H.R. 2014 "Taxpayer Relief Act of 1997"
"Taxpayer Fairness Act of 1997"
(continued)
`SEC. 6050S. RETURNS RELATING TO HIGHER EDUCATION TUITION AND
RELATED EXPENSES.
`(a) IN GENERAL- Any person--
`(1) which is an eligible educational institution which
receives payments for qualified tuition and related expenses
with respect to any individual for any calendar year, or
`(2) which is engaged in a trade or business and which, in
the course of such trade or business, makes payments during any
calendar year to any individual which constitute reimbursements
or refunds (or similar amounts) of qualified tuition and
related expenses of such individual,
shall make the return described in subsection (b) with respect to
the individual at such time as the Secretary may by regulations
prescribe.
`(b) FORM AND MANNER OF RETURNS- A return is described in this
subsection if such return--
`(1) is in such form as the Secretary may prescribe,
`(2) contains--
`(A) the name, address, and TIN of the individual with
respect to whom payments described in subsection (a) were
received from (or were paid to),
`(B) the name, address, and TIN of any individual
certified by the individual described in subparagraph (A)
as the taxpayer who will claim the individual as a
dependent for purposes of the deduction allowable under
section 151 for any taxable year ending with or within the
calendar year, and
`(C) the--
`(i) aggregate amount of payments for qualified
tuition and related expenses received with respect to
the individual described in subparagraph (A) during the
calendar year, and
`(ii) aggregate amount of reimbursements or refunds
(or similar amounts) paid to such individual during the
calendar year, and
`(D) such other information as the Secretary may prescribe.
`(c) APPLICATION TO GOVERNMENTAL UNITS- For purposes of this
section--
`(1) a governmental unit or any agency or instrumentality
thereof shall be treated as a person, and
`(2) any return required under subsection (a) by such
governmental entity shall be made by the officer or employee
appropriately designated for the purpose of making such return.
`(d) STATEMENTS TO BE FURNISHED TO INDIVIDUALS WITH RESPECT TO
WHOM INFORMATION IS REQUIRED- Every person required to make a
return under subsection (a) shall furnish to each individual whose
name is required to be set forth in such return under subparagraph
(A) or (B) of subsection (b)(2) a written statement showing--
`(1) the name, address, and phone number of the information
contact of the person required to make such return, and
`(2) the aggregate amounts described in subsection (b)(2)(C).
The written statement required under the preceding sentence shall
be furnished on or before January 31 of the year following the
calendar year for which the return under subsection (a) was
required to be made.
`(e) DEFINITIONS- For purposes of this section, the terms
`eligible educational institution' and `qualified tuition and
related expenses' have the meanings given such terms by section 25A.
`(f) RETURNS WHICH WOULD BE REQUIRED TO BE MADE BY 2 OR MORE
PERSONS- Except to the extent provided in regulations prescribed by
the Secretary, in the case of any amount received by any person on
behalf of another person, only the person first receiving such
amount shall be required to make the return under subsection (a).
`(g) REGULATIONS- The Secretary shall prescribe such regulations
as may be necessary to carry out the provisions of this section. No
penalties shall be imposed under section 6724 with respect to any
return or statement required under this section until such time as
such regulations are issued.'.
(2) ASSESSABLE PENALTIES-
(A) Subparagraph (B) of section 6724(d)(1) (relating to
definitions) is amended by redesignating clauses (ix)
through (xiv) as clauses (x) through (xv), respectively,
and by inserting after clause (viii) the following new
clause:
`(ix) section 6050S (relating to returns relating to
payments for qualified tuition and related expenses),'.
(B) Paragraph (2) of section 6724(d) is amended by
striking `or' at the end of the next to last subparagraph,
by striking the period at the end of the last subparagraph
and inserting `, or', and by adding at the end the
following new subparagraph:
`(Z) section 6050S(d) (relating to returns relating to
qualified tuition and related expenses).'.
(3) CLERICAL AMENDMENT- The table of sections for subpart B
of part III of subchapter A of chapter 61 is amended by
inserting after the item relating to section 6050R the
following new item:
`SEC. 6050S. RETURNS RELATING TO HIGHER EDUCATION TUITION AND
RELATED EXPENSES.'.
(d) COORDINATION WITH SECTION 135- Subsection (d) of section 135
is amended by redesignating paragraphs (2) and (3) as paragraphs
(3) and (4), respectively, and by inserting after paragraph (1) the
following new paragraph:
`(2) COORDINATION WITH HIGHER EDUCATION CREDIT- The amount of
the qualified higher education expenses otherwise taken into
account under subsection (a) with respect to the education of
an individual shall be reduced (before the application of
subsection (b)) by the amount of such expenses which are taken
into account in determining the credit allowable to the
taxpayer or any other person under section 25A with respect to
such expenses.'.
(e) CLERICAL AMENDMENT- 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 25 the following new item:
`SEC. 25A. HIGHER EDUCATION TUITION AND RELATED EXPENSES.'.
(f) EFFECTIVE DATE- The amendments made by this section shall
apply to expenses paid after December 31, 1997 (in taxable years
ending after such date), for education furnished in academic
periods beginning after such date.
SEC. 202. DEDUCTION FOR QUALIFIED HIGHER EDUCATION EXPENSES.
(a) DEDUCTION ALLOWED- Part VII of subchapter B of chapter 1
(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. QUALIFIED HIGHER EDUCATION EXPENSES.
`(a) ALLOWANCE OF DEDUCTION- In the case of an individual, there
shall be allowed as a deduction the amount of qualified higher
education expenses paid by the taxpayer during the taxable year for
education furnished during any academic period (within the meaning
of section 25A) beginning in such year.
`(b) LIMITATIONS-
`(1) ANNUAL LIMIT- The amount allowed as a deduction under
subsection (a) for any taxable year with respect to expenses
paid for education furnished to any 1 individual shall not
exceed the lesser of--
`(A) $10,000, or
`(B) the amount includible in the taxpayer's gross income
for such taxable year by reason of a distribution from a
qualified tuition program (as defined in section 529), or
an education investment account (as defined in section
530), the beneficiary of which is such individual.
`(2) AGGREGATE LIMIT- The amount allowed as a deduction under
subsection (a) to the taxpayer or any other individual with
respect to expenses paid for education furnished to any 1
individual shall not exceed $40,000 for all taxable years.
`(3) DEDUCTION ALLOWED FOR YEAR ONLY IF INDIVIDUAL IS AT
LEAST 1/2 TIME STUDENT FOR PORTION OF YEAR- No deduction
shall be allowed under subsection (a) for a taxable year with
respect to the qualified higher education expenses of an
individual unless such individual is an eligible student (as
defined in section 25A(d)(3)) for at least one academic period
which begins during such year.
`(4) DEDUCTION ALLOWED ONLY FOR FIRST 4 YEARS OF
POSTSECONDARY EDUCATION- No deduction shall be allowed under
subsection (a) for a taxable year with respect to the qualified
higher education expenses of an individual if the individual
has completed (before the beginning of such taxable year) the
equivalent of the first 4 years of postsecondary education at
an eligible educational institution (determined under the rules
of section 25A).
`(5) COORDINATION WITH CREDIT FOR HIGHER EDUCATION EXPENSES-
No deduction shall be allowed under this section for a taxable
year with respect to the qualified higher education expenses of
an individual if an election is in effect under section 25A
with respect to such individual for such taxable year.
`(c) QUALIFIED HIGHER EDUCATION EXPENSES- The term `qualified
higher education expenses' means qualified higher education
expenses (as defined in section 529) for the education of--
`(1) the taxpayer,
`(2) the taxpayer's spouse, or
`(3) any dependent of the taxpayer with respect to whom the
taxpayer is allowed a deduction under section 151,
at an eligible educational institution (as defined in section
529(e)(5)).
`(d) TREATMENT OF EXPENSES PAID BY DEPENDENT- If a deduction
under section 151 with respect to an individual is allowed to
another taxpayer for a taxable year beginning in the calendar year
in which such individual's taxable year begins--
`(1) no deduction shall be allowed under subsection (a) to
such individual for such individual's taxable year, and
`(2) qualified higher education expenses paid by such
individual during such individual's taxable year shall be
treated for purposes of this section as paid by such other
taxpayer.
`(e) COORDINATION WITH AMOUNTS INCLUDIBLE IN GROSS INCOME UNDER
SECTION 529 OR 530- If any deduction is allowed under subsection
(a) with respect to the qualified higher education expenses of an
individual with respect to whom the taxpayer is allowed a deduction
under section 151(c), any amount which would (but for this
subsection) be includible in such individual's gross income by
reason of section 529 or section 530 shall be includible in the
gross income of the taxpayer and not such individual.
`(f) ADJUSTMENT FOR CERTAIN SCHOLARSHIPS, ETC- The amount of
qualified higher education expenses otherwise taken into account
under subsection (a) with respect to an individual for an academic
period shall be reduced (before the application of subsection (b))
by the sum of--
`(1) the aggregate amount of the reductions under section
25A(g)(2) for the benefit of such individual for such period, and
`(2) the amount excludable from gross income under section
135 by reason of such expenses with respect to such individual
which are allocable to such period.
`(g) DENIAL OF DEDUCTION IF STUDENT CONVICTED OF A FELONY DRUG
OFFENSE- No deduction shall be allowed under subsection (a) for
qualified higher education expenses for the enrollment or
attendance of a student for any academic period if such student has
been convicted of a Federal or State felony offense consisting of
the possession or distribution of a controlled substance before the
end of the taxable year with or within which such period ends.
`(h) DENIAL OF DOUBLE BENEFIT- No deduction shall be allowed
under subsection (a) for any expense for which a deduction is
allowed to the taxpayer under any other provision of this chapter.'.
(b) DEDUCTION ALLOWED WHETHER OR NOT TAXPAYER ITEMIZES OTHER
DEDUCTIONS-
(1) IN GENERAL- Subsection (b) of section 63 is amended by
striking `and' at the end of paragraph (1), by striking the
period at the end of paragraph (2) and inserting `, and', and
by adding at the end the following new paragraph:
`(3) the deduction allowed by section 221 (relating to
deduction for qualified higher education expenses).'.
(2) CONFORMING AMENDMENT- Subsection (d) of section 63 is
amended by striking `and' at the end of paragraph (1), by
striking the period at the end of paragraph (2) and inserting
`, and', and by adding at the end the following new paragraph:
`(3) the deduction allowed by section 221 (relating to
deduction for qualified higher education expenses).'.
(c) PHASEOUT OF EXCLUSION FOR QUALIFIED TUITION REDUCTIONS-
Subsection (d) of section 117 is amended by redesignating the last
paragraph as paragraph (4) and by adding at the end the following
new paragraph:
`(5) PHASEOUT OF EXCLUSION-
`(A) TERMINATION- Paragraph (1) shall not apply to any
qualified tuition reduction for any course of instruction
beginning after December 31, 2001.
`(B) PHASEOUT- The amount excludable from gross income
under paragraph (1) for any course of instruction beginning
in a calendar year after 1997 and before 2002 shall not
exceed the applicable percentage (determined in accordance
with the following table) for such calendar year of the
amount which would be so excludable but for this
subparagraph:
[Bold->] In the case of [<-Bold]
-- [Bold->] The applicable [<-Bold]
[Bold->] calendar year: [<-Bold]
-- [Bold->] percentage is: [<-Bold]
1998
--80
1999
--60
2000
--40
2001
--20.'.
(d) TECHNICAL AMENDMENTS-
(1) Subparagraph (A) of section 529(e)(3) is amended by
inserting `(except as provided in section 221(e))' after
`distributee'.
(2) The table of sections for part VII of subchapter B of
chapter 1 is amended by striking the item relating to section
221 and inserting:
`SEC. 221. QUALIFIED HIGHER EDUCATION EXPENSES.
`SEC. 222. CROSS REFERENCE.'.
(e) EFFECTIVE DATE- The amendments made by this section shall
apply to expenses paid after December 31, 1997 (in taxable years
ending after such date), for education furnished in academic
periods beginning after such date.
SEC. 203. PENALTY-FREE WITHDRAWALS FROM INDIVIDUAL RETIREMENT PLANS
FOR HIGHER EDUCATION EXPENSES.
(a) IN GENERAL- Paragraph (2) of section 72(t) (relating to
exceptions to 10-percent additional tax on early distributions from
qualified retirement plans) is amended by adding at the end the
following new subparagraph:
`(E) DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT PLANS FOR
HIGHER EDUCATION EXPENSES- Distributions to an individual
from an individual retirement plan to the extent such
distributions do not exceed the qualified higher education
expenses (as defined in paragraph (7)) of the taxpayer for
the taxable year. Distributions shall not be taken into
account under the preceding sentence if such distributions
are described in subparagraph (A), (C), or (D) or to the
extent paragraph (1) does not apply to such distributions
by reason of subparagraph (B).'.
(b) DEFINITION- Section 72(t) is amended by adding at the end the
following new paragraph:
`(7) QUALIFIED HIGHER EDUCATION EXPENSES- For purposes of
paragraph (2)(E)--
`(A) IN GENERAL- The term `qualified higher education
expenses' means qualified higher education expenses (as
defined in section 529(e)(3) without regard to subparagraph
(C) thereof) for education furnished to--
`(i) the taxpayer,
`(ii) the taxpayer's spouse, or
`(iii) any child (as defined in section 151(c)(3)) or
grandchild of the taxpayer or the taxpayer's spouse,
at an eligible educational institution (as defined in
section 529(e)(5)).
`(B) COORDINATION WITH OTHER BENEFITS- The amount of
qualified higher education expenses for any taxable year
shall be reduced as provided in section 25A(g)(2).'.
(c) EFFECTIVE DATE- The amendments made by this section shall
apply to distributions after December 31, 1997, with respect to
expenses paid after such date (in taxable years ending after such
date), for education furnished in academic periods beginning after
such date.
SEC. 204. EXPENSES FOR EDUCATION WHICH SUPPLEMENTS ELEMENTARY AND
SECONDARY EDUCATION.
(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 25A, as added by this title, the following
new section:
`SEC. 25B. EXPENSES FOR EDUCATION WHICH SUPPLEMENTS ELEMENTARY AND
SECONDARY EDUCATION.
`(a) ALLOWANCE OF CREDIT- In the case of an individual, there
shall be allowed a credit against the tax imposed by this chapter
for the taxable year an amount equal to 50 percent of the
qualifying educational assistance expenses paid by the taxpayer
during the taxable year.
`(b) LIMITATIONS-
`(1) DOLLAR LIMITATION- The amount allowed as a credit under
subsection (a) for any taxable year with respect to the
qualified educational assistance expenses of any 1 individual
shall not exceed $150.
`(2) REDUCTION OF CREDIT BASED ON ADJUSTED GROSS INCOME-
`(A) IN GENERAL- The aggregate amount which would (but
for this paragraph) be allowed by this section shall be
reduced (but not below zero) by $25 for each $1,000 (or
fraction thereof) by which the taxpayer's modified adjusted
gross income exceeds the threshold amount. For purposes of
the preceding sentence, the term `modified adjusted gross
income' means adjusted gross income increased by any amount
excluded from gross income under section 911, 931, or 933.
`(B) THRESHOLD AMOUNT- For purposes of subparagraph (A),
the term `threshold amount' means--
`(i) $80,000 in the case of a joint return,
`(ii) $50,000 in the case of an individual who is not
married, and
`(iii) $40,000 in the case of a married individual
filing a separate return.
For purposes of this subparagraph, marital status shall be
determined under section 7703.
`(c) QUALIFIED EDUCATIONAL ASSISTANCE EXPENSES- For purposes of
this section--
`(1) IN GENERAL- The term `qualified educational assistance
expenses' means amounts paid to a qualified entity to provide
supplementary education to any dependent (within the meaning of
section 152) of the taxpayer--
`(A) who is less than 18 years of age as of the close of
the taxable year, and
`(B) who is enrolled as a full-time student in an
elementary or secondary school.
`(2) SUPPLEMENTARY EDUCATION- For purposes of paragraph (1),
supplementary education is education provided with respect to
reading, mathematics, or any subject that the dependent student
is studying at the time in elementary or secondary school
classes. Eligible courses of study shall not include courses
providing assistance with respect to preparation for college
entrance examinations.
`(3) QUALIFIED ENTITY- The term `qualified entity' means a
person that is accredited as a supplementary education service
provider by an accreditation organization that is recognized by
the Secretary of Education or by any other agency, association,
or group that is certified by the Secretary for purposes of
this section.'.
(b) CLERICAL AMENDMENT- 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 25A the following new item:
`SEC. 25B. EXPENSES FOR EDUCATION WHICH SUPPLEMENTS ELEMENTARY AND
SECONDARY EDUCATION.'.
(c) EFFECTIVE DATE- The amendments made by this section shall
apply to taxable years beginning after December 31, 1997.
SUBTITLE B--EXPANDED EDUCATION INVESTMENT SAVINGS OPPORTUNITIES
SEC. 211. ELIGIBLE EDUCATIONAL INSTITUTIONS PERMITTED TO MAINTAIN
QUALIFIED TUITION PROGRAMS; OTHER MODIFICATIONS
OF QUALIFIED STATE TUITION PROGRAMS.
(a) ELIGIBLE EDUCATIONAL INSTITUTIONS PERMITTED TO MAINTAIN
QUALIFIED TUITION PROGRAMS- Paragraph (1) of section 529(b)
(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'.
(b) QUALIFIED HIGHER EDUCATION EXPENSES TO INCLUDE ROOM AND
BOARD- Paragraph (3) of section 529(e) (defining qualified higher
education expenses) is amended to read as follows:
`(3) QUALIFIED HIGHER EDUCATION EXPENSES-
`(A) IN GENERAL- 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.
`(B) ROOM AND BOARD INCLUDED FOR STUDENTS WHO ARE AT
LEAST HALF-TIME- In the case of an individual who is an
eligible student (as defined in section 25A(d)(3)) for any
academic period, such term shall also include reasonable
costs for such period (as determined under the qualified
tuition program) incurred by the designated beneficiary for
room and board while attending such institution. The amount
treated as qualified higher education expenses by reason of
the preceding sentence shall not exceed the minimum amount
(applicable to the student) included for room and board for
such period 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 this
paragraph) for the eligible educational institution for
such period.
`(C) EXCLUSION FOR GRADUATE LEVEL COURSES- Such term
shall not include expenses for 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. Such courses shall not be
taken into account in determining whether an individual is
described in subsection (f)(3)(A).'.
(c) ADDITIONAL MODIFICATIONS-
(1) MEMBER OF FAMILY- Paragraph (2) of section 529(e)
(relating to other definitions and special rules) is amended to
read as follows:
`(2) MEMBER OF FAMILY- The term `member of the family' means--
`(A) an individual who bears a relationship to another
individual which is a relationship described in paragraphs
(1) through (8) of section 152(a), and
`(B) the spouse of any individual described in
subparagraph (A).'.
(2) ELIGIBLE EDUCATIONAL INSTITUTION- Section 529(e) is
amended by adding at the end the following:
`(5) ELIGIBLE EDUCATIONAL INSTITUTION- The term `eligible
educational institution' means an institution--
`(A) which 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 paragraph, and
`(B) which is eligible to participate in a program under
title IV of such Act.'.
(3) NO CONTRIBUTIONS AFTER BENEFICIARY ATTAINS AGE 18;
DISTRIBUTIONS REQUIRED IN CERTAIN CASES- Subsection (b) of
section 529 (as amended by subsection (f) of this section) is
amended by adding at the end the following new paragraph:
`(7) RESTRICTIONS RELATING TO AGE OF BENEFICIARY; COMPLETION
OF EDUCATION-
`(A) IN GENERAL- A program shall be treated as a
qualified tuition program only if--
`(i) no contribution is accepted on behalf of a
designated beneficiary after the date on which such
beneficiary attains age 18, and
`(ii) any balance to the credit of a designated
beneficiary (if any) on the account termination date
shall be distributed within 30 days after such date to
such beneficiary (or in the case of death, the estate
of the beneficiary).
`(B) ACCOUNT TERMINATION DATE- For purposes of
subparagraph (A), the term `account termination date' means
whichever of the following dates is the earliest:
`(i) The date on which the designated beneficiary
completes the equivalent of 4 years of post-secondary
education (whether or not at the same eligible
educational institution).
`(ii) The date on which the designated beneficiary
attains age 30.
`(iii) The date on which the designated beneficiary
dies.'.
(4) ESTATE AND GIFT TAX TREATMENT-
(A) GIFT TAX TREATMENT-
(i) Paragraph (2) of section 529(c) is amended to
read as follows:
`(2) GIFT TAX TREATMENT OF CONTRIBUTIONS- For purposes of
chapters 12 and 13, any contribution to a qualified tuition
program on behalf of any designated beneficiary--
`(A) shall be treated as a completed gift to such
beneficiary which is not a future interest in property, and
`(B) shall not be treated as a qualified transfer under
section 2503(e).'.
(ii) Paragraph (5) of section 529(c) is amended to
read as follows:
`(5) OTHER GIFT TAX RULES- For purposes of chapters 12 and 13--
`(A) TREATMENT OF DISTRIBUTIONS- In no event shall a
distribution from a qualified tuition program be treated as
a taxable gift.
`(B) TREATMENT OF DESIGNATION OF NEW BENEFICIARY- The
taxes imposed by chapters 12 and 13 shall apply to a
transfer by reason of a change in the designated
beneficiary under the program (or a rollover to the account
of a new beneficiary) only if the new beneficiary is a
generation below the generation of the old beneficiary
(determined in accordance with section 2651).'.
(B) ESTATE TAX TREATMENT- Paragraph (4) of section 529(c)
is amended to read as follows:
`(4) ESTATE TAX TREATMENT-
`(A) IN GENERAL- No amount shall be includible in the
gross estate of any individual for purposes of chapter 11
by reason of an interest in a qualified tuition program.
`(B) AMOUNTS INCLUDIBLE IN ESTATE OF DESIGNATED
BENEFICIARY IN CERTAIN CASES- Subparagraph (A) shall not
apply to amounts distributed on account of the death of a
beneficiary.'.
(5) LIMITATION ON CONTRIBUTIONS TO QUALIFIED TUITION PROGRAMS
NOT MAINTAINED BY A STATE- Subsection (b) of section 529 is
amended by adding at the end the following new paragraph:
`(9) LIMITATION ON CONTRIBUTIONS TO QUALIFIED TUITION
PROGRAMS NOT MAINTAINED BY A STATE- In the case of a program
not maintained by a State or agency or instrumentality thereof,
such program shall not be treated as a qualified tuition
program unless it limits the annual contribution to the program
on behalf of a designated beneficiary to an amount equal to the
lesser of--
`(A) $5,000, or
`(B) the excess of--
`(i) $50,000, over
`(ii) the aggregate amount contributed to such
program on behalf of such beneficiary for all prior
taxable years.'.
(d) ADDITIONAL TAX ON AMOUNTS NOT USED FOR HIGHER EDUCATION
EXPENSES- Section 529 is amended by adding at the end the following
new subsection:
`(f) IMPOSITION OF ADDITIONAL TAX-
`(1) IN GENERAL- The tax imposed by this chapter for any
taxable year on any taxpayer who receives a payment or
distribution from a qualified tuition program which is
includible in gross income shall be increased by 10 percent of
the amount which is so includible.
`(2) EXCEPTIONS- Paragraph (1) shall not apply if the payment
or distribution is--
`(A) used for qualified higher education expenses of the
designated beneficiary,
`(B) made to a beneficiary (or to the estate of the
designated beneficiary) on or after the death of the
designated beneficiary,
`(C) attributable to the designated beneficiary's being
disabled (within the meaning of section 72(m)(7)), or
`(D) made on account of a scholarship, allowance, or
payment described in subparagraph (A), (B), or (C) of
section 135(d)(1) 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.
`(3) EXCESS CONTRIBUTIONS RETURNED BEFORE DUE DATE OF RETURN-
In the case of a qualified tuition program not maintained by a
State or any agency or instrumentality thereof, paragraph (1)
shall not apply to the distribution to a contributor of any
contribution made during a taxable year on behalf of a
designated beneficiary to the extent that such contribution
exceeds the limitation in section 4973(e) if--
`(A) 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
`(B) such distribution is accompanied by the amount of
net income attributable to such excess contribution.
Any net income described in subparagraph (B) shall be included
in the gross income of the contributor for the taxable year in
which such excess contribution was made.'.
(e) COORDINATION WITH EDUCATION SAVINGS BOND- Section 135(c)(2)
(defining qualified higher education expenses) is amended by adding
at the end the following:
`(C) CONTRIBUTIONS TO QUALIFIED TUITION PROGRAM- Such
term shall include any contribution to a qualified tuition
program (as defined in section 529) on behalf of a
designated beneficiary (as defined in such section) who is
an individual described in subparagraph (A); but there
shall be no increase in the investment in the contract for
purposes of applying section 72 by reason of the portion of
such contribution which is not includible in gross income
by reason of this subparagraph.'.
(f) TAX ON EXCESS CONTRIBUTIONS-
(1) IN GENERAL- Subsection (a) of section 4973 is amended by
striking `or' at the end of paragraph (2) and by inserting
after paragraph (3) the following new paragraphs:
`(4) a qualified tuition program (as defined in section 529)
not maintained by a State or any agency or instrumentality
thereof, or
`(5) an education investment account (as defined in section
530),'.
(2) EXCESS CONTRIBUTIONS DEFINED- Section 4973 is amended by
adding at the end the following new subsection:
`(e) EXCESS CONTRIBUTIONS TO PRIVATE QUALFIED TUITION PROGRAM AND
EDUCATION INVESTMENT ACCOUNTS- For purposes of this section--
`(1) IN GENERAL- In the case of private education investment
accounts maintained for the benefit of any 1 beneficiary, the
term `excess contributions' means the amount by which the
amount contributed for the taxable year to such accounts
exceeds the lesser of--
`(A) the excess of--
`(i) $5,000, over
`(ii) the aggregate amount contributed to all
qualified tuition programs (as defined in section 529)
maintained by a State or any agency or instrumentality
thereof on behalf of such beneficiary for such taxable
year, or
`(B) the excess of--
`(i) $50,000, over
`(ii) the sum of--
`(I) the aggregate amount contributed to such accounts for all
prior taxable years, and
`(II) the aggregate amount contributed to all qualified tuition
programs (as defined in section 529) maintained by a State or any
agency or instrumentality thereof on behalf of such beneficiary for
such taxable year and all prior taxable years.
`(2) PRIVATE EDUCATION INVESTMENT ACCOUNT- For purposes of
paragraph (1), the term `private education investment account'
means--
`(A) a qualified tuition program (as defined in section
529) not maintained by a State or any agency or
instrumentality thereof, and
`(B) an education investment account (as defined in
section 530).
`(3) SPECIAL RULES- For purposes of paragraph (1), the
following contributions shall not be taken into account:
`(A) Any contribution which is distributed out of the
education investment account in a distribution to which
section 530(c)(3)(B) applies.
`(B) Any contribution to a qualified tuition program (as
so defined) described in section 530(b)(2)(B) from any such
account.
`(C) Any rollover contribution.'.
(g) TECHNICAL AMENDMENTS-
(1) Paragraph (2) of section 26(b) is amended by
redesignating subparagraphs (E) through (P) as subparagraphs
(F) through (Q), respectively, and by inserting after
subparagraph (D) the following new subparagraph:
`(E) section 529(f) (relating to additional tax on
certain distributions from qualified tuition programs),'.
(2) The text of section 529 is amended by striking `qualified
State tuition program' each place it appears and inserting
`qualified tuition program'.
(3) Subsection (b) of section 529 is amended by striking
paragraph (3) and by redesignating paragraphs (4) through (7)
as paragraphs (3) through (6), respectively.
(4)(A) The section heading of section 529 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 is amended by
striking `State'.
(5)(A) The heading for part VIII of subchapter F of chapter 1
is amended to read as follows:
`PART VIII--HIGHER EDUCATION SAVINGS ENTITIES'.
(B) The table of parts for subchapter F of chapter 1 is
amended by striking the item relating to part VIII and inserting:
`PART VIII. HIGHER EDUCATION SAVINGS ENTITIES.'.
(h) EFFECTIVE DATES-
(1) IN GENERAL- Except as otherwise provided in this
subsection, the amendments made by this section shall take
effect on January 1, 1998.
(2) EXPENSES TO INCLUDE ROOM AND BOARD, ETC- The amendments
made by subsection (b) and (c)(2) shall apply to distributions
after December 31, 1997, with respect to expenses paid after
such date (in taxable years ending after such date), for
education furnished in academic periods beginning after such
date.
(3) PENALTY FOR NONEDUCATION WITHDRAWALS- The amendment made
by subsection (d) shall apply to distributions after December
31, 1997.
(4) COORDINATION WITH EDUCATION SAVINGS BONDS- The amendment
made by subsection (e) shall apply to taxable years beginning
after December 31, 1997.
(5) ESTATE AND GIFT TAX CHANGES-
(A) GIFT TAX CHANGES- Paragraphs (2) and (5) of section
529(c) of the Internal Revenue Code of 1986, as amended by
this section, shall apply to transfers (including
designations of new beneficiaries) made after the date of
the enactment of this Act.
(B) ESTATE TAX CHANGES- Paragraph (4) of such section
529(c) shall apply to estates of decedents dying after June
8, 1997.
SEC. 212. EDUCATION INVESTMENT ACCOUNTS.
(a) IN GENERAL- Part VIII of subchapter F of chapter 1 (relating
to qualified State tuition programs) is amended by adding at the
end the following new section:
`SEC. 530. EDUCATION INVESTMENT ACCOUNTS.
`(a) GENERAL RULE- 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).
`(b) 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) after the date on which the account holder
attains age 18, or
`(iii) in excess of $5,000 for the taxable year.
`(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 account will be distributed as
required under section 529(b)(8)(B) (as if such account
were a qualified tuition program).
For $50,000 limit on aggregate contributions to accounts, see
section 4973(e).
`(2) QUALIFIED HIGHER EDUCATION EXPENSES-
`(A) IN GENERAL- The term `qualified higher education
expenses' has the same meaning given such term by section
529(e)(3).
`(B) QUALIFIED TUITION PROGRAMS- Such term shall include
amounts paid or incurred to purchase tuition credits or
certificates, or to make contributions to an account, under
a qualified tuition program (as defined in section 529(b))
for the benefit of the account holder.
`(3) ELIGIBLE EDUCATIONAL INSTITUTION- The term `eligible
educational institution' has the meaning given such term by
section 529(e)(5).
`(4) ACCOUNT HOLDER- The term `account holder' means the
individual for whose benefit the education investment account
is established.
`(c) TAX TREATMENT OF DISTRIBUTIONS-
`(1) IN GENERAL- Any amount paid or distributed shall be
includible in gross income as required by section 529(c)(3)
(determined as if such account were a qualified tuition program).
`(2) SPECIAL RULES FOR APPLYING ESTATE AND GIFT TAXES WITH
RESPECT TO ACCOUNT- Rules similar to the rules of paragraphs
(2), (4), and (5) of section 529(c) shall apply for purposes of
this section.
`(3) ADDITIONAL TAX FOR DISTRIBUTIONS NOT USED FOR
EDUCATIONAL EXPENSES-
`(A) IN GENERAL- The tax imposed by section 529(f) shall
apply to payments and distributions from an education
investment account in the same manner as such tax applies
to qualified tuition programs (as defined in section 529).
`(B) 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 exceeds the limitation in
section 4973(e) if such distribution (and the net income
with respect to such excess contribution) meet requirements
comparable to the requirements of section 529(f)(3).
`(4) 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 or a member of the family (within the meaning of
section 529(e)(2)) of the account holder not later than the
60th day after the date of such 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.
`(5) CHANGE IN ACCOUNT HOLDER- Any change in the account
holder of an education investment account shall not be treated
as a distribution for purposes of paragraph (1) if the new
account holder is a member of the family (as so defined) of the
old account holder.
`(6) SPECIAL RULES FOR DEATH AND DIVORCE- Rules similar to
the rules of paragraphs (7) and (8) of section 220(f) shall
apply.
`(d) TAX TREATMENT OF ACCOUNTS- Rules similar to the rules of
paragraphs (2) and (4) of section 408(e) shall apply to any
education investment account.
`(e) COMMUNITY PROPERTY LAWS- This section shall be applied
without regard to any community property laws.
`(f) 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.
`(g) 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-
(1) IN GENERAL- Paragraph (1) of section 4975(e) (relating to
prohibited transactions) 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 investment account described in section
530, or'.
(2) SPECIAL RULE- Subsection (c) of section 4975 is amended
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 section 530(d) applies with
respect to such transaction.'.
(c) FAILURE TO PROVIDE REPORTS ON EDUCATION INVESTMENT ACCOUNTS-
(1) IN GENERAL- Paragraph (2) of section 6693(a) (relating to
failure to provide reports on individual retirement accounts 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 530(g) (relating to education investment
accounts).'.
(2) CLERICAL AMENDMENT- The section heading for section 6693
is amended by striking `individual retirement' and inserting
`certain tax-favored'.
(d) TECHNICAL AMENDMENTS-
(1) Subparagraph (F) of section 26(b)(2), as added by the
preceding section, is amended by inserting before the comma
`and section 530(c)(3) (relating to additional tax on certain
distributions from education investment accounts)'.
(2) Subparagraph (C) of section 135(c)(2), as added by the
preceding section, is amended by inserting `, or to an
education investment account (as defined in section 530) on
behalf of an account holder (as defined in such section),'
after `(as defined in such section)'.
(3) The table of sections for part VIII of subchapter F of
chapter 1 is amended by adding at the end the following new item:
`SEC. 530. EDUCATION INVESTMENT ACCOUNTS.'.
(4) The item relating to section 6693 in the table of
sections for part I of subchapter B of chapter 68 is amended by
striking `individual retirement' and inserting `certain
tax-favored'.
(e) EFFECTIVE DATE- The amendments made by this section shall
apply to taxable years beginning after December 31, 1997.
SUBTITLE C--OTHER EDUCATION INITIATIVES
SEC. 221. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED EDUCATIONAL
ASSISTANCE.
(a) IN GENERAL- Subsection (d) of section 127 (relating to
educational assistance programs) is amended to read as follows:
`(d) TERMINATION- This section shall not apply to expenses paid
with respect to courses of instruction beginning after December 31,
1997.'.
(b) EFFECTIVE DATE- The amendment made by subsection (a) shall
apply to taxable years beginning after December 31, 1996.
SEC. 222. INCREASE IN LIMITATION ON QUALIFIED 501(C)(3) BONDS OTHER
THAN HOSPITAL BONDS.
(a) IN GENERAL- The text of paragraph (1) of section 145(b) is
amended by striking `$150,000,000.' and inserting `the limitation
determined in accordance with the following table:
[Bold->] In the case of [<-Bold]
[Bold->] calendar year: [<-Bold]
-- [Bold->] The limitation is: [<-Bold]
1998
--$160,000,000
1999
-- 170,000,000
2000
-- 180,000,000
2001
-- 190,000,000
2002 or thereafter
-- 200,000,000.'.
(b) CONFORMING AMENDMENT- The heading for subsection (b) of
section 145 is amended by striking `$150,000,000'.
(c) EFFECTIVE DATE- The amendments made by this section shall
take effect on January 1, 1998.
SEC. 223. CONTRIBUTIONS OF COMPUTER TECHNOLOGY AND EQUIPMENT FOR
ELEMENTARY OR SECONDARY SCHOOL PURPOSES.
(a) CONTRIBUTIONS OF COMPUTER TECHNOLOGY AND EQUIPMENT FOR
ELEMENTARY OR SECONDARY SCHOOL PURPOSES- Subsection (e) of section
170 is amended by adding at the end the following new paragraph:
`(6) SPECIAL RULE FOR CONTRIBUTIONS OF COMPUTER TECHNOLOGY
AND EQUIPMENT FOR ELEMENTARY OR SECONDARY SCHOOL PURPOSES-
`(A) LIMIT ON REDUCTION- In the case of a qualified
elementary or secondary educational contribution, the
reduction under paragraph (1)(A) shall be no greater than
the amount determined under paragraph (3)(B).
`(B) QUALIFIED ELEMENTARY OR SECONDARY EDUCATIONAL
CONTRIBUTION- For purposes of this paragraph, the term
`qualified elementary or secondary educational
contribution' means a charitable contribution by a
corporation of any computer technology or equipment, but
only if--
`(i) the contribution is to--
`(I) an educational organization described in subsection
(b)(1)(A)(ii), or
`(II) an entity described in section 501(c)(3) and exempt from
tax under section 501(a) (other than an entity described in
subclause (I)) that is organized primarily for purposes of
supporting elementary and secondary education,
`(ii) the contribution is made not later than 2 years
after the date the taxpayer acquired the property (or
in the case of property constructed by the taxpayer,
the date the construction of the property is
substantially completed),
`(iii) substantially all of the use of the property
by the donee is for use within the United States for
educational purposes in any of the grades K-12 that are
related to the purpose or function of the organization
or entity,
`(iv) the property is not transferred by the donee in
exchange for money, other property, or services, except
for shipping, installation and transfer costs,
`(v) the property will fit productively into the
entity's education plan, and
`(vi) the entity's use and disposition of the
property will be in accordance with the provisions of
clauses (iii) and (iv).
`(C) CONTRIBUTION TO PRIVATE FOUNDATION- A contribution
by a corporation of any computer technology or equipment to
a private foundation (as defined in section 509) shall be
treated as a qualified elementary or secondary educational
contribution for purposes of this paragraph if--
`(i) the contribution to the private foundation
satisfies the requirements of clauses (ii) and (iv) of
subparagraph (B), and
`(ii) within 30 days after such contribution, the
private foundation--
`(I) contributes the property to an entity described in clause
(i) of subparagraph (B) that satisfies the requirements of clauses
(iii) through (vi) of subparagraph (B), and
`(II) notifies the donor of such contribution.
`(D) SPECIAL RULE RELATING TO CONSTRUCTION OF PROPERTY-
For the purposes of this paragraph, the rules of paragraph
(4)(C) shall apply.
`(E) DEFINITIONS- For the purposes of this paragraph--
`(i) COMPUTER TECHNOLOGY OR EQUIPMENT- The term
`computer technology or equipment' means computer
software (as defined by section 197(e)(3)(B)), computer
or peripheral equipment (as defined by section
168(i)(2)(B)), and fiber optic cable related to
computer use.
`(ii) CORPORATION- The term `corporation' has the
meaning given to such term by paragraph (4)(D).'.
(b) EFFECTIVE DATE- The amendment made by this section shall
apply to taxable years beginning after the calendar year in which
this Act is enacted.
SEC. 224. TREATMENT OF CANCELLATION OF CERTAIN STUDENT LOANS.
(a) CERTAIN DIRECT STUDENT LOANS THE REPAYMENT OF WHICH IS INCOME
CONTINGENT- Paragraph (1) of section 108(f) is amended by striking
`any student loan if' and all that follows and inserting `any
student loan if--
`(A) such discharge was pursuant to a provision of such
loan under which all or part of the indebtedness of the
individual would be discharged if the individual worked for
a certain period of time in certain professions for any of
a broad class of employers, or
`(B) in the case of a loan made under part D of title IV
of the Higher Education Act of 1965 which has a repayment
schedule established under section 455(e)(4) of such Act
(relating to income contingent repayments), such discharge
is after the maximum repayment period under such loan (as
prescribed under such part).'.
(b) CERTAIN LOANS BY EXEMPT ORGANIZATIONS-
(1) IN GENERAL- Paragraph (2) of section 108(f) (defining
student loan) is amended by striking `or' at the end of
subparagraph (B) and by striking subparagraph (D) and inserting
the following:
`(D) any educational organization described in section
170(b)(1)(A)(ii) if such loan is made--
`(i) pursuant to an agreement with any entity
described in subparagraph (A), (B), or (C) under which
the funds from which the loan was made were provided to
such educational organization, or
`(ii) pursuant to a program of such educational
organization which is designed to encourage its
students to serve in occupations with unmet needs or in
areas with unmet needs and under which the services
provided by the students (or former students) are for
or under the direction of a governmental unit or an
organization described in section 501(c)(3) and exempt
from tax under section 501(a).
The term `student loan' includes any loan made by an
educational organization so described or by an organization
exempt from tax under section 501(a) to refinance a loan
meeting the requirements of the preceding sentence.'.
(2) EXCEPTION FOR DISCHARGES ON ACCOUNT OF SERVICES PERFORMED
FOR CERTAIN LENDERS- Subsection (f) of section 108 is amended
by adding at the end the following new paragraph:
`(3) EXCEPTION FOR DISCHARGES ON ACCOUNT OF SERVICES
PERFORMED FOR CERTAIN LENDERS- Paragraph (1) shall not apply to
the discharge of a loan made by an organization described in
paragraph (2)(D) (or by an organization described in paragraph
(2)(E) from funds provided by an organization described in
paragraph (2)(D)) if the discharge is on account of services
performed for either such organization.'.
(c) EFFECTIVE DATE- The amendments made by this section shall
apply to discharges of indebtedness after the date of the enactment
of this Act.
TITLE III--SAVINGS AND INVESTMENT INCENTIVES
SUBTITLE A--RETIREMENT SAVINGS
SEC. 301. ESTABLISHMENT OF AMERICAN DREAM IRA.
(a) IN GENERAL- Subpart A of part I of subchapter D of chapter 1
(relating to pension, profit-sharing, stock bonus plans, etc.) is
amended by inserting after section 408 the following new section:
`SEC. 408A. AMERICAN DREAM IRA.
`(a) GENERAL RULE- Except as provided in this section, an
American Dream IRA shall be treated for purposes of this title in
the same manner as an individual retirement plan.
`(b) AMERICAN DREAM IRA- For purposes of this title, the term
`American Dream IRA' or `AD IRA' means an individual retirement
plan (as defined in section 7701(a)(37)) which is designated at the
time of the establishment of the plan as an American Dream IRA.
Such designation shall be made in such manner as the Secretary may
prescribe.
`(c) TREATMENT OF CONTRIBUTIONS-
`(1) NO DEDUCTION ALLOWED- No deduction shall be allowed
under section 219 for a contribution to an AD IRA.
`(2) CONTRIBUTION LIMIT-
`(A) IN GENERAL- The aggregate amount of contributions
for any taxable year to all AD IRAs maintained for the
benefit of an individual shall not exceed $2,000.
`(B) INFLATION ADJUSTMENT- In the case of taxable years
beginning in a calendar year after 1998, the $2,000 amount
contained in subparagraph (A) shall be increased by an
amount equal to--
`(i) such dollar amount, multiplied by
`(ii) the cost-of-living adjustment determined under
section 1(f)(3) for such calendar year by substituting
`calendar year 1997' for `calendar year 1992' in
subparagraph (B) thereof.
If the amount as adjusted under the preceding sentence is
not a multiple of $50, such amount shall be rounded to the
next lowest multiple of $50.
`(3) CONTRIBUTIONS PERMITTED AFTER AGE 70 1/2 - Contributions
to an AD IRA may be made even after the individual for whom the
account is maintained has attained age 70 1/2 .
`(4) MANDATORY DISTRIBUTION RULES NOT TO APPLY, ETC-
`(A) IN GENERAL- Except as provided in subparagraph (B),
subsections (a)(6) and (b)(3) of section 408 (relating to
required distributions) and section 4974 (relating to
excise tax on certain accumulations in qualified retirement
plans) shall not apply to any AD IRA.
`(B) POST-DEATH DISTRIBUTIONS- Rules similar to the rules
of section 401(a)(9) (other than subparagraph (A) thereof)
shall apply for purposes of this section.
`(5) RULES RELATING TO ROLLOVER CONTRIBUTIONS-
`(A) IN GENERAL- No rollover contribution may be made to
an AD IRA unless it is a qualified rollover contribution.
`(B) COORDINATION WITH LIMIT- A qualified rollover
contribution shall not be taken into account for purposes
of paragraph (2).
`(6) TIME WHEN CONTRIBUTIONS MADE- For purposes of this
section, the rule of section 219(f)(3) shall apply.
`(d) DISTRIBUTION RULES- For purposes of this title--
`(1) GENERAL RULES-
`(A) EXCLUSIONS FROM GROSS INCOME- Any qualified
distribution from an AD IRA shall not be includible in
gross income.
`(B) NONQUALIFIED DISTRIBUTIONS- In applying section 72
to any distribution from an AD IRA which is not a qualified
distribution, such distribution shall be treated as made
from contributions to the AD IRA to the extent that such
distribution, when added to all previous distributions from
the AD IRA, does not exceed the aggregate amount of
contributions to the AD IRA. For purposes of the preceding
sentence, all AD IRAs maintained for the benefit of an
individual shall be treated as 1 account.
`(C) EXCEPTION FROM PENALTY TAX- Section 72(t) shall not
apply to--
`(i) any qualified distribution from an AD IRA, and
`(ii) any qualified first-time homebuyer distribution
(whether or not a qualified distribution) from an AD IRA.
`(2) QUALIFIED DISTRIBUTION- For purposes of this subsection--
`(A) IN GENERAL- The term `qualified distribution' means
any payment or distribution--
`(i) made on or after the date on which the
individual attains age 59 1/2 ,
`(ii) made to a beneficiary (or to the estate of the
individual) on or after the death of the individual,
`(iii) attributable to the individual's being
disabled (within the meaning of section 72(m)(7)), or
`(iv) which is a qualified first-time homebuyer
distribution.
`(B) DISTRIBUTIONS WITHIN 5 YEARS- No payment or
distribution shall be treated as a qualified distribution
if--
`(i) it is made within the 5-taxable year period
beginning with the 1st taxable year for which the
individual made a contribution to an AD IRA (or such
individual's spouse made a contribution to an AD IRA)
established for such individual, or
`(ii) in the case of a payment or distribution
properly allocable (as determined in the manner
prescribed by the Secretary) to a qualified rollover
contribution (or income allocable thereto), it is made
within the 5-taxable year period beginning with the
taxable year in which the rollover contribution was made.
Clause (ii) shall not apply to a qualified rollover
contribution from an AD IRA.
`(3) ROLLOVERS-
`(A) IN GENERAL- Paragraph (1) shall not apply to any
distribution which is transferred in a qualified rollover
contribution to an AD IRA.
`(B) INCOME INCLUSION FOR ROLLOVERS FROM NON-AD IRAS-
`(i) IN GENERAL- In the case of any distribution to
which this subparagraph applies--
`(I) sections 72(t) and 408(d)(3) shall not apply (but section
4980A shall apply), and
`(II) any amount required to be included in gross income by
reason of this paragraph shall be so included ratably over the
4-taxable year period beginning with the taxable year in which the
distribution is made.
`(ii) DISTRIBUTIONS TO WHICH SUBPARAGRAPH APPLIES-
This subparagraph shall apply to a distribution before
January 1, 1999, from an individual retirement plan
(other than an AD IRA) maintained for the benefit of an
individual to an AD IRA maintained for the benefit of
such individual if such distribution would be a
qualified rollover contribution were such individual
retirement plan an AD IRA.
`(iii) CONVERSIONS- The conversion of an individual
retirement plan (other than an AD IRA) to an AD IRA
shall be treated for purposes of this subparagraph as a
distribution from such plan to such AD IRA.
`(C) ADDITIONAL REPORTING REQUIREMENTS- The Secretary
shall require that trustees of AD IRAs, trustees of
individual retirement plans, or both, whichever is
appropriate, shall include such additional information in
reports required under section 408(i) as is necessary to
ensure that amounts required to be included in gross income
under subparagraph (B) are so included.
`(4) QUALIFIED FIRST-TIME HOMEBUYER DISTRIBUTION- For
purposes of this section--
`(A) IN GENERAL- The term `qualified first-time homebuyer
distribution' means any payment or distribution received by
an individual to the extent such payment or distribution is
used by the individual before the close of the 60th day
after the day on which such payment or distribution is
received to pay qualified acquisition costs with respect to
a principal residence of a first-time homebuyer who is such
individual, the spouse of such individual, or any child,
grandchild, or ancestor of such individual or the
individual's spouse.
`(B) LIFETIME DOLLAR LIMITATION- The aggregate amount of
payments or distributions received by an individual which
may be treated as qualified first-time homebuyer
distributions for any taxable year shall not exceed the
excess (if any) of--
`(i) $10,000, over
`(ii) the aggregate amounts treated as qualified
first-time homebuyer distributions with respect to such
individual for all prior taxable years.
`(C) QUALIFIED ACQUISITION COSTS- For purposes of this
paragraph, the term `qualified acquisition costs' means the
costs of acquiring, constructing, or reconstructing a
residence. Such term includes any usual or reasonable
settlement, financing, or other closing costs.
`(D) FIRST-TIME HOMEBUYER; OTHER DEFINITIONS- For
purposes of this paragraph--
`(i) FIRST-TIME HOMEBUYER- The term `first-time
homebuyer' means any individual if--
`(I) such individual (and if married, such individual's spouse)
had no present ownership interest in a principal residence during
the 2-year period ending on the date of acquisition of the
principal residence to which this paragraph applies, and
`(II) subsection (h) or (k) of section 1034 (as in effect on the
day before the date of the enactment of this section) did not
suspend the running of any period of time specified in section 1034
(as so in effect) with respect to such individual on the day before
the date the distribution is applied pursuant to subparagraph (A).
`(ii) PRINCIPAL RESIDENCE- The term `principal
residence' has the same meaning as when used in section
121.
`(iii) DATE OF ACQUISITION- The term `date of
acquisition' means the date--
`(I) on which a binding contract to acquire the principal
residence to which subparagraph (A) applies is entered into, or
`(II) on which construction or reconstruction of such a principal
residence is commenced.
`(E) SPECIAL RULE WHERE DELAY IN ACQUISITION- If any
distribution from any individual retirement plan fails to
meet the requirements of subparagraph (A) solely by reason
of a delay or cancellation of the purchase or construction
of the residence, the amount of the distribution may be
contributed to an individual retirement plan as provided in
section 408(d)(3)(A)(i) (determined by substituting `120
days' for `60 days' in such section), except that--
`(i) section 408(d)(3)(B) shall not be applied to
such contribution, and
`(ii) such amount shall not be taken into account in
determining whether section 408(d)(3)(A)(i) applies to
any other amount.
`(e) QUALIFIED ROLLOVER CONTRIBUTION- For purposes of this
section, the term `qualified rollover contribution' means a
rollover contribution to an AD IRA from another such account, but
only if such rollover contribution meets the requirements of
section 408(d)(3).'.
(b) REPEAL OF NONDEDUCTIBLE CONTRIBUTIONS-
(1) Subsection (f) of section 219 is amended by striking
paragraph (7).
(2) Paragraph (5) of section 408(d) is amended by striking
the last sentence.
(3) Section 408(o) is amended by adding at the end the
following new paragraph:
`(5) TERMINATION- This subsection shall not apply to any
designated nondeductible contribution for any taxable year
beginning after December 31, 1997.'.
(4) Subsection (b) of section 4973 is amended by striking the
last sentence.
(c) EXCESS DISTRIBUTIONS TAX NOT TO APPLY-
(1) Subparagraph (A) of section 4980A(d)(3) is amended by
inserting `(other than AD IRAs, as defined in section
4980A(b))' after `individual retirement plans'.
(2) Subparagraph (B) of section 4980A(e)(1) is amended by
inserting `other than an AD IRA (as defined in section
408A(b))' after `retirement plan'.
(d) EXCESS CONTRIBUTIONS-
(1) Section 4973 is amended by adding at the end the
following new subsection:
`(f) EXCESS CONTRIBUTIONS TO AMERICAN DREAM IRAS- For purposes of
this section, in the case of American Dream IRAs, the term `excess
contributions' means the amount by which the amount contributed for
the taxable year to such IRAs exceeds the limitation in section
408A(c)(2).'.
(2) Subsection (b) of section 4973 is amended by adding at
the end the following new sentence: `For purposes of this
subsection, an American Dream IRA shall not be treated as an
individual retirement plan.'.
(e) CLERICAL AMENDMENT- The table of sections for subpart A of
part I of subchapter D of chapter 1 is amended by inserting after
the item relating to section 408 the following new item:
`SEC. 408A. AMERICAN DREAM IRA.'.
(f) EFFECTIVE DATE- The amendments made by this section shall
apply to taxable years beginning after December 31, 1997.
SUBTITLE B--CAPITAL GAINS
PART I--INDIVIDUAL CAPITAL GAINS
SEC. 311. 20 PERCENT MAXIMUM CAPITAL GAINS RATE FOR INDIVIDUALS.
(a) IN GENERAL- Subsection (h) of section 1 (relating to maximum
capital gains rate) is amended to read as follows:
`(h) MAXIMUM CAPITAL GAINS RATE-
`(1) IN GENERAL- If a taxpayer has a net capital gain for any
taxable year, the tax imposed by this section for such taxable
year shall not exceed the sum of--
`(A) the base tax amount,
`(B) 10 percent of so much of the taxpayer's adjusted net
capital gain (or, if less, taxable income) as does not
exceed the excess (if any) of--
`(i) the amount of taxable income which would
(without regard to this paragraph) be taxed at a rate
of 15 percent or less, over
`(ii) the taxable income reduced by the adjusted net
capital gain, plus
`(C) 20 percent of the taxpayer's adjusted net capital
gain (or, if less, taxable income) in excess of the amount
on which a tax is determined under subparagraph (B).
`(2) NET CAPITAL GAIN TAKEN INTO ACCOUNT AS INVESTMENT
INCOME- For purposes of this subsection, the net capital gain
for any taxable year shall be reduced (but not below zero) by
the amount which the taxpayer takes into account as investment
income under section 163(d)(4)(B)(iii).
`(3) BASE TAX AMOUNT- For purposes of paragraph (1), the base
tax amount is the lesser of--
`(A) a tax computed at the rates and in the same manner
as if this subsection had not been enacted on taxable
income reduced by the adjusted net capital gain, or
`(B) the sum of--
`(i) a tax computed at the rates and in the same
manner as if this subsection had not been enacted on
the greater of--
`(I) taxable income reduced by the net capital gain, or
`(II) the amount of taxable income taxed at a rate below 28
percent,
`(ii) a tax of 26 percent of the lesser of--
`(I) the section 1250 gain, or
`(II) the amount of taxable income in excess of the sum of the
amount on which tax is determined under clause (i) plus the net
capital gain determined without regard to section 1250 gain, plus
`(iii) a tax of 28 percent of the amount of taxable
income in excess of the sum of--
`(I) the adjusted net capital gain, plus
`(II) the sum of the amounts on which tax is determined under
clauses (i) and (ii).
`(4) ADJUSTED NET CAPITAL GAIN- For purposes of this
subsection, the term `adjusted net capital gain' means net
capital gain determined without regard to--
`(A) collectibles gain,
`(B) section 1202 gain, and
`(C) section 1250 gain.
`(5) COLLECTIBLES GAIN- For purposes of paragraph (4)--
`(A) IN GENERAL- The term `collectibles gain' means gain
from the sale or exchange of a collectible (as defined in
section 408(m) without regard to paragraph (3) thereof)
which is a capital asset held for more than 1 year but only
to the extent such gain is taken into account in computing
gross income.
`(B) COORDINATION WITH SECTION 1022- Gain from the
disposition of a collectible which is an indexed asset to
which section 1022(a) applies shall be disregarded for
purposes of this subsection. A taxpayer may elect to treat
any collectible specified in such election as not being an
indexed asset for purposes of section 1022. Any such
election, and any specification therein, once made, shall
be irrevocable.
`(C) PARTNERSHIPS, ETC- For purposes of subparagraph (A),
any gain from the sale of an interest in a partnership, S
corporation, or trust which is attributable to unrealized
appreciation in the value of collectibles shall be treated
as gain from the sale or exchange of a collectible. Rules
similar to the rules of section 751 shall apply for
purposes of the preceding sentence.
`(6) SECTION 1202 GAIN- For purposes of paragraph (4), the
term `section 1202 gain' means gain from the sale or exchange
of any qualified small business stock (as defined in section
1202(c)) held more than 5 years which is taken into account in
computing gross income.
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