Order Code 97-915 EPW
CRS Report for Congress
Received through the CRS Web
Tax Benefits for Education
in the Taxpayer Relief Act of 1997:
New Legislative Developments
Updated September 14, 2000
Bob Lyke
Specialist in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

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Tax Benefits for Education
in the Taxpayer Relief Act of 1997:
New Legislative Developments
Summary
The Taxpayer Relief Act of 1997 (P.L. 105-34) substantially expanded tax
benefits for education. Four widely publicized provisions — two new tax credits, new
tax-exempt education savings accounts, and a new deduction for interest payments
on education loans — can help families pay for college and other postsecondary
education expenses.
Other provisions in the legislation extended the tax exclusion for employer
education assistance, exempted individual retirement account (IRA) withdrawals used
for higher education from early withdrawal penalties, expanded the tax exclusion for
student loans that are forgiven, and authorized an enhanced deduction for corporate
contributions of computer technology and equipment to elementary and secondary
schools. The legislation also created new qualified zone academy bonds for public
school renovation and program improvement.
The Internal Revenue Service Restructuring and Reform Act of 1998 (P.L. 105-
206) made minor amendments, largely technical, in several education provisions of the
1997 Act. Other changes would have occurred in these provisions under the
Taxpayer Refund and Relief Act of 1999 (H.R. 2488), which the President vetoed.
Some provisions were extended by the Ticket to Work and Work Incentives
Improvement Act of 1999 (P.L. 106-170).
In the closing days of the 106th Congress, it is unclear whether the education tax
benefits created by the Taxpayer Relief Act of 1997 will be expanded or otherwise
revised. This report will track relevant legislation that is reported from committee or
is scheduled for floor consideration. Among these bills are the Affordable Education
Act of 2000 (S. 1134), passed by the Senate on March 2, 2000, and the Education
Savings and School Excellence Act of 2000 (H.R. 7), reported by the House Ways
and Means Committee on March 24, 2000.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Tax Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Education IRAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Interest Deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Employer Education Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
State Tuition Savings Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
IRA Early Withdrawal Penalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Forgiven Student Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Computer Donations by Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Provisions in Antecedent Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

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Tax Benefits for Education
in the Taxpayer Relief Act of 1997:
New Legislative Developments
Introduction
The Taxpayer Relief Act of 1997 (P.L. 105-34) that President Clinton signed on
August 5, 1997, contained new higher education tax benefits for students and their
families. Most notable were two tax credits (the HOPE Scholarship and Lifetime
Learning credits), tax-exempt education savings accounts called education IRAs, and
a deduction for interest payments on education loans. The Act also made other
changes regarding state tuition savings programs, IRA withdrawal penalties, employer
education assistance, and student loan forgiveness. In addition, it authorized new
bonds for public school renovation and program improvement and an enhanced
deduction for corporations that donate computers to elementary and secondary
schools. While the Internal Revenue Code previously had provisions favoring
education, the new legislation marked a significant expansion in the use of tax policy
to encourage enrollment and to help families and communities pay for schools. The
numerous special tax benefits for education and other purposes distinguish this
legislation from the Tax Reform Act of 1986 (P.L. 99-514), which generally reduced
special incentives.
The Taxpayer Relief Act of 1997 offered families multiple ways to get tax
subsidies for higher education. They can benefit in years when they save for college,
when they pay tuition costs, and when they repay loans. The legislation thus
supported different approaches toward financing postsecondary education and gives
families flexibility to adapt their plans as circumstances change.
At the same time, the new options make financial planning for college more
complicated. The added complexity raises concerns that families in similar economic
circumstances will receive different levels of benefits. The extent to which the tax
benefits will supplement or supplant assistance provided by state or other federal
sources remains unclear.
It is also unclear whether the new tax benefits, estimated by the Joint Committee
on Taxation to cost $30 billion over FY2000 through FY2004, are resulting in
additional enrollment or other investment in education. The benefits may encourage
some students to continue their studies, particularly after obtaining their initial degree,
and some to consider a wider range of schools. However, it is likely that most of the

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CRS-2
benefits are accruing to families whose students would have enrolled anyway. Some
of the benefits may be captured by the schools through higher tuition.1
This report summarizes highlights of the education provisions of the Taxpayer
Relief Act of 1997. It provides general information and does not cover all provisions
that individual taxpayers may consider important. For more details, readers might
consult either the Act itself or the conference committee report, both of which are
printed in part II of the Congressional Record for July 30, 1997.
The report also tracks legislative developments at the end of the 106th Congress
that would affect the tax benefits enacted in 1997. It identifies bills that have been
reported by either the Senate Finance or House Ways and Means Committee.2
Referenced legislation includes the Affordable Education Act of 2000 (S. 1134),
passed by the Senate on March 2, 2000, and the Education Savings and School
Excellence Act of 2000 (H.R. 7), reported by the House Ways and Means Committee
on March 24, 2000.
Tax Credits
The Taxpayer Relief Act of 1997 is perhaps best known for the two new
education tax credit it authorized. The HOPE Scholarship credit equals 100% of
the first $1,000 of qualified tuition and fees and 50% of the next $1,000 that taxpayers
pay for themselves, their spouse, or their dependents. The credit may be claimed for
two taxable years with respect to each student, provided the student has not
completed the first two years of postsecondary education before the beginning of the
year for which the credit is claimed. An eligible student must be enrolled (or accepted
for enrollment) in a degree, certificate, or other program leading to a recognized
educational credential and must carry at least one-half the normal full-time work load.
The HOPE credit is not allowed for a student who has been convicted of a felony
drug offense.
The Lifetime Learning credit equals 20% of the first $5,000 of qualified tuition
and fees (the first $10,000 after 2002) that taxpayers pay for themselves, their spouse,
or their dependents. The credit may be claimed any number of years for any level of
postsecondary education; it can also apply to students who are enrolled in a single
course to acquire or improve job skills. For a particular student, either the HOPE
credit, the Lifetime Learning credit, or the exclusion of distributions from an
1 For a discussion of these issues, see CRS Report 97-581, Tax Subsidies for Higher
Education: An Analysis of the Administration’s Proposals, by Jane Gravelle and Dennis
Zimmerman.
2 Congressional offices can construct comprehensive lists of bills on particular proposals by
using the Legislative Information System (LIS) available through the CRS home page. Under
the Legislation heading, click on the LIS and then on Bill Text: Adv. In the Word/Phrase box,
type either a term like “HOPE Scholarship” or a combination of words and connectors like
“deduction adj/5 education” and then click on Search. Search results may yield some
irrelevant bills without identifying all relevant ones; thus, the lists should be reviewed
carefully. For technical assistance with searches, offices might call the La Follette
Congressional Reading Room at 7-7100.

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CRS-3
education IRA may be claimed in one year. However, all three tax benefits might be
claimed the same year, even by one taxpayer, with respect to three different students.
The HOPE and Lifetime Learning credits are allowed for payment of qualified
tuition and fees at institutions eligible to participate in student aid programs
authorized by title IV of the Higher Education Act (HEA); this includes nearly all
colleges and universities as well as many proprietary (for-profit) trade schools.
Payments attributable to scholarships, veterans’ educational assistance, or other
sources that are excludable from gross income for tax purposes (such as employer
tuition reimbursements) generally cannot be taken into account. However, tuition and
fee payments made from gifts and inheritances may be considered for the credits, as
may payments made from loans.
To give a simple example, consider an independent student who attends a school
with tuition and fees charges of $5,000. If the student receives a $1,000 Pell Grant,
a $1,000 scholarship from the school, and a $1,500 loan, qualified tuition and fees
would equal $3,000 (this is, $5,000 minus the grant and the scholarship). Subject to
limitations in the following paragraphs, the HOPE credit would be $1,500 (that is,
100% of the first $1,000 paid and 50% of the next $1,000). The Lifetime Learning
credit would be $600 (20% of the $3,000 paid).
The HOPE Scholarship and Lifetime Learning credits are phased out for
taxpayers with modified adjusted gross incomes between $40,000 and $50,000
($80,000 to $100,000 in the case of a joint return). Thus, for single filers with
modified adjusted gross incomes of $42,500 the maximum HOPE credit would be
limited to $1,125.3
The two credits are not refundable: the sum of them and other nonrefundable
credits generally is limited to the taxpayer’s regular income tax liability.4 Thus, for
taxpayers with combined nonrefundable credits of $1,000 and a regular tax liability
of $800, the allowable credits can be no more than $800. Under a provision in the
Ticket to Work and Work Incentives Improvement Act of 1999, personal
nonrefundable credits are not limited by the taxpayer’s tentative minimum tax in tax
years 2000 and 2001.
Taxpayers are not eligible for either the HOPE or Lifetime `Learning credit if
they can be claimed as dependents by other taxpayers (for example, students who can
be claimed as dependents by their parents). However, in this case the taxpayers who
claim the dependent are eligible for the credits (assuming the income parameters
described above are met) and they make take into account tuition payments made by
the dependent.
3 The maximum credit of $1,500 x [($50,000 - $42,400)/$10,000] = $1,125. Modified
adjusted gross income is adjusted gross income (a prominent line on tax returns) increased by
the foreign earned income and housing exclusion and amounts excluded for income within
Puerto Rico and certain territories.
4 Regular income tax liability is the product of taxable income (gross income minus deductions
and personal and dependency exemptions) times the taxpayer’s tax rate. The regular tax
liability does not reflect any reductions due to tax credits.

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The IRS Restructuring and Reform Act of 1998 modified the reporting
requirements for educational institutions.
The President’s FY2001 budget would increase the Lifetime Learning credit rate
from 20% to 28% and also increase the income phase-out ranges to $50,000 to
$60,000 ($100,000 to $120,000 for joint returns). Phase-out ranges for the HOPE
Scholarship credit would not be changed. Instead of claiming the Lifetime Learning
credit, taxpayers would be allowed to deduct up to $5,000 in qualified tuition and fees
(up to $10,000 after 2002); the deduction would be taken in calculating adjusted
gross income (an “above-the-line” deduction) and so would not restricted to
taxpayers who itemize.
Education IRAs
The Taxpayer Relief Act of 1997 authorized new investment accounts that
families can use to save for higher education. The accounts are called education
individual retirement accounts (education IRAs) although they have nothing to do
with retirement. Like other IRAs, however, these accounts are designated trusts that
are held by banks and other financial entities. Contributions to education IRAs can be
made until beneficiaries are age 18; the annual limit for all contributors combined is
$500, though this amount is reduced and then eliminated for contributors with
modified adjusted gross incomes between $95,000 and $110,000 ($150,000 and
$160,000 for joint returns).
Education IRA contributions are not deductible, but accounts are exempt from
taxation and distributions are excluded from beneficiaries’ gross income if used for
qualified higher education expenses: tuition, fees, books, supplies, equipment
required for enrollment or attendance, and certain room and board expenses.
Qualifying expenses must be incurred at Title IV HEA institutions. Distributions for
other purposes generally are taxable (that is, the part representing earnings is taxable)
and a 10% penalty applies. The exclusion cannot be claimed the same year either the
HOPE or the Lifetime Learning credit is claimed for the student. Remaining balances
must be distributed when beneficiaries reach age 30.
The IRS Restructuring and Reform Act of 1998 included numerous technical
corrections and clarifications of education IRAs regarding the taxation of
distributions, rollover contributions, changes in beneficiaries, and rules for death and
divorce.
Both the Senate-passed Affordable Education Act of 2000 (S. 1134) and the
House-reported Education Savings and School Excellence Act of 2000 (H.R. 7)
would increase the annual contribution limit from $500 to $2,000. They also would
allow the accounts to be used for elementary and secondary education expenses,
including private and home schooling.5 Additional changes would include the
following: (1) the accounts would be renamed “education savings accounts”; (2)
contributions to accounts of beneficiaries with special needs (i.e., with disabilities)
5 For more information, see CRS Report RS20289, Education Savings Accounts for
Elementary and Secondary Education, by Bob Lyke and James B. Stedman.

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CRS-5
could occur after age 18 and their accounts could continue after age 30; (3)
contributors other than individuals (e.g., corporations) would not be subject to
income ceilings; (4) beneficiaries could exclude distributions from their accounts and
claim the Hope Scholarship or Lifetime Learning tax credit the same year (though not
for the same expenses); and (5) in S. 1134 only, eligibility for the credit for joint
returns would phase out between $190,000 and $220,000, not $150,000 to $160,000.
Interest Deduction
The Taxpayer Relief Act of 1997 authorized a new deduction for interest
payments on qualified education loans. The deduction is taken in calculating adjusted
gross income (an “above-the-line” deduction) and so is not restricted to taxpayers
who itemize. The deduction is allowed only with respect to interest paid during the
first 60 months (whether or not consecutive) in which interest payments are required;
it was limited to $1,000 in 1998 and $1,500 in 1999, while the limit is $2,000 in 2000
and $2,500 in 2001 and thereafter. The maximum allowable deduction is phased out
for taxpayers with modified adjusted gross incomes between $40,000 and $55,000
($60,000 to $75,000 in the case of a joint return). Taxpayers are not eligible for the
deduction if they can be claimed as a dependent by another taxpayer.
Qualified education loans are any indebtedness incurred to pay qualified expenses
of taxpayers, their spouse, or their dependents at Title IV HEA institutions or at
institutions of higher education, hospitals, or health care facilities conducting
internship or residency programs leading to a certificate or degree. At the time the
debt is incurred, students must be enrolled (or accepted for enrollment) in a degree,
certificate, or other program leading to a recognized educational credential and must
carry at least one-half the normal full-time work load. Qualified expenses generally
equal the cost of attendance minus scholarships and other education payments
excluded from taxes. Qualified loans also include indebtedness to refinance qualified
education loans.
The IRS Restructuring and Reform Act of 1998 included a technical amendment
regarding the interest deduction for education loans.
The President’s FY2001 budget would eliminate the 60-month limit on the
deduction of interest. Both the Senate-passed Affordable Education Act of 2000 (S.
1134) and the House-reported Education Savings and School Excellence Act of 2000
(H.R. 7) would repeal the 60-month limit, which would also eliminate the restriction
that nonmandatory interest payments were not deductible. The House bill would raise
the income phase-out range to $45,000 to $60,000 ($90,000 to $105,000 in the case
of a joint return); the Senate measure would increase the range for joint returns to
$80,000 to $110,000.
Employer Education Assistance
The Taxpayer Relief Act of 1997 extended the exclusion for employer education
assistance through May 31, 2000. The exclusion, in Section 127 of the Internal
Revenue Code, allows tuition reimbursements and other forms of employer education
assistance to be exempt from taxes of the recipient even if the education does not

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qualify as a deductible business expense (that is, even if it is not job-related).
Qualifying education is not restricted to Title IV HEA schools. The extension did not
apply to graduate-level courses, which had not been covered after June 30, 1996.6
The Ticket to Work and Work Incentives Improvement Act of 1999 extended
the exclusion (again without covering graduate-level courses) through December 31,
2001.
The President’s FY2001 budget would expand the exclusion to include graduate-
level courses beginning after July 1, 2000 and before January 1, 2002. The Senate-
passed Affordable Education Act of 2000 (S. 1134) would make the current-law
exclusion permanent and also expand it to include graduate-level courses. The
comparable reported House bill (the Education Savings and School Excellence Act
of 2000, H.R. 7) has no provision regarding employer education assistance.
State Tuition Savings Plans
The Small Business Job Protection Act of 1996 (P.L. 104-188) clarified the tax
treatment of qualified state tuition savings plans; it generally provided that account
earnings are to be included in designated beneficiaries’ gross income when they
receive distributions to attend school. Previously, it appeared that account earnings
might be subject to annual taxation. State tuition savings plans (often called section
529 plans) are either prepaid tuition contracts or college savings accounts established
by a state agency.
The Taxpayer Relief Act of 1997 expanded the definition of qualified higher
education expenses for state tuition savings plans to include reasonable costs for room
and board in the case of students attending at least half-time. As under prior law,
qualified expenses also include tuition, fees, books, supplies, and equipment required
for enrollment or attendance. The Act also expanded the definition of eligible
institution to include all Title IV HEA institutions.
The IRS Restructuring and Reform Act of 1998 clarified that qualified state
tuition plan distributions are taxed under the general annuity rules (unless excludable
as a scholarship, etc.); thus, part of each distribution is considered to be earnings and
part is considered a return of the contribution.
Both the Senate-passed Affordable Education Act of 2000 (S. 1134) and the
House-reported Education Savings and School Excellence Act of 2000 (H.R. 7)
generally would exempt state tuition savings plan distributions from taxation if they
were used for qualified expenses. Both would also allow educational institutions to
establish Section 529 savings plans, allow the new exclusion to be claimed the same
year that the Hope Scholarship or Lifetime Learning tax credit is claimed (though not
for the same expenses), and make modifications in the definition of family members
(for making changes in beneficiaries) and qualified higher education expenses.
6 For additional information, see CRS Report 97-243, Employer Education Assistance:
Overview of Tax Status in 2000, by Bob Lyke.

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IRA Early Withdrawal Penalty
The Taxpayer Relief Act of 1997 exempted IRA distributions used for qualified
higher education expenses from the early withdrawal penalty. The penalty otherwise
applies to distributions before age 59½, with a number of exceptions; it equals 10%
of the amount of the distribution that is included in gross income. Qualified higher
education expenses include tuition, fees, books, supplies, and equipment required for
enrollment or attendance at Title IV HEA institutions, plus (in the case of students
attending at least half-time) reasonable costs for room and board. The education must
be for the taxpayer or the taxpayer’s spouse or child (including stepchildren), or for
a grandchild of the taxpayer or of the taxpayer’s spouse.
The Act also authorized Roth IRAs. The general rule for these IRAs is that
distributions are exempt from taxation and penalties if they have been held for 5 years
and the account owner has attained age 59½, is disabled or has died, or is using the
distribution to purchase a first home. However, no Roth IRA distribution is taxable,
regardless of when it is withdrawn or how it is used, until the total of all distributions
exceeds the amount of contributions. Thus, some amounts might be withdrawn
before age 59½ without taxation or penalty in any case.
Technical amendments regarding distributions from Roth IRAs that had rollover
contributions from other IRAs (conversions) were included in the IRS Restructuring
and Reform Act of 1998.
Penalties for IRA distributions used for education expenses are not a legislative
issue at the end of the 106th Congress.
Forgiven Student Loans
The Taxpayer Relief Act of 1997 expanded the tax exclusion allowed student
loans that are forgiven (in whole or in part) to include loans made by tax-exempt
educational institutions (for example, private colleges) even if the funds originated
from a private, nongovernmental source. As under prior law, the exclusion applies
only if the borrower works for a certain period of time in certain professions for any
of a broad class of employers (for example, teaches in an inner-city school).7 There
is an additional requirement for loans made by tax-exempt educational institutions
from private nongovernmental sources: the loans must be issued pursuant to a
program designed to encourage students to work in an occupation or area with unmet
needs and provide services either for or under the direction of a tax-exempt charitable
organization of governmental entity.
Technical amendments regarding this provision were included in the IRS
Restructuring and Reform Act of 1998.
Forgiven student loans are not a legislative issue at the end of the 106th
Congress.
7 The provision also extends the exclusion to refinancing loans issued by tax-exempt entities,
provided the requirement about working in an area or occupation with unmet needs is met.

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Computer Donations by Corporations
The Taxpayer Relief Act of 1997 authorized an enhanced deduction for
contributions of computer technology and equipment to elementary and secondary
schools or to tax-exempt charitable organizations supporting elementary and
secondary education. Contributions may be made through a private foundation. The
property must be donated within two years after it was acquired or constructed, and
it must be originally used by either the donor or the donee. The enhanced deduction,
like others allowed under prior law, is limited to corporations other than S-
corporations;8 it is equal to the fair market value of the contributed property minus
50% of the ordinary income that would have been recognized had the property been
sold for its fair market value. (Without this exception, the deduction would equal the
corporation’s basis in the property, which usually is less.) However, the enhanced
deduction is limited to twice the basis of the property. Authorization for the enhanced
deduction expires for taxable years beginning after December 31, 2000.
The IRS Restructuring and Reform Act of 1998 included several minor
amendments to this provision.
The President’s FY2001 budget would extend the enhanced deduction for
computer donations to schools through July 1, 2004; in addition, it would expand
eligible recipients to include certain public libraries and community technology
centers.
The House-reported Education Savings and School Excellence Act of 2000
(H.R. 7) would extend the enhanced deduction for one year (December 31, 2001).
In lieu of an extension, the Senate-passed Affordable Education Act of 2000 (S.
1134) would authorize a business tax credit for computer donations to schools and
senior centers.
Bonds
The Taxpayer Relief Act of 1997 authorized tax credits for a new form of
obligation called qualified zone academy bonds.9 Qualified zone academies are
public schools and programs that provide education and training below the
postsecondary level; they must be designed in cooperation with business to enhance
the academic curriculum, increase graduation and employment rates, and better
prepare students for college and the workforce. The academies must either be located
8 S-corporations generally are tax-reporting rather than tax-paying entities. Their charitable
contributions are divided among shareholders and reported on the latter’s separate tax returns.
Corporations may elect S-corporation status if they meet a number of Internal Revenue Code
requirements; among other things, they cannot have more than 75 shareholders or more than
one class of stock.
9 For additional information, see CRS Report RS20606, Qualified Zone Academy Bonds: A
Description of Tax Credit Bonds, by Steven Maguire.

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in empowerment zones or enterprise communities10 or have 35% or more of their
students eligible for free or reduced price lunches. At least 95% of bond proceeds
must be used for rehabilitating or repairing public school facilities, providing
equipment, developing course materials, or training teachers and other school
personnel. Private entities must contribute equipment, technical assistance, employee
services, educational opportunities, and other property worth at least 10% of bond
proceeds.
Qualified zone academy bonds are not tax-exempt; however, bondholders are
allowed a nonrefundable tax credit based upon a credit rate that the Secretary of the
Treasury determines would allow bonds to be issued without discount or interest cost
to the issuer. Thus, unlike tax-exempt bonds, the federal government will pay all the
interest costs. Qualified zone academy bondholders are limited to banks, insurance
companies, and corporations actively engaged in the business of lending money.
Under the 1997 Act, state and local governments could issue qualified zone
academy bonds only in 1998 and 1999, subject to a national limitation of $400 million
each year that is allocated proportionally to their share of the population in poverty.
The Ticket to Work and Work Incentives Improvement Act of 1999 authorized
up to $400 million of qualified zone academy bonds to be issued in each of 2000 and
2001. Unused authority may be carried over for several years.
The President’s FY2001 budget would increase the authorization for qualified
zone academy bonds by $1 billion in 2001 and $1.4 billion in 2002. Bond proceeds
could also be used for school construction. In addition, the budget would authorize
$11 billion in new school modernization bonds in each of 2001 and 2002. The latter
bonds would also be tax credit bonds.
The Taxpayer Relief Act of 1997 also expanded the arbitrage rebate exception
that applies to small issuers of governmental bonds. The general rule has been that
governmental units that do not issue more than $5 million annually in governmental
bonds do not have to refund arbitrage earnings to the federal government. The Act
provided that up to $5 million annually in school construction bonds issued after 1997
need not be counted for purposes of the $5 million ceiling.
Both the Senate-passed Affordable Education Act of 2000 (S. 1134) and the
House-reported Education Savings and School Excellence Act of 2000 (H.R. 7)
would increase the small issuer arbitrage rebate exception by allowing $10 million
annually in school construction bonds not to be counted for purposes of the ceiling.
In addition, the Senate bill would allow certain public education facility bonds to be
treated as exempt facility bonds and permit the Federal Housing Finance Board to
guarantee school construction bonds. The House measure would extend the time
10 Empowerment zones and enterprise communities are economically distressed areas that
qualify for special tax incentives and other federal assistance under P.L. 103-66. See CRS
Report 97-257E, Empowerment Zones/Enterprise Communities Program: Implementation
and Developments, by Bruce Mulock.

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period in which the proceeds of public school bonds must be spent in order to avoid
arbitrage rebate.11
Finally, the Taxpayer Relief Act of 1997 repealed the $150 million ceiling on the
total amount of tax-exempt bonds that may be issued by 501(c)(3) nonprofit
organizations, including private universities.
Provisions in Antecedent Legislation
The Taxpayer Relief Act of 1997 did not include several education provisions
that had been in the House version of the legislation (H.R. 2014) when it was first
passed. One would have terminated the exclusion for qualified tuition reductions
given employees (including graduate teaching assistants) of educational institutions;
a second would have authorized a 50% nonrefundable credit (limited to $150) for
amounts families paid for supplementary elementary and secondary education
services.
Similarly, several provisions that had been in the Senate bill (S. 949) were not
included in the final legislation. One would have allowed elementary and secondary
school teachers who itemize deductions to deduct professional development expenses
without regard to the 2% adjusted gross income floor; a second would have allowed
tax-free withdrawals from education IRAs for elementary and secondary school
expenses.
11 For analysis of a similar proposal, see CRS Report 98-803, Bonds for Public Schools:
Relaxation of Arbitrage Restrictions in the Taxpayer Relief Act of 1998, by Dennis
Zimmerman.

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