) without regard to this section and 
                        sections 135, 911, 931, and 933, and
                            ``(ii) after application of sections 86, 
                        219, and 469.
                For purposes of sections 86, 135, 219, and 469, 
                adjusted gross income shall be determined without 
                regard to the deduction allowed under this section.
                    ``(C) Inflation adjustment.--In the case of any 
                taxable year beginning after 1998, the $45,000 and 
$65,000 amounts referred to in subparagraph (A) shall be increased by 
an amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section (1)(f)(3) for the 
                        calendar year in which the taxable year begins, 
                        by substituting `1997' for `1992'.
                    ``(D) Rounding.--If any amount as adjusted under 
                subparagraph (C) is not a multiple of $50, such amount 
                shall be rounded to the nearest multiple of $50.
            ``(3) 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).
            ``(4) Qualified higher education expenses.--
                    ``(A) In general.--The term `qualified higher 
                education expenses' has the same meaning given such 
                term by section 529(e)(3), except that such expenses 
                shall be reduced by any amount described in section 
                135(d)(1) (relating to certain scholarships and 
                veterans benefits).
                    ``(B) State tuition plans.--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)).
            ``(5) Eligible educational institution.--The term `eligible 
        educational institution' has the meaning given such term by 
        section 135(c)(3).
            ``(6) Account holder.--The term `account holder' means the 
        individual for whose benefit the higher education savings 
        account is established.
    ``(d) Tax Treatment of Distributions.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, any amount paid or distributed out of a higher 
        education savings account shall be included in gross income of 
        the payee or distributee for the taxable year in the manner 
        prescribed by section 72. For purposes of the preceding 
        sentence, rules similar to the rules of section 408(d)(2) shall 
        apply.
            ``(2) Distribution used to pay educational expenses.--
        Paragraph (1) shall not apply to any payment or distribution 
        out of a higher education savings account to the extent such 
        payment or distribution is used exclusively to pay the 
        qualified higher education expenses of the account holder.
            ``(3) Special rule for applying section 2503.--If any 
        payment or distribution from a higher education savings account 
        is used exclusively for the payment to an eligible educational 
        institution of the qualified higher education expenses of the 
        account holder, such payment shall be treated as a qualified 
        transfer for purposes of section 2503(e).
            ``(4) Additional tax for distributions not used for 
        educational expenses.--
                    ``(A) In general.--The tax imposed by this chapter 
                for any taxable year on any taxpayer who receives a 
                payment or distribution from a higher education savings 
                account which is includible in gross income under 
                paragraph (1) shall be increased by 10 percent of the 
                amount which is so includible.
                    ``(B) Exception for disability, death, or 
                scholarship.--Subparagraph (A) shall not apply if the 
                payment or distribution is--
                            ``(i) made on account of the death or 
                        disability of the account holder, or
                            ``(ii) made on account of a scholarship (or 
                        allowance or payment described in section 
                        135(d)(1) (B) or (C)) received by the account 
                        holder to the extent the amount of the payment 
                        or distribution does exceed the amount of the 
                        scholarship, allowance, or payment.
                    ``(C) 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 higher education savings 
                account to the extent that such contribution, when 
                added to previous contributions to the account during 
                the taxable year, exceeds the amount allowable as a 
                contribution under this section for the taxable year 
                if--
                            ``(i) such distribution is received on or 
                        before the day prescribed by law (including 
                        extensions of time) for filing such 
                        contributor's return for such taxable year, and
                            ``(ii) such distribution is accompanied by 
                        the amount of net income attributable to such 
                        excess contribution.
                Any net income described in clause (ii) shall be 
                included in the gross income of the contributor for the 
                taxable year in which such excess contribution was 
                made.
            ``(5) Rollover contributions.--Paragraph (1) shall not 
        apply to any amount paid or distributed from a higher education 
        savings account to the extent that the amount received is paid 
        into another higher education savings account for the benefit 
        of the account holder not later than the 60th day after the day 
        on which the holder receives the payment or distribution. The 
        preceding sentence shall not apply to any payment or 
        distribution if it applied to any prior payment or distribution 
        during the 12-month period ending on the date of the payment or 
        distribution.
            ``(6) Special rules for death and divorce.--Rules similar 
        to the rules of section 220(f) (7) and (8) shall apply.
    ``(e) Tax Treatment of Accounts.--Rules similar to the rules of 
paragraphs (2) and (4) of section 408(e) shall apply to any higher 
education savings account, and any amount treated as distributed under 
such rules shall be treated as not used to pay qualified higher 
education expenses.
    ``(f) Community Property Laws.--This section shall be applied 
without regard to any community property laws.
    ``(g) 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 an account 
described in subsection (b)(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.
    ``(h) Reports.--The trustee of a higher education savings account 
shall make such reports regarding such account to the Secretary and to 
the account holder 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) 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:
            ``(5) Special rule for higher education savings accounts.--
        An individual for whose benefit a higher education savings 
        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 higher education 
        savings account by reason of the application of section 530 to 
        such account.''; and
            (2) in subsection (e)(1), by striking ``or'' at the end of 
        subparagraph (D), by redesignating subparagraph (E) as 
        subparagraph (F), and by inserting after subparagraph (D) the 
        following new subparagraph:
                    ``(E) a higher education savings account described 
                in section 530, or''.
    (c) Failure To Provide Reports on Higher Education Savings 
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 higher education savings 
        accounts'' after ``annuities'' in the heading of such section, 
        and
            (2) in subsection (a)(2), by striking ``and'' at the end of 
        subparagraph (A), by striking the period at the end of 
        subparagraph (B) and inserting ``, and'', and by adding at the 
        end the following new subparagraph:
                    ``(C) section 530(h) (relating to higher education 
                savings accounts).''
    (d) Coordination With Savings Bond Exclusion.--Section 135(d)(1) of 
such Code (relating to adjustment for certain scholarships and veterans 
benefits) is amended by striking ``or'' at the end of subparagraph (C), 
by striking the period at the end of subparagraph (D) and inserting ``, 
or'', and by inserting at the end the following new subparagraph:
                    ``(E) a payment or distribution from a higher 
                education savings account (as defined in section 
                530).''
    (e) Clerical Amendments.--
            (1) The table of sections for part VIII of subchapter F of 
        chapter 1 of such Code is amended by adding at the end the 
        following new item:

                              ``Sec. 530. Higher education savings 
                                        accounts.''
            (2)(A) The heading for part VIII of subchapter F of chapter 
        1 of such Code is amended to read as follows:

           ``PART VIII--HIGHER EDUCATION SAVINGS ENTITIES''.

            (B) The table of parts for subchapter F of chapter 1 of 
        such Code is amended by striking the item relating to part VIII 
        and inserting:

                              ``Part VIII. Higher education savings 
                                        entities.''
            (3) The table of sections for subchapter B of chapter 68 of 
        such Code is amended by striking the item relating to section 
        6693 and inserting the following new item:

                              ``Sec. 6693. Failure to provide reports 
                                        on individual retirement 
                                        accounts or annuities or on 
                                        higher education savings 
                                        accounts.''
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.
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