[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 387 Introduced in Senate (IS)]







106th CONGRESS
  1st Session
                                 S. 387

To amend the Internal Revenue Code of 1986 to provide an exclusion from 
 gross income for distributions from qualified State tuition programs 
               which are used to pay education expenses.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            February 8, 1999

  Mr. McConnell (for himself, Mr. Graham, Mr. Bunning, Mr. Mack, Mr. 
   Breaux, Mr. DeWine, Mr. Smith of Oregon, Mr. Robb, Mr. Lugar, Mr. 
 Cochran, Ms. Landrieu, Mr. Murkowski, Mr. Stevens, Mr. Coverdell, Mr. 
Warner, Mr. Smith of New Hampshire, Mr. Bayh, Mr. Byrd, and Mr. Kerrey) 
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 an exclusion from 
 gross income for distributions from qualified State tuition programs 
               which are used to pay education expenses.

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

SECTION 1. EXCLUSION FROM GROSS INCOME OF EDUCATION DISTRIBUTIONS FROM 
              QUALIFIED STATE TUITION PROGRAMS.

    (a) In General.--Section 529(c)(3)(B) of the Internal Revenue Code 
of 1986 (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) Coordination With Education Credits.--Section 25A(e)(2) of the 
Internal Revenue Code of 1986 (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)''.
    (c) Coordination With Education Savings Bonds.--Subparagraph (B) of 
section 135(d)(2) of the Internal Revenue Code of 1986 (relating to 
coordination with other higher education benefits) is amended by 
striking ``section 530(d)(2)'' and inserting ``section 529(c)(3)(B) or 
530(d)(2)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1998.
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