[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 26 Introduced in Senate (IS)]







110th CONGRESS
  1st Session
                                 S. 26

   To amend the Internal Revenue Code of 1986 to establish a program 
demonstrating multiple approaches to Lifelong Learning Accounts, which 
are portable, worker-owned savings accounts that can be used by workers 
to help finance education, training, and apprenticeships and which are 
intended to supplement both public and employer-provided education and 
              training resources, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            January 4, 2007

Ms. Cantwell (for herself and Ms. Snowe) 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 establish a program 
demonstrating multiple approaches to Lifelong Learning Accounts, which 
are portable, worker-owned savings accounts that can be used by workers 
to help finance education, training, and apprenticeships and which are 
intended to supplement both public and employer-provided education and 
              training resources, 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.

    This Act may be cited as the ``Lifelong Learning Accounts Act of 
2007''.

SEC. 2. ESTABLISHMENT OF LIFELONG LEARNING ACCOUNTS.

    (a) In General.--Part VIII of subchapter F of chapter 1 (relating 
to higher education savings entities) is amended by inserting after 
section 529 the following new section:

``SEC. 529A. LIFELONG LEARNING ACCOUNTS.

    ``(a) General Rule.--A lifelong learning account shall be exempt 
from taxation under this subtitle. Notwithstanding the preceding 
sentence, any lifelong learning account shall be subject to the taxes 
imposed by section 511 (relating to imposition of tax on unrelated 
business income of charitable, etc., organizations).
    ``(b) Lifelong Learning Accounts.--For purposes of this title, the 
term `lifelong learning account' means a trust created or organized in 
the United States for the exclusive benefit of an eligible individual, 
but only if the written governing instrument creating the trust meets 
the following requirements:
            ``(1) No contribution will be accepted unless it is in 
        cash.
            ``(2) No contribution will be accepted unless it is made 
        by--
                    ``(A) the individual on whose behalf the account 
                was established at a time when the individual was an 
                eligible individual, or
                    ``(B) an employer of such individual.
            ``(3) The trustee is a bank (as defined in section 408(n)), 
        an agency or instrumentality of a State, or another person who 
        demonstrates to the satisfaction of the Secretary that the 
        manner in which that person will administer the trust will be 
        consistent with the requirements of this section.
            ``(4) No part of the trust assets will be invested in any 
        collectible (as defined in section 408(m)).
            ``(5) The assets of the trust will not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
    ``(c) Time When Contributions Deemed Made.--A taxpayer shall be 
deemed to have made a contribution on the last day of a 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).
    ``(d) Tax Treatment of Distributions.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, any amount distributed out of a lifelong learning 
        account shall be included in gross income by the distributee.
            ``(2) Qualified higher education expenses.--
                    ``(A) In general.--No amount shall be includible in 
                gross income under paragraph (1) if the qualified 
                higher education expenses of the individual for whom 
                the account was established during the taxable year are 
                not less than the aggregate distributions from the 
                account during such taxable year.
                    ``(B) Distributions in excess of expenses.--If the 
                aggregate distributions from a lifelong learning 
                account for any taxable year exceed the qualified 
                higher education expenses of the individual for whom 
                the account was established during the taxable year, 
                the amount otherwise includible in gross income under 
                paragraph (1) shall be reduced by the amount which 
                bears the same ratio to the amount which would be 
                includible in gross income under paragraph (1) (without 
                regard to this subparagraph) as such expenses bear to 
                such aggregate distributions.
                    ``(C) Election to waive exclusion.--A taxpayer may 
                elect to waive the application of this paragraph for 
                any taxable year.
                    ``(D) No double benefit.--No exclusion, credit, or 
                deduction shall be allowed to the taxpayer under this 
                chapter for any qualified higher education expenses 
                taken into account in determining the amount of the 
                exclusion under this paragraph.
            ``(3) Additional tax.--
                    ``(A) In general.--The tax imposed by this chapter 
                on the account holder for any taxable year in which 
                there is a distribution from a lifelong learning 
                account includible in gross income under paragraph (1) 
                shall be increased by 15 percent of the amount so 
                includible.
                    ``(B) Exceptions.--Subparagraph (A) shall not apply 
                if the distribution is made after the account holder 
                dies or becomes disabled (within the meaning of section 
                72(m)(7)).
            ``(4) Transfer of account incident to divorce.--The 
        transfer of an individual's interest in a lifelong learning 
        account to such individual's former spouse under a divorce 
        decree or under a written instrument incident to a divorce 
        shall not be considered a taxable transfer made by such 
        individual notwithstanding any other provision of this 
        subtitle, and such interest at the time of the transfer shall 
        be treated as a lifelong learning account of such spouse and 
        not of such individual. Thereafter such account shall be 
        treated, for purposes of this subtitle, as maintained for the 
        benefit of such spouse.
    ``(e) Tax Treatment of Accounts.--
            ``(1) Loss of exemption of account where individual engages 
        in prohibited transaction.--
                    ``(A) In general.--If, during any taxable year of 
                the individual for whose benefit the lifelong learning 
                account is established, the individual engages in any 
                transaction prohibited by section 4975 with respect to 
                the account, the account shall cease to be a lifelong 
                learning account as of the first day of that taxable 
                year.
                    ``(B) Account treated as distributing all its 
                assets.--In any case in which any account ceases to be 
                a lifelong learning account by reason of subparagraph 
                (A) on the first day of any taxable year, paragraph (1) 
                of subsection (d) shall be applied as if there were a 
                distribution on such first day in an amount equal to 
                the fair market value (on such first day) of all assets 
                in the account (on such first day).
            ``(2) Effect of pledging account as security.--If, during 
        any taxable year, an individual for whose benefit a lifelong 
        learning account is established uses the account or any portion 
        thereof as security for a loan, the portion so used shall be 
        treated as distributed to that individual.
            ``(3) Rollover contributions.--Subsection (d)(1) shall not 
        apply to any amount paid or distributed out of a lifelong 
        learning account to the individual for whose benefit the 
        account is maintained if such amount is paid into another 
        lifelong learning account for the benefit of such individual 
        not later than the 60th day after the day on which the 
        individual receives the payment or distribution.
    ``(f) Other Definitions.--For purposes of this section--
            ``(1) Eligible individual.--The term `eligible individual' 
        means an individual who--
                    ``(A) is an employee or a self-employed individual 
                (within the meaning of section 401(c)(1)(B)), and
                    ``(B) is a resident of a State designated by the 
                Secretary under subsection (i), on the date the 
                lifelong learning account is established for such 
                individual.
            ``(2) Qualified higher education expenses.--The term 
        `qualified higher education expenses' means--
                    ``(A) the expenses and courses of instruction 
                described in section 127(c)(1), and
                    ``(B) such expenses, including tools, equipment, 
                information technology devices, and training and 
                apprenticeship programs, as the Secretary shall 
                prescribe after consultation with the Secretary of 
                Labor.
    ``(g) Custodial Accounts.--For purposes of this section, a 
custodial account shall be treated as a trust if the assets of such 
account are held by a bank (as defined in section 408(n)) or another 
person who demonstrates, to the satisfaction of the Secretary, that the 
manner in which such person will administer the account will be 
consistent with the requirements of this section, and if the custodial 
account would, except for the fact that it is not a trust, constitute a 
lifelong learning account described in subsection (b). For purposes of 
this title, in the case of a custodial account treated as a trust by 
reason of the preceding sentence, the custodian of such account shall 
be treated as the trustee thereof.
    ``(h) Reports.--The trustee of a lifelong learning account shall 
make such reports regarding such account to the Secretary and to the 
individual for whose benefit the account is maintained with respect to 
contributions, distributions, and such other matters as the Secretary 
may require under regulations. The reports required by this subsection 
shall be filed at such time and in such manner and furnished to such 
individuals at such time and in such manner as may be required by those 
regulations.
    ``(i) Establishment of Demonstration Program.--From among States 
which apply (in such form and manner and at such time as the Secretary 
determines), the Secretary shall designate 10 States in which residents 
shall be treated as eligible individuals.
    ``(j) Limitation on Number of Taxpayers Having Lifelong Learning 
Accounts.--
            ``(1) In general.--No individual shall be treated as an 
        eligible individual for any taxable year beginning after the 
        cut-off year unless such individual was an eligible individual 
        for any taxable year ending on or before the close of the cut-
        off year.
            ``(2) Cut-off year.--For purposes of paragraph (1), the 
        term `cut-off year' means the first calendar year for which the 
        Secretary determines that the number of eligible individuals 
        for whom a lifelong learning account has been established 
        exceeds 200,000 by the close of such calendar year.
            ``(3) Reporting.--The Secretary shall establish such 
        reporting requirements for trustees of lifelong learning 
        accounts as are necessary to carry out this subsection.''.
    (b) Tax on Prohibited Transactions.--
            (1) Paragraph (1) of section 4975(e) of the Internal 
        Revenue Code of 1986 (relating to prohibited transactions) is 
        amended by redesignating subparagraphs (F) and (G) as 
        subparagraphs (G) and (H), respectively, and by inserting the 
        following new subparagraph after subparagraph (E):
                    ``(F) a lifelong learning account described in 
                section 529A(b),''.
            (2) Subsection (c) of section 4975 of such Code is amended 
        by adding at the end the following new paragraph:
            ``(7) Special rule for lifelong learning accounts.--An 
        individual for whose benefit a lifelong learning account is 
        established shall be exempt from the tax imposed by this 
        section with respect to any transaction concerning such account 
        (which would otherwise be taxable under this section) if, with 
        respect to such transaction, the account ceases to be a 
        lifelong learning account by reason of the application of 
        section 529A(e)(1)(A) to such account.''.
    (c) Failure to Provide Reports on Lifelong Learning Accounts.--
Paragraph (2) of section 6693(a) of the Internal Revenue Code of 1986 
is amended by striking ``and'' at the end of subparagraph (D), by 
redesignating subparagraph (E) as subparagraph (F), and by inserting 
after subparagraph (D) the following new subparagraph:
                    ``(E) section 529A(h) (relating to lifelong 
                learning accounts), and''.
    (d) Clerical Amendment.--The table of sections for part VIII of 
subchapter F of chapter 1 of the Internal Revenue Code of 1986 is 
amended by inserting after the item relating to section 529 the 
following new item:

``Sec. 529A. Lifelong learning accounts.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 3. NONREFUNDABLE PERSONAL CREDIT FOR CONTRIBUTIONS TO LIFELONG 
              LEARNING ACCOUNTS.

    (a) General Rule.--Subpart A of part IV of subchapter A of chapter 
1 of the Internal Revenue Code of 1986 (relating to nonrefundable 
personal credits) is amended by inserting after section 25D the 
following new section:

``SEC. 25E. CONTRIBUTIONS TO LIFELONG LEARNING ACCOUNTS.

    ``(a) General Rule.--In the case of an eligible individual, there 
shall be allowed as a credit against the tax imposed by this chapter 
for the taxable year an amount equal to the aggregate amount paid in 
cash for the taxable year by such individual to a lifelong learning 
account established for the benefit of such individual under section 
529A.
    ``(b) Limitations.--
            ``(1) In general.--The credit allowed under subsection (a) 
        with respect to any taxable year shall not exceed $500.
            ``(2) Limitation based on modified adjusted gross income.--
        The amount which would (but for this paragraph) be otherwise 
        allowable as a credit under subsection (a) for the taxable year 
        shall be reduced (but not below zero) by the amount which bears 
        the same ratio to the amount which would (but for this 
        paragraph) be otherwise allowable under subsection (a) as--
                    ``(A) the excess of--
                            ``(i) the taxpayer's modified adjusted 
                        gross income (as defined in section 530(c)(2)) 
                        for the taxable year, over
                            ``(ii) $55,000 ($75,000 in the case of a 
                        joint return), bears to
                    ``(B) $10,000 ($13,636 in the case of a joint 
                return).
    ``(c) Eligible Individual.--The term `eligible individual' has the 
meaning given such term by section 529A(f)(1).''.
    (b) Conforming Amendment.--The table of sections for subpart A of 
part IV of subchapter A of chapter 1 of the Internal Revenue Code of 
1986 is amended by inserting after the item relating to section 25D the 
following new item:

``Sec. 25E. Contributions to lifelong learning accounts.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 4. TAX TREATMENT OF CONTRIBUTIONS BY EMPLOYERS TO LIFELONG 
              LEARNING ACCOUNTS OF THEIR EMPLOYEES.

    (a) Allowance of Credit to Employers.--
            (1) In general.--Subpart D of part IV of subchapter A of 
        chapter 1 of the Internal Revenue Code of 1986 (relating to 
        business related credits) is amended by adding at the end the 
        following new section:

``SEC. 45O. CONTRIBUTIONS BY EMPLOYERS TO LIFELONG LEARNING ACCOUNTS.

    ``(a) In General.--For purposes of section 38, in the case of an 
employer, the lifelong learning contribution credit determined under 
this section for any taxable year is an amount equal to the aggregate 
qualified lifelong learning contributions of the employer for the 
taxable year.
    ``(b) Qualified Lifelong Learning Contribution.--For purposes of 
this section--
            ``(1) In general.--The term `qualified lifelong learning 
        contribution' means a contribution made by an employer--
                    ``(A) on behalf of an employee of such employer to 
                a lifelong learning account established on behalf of 
                such employee, and
                    ``(B) under a program which meets the requirements 
                of paragraphs (2) through (6) of section 127(b).
            ``(2) Dollar limitation.--The aggregate contributions made 
        by an employer on behalf of any employee which may be treated 
        as qualified lifelong learning contributions for any calendar 
        year shall not exceed the lesser of--
                    ``(A) the contributions made by the employee to the 
                employee's lifelong learning account during the 
                calendar year, or
                    ``(B) $500.
    ``(c) Coordination With Account Limitation.--Nothing in this 
paragraph shall be treated as allowing a contribution in excess of the 
limitation on contributions to a lifelong learning account under 
section 25E(b)(1).
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Definitions.--Any term used in this section which is 
        also used in section 529A shall have the same meaning as when 
        used in such section.
            ``(2) Special rules.--Rules similar to the rules of section 
        45E(e) shall apply for purposes of this section.''.
            (2) Credit part of general business credit.--Section 38(b) 
        of such Code is amended by striking ``and'' at the end of 
        paragraph (30), by striking the period at the end of paragraph 
        (31) and inserting ``, plus'', and by adding at the end the 
        following new paragraph:
            ``(32) the lifelong learning contribution credit determined 
        under section 45O.''.
            (3) Conforming amendments.--
                    (A) Deduction for unused credit.--Section 196(c) of 
                such Code is amended by striking ``and'' at the end of 
                paragraph (12), by striking the period at the end of 
                paragraph (13) and inserting ``, and'', and by adding 
                at the end the following new paragraph:
            ``(14) the employer lifelong learning contribution credit 
        determined under section 45O(a).''.
                    (B) Clerical amendment.--The table of sections for 
                subpart D of part IV of subchapter A of chapter 1 of 
                such Code is amended by adding at the end the following 
                new item:

``Sec. 45O. Contributions by employers to lifelong learning 
                            accounts.''.
    (b) Employer Contributions Excluded From Income.--Section 127 of 
the Internal Revenue Code of 1986 (relating to educational assistance) 
is amended by redesignating subsection (d) as subsection (e) and by 
inserting after subsection (c) the following new subsection:
    ``(d) Employer Contributions to Lifelong Learning Account.--
            ``(1) In general.--Gross income of an employee of an 
        employer shall not include the amount of any contribution by 
        the employer to a lifelong learning account established on 
        behalf of the employee.
            ``(2) Definitions.--Any term used in this section which is 
        also used in section 529A shall have the same meaning as when 
        used in such section.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 5. STUDY ON EFFECTIVENESS OF LIFELONG LEARNING ACCOUNTS 
              DEMONSTRATION PROGRAM.

    (a) In General.--The Secretary of the Treasury in collaboration 
with the Secretaries of Labor and Education shall conduct a study on 
lifelong learning accounts established under section 529A of the 
Internal Revenue Code of 1986 and the credits established under 
sections 25E and 45O of such Code. Such study shall examine the 
effectiveness of the accounts in increasing funding for career-related 
education and the extent to which the tax benefits under such sections 
are provided to low-income individuals.
    (b) Report.--Not later than January 1, 2009, the Secretary of the 
Treasury shall submit to Congress a report on the study conducted under 
subsection (a).
                                 <all>