Archived Information
Taxpayer Relief Act of 1997
|
Below you will find the sections of the Taxpayer Relief Act of 1997 that are relevant to education and to the HOPE Scholarship and Lifetime Learning Tax Credits. If you would like to view the entire law, it is available in portable document format (pdf). To read a pdf file you will need a copy of the Adobe Acrobat reader; if you do not have Acrobat, you can download a free copy from Adobe. |
TITLE II--EDUCATION INCENTIVES
SUBTITLE A--TAX BENEFITS RELATING TO EDUCATION EXPENSES SEC. 201. HOPE AND LIFETIME LEARNING CREDITS. (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 25 the following new section: `SEC. 25A. HOPE AND LIFETIME LEARNING CREDITS. `(a) ALLOWANCE OF CREDIT- In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year the amount equal to the sum of-- `(1) the Hope Scholarship Credit, plus `(2) the Lifetime Learning Credit. `(b) HOPE SCHOLARSHIP CREDIT- `(1) PER STUDENT CREDIT- In the case of any eligible student for whom an election is in effect under this section for any taxable year, the Hope Scholarship Credit is an amount equal to the sum of-- `(A) 100 percent of so much of the qualified tuition and related expenses paid by the taxpayer during the taxable year (for education furnished to the eligible student during any academic period beginning in such taxable year) as does not exceed $1,000, plus `(B) 50 percent of such expenses so paid as exceeds $1,000 but does not exceed the applicable limit. `(2) LIMITATIONS APPLICABLE TO HOPE SCHOLARSHIP CREDIT- `(A) CREDIT ALLOWED ONLY FOR 2 TAXABLE YEARS- An election to have this section apply with respect to any eligible student for purposes of the Hope Scholarship Credit under subsection (a)(1) may not be made for any taxable year if such an election (by the taxpayer or any other individual) is in effect with respect to such student for any 2 prior taxable years. `(B) CREDIT ALLOWED FOR YEAR ONLY IF INDIVIDUAL IS AT LEAST 1/2 TIME STUDENT FOR PORTION OF YEAR- The Hope Scholarship Credit under subsection (a)(1) shall not be allowed for a taxable year with respect to the qualified tuition and related expenses of an individual unless such individual is an eligible student for at least one academic period which begins during such year. `(C) CREDIT ALLOWED ONLY FOR FIRST 2 YEARS OF POSTSECONDARY EDUCATION- The Hope Scholarship Credit under subsection (a)(1) shall not be allowed for a taxable year with respect to the qualified tuition and related expenses of an eligible student if the student has completed (before the beginning of such taxable year) the first 2 years of postsecondary education at an eligible educational institution. `(D) DENIAL OF CREDIT IF STUDENT CONVICTED OF A FELONY DRUG OFFENSE- The Hope Scholarship Credit under subsection (a)(1) shall not be allowed for qualified tuition and related 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. `(3) ELIGIBLE STUDENT- For purposes of this subsection, the term `eligible student' means, with respect to any academic period, a student who-- `(A) meets the requirements of section 484(a)(1) of the Higher Education Act of 1965 (20 U.S.C. 1091(a)(1)), as in effect on the date of the enactment of this section, and `(B) is carrying at least 1/2 the normal full-time work load for the course of study the student is pursuing. `(4) APPLICABLE LIMIT- For purposes of paragraph (1)(B), the applicable limit for any taxable year is an amount equal to 2 times the dollar amount in effect under paragraph (1)(A) for such taxable year. `(c) LIFETIME LEARNING CREDIT- `(1) PER TAXPAYER CREDIT- The Lifetime Learning Credit for any taxpayer for any taxable year is an amount equal to 20 percent of so much of the qualified tuition and related expenses paid by the taxpayer during the taxable year (for education furnished during any academic period beginning in such taxable year) as does not exceed $10,000 ($5,000 in the case of taxable years beginning before January 1, 2003). `(2) SPECIAL RULES FOR DETERMINING EXPENSES- `(A) COORDINATION WITH HOPE SCHOLARSHIP- The qualified tuition and related expenses with respect to an individual who is an eligible student for whom a Hope Scholarship Credit under subsection (a)(1) is allowed for the taxable year shall not be taken into account under this subsection. `(B) EXPENSES ELIGIBLE FOR LIFETIME LEARNING CREDIT- For purposes of paragraph (1), qualified tuition and related expenses shall include expenses described in subsection (f)(1) with respect to any course of instruction at an eligible educational institution to acquire or improve job skills of the individual. `(d) LIMITATION BASED ON MODIFIED ADJUSTED GROSS INCOME- `(1) IN GENERAL- The amount which would (but for this subsection) be taken into account under subsection (a) for the taxable year shall be reduced (but not below zero) by the amount determined under paragraph (2). `(2) AMOUNT OF REDUCTION- The amount determined under this paragraph is the amount which bears the same ratio to the amount which would be so taken into account as-- `(A) the excess of-- `(i) the taxpayer's modified adjusted gross income for such taxable year, over `(ii) $40,000 ($80,000 in the case of a joint return), bears to `(B) $10,000 ($20,000 in the case of a joint return). `(3) MODIFIED ADJUSTED GROSS INCOME- The term `modified adjusted gross income' means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933. `(e) ELECTION TO HAVE SECTION APPLY- `(1) IN GENERAL- No credit shall be allowed under subsection (a) for a taxable year with respect to the qualified tuition and related expenses of an individual unless the taxpayer elects to have this section apply with respect to such individual for such year. `(2) COORDINATION WITH EXCLUSIONS- An election under this subsection shall not take effect with respect to an individual for any taxable year if any portion of any distribution during such taxable year from an education individual retirement account is excluded from gross income under section 530(d)(2). `(f) DEFINITIONS- For purposes of this section-- `(1) QUALIFIED TUITION AND RELATED EXPENSES- `(A) IN GENERAL- The term `qualified tuition and related expenses' means tuition and fees required for the enrollment or attendance of-- `(i) the taxpayer, `(ii) the taxpayer's spouse, or `(iii) any dependent of the taxpayer with respect to whom the taxpayer is allowed a deduction under section 151, at an eligible educational institution for courses of instruction of such individual at such institution. `(B) EXCEPTION FOR EDUCATION INVOLVING SPORTS, ETC- Such term does not include expenses with respect to any course or other education involving sports, games, or hobbies, unless such course or other education is part of the individual's degree program. `(C) EXCEPTION FOR NONACADEMIC FEES- Such term does not include student activity fees, athletic fees, insurance expenses, or other expenses unrelated to an individual's academic course of instruction. `(2) 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 section, and `(B) which is eligible to participate in a program under title IV of such Act. `(g) SPECIAL RULES- `(1) IDENTIFICATION REQUIREMENT- No credit shall be allowed under subsection (a) to a taxpayer with respect to the qualified tuition and related expenses of an individual unless the taxpayer includes the name and taxpayer identification number of such individual on the return of tax for the taxable year. `(2) ADJUSTMENT FOR CERTAIN SCHOLARSHIPS, ETC- The amount of qualified tuition and related expenses otherwise taken into account under subsection (a) with respect to an individual for an academic period shall be reduced (before the application of subsections (b), (c), and (d)) by the sum of any amounts paid for the benefit of such individual which are allocable to such period as-- `(A) a qualified scholarship which is excludable from gross income under section 117, `(B) an educational assistance allowance under chapter 30, 31, 32, 34, or 35 of title 38, United States Code, or under chapter 1606 of title 10, United States Code, and `(C) a payment (other than a gift, bequest, devise, or inheritance within the meaning of section 102(a)) for such individual's educational expenses, or attributable to such individual's enrollment at an eligible educational institution, which is excludable from gross income under any law of the United States. `(3) 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-- `(A) no credit shall be allowed under subsection (a) to such individual for such individual's taxable year, and `(B) qualified tuition and related 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. `(4) TREATMENT OF CERTAIN PREPAYMENTS- If qualified tuition and related expenses are paid by the taxpayer during a taxable year for an academic period which begins during the first 3 months following such taxable year, such academic period shall be treated for purposes of this section as beginning during such taxable year. `(5) DENIAL OF DOUBLE BENEFIT- No credit shall be allowed under this section for any expense for which a deduction is allowed under any other provision of this chapter. `(6) NO CREDIT FOR MARRIED INDIVIDUALS FILING SEPARATE RETURNS- If the taxpayer is a married individual (within the meaning of section 7703), this section shall apply only if the taxpayer and the taxpayer's spouse file a joint return for the taxable year. `(7) NONRESIDENT ALIENS- If the taxpayer is a nonresident alien individual for any portion of the taxable year, this section shall apply only if such individual is treated as a resident alien of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013. `(h) INFLATION ADJUSTMENTS- `(1) DOLLAR LIMITATION ON AMOUNT OF CREDIT- `(A) IN GENERAL- In the case of a taxable year beginning after 2001, each of the $1,000 amounts under subsection (b)(1) 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, determined by substituting `calendar year 2000' for `calendar year 1992' in subparagraph (B) thereof. `(B) ROUNDING- If any amount as adjusted under subparagraph (A) is not a multiple of $100, such amount shall be rounded to the next lowest multiple of $100. `(2) INCOME LIMITS- `(A) IN GENERAL- In the case of a taxable year beginning after 2001, the $40,000 and $80,000 amounts in subsection (d)(2) shall each 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, determined by substituting `calendar year 2000' for `calendar year 1992' in subparagraph (B) thereof. `(B) ROUNDING- If any amount as adjusted under subparagraph (A) is not a multiple of $1,000, such amount shall be rounded to the next lowest multiple of $1,000. `(i) REGULATIONS- The Secretary may prescribe such regulations as may be necessary or appropriate to carry out this section, including regulations providing for a recapture of the credit allowed under this section in cases where there is a refund in a subsequent taxable year of any amount which was taken into account in determining the amount of such credit.'. (b) EXTENSION OF PROCEDURES APPLICABLE TO MATHEMATICAL OR CLERICAL ERRORS- Paragraph (2) of section 6213(g) (relating to the definition of mathematical or clerical errors), as amended by section 101, is amended by striking `and' at the end of subparagraph (H), by striking the period at the end of subparagraph (I) and inserting `, and', and by inserting after subparagraph (I) the following new subparagraph: `(J) an omission of a correct TIN required under section 25A(g)(1) (relating to higher education tuition and related expenses) to be included on a return.'. (c) RETURNS RELATING TO TUITION AND RELATED EXPENSES- (1) IN GENERAL- Subpart B of part III of subchapter A of chapter 61 (relating to information concerning transactions with other persons) is amended by inserting after section 6050R the following new section: `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 subparagraph (C) of subsection (b)(2). 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 part II of subchapter B of chapter 68 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 DATES- (1) IN GENERAL- 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. (2) LIFETIME LEARNING CREDIT- Section 25A(a)(2) of the Internal Revenue Code of 1986 shall apply to expenses paid after June 30, 1998 (in taxable years ending after such date), for education furnished in academic periods beginning after such dates. SEC. 202. DEDUCTION FOR INTEREST ON EDUCATION LOANS. (a) IN GENERAL- 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. INTEREST ON EDUCATION LOANS. `(a) ALLOWANCE OF DEDUCTION- In the case of an individual, there shall be allowed as a deduction for the taxable year an amount equal to the interest paid by the taxpayer during the taxable year on any qualified education loan. `(b) MAXIMUM DEDUCTION- `(1) IN GENERAL- Except as provided in paragraph (2), the deduction allowed by subsection (a) for the taxable year shall not exceed the amount determined in accordance with the following table: `In the case of taxable years The dollar beginning in: amount is: 1998 --$1,000 1999 --$1,500 2000 --$2,000 2001 or thereafter --$2,500. `(2) LIMITATION BASED ON MODIFIED ADJUSTED GROSS INCOME- `(A) IN GENERAL- The amount which would (but for this paragraph) be allowable as a deduction under this section shall be reduced (but not below zero) by the amount determined under subparagraph (B). `(B) AMOUNT OF REDUCTION- The amount determined under this subparagraph is the amount which bears the same ratio to the amount which would be so taken into account as-- `(i) the excess of-- `(I) the taxpayer's modified adjusted gross income for such taxable year, over `(II) $40,000 ($60,000 in the case of a joint return), bears to `(ii) $15,000. `(C) MODIFIED ADJUSTED GROSS INCOME- The term `modified adjusted gross income' means adjusted gross income determined-- `(i) without regard to this section and sections 135, 137, 911, 931, and 933, and `(ii) after application of sections 86, 219, and 469. For purposes of sections 86, 135, 137, 219, and 469, adjusted gross income shall be determined without regard to the deduction allowed under this section. `(c) DEPENDENTS NOT ELIGIBLE FOR DEDUCTION- No deduction shall be allowed by this section to an individual for the taxable year if a deduction under section 151 with respect to such individual is allowed to another taxpayer for the taxable year beginning in the calendar year in which such individual's taxable year begins. `(d) LIMIT ON PERIOD DEDUCTION ALLOWED- A deduction shall be allowed under this section only with respect to interest paid on any qualified education loan during the first 60 months (whether or not consecutive) in which interest payments are required. For purposes of this paragraph, any loan and all refinancings of such loan shall be treated as 1 loan. `(e) DEFINITIONS- For purposes of this section-- `(1) QUALIFIED EDUCATION LOAN- The term `qualified education loan' means any indebtedness incurred to pay qualified higher education expenses-- `(A) which are incurred on behalf of the taxpayer, the taxpayer's spouse, or any dependent of the taxpayer as of the time the indebtedness was incurred, `(B) which are paid or incurred within a reasonable period of time before or after the indebtedness is incurred, and `(C) which are attributable to education furnished during a period during which the recipient was an eligible student. Such term includes indebtedness used to refinance indebtedness which qualifies as a qualified education loan. The term `qualified education loan' shall not include any indebtedness owed to a person who is related (within the meaning of section 267(b) or 707(b)(1)) to the taxpayer. `(2) QUALIFIED HIGHER EDUCATION EXPENSES- The term `qualified higher education expenses' means 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 day before the date of the enactment of this Act) at an eligible educational institution, reduced by the sum of-- `(A) the amount excluded from gross income under section 127, 135, or 530 by reason of such expenses, and `(B) the amount of any scholarship, allowance, or payment described in section 25A(g)(2). For purposes of the preceding sentence, the term `eligible educational institution' has the same meaning given such term by section 25A(f)(2), except that such term shall also include an institution conducting an internship or residency program leading to a degree or certificate awarded by an institution of higher education, a hospital, or a health care facility which offers postgraduate training. `(3) ELIGIBLE STUDENT- The term `eligible student' has the meaning given such term by section 25A(b)(3). `(4) DEPENDENT- The term `dependent' has the meaning given such term by section 152. `(f) SPECIAL RULES- `(1) DENIAL OF DOUBLE BENEFIT- No deduction shall be allowed under this section for any amount for which a deduction is allowable under any other provision of this chapter. `(2) MARRIED COUPLES MUST FILE JOINT RETURN- If the taxpayer is married at the close of the taxable year, the deduction shall be allowed under subsection (a) only if the taxpayer and the taxpayer's spouse file a joint return for the taxable year. `(3) MARITAL STATUS- Marital status shall be determined in accordance with section 7703. `(g) INFLATION ADJUSTMENTS- `(1) IN GENERAL- In the case of a taxable year beginning after 2002, the $40,000 and $60,000 amounts in subsection (b)(2) shall each be increased by an amount equal to-- `(A) such dollar amount, multiplied by `(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting `calendar year 2001' for `calendar year 1992' in subparagraph (B) thereof. `(2) ROUNDING- If any amount as adjusted under paragraph (1) is not a multiple of $5,000, such amount shall be rounded to the next lowest multiple of $5,000.'. (b) DEDUCTION ALLOWED WHETHER OR NOT TAXPAYER ITEMIZES OTHER DEDUCTIONS- Subsection (a) of section 62 is amended by inserting after paragraph (16) the following new paragraph: `(17) INTEREST ON EDUCATION LOANS- The deduction allowed by section 221.'. (c) REPORTING REQUIREMENT- (1) IN GENERAL- Section 6050S(a)(2) (relating to returns relating to higher education tuition and related expenses) is amended to read as follows: `(2) which is engaged in a trade or business and which, in the course of such trade or business-- `(A) makes payments during any calendar year to any individual which constitutes reimbursements or refunds (or similar amounts) of qualified tuition and related expenses of such individual, or `(B) except as provided in regulations, receives from any individual interest aggregating $600 or more for any calendar year on 1 or more qualified education loans,'. (2) INFORMATION- Section 6050S(b)(2) is amended-- (A) by inserting `or interest' after `payments' in subparagraph (A), and (B) in subparagraph (C), by striking `and' at the end of clause (i), by inserting `and' at the end of clause (ii), and by inserting after clause (ii) the following: `(iii) aggregate amount of interest received for the calendar year from such individual,'. (3) DEFINITION- Section 6050S(e) is amended by inserting `, and except as provided in regulations, the term `qualified education loan' has the meaning given such term by section 221(e)(1)' after `section 25A'. (d) CLERICAL AMENDMENT- The table of sections for part VII of subchapter B of chapter 1 is amended by striking the last item and inserting the following new items: `SEC. 221. INTEREST ON EDUCATION LOANS. `SEC. 222. CROSS REFERENCE.'. (e) EFFECTIVE DATE- The amendments made by this section shall apply to any qualified education loan (as defined in section 221(e)(1) of the Internal Revenue Code of 1986, as added by this section) incurred on, before, or after the date of the enactment of this Act, but only with respect to-- (1) any loan interest payment due and paid after December 31, 1997, and (2) the portion of the 60-month period referred to in section 221(d) of the Internal Revenue Code of 1986 (as added by this section) after December 31, 1997. 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)) 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. SUBTITLE B--EXPANDED EDUCATION INVESTMENT SAVINGS OPPORTUNITIES PART I--QUALIFIED TUITION PROGRAMS SEC. 211. MODIFICATIONS OF QUALIFIED STATE TUITION PROGRAMS. (a) 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 educational institution. `(B) ROOM AND BOARD INCLUDED FOR STUDENTS UNDER GUARANTEED PLANS WHO ARE AT LEAST HALF-TIME- `(i) IN GENERAL- In the case of an individual who is an eligible student (as defined in section 25A(b)(3)) for any academic period, such term shall also include reasonable costs for such period (as determined under the qualified State tuition program) incurred by the designated beneficiary for room and board while attending such institution. For purposes of subsection (b)(7), a designated beneficiary shall be treated as meeting the requirements of this clause. `(ii) LIMITATION- 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.'. (b) 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) 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-- `(A) IN GENERAL- Any contribution to a qualified tuition program on behalf of any designated beneficiary-- `(i) shall be treated as a completed gift to such beneficiary which is not a future interest in property, and `(ii) shall not be treated as a qualified transfer under section 2503(e). `(B) TREATMENT OF EXCESS CONTRIBUTIONS- If the aggregate amount of contributions described in subparagraph (A) during the calendar year by a donor exceeds the limitation for such year under section 2503(b), such aggregate amount shall, at the election of the donor, be taken into account for purposes of such section ratably over the 5-year period beginning with such calendar year.'. (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- Except as provided in subparagraph (B), 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. `(C) AMOUNTS INCLUDIBLE IN ESTATE OF DONOR MAKING EXCESS CONTRIBUTIONS- In the case of a donor who makes the election described in paragraph (2)(B) and who dies before the close of the 5-year period referred to in such paragraph, notwithstanding subparagraph (A), the gross estate of the donor shall include the portion of such contributions properly allocable to periods after the date of death of the donor.'. (4) PROHIBITION AGAINST INVESTMENT DIRECTION- Section 529(b)(5) is amended by inserting `directly or indirectly' after `may not'. (c) 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 STATE TUITION PROGRAM- Such term shall include any contribution to a qualified State 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 529(c)(3)(A) by reason of any portion of such contribution which is not includible in gross income by reason of this subparagraph.'. (d) CLARIFICATION OF TAXATION OF DISTRIBUTIONS- Subparagraph (A) of section 529(c)(3) is amended by striking `section 72' and inserting `section 72(b)'. (e) TECHNICAL AMENDMENTS- (1)(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.'. (2)(A) Section 529(d) is amended to read as follows: `(d) REPORTS- Each officer or employee having control of the qualified State tuition program or their designee shall make such reports regarding such program to the Secretary and to designated beneficiaries with respect to contributions, distributions, and such other matters as the Secretary may require. 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 the Secretary.'. (B) 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 529(d) (relating to qualified State tuition programs).'. (C) The section heading for section 6693 is amended by striking `INDIVIDUAL RETIREMENT' and inserting `CERTAIN TAX-FAVORED'. (D) 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'. (f) 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- The amendment made by subsection (a) shall take effect as if included in the amendments made by section 1806 of the Small Business Job Protection Act of 1996. (3) ELIGIBLE EDUCATIONAL INSTITUTION- The amendment made by subsection (b)(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. (4) COORDINATION WITH EDUCATION SAVINGS BONDS- The amendment made by subsection (c) 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. (6) TRANSITION RULE FOR PRE-AUGUST 20, 1996 CONTRACTS- In the case of any contract issued prior to August 20, 1996, section 529(c)(3)(C) of the Internal Revenue Code of 1986 shall be applied for taxable years ending after August 20, 1996, without regard to the requirement that a distribution be transferred to a member of the family or the requirement that a change in beneficiaries may be made only to a member of the family. PART II--EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS SEC. 213. EDUCATION INDIVIDUAL RETIREMENT 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 INDIVIDUAL RETIREMENT ACCOUNTS. `(a) GENERAL RULE- An education individual retirement account shall be exempt from taxation under this subtitle. Notwithstanding the preceding sentence, the education individual retirement 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 INDIVIDUAL RETIREMENT ACCOUNT- The term `education individual retirement account' means a trust created or organized in the United States exclusively for the purpose of paying the qualified higher education expenses of the designated beneficiary of the trust (and designated as an education individual retirement account at the time created or organized), 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 such beneficiary attains age 18, or `(iii) except in the case of rollover contributions, if such contribution would result in aggregate contributions for the taxable year exceeding $500. `(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 or who has so demonstrated with respect to any individual retirement plan. `(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) Upon the death of the designated beneficiary, any balance to the credit of the beneficiary shall be distributed within 30 days after the date of death to the estate of such beneficiary. `(2) QUALIFIED HIGHER EDUCATION EXPENSES- `(A) IN GENERAL- The term `qualified higher education expenses' has the meaning given such term by section 529(e)(3), reduced as provided in section 25A(g)(2). `(B) QUALIFIED STATE 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 State tuition program (as defined in section 529(b)) for the benefit of the beneficiary of the account. `(3) ELIGIBLE EDUCATIONAL INSTITUTION- The term `eligible educational institution' has the meaning given such term by section 529(e)(5). `(c) REDUCTION IN PERMITTED CONTRIBUTIONS BASED ON ADJUSTED GROSS INCOME- `(1) IN GENERAL- The maximum amount which a contributor could otherwise make to an account under this section shall be reduced by an amount which bears the same ratio to such maximum amount as-- `(A) the excess of-- `(i) the contributor's modified adjusted gross income for such taxable year, over `(ii) $95,000 ($150,000 in the case of a joint return), bears to `(B) $15,000 ($10,000 in the case of a joint return). `(2) MODIFIED ADJUSTED GROSS INCOME- For purposes of paragraph (1), the term `modified adjusted gross income' means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933. `(d) TAX TREATMENT OF DISTRIBUTIONS- `(1) IN GENERAL- Any distribution shall be includible in the gross income of the distributee in the manner as provided in section 72(b). `(2) DISTRIBUTIONS FOR QUALIFIED HIGHER EDUCATION EXPENSES- `(A) IN GENERAL- No amount shall be includible in gross income under paragraph (1) if the qualified higher education expenses of the designated beneficiary during the taxable year are not less than the aggregate distributions during the taxable year. `(B) DISTRIBUTIONS IN EXCESS OF EXPENSES- If such aggregate distributions exceed such expenses during the taxable year, the amount otherwise includible in gross income under paragraph (1) shall be reduced by the amount which bears the same ratio to the amount which would be includible in gross income under paragraph (1) (without regard to this subparagraph) as the qualified higher education expenses bear to such aggregate distributions. `(C) ELECTION TO WAIVE EXCLUSION- A taxpayer may elect to waive the application of this paragraph for any taxable year. `(3) 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. `(4) ADDITIONAL TAX FOR DISTRIBUTIONS NOT USED FOR EDUCATIONAL EXPENSES- `(A) IN GENERAL- The tax imposed by this chapter for any taxable year on any taxpayer who receives a payment or distribution from an education individual retirement account which is includible in gross income shall be increased by 10 percent of the amount which is so includible. `(B) EXCEPTIONS- Subparagraph (A) shall not apply if the payment or distribution is-- `(i) made to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary, `(ii) attributable to the designated beneficiary's being disabled (within the meaning of section 72(m)(7)), or `(iii) made on account of a scholarship, allowance, or payment described in section 25A(g)(2) 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. `(C) EXCESS CONTRIBUTIONS RETURNED BEFORE DUE DATE OF RETURN- Subparagraph (A) shall not apply to the distribution of any contribution made during a taxable year on behalf of a designated beneficiary to the extent that such contribution exceeds $500 if-- `(i) 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 `(ii) such distribution is accompanied by the amount of net income attributable to such excess contribution. Any net income described in clause (ii) shall be included in gross income for the taxable year in which such excess contribution was made. `(5) ROLLOVER CONTRIBUTIONS- Paragraph (1) shall not apply to any amount paid or distributed from an education individual retirement account to the extent that the amount received is paid into another education individual retirement account for the benefit of the same beneficiary or a member of the family (within the meaning of section 529(e)(2)) of such beneficiary 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. `(6) CHANGE IN BENEFICIARY- Any change in the beneficiary of an education individual retirement account shall not be treated as a distribution for purposes of paragraph (1) if the new beneficiary is a member of the family (as so defined) of the old beneficiary. `(7) SPECIAL RULES FOR DEATH AND DIVORCE- Rules similar to the rules of paragraphs (7) and (8) of section 220(f) shall apply. `(e) TAX TREATMENT OF ACCOUNTS- Rules similar to the rules of paragraphs (2) and (4) of section 408(e) shall apply to any education individual retirement account. `(f) COMMUNITY PROPERTY LAWS- This section shall be applied without regard to any community property laws. `(g) 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. `(h) REPORTS- The trustee of an education individual retirement account shall make such reports regarding such account to the Secretary and to the beneficiary of the account with respect to contributions, distributions, and such other matters as the Secretary may require. 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.'. (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 individual retirement 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 INDIVIDUAL RETIREMENT ACCOUNTS- An individual for whose benefit an education individual retirement 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 INDIVIDUAL RETIREMENT ACCOUNTS- 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 (B), by striking the period at the end of subparagraph (C) and inserting `, and', and by adding at the end the following new subparagraph: `(D) Section 530(h) (relating to education individual retirement accounts).'. (d) TAX ON EXCESS CONTRIBUTIONS- (1) IN GENERAL- Subsection (a) of section 4973 is amended by striking `or' at the end of paragraph (2), by adding `or' at the end of paragraph (3), and by inserting after paragraph (3) the following new paragraph: `(4) an education individual retirement 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 EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS- For purposes of this section-- `(1) IN GENERAL- In the case of education individual retirement accounts maintained for the benefit of any 1 beneficiary, the term `excess contributions' means-- `(A) the amount by which the amount contributed for the taxable year to such accounts exceeds $500, and `(B) any amount contributed to such accounts for any taxable year if any amount is contributed during such year to a qualified State tuition program for the benefit of such beneficiary. `(2) 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 individual retirement account in a distribution to which section 530(d)(4)(C) applies. `(B) Any contribution described in section 530(b)(2)(B) to a qualified State tuition program. `(C) Any rollover contribution.'. (e) TECHNICAL AMENDMENTS- (1) Section 26(b)(2) 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 530(d)(3) (relating to additional tax on certain distributions from education individual retirement accounts),'. (2) Subparagraph (C) of section 135(c)(2), as added by the preceding section, is amended by inserting `, or to an education individual retirement account (as defined in section 530) on behalf of an account beneficiary,' 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 INDIVIDUAL RETIREMENT ACCOUNTS.'. (f) 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 beginning after May 31, 2000.'. (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1996. SEC. 222. REPEAL OF LIMITATION ON QUALIFIED 501(c)(3) BONDS OTHER THAN HOSPITAL BONDS. Section 145(b) (relating to qualified 501(c)(3) bond) is amended by adding at the end the following new paragraph: `(5) TERMINATION OF LIMITATION- This subsection shall not apply with respect to bonds issued after the date of the enactment of this paragraph as part of an issue 95 percent or more of the net proceeds of which are to be used to finance capital expenditures incurred after such date.'. SEC. 223. INCREASE IN ARBITRAGE REBATE EXCEPTION FOR GOVERNMENTAL BONDS USED TO FINANCE EDUCATION FACILITIES. (a) IN GENERAL- Section 148(f)(4)(D) (relating to exception for governmental units issuing $5,000,000 or less of bonds) is amended by adding at the end the following new clause: `(vii) INCREASE IN EXCEPTION FOR BONDS FINANCING PUBLIC SCHOOL CAPITAL EXPENDITURES- Each of the $5,000,000 amounts in the preceding provisions of this subparagraph shall be increased by the lesser of $5,000,000 or so much of the aggregate face amount of the bonds as are attributable to financing the construction (within the meaning of subparagraph (C)(iv)) of public school facilities.'. (b) EFFECTIVE DATE- The amendments made by this section shall apply to bonds issued after December 31, 1997. SEC. 224. 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) the original use of the property is by the donor or the donee, `(iv) 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, `(v) the property is not transferred by the donee in exchange for money, other property, or services, except for shipping, installation and transfer costs, `(vi) the property will fit productively into the entity's education plan, and `(vii) the entity's use and disposition of the property will be in accordance with the provisions of clauses (iv) and (v). `(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 (v) 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 (iv) through (vii) 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). `(F) TERMINATION- This paragraph shall not apply to any contribution made during any taxable year beginning after December 31, 1999.'. (b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after December 31, 1997. SEC. 225. TREATMENT OF CANCELLATION OF CERTAIN STUDENT LOANS. (a) 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.'. (b) EFFECTIVE DATE- The amendments made by this section shall apply to discharges of indebtedness after the date of the enactment of this Act. SEC. 226. INCENTIVES FOR EDUCATION ZONES. (a) IN GENERAL- Subchapter U of chapter 1 (relating to additional incentives for empowerment zones) is amended by redesignating part IV as part V, by redesignating section 1397E as section 1397F, and by inserting after part III the following new part: `PART IV--INCENTIVES FOR EDUCATION ZONES `SEC. 1397E. CREDIT TO HOLDERS OF QUALIFIED ZONE ACADEMY BONDS.'. `SEC. 1397E. CREDIT TO HOLDERS OF QUALIFIED ZONE ACADEMY BONDS. `(a) ALLOWANCE OF CREDIT- In the case of an eligible taxpayer who holds a qualified zone academy bond on the credit allowance date of such bond which occurs during the taxable year, there shall be allowed as a credit against the tax imposed by this chapter for such taxable year the amount determined under subsection (b). `(b) AMOUNT OF CREDIT- `(1) IN GENERAL- The amount of the credit determined under this subsection with respect to any qualified zone academy bond is the amount equal to the product of-- `(A) the credit rate determined by the Secretary under paragraph (2) for the month in which such bond was issued, multiplied by `(B) the face amount of the bond held by the taxpayer on the credit allowance date. `(2) DETERMINATION- During each calendar month, the Secretary shall determine a credit rate which shall apply to bonds issued during the following calendar month. The credit rate for any month is the percentage which the Secretary estimates will permit the issuance of qualified zone academy bonds without discount and without interest cost to the issuer. `(c) LIMITATION BASED ON AMOUNT OF TAX- The credit allowed under subsection (a) for any taxable year shall not exceed the excess of-- `(1) the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over `(2) the sum of the credits allowable under part IV of subchapter A (other than subpart C thereof, relating to refundable credits). `(d) QUALIFIED ZONE ACADEMY BOND- For purposes of this section-- `(1) IN GENERAL- The term `qualified zone academy bond' means any bond issued as part of an issue if-- `(A) 95 percent or more of the proceeds of such issue are to be used for a qualified purpose with respect to a qualified zone academy established by an eligible local education agency, `(B) the bond is issued by a State or local government within the jurisdiction of which such academy is located, `(C) the issuer-- `(i) designates such bond for purposes of this section, `(ii) certifies that it has written assurances that the private business contribution requirement of paragraph (2) will be met with respect to such academy, and `(iii) certifies that it has the written approval of the eligible local education agency for such bond issuance, and `(D) the term of each bond which is part of such issue does not exceed the maximum term permitted under paragraph (3). `(2) PRIVATE BUSINESS CONTRIBUTION REQUIREMENT- `(A) IN GENERAL- For purposes of paragraph (1), the private business contribution requirement of this paragraph is met with respect to any issue if the eligible local education agency that established the qualified zone academy has written commitments from private entities to make qualified contributions having a present value (as of the date of issuance of the issue) of not less than 10 percent of the proceeds of the issue. `(B) QUALIFIED CONTRIBUTIONS- For purposes of subparagraph (A), the term `qualified contribution' means any contribution (of a type and quality acceptable to the eligible local education agency) of-- `(i) equipment for use in the qualified zone academy (including state-of-the-art technology and vocational equipment), `(ii) technical assistance in developing curriculum or in training teachers in order to promote appropriate market driven technology in the classroom, `(iii) services of employees as volunteer mentors, `(iv) internships, field trips, or other educational opportunities outside the academy for students, or `(v) any other property or service specified by the eligible local education agency. `(3) TERM REQUIREMENT- During each calendar month, the Secretary shall determine the maximum term permitted under this paragraph for bonds issued during the following calendar month. Such maximum term shall be the term which the Secretary estimates will result in the present value of the obligation to repay the principal on the bond being equal to 50 percent of the face amount of the bond. Such present value shall be determined using as a discount rate the average annual interest rate of tax-exempt obligations having a term of 10 years or more which are issued during the month. If the term as so determined is not a multiple of a whole year, such term shall be rounded to the next highest whole year. `(4) QUALIFIED ZONE ACADEMY- `(A) IN GENERAL- The term `qualified zone academy' means any public school (or academic program within a public school) which is established by and operated under the supervision of an eligible local education agency to provide education or training below the postsecondary level if-- `(i) such public school or program (as the case may be) is designed in cooperation with business to enhance the academic curriculum, increase graduation and employment rates, and better prepare students for the rigors of college and the increasingly complex workforce, `(ii) students in such public school or program (as the case may be) will be subject to the same academic standards and assessments as other students educated by the eligible local education agency, `(iii) the comprehensive education plan of such public school or program is approved by the eligible local education agency, and `(iv)(I) such public school is located in an empowerment zone or enterprise community (including any such zone or community designated after the date of the enactment of this section), or `(II) there is a reasonable expectation (as of the date of issuance of the bonds) that at least 35 percent of the students attending such school or participating in such program (as the case may be) will be eligible for free or reduced-cost lunches under the school lunch program established under the National School Lunch Act. `(B) ELIGIBLE LOCAL EDUCATION AGENCY- The term `eligible local education agency' means any local education agency as defined in section 14101 of the Elementary and Secondary Education Act of 1965. `(5) QUALIFIED PURPOSE- The term `qualified purpose' means, with respect to any qualified zone academy-- `(A) rehabilitating or repairing the public school facility in which the academy is established, `(B) providing equipment for use at such academy, `(C) developing course materials for education to be provided at such academy, and `(D) training teachers and other school personnel in such academy. `(6) ELIGIBLE TAXPAYER- The term `eligible taxpayer' means-- `(A) a bank (within the meaning of section 581), `(B) an insurance company to which subchapter L applies, and `(C) a corporation actively engaged in the business of lending money. `(e) LIMITATION ON AMOUNT OF BONDS DESIGNATED- `(1) NATIONAL LIMITATION- There is a national zone academy bond limitation for each calendar year. Such limitation is $400,000,000 for 1998 and 1999, and, except as provided in paragraph (4), zero thereafter. `(2) ALLOCATION OF LIMITATION- The national zone academy bond limitation for a calendar year shall be allocated by the Secretary among the States on the basis of their respective populations of individuals below the poverty line (as defined by the Office of Management and Budget). The limitation amount allocated to a State under the preceding sentence shall be allocated by the State education agency to qualified zone academies within such State. `(3) DESIGNATION SUBJECT TO LIMITATION AMOUNT- The maximum aggregate face amount of bonds issued during any calendar year which may be designated under subsection (d)(1) with respect to any qualified zone academy shall not exceed the limitation amount allocated to such academy under paragraph (2) for such calendar year. `(4) CARRYOVER OF UNUSED LIMITATION- If for any calendar year-- `(A) the limitation amount for any State, exceeds `(B) the amount of bonds issued during such year which are designated under subsection (d)(1) with respect to qualified zone academies within such State, the limitation amount for such State for the following calendar year shall be increased by the amount of such excess. `(f) OTHER DEFINITIONS- For purposes of this section-- `(1) CREDIT ALLOWANCE DATE- The term `credit allowance date' means, with respect to any issue, the last day of the 1-year period beginning on the date of issuance of such issue and the last day of each successive 1-year period thereafter. `(2) BOND- The term `bond' includes any obligation. `(3) STATE- The term `State' includes the District of Columbia and any possession of the United States. `(g) CREDIT INCLUDED IN GROSS INCOME- Gross income includes the amount of the credit allowed to the taxpayer under this section.'. (b) CONFORMING AMENDMENTS- (1) The table of parts for subchapter U of chapter 1 is amended by striking the last item and inserting the following: `PART IV. INCENTIVES FOR EDUCATION ZONES. `PART V. REGULATIONS.'. (2) The table of sections for part V, as so redesignated, is amended to read as follows: `SEC. 1397F. REGULATIONS.'. (c) EFFECTIVE DATE- The amendments made by this section shall apply to obligations issued after December 31, 1997.
Return to HOPE Scholarship page