S 289 IS

To amend the Internal Revenue Code of 1986 to provide additional tax incentives for education.

February 8, 2001

Mr. SESSIONS (for himself and Mr. GRAHAM, Mr. BINGAMAN, Mr. FRIST, Mr. GRAMM, Mr. HUTCHINSON, Mr. MURKOWSKI, Mr. BREAUX, Mr. SHELBY, Ms. COLLINS, Mr. HELMS, Mr. INHOFE, Mr. ROBERTS, Mr. SANTORUM, Ms. LANDRIEU) introduced the following bill; which was read twice and referred to the Committee on Finance

To amend the Internal Revenue Code of 1986 to provide additional tax incentives for 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 `Collegiate Learning and Student Savings Act'.

SEC. 2. ELIGIBLE EDUCATIONAL INSTITUTIONS PERMITTED TO MAINTAIN QUALIFIED TUITION PROGRAMS.

(a) IN GENERAL- Section 529(b)(1) of the Internal Revenue Code of 1986 (defining qualified State tuition program) is amended by inserting `or by 1 or more eligible educational institutions or a consortium that consists solely of eligible educational institutions' after `maintained by a State or agency or instrumentality thereof'.

(b) PRIVATE QUALIFIED TUITION PROGRAMS LIMITED TO BENEFIT PLANS- Clause (ii) of section 529(b)(1)(A) of the Internal Revenue Code of 1986 is amended by inserting `in the case of a program established and maintained by a State or agency or instrumentality thereof' before `may make'.

(c) CONFORMING AMENDMENTS-

(1) The text and headings of each of the sections 72(e)(9), 135(c)(2(C), 135(d)(1)(D), 529, 530(b)(2)(B), 4973(e), and 6693(a)(2)(C) of the Internal Revenue Code of 1986 is amended by striking `qualified State tuition' each place it appears and inserting `qualified tuition'.

(2)(A) The section heading of section 529 of such Code is amended to read as follows:

`SEC. 529. QUALIFIED TUITION PROGRAMS.'.

(B) The item relating to section 529 in the table of sections for part VIII of subchapter F of chapter 1 of such Code is amended by striking `State'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

SEC. 3. EXCLUSION FROM GROSS INCOME OF EDUCATION DISTRIBUTIONS FROM QUALIFIED TUITION PROGRAMS.

(a) IN GENERAL- Section 529(c)(3)(B) of the Internal Revenue Code of 1986 (relating to distributions) is amended to read as follows:

`(B) DISTRIBUTIONS FOR QUALIFIED HIGHER EDUCATION EXPENSES-

`(i) IN GENERAL- If a distributee elects the application of this clause for any taxable year--

`(I) 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, and

`(II) the amount which (but for the election) would be includible in gross income under subparagraph (A) by reason of any other distribution shall not be so includible in an amount which bears the same ratio to the amount which would be so includible as such expenses bear to such aggregate distributions.

`(ii) IN-KIND DISTRIBUTIONS- Any benefit furnished to a designated beneficiary under a qualified State tuition program shall be treated as a distribution to the beneficiary for purposes of this paragraph.

`(iii) DISALLOWANCE OF EXCLUDED AMOUNTS AS CREDIT OR DEDUCTION- No deduction or credit shall be allowed to the taxpayer under any other section of this chapter for any qualified higher education expenses to the extent taken into account in determining the amount of the exclusion under this subparagraph.'.

(b) BENEFICIARY MAY CHANGE PROGRAM- Section 529(c)(3)(C) of the Internal Revenue Code of 1986 (relating to change in beneficiaries) is amended--

(1) in clause (i), by inserting `to another qualified tuition program for the benefit of the designated beneficiary or' after `transferred', and

(2) in the heading, by inserting `OR PROGRAMS' after `BENEFICIARIES'.

(c) ADDITIONAL TAX ON AMOUNTS NOT USED FOR HIGHER EDUCATION EXPENSES- Section 529(c)(3) of the Internal Revenue Code of 1986 (relating to distributions) is amended by adding at the end the following:

`(E) ADDITIONAL TAX ON AMOUNTS NOT USED FOR HIGHER EDUCATION EXPENSES- The tax imposed by section 530(d)(4) shall apply to payments and distributions from qualified tuition programs in the same manner as such tax applies to education individual retirement accounts.'.

(d) COORDINATION WITH EDUCATION CREDITS- Section 25A(e)(2) of the Internal Revenue Code of 1986 (relating to coordination with exclusions) is amended--

(1) by inserting `a qualified tuition program or' before `an education individual retirement account', and

(2) by striking `section 530(d)(2)' and inserting `section 529(c)(3)(B) or 530(d)(2)'.

(e) EFFECTIVE DATES-

(1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply to distributions made after December 31, 2001, for education furnished in academic periods beginning after such date.

(2) PRIVATE PROGRAMS- In the case of a qualified tuition program established and maintained by an entity other than a State or agency or instrumentality thereof, the amendments made by subsections (a), (c), and (d) shall apply to distributions made after December 31, 2005, for education furnished in academic periods beginning after such date.

SEC. 4. QUALIFIED TUITION PROGRAMS INCLUDED IN SECURITIES EXEMPTION.

(a) EXEMPTED SECURITIES- Section 3(a)(4) of the Securities Act of 1933 (15 U.S.C. 77c(a)(4)) is amended by striking `individual;' and inserting `individual or any security issued by a prepaid tuition program described in section 529 of the Internal Revenue Code of 1986;'.

(b) QUALIFIED TUITION PROGRAMS NOT INVESTMENT COMPANIES- Section 3(c) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)) is amended by adding at the end the following:

`(15) Any prepaid tuition program described in section 529 of the Internal Revenue Code of 1986.'.

END