EXCLUSION FROM GROSS INCOME FOR INCOME FROM UNITED STATES SAVINGS BONDS USED TO PAY TUITION AND FEES.

SEC. 6009. EXCLUSION FROM GROSS INCOME FOR INCOME FROM UNITED STATES SAVINGS BONDS USED TO PAY TUITION AND FEES. (a) In General.—Part III of subchapter B of chapter 1 of the 1986 Code (relating to items specifically excluded from gross income) is amended by redesignating section 135 as section 136 and by inserting after section 134 the following new section: “SEC. 135. INCOME FROM UNITED STATES SAVINGS BONDS USED TO PAY HIGHER EDUCATION TUITION AND FEES. “(a) General Rule.—In the case of an individual who pays qualified higher education expenses during the taxable year, no amount shall be includible in gross income by reason of the redemption during such year of any qualified United States savings bond. “(b) Limitations.— “(1) Limitation where redemption proceeds exceed higher education expenses.— “(A) In general.—If— “(i) the aggregate proceeds of qualified United States savings bonds redeemed by the taxpayer during the taxable year exceed “(ii) the qualified higher education expenses paid by the taxpayer during such taxable year, the amount excludable from gross income under subsection (a) shall not exceed the applicable fraction of the amount excludable from gross income under subsection (a) without regard to this subsection. “(B) Applicable fraction.—For purposes of subparagraph (A), the term ‘applicable fraction’ means the fraction the numerator of which is the amount described in subparagraph (A)(ii) and the denominator of which is the amount described in subparagraph (A)(i). “(2) Limitation based on modified adjusted gross income.— “(A) In general.—If the modified adjusted gross income of the taxpayer for the taxable year exceeds $40,000 ($60,000 in the case of a joint return), the amount which would (but for this paragraph) be excludable from gross income under subsection (a) shall be reduced (but not below zero) by the amount which bears the same ratio to the amount which would be so excludable as such excess bears to $15,000 ($30,000 in the case of a joint return). 102 STAT. 3689 “(B) Inflation adjustment.—In the case of any taxable year beginning in a calendar year after 1990, each dollar amount contained in subparagraph (A) shall be increased by an amount equal to— “(i) such dollar amount, multiplied by “(ii) the cost-of-living adjustment under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting ‘calendar year 1989’ for ‘calendar year 1987’ in subparagraph (B) thereof. “(C) Rounding.—If any amount as adjusted under subparagraph (A) or (B) is not a multiple of $50, such amount shall be rounded to the nearest multiple of $50 (or if such amount is a multiple of $25, such amount shall be rounded to the next highest multiple of $50). “(c) Definitions.—For purposes of this section— “(1) Qualified united states savings bond.— The term ‘qualified United States savings bond’ means any United States savings bond issued— “(A) after December 31, 1989, “(B) to an individual who has attained age 24 before the date of issuance, and “(C) at discount under section 3105 of title 31, United States Code. “(2) Qualified higher education expenses.— “(A) In general.—The term ‘qualified higher education 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. “(B) Exception for education involving sports, etc.—Such term shall not include expenses with respect to any course or other education involving sports, games, or hobbies other than as part of a degree program. (3) Eligible educational institution.—The term ‘eligible educational institution’ means— “(A) an institution described in section 1201(a) or subparagraph (C) or (D) of section 481(a)(1) of the Higher Education Act of 1965 (as in effect on October 21, 1988), and “(B) an area vocational education school (as defined in subparagraph (C) or (D) of section 521(3) of the Carl D. Perkins Vocational Education Act) which is in any State (as defined in section 521(27) of such Act), as such sections are in effect on October 21, 1988. (4) Modified adjusted gross income.—The term ‘modified adjusted gross income’ means the adjusted gross income of the taxpayer for the taxable year determined— “(A) without regard to this section and sections 911, 931, and 933, and “(B) after the application of sections 86, 469, and 219. “(d) Special Rules.— (1) Adjustment for certain scholarships and veterans benefits.—The amount of qualified higher education expenses otherwise taken into account under subsection (a) respect to the 102 STAT. 3690education of an individual shall be reduced (before the application of subsection (b)) by the sum of the amounts received with respect to such individual for the taxable year as— “(A) a qualified scholarship which under section 117 is not includable in gross income, “(B) an educational assistance allowance under chapter 30, 31, 32, 34, or 35 of title 38, United States Code, or “(C) a payment (other than a gift, bequest, devise, or inheritance within the meaning of section 102(a)) for educational expenses, or attributable to attendance at an eligible educational institution, which is exempt from income taxation by any law of the United States. (2) No Exclusion 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 his spouse file a joint return for the taxable year. (3) Regulations.—The Secretary may prescribe such regulations as may be necessary or appropriate to carry out this section, including regulations requiring record keeping and information reporting.” (b) Promotion of Public Awareness of Program.—The Secretary of the Treasury or his debate shall take such actions as may be necessary to make the general public aware of the program established by this section. (c) Technical Amendments.— (1) Subparagraph (A) of section 86(b)(2) of the 1986 Code is amended by inserting “135,” before “911”. (2) Clause (i) of section 219(g)(3)(A) of the 1986 Code is amended by striking “section 911” and inserting “sections 135 and 911”. (3) Subparagraph (D) of section 469(i)(3) of the 1986 Code is amended by redesignating clauses (ii) and (iii) as clauses (iii) and (iv), respectively, and by inserting after clause (i) the following new clause: “(ii) the amount excludable from gross income under section 135,”. (4) The table of sections for part III of subchapter B of chapter 1 of the 1986 Code is amended by striking the last item and inserting the following new items: “Sec. 135. Income from United States savings bonds used to pay higher education tuition and fees. “Sec. 136. Cross references to other Acts.” (d) Effective Date.—The amendments made by this section shall apply to taxable years beginning after December 31, 1989, (e) Parental Assistance With Tuition Stamp Study.—The Secretary of the Treasury or his delegate, after consultation with the Secretary of Education or his delegate, shall conduct a study of the feasibility of using stamps or similar programs to encourage and facilitate savings by parents towards the purchase of Series EE bonds eligible for the exclusion provided under the amendments made by this section. Not later than December 31, 1989, the Secretary of the Treasury or his delegate shall submit the results of such study, together with any recommendations deemed appropriate, to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate.