Sec. 5. Credit for contributions to lifelong learning accounts
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Subpart C of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to refundable credits) is amended by inserting after section 36B the following new section: In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the applicable percentage of the contributions (other than rollover contributions described in subsection (e)(5)) paid in cash during such taxable year by or on behalf of such individual to a lifelong learning account of such individual. The amount of contributions taken into account under subsection
(a)with respect to any eligible individual for any taxable year shall not exceed the lesser of— $3,000, or an amount equal to the compensation (as defined in section 219(f)(1)) includible in the individual’s gross income for such taxable year. The $3,000 amount contained in paragraph (1)(A) shall be reduced (but not below zero) by the account beneficiary’s reduction amount. In the case of a contributor who is an individual (other than an employer of the account beneficiary), the aggregate amount of the contributions of such contributor which may be taken into account under subsection
(a)with respect to any eligible individual for any taxable year shall not exceed the excess (if any) of $3,000 over such contributor’s reduction amount. For purposes of subparagraph (A), the account beneficiary’s reduction amount is the amount which bears the same ratio to $3,000 as— the excess of— the account beneficiary’s modified adjusted gross income for such taxable year, over $100,000 (twice such amount in the case of a joint return), bears to $20,000 (twice such amount in the case of a joint return). For purposes of the preceding sentence, the term modified adjusted gross income means adjusted gross income increased by any amount excluded from gross income under section 911, 931, or 933. For purposes of subparagraph (B), the contributor’s reduction amount is the amount that would be determined under subparagraph
(C)if contributor were substituted for account beneficiary each place it appears therein. In the case of a married individual filing a separate return, subparagraph (C)(I)(II) shall be applied by substituting zero for the dollar amount therein. Gross income shall not include any contribution to a lifelong learning account made by an employer of the account beneficiary to the extent that the aggregate amount of such contributions made during the taxable year does not exceed the limitation in effect under paragraph
(1)(determined without regard to subparagraph
(B)of this paragraph) for such taxable year with respect to such beneficiary. The limitation which would (but for this subparagraph) apply under paragraph
(1)with respect to the eligible individual for any taxable year shall be reduced (but not below zero) by the aggregate amount contributed to lifelong learning accounts of such individual which is excludable from the taxpayer’s gross income for such taxable year under subparagraph
(A)(and such amount shall not be taken into account in determining the credit under subsection (a)). For purposes of this section, the term applicable percentage means— 50 percent with respect to the first $500 of contributions taken into account under subsection
(a)with respect to any eligible individual for any taxable year, and 25 percent with respect to so much of such contributions as exceeds $500. For purposes of this section, the term eligible individual means any individual for any taxable year if, as of the first day of such taxable year, such individual has attained age 16. For purposes of this section— The term lifelong learning account means a trust created or organized in the United States as a lifelong learning account under a lifelong learning account program established by a State under chapter 6 of subtitle B of title I of the Workforce Investment Act of 1998 exclusively for the purpose of paying the eligible education or skill development expenses of the account beneficiary and maintained by a trustee consist with the requirements of section 135E(b) of such Act, but only if the written governing instrument creating the trust meets the following requirements: No contribution will be accepted unless it is in cash. Except in the case of a rollover contribution described in subsection (e)(5), no contribution will be accepted if such contribution, when added to all previous contributions to the trust for the calendar year, would exceed $5,000. The trust assets will be held by a trustee who will administer the trust consistent with the requirements of such lifelong learning account program and this section. No part of the trust assets will be invested in life insurance contracts. No part of the trust assets will be invested in any collectible (as defined in section 408(m)). The assets of the trust will not be commingled with other property except in a common trust fund or common investment fund. The interest of an individual in the balance in his account is nonforfeitable. No distribution shall be made from the account except— for eligible education or skill development expenses, or after an event described in subsection (e)(2)(B). The term eligible education or skill development expense means any eligible education or skill development expense (as defined in section 135 of the Workforce Investment Act of 1998) which meets the requirements of subclauses
(I)and
(II)of section 135E(b)(4)(A)(ii) of such Act. The term account beneficiary means the individual on whose behalf the lifelong learning account was established. The term trustee has the meaning given the term in section 135 of the Workforce Investment Act of 1998. Rules similar to the following rules shall apply for purposes of this section: Section 219(f)(3) (relating to time when contributions deemed made). Section 408(g) (relating to community property laws). Section 408(h) (relating to custodial accounts). A lifelong learning account is exempt from taxation under this subtitle unless such account has ceased to be a lifelong learning account. Notwithstanding the preceding sentence, any such account is subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable, etc. organizations). If there is a nonqualified distribution (as defined in subsection (e)) from a lifelong learning account for any taxable year— such account shall cease to be treated as a lifelong learning account as of the close of such taxable year, and any amounts in such account as of the close of such taxable year shall be treated as distributed to the account beneficiary on the last day of such taxable year and shall be treated as not used to pay eligible education or skill development expenses. Rules similar to the rules of paragraphs
(2)and
(4)of section 408(e) shall apply to lifelong learning accounts, and any amount treated as distributed under such rules shall be treated as not used to pay eligible education or skill development expenses. Any amount distributed out of a lifelong learning account shall be included in gross income by the account beneficiary. Except as otherwise provided in this subsection, the tax imposed by this chapter on the account beneficiary for any taxable year in which there is a nonqualified distribution from a lifelong learning account shall be increased by 10 percent of the amount of such distribution. Subparagraph
(A)and subsection (d)(2) shall not apply if the distribution is made after the account beneficiary dies, becomes disabled (within the meaning of section 72(m)(7)), or has attained age 70. For purposes of this section, the term nonqualified distribution means the excess (if any) of— the aggregate distributions from the account during the taxable year, over the eligible education or skill development expenses of the account beneficiary for the taxable year. If any excess contribution is contributed for a taxable year to any lifelong learning account of an individual, paragraphs
(1)and
(2)and subsection (d)(2) shall not apply to distributions from the lifelong learning accounts of such individual (to the extent such distributions do not exceed the aggregate excess contributions to all such accounts of such individual for such year) if— such distribution is received by the individual on or before the last day prescribed by law (including extensions of time) for filing such individual’s return for such taxable year, and 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 the gross income of the individual for the taxable year in which it is received. For purposes of subparagraph (A), the term excess contribution means any contribution (other than a rollover contribution described in paragraph (6)) which is not taken into account for purposes of determining the credit allowed under subsection
(a)or the amount excludable from the taxpayer’s gross income under subsection (b)(3). An amount is described in this paragraph as a rollover contribution if it meets the requirements of subparagraphs
(A)and (B). Paragraphs
(1)and
(2)and subsection (d)(2) shall not apply to any amount paid or distributed from a lifelong learning account to the account beneficiary to the extent the amount received is paid into a lifelong learning account for the benefit of such beneficiary not later than the 60th day after the day on which the beneficiary receives the payment or distribution. This paragraph shall not apply to any amount described in subparagraph
(A)received by an individual from a lifelong learning account if, at any time during the 1-year period ending on the day of such receipt, such individual received any other amount described in subparagraph
(A)from a lifelong learning account to which paragraphs
(1)and
(2)did not apply by reason of the application of this paragraph. The transfer of an individual’s interest in a lifelong learning account to an individual’s spouse or former spouse under a divorce or separation instrument described in subparagraph
(A)of section 71(b)(2) shall not be considered a taxable transfer made by such individual notwithstanding any other provision of this subtitle, and such interest shall, after such transfer, be treated as a lifelong learning account with respect to which such spouse is the account beneficiary. If any individual acquires the account beneficiary’s interest in a lifelong learning account by reason of being the designated beneficiary of such account at the death of the account beneficiary and such individual elects the application of this subparagraph, such lifelong learning account shall be treated as if such designated beneficiary were the account beneficiary. If, by reason of the death of the account beneficiary, any person acquires the account beneficiary’s interest in a lifelong learning account in a case to which subparagraph
(A)does not apply— such account shall cease to be a lifelong learning account as of the date of death, and an amount equal to the fair market value of the assets in such account on such date shall be includible if such person is not the estate of such beneficiary, in such person’s gross income for the taxable year which includes such date, or if such person is the estate of such beneficiary, in such beneficiary’s gross income for the last taxable year of such beneficiary. An appropriate deduction shall be allowed under section 691(c) to any person (other than the decedent or the decedent’s spouse) with respect to amounts included in gross income under clause
(I)by such person. The trustee of a lifelong learning account shall make such reports regarding such account to the Secretary and to the account beneficiary with respect to contributions, distributions, and such other matters as the Secretary may require under regulations. The reports required by this subsection shall be filed at such time and in such manner and furnished to such individuals at such time and in such manner as may be required by those regulations. . Section 4973 of the Internal Revenue Code of 1986 is amended— by striking or at the end of subsection (a)(4), by inserting or at the end of subsection (a)(5), and by inserting after subsection (a)(5) the following new paragraph: a lifelong learning account (within the meaning of section 36C(c)), , and by adding at the end the following new subsection: For purposes of this section, in the case of lifelong learning accounts (within the meaning of section 36C(c)), the term excess contributions means the sum of— the aggregate amount contributed for the taxable year to the accounts (other than rollover contributions described in section 36C(e)(5)) which is not taken into account for purposes of determining the credit allowed under section 36C(a) or the amount excludable from the taxpayer’s gross income under section 36C(b)(3), and the amount determined under this subsection for the preceding taxable year, reduced by the sum of— the distributions out of the accounts with respect to which additional tax was imposed under section 36C(e)(2)(A) for the taxable year, and the excess (if any) of— the maximum amount of contributions which may be taken into account under section 36C(a) for the taxable year, over the amount contributed to the accounts for the taxable year. For purposes of this subsection, any contribution which is distributed out of the lifelong learning account in a distribution to which section 36C(e)(5) applies shall be treated as an amount not contributed. . Paragraph
(1)of section 4975(e) of the Internal Revenue Code of 1986 (relating to prohibited transactions) is amended by redesignating subparagraph
(G)as subparagraph (H), by striking or at the end of subparagraph (F), and by inserting after subparagraph
(F)the following new subparagraph: a lifelong learning account described in section 36C(c), or . Subsection
(c)of section 4975 of such Code is amended by adding at the end the following new paragraph: An individual for whose benefit a lifelong learning account is established 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, with respect to such transaction, the account ceases to be a lifelong learning account by reason of the application of paragraph
(2)or
(3)of section 36C(d) to such account. . Paragraph
(2)of section 6693(a) of the Internal Revenue Code of 1986 is amended by striking and at the end of subparagraph (D), by redesignating subparagraph
(E)as subparagraph (F), and by inserting after subparagraph
(D)the following new subparagraph: section 36C(f) (relating to lifelong learning accounts), and . Subsection
(a)of section 3121 of the Internal Revenue Code of 1986 is amended by striking or at the end of paragraph (22), by striking the period at the end of paragraph
(23)and inserting ; or , and by inserting after paragraph
(23)the following new paragraph: any payment made to or for the benefit of an employee if at the time of such payment it is reasonable to believe that the employee will be able to exclude such payment from income under section 36C(b)(3). . Subsection
(e)of section 3231 of such Code is amended by adding at the end the following new paragraph: The term compensation shall not include any payment made to or for the benefit of an employee if at the time of such payment it is reasonable to believe that the employee will be able to exclude such payment from income under section 36C(b)(3). . Subsection
(b)of section 3306 of such Code is amended by striking or at the end of paragraph (19), by striking the period at the end of paragraph
(20)and inserting ; or , and by inserting after paragraph
(20)the following new paragraph: any payment made to or for the benefit of an employee if at the time of such payment it is reasonable to believe that the employee will be able to exclude such payment from income under section 36C(b)(3). . Subsection
(a)of section 3401 of such Code is amended by striking or at the end of paragraph (22), by striking the period at the end of paragraph
(23)and inserting ; or , and by inserting after paragraph
(23)the following new paragraph: any payment made to or for the benefit of an employee if at the time of such payment it is reasonable to believe that the employee will be able to exclude such payment from income under section 36C(b)(3). . There is hereby appropriated (out of any money in the Treasury not otherwise appropriated) for each fiscal year to each fund under the Social Security Act an amount equal to the reduction in the transfers to such fund for such fiscal year by reason of the amendment made by paragraph (1). Subsection
(b)of section 4 of the Employee Retirement Income Security Act of 1974 is amended by striking or at the end of paragraph (4), by striking the period at the end of paragraph
(5)and inserting ; or , and by inserting after paragraph
(5)the following new paragraph: such plan is maintained solely for the purposes of establishing, and making contributions to, lifelong learning accounts (within the meaning of section 36C(c) of the Internal Revenue Code of 1986) on behalf of employees. . The table of sections for subpart C of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 36B the following new item: Sec. 36C. Contributions to lifelong learning accounts. . Section 6211(b)(4)(A) of such Code is amended by inserting 36C, after 36B, . Section 1324(b)(2) of title 31, United States Code, is amended by inserting 36C, after 36B, . The amendments made by this section shall apply to taxable years beginning after December 31, 2013.