[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 763 Placed on Calendar Senate (PCS)]






                                                        Calendar No. 34
107th CONGRESS
  1st Session
                                 S. 763

                          [Report No. 107-12]

     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 SENATE OF THE UNITED STATES

                             April 24, 2001

  Mr. Grassley, from the Committee on Finance, reported the following 
     original bill; which was read twice and placed on the calendar

_______________________________________________________________________

                                 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; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Affordable 
Education 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.
    (c) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; amendment of 1986 Code; table of contents.
                 TITLE I--EDUCATION SAVINGS INCENTIVES

Sec. 101. Modifications to education individual retirement accounts.
Sec. 102. Modifications to qualified tuition programs.
                    TITLE II--EDUCATIONAL ASSISTANCE

Sec. 201. Extension of exclusion for employer-provided educational 
                            assistance.
Sec. 202. Elimination of 60-month limit on student loan interest 
                            deduction.
Sec. 203. Exclusion of certain amounts received under the National 
                            Public Health Service Corps Scholarship 
                            Program and the F. Edward Hebert Armed 
                            Forces Health Professions Scholarship and 
                            Financial Assistance Program.
Sec. 204. Exclusion from income of certain amounts contributed to 
                            Coverdell education savings accounts.
  TITLE III--LIBERALIZATION OF TAX-EXEMPT FINANCING RULES FOR PUBLIC 
                          SCHOOL CONSTRUCTION

Sec. 301. Additional increase in arbitrage rebate exception for 
                            governmental bonds used to finance 
                            educational facilities.
Sec. 302. Treatment of qualified public educational facility bonds as 
                            exempt facility bonds.

                 TITLE I--EDUCATION SAVINGS INCENTIVES

SEC. 101. 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) Modification of AGI Limits To Remove Marriage Penalty.--Section 
530(c)(1) (relating to reduction in permitted contributions based on 
adjusted gross income) is amended--
            (1) by striking ``$150,000'' in subparagraph (A)(ii) and 
        inserting ``$190,000'', and
            (2) by striking ``$10,000'' in subparagraph (B) and 
        inserting ``$30,000''.
    (c) 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) 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).
    (d) 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).''.
    (e) 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''.
    (f) Time When Contributions Deemed Made.--
            (1) In general.--Section 530(b) (relating to definitions 
        and special rules), as amended by subsection (c)(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''.
    (g) 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).
    (h) Renaming Education Individual Retirement Accounts as Coverdell 
Education Savings Accounts.--
            (1) In general.--
                    (A) Section 530 (as amended by the preceding 
                provisions of this section) is amended by striking ``an 
                education individual retirement account'' each place it 
                appears and inserting ``a Coverdell education savings 
                account''.
                    (B) Section 530(a) is amended--
                            (i) by striking ``An education individual 
                        retirement account'' and inserting ``A 
                        Coverdell education savings account'', and
                            (ii) by striking ``the education individual 
                        retirement account'' and inserting ``the 
                        Coverdell education savings account''.
                    (C) Section 530(b)(1) is amended--
                            (i) by striking ``education individual 
                        retirement account'' in the text and inserting 
                        ``Coverdell education savings account'', and
                            (ii) by striking ``Education individual 
                        retirement account'' in the heading and 
                        inserting ``Coverdell education savings 
                        account''.
                    (D) Sections 530(d)(5) and 530(e) are amended by 
                striking ``any education individual retirement 
                account'' each place it appears and inserting ``any 
Coverdell education savings account''.
                    (E) The heading for section 530 is amended to read 
                as follows:

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

                    (F) 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. Coverdell education savings 
                                        accounts.''.
            (2) Conforming amendments.--
                    (A) The following provisions are amended by 
                striking ``an education individual retirement'' each 
                place it appears and inserting ``a Coverdell education 
                savings'':
                            (i) Section 72(e)(9).
                            (ii) Section 135(c)(2)(C).
                            (iii) Section 4973(a).
                            (iv) Subsections (c) and (e) of section 
                        4975.
                    (B) The following provisions are amended by 
                striking ``education individual retirement'' each place 
                it appears in the text and inserting ``Coverdell 
                education savings'':
                            (i) Section 26(b)(2)(E).
                            (ii) Section 4973(e).
                            (iii) Section 6693(a)(2)(D).
                    (C) The headings for the following provisions are 
                amended by striking ``education individual retirement 
                accounts'' each place it appears and inserting 
                ``Coverdell education savings accounts''.
                            (i) Section 72(e)(9).
                            (ii) Section 135(c)(2)(C).
                            (iii) Section 4973(e).
                            (iv) Section 4975(c)(5).
    (i) 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, 2001.
            (2) Subsection (h).--The amendments made by subsection (h) 
        shall take effect on the date of the enactment of this Act.

SEC. 102. MODIFICATIONS TO QUALIFIED TUITION PROGRAMS.

    (a) Eligible Educational Institutions Permitted To Maintain 
Qualified Tuition Programs.--
          (1) In general.--Section 529(b)(1) (defining qualified State 
        tuition program) is amended--
                    (A) by inserting ``or by 1 or more eligible 
                educational institutions'' after ``maintained by a 
                State or agency or instrumentality thereof'' in the 
                matter preceding subparagraph (A), and
                    (B) by adding at the end the following new flush 
                sentence:
        ``Except to the extent provided in regulations, a program 
        established and maintained by 1 or more eligible educational 
        institutions shall not be treated as a qualified tuition 
        program unless such program has received a ruling or 
        determination that such program meets the applicable 
        requirements for a qualifed tuition program.''.
            (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 
                amended by striking ``qualified State tuition'' each 
                place it appears and inserting ``qualified tuition''.
                    (B) The headings for sections 72(e)(9) and 
                135(c)(2)(C) are amended by striking ``qualified state 
                tuition'' each place it appears and inserting 
                ``qualified tuition''.
                    (C) The headings for sections 529(b) and 
                530(b)(2)(B) are amended by striking ``Qualified state 
                tuition'' each place it appears 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''.
    (b) 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) Exception for institutional 
                        programs.--In the case of any taxable year 
                        beginning before January 1, 2004, clauses (i) 
                        and (ii) shall not apply with respect to any 
                        distribution during such taxable year under a 
                        qualified tuition program established and 
                        maintained by 1 or more eligible educational 
                        institutions.
                            ``(iv) 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.
                            ``(v) 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.
                            ``(vi) Coordination with coverdell 
                        education savings 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 (v)) 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) and 
                530(d)(2)''.
                    (B) Section 221(e)(2)(A) is amended by inserting 
                ``529,'' after ``135,''.
    (c) 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 only apply to the first 3 
                        transfers with respect to a designated 
                        beneficiary.'', and
            (3) by inserting ``or programs'' after ``beneficiaries'' in 
        the heading.
    (d) 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 by inserting ``; and'', and by adding at the end the following 
new subparagraph:
                    ``(D) any first cousin of such beneficiary.''.
    (e) Adjustment of Limitation on Room and Board Distributions.--
Section 529(e)(3)(B)(ii) is amended to read as follows:
                            ``(ii) Limitation.--The amount treated as 
                        qualified higher education expenses by reason 
                        of clause (i) shall not exceed--
                                    ``(I) the allowance (applicable to 
                                the student) for room and board 
                                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 Affordable 
                                Education Act of 2001) as determined by 
                                the eligible educational institution 
                                for such period, or
                                    ``(II) if greater, the actual 
                                invoice amount the student residing in 
                                housing owned or operated by the 
                                eligible educational institution is 
                                charged by such institution for room 
                                and board costs for such period.''.
    (f) Technical Amendments.--Section 529(c)(3)(D) is amended--
            (1) by inserting ``except to the extent provided by the 
        Secretary,'' before ``all distributions'' in clause (ii), and
            (2) by inserting ``except to the extent provided by the 
        Secretary,'' before ``the value'' in clause (iii).
    (g) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

                    TITLE II--EDUCATIONAL ASSISTANCE

SEC. 201. PERMANENT EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED 
              EDUCATIONAL ASSISTANCE.

    (a) In General.--Section 127 (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) 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) Conforming Amendment.--Section 51A(b)(5)(B)(iii) is amended by 
striking ``or would be so excludable but for section 127(d)''.
    (d) Effective Date.--The amendments made by this section shall 
apply with respect to expenses relating to courses beginning after 
December 31, 2001.

SEC. 202. ELIMINATION OF 60-MONTH LIMIT AND INCREASE IN INCOME 
              LIMITATION ON STUDENT LOAN INTEREST DEDUCTION.

    (a) Elimination of 60-Month Limit.--
            (1) In general.--Section 221 (relating to interest on 
        education loans), as amended by section 102(b)(2)(B), is 
        amended by striking subsection (d) and by redesignating 
        subsections (e), (f), and (g) as subsections (d), (e), and (f), 
        respectively.
            (2) Conforming amendment.--Section 6050S(e) 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 with respect to any loan interest paid after 
        December 31, 2001, in taxable years ending after such date.
    (b) Increase in Income Limitation.--
            (1) In general.--Section 221(b)(2)(B) (relating to amount 
        of reduction) is amended by striking clauses (i) and (ii) and 
        inserting the following:
                            ``(i) the excess of--
                                    ``(I) the taxpayer's modified 
                                adjusted gross income for such taxable 
                                year, over
                                    ``(II) $50,000 ($100,000 in the 
                                case of a joint return), bears to
                            ``(ii) $15,000 ($30,000 in the case of a 
                        joint return).''.
            (2) Conforming amendment.--Section 221(g)(1) is amended by 
        striking ``$40,000 and $60,000 amounts'' and inserting 
        ``$50,000 and $100,000 amounts''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to taxable years ending after December 31, 2001.

SEC. 203. EXCLUSION OF CERTAIN AMOUNTS RECEIVED UNDER THE NATIONAL 
              HEALTH SERVICE 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 Service 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, 
2001.

SEC. 204. EXCLUSION FROM INCOME OF CERTAIN AMOUNTS CONTRIBUTED TO 
              COVERDELL EDUCATION SAVINGS ACCOUNTS.

    (a) In General.--Section 127 (relating to education assistance 
programs), as amended by section 201(a), is amended by redesignating 
subsection (d) as subsection (e) and by inserting after subsection (c) 
the following new subsection:
    ``(d) Qualified Coverdell Education Savings Account 
Contributions.--
            ``(1) In general.--Gross income of an employee shall not 
        include amounts paid or incurred by the employer for a 
        qualified Coverdell education savings account contribution on 
        behalf of the employee.
            ``(2) Qualified coverdell education savings account 
        contribution.--For purposes of this subsection--
                    ``(A) In general.--The term `qualified Coverdell 
                education savings account contribution' means an amount 
                contributed pursuant to an educational assistance 
                program described in subsection (b) by an employer to a 
                Coverdell education savings account established and 
                maintained for the benefit of an employee or the 
                employee's spouse, or any lineal descendent of either.
                    ``(B) Dollar limit.--A contribution by an employer 
                to a Coverdell education savings account shall not be 
                treated as a qualified Coverdell education savings 
                account contribution to the extent that the 
                contribution, when added to prior contributions by the 
                employer during the calendar year to Coverdell 
                education savings accounts established and maintained 
                for the same beneficiary, exceeds $500.
            ``(3) Special rules.--
                    ``(A) Contributions not treated as educational 
                assistance in determining maximum exclusion.--For 
                purposes of subsection (a)(2), qualified Coverdell 
                education savings account contributions shall not be 
                treated as educational assistance.
                    ``(B) Self-employed not treated as employee.--For 
                purposes of this subsection, subsection (c)(2) shall 
                not apply.
                    ``(C) Adjusted gross income phaseout of account 
                contribution not applicable to individual employers.--
                The limitation under section 530(c) shall not apply to 
                a qualified Coverdell education savings account 
                contribution made by an employer who is an individual.
                    ``(D) Contributions not treated as an investment in 
                the contract.--For purposes of section 530(d), a 
                qualified Coverdell education savings account 
contribution shall not be treated as an investment in the contract.''.
    (b) Reporting Requirement.--Section 6051(a) (relating to receipts 
for employees) is amended by striking ``and'' at the end of paragraph 
(10), by striking the period at the end of paragraph (11) and inserting 
``, and'', and by adding at the end the following new paragraph:
            ``(12) the amount of any qualified Coverdell education 
        savings account contribution under section 127(d) with respect 
        to such employee.''.
    (c) Conforming Amendment.--Section 221(e)(2)(A) is amended by 
inserting ``(other than under subsection (d) thereof)'' after ``section 
127''.
    (d) Effective Date.--The amendments made by this section shall 
apply to contributions made in taxable years beginning after December 
31, 2001.

  TITLE III--LIBERALIZATION OF TAX-EXEMPT FINANCING RULES FOR PUBLIC 
                          SCHOOL CONSTRUCTION

SEC. 301. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION FOR 
              GOVERNMENTAL BONDS USED TO FINANCE EDUCATIONAL 
              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 in calendar years beginning after December 
31, 2001.

SEC. 302. TREATMENT OF QUALIFIED PUBLIC EDUCATIONAL FACILITY BONDS AS 
              EXEMPT FACILITY BONDS.

    (a) Treatment as Exempt Facility Bond.--Subsection (a) of section 
142 (relating to exempt facility bond) is amended by striking ``or'' at 
the end of paragraph (11), by striking the period at the end of 
paragraph (12) and inserting ``, or'', and by adding at the end the 
following new paragraph:
            ``(13) qualified public educational facilities.''.
    (b) Qualified Public Educational Facilities.--Section 142 (relating 
to exempt facility bond) is amended by adding at the end the following 
new subsection:
    ``(k) Qualified Public Educational Facilities.--
            ``(1) In general.--For purposes of subsection (a)(13), the 
        term `qualified public educational facility' means any school 
        facility which is--
                    ``(A) part of a public elementary school or a 
                public secondary school, and
                    ``(B) owned by a private, for-profit corporation 
                pursuant to a public-private partnership agreement with 
                a State or local educational agency described in 
                paragraph (2).
            ``(2) Public-private partnership agreement described.--A 
        public-private partnership agreement is described in this 
        paragraph if it is an agreement--
                    ``(A) under which the corporation agrees--
                            ``(i) to do 1 or more of the following: 
                        construct, rehabilitate, refurbish, or equip a 
                        school facility, and
                            ``(ii) at the end of the term of the 
                        agreement, to transfer the school facility to 
                        such agency for no additional consideration, 
                        and
                    ``(B) the term of which does not exceed the term of 
                the issue to be used to provide the school facility.
            ``(3) School facility.--For purposes of this subsection, 
        the term `school facility' means--
                    ``(A) any school building,
                    ``(B) any functionally related and subordinate 
                facility and land with respect to such building, 
                including any stadium or other facility primarily used 
                for school events, and
                    ``(C) any property, to which section 168 applies 
                (or would apply but for section 179), for use in a 
                facility described in subparagraph (A) or (B).
            ``(4) Public schools.--For purposes of this subsection, 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 in 
        effect on the date of the enactment of this subsection.
            ``(5) Annual aggregate face amount of tax-exempt 
        financing.--
                    ``(A) In general.--An issue shall not be treated as 
                an issue described in subsection (a)(13) if the 
                aggregate face amount of bonds issued by the State 
                pursuant thereto (when added to the aggregate face 
                amount of bonds previously so issued during the 
                calendar year) exceeds an amount equal to the greater 
                of--
                            ``(i) $10 multiplied by the State 
                        population, or
                            ``(ii) $5,000,000.
                    ``(B) Allocation rules.--
                            ``(i) In general.--Except as otherwise 
                        provided in this subparagraph, the State may 
                        allocate the amount described in subparagraph 
                        (A) for any calendar year in such manner as the 
                        State determines appropriate.
                            ``(ii) Rules for carryforward of unused 
                        limitation.--A State may elect to carry forward 
                        an unused limitation for any calendar year for 
                        3 calendar years following the calendar year in 
                        which the unused limitation arose under rules 
                        similar to the rules of section 146(f), except 
                        that the only purpose for which the 
                        carryforward may be elected is the issuance of 
                        exempt facility bonds described in subsection 
                        (a)(13).''.
    (c) Exemption From General State Volume Caps.--Paragraph (3) of 
section 146(g) (relating to exception for certain bonds) is amended--
            (1) by striking ``or (12)'' and inserting ``(12), or 
        (13)'', and
            (2) by striking ``and environmental enhancements of 
        hydroelectric generating facilities'' and inserting 
        ``environmental enhancements of hydroelectric generating 
        facilities, and qualified public educational facilities''.
    (d) Exemption From Limitation on Use for Land Acquisition.--Section 
147(h) (relating to certain rules not to apply to mortgage revenue 
bonds, qualified student loan bonds, and qualified 501(c)(3) bonds) is 
amended by adding at the end the following new paragraph:
            ``(3) Exempt facility bonds for qualified public-private 
        schools.--Subsection (c) shall not apply to any exempt facility 
        bond issued as part of an issue described in section 142(a)(13) 
        (relating to qualified public educational facilities).''.
    (e) Conforming Amendment.--The heading for section 147(h) is 
amended by striking ``Mortgage Revenue Bonds, Qualified Student Loan 
Bonds, and Qualified 501(c)(3) Bonds'' and inserting ``Certain Bonds''.
    (f) Effective Date.--The amendments made by this section shall 
apply to bonds issued after December 31, 2001.




                                                        Calendar No. 34

107th CONGRESS

  1st Session

                                 S. 763

                          [Report No. 107-12]

_______________________________________________________________________

                                 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.

_______________________________________________________________________

                             April 24, 2001

                 Read twice and placed on the calendar