[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[H.R. 7 Introduced in House (IH)]







106th CONGRESS
  1st Session
                                 H. R. 7

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


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             March 1, 1999

  Mr. Hulshof (for himself and Mr. Lipinski) 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 allow tax-free 
    expenditures from education individual retirement accounts for 
   elementary and secondary school expenses, to increase the maximum 
    annual amount of contributions to such accounts, 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.

    (a) Short Title.--This Act may be cited as the ``Education Savings 
and School Excellence Act of 1999''.
    (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.

SEC. 2. 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) 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.--Sections 530(b)(1)(A)(iii) and 
4973(e)(1)(A) are each amended by striking ``$500'' and inserting 
``$2,000''.
    (c) Waiver of Age Limitations for Children With Special Needs.--
            (1) Section 530(b)(1) (defining education individual 
        retirement account) is amended by adding at the end the 
        following flush sentence:
        ``The age limitations in subparagraphs (A) and (E) shall not 
        apply to any designated beneficiary with special needs (as 
        determined under regulations prescribed by the Secretary).''.
            (2) Section 530(d)(5) is amended by striking ``who has not 
        attained age 30 as of such date'' and inserting ``who, as of 
        such date, either has not attained age 30 or has special needs 
        (as determined under regulations prescribed by the 
        Secretary)''.
            (3) Section 530(d)(6) is amended by striking all that 
        follows ``old beneficiary'' and inserting ``and, as of the date 
        of such change, either has not attained age 30 or has special 
        needs (as so determined).''
    (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) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.

SEC. 3. 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) Eligible Educational Institutions Permitted To Maintain 
Qualified Tuition Programs.--
            (1) In general.--Section 529(b)(1) (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) Private qualified tuition programs limited to prepaid 
        plans.--Section 529(b)(1) is amended by adding at the end the 
        following flush sentence:
        ``Clause (ii) of subparagraph (A) shall only apply to a program 
        established and maintained by a State or any agency or 
        instrumentality thereof.''.
            (3) Tax on excess contributions.--
                    (A) In general.--Section 4973(a) (relating to tax 
                imposed) is amended by striking ``or'' at the end of 
                paragraph (3), inserting ``or'' at the end of paragraph 
                (4), and inserting after paragraph (4) the following 
                new paragraph:
            ``(5) a private qualified tuition program (as defined in 
        subsection (g)),''.
                    (B) Excess contributions defined.--Section 4973 is 
                amended by adding at the end the following new 
                subsection:
    ``(g) Excess Contributions to Private Qualified Tuition Program.--
For purposes of this section--
            ``(1) In general.--In the case of private qualified tuition 
        programs, the term `excess contributions' means, with respect 
        to any one beneficiary, the amount contributed to a private 
        qualified tuition program for any taxable year if any amount is 
        contributed during such year for the benefit of such 
        beneficiary to a qualified tuition program (as defined in 
        section 529) other than a private qualified tuition program.
            ``(2) Private qualified tuition program.--The term `private 
        qualified tuition program' means a qualified tuition program 
        (as defined in section 529) not established and maintained by a 
        State or any agency or instrumentality thereof.''.
            (4) Technical amendments.--
                    (A) The text of sections 25A(e)(2), 72(e)(9), 529, 
                530(b)(2)(B), and 4973(e)(1)(B), as previously amended 
                by this Act, are each amended by striking ``qualified 
                State tuition program'' each place it appears and 
                inserting ``qualified tuition program''.
                    (B)(i) The 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''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.

SEC. 4. PERMANENT EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED 
              EDUCATIONAL ASSISTANCE.

    Section 127 (relating to educational assistance programs) is 
amended by striking subsection (d) and by redesignating subsection (e) 
as subsection (d).

SEC. 5. 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, 1999.

SEC. 6. EXCLUSION OF CERTAIN AMOUNTS RECEIVED UNDER THE NATIONAL HEALTH 
              CORPS SCHOLARSHIP PROGRAM AND THE F. EDWARD HEBERT ARMED 
              FORCES HEALTH PROFESSIONS SCHOLARSHIP AND FINANCIAL 
              ASSISTANCE 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) Exceptions.--Paragraph (1) shall not apply to any 
        amount received by an individual under--
                    ``(A) the National Health Corps Scholarship Program 
                under section 338A(g)(1)(A) of the Public Health 
                Service Act; or
                    ``(B) the Armed Forces Health Professions 
                Scholarship and Financial Assistance Program under 
                subchapter I of chapter 105 of title 10, United States 
                Code.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to amounts received in taxable years beginning after December 31, 
1993.
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