Page:United States Statutes at Large Volume 111 Part 1.djvu/839

 PUBLIC LAW 105-34—AUG. 5, 1997 111 STAT. 815 "(B) DISTRIBUTIONS IN EXCESS OF EXPENSES.—If such aggregate distributions exceed such expenses during the taxable year, the amount otherwise includible in gross income under paragraph (1) shall be reduced by the amount which bears the same ratio to the amount which would be includible in gross income under paragraph (1) (without regard to this subparagraph) as the qualified higher education expenses bear to such aggregate distributions. "(C) ELECTION TO WAIVE EXCLUSION. — A taxpayer may elect to waive the application of this paragraph for any taxable year. "(3) SPECIAL RULES FOR APPLYING ESTATE AND GIFT TAXES WITH RESPECT TO ACCOUNT.— Rules similar to the rules of paragraphs (2), (4), and (5) of section 529(c) shall apply for purposes of this section. "(4) ADDITIONAL TAX FOR DISTRIBUTIONS NOT USED FOR EDUCATIONAL EXPENSES. — "(A) IN GENERAL.— The tax imposed by this chapter for any taxable year on any taxpayer who receives a pay- ment or distribution from an education individual retirement account which is includible in gross income shall be increased by 10 percent of the amount which is so includible. "(B) EXCEPTIONS. — Subparagraph (A) shall not apply if the payment or distribution is— "(i) made to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary, "(ii) attributable to the designated beneficiary's being disabled (within the meaning of section 72(m)(7)), or "(iii) made on account of a scholarship, allowance, or payment described in section 25A(g)(2) received by the account holder to the extent the amount of the payment or distribution does not exceed the amount of the scholarship, allowance, or payment. "(C) EXCESS CONTRIBUTIONS RETURNED BEFORE DUE DATE OF RETURN. —Subparagraph (A) shall not apply to the distribution of any contribution made during a taxable year on behalf of a designated beneficiary to the extent that such contribution exceeds $500 if— "(i) such distribution is received on or before the day prescribed by law (including extensions of time) for filing such contributor's return for such taxable year, and "(ii) such distribution is accompanied by the amount of net income attributable to such excess contribution. Any net income described in clause (ii) shall be included in gross income for the taxable year in which such excess contribution was made. "(5) ROLLOVER CONTRIBUTIONS. —Paragraph (1) shall not apply to any amount paid or distributed from an education individual retirement account to the extent that the amount received is paid into another education individual retirement account for the benefit of the same beneficiary or a member of the family (within the meaning of section 529(e)(2)) of such

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