H.R. 1694 (105th): Higher Education Savings Credit Act of 1997

105th Congress, 1997–1998. Text as of May 21, 1997 (Introduced).

Status & Summary | PDF | Source: GPO

HR 1694 IH

105th CONGRESS

1st Session

H. R. 1694

To amend the Internal Revenue Code of 1986 to allow individuals a credit against income tax for certain amounts contributed to an education investment account.

IN THE HOUSE OF REPRESENTATIVES

May 21, 1997

Mrs. JOHNSON of Connecticut 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 individuals a credit against income tax for certain amounts contributed to an education investment account.

    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.

    (a) SHORT TITLE- This Act may be cited as the ‘Higher Education Savings Credit Act of 1997’.

    (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. CREDIT FOR CONTRIBUTIONS TO EDUCATION INVESTMENT ACCOUNTS.

    (a) IN GENERAL- Subpart A of part IV of subchapter A of chapter 1 (relating to nonrefundable personal credits) is amended by inserting after section 23 the following new section:

‘SEC. 24. CONTRIBUTIONS TO EDUCATION INVESTMENT ACCOUNTS.

    ‘(a) ALLOWANCE OF CREDIT-

      ‘(1) IN GENERAL- In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the applicable percentage of the contributions made by the taxpayer for the taxable year to an education investment account of an account holder who is an individual with respect to whom the taxpayer is allowed a deduction under section 151(c) for such taxable year.

      ‘(2) APPLICABLE PERCENTAGE- For purposes of paragraph (1), the applicable percentage is the percentage determined in accordance with the following table with respect to the age of the account holder as of the close of the taxable year:

‘If the account

--The applicable

holder’s age is:

--percentage is:

Not over 6

--50

Over 6 but not over 9

--40

Over 9 but not over 12

--30

Over 12 but not over 15

--20

Over 15 but not over 18

--10

    ‘(b) LIMITATION ON AMOUNT OF CONTRIBUTIONS TAKEN INTO ACCOUNT IN DETERMINING CREDIT- The amount of contributions which may be taken into account under subsection (a) with respect to each account holder shall not exceed $500.

    ‘(c) DEFINITIONS AND SPECIAL RULES- For purposes of this section--

      ‘(1) EDUCATION INVESTMENT ACCOUNT- The term ‘education investment account’ means a trust created or organized in the United States exclusively for the purpose of paying the qualified higher education expenses of the account holder, but only if the written governing instrument creating the trust meets the following requirements:

        ‘(A) No contribution will be accepted--

          ‘(i) unless it is in cash,

          ‘(ii) except in the case of rollover contributions from another education investment account, in excess of $1,500 for any calendar year, and

          ‘(iii) after the date on which the account holder attains age 18.

        ‘(B) The trustee is a bank (as defined in section 408(n)) 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.

        ‘(C) No part of the trust assets will be invested in life insurance contracts.

        ‘(D) The assets of the trust shall not be commingled with other property except in a common trust fund or common investment fund.

        ‘(E) Any balance in the education investment account on the day after the date on which the account holder attains age 30 (or, if earlier, the date on which such holder dies) shall be distributed within 30 days of such date to the account holder (or in the case of death, the beneficiary).

      ‘(2) QUALIFIED HIGHER EDUCATION EXPENSES-

        ‘(A) IN GENERAL- The term ‘qualified higher education expenses’ means the cost of attendance (within the meaning of 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 Higher Education Access and Affordability Act of 1997) of the account holder at an eligible educational institution, except that such expenses shall be reduced by--

          ‘(i) the amount excluded from gross income under section 135 by reason of such expenses, and

          ‘(ii) the amount of the reduction described in section 135(d)(1) (other than subparagraph (E)).

        ‘(B) STATE TUITION PLANS- Such term shall include amounts paid or incurred to purchase tuition credits or certificates, or to make contributions to an account, under a qualified State tuition program (as defined in section 529(b)).

      ‘(3) ELIGIBLE EDUCATIONAL INSTITUTION- The term ‘eligible educational institution’ has the meaning given such term by section 135(c)(3).

      ‘(4) ACCOUNT HOLDER- The term ‘account holder’ means the individual for whose benefit the education investment account is established.

      ‘(5) TIME WHEN CONTRIBUTIONS DEEMED MADE- A taxpayer shall be deemed to have made a contribution 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).

      ‘(6) ACCOUNT MAY NOT BE ESTABLISHED FOR BENEFIT OF MORE THAN 1 INDIVIDUAL- An education investment account may not be established for the benefit of more than 1 individual.

      ‘(7) SPECIAL RULE WHERE MORE THAN 1 ACCOUNT- If, at any time during a calendar year, 2 or more education investment accounts are maintained for the benefit of an individual, only the account first established shall be treated as an education investment account for purposes of this section. This paragraph shall not apply to the extent more than 1 account exists solely by reason of a rollover contribution.

    ‘(d) TAX TREATMENT OF ACCOUNT-

      ‘(1) IN GENERAL- An education investment account shall be exempt from taxation under this subtitle. Notwithstanding the preceding sentence, the education investment account shall be subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable organizations).

      ‘(2) SPECIAL RULES- Rules similar to the rules of paragraphs (2) and (4) of section 408(e) shall apply to any education investment account, and any amount treated as distributed under such rules shall be treated as not used to pay qualified higher education expenses.

    ‘(e) TAX TREATMENT OF DISTRIBUTIONS-

      ‘(1) IN GENERAL- Except as otherwise provided in this subsection, any amount paid or distributed out of an education investment account shall be included in gross income of the payee or distributee for the taxable year in the manner prescribed by section 72. For purposes of the preceding sentence, rules similar to the rules of section 408(d)(2) shall apply.

      ‘(2) DISTRIBUTION USED TO PAY EDUCATIONAL EXPENSES- Paragraph (1) shall not apply to any payment or distribution out of an education investment account to the extent such payment or distribution is used exclusively to pay the qualified higher education expenses of the account holder.

      ‘(3) SPECIAL RULE FOR APPLYING SECTION 2503- If any payment or distribution from an education investment account is used exclusively for the payment to an eligible educational institution of the qualified higher education expenses of the account holder, such payment shall be treated as a qualified transfer for purposes of section 2503(e).

      ‘(4) ADDITIONAL TAX AND CREDIT RECAPTURE FOR DISTRIBUTIONS NOT USED FOR EDUCATIONAL EXPENSES-

        ‘(A) IN GENERAL-

          ‘(i) ADDITIONAL TAX- The tax imposed by this chapter for any taxable year on any taxpayer who receives a payment or distribution from an education investment account which is includible in gross income under paragraph (1) shall be increased by 10 percent of the amount which is so includible.

          ‘(ii) CREDIT RECAPTURE- If any payment or distribution out of an education investment account is not used exclusively to pay the qualified higher education expenses of the account holder, the account holder’s tax imposed by this chapter for the taxable year in which such payment or distribution is made shall be increased by the lesser of the amount of the payment or distribution or the excess (if any) of--

            ‘(I) the aggregate credit allowed under this section for contributions to such account, over

            ‘(II) the aggregate increase in tax under this clause for all prior taxable years with respect to payments and distributions out of such account.

        ‘(B) EXCEPTION FOR DISABILITY, DEATH, OR SCHOLARSHIP- Subparagraph (A) shall not apply if the payment or distribution is--

          ‘(i) made on account of the death or disability of the account holder, or

          ‘(ii) made on account of a scholarship (or allowance or payment described in section 135(d)(1) (B) or (C)) received by the account holder to the extent the amount of the payment or distribution does not exceed the amount of the scholarship, allowance, or payment.

        ‘(C) EXCESS CONTRIBUTIONS RETURNED BEFORE DUE DATE OF RETURN- Subparagraph (A) shall not apply to the distribution to a contributor of any contribution paid during a taxable year to an education investment account to the extent that such contribution, when added to previous contributions to the account during the taxable year, exceeds $1,500 if--

          ‘(i) such distribution is received on or before the day prescribed by law (including extensions of time) for filing such contributor’s return for such taxable year, and

          ‘(ii) such distribution is accompanied by the amount of net income attributable to such excess contribution.

        Any net income described in clause (ii) shall be included in the gross income of the contributor for the taxable year in which such excess contribution was made.

      ‘(5) ROLLOVER CONTRIBUTIONS- Paragraph (1) shall not apply to any amount paid or distributed from an education investment account to the extent that the amount received is paid into another education investment account for the benefit of the account holder not later than the 60th day after the day on which the holder receives the payment or distribution. The preceding sentence shall not apply to any payment or distribution if it applied to any prior payment or distribution during the 12-month period ending on the date of the payment or distribution.

      ‘(6) SPECIAL RULES FOR DEATH AND DIVORCE- Rules similar to the rules of section 220(f) (7) and (8) shall apply.

    ‘(f) COMMUNITY PROPERTY LAWS- This section shall be applied without regard to any community property laws.

    ‘(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 he 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 an account described in subsection (b)(1). 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 an education investment account shall make such reports regarding such account to the Secretary and to the account holder 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.’

    (b) TAX ON PROHIBITED TRANSACTIONS- Section 4975 (relating to prohibited transactions) is amended--

      (1) by adding at the end of subsection (c) the following new paragraph:

      ‘(5) SPECIAL RULE FOR EDUCATION INVESTMENT ACCOUNTS- An individual for whose benefit an education investment account is established and any contributor to such account 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 an education investment account by reason of the application of section 24 to such account.’; and

      (2) in subsection (e)(1), by striking ‘or’ at the end of subparagraph (D), by redesignating subparagraph (E) as subparagraph (F), and by inserting after subparagraph (D) the following new subparagraph:

        ‘(E) a education investment account described in section 24(c), or’.

    (c) FAILURE TO PROVIDE REPORTS ON EDUCATION INVESTMENT ACCOUNTS- Section 6693 (relating to failure to provide reports on individual retirement accounts or annuities) is amended--

      (1) by striking ‘individual retirement’ and inserting ‘certain tax-favored’ in the heading of such section, and

      (2) in subsection (a)(2), by striking ‘and’ at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ‘, and’, and by adding at the end the following new subparagraph:

        ‘(C) section 24(h) (relating to education investment accounts).’

    (d) COORDINATION WITH SAVINGS BOND EXCLUSION- Section 135(d)(1) is amended by striking ‘or’ at the end of subparagraph (C), by striking the period at the end of subparagraph (D) and inserting ‘, or’ , and by adding at the end the following new subparagraph:

        ‘(E) a payment or distribution from an education investment account (as defined in section 24(c)).’

    (e) CLERICAL AMENDMENTS-

      (1) The table of sections for subpart A of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 23 the following new item:

‘Sec. 24. Contributions to education investment accounts.’

      (2) The item relating to section 6693 in the table of sections for subchapter B of chapter 68 is amended by striking ‘individual retirement’ and inserting ‘certain tax-favored’.

    (f) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 1997.