< Back to H.R. 82 (105th Congress, 1997–1998)

Text of the Family Affordable College Tuition Act of 1997

This bill was introduced on January 7, 1997, in a previous session of Congress, but was not enacted. The text of the bill below is as of Jan 7, 1997 (Introduced).

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HR 82 IH

105th CONGRESS

1st Session

H. R. 82

To amend the Internal Revenue Code of 1986 to make higher education more affordable by providing tax benefits to individuals who save for, or pay for, higher education.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 7, 1997

Mr. SCHUMER (for himself and Ms. SLAUGHTER) 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 make higher education more affordable by providing tax benefits to individuals who save for, or pay for, higher education.

    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 ‘Family Affordable College Tuition Act of 1997’.

SEC. 2. DEDUCTION FOR HIGHER EDUCATION EXPENSES.

    (a) DEDUCTION ALLOWED- Part VII of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to additional itemized deductions for individuals) is amended by redesignating section 221 as section 222 and by inserting after section 220 the following new section:

‘SEC. 221. HIGHER EDUCATION EXPENSES.

    ‘(a) ALLOWANCE OF DEDUCTION- In the case of an individual, there shall be allowed as a deduction an amount equal to--

      ‘(1) the qualified higher education expenses, and

      ‘(2) interest on qualified higher education loans,

    paid by the taxpayer during the taxable year.

    ‘(b) LIMITATION BASED ON MODIFIED ADJUSTED GROSS INCOME-

      ‘(1) IN GENERAL- The amount which would (but for this subsection) be taken into account under subsection (a) shall be reduced (but not below zero) by the amount determined under paragraph (2).

      ‘(2) AMOUNT OF REDUCTION- The amount determined under this paragraph equals 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) $140,000 ($200,000 in the case of a joint return), bears to

        ‘(B) $20,000.

      ‘(3) MODIFIED ADJUSTED GROSS INCOME- For purposes of this subsection, the term ‘modified adjusted gross income’ means the adjusted gross income of the taxpayer for the taxable year determined--

        ‘(A) without regard to this section and sections 911, 931, and 933, and

        ‘(B) after the application of sections 86, 135, 219, 220, and 469.

      For purposes of the sections referred to in subparagraph (B), adjusted gross income shall be determined without regard to the deduction allowed under this section.

      ‘(4) INFLATION ADJUSTMENTS-

        ‘(A) IN GENERAL- In the case of a taxable year beginning after 1999, the $140,000 and $200,000 amounts described in paragraph (2) shall each be increased by an amount equal to--

          ‘(i) such dollar amounts, multiplied by

          ‘(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting ‘calendar year 1998’ for ‘calendar year 1992’ in subparagraph (B) thereof.

        ‘(B) ROUNDING- If any amount as adjusted under subparagraph (A) is not a multiple of $5,000, such amount shall be rounded to the next lowest multiple of $5,000.

    ‘(c) QUALIFIED HIGHER EDUCATION EXPENSES- For purposes of this section--

      ‘(1) QUALIFIED HIGHER EDUCATION EXPENSES-

        ‘(A) IN GENERAL- The term ‘qualified higher education expenses’ means--

          ‘(i) tuition and fees charged by an educational institution and required for the enrollment or attendance of--

            ‘(I) the taxpayer,

            ‘(II) the taxpayer’s spouse,

            ‘(III) any dependent of the taxpayer with respect to whom the taxpayer is allowed a deduction under section 151, or

            ‘(IV) any grandchild of the taxpayer,

          as an eligible student at an institution of higher education, and

          ‘(ii) reasonable living expenses for such an individual while away from home and attending such institution.

        ‘(B) ELIGIBLE COURSES- Amounts paid for qualified higher education expenses of any individual shall be taken into account under subsection (a) only to the extent such expenses--

          ‘(i) are attributable to courses of instruction for which credit is allowed toward a baccalaureate degree by an institution of higher education or toward a certificate of required course work at a vocational school, and

          ‘(ii) are not attributable to any graduate program of such individual.

        ‘(C) EXCEPTION FOR NONACADEMIC FEES- Such term does not include any student activity fees, athletic fees, insurance expenses, or other expenses unrelated to a student’s academic course of instruction.

        ‘(D) ELIGIBLE STUDENT- For purposes of subparagraph (A), the term ‘eligible student’ means a student who--

          ‘(i) meets the requirements of section 484(a)(1) of the Higher Education Act of 1965 (20 U.S.C. 1091(a)(1)), as in effect on the date of the enactment of this section, and

          ‘(ii) is carrying at least one-half the normal full-time work load for the course of study the student is pursuing, as determined by the institution of higher education.

        ‘(E) IDENTIFICATION REQUIREMENT- No deduction shall be allowed under subsection (a) to a taxpayer with respect to an eligible student unless the taxpayer includes the name, age, and taxpayer identification number of such eligible student on the return of tax for the taxable year.

      ‘(2) INSTITUTION OF HIGHER EDUCATION- The term ‘institution of higher education’ means an institution which--

        ‘(A) is described 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 section, and

        ‘(B) is eligible to participate in programs under title IV of such Act.

    ‘(d) QUALIFIED HIGHER EDUCATION LOAN- For purposes of this section--

      ‘(1) IN GENERAL- The term ‘qualified higher education loan’ means a loan which is--

        ‘(A) made, insured, or guaranteed by the Federal Government,

        ‘(B) made by a State or a political subdivision of a State,

        ‘(C) made from the proceeds of a qualified student loan bond under section 144(b), or

        ‘(D) made by an institution of higher education (as defined in section 1201(a) of the Higher Education Act of 1965 (20 U.S.C. 1141(a))).

      ‘(2) LIMITATION- The amount of interest on a qualified higher education loan which is taken into account under subsection (a)(2) shall not exceed the amount which bears the same ratio to such amount of interest as--

        ‘(A) the proceeds from such loan used for qualified higher education expenses, bears to

        ‘(B) the total proceeds from such loan.

      For purposes of the preceding sentence, the term ‘qualified higher education expenses’ shall be determined without regard to subsection (c)(1)(A)(i)(IV).

    ‘(e) SPECIAL RULES-

      ‘(1) NO DOUBLE BENEFIT-

        ‘(A) IN GENERAL- No deduction shall be allowed under subsection (a) for any expense for which a deduction is allowable to the taxpayer under any other provision of this chapter unless the taxpayer irrevocably waives his right to the deduction of such expense under such other provision.

        ‘(B) DEPENDENTS- No deduction shall be allowed under subsection (a) to any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins.

        ‘(C) SAVINGS BOND EXCLUSION- A deduction shall be allowed under subsection (a) for qualified higher education expenses only to the extent the amount of such expenses exceeds the amount excludable under section 135 for the taxable year.

      ‘(2) LIMITATION ON TAXABLE YEAR OF DEDUCTION-

        ‘(A) IN GENERAL- A deduction shall be allowed under subsection (a) for qualified higher education expenses for any taxable year only to the extent such expenses are in connection with enrollment at an institution of higher education during the taxable year.

        ‘(B) CERTAIN PREPAYMENTS ALLOWED- Subparagraph (A) shall not apply to qualified higher education expenses paid during a taxable year if such expenses are in connection with an academic term beginning during such taxable year or during the first 3 months of the next taxable year.

      ‘(3) ADJUSTMENT FOR CERTAIN SCHOLARSHIPS AND VETERANS BENEFITS- The amount of qualified higher education expenses otherwise taken into account under subsection (a) or (d)(2) with respect to the education of an individual shall be reduced (before the application of subsection (b)) by the sum of the amounts received with respect to such individual for the taxable year as--

        ‘(A) a qualified scholarship which under section 117 is not includable in gross income,

        ‘(B) an educational assistance allowance under chapter 30, 31, 32, 34, or 35 of title 38, United States Code, or

        ‘(C) a payment (other than a gift, bequest, devise, or inheritance within the meaning of section 102(a)) for educational expenses, or attributable to enrollment at an eligible educational institution, which is exempt from income taxation by any law of the United States.

      ‘(4) NO DEDUCTION FOR MARRIED INDIVIDUALS FILING SEPARATE RETURNS- If the taxpayer is a married individual (within the meaning of section 7703), this section shall apply only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year.

      ‘(5) NONRESIDENT ALIENS- If the taxpayer is a nonresident alien individual for any portion of the taxable year, this section shall apply only if such individual is treated as a resident alien of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013.

      ‘(6) REGULATIONS- The Secretary may prescribe such regulations as may be necessary or appropriate to carry out this section, including regulations requiring recordkeeping and information reporting.’

    (b) DEDUCTION ALLOWED IN COMPUTING ADJUSTED GROSS INCOME- Section 62(a) of such Code is amended by inserting after paragraph (16) the following new paragraph:

      ‘(17) HIGHER EDUCATION EXPENSES- The deduction allowed by section 221.’

    (c) CONFORMING AMENDMENT- The table of sections for part VII of subchapter B of chapter 1 of such Code is amended by striking the item relating to section 221 and inserting:

‘Sec. 221. Higher education expenses.

‘Sec. 222. Cross reference.’

    (d) EFFECTIVE DATE- The amendments made by this section shall apply to payments made after December 31, 1996.

SEC. 3. EDUCATION SAVINGS PLANS.

    (a) IN GENERAL- Part VII of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to additional itemized deductions for individuals) is amended by redesignating section 222 as section 223 and by inserting after section 221 the following new section:

‘SEC. 222. EDUCATION SAVINGS PLANS.

    ‘(a) DEDUCTION ALLOWED- In the case of an individual, there shall be allowed as a deduction the amount paid in cash during the taxable year by such individual to an education savings plan established for the purpose of accumulating funds to pay the qualified higher education expenses of individual who is an eligible individual with respect to the taxpayer.

    ‘(b) LIMITATIONS-

      ‘(1) IN GENERAL- The amount allowable as a deduction under subsection (a) to the taxpayer for any taxable year with respect to amounts paid to the education savings plan of each eligible individual shall not exceed $4,000.

      ‘(2) LIMITATION BASED ON MODIFIED ADJUSTED GROSS INCOME- The $4,000 amount in paragraph (1) shall be reduced (but not below zero) by the amount which bears the same ratio to $4,000 as--

        ‘(A) the excess of--

          ‘(i) the taxpayer’s modified adjusted gross income for such taxable year, over

          ‘(ii) the dollar amount applicable to the taxpayer for such taxable year under section 221(b)(2)(A)(ii), bears to

        ‘(B) $20,000.

      ‘(3) MODIFIED ADJUSTED GROSS INCOME- For purposes of this subsection, the term ‘modified adjusted gross income’ means the adjusted gross income of the taxpayer for the taxable year determined--

        ‘(A) without regard to this section and sections 911, 931, and 933, and

        ‘(B) after the application of sections 86, 135, 219, 220, 221, and 469.

      For purposes of the sections referred to in subparagraph (B), adjusted gross income shall be determined without regard to the deduction allowed under this section.

      ‘(3) PLAN MAY NOT BE ESTABLISHED FOR BENEFIT OF MORE THAN 1 INDIVIDUAL- An education savings plan may not be established for the benefit of more than 1 individual.

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

      ‘(1) ELIGIBLE INDIVIDUAL- The term ‘eligible individual’ means an individual who is--

        ‘(A) the taxpayer,

        ‘(B) the taxpayer’s spouse,

        ‘(C) any dependent of the taxpayer with respect to whom the taxpayer is allowed a deduction under section 151, or

        ‘(D) any grandchild of the taxpayer.

      ‘(2) EDUCATION SAVINGS PLAN- The term ‘education savings plan’ means a trust created or organized in the United States exclusively for the purpose of paying the qualified higher education expenses of an eligible individual, but only if the written governing instrument creating the trust meets the following requirements:

        ‘(A) No contribution will be accepted unless it is in cash, and contributions will not be accepted for any taxable year in excess of $4,000.

        ‘(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.

      ‘(3) 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 (including extensions thereof).

      ‘(4) QUALIFIED HIGHER EDUCATION EXPENSES- The term ‘qualified higher education expenses’ has the meaning given such term by section 221(c).

      ‘(5) INSTITUTION OF HIGHER EDUCATION- The term ‘institution of higher education’ has the meaning given such term by section 221(c).

    ‘(d) TAX TREATMENT OF DISTRIBUTIONS-

      ‘(1) IN GENERAL- Except as otherwise provided in this subsection, any amount paid or distributed out of an education savings plan shall be included in gross income of the payee or distributee for the taxable year in which the payment or distribution is received to the extent such amount is not the return of a contribution for which no deduction was allowed under subsection (a).

      ‘(2) DISTRIBUTION USED TO PAY QUALIFIED HIGHER EDUCATION EXPENSES- Paragraph (1) shall not apply to any payment or distribution out of an education savings plan to the extent such payment or distribution is used exclusively to pay the qualified higher education expenses incurred by the individual for whose benefit the plan is established while such individual is an eligible student (as defined in section 221).

      ‘(3) DISTRIBUTIONS TO ANOTHER PLAN OR TO INSTITUTION OF HIGHER EDUCATION- Paragraph (1) shall not apply to any distribution under subsection (c)(2)(E)(ii).

      ‘(4) EXCESS CONTRIBUTIONS RETURNED BEFORE DUE DATE OF RETURN- Paragraph (1) does not apply to the distribution of any contribution paid during a taxable year to an education savings plan to the extent that such contribution exceeds the amount allowable as a deduction under subsection (a) for contributions to such plan if--

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

        ‘(B) no deduction is allowed under subsection (a) with respect to such excess contribution, and

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

      Any net income described in subparagraph (C) shall be included in the gross income of the individual for the taxable year in which such excess contribution was made.

    ‘(e) TAX TREATMENT OF PLANS-

      ‘(1) EXEMPTION FROM TAX- An education savings plan is exempt from taxation under this subtitle unless such plan has ceased to be an education savings plan by reason of paragraph (3). Notwithstanding the preceding sentence, any such plan is subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable, etc. organizations).

      ‘(2) AMOUNT IN PLAN NOT TO AFFECT ELIGIBILITY FOR OTHER FEDERAL ASSISTANCE- Amounts held in any education savings plan shall not be taken into account in determining the eligibility for, or the amount of, any grant under any Federal student assistance program.

      ‘(3) LOSS OF EXEMPTION OF PLAN WHERE INDIVIDUAL ENGAGES IN PROHIBITED TRANSACTION-

        ‘(A) IN GENERAL- If the individual for whose benefit an education savings plan is established or any individual who contributes to such plan engages in any transaction prohibited by section 4975 with respect to the plan, the plan shall cease to be an education savings plan as of the first day of the taxable year (of the individual so engaging in such transaction) during which such transaction occurs.

        ‘(B) PLAN TREATED AS DISTRIBUTING ALL ITS ASSETS- In any case in which any plan ceases to be an education savings plan by reason of subparagraph (A) as of the first day of any taxable year, paragraph (1) of subsection (d) shall apply as if there was a distribution on such first day in an amount equal to the fair market value (on such first day) of all assets in the plan (on such first day).

      ‘(4) EFFECT OF PLEDGING PLAN AS SECURITY- If, during any taxable year, the individual for whose benefit an education savings plan is established, or any individual who contributes to such plan, uses the plan or any portion thereof as security for a loan, the portion so used shall be treated as distributed to the individual so using such portion.

    ‘(f) ADDITIONAL TAX ON CERTAIN AMOUNTS INCLUDED IN GROSS INCOME-

      ‘(1) DISTRIBUTION NOT USED FOR QUALIFIED HIGHER EDUCATION EXPENSES- In the case of any payment or distribution to which subsection (d)(1) applies, the tax liability of each payee or distributee under this chapter for the taxable year in which the payment or distribution is received shall be increased by an amount equal to 10 percent of the amount of the distribution which is includible in the gross income of such payee or distributee for such taxable year.

      ‘(2) DISQUALIFICATION CASES- If an amount is includible in the gross income of an individual for a taxable year because such amount is required to be treated as a distribution under paragraph (2) or (3) of subsection (e), such individual’s tax liability under this chapter for such taxable year shall be increased by an amount equal to 10 percent of such amount required to be treated as a distribution and included in his gross income.

      ‘(3) DISABILITY OR DEATH CASES- Paragraphs (1) and (2) shall not apply if the payment or distribution is made after the individual for whose benefit the education savings plan becomes disabled within the meaning of section 72(m)(7) or dies.

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

    ‘(h) CUSTODIAL PLANS- For purposes of this section, a custodial plan shall be treated as a trust if the assets of such plan 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 plan will be consistent with the requirements of this section, and if the custodial plan would, except for the fact that it is not a trust, constitute an education savings plan described in subsection (c)(2). For purposes of this title, in the case of a custodial plan treated as a trust by reason of the preceding sentence, the custodian of such plan shall be treated as the trustee thereof.

    ‘(i) REPORTS- The trustee of an education savings plan shall make such reports regarding such plan to the Secretary and to the individual for whose benefit the plan 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.’

    (b) DEDUCTION ALLOWED IN ARRIVING AT ADJUSTED GROSS INCOME- Paragraph (7) of section 62(a) of such Code (relating to retirement savings) is amended--

      (1) by inserting ‘OR EDUCATION’ after ‘RETIREMENT’ in the heading of such paragraph, and

      (2) by inserting before the period at the end the following: ‘and the deduction allowed by section 222 (relating to education savings plans)’.

    (c) TAX ON EXCESS CONTRIBUTIONS- Section 4973 of such Code (relating to tax on excess contributions to individual retirement plans, certain section 403(b) contracts, and certain individual retirement annuities) is amended--

      (1) by inserting ‘EDUCATION SAVINGS PLANS,’ after ‘MEDICAL SAVINGS ACCOUNTS,’ in the heading of such section,

      (2) by striking ‘or’ at the end of paragraph (2) of subsection (a),

      (3) by redesignating paragraph (3) of subsection (a) as paragraph (4) and by inserting after paragraph (2) the following new paragraph:

      ‘(3) an education savings plan (within the meaning of section 222(c)(2)), or’, and

      (4) by adding at the end the following new subsection:

    ‘(e) EXCESS CONTRIBUTIONS TO EDUCATION SAVINGS PLANS- For purposes of this section, in the case of an education savings plan, the term ‘excess contributions’ means the amount by which the amount contributed for the taxable year to the plan exceeds the amount allowable as a deduction under section 222 for such taxable year. For purposes of this subsection, any contribution which is distributed out of the education savings plan in a distribution to which section 222(d)(4) applies shall be treated as an amount not contributed.’

    (d) CONTRIBUTION NOT SUBJECT TO GIFT TAX- Section 2503 of such Code (relating to taxable gifts) is amended by adding at the end the following new subsection:

    ‘(h) EDUCATION SAVINGS PLANS- Any contribution made by an individual to an education savings plan described in section 222(c)(2) which is allowable as a deduction under section 222 shall not be treated as a transfer of property by gift for purposes of this chapter.’

    (e) TAX ON PROHIBITED TRANSACTIONS-

      (1) Section 4975 of such Code (relating to prohibited transactions) is amended by adding at the end of subsection (c) the following new paragraph:

      ‘(5) SPECIAL RULE FOR EDUCATION SAVINGS PLANS- An individual for whose benefit an education savings plan is established and any contributor to such plan shall be exempt from the tax imposed by this section with respect to any transaction concerning such plan (which would otherwise be taxable under this section) if, with respect to such transaction, the plan ceases to be an education savings plan by reason of the application of section 222(e)(2)(A) to such plan.’

      (2) Paragraph (1) of section 4975(e) is amended 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) an education savings plan described in section 222(c)(2), or’.

    (f) FAILURE TO PROVIDE REPORTS ON EDUCATION SAVINGS PLANS-

      (1) Paragraph (2) of section 6693(a) of such Code (relating to failure to provide reports on individual retirement plans or annuities) is amended 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 222(i) (relating to education savings plans).’

      (2) The section heading for section 6693 of such Code is amended by inserting ‘or on education savings plans’ after ‘annuities’.

    (g) SPECIAL RULE FOR DETERMINING AMOUNTS OF SUPPORT FOR DEPENDENT- Subsection (b) of section 152 of such Code (relating to definition of dependent) is amended by adding at the end the following new paragraph:

      ‘(6) A distribution from an education savings plan described in section 222(c)(2) to the individual for whose benefit such plan has been established shall not be taken into plan in determining support for purposes of this section to the extent such distribution is excluded from gross income of such individual under section 222(d)(2).’

    (h) CLERICAL AMENDMENTS-

      (1) The table of sections for part VII of subchapter B of chapter 1 of such Code is amended by striking the item relating to section 222 and inserting the following new items:

‘Sec. 222. Education savings plans.

‘Sec. 223. Cross references.’

      (2) The table of sections for chapter 43 of such Code is amended by striking the item relating to section 4973 and inserting the following new item:

‘Sec. 4973. Tax on excess contributions to individual retirement accounts, medical savings accounts, education savings plans, certain 403(b) contracts, and certain individual retirement annuities.’

      (3) The table of sections for subchapter B of chapter 68 of such Code is amended by striking the item relating to section 6693 and inserting the following new item:

‘Sec. 6693. Failure to provide reports on individual retirement accounts or annuities or on education savings plans.’

    (i) EFFECTIVE DATE- The amendments made by this section shall apply to contributions made in taxable years beginning after December 31, 1996.