[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1308 Introduced in House (IH)]







107th CONGRESS
  1st Session
                                H. R. 1308

     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 29, 2001

Mr. Hulshof (for himself and Mr. Bishop) 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; ETC.

    (a) Short Title.--This Act may be cited as the ``Education Savings 
and School Excellence Act of 2001''.
    (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) Maximum Annual Contributions.--
            (1) In general.--Section 530(b)(1)(A)(iii) (defining 
        education individual retirement account) is amended by striking 
        ``$500'' and inserting ``$2,000''.
            (2) Conforming amendment.--Section 4973(e)(1)(A) 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) (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)).
                    ``(B) Qualified state tuition programs.--Such term 
                shall include any contribution to a qualified State 
                tuition program (as defined in section 529(b)) on 
                behalf of the designated beneficiary (as defined in 
                section 529(e)(1)); but there shall be no increase in 
                the investment in the contract for purposes of applying 
                section 72 by reason of any portion of such 
                contribution which is not includible in gross income by 
                reason of subsection (d)(2).''.
            (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, and
                            ``(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.--Section 530 is amended--
                    (A) by striking ``higher'' each place it appears in 
                subsections (b)(1) and (d)(2), and
                    (B) by striking ``higher'' in the heading for 
                subsection (d)(2).
    (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 subparagraphs (A)(ii) and (E) and 
        paragraphs (5) and (6) of subsection (d) shall not apply to any 
        designated beneficiary with special needs (as determined under 
        regulations prescribed by the Secretary).''.
    (d) Entities 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) Time When Contributions Deemed Made.--
            (1) In general.--Section 530(b) (relating to definitions 
        and special rules), as amended by subsection (b)(2), is amended 
        by adding at the end the following new paragraph:
            ``(5) Time when contributions deemed made.--An individual 
        shall be deemed to have made a contribution to an education 
        individual retirement account 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 (not including 
        extensions thereof).''.
            (2) Extension of time to return excess contributions.--
        Subparagraph (C) of section 530(d)(4) (relating to additional 
        tax for distributions not used for educational expenses) is 
        amended--
                    (A) by striking clause (i) and inserting the 
                following new clause:
                            ``(i) such distribution is made before the 
                        first day of the sixth month of the taxable 
                        year following the taxable year, and'', and
                    (B) by striking ``due date of return'' in the 
                heading and inserting ``certain date''.
    (f) Coordination With Hope and Lifetime Learning Credits and 
Qualified Tuition Programs.--
            (1) In general.--Section 530(d)(2)(C) is amended to read as 
        follows:
                    ``(C) Coordination with hope and lifetime learning 
                credits and qualified tuition programs.--For purposes 
                of subparagraph (A)--
                            ``(i) Credit coordination.--The total 
                        amount of qualified higher education expenses 
                        with respect to an individual for the taxable 
                        year shall be reduced--
                                    ``(I) as provided in section 
                                25A(g)(2), and
                                    ``(II) by the amount of such 
                                expenses which were taken into account 
                                in determining the credit allowed to 
                                the taxpayer or any other person under 
                                section 25A.
                            ``(ii) Coordination with qualified tuition 
                        programs.--If, with respect to an individual 
                        for any taxable year--
                                    ``(I) the aggregate distributions 
                                during such year to which subparagraph 
                                (A) and section 529(c)(3)(B) apply, 
                                exceed
                                    ``(II) the total amount of 
                                qualified education expenses (after the 
                                application of clause (i)) for such 
                                year,
                        the taxpayer shall allocate such expenses among 
                        such distributions for purposes of determining 
                        the amount of the exclusion under subparagraph 
                        (A) and section 529(c)(3)(B).''.
            (2) Conforming amendments.--
                    (A) Subsection (e) of section 25A is amended to 
                read as follows:
    ``(e) Election Not To Have Section Apply.--A taxpayer may elect not 
to have this section apply with respect to the qualified tuition and 
related expenses of an individual for any taxable year.''.
                    (B) Section 135(d)(2)(A) is amended by striking 
                ``allowable'' and inserting ``allowed''.
                    (C) Section 530(d)(2)(D) is amended--
                            (i) by striking ``or credit'', and
                            (ii) by striking ``credit or'' in the 
                        heading.
                    (D) Section 4973(e)(1) is amended by adding ``and'' 
                at the end of subparagraph (A), by striking 
                subparagraph (B), and by redesignating subparagraph (C) 
                as subparagraph (B).
    (g) Renaming Education Individual Retirement Accounts as Paul 
Coverdell Education Savings Accounts.--
            (1) In general.--
                    (A) Section 530 (as amended by the preceding 
                provisions of this section) is amended by striking 
                ``education individual retirement account'' each place 
                it appears and inserting ``Paul Coverdell education 
                savings account''.
                    (B) The heading for paragraph (1) of section 530(b) 
                is amended by striking ``Education individual 
                retirement account'' and inserting ``Paul coverdell 
                education savings account''.
                    (C) The heading for section 530 is amended to read 
                as follows:

``SEC. 530. PAUL COVERDELL EDUCATION SAVINGS ACCOUNTS.''.

                    (D) The item in the table of contents for part VII 
                of subchapter F of chapter 1 relating to section 530 is 
                amended to read as follows:

                              ``Sec. 530. Paul Coverdell Education 
                                        savings accounts.''.
            (2) Conforming amendments.--
                    (A) The following provisions are each amended by 
                striking ``education individual retirement'' each place 
                it appears and inserting ``Paul Coverdell education 
                savings'':
                            (i) Section 25A(e)(2).
                            (ii) Section 26(b)(2)(E).
                            (iii) Section 72(e)(9).
                            (iv) Section 135(c)(2)(C).
                            (v) Subsections (a) and (e) of section 
                        4973.
                            (vi) Subsections (c) and (e) of section 
                        4975.
                            (vii) Section 6693(a)(2)(D).
                    (B) The headings for each of the following 
                provisions are amended by striking ``education 
                individual retirement accounts'' each place it appears 
                and inserting ``paul coverdell education savings 
                accounts''.
                            (i) Section 72(e)(9).
                            (ii) Section 135(c)(2)(C).
                            (iii) Section 4973(e).
                            (iv) Section 4975(c)(5).
    (h) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after the date of the enactment of this Act.
            (2) Subsection (g).--The amendments made by subsection (g) 
        shall take effect on the date of the enactment of this Act.

SEC. 3. MODIFICATIONS TO QUALIFIED TUITION PROGRAMS.

    (a) Short Title.--This section may be cited as the ``Collegiate 
Learning and Student Savings (CLASS) Act''.
    (b) 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 benefit 
        plans.--Clause (ii) of section 529(b)(1)(A) is amended by 
        inserting ``in the case of a program established and maintained 
        by a State or agency or instrumentality thereof,'' before ``may 
        make''.
            (3) Conforming amendments.--
                    (A) Sections 72(e)(9), 135(c)(2)(C), 135(d)(1)(D), 
                529, 530(b)(2)(B), 4973(e), and 6693(a)(2)(C) are each 
                amended by striking ``qualified State tuition'' each 
                place it appears and inserting ``qualified tuition''.
                    (B) The headings for sections 72(e)(9), 
                135(c)(2)(C), and 530(b)(2)(B) are each amended by 
                striking ``qualified state tuition'' and inserting 
                ``qualified tuition''.
                    (C) The heading for sections 529(b) is amended by 
                striking ``Qualified State Tuition'' and inserting 
                ``Qualified Tuition''.
                    (D) The heading for section 529 is amended by 
                striking ``STATE''.
                    (E) 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''.
    (c) Exclusion From Gross Income of Education Distributions From 
Qualified Tuition Programs.--
            (1) In general.--Section 529(c)(3)(B) (relating to 
        distributions) is amended to read as follows:
                    ``(B) Distributions for qualified higher education 
                expenses.--For purposes of this paragraph--
                            ``(i) In-kind distributions.--No amount 
                        shall be includible in gross income under 
                        subparagraph (A) 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.
                            ``(ii) Cash distributions.--In the case of 
                        distributions not described in clause (i), if--
                                    ``(I) such distributions do not 
                                exceed the qualified higher education 
                                expenses (reduced by expenses described 
                                in clause (i)), no amount shall be 
                                includible in gross income, and
                                    ``(II) in any other case, the 
                                amount otherwise includible in gross 
                                income shall be reduced by an amount 
                                which bears the same ratio to such 
                                amount as such expenses bear to such 
                                distributions.
                            ``(iii) Treatment as distributions.--Any 
                        benefit furnished to a designated beneficiary 
                        under a qualified tuition program shall be 
                        treated as a distribution to the beneficiary 
                        for purposes of this paragraph.
                            ``(iv) Coordination with hope and lifetime 
                        learning credits.--The total amount of 
                        qualified higher education expenses with 
                        respect to an individual for the taxable year 
                        shall be reduced--
                                    ``(I) as provided in section 
                                25A(g)(2), and
                                    ``(II) by the amount of such 
                                expenses which were taken into account 
                                in determining the credit allowed to 
                                the taxpayer or any other person under 
                                section 25A.
                            ``(v) Coordination with education 
                        individual retirement accounts.--If, with 
                        respect to an individual for any taxable year--
                                    ``(I) the aggregate distributions 
                                to which clauses (i) and (ii) and 
                                section 530(d)(2)(A) apply, exceed
                                    ``(II) the total amount of 
                                qualified higher education expenses 
                                otherwise taken into account under 
                                clauses (i) and (ii) (after the 
                                application of clause (iv)) for such 
                                year,
                        the taxpayer shall allocate such expenses among 
                        such distributions for purposes of determining 
                        the amount of the exclusion under clauses (i) 
                        and (ii) and section 530(d)(2)(A).''.
            (2) Conforming amendments.--
                    (A) Section 135(d)(2)(B) is amended by striking 
                ``the exclusion under section 530(d)(2)'' and inserting 
                ``the exclusions under sections 529(c)(3)(B)(i) and 
                530(d)(2)''.
                    (B) Section 221(e)(2)(A) is amended by inserting 
                ``529,'' after ``135,''.
    (d) Rollover to Different Program for Benefit of Same Designated 
Beneficiary.--Section 529(c)(3)(C) (relating to change in 
beneficiaries) is amended--
            (1) by striking ``transferred to the credit'' in clause (i) 
        and inserting ``transferred--
                                    ``(I) to another qualified tuition 
                                program for the benefit of the 
                                designated beneficiary, or
                                    ``(II) to the credit'',
            (2) by adding at the end the following new clause:
                            ``(iii) Limitation on certain rollovers.--
                        Clause (i)(I) shall not apply to any amount 
                        transferred with respect to a designated 
                        beneficiary if, at any time during the 1-year 
                        period ending on the day of such transfer, any 
                        other amount was transferred with respect to 
                        such beneficiary which was not includible in 
                        gross income by reason of clause (i)(I).'', and
            (3) by inserting ``or programs'' after ``beneficiaries'' in 
        the heading.
    (e) Member of Family Includes First Cousin.--Section 529(e)(2) 
(defining member of family) is amended by striking ``and'' at the end 
of subparagraph (B), by striking the period at the end of subparagraph 
(C) and inserting ``; and'', and by adding at the end the following new 
subparagraph:
                    ``(D) any first cousin of such beneficiary.''.
    (f) Definition of Qualified Higher Education Expenses.--
            (1) In general.--Subparagraph (A) of section 529(e)(3) 
        (relating to definition of qualified higher education expenses) 
        is amended to read as follows:
                    ``(A) In general.--The term `qualified higher 
                education expenses' means--
                            ``(i) tuition and fees required for the 
                        enrollment or attendance of a designated 
                        beneficiary at an eligible educational 
                        institution for courses of instruction of such 
                        beneficiary at such institution, and
                            ``(ii) expenses for books, supplies, and 
                        equipment which are incurred in connection with 
                        such enrollment or attendance, but not to 
                        exceed the allowance for books and supplies 
                        included in 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 
                        date of the enactment of the Education Savings 
                        and School Excellence Act of 2001, as 
                        determined by the eligible educational 
                        institution.''.
            (2) Exception for education involving sports, etc.--
        Paragraph (3) of section 529(e) (relating to qualified higher 
        education expenses) is amended by adding at the end the 
        following new subparagraph:
                    ``(C) Exception for education involving sports, 
                etc.--The term `qualified higher education expenses' 
                shall not include expenses with respect to any course 
                or other education involving sports, games, or hobbies 
                unless such course or other education is part of the 
                beneficiary's degree program or is taken to acquire or 
                improve job skills of the beneficiary.''.
    (g) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after the date of the 
        enactment of this Act.
            (2) Qualified higher education expenses.--The amendments 
        made by subsection (f) shall apply to amounts paid for courses 
        beginning in taxable years beginning after the date of the 
        enactment of this Act.

SEC. 4. EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE MADE PERMANENT.

    (a) Permanent Extension.--Section 127 (relating to exclusion for 
educational assistance programs) is amended by striking subsection (d) 
and by redesignating subsection (e) as subsection (d).
    (b) Restoration of Exclusion for Graduate Education.--The last 
sentence of paragraph (1) of section 127(c) (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) Permanent extension.--The amendments made by subsection 
        (a) shall apply to taxable years beginning after December 31, 
        2001.
            (2) Graduate education.--The amendment made by subsection 
        (b) shall apply to expenses relating to courses beginning after 
        the date of the enactment of this Act.

SEC. 5. EXPANSION OF DEDUCTION FOR INTEREST ON EDUCATION LOANS.

    (a) Repeal of Dollar Limitation on, and Increase in Income 
Threshold for Phase Out of, Deduction for Interest on Education 
Loans.--
            (1) In general.--Subsection (b) of section 221 (relating to 
        maximum deduction) is amended to read as follows:
    ``(b) Limitation Based on Modified Adjusted Gross Income.--
            ``(1) In general.--The amount which would (but for this 
        subsection) be allowable as a deduction under this section 
        shall be reduced (but not below zero) by the amount determined 
        under paragraph (2).
            ``(2) Amount of reduction.--The amount determined under 
        this paragraph is the amount which bears the same ratio to the 
        amount which would be so taken into account as--
                    ``(A) the excess of--
                            ``(i) the taxpayer's modified adjusted 
                        gross income for such taxable year, over
                            ``(ii) $100,000 ($150,000 in the case of a 
                        joint return), bears to
                    ``(B) $15,000.
            ``(3) Modified adjusted gross income.--The term `modified 
        adjusted gross income' means adjusted gross income determined--
                    ``(A) without regard to this section and sections 
                911, 931, and 933, and
                    ``(B) after application of sections 86, 135, 137, 
                219, and 469.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to taxable years beginning after the date of the 
        enactment of this Act.
    (b) Repeal of 60-Month Limitation on Deduction for Interest on 
Education Loans.--
            (1) In general.--Section 221 (relating to interest on 
        education loans) is amended by striking subsection (d) and by 
        redesignating subsections (e), (f), and (g) as subsections (d), 
        (e), and (f), respectively.
            (2) Conforming amendment.--Subsection (e) of section 6050S 
        of such Code is amended by striking ``section 221(e)(1)'' and 
        inserting ``section 221(d)(1)''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to loan interest payments due and paid after the 
        date of the enactment of this Act in taxable years ending after 
        such date.

SEC. 6. 2-PERCENT FLOOR ON MISCELLANEOUS ITEMIZED DEDUCTIONS NOT TO 
              APPLY TO QUALIFIED PROFESSIONAL DEVELOPMENT EXPENSES OF 
              ELEMENTARY AND SECONDARY SCHOOL TEACHERS.

    (a) In General.--Section 67(b) (defining miscellaneous itemized 
deductions) is amended by striking ``and'' at the end of paragraph 
(11), by striking the period at the end of paragraph (12) and inserting 
``, and'', and by adding at the end the following new paragraph:
            ``(13) any deduction allowable for the qualified 
        professional development expenses of an eligible teacher.''.
    (b) Definitions.--Section 67 (relating to 2-percent floor on 
miscellaneous itemized deductions) is amended by adding at the end the 
following new subsection:
    ``(g) Qualified Professional Development Expenses of Eligible 
Teachers.--For purposes of subsection (b)(13)--
            ``(1) Qualified professional development expenses.--
                    ``(A) In general.--The term `qualified professional 
                development expenses' means expenses in an amount not 
                to exceed $1,000 for any taxable year--
                            ``(i) for tuition, fees, books, supplies, 
                        equipment, and transportation required for the 
                        enrollment or attendance of an individual in a 
                        qualified course of instruction, and
                            ``(ii) with respect to which a deduction is 
                        allowable under section 162 (determined without 
                        regard to this section).
                    ``(B) Qualified course of instruction.--The term 
                `qualified course of instruction' means a course of 
                instruction which--
                            ``(i) is--
                                    ``(I) at an institution of higher 
                                education (as defined in section 481 of 
                                the Higher Education Act of 1965 (20 
                                U.S.C. 1088), as in effect on the date 
                                of the enactment of this subsection), 
                                or
                                    ``(II) a professional conference, 
                                and
                            ``(ii) is part of a program of professional 
                        development which is approved and certified by 
                        the appropriate local educational agency as 
                        furthering the individual's teaching skills.
            ``(C) Local educational agency.--The term `local 
        educational agency' has the meaning given such term by section 
        14101 of the Elementary and Secondary Education Act of 1965, as 
        so in effect.
            ``(2) Eligible teacher.--
                    ``(A) In general.--The term `eligible teacher' 
                means an individual who is a kindergarten through grade 
                12 classroom teacher, instructor, counselor, aide, or 
                principal in an elementary or secondary school.
                    ``(B) Elementary or secondary school.--The terms 
                `elementary school' and `secondary school' have the 
                meanings given such terms by section 14101 of the 
                Elementary and Secondary Education Act of 1965 (20 
                U.S.C. 8801), as so in effect.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 7. EXCLUSION OF CERTAIN AMOUNTS RECEIVED UNDER THE NATIONAL HEALTH 
              SERVICE CORPS SCHOLARSHIP PROGRAM, THE F. EDWARD HEBERT 
              ARMED FORCES HEALTH PROFESSIONS SCHOLARSHIP AND FINANCIAL 
              ASSISTANCE PROGRAM, AND CERTAIN OTHER PROGRAMS.

    (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 Service Corps Scholarship 
                program under section 338A(g)(1)(A) of the Public 
                Health Service Act,
                    ``(B) the Armed Forces Health Professions 
                Scholarship and Financial Assistance program under 
                subchapter I of chapter 105 of title 10, United States 
                Code,
                    ``(C) the National Institutes of Health 
                Undergraduate Scholarship program under section 487D of 
                the Public Health Service Act, or
                    ``(D) any State program determined by the Secretary 
                to have substantially similar objectives as such 
                programs.''.
    (b) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by subsection (a) shall apply to amounts 
        received in taxable years beginning after December 31, 1993.
            (2) State programs.--Section 117(c)(2)(D) of the Internal 
        Revenue Code of 1986 (as added by the amendments made by 
        subsection (a)) shall apply to amounts received in taxable 
        years beginning after the date of the enactment of this Act.
                                 <all>