[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.
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