H.R. 1308 (107th): Education Savings and School Excellence Act of 2001

107th Congress, 2001–2002. Text as of Mar 29, 2001 (Introduced).

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HR 1308 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.