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<PRE>[DOCID: f:s306is.txt]






107th CONGRESS
  1st Session
                                 S. 306

    To amend the Internal Revenue Code of 1986 to expand the use of 
   education individual retirement accounts, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           February 13, 2001

   Mr. Torricelli (for himself, Mr. Hutchinson, Mr. Lieberman,  Mr. 
 Sessions, Mr. Breaux, Mr. Frist, Mr. Miller, Mr. Enzi, Mr. Gregg, Mr. 
    Thompson, Mr. Hagel, Mr. Brownback, Mr. Santorum, Mr. Kyl, Mr. 
Voinovich, Mr. DeWine, and Mr. Cleland) introduced the following bill; 
     which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
    To amend the Internal Revenue Code of 1986 to expand the use of 
   education individual retirement 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; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Coverdell 
Education Savings Accounts 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) 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) 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).
    (b) Maximum Annual Contributions.--
            (1) In general.--Section 530(b)(1)(A)(iii) (defining 
        education individual retirement account) is amended by striking 
        ``$500'' and inserting ``the applicable dollar amount for the 
        calendar year in which such taxable year begins''.
            (2) Applicable dollar amount.--Section 530(b) is amended by 
        adding at the end the following new paragraph:
            ``(4) Applicable dollar amount.--
                    ``(A) In general.--For purposes of paragraph 
                (1)(A)(iii), the applicable dollar amount is $2,000.
                    ``(B) Inflation adjustment.--
                            ``(i) In general.--In the case of any 
                        taxable year beginning after 2002, the dollar 
                        amount referred to 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 the calendar year in 
                                which the taxable year begins, by 
                                substituting `2001' for `1992'.
                            ``(ii) Rounding.--If any amount as adjusted 
                        under clause (i) is not a multiple of $50, such 
                        amount shall be rounded to the nearest multiple 
                        of $50.''.
            (3) Conforming amendment.--Section 4973(e)(1)(A) is amended 
        by striking ``$500'' and inserting ``the applicable dollar 
        amount for the calendar year in which such taxable year 
        begins''.
            (4) Elimination of the marriage penalty in the reduction in 
        permitted contributions.--Section 530(c)(1) (relating to 
        reduction in permitted contributions based on adjusted gross 
        income) is amended--
                    (A) by striking ``$150,000'' in subparagraph 
                (A)(ii) and inserting ``$190,000'', and
                    (B) by striking ``$10,000'' in subparagraph (B) and 
                inserting ``$30,000''.
    (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 
     
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   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 
                        1st day of the 6th 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 higher 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 Coverdell 
Education Savings Accounts.--
            (1) In general.--
                    (A) Section 530 (as amended by the preceding 
                provisions of this section) is amended by striking ``an 
                education individual retirement account'' each place it 
                appears and inserting ``a Coverdell education savings 
                account''.
                    (B) The heading for paragraph (1) of section 530(b) 
                is amended by striking ``Education individual 
                retirement account'' and inserting ``Coverdell 
                education savings account''.
                    (C) The heading for section 530 is amended to read 
                as follows:

``SEC. 530. 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. Coverdell education savings 
                                        accounts.''.
            (2) Conforming amendments.--
                    (A) The following provisions are each amended by 
                striking ``an education individual retirement'' each 
                place it appears and inserting ``a Coverdell education 
                savings'':
                            (i) Section 25A(e)(2).
                            (ii) Section 72(e)(9).
                            (iii) Section 135(c)(2)(C).
                            (iv) Section 4973(a).
                            (v) Subsections (c) and (e) of section 
                        4975.
                    (B) The following provisions are each amended by 
                striking ``education individual retirement'' each place 
                it appears and inserting ``Coverdell education 
                savings'':
                            (i) Section 26(b)(2)(E).
                            (ii) Section 4973(e).
                            (iii) Section 6693(a)(2)(D).
                    (C) The headings for each of the following 
                provisions are amended by striking ``education 
                individual retirement accounts'' each place it appears 
                and inserting ``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 December 31, 2001.
            (2) Subsection (g).--The amendments made by subsection (g) 
        shall take effect on the date of the enactment of this Act.

SEC. 3. EXCLUSION FROM INCOME OF CERTAIN AMOUNTS CONTRIBUTED TO 
              COVERDELL EDUCATION SAVINGS ACCOUNTS.

    (a) In General.--Part III of subchapter B or chapter 1 of the 
Internal Revenue Code of 1986 (relating to items specifically excluded 
from gross income) is amended by redesignating section 139 as section 
140 and by adding at the end the following:

``SEC. 139. COVERDELL EDUCATION SAVINGS ACCOUNTS.

    ``(a) Exclusion From Gross Income.--Gross income of an employee 
shall not include--
            ``(1) amounts paid or incurred by the employer for a 
        qualified Coverdell education savings account contribution on 
        behalf of the employee or a member of the employee's family, 
        and
            ``(2) any distribution from a Coverdell education savings 
        account of such contribution.
    ``(b) Qualified Coverdell Education Savings Account Contribution.--
For purposes of this section--
            ``(1) In general.--The term `qualified Coverdell education 
    
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    savings account contribution' means an amount contributed, 
        directly or indirectly, as part of an education savings program 
        by an employer to a Coverdell education savings account 
        established and maintained for the benefit of the employee or a 
        member of the employee's family.
            ``(2) Education savings program.--For purposes of paragraph 
        (1), an education savings program is a separate written plan of 
        an employer for the exclusive benefit of such employer's 
        employees--
                    ``(A) under which the employer makes contributions 
                described in paragraph (1), and
                    ``(B) which meets requirements similar to the 
                requirements of paragraphs (2), (3), (5), and (6) of 
                section 127(b).''.
    (b) Conforming Amendment.--The table of sections for part III of 
subchapter B or chapter 1 of the Internal Revenue Code of 1986 is 
amended by striking the item relating to section 139 and by inserting 
the following:

                              ``Sec. 139. Coverdell education savings 
                                        accounts.
                              ``Sec. 140. Cross references to other 
                                        Acts.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to contributions made in taxable years beginning after December 
31, 2001.
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