Amends the Internal Revenue Code to exempt from taxation a qualified State tuition program. Defines such a program.
[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3842 Introduced in House (IH)]
104th CONGRESS
2d Session
H. R. 3842
To amend the Internal Revenue Code of 1986 to provide an exemption from
income taxation for qualified State tuition programs.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
July 17, 1996
Mrs. Thurman (for herself, Mr. Bilirakis, Ms. Brown of Florida, Mr.
Canady of Florida, Mr. Deutsch, Mr. Diaz-Balart, Mr. Gibbons, Mr.
Foley, Mr. Hastings of Florida, Mrs. Meek of Florida, Mr. Miller of
Florida, Mr. Peterson of Florida, Mr. Scarborough, Mr. Shaw, Mr. Mica,
Mr. McCollum, Mr. Stearns, Ms. Ros-Lehtinen, Mr. Bachus, Mr. Bevill,
Mr. Bonior, Mr. Borski, Mr. Browder, Mr. Callahan, Mr. Clement, Miss
Collins of Michigan, Mr. Combest, Mr. Conyers, Mr. Cramer, Mr. Dooley
of California, Mr. Doyle, Mr. English of Pennsylvania, Mr. Everett, Mr.
Fazio of California, Mr. Frank of Massachusetts, Mr. Frost, Ms. Harman,
Mr. Holden, Ms. Jackson-Lee of Texas, Mr. Jefferson, Mr. Johnston of
Florida, Mr. Kanjorski, Ms. Kaptur, Mr. Klink, Mr. Mascara, Mr. Meehan,
Mr. Moakley, Mr. Moran, Mr. Murtha, Mr. Neal of Massachusetts, Mr.
Olver, Mr. Payne of Virginia, Ms. Rivers, Mr. Smith of Michigan, Mr.
Stenholm, Mr. Studds, Mr. Stupak, and Mr. Tanner) 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 provide an exemption from
income taxation for qualified State tuition programs.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. QUALIFIED STATE TUITION PROGRAMS.
(a) In General.--Subchapter F of chapter 1 of the Internal Revenue
Code of 1986 (relating to exempt organizations) is amended by adding at
the end the following new part:
``PART VIII--QUALIFIED STATE TUITION PROGRAMS
``Sec. 529. Qualified State tuition
programs.
``SEC. 529. QUALIFIED STATE TUITION PROGRAMS.
``(a) General Rule.--A qualified State tuition program shall be
exempt from taxation under this subtitle. Notwithstanding the preceding
sentence, such program shall be subject to the taxes imposed by section
511 (relating to imposition of tax on unrelated business income of
charitable organizations).
``(b) Qualified State Tuition Program.--For purposes of this
section--
``(1) In general.--The term `qualified State tuition
program' means a program established and maintained by a State
or agency or instrumentality thereof--
``(A) under which a person--
``(i) may purchase tuition credits or
certificates on behalf of a designated
beneficiary which entitle the beneficiary to
the waiver or payment of qualified higher
education expenses of the beneficiary, or
``(ii) may make contributions to an account
which is established for the sole purpose of
meeting the qualified higher education expenses
of the designated beneficiary of the account,
and
``(B) which meets the other requirements of this
subsection.
``(2) Cash contributions.--A program shall not be treated
as a qualified State tuition program unless it provides that
purchases or contributions may only be made in cash.
``(3) Refunds.--A program shall not be treated as a
qualified State tuition program unless it imposes a more than
de minimis penalty on any refund of earnings from the account
which are not--
``(A) used for qualified higher education expenses
of the designated beneficiary,
``(B) made on account of the death or disability of
the designated beneficiary, or
``(C) made on account of a scholarship received by
the designated beneficiary to the extent the amount of
the refund does not exceed the amount of the
scholarship used for qualified higher education
expenses.
``(4) Separate accounting.--A program shall not be treated
as a qualified State tuition program unless it provides
separate accounting for each designated beneficiary.
``(5) No investment direction.--A program shall not be
treated as a qualified State tuition program unless it provides
that any contributor to, or designated beneficiary under, such
program may not direct the investment of any contributions to
the program (or any earnings thereon).
``(6) No pledging of interest as security.--A program shall
not be treated as a qualified State tuition program if it
allows any interest in the program or any portion thereof to be
used as security for a loan.
``(c) Tax Treatment of Designated Beneficiaries and Contributors.--
``(1) In general.--Except as otherwise provided in this
subsection, no amount shall be includible in gross income of--
``(A) a designated beneficiary under a qualified
State tuition program, or
``(B) a contributor to such program on behalf of a
designated beneficiary,
with respect to any distribution from, or earnings under, such
program.
``(2) Distributions.--
``(A) In general.--Any distribution under a
qualified State tuition program shall be includible in
the gross income of the distributee in the same manner
as provided under section 72 to the extent not excluded
from gross income under any other provision of this
chapter.
``(B) In-kind distributions.--The furnishing of
education to a designated beneficiary under a qualified
State tuition program shall be treated as a
distribution to the beneficiary.
``(C) Change in beneficiaries.--
``(i) Rollovers.--Subparagraph (A) shall
not apply to that portion of any distribution
which, within 60 days of such distribution, is
transferred to the credit of another designated
beneficiary under a qualified State tuition
program who is a member of the same family as
the designated beneficiary with respect to
which the distribution was made.
``(ii) Change in designated
beneficiaries.--Any change in the designated
beneficiary of an interest in a qualified State
tuition program shall not be treated as a
distribution for purposes of subparagraph (A)
if the new beneficiary is a member of the same
family as the old beneficiary.
``(D) Operating rules.--For purposes of applying
section 72--
``(i) all qualified State tuition programs
of which an individual is a designated
beneficiary shall be treated as one program,
``(ii) all distributions during a taxable
year shall be treated as one distribution, and
``(iii) the value of the contract, income
on the contract, and investment in the contract
shall be computed as of the close of the
calendar year in which the taxable year begins.
``(3) Gift tax treatment.--Any contribution on behalf of a
designated beneficiary to a qualified State tuition program
shall be treated as a qualified transfer for purposes of
section 2503(e).
``(d) Reporting Requirements.--
``(1) In general.--If--
``(A) a designated beneficiary is furnished
education under a qualified State tuition program
during any calendar year, or
``(B) there is a distribution to any individual
with respect to an interest in such program during any
calendar year,
each officer or employee having control of the qualified State
tuition program or their designee shall make such reports as
the Secretary may require regarding such education or
distribution to the Secretary and to the designated beneficiary
or the individual to whom the distribution was made. Any such
report shall include such information as the Secretary may
prescribe.
``(2) Timing of reports.--Any report required by this
subsection--
``(A) shall be filed at such time and in such
matter as the Secretary prescribes, and
``(B) shall be furnished to individuals not later
than January 31 of the calendar year following the
calendar year to which such report relates.
``(e) Other Definitions and Special Rules.--For purposes of this
section--
``(1) Designated beneficiary.--The term `designated
beneficiary' means--
``(A) the individual designated at the commencement
of participation in the qualified State tuition program
as the beneficiary of amounts paid (or to be paid) to
the program,
``(B) in the case of a change in beneficiaries
described in subsection (c)(2)(C)(ii), the individual
who is the new beneficiary, and
``(C) in the case of an interest in a qualified
State tuition program purchased by a State or local
government or an organization described in section
501(c)(3) and exempt from taxation under section 501(a)
as part of a scholarship program operated by such
government or organization, the individual receiving
such interest as a scholarship.
``(2) Member of family.--The term `member of family' has
the same meaning given such term as section 2032A(e)(2).
``(3) Qualified higher education expenses.--The term
`qualified higher education expenses' means tuition, fees,
books, supplies, and equipment required for the enrollment or
attendance of a designated beneficiary at an eligible education
institution (as defined in section 135(c)(3)).
``(4) Application of section 514.--An interest in a
qualified State tuition program shall not be treated as debt
for purposes of section 514.''.
(b) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment
of this Act.
(2) Transition rule.--If--
(A) a State or agency or instrumentality thereof
maintains, on the date of the enactment of this Act, a
program under which persons may purchase tuition
credits or certificates on behalf of, or make
contributions for education expenses of, a designated
beneficiary, and
(B) such program meets the requirements of a
qualified State tuition program before the later of--
(i) the date which is 1 year after such
date of enactment, or
(ii) the first day of the first calendar
quarter after the close of the first regular
session of the State legislature that begins
after such date of enactment,
the amendments made by this section shall apply to
contributions (and earnings allocable thereto) made
before the later of such dates without regard to
whether any requirements of such amendments are met
with respect to such contributions and earnings. For
purposes of subparagraph (B)(ii), if a State has a 2-
year legislative session, each year of such session
shall be deemed to be a separate regular session of the
State legislature.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
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