II 109th CONGRESS 2d Session S. 2458 IN THE SENATE OF THE UNITED STATES March 27, 2006 Ms. Stabenow 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 encourage college savings by providing a Federal income tax credit to match contributions to Coverdell education savings accounts, and for other purposes.

1.

Short title

This Act may be cited as the Kick Start to College Act.

2.

Tax credit match of contributions to Coverdell education savings accounts

(a)

In general

Subpart C of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to refundable credits) is amended by redesignating section 36 as section 37 and by inserting after section 35 the following new section:

36.

Credit match of contributions to Coverdell education savings accounts

(a)

In general

There shall be allowed as a credit against the tax imposed by this subtitle an amount equal to the aggregate contributions of the taxpayer for the taxable year to a qualified higher education subaccount which is established for the benefit of any qualified beneficiary of the taxpayer. (b)

Dollar limitation

(1)

In general

The credit allowed to a taxpayer by subsection (a) with respect to each qualified beneficiary for the taxable year shall not exceed the applicable amount. (2)

Applicable amount

For purposes of paragraph (1)— (A)

In general

The applicable amount with respect to each qualified beneficiary for any taxable year is the lesser of— (i)$1,000, or (ii)$6,000, reduced (but not below zero) by the aggregate amount of the credits allowed under this section with respect to the qualified beneficiary for all preceding taxable years. In the case of a qualified beneficiary who has attained the age of 7 before the close of the taxable year, clause (ii) shall be applied by substituting $5,000 for $6,000. The preceding sentence shall not apply to a qualified beneficiary who attains the age of 7 before January 1, 2007.(B)

Reduction based on adjusted gross income

The applicable amount determined under subparagraph (A) for any taxable year shall be reduced (but not below zero) by the amount which bears the same ratio to the applicable amount as the— (i)taxpayer’s modified adjusted gross income (as defined in section 530(c)(2)) for such taxable year in excess of $95,000 ($190,000 in the case of a joint return), bears to (ii)$15,000 ($30,000 in the case of a joint return). (c)

Qualified beneficiary

For purposes of this section, the term qualified beneficiary means the designated beneficiary of the Coverdell education savings account who is a qualifying child of the taxpayer (within the meaning of section 32(c)(3), determined without regard to subclause (II) of subparagraph (B)(i) thereof). (d)

Payment of credit

(1)

In general

Notwithstanding any other provision of this title, any amount allowed as a credit under subsection (a) (determined without regard to paragraph (2)) with respect to any contributions to a qualified higher education subaccount established for the benefit of a qualified beneficiary shall be deposited by the Secretary into the qualified higher education subaccount. (2)

Coordination with deposits

With respect to any taxable year, the aggregate amount which would (but for this subsection) be allowed as a credit to the eligible taxpayer under this section with respect to each qualified beneficiary shall be reduced (but not below zero) by the aggregate amount deposited under paragraph (1) with respect to such beneficiary for such taxable year. (3)

Required information

With respect to each qualified beneficiary, no credit shall be allowed under this section to a taxpayer who does not include on the return of tax for the taxable year— (A)the identification number for any Coverdell education savings account of the qualified beneficiary, (B)such information regarding the administrator of such account as the Secretary may prescribe, and (C)the amount paid by the taxpayer during the taxable year to any qualified higher education subaccount established within the Coverdell education savings accounts for the benefit of such qualified beneficiary. (e)

Marital status; certain married individuals living apart

Rules similar to the rules of paragraphs (2), (3), and (4) of section 21(e) shall apply for purposes of this section. (f)

Regulations

The Secretary may prescribe such regulations and other guidance as may be necessary or appropriate to carry out this section.

. (b)

Modifications to Coverdell education savings account provisions

Section 530 of the Internal Revenue Code of 1986 (relating to Coverdell education savings accounts) is amended by adding at the end the following new subsection: (i)

Qualified higher-education subaccounts

(1)

In general

The trustee of a Coverdell education savings account may elect to allow individuals to elect to establish, and make contributions to, a qualified higher education subaccount within the account. (2)

Treatment of subaccount

(A)

In general

Amounts in the subaccount shall be treated in the same manner as amounts in the Coverdell education savings account, except that such amounts shall be held exclusively for the purpose of paying qualified higher education expenses (as defined in section 529(e)(3)), including amounts described in subsection (b)(2)(B). (B)

Application of limit

For purposes of applying the limit under subsection (b)(1)(A)(iii)— (i)contributions to a qualified higher education subaccount and other contributions to the Coverdell education savings account shall be aggregated, and (ii)payments to the subaccount by the Secretary under section 36(d)(1) shall not be taken into account. (C)

Treatment of distributions

For purposes of subsection (d)— (i)

In general

In determining whether distributions from a qualified higher education subaccount exceed the qualified education expenses of the designated beneficiary, only expenses described in subparagraph (A) shall be taken into account. (ii)

Rollovers

Any amount paid or distributed out of a qualified higher education subaccount shall be treated as a rollover contribution under subsection (d)(5) only if it is paid to another such subaccount within the required time period. (iii)

Distributions not used for qualified expenses

If any amount paid or distributed out of a qualified higher education subaccount which is allocable to a payment to the subaccount by the Secretary under section 36(d)(1) (and earnings thereon) exceeds the qualified education expenses of the designated beneficiary (determined after application of clause (i))— (I)such amount shall not be includible in gross income, but (II)the tax imposed by this chapter for the taxable year of the taxpayer who receives the payment or distribution shall be increased by 100 percent of the amount of the excess. For purposes of the preceding sentence, payments or distributions shall be treated as having been made first from payments under section 36(d)(1) (and earnings thereon). This clause shall not apply to payments or distributions described in clause (i) or (ii) of subsection (d)(4)(B).. (c)

Conforming amendments

(1)Paragraph (2) of section 1324(b) of title 31, United States Code, is amended by inserting before the period , or from section 36 of such Code. (2)The table of sections for subpart C of part IV of chapter 1 of the Internal Revenue Code of 1986 is amended by striking the last item and inserting the following new items: Sec. 36. Credit match of contributions to Coverdell education savings accounts. Sec. 37. Overpayments of tax. . (d)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2006.