[House Report 114-25]
[From the U.S. Government Publishing Office]
114th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 114-25
======================================================================
AMENDING THE INTERNAL REVENUE CODE OF 1986 TO IMPROVE 529 PLANS
_______
February 20, 2015.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Ryan of Wisconsin, from the Committee on Ways and Means, submitted
the following
R E P O R T
together with
ADDITIONAL VIEWS
[To accompany H.R. 529]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 529) to amend the Internal Revenue Code of 1986 to
improve 529 plans, having considered the same, report favorably
thereon with an amendment and recommend that the bill as
amended do pass.
CONTENTS
Page
I. SUMMARY AND BACKGROUND...........................................3
A. Purpose and Summary................................. 3
B. Background and Need for Legislation................. 3
C. Legislative History................................. 3
II. EXPLANATION OF THE BILL..........................................4
A. Section 529 Programs (secs. 2, 3 and 4 of the bill
and sec. 529 of the Code).......................... 4
III. VOTES OF THE COMMITTEE...........................................7
IV. BUDGET EFFECTS OF THE BILL.......................................9
A. Committee Estimate of Budgetary Effects............. 9
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority...................... 9
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 9
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......11
A. Committee Oversight Findings and Recommendations.... 11
B. Statement of General Performance Goals and
Objectives......................................... 11
C. Information Relating to Unfunded Mandates........... 11
D. Applicability of House Rule XXI 5(b)................ 11
E. Tax Complexity Analysis............................. 11
F. Congressional Earmarks, Limited Tax Benefits, and
Limited Tariff Benefits............................ 12
G. Duplication of Federal Programs..................... 12
H. Disclosure of Directed Rule Makings................. 12
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........12
VII. ADDITIONAL VIEWS................................................20
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. FINDINGS AND PURPOSE.
(a) Findings.--Congress finds the following:
(1) When the Economic Growth and Tax Relief Reconciliation
Act of 2001 became law, the tax treatment of section 529
college savings plans was changed so that qualified
distributions were no longer taxed as income. The favorable tax
treatment of college savings plans was made permanent with the
passage of the Pension Protection Act of 2006.
(2) Section 529 college savings plans empower middle-class
families to accumulate savings to offset the rising costs of
attending college.
(3) The latest data from the College Savings Plan Network
shows that there are 11.83 million 529 accounts open throughout
all 50 states, which represent $244.5 billion in total assets.
The average 529 account size is $20,671.
(4) States that sponsor 529 college savings plans have taken
steps to ensure these plans are a tool that all families can
use to save for college, including setting minimum
contributions as low as $25 per month to encourage
participation by families of all income levels.
(5) The President's fiscal year 2016 Budget proposes raising
taxes by taxing certain future distributions made from 529
college savings plans.
(6) The tax proposed by the President would discourage the
use of 529 college savings plans, requiring families and
students to take on more debt.
(7) Purchase of a computer represents a significant higher
education expense and therefore should be eligible for
qualified distributions under 529 college savings plans.
(b) Purpose.--It is the purpose of this Act to--
(1) enact policies that strengthen 529 college savings plans,
and
(2) make 529 plans more modern, consumer-friendly, and
responsive to the realities faced by students today.
SEC. 2. COMPUTER TECHNOLOGY AND EQUIPMENT PERMANENTLY ALLOWED AS A
QUALIFIED HIGHER EDUCATION EXPENSE FOR SECTION 529
ACCOUNTS.
(a) In General.--Section 529(e)(3)(A)(iii) of the Internal Revenue
Code of 1986 is amended to read as follows:
``(iii) expenses for the purchase of computer
or peripheral equipment (as defined in section
168(i)(2)(B)), computer software (as defined in
section 197(e)(3)(B)), or Internet access and
related services, if such equipment, software,
or services are to be used primarily by the
beneficiary during any of the years the
beneficiary is enrolled at an eligible
educational institution.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2014.
SEC. 3. ELIMINATION OF DISTRIBUTION AGGREGATION REQUIREMENTS.
(a) In General.--Section 529(c)(3) of the Internal Revenue Code of
1986 is amended by striking subparagraph (D).
(b) Effective Date.--The amendment made by this section shall apply
to distributions after December 31, 2014.
SEC. 4. RECONTRIBUTION OF REFUNDED AMOUNTS.
(a) In General.--Section 529(c)(3) of the Internal Revenue Code of
1986, as amended by section 3, is amended by adding at the end the
following new subparagraph:
``(D) Special rule for contributions of refunded
amounts.--In the case of a beneficiary who receives a
refund of any qualified higher education expenses from
an eligible educational institution, subparagraph (A)
shall not apply to that portion of any distribution for
the taxable year which is recontributed to a qualified
tuition program of which such individual is a
beneficiary, but only to the extent such recontribution
is made not later than 60 days after the date of such
refund and does not exceed the refunded amount.''.
(b) Effective Date.--
(1) In general.--The amendment made by this section shall
apply with respect to refunds of qualified higher education
expenses after December 31, 2014.
(2) Transition rule.--In the case of a refund of qualified
higher education expenses received after December 31, 2014, and
before the date of the enactment of this Act, section
529(c)(3)(D) of the Internal Revenue Code of 1986 (as added by
this section) shall be applied by substituting ``not later than
60 days after the date of the enactment of this subparagraph''
for ``not later than 60 days after the date of such refund''.
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
H.R. 529, reported by the Committee on Ways and Means,
modernizes and improves the treatment of college savings
programs under section 529 of the Internal Revenue Code of 1986
(``529 plans''). It treats computer equipment and technology
expenses as qualified higher education expenses, and removes
the aggregation requirement for distributions. The bill also
protects from tax and penalties amounts taken as distributions,
paid as tuition, and then refunded, provided such amounts are
re-contributed to the 529 plan within 60 days.
B. Background and Need for Legislation
The Committee believes that 529 plans are an important
vehicle for encouraging middle-income families to save for
higher education, and that these plans should be modernized,
improved, and simplified for such families.
C. Legislative History
BACKGROUND
H.R. 529 was introduced on January 26, 2015, and was
referred to the Committee on Ways and Means.
COMMITTEE ACTION
The Committee on Ways and Means marked up H.R. 529, a bill
to amend the Internal Revenue Code of 1986 to improve 529 plans
on February 12, 2015, and ordered the bill, as amended,
favorably reported (with a quorum being present).
COMMITTEE HEARINGS
The tax treatment of 529 plans was discussed at a full
Committee hearing on the President's Fiscal Year 2016 Budget
Proposal with Secretary of the Treasury Jacob J. Lew (February
3, 2015).
II. EXPLANATION OF THE BILL
A. Section 529 Programs (Secs. 2, 3 and 4 of the Bill and Sec. 529 of
the Code)
PRESENT LAW
SECTION 529 QUALIFIED TUITION PROGRAMS
In general
A qualified tuition program is a program established and
maintained by a State or agency or instrumentality thereof, or
by one or more eligible educational institutions, which
satisfies certain requirements and under which a person may
purchase tuition credits or certificates on behalf of a
designated beneficiary that entitle the beneficiary to the
waiver or payment of qualified higher education expenses of the
beneficiary (a ``prepaid tuition program''). Section 529\1\
provides specified income tax and transfer tax rules for the
treatment of accounts and contracts established under qualified
tuition programs.\2\ In the case of a program established and
maintained by a State or agency or instrumentality thereof, a
qualified tuition program also includes a program under which a
person may make contributions to an account that is established
for the purpose of satisfying the qualified higher education
expenses of the designated beneficiary of the account, provided
it satisfies certain specified requirements (a ``savings
account program''). Under both types of qualified tuition
programs, a contributor establishes an account for the benefit
of a particular designated beneficiary to provide for that
beneficiary's higher education expenses.
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\1\Except where otherwise specified, all section references are to
the Internal Revenue Code of 1986, as amended (the ``Code'').
\2\For purposes of this description, the term ``account'' is used
interchangeably to refer to a prepaid tuition benefit contract or a
tuition savings account established pursuant to a qualified tuition
program.
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In general, prepaid tuition contracts and tuition savings
accounts established under a qualified tuition program involve
prepayments or contributions made by one or more individuals
for the benefit of a designated beneficiary. Decisions with
respect to the contract or account are typically made by an
individual who is not the designated beneficiary. Qualified
tuition accounts or contracts generally require the designation
of a person (generally referred to as an ``account owner'')\3\
whom the program administrator (oftentimes a third party
administrator retained by the State or by the educational
institution that established the program) may look to for
decisions, recordkeeping, and reporting with respect to the
account established for a designated beneficiary. The person or
persons who make the contributions to the account need not be
the same person who is regarded as the account owner for
purposes of administering the account. Under many qualified
tuition programs, the account owner generally has control over
the account or contract, including the ability to change
designated beneficiaries and to withdraw funds at any time and
for any purpose. Thus, in practice, qualified tuition accounts
or contracts generally involve a contributor, a designated
beneficiary, an account owner (who oftentimes is not the
contributor or the designated beneficiary), and an
administrator of the account or contract.
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\3\Section 529 refers to contributors and designated beneficiaries,
but does not define or otherwise refer to the term ``account owner,''
which is a commonly used term among qualified tuition programs.
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QUALIFIED HIGHER EDUCATION EXPENSES
For purposes of receiving a distribution from a qualified
tuition program that qualifies for favorable tax treatment
under the Code, 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, and expenses for special
needs services in the case of a special needs beneficiary that
are incurred in connection with such enrollment or attendance.
Qualified higher education expenses generally also include room
and board for students who are enrolled at least half-time. For
taxable years 2009 and 2010 only, qualified higher education
expenses included the purchase of any computer technology or
equipment, or Internet access or related services, if such
technology or services were to be used by the beneficiary or
the beneficiary's family during any of the years a beneficiary
was enrolled at an eligible institution.
CONTRIBUTIONS TO QUALIFIED TUITION PROGRAMS
Contributions to a qualified tuition program must be made
in cash. Section 529 does not impose a specific dollar limit on
the amount of contributions, account balances, or prepaid
tuition benefits relating to a qualified tuition account;
however, the program is required to have adequate safeguards to
prevent contributions in excess of amounts necessary to provide
for the beneficiary's qualified higher education expenses.
Contributions generally are treated as a completed gift
eligible for the gift tax annual exclusion. Contributions are
not tax deductible for Federal income tax purposes, although
they may be deductible for State income tax purposes. Amounts
in the account accumulate on a tax-free basis (i.e., income on
accounts in the plan is not subject to current income tax).
A qualified tuition program may not permit any contributor
to, or designated beneficiary under, the program to direct
(directly or indirectly) the investment of any contributions
(or earnings thereon) more than two times in any calendar year,
and must provide separate accounting for each designated
beneficiary. A qualified tuition program may not allow any
interest in an account or contract (or any portion thereof) to
be used as security for a loan.
DISTRIBUTIONS FROM QUALIFIED TUITION PROGRAMS
Distributions from a qualified tuition program are
excludable from the distributee's gross income to the extent
that the total distribution does not exceed the qualified
higher education expenses incurred for the beneficiary.\4\
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\4\Sec. 529(c)(3)(B)(i) and (ii)(I).
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If distribution from a qualified tuition program exceeds
the qualified higher education expenses incurred for the
beneficiary, the amount includible in gross income is
determined, first, by applying the annuity rules of section
72\5\ to determine the amount which would be includible in
gross income if none of the amount distributed was for
qualified higher education expenses and, then, reducing that
amount by an amount which bears the same ratio to that amount
as the qualified higher education expenses bear to the amount
of the distribution.\6\
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\5\Under section 72, a distribution is includible in income to the
extent that the distribution represents earnings on the contribution to
the program, determined on a pro rata basis.
\6\Sec. 529(c)(3)(A) and (B)(ii).
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For example, assume a taxpayer had $5,000 in a qualified
tuition program account, $4,000 of which was the amount
contributed. Also assume the taxpayer withdraws $1,000 from the
account and $500 is used for qualified higher education
expenses. First, the taxpayer applies the annuity rules of
section 72 which results in $200 being included in income under
section 72 assuming none of the distribution is used for
qualified higher education expenses. Then the taxpayer reduces
the $200 by one-half because 50 percent of the distribution was
used for qualified higher education expenses. Thus, $100 is
includible in gross income. This amount is subject to an
additional 10-percent tax (unless an exception applies).
The Code provides that, except as provided by the Secretary
of the Treasury (``Secretary''), for purposes of this
calculation, the taxpayer's account value, income, and
investment amount, are generally measured as of December 31st
of the taxable year in which the distribution was made. The
Secretary has issued guidance providing that the earnings
portion of a distribution is to be computed on the date of each
distribution.\7\
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\7\Notice 2001-81, 2001-2 C.B. 617, December 10, 2001.
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In the case of an individual who is the designated
beneficiary for more than one qualified tuition program, all
such accounts are aggregated for purposes of calculating the
earnings in the account under section 72. The Secretary has
provided in guidance that this aggregation is required only in
the case of accounts contained within the same 529 program,
having the same account owner and the same designated
beneficiary.\8\
---------------------------------------------------------------------------
\8\Ibid.
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REASONS FOR CHANGE
The Committee recognizes that computer technology is an
essential part of higher education, and thus believes that
funds used to purchase such technology should be considered a
qualified educational expense for purposes of section 529.
Additionally, the Committee believes that certain rules
requiring aggregation of section 529 accounts are difficult to
administer, adding a burden to 529 administrators. Finally, the
Committee believes that 529 programs should be able to allow
students who have received a refund of tuition that had been
paid with the proceeds of a 529 account to recontribute such
refund back into the account without being taxed and penalized.
EXPLANATION OF PROVISION
The provision makes three modifications to section 529.
First, the provision provides that qualified higher
education expenses include the purchase of computer or
peripheral equipment (as defined in section 168(i)(2)(B)),
computer software (as defined in section 197(e)(3)(B)), or
Internet access and related services if the equipment,
software, or services are to be used primarily by the
beneficiary during any of the years the beneficiary is enrolled
at an eligible education institution.
Second, the provision repeals the rules providing that
section 529 accounts must be aggregated for purposes of
calculating the amount of a distribution that is included in a
taxpayer's income. Thus, in the case of a designated
beneficiary who has received multiple distributions from a
qualified tuition program in the taxable year, the portion of a
distribution that represents earnings is now to be computed on
a distribution-by-distribution basis, rather than an aggregate
basis, such that the computation applies to each distribution
from an account. The following example illustrates the
operation of this provision: Assume that two designated savings
accounts have been established by the same account owner within
the same qualified tuition program for the same designated
beneficiary. Account A contains $20,000, all of which consists
of contributed amounts (i.e., it has no earnings). Account B
contains $30,000, $20,000 of which constitutes an investment in
the account, and $10,000 attributable to earnings on that
investment. Assume a taxpayer were to receive a $10,000
distribution from Account A, with none of the proceeds being
spent on qualified higher education expenses. Under present
law, both of the designated beneficiary's accounts would be
aggregated for purposes of computing earnings. Thus, $2,000 of
the $10,000 distribution from Account A ($10,000 * $10,000/
$50,000) would be included in the designated beneficiary's
income. Under the provision, the accounts would not be
aggregated for purposes of determining earnings on the account.
Thus, because Account A has no earnings, no amount of the
distribution would be included in the designated beneficiary's
income for the taxable year.
Third, the provision creates a new rule that provides, in
the case of a designated beneficiary who received a refund of
any higher education expenses, any distribution that was used
to pay such refunded expenses shall not be subject to tax if
the designated beneficiary recontributes the refunded amount to
the qualified tuition program within 60 days of receiving the
refund, only to the extent that such recontribution is not in
excess of the refund. A transition rule allows for
recontributions of amounts refunded after December 31, 2014 and
before the date of enactment to be made not later than 60 days
after the enactment of this provision.
EFFECTIVE DATE
The provision allowing computer technology to be considered
a higher education expense is effective for taxable years
beginning after December 31, 2014. The provision removing the
aggregation requirement in the case of multiple distributions
is effective for distributions made after December 31, 2014.
The provision allowing a recontribution of refunded tuition
amounts is effective for tuition refunded after December 31,
2014.
III. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the vote of the Committee on Ways and Means in its
consideration of H.R. 529, a bill to amend the Internal Revenue
Code of 1986 to improve 529 plans on February 12, 2015.
The amendment by Mr. Davis to the amendment in the nature
of a substitute, in which, under the amendment, 529 programs
would be required to provide certain information regarding
contributions and distributions required by the Secretary to be
made public in aggregate form, was not agreed to by a roll call
vote of 21 nays to 13 yeas (with a quorum being present). The
vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Ryan....................... ........ ......... Mr. Levin......... ........ ........
IMr. Johnson................... ........ ......... Mr. Rangel........ ........ ........
Mr. Brady...................... ........ ......... Mr. McDermott..... ........ ........
Mr. Nunes...................... ........ ......... Mr. Lewis......... ........ ........
Mr. Tiberi..................... ........ ......... Mr. Neal.......... ........ ........
Mr. Reichert................... ........ ......... Mr. Becerra....... ........ ........
Mr. Boustany................... ........ ......... Mr. Doggett....... ........ ........
Mr. Roskam..................... ........ ......... Mr. Thompson...... ........ ........
Mr. Price...................... ........ ........ ......... Mr. Larson........ ........ ........ ........
Mr. Buchanan................... ........ ......... Mr. Blumenauer.... ........ ........
Mr. Smith (NE)................. ........ ......... Mr. Kind.......... ........ ........
Mr. Schock..................... ........ ......... Mr. Pascrell...... ........ ........
Ms. Jenkins.................... ........ ......... Mr. Crowley....... ........ ........
Mr. Paulsen.................... ........ ......... Mr. Davis......... ........ ........
Mr. Marchant................... ........ ........ ......... Ms. Sanchez....... ........ ........ ........
Ms. Black...................... ........ ......... .................. ........ ........ ........
Mr. Reed....................... ........ ......... .................. ........ ........ ........
Mr. Young...................... ........ ......... .................. ........ ........ ........
Mr. Kelly...................... ........ ......... .................. ........ ........ ........
Mr. Renacci.................... ........ ......... .................. ........ ........ ........
Mr. Meehan..................... ........ ........ ......... .................. ........ ........ ........
Ms. Noem....................... ........ ......... .................. ........ ........ ........
Mr. Holding.................... ........ ......... .................. ........ ........ ........
Mr. Smith (MO)................. ........ ......... .................. ........ ........ ........
----------------------------------------------------------------------------------------------------------------
The amendment by Mr. Davis to the amendment in the nature
of a substitute, in which, under the amendment, taxpayers with
adjusted gross incomes of more than $3 million would not be
eligible to make contributions to 529 accounts, was not agreed
to by a roll call vote of 23 nays to 14 yeas (with a quorum
being present). The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Ryan....................... ........ ......... Mr. Levin........ ........ .........
Mr. Johnson.................... ........ ......... Mr. Rangel....... ........ .........
Mr. Brady...................... ........ ......... Mr. McDermott.... ........ .........
Mr. Nunes...................... ........ ......... Mr. Lewis........ ........ .........
Mr. Tiberi..................... ........ ......... Mr. Neal......... ........ .........
Mr. Reichert................... ........ ......... Mr. Becerra...... ........ .........
Mr. Boustany................... ........ ......... Mr. Doggett...... ........ .........
Mr. Roskam..................... ........ ......... Mr. Thompson..... ........ .........
Mr. Price...................... ........ ........ ......... Mr. Larson....... ........ .........
Mr. Buchanan................... ........ ......... Mr. Blumenauer... ........ .........
Mr. Smith (NE)................. ........ ......... Mr. Kind......... ........ .........
Mr. Schock..................... ........ ......... Mr. Pascrell..... ........ .........
Ms. Jenkins.................... ........ ......... Mr. Crowley...... ........ .........
Mr. Paulsen.................... ........ ......... Mr. Davis........ ........ .........
Mr. Marchant................... ........ ......... Ms. Sanchez...... ........ .........
Ms. Black...................... ........ ......... ................. ........ ........ .........
Mr. Reed....................... ........ ......... ................. ........ ........ .........
Mr. Young...................... ........ ......... ................. ........ ........ .........
Mr. Kelly...................... ........ ......... ................. ........ ........ .........
Mr. Renacci.................... ........ ......... ................. ........ ........ .........
Mr. Meehan..................... ........ ......... ................. ........ ........ .........
Mr. Noem....................... ........ ......... ................. ........ ........ .........
Mr. Holding.................... ........ ......... ................. ........ ........ .........
Mr. Smith (MO)................. ........ ......... ................. ........ ........ .........
----------------------------------------------------------------------------------------------------------------
The bill, H.R. 529, was ordered favorably reported as
amended to the House of Representatives by a voice vote (with a
quorum being present).
IV. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the effects on the budget of the bill, H.R. 529, as
reported.
The bill, as reported, is estimated to have the following
effect on Federal budget receipts for fiscal years 2015-2025:
----------------------------------------------------------------------------------------------------------------
Fiscal years, in millions of dollars--
-----------------------------------------------------------------------------------------------------------------
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2015-20 2015-25
----------------------------------------------------------------------------------------------------------------
-1 -2 -2 -3 -3 -4 -5 -6 -7 -8 -10 -15 -51
----------------------------------------------------------------------------------------------------------------
Pursuant to clause 8 of rule XIII of the Rules of the House
of Representatives, the following statement is made by the
Joint Committee on Taxation with respect to the provisions of
the bill amending the Internal Revenue Code of 1986: the gross
budgetary effect (before incorporating macroeconomic effects)
in any fiscal year is less than 0.25 percent of the current
projected gross domestic product of the United States for that
fiscal year; therefore, the bill is not ``major legislation''
for purposes of requiring that the estimate include the
budgetary effects of changes in economic output, employment,
capital stock and other macroeconomic variables.
B. Statement Regarding New Budget Authority and Tax Expenditures Budget
Authority
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority. The
Committee further states that the revenue-reducing tax
provisions involve increased tax expenditures. (See amounts in
table in Part IV.A., above.)
C. Cost Estimate Prepared by the Congressional Budget Office
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the CBO, the following statement by CBO is
provided.
U.S. Congress,
Congressional Budget Office,
Washington, DC, February 19, 2015.
Hon. Paul Ryan,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 529, a bill to
amend the Internal Revenue Code of 1986 to improve 529 plans.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Logan
Timmerhoff.
Sincerely,
Robert A. Sunshine
(For Douglas W. Elmendorf).
Enclosure.
H.R. 529--A bill to amend the Internal Revenue Code of 1986 to improve
529 plans
H.R. 529 would modify the tax treatment of college savings
plans authorized under section 529 of the Internal Revenue
Code. Under current law, income earned on amounts in those
accounts accumulates on a tax-free basis, and the distribution
of such income is not included in the taxable income of the
recipient to the extent that it is used to pay certain higher
education expenses. H.R. 529 would expand the qualifying
expenses to include certain computer and related expenses. The
bill would also modify the computation of the taxable portion
of a distribution when the contributor has established multiple
accounts for the student. In addition, H.R. 529 would allow
beneficiaries to pay no tax in the event that they receive a
refund from the educational institution (for example, after
withdrawing from enrollment) and contribute the refunded amount
back to the savings plan within 60 days.
The staff of the Joint Committee on Taxation (JCT)
estimates that enacting H.R. 529 would reduce revenues, thus
increasing federal deficits, by $51 million over the 2015-2025
period.
The Statutory Pay-As-You-Go Act of 2010 establishes budget-
reporting and enforcement procedures for legislation affecting
direct spending and revenues. Enacting H.R. 529 would result in
revenue losses in each year beginning in 2015. The estimated
increases in the deficit are shown in the following table.
JCT has determined that the bill contains no
intergovernmental or private-sector mandates as defined in the
Unfunded Mandates Reform Act.
The CBO staff contact for this estimate is Logan
Timmerhoff. The estimate was approved by David Weiner,
Assistant Director for Tax Analysis.
CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 529, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON FEBRUARY 12, 2015
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By fiscal year, in millions of dollars--
--------------------------------------------------------------------------------------------------
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2015-2020 2015-2025
--------------------------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN THE DEFICIT
Statutory Pay-As-You-Go Impact....................... 1 2 2 3 3 4 5 6 7 8 10 15 51
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE
A. Committee Oversight Findings and Recommendations
With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it was as a result of the
Committee's review of the provisions of H.R. 529 that the
Committee concluded that it is appropriate to report the bill,
as amended, favorably to the House of Representatives with the
recommendation that the bill do pass.
B. Statement of General Performance Goals and Objectives
With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.
C. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.
D. Applicability of House Rule XXI 5(b)
Rule XXI 5(b) of the Rules of the House of Representatives
provides, in part, that ``A bill or joint resolution,
amendment, or conference report carrying a Federal income tax
rate increase may not be considered as passed or agreed to
unless so determined by a vote of not less than three-fifths of
the Members voting, a quorum being present.'' The Committee has
carefully reviewed the bill, and states that the bill does not
involve any Federal income tax rate increases within the
meaning of the rule.
E. Tax Complexity Analysis
The following statement is made pursuant to clause 3(h)(1)
of rule XIII of the Rules of the House of Representatives.
Section 4022(b) of the Internal Revenue Service Restructuring
and Reform Act of 1998 requires the staff of the Joint
Committee on Taxation (in consultation with the Internal
Revenue Service and the Treasury Department) to provide a tax
complexity analysis. The complexity analysis is required for
all legislation reported by the Senate Committee on Finance,
the House Committee on Ways and Means, or any committee of
conference if the legislation includes a provision that
directly or indirectly amends the Internal Revenue Code and has
widespread applicability to individuals or small businesses.
Pursuant to clause 3(h)(1) of rule XIII of the Rules of the
House of Representatives, the staff of the Joint Committee on
Taxation has determined that a complexity analysis is not
required under section 4022(b) of the IRS Reform Act because
the bill contains no provisions that amend the Code and that
have ``widespread applicability'' to individuals or small
businesses, within the meaning of the rule.
F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff
Benefits
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill, and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
G. Duplication of Federal Programs
In compliance with Sec. 3(g)(2) of H. Res. 5 (114th
Congress), the Committee states that no provision of the bill
establishes or reauthorizes: (1) a program of the Federal
Government known to be duplicative of another Federal program,
(2) a program included in any report from the Government
Accountability Office to Congress pursuant to section 21 of
Public Law 111-139, or (3) a program related to a program
identified in the most recent Catalog of Federal Domestic
Assistance, published pursuant to the Federal Program
Information Act (Public Law 95-220, as amended by Public Law
98-169).
H. Disclosure of Directed Rule Makings
In compliance with Sec. 3(i) of H. Res. 5 (114th Congress),
the following statement is made concerning directed rule
makings: The Committee estimates that the bill requires no
directed rule makings within the meaning of such section.
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
INTERNAL REVENUE CODE OF 1986
* * * * * * *
Subtitle A--Income Taxes
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter F--Exempt Organizations
* * * * * * *
PART VIII--CERTAIN SAVINGS ENTITIES
SEC. 529. QUALIFIED TUITION PROGRAMS.
(a) General Rule.--A qualified tuition program shall be
exempt from taxation under this subtitle. Notwithstanding the
preceding sentence, such program shall be subject to the taxes
imposed by section 511 (relating to imposition of tax on
unrelated business income of charitable organizations).
(b) Qualified Tuition Program.--For purposes of this
section--
(1) In general.--The term ``qualified tuition
program'' means a program established and maintained by
a State or agency or instrumentality thereof or by 1 or
more eligible educational institutions--
(A) under which a person--
(i) may purchase tuition credits or
certificates on behalf of a designated
beneficiary which entitle the
beneficiary to the waiver or payment of
qualified higher education expenses of
the beneficiary, or
(ii) in the case of a program
established and maintained by a State
or agency or instrumentality thereof,
may make contributions to an account
which is established for the purpose of
meeting the qualified higher education
expenses of the designated beneficiary
of the account, and
(B) which meets the other requirements of
this subsection.
Except to the extent provided in regulations, a program
established and maintained by 1 or more eligible
educational institutions shall not be treated as a
qualified tuition program unless such program provides
that amounts are held in a qualified trust and such
program has received a ruling or determination that
such program meets the applicable requirements for a
qualified tuition program. For purposes of the
preceding sentence, the term ``qualified trust'' means
a trust which is created or organized in the United
States for the exclusive benefit of designated
beneficiaries and with respect to which the
requirements of paragraphs (2) and (5) of section
408(a) are met.
(2) Cash contributions.--A program shall not be
treated as a qualified tuition program unless it
provides that purchases or contributions may only be
made in cash.
(3) Separate accounting.--A program shall not be
treated as a qualified tuition program unless it
provides separate accounting for each designated
beneficiary.
(4) Limited investment direction.--A program shall
not be treated as a qualified tuition program unless it
provides that any contributor to, or designated
beneficiary under, such program may, directly or
indirectly, direct the investment of any contributions
to the program (or any earnings thereon) no more than 2
times in any calendar year.
(5) No pledging of interest as security.--A program
shall not be treated as a qualified tuition program if
it allows any interest in the program or any portion
thereof to be used as security for a loan.
(6) Prohibition on excess contributions.--A program
shall not be treated as a qualified tuition program
unless it provides adequate safeguards to prevent
contributions on behalf of a designated beneficiary in
excess of those necessary to provide for the qualified
higher education expenses of the beneficiary.
(c) Tax Treatment of Designated Beneficiaries and
Contributors.--
(1) In general.--Except as otherwise provided in this
subsection, no amount shall be includible in gross
income of--
(A) a designated beneficiary under a
qualified tuition program, or
(B) a contributor to such program on behalf
of a designated beneficiary,
with respect to any distribution or earnings under such
program.
(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.
(3) Distributions.--
(A) In general.--Any distribution under a
qualified tuition program shall be includible
in the gross income of the distributee in the
manner as provided under section 72 to the
extent not excluded from gross income under any
other provision of this chapter.
(B) Distributions for qualified higher
education expenses.--For purposes of this
paragraph--
(i) In-kind distributions.--No amount
shall be includible in gross income
under subparagraph (A) by reason of a
distribution which consists of
providing a benefit to the distributee
which, if paid for by the distributee,
would constitute payment of a qualified
higher education expense.
(ii) Cash distributions.--In the case
of distributions not described in
clause (i), if--
(I) such distributions do not
exceed the qualified higher
education expenses (reduced by
expenses described in clause
(i)), no amount shall be
includible in gross income, and
(II) in any other case, the
amount otherwise includible in
gross income shall be reduced
by an amount which bears the
same ratio to such amount as
such expenses bear to such
distributions.
(iii) Exception for institutional
programs.--In the case of any taxable
year beginning before January 1, 2004,
clauses (i) and (ii) shall not apply
with respect to any distribution during
such taxable year under a qualified
tuition program established and
maintained by 1 or more eligible
educational institutions.
(iv) Treatment as distributions.--Any
benefit furnished to a designated
beneficiary under a qualified tuition
program shall be treated as a
distribution to the beneficiary for
purposes of this paragraph.
(v) Coordination with Hope and
Lifetime Learning credits.--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.
(vi) Coordination with Coverdell
education savings accounts.--If, with
respect to an individual for any
taxable year--
(I) the aggregate
distributions to which clauses
(i) and (ii) and section
530(d)(2)(A) apply, exceed
(II) the total amount of
qualified higher education
expenses otherwise taken into
account under clauses (i) and
(ii) (after the application of
clause (v)) for such year,
the taxpayer shall allocate such
expenses among such distributions for
purposes of determining the amount of
the exclusion under clauses (i) and
(ii) and section 530(d)(2)(A).
(C) Change in beneficiaries or programs.--
(i) Rollovers.--Subparagraph (A)
shall not apply to that portion of any
distribution which, within 60 days of
such distribution, is transferred--
(I) to another qualified
tuition program for the benefit
of the designated beneficiary,
or
(II) to the credit of another
designated beneficiary under a
qualified tuition program who
is a member of the family of
the designated beneficiary with
respect to which the
distribution was made.
(ii) Change in designated
beneficiaries.--Any change in the
designated beneficiary of an interest
in a qualified tuition program shall
not be treated as a distribution for
purposes of subparagraph (A) if the new
beneficiary is a member of the family
of the old beneficiary.
(iii) Limitation on certain
rollovers.--Clause (i)(I) shall not
apply to any transfer if such transfer
occurs within 12 months from the date
of a previous transfer to any qualified
tuition program for the benefit of the
designated beneficiary.
[(D) Operating rules.--For purposes of
applying section 72--
[(i) to the extent provided by the
Secretary, all qualified tuition
programs of which an individual is a
designated beneficiary shall be treated
as one program,
[(ii) except to the extent provided
by the Secretary, all distributions
during a taxable year shall be treated
as one distribution, and
[(iii) except to the extent provided
by the Secretary, the value of the
contract, income on the contract, and
investment in the contract shall be
computed as of the close of the
calendar year in which the taxable year
begins.]
(D) Special rule for contributions of
refunded amounts.--In the case of a beneficiary
who receives a refund of any qualified higher
education expenses from an eligible educational
institution, subparagraph (A) shall not apply
to that portion of any distribution for the
taxable year which is recontributed to a
qualified tuition program of which such
individual is a beneficiary, but only to the
extent such recontribution is made not later
than 60 days after the date of such refund and
does not exceed the refunded amount.
(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.
(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) unless the new beneficiary is--
(i) assigned to the same generation
as (or a higher generation than) the
old beneficiary (determined in
accordance with section 2651), and
(ii) a member of the family of the
old beneficiary.
(6) Additional tax.--The tax imposed by section
530(d)(4) shall apply to any payment or distribution
from a qualified tuition program in the same manner as
such tax applies to a payment or distribution from an
Coverdell education savings account. This paragraph
shall not apply to any payment or distribution in any
taxable year beginning before January 1, 2004, which is
includible in gross income but used for qualified
higher education expenses of the designated
beneficiary.
(d) Reports.--Each officer or employee having control of the
qualified 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.
(e) Other Definitions and Special Rules.--For purposes of
this section--
(1) Designated beneficiary.--The term ``designated
beneficiary'' means--
(A) the individual designated at the
commencement of participation in the qualified
tuition program as the beneficiary of amounts
paid (or to be paid) to the program,
(B) in the case of a change in beneficiaries
described in subsection (c)(3)(C), the
individual who is the new beneficiary, and
(C) in the case of an interest in a qualified
tuition program purchased by a State or local
government (or agency or instrumentality
thereof) or an organization described in
section 501(c)(3) and exempt from taxation
under section 501(a) as part of a scholarship
program operated by such government or
organization, the individual receiving such
interest as a scholarship.
(2) Member of family.--The term ``member of the
family'' means, with respect to any designated
beneficiary--
(A) the spouse of such beneficiary;
(B) an individual who bears a relationship to
such beneficiary which is described in
subparagraphs (A) through (G) of section
152(d)(2);
(C) the spouse of any individual described in
subparagraph (B); and
(D) any first cousin of such beneficiary.
(3) Qualified higher education expenses.--
(A) In general.--The term ``qualified higher
education expenses'' means--
(i) tuition, fees, books, supplies,
and equipment required for the
enrollment or attendance of a
designated beneficiary at an eligible
educational institution;
(ii) expenses for special needs
services in the case of a special needs
beneficiary which are incurred in
connection with such enrollment or
attendance
[(iii) expenses paid or incurred in
2009 or 2010 for the purchase of any
computer technology or equipment (as
defined in section 170(e)(6)(F)(i)) or
Internet access and related services,
if such technology, equipment, or
services are to be used by the
beneficiary and the beneficiary's
family during any of the years the
beneficiary is enrolled at an eligible
educational institution.]
(iii) expenses for the purchase of
computer or peripheral equipment (as
defined in section 168(i)(2)(B)),
computer software (as defined in
section 197(e)(3)(B)), or Internet
access and related services, if such
equipment, software, or services are to
be used primarily by the beneficiary
during any of the years the beneficiary
is enrolled at an eligible educational
institution.
Clause (iii) shall not include expenses for
computer software designed for sports, games,
or hobbies unless the software is predominantly
educational in nature.
(B) Room and board included for students 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 tuition program) incurred by
the designated beneficiary for room and
board while attending such institution.
For purposes of subsection (b)(6), 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 clause (i) shall not
exceed--
(I) the allowance (applicable
to the student) for room and
board included 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
the Economic Growth and Tax
Relief Reconciliation Act of
2001) as determined by the
eligible educational
institution for such period, or
(II) if greater, the actual
invoice amount the student
residing in housing owned or
operated by the eligible
educational institution is
charged by such institution for
room and board costs for such
period.
(4) Application of section 514.--An interest in a
qualified tuition program shall not be treated as debt
for purposes of section 514.
(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.
(f) Regulations.--Notwithstanding any other provision of this
section, the Secretary shall prescribe such regulations as may
be necessary or appropriate to carry out the purposes of this
section and to prevent abuse of such purposes, including
regulations under chapters 11, 12, and 13 of this title.
* * * * * * *
VII. ADDITIONAL VIEWS
We are supportive of the technical changes made by H.R. 529
that would reinstate the technology expenses permitted in 2009
and 2010 and allow any college refunds to be reinvested back
into one's account within 60 days. However, we continue to be
concerned about the Committee passing bills without any offset
and the lack of concrete data on 529 accounts.
The Joint Committee on Taxation estimated this bill to cost
$51 million over 10 years. At the markup, we offered an
amendment that would have paid for the cost of this bill. Under
the amendment, 529 programs would have been available to
taxpayers with adjusted gross incomes of $3 million or less.
The Republicans voted against this amendment.
We also offered an amendment that would have required
Treasury to provide a report on 529 plans, including
contributions, distributions, and other relevant data. The
Republicans voted against this amendment.
At the end of the day, we should keep in mind that,
according to a December 2012 GAO report, 529 accounts are used
by only three percent (3%) of American families. While this
Committee does not have full jurisdiction over education, we
should take seriously our responsibility to join in addressing
the college affordability crisis gripping our country.
Sander M. Levin,
Ranking Member.
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