26 U.S.C. § 530 — Coverdell education savings accounts

Page 1743 TITLE 26—INTERNAL REVENUE CODE § 530 Subsec. (d)(4). Pub. L. 114–113, § 303(c)(1), substituted ‘‘section 103’’ for ‘‘section 4’’. Subsec. (e)(7). Pub. L. 114–113, § 303(b)(2), struck out par. (7). Text read as follows: ‘‘The term ‘contracting State’ means a State without a qualified ABLE pro- gram which has entered into a contract with a State with a qualified ABLE program to provide residents of the contracting State access to a qualified ABLE pro- gram.’’ Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2022 AMENDMENT Pub. L. 117–328, div. T, title I, § 124(b), Dec. 29, 2022, 136 Stat. 5314, provided that: ‘‘The amendments made by this section [amending this section] shall apply to tax- able years beginning after December 31, 2025.’’ EFFECTIVE DATE OF 2018 AMENDMENT Amendment by section 101(o) of Pub. L. 115–141 effec- tive as if included in the provision of the Protecting Americans from Tax Hikes Act of 2015, div. Q of Pub. L. 114–113, to which such amendment relates, see section 101(s) of Pub. L. 115–141, set out as a note under section 24 of this title. EFFECTIVE DATE OF 2017 AMENDMENT Amendment by Pub. L. 115–97 applicable to taxable years beginning after Dec. 22, 2017, see section 11024(c) of Pub. L. 115–97, set out as a note under section 25B of this title. EFFECTIVE DATE OF 2015 AMENDMENT Pub. L. 114–113, div. Q, title III, § 303(d), Dec. 18, 2015, 129 Stat. 3087, provided that: ‘‘The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2014.’’ EFFECTIVE DATE Section applicable to taxable years beginning after Dec. 31, 2014, see section 102(f)(1) of Pub. L. 113–295, set out as an Effective Date of 2014 Amendment note under section 552a of Title 5, Government Organization and Employees. REGULATIONS Pub. L. 113–295, div. B, title I, § 102(f)(2), Dec. 19, 2014, 128 Stat. 4062, provided that: ‘‘The Secretary of the Treasury (or the Secretary’s designee) shall promul- gate the regulations or other guidance required under section 529A(g) of the Internal Revenue Code of 1986, as added by subsection (a), not later than 6 months after the date of the enactment of this Act [Dec. 19, 2014].’’ PURPOSES Pub. L. 113–295, div. B, title I, § 101, Dec. 19, 2014, 128 Stat. 4056, provided that: ‘‘The purposes of this title [title I of div. B of Pub. L. 113–295, enacting this sec- tion, amending sections 26, 529, 877A, 4965, 4973, and 6693, of this title, section 552a of Title 5, Government Organization and Employees, sections 521, 541, and 707 of Title 11, Bankruptcy, and section 5517 of Title 12, Banks and Banking, and enacting provisions set out as notes under this section, section 529 of this title, sec- tion 552a of Title 5, and section 521 of Title 11] are as follows: ‘‘(1) To encourage and assist individuals and fami- lies in saving private funds for the purpose of sup- porting individuals with disabilities to maintain health, independence, and quality of life. ‘‘(2) To provide secure funding for disability-related expenses on behalf of designated beneficiaries with disabilities that will supplement, but not supplant, benefits provided through private insurance, the Med- icaid program under title XIX of the Social Security Act [42 U.S.C. 1396 et seq.], the supplemental security income program under title XVI of such Act [42 U.S.C. 1381 et seq.], the beneficiary’s employment, and other sources.’’ TREATMENT OF ABLE ACCOUNTS UNDER CERTAIN FEDERAL PROGRAMS Pub. L. 113–295, div. B, title I, § 103, Dec. 19, 2014, 128 Stat. 4063, provided that: ‘‘(a) ACCOUNT FUNDS DISREGARDED FOR PURPOSES OF CERTAIN OTHER MEANS-TESTED FEDERAL PROGRAMS.— Notwithstanding any other provision of Federal law that requires consideration of 1 or more financial cir- cumstances of an individual, for the purpose of deter- mining eligibility to receive, or the amount of, any as- sistance or benefit authorized by such provision to be provided to or for the benefit of such individual, any amount (including earnings thereon) in the ABLE ac- count (within the meaning of section 529A of the Inter- nal Revenue Code of 1986) of such individual, any con- tributions to the ABLE account of the individual, and any distribution for qualified disability expenses (as de- fined in subsection (e)(5) of such section) shall be dis- regarded for such purpose with respect to any period during which such individual maintains, makes con- tributions to, or receives distributions from such ABLE account, except that, in the case of the supplemental security income program under title XVI of the Social Security Act [42 U.S.C. 1381 et seq.]— ‘‘(1) a distribution for housing expenses (within the meaning of such subsection) shall not be so dis- regarded, and ‘‘(2) in the case of such program, any amount (in- cluding such earnings) in such ABLE account shall be considered a resource of the designated beneficiary to the extent that such amount exceeds $100,000. ‘‘(b) SUSPENSION OF SSI BENEFITS DURING PERIODS OF EXCESSIVE ACCOUNT FUNDS.— ‘‘(1) IN GENERAL.—The benefits of an individual under the supplemental security income program under title XVI of the Social Security Act shall not be terminated, but shall be suspended, by reason of excess resources of the individual attributable to an amount in the ABLE account (within the meaning of section 529A of the Internal Revenue Code of 1986) of the individual not disregarded under subsection (a) of this section. ‘‘(2) NO IMPACT ON MEDICAID ELIGIBILITY.—An indi- vidual who would be receiving payment of such sup- plemental security income benefits but for the appli- cation of paragraph (1) shall be treated for purposes of title XIX of the Social Security Act [42 U.S.C. 1396 et seq.] as if the individual continued to be receiving payment of such benefits. ‘‘(c) EFFECTIVE DATE.—This section shall take effect on the date of the enactment of this Act [Dec. 19, 2014].’’ § 530. Coverdell education savings accounts (a) General rule A Coverdell education savings account shall be exempt from taxation under this subtitle. Not- withstanding the preceding sentence, the Cover- dell education savings account shall be subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable organizations). (b) Definitions and special rules For purposes of this section— (1) Coverdell education savings account The term ‘‘Coverdell education savings ac- count’’ means a trust created or organized in the United States exclusively for the purpose of paying the qualified education expenses of an individual who is the designated bene- ficiary of the trust (and designated as a Cover- dell education savings account at the time created or organized), but only if the written governing instrument creating the trust meets the following requirements: Page 1744 TITLE 26—INTERNAL REVENUE CODE § 530 (A) No contribution will be accepted— (i) unless it is in cash, (ii) after the date on which such bene- ficiary attains age 18, or (iii) except in the case of rollover con- tributions, if such contribution would re- sult in aggregate contributions for the tax- able year exceeding $2,000. (B) The trustee is a bank (as defined in section 408(n)) or another person who dem- onstrates to the satisfaction of the Sec- retary that the manner in which that person will administer the trust will be consistent with the requirements of this section or who has so demonstrated with respect to any in- dividual retirement plan. (C) No part of the trust assets will be in- vested in life insurance contracts. (D) The assets of the trust shall not be commingled with other property except in a common trust fund or common investment fund. (E) Except as provided in subsection (d)(7), any balance to the credit of the designated beneficiary on the date on which the bene- ficiary attains age 30 shall be distributed within 30 days after such date to the bene- ficiary or, if the beneficiary dies before at- taining age 30, shall be distributed within 30 days after the date of death of such bene- ficiary. The age limitations in subparagraphs (A)(ii) and (E), and paragraphs (5) and (6) of sub- section (d), shall not apply to any designated beneficiary with special needs (as determined under regulations prescribed by the Sec- retary). (2) Qualified education expenses (A) In general The term ‘‘qualified education expenses’’ means— (i) qualified higher education expenses (as defined in section 529(e)(3)), and (ii) qualified elementary and secondary education expenses (as defined in para- graph (3)). (B) Qualified tuition programs Such term shall include any contribution to a qualified tuition program (as defined in section 529(b)) on behalf of the designated beneficiary (as defined in section 529(e)(1)); but there shall be no increase in the invest- ment in the contract for purposes of apply- ing section 72 by reason of any portion of such contribution which is not includible in gross income by reason of subsection (d)(2). (3) Qualified elementary and secondary edu- cation expenses (A) In general The term ‘‘qualified elementary and sec- ondary education expenses’’ means— (i) expenses for tuition, fees, academic tutoring, special needs services in the case of a special needs beneficiary, books, sup- plies, and other equipment which are in- curred in connection with the enrollment or attendance of the designated bene- ficiary of the trust as an elementary or secondary school student at a public, pri- vate, or religious school, (ii) expenses for room and board, uni- forms, transportation, and supplementary items and services (including extended day programs) which are required or provided by a public, private, or religious school in connection with such enrollment or at- tendance, and (iii) expenses for the purchase of any computer technology or equipment 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 in school. Clause (iii) shall not include expenses for computer software designed for sports, games, or hobbies unless the software is pre- dominantly educational in nature. (B) School The term ‘‘school’’ means any school which provides elementary education or sec- ondary education (kindergarten through grade 12), as determined under State law. (C) Computer technology or equipment The term ‘‘computer technology or equip- ment’’ means computer software (as defined by section 197(e)(3)(B)), computer or periph- eral equipment (as defined by section 168(i)(2)(B)), and fiber optic cable related to computer use. (4) Time when contributions deemed made An individual shall be deemed to have made a contribution to an education individual re- tirement account on the last day of the pre- ceding taxable year if the contribution is made on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (not including extensions thereof). (c) Reduction in permitted contributions based on adjusted gross income (1) In general In the case of a contributor who is an indi- vidual, the maximum amount the contributor could otherwise make to an account under this section shall be reduced by an amount which bears the same ratio to such maximum amount as— (A) the excess of— (i) the contributor’s modified adjusted gross income for such taxable year, over (ii) $95,000 ($190,000 in the case of a joint return), bears to (B) $15,000 ($30,000 in the case of a joint re- turn). (2) Modified adjusted gross income For purposes of paragraph (1), the term ‘‘modified adjusted gross income’’ means the adjusted gross income of the taxpayer for the taxable year increased by any amount ex- cluded from gross income under section 911, 931, or 933. Page 1745 TITLE 26—INTERNAL REVENUE CODE § 530 (d) Tax treatment of distributions (1) In general Any distribution shall be includible in the gross income of the distributee in the manner as provided in section 72. (2) Distributions for qualified education ex- penses (A) In general No amount shall be includible in gross in- come under paragraph (1) if the qualified education expenses of the designated bene- ficiary during the taxable year are not less than the aggregate distributions during the taxable year. (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 edu- cation expenses bear to such aggregate dis- tributions. (C) Coordination with American Opportunity and Lifetime Learning credits and quali- fied tuition programs For purposes of subparagraph (A)— (i) Credit coordination The total amount of qualified 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 deter- mining the credit allowed to the tax- payer or any other person under section 25A. (ii) Coordination with qualified tuition pro- grams If, with respect to an individual for any taxable year— (I) the aggregate distributions during such year to which subparagraph (A) and section 529(c)(3)(B) apply, exceed (II) the total amount of qualified edu- cation expenses (after the application of clause (i)) for such year, the taxpayer shall allocate such expenses among such distributions for purposes of determining the amount of the exclusion under subparagraph (A) and section 529(c)(3)(B). (D) Disallowance of excluded amounts as de- duction, credit, or exclusion No deduction, credit, or exclusion shall be allowed to the taxpayer under any other sec- tion of this chapter for any qualified edu- cation expenses to the extent taken into ac- count in determining the amount of the ex- clusion under this paragraph. (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 pur- poses 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 payment or distribution from a Coverdell education savings account which is includ- ible 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 es- tate of the designated beneficiary) on or after the death of the designated bene- ficiary, (ii) attributable to the designated bene- ficiary’s being disabled (within the mean- ing of section 72(m)(7)), (iii) made on account of a scholarship, allowance, or payment described in section 25A(g)(2) received by the designated bene- ficiary to the extent the amount of the payment or distribution does not exceed the amount of the scholarship, allowance, or payment, (iv) made on account of the attendance of the designated beneficiary at the United States Military Academy, the United States Naval Academy, the United States Air Force Academy, the United States Coast Guard Academy, or the United States Merchant Marine Academy, to the extent that the amount of the payment or distribution does not exceed the costs of advanced education (as defined by section 2005(e)(3) of title 10, United States Code, as in effect on the date of the enactment of this section) attributable to such attend- ance, or (v) an amount which is includible in gross income solely by application of para- graph (2)(C)(i)(II) for the taxable year. (C) Contributions returned before certain date Subparagraph (A) shall not apply to the distribution of any contribution made dur- ing a taxable year on behalf of the des- ignated beneficiary if— (i) such distribution is made before the first day of the sixth month of the taxable year following the 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 a Coverdell education savings account to the extent that the amount received is paid, not later than the 60th day after the date of such payment or distribution, into another Coverdell education savings ac- count for the benefit of the same beneficiary or a member of the family (within the mean- Page 1746 TITLE 26—INTERNAL REVENUE CODE § 530 ing of section 529(e)(2)) of such beneficiary who has not attained age 30 as of such date. The preceding sentence shall not apply to any pay- ment or distribution if it applied to any prior payment or distribution during the 12-month period ending on the date of the payment or distribution. (6) Change in beneficiary Any change in the beneficiary of a Coverdell education savings account shall not be treated as a distribution for purposes of paragraph (1) if the new beneficiary is a member of the fam- ily (as so defined) of the old beneficiary and has not attained age 30 as of the date of such change. (7) Special rules for death and divorce Rules similar to the rules of paragraphs (7) and (8) of section 220(f) shall apply. In applying the preceding sentence, members of the family (as so defined) of the designated beneficiary shall be treated in the same manner as the spouse under such paragraph (8). (8) Deemed distribution on required distribu- tion date In any case in which a distribution is re- quired under subsection (b)(1)(E), any balance to the credit of a designated beneficiary as of the close of the 30-day period referred to in such subsection for making such distribution shall be deemed distributed at the close of such period. (9) Military death gratuity (A) In general For purposes of this section, the term ‘‘rollover contribution’’ includes a contribu- tion to a Coverdell education savings ac- count made before the end of the 1-year pe- riod beginning on the date on which the con- tributor receives an amount under section 1477 of title 10, United States Code, or sec- tion 1967 of title 38 of such Code, with re- spect to a person, to the extent that such contribution does not exceed— (i) the sum of the amounts received dur- ing such period by such contributor under such sections with respect to such person, reduced by (ii) the amounts so received which were contributed to a Roth IRA under section 408A(e)(2) or to another Coverdell edu- cation savings account. (B) Annual limit on number of rollovers not to apply The last sentence of paragraph (5) shall not apply with respect to amounts treated as a rollover by subparagraph (A). (C) Application of section 72 For purposes of applying section 72 in the case of a distribution which is includible in gross income under paragraph (1), the amount treated as a rollover by reason of subparagraph (A) shall be treated as invest- ment in the contract. (e) Tax treatment of accounts Rules similar to the rules of paragraphs (2) and (4) of section 408(e) shall apply to any Cover- dell education savings account. (f) Community property laws This section shall be applied without regard to any community property laws. (g) Custodial accounts For purposes of this section, a custodial ac- count shall be treated as a trust if the assets of such account are held by a bank (as defined in section 408(n)) or another person who dem- onstrates, to the satisfaction of the Secretary, that the manner in which he will administer the account will be consistent with the require- ments of this section, and if the custodial ac- count would, except for the fact that it is not a trust, constitute an account described in sub- section (b)(1). For purposes of this title, in the case of a custodial account treated as a trust by reason of the preceding sentence, the custodian of such account shall be treated as the trustee thereof. (h) Reports The trustee of a Coverdell education savings account shall make such reports regarding such account to the Secretary and to the beneficiary of the account 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 re- quired. (Added Pub. L. 105–34, title II, § 213(a), Aug. 5, 1997, 111 Stat. 813; amended Pub. L. 105–206, title VI, § 6004(d)(1)–(3)(A), (5)–(8), July 22, 1998, 112 Stat. 793, 794; Pub. L. 106–554, § 1(a)(7) [title III, § 319(6)], Dec. 21, 2000, 114 Stat. 2763, 2763A–646; Pub. L. 107–16, title IV, §§ 401(a)(1), (b)–(g)(1), (2)(C), 402(a)(4)(A), (C), June 7, 2001, 115 Stat. 57–61; Pub. L. 107–22, § 1(a)(1)–(5), July 26, 2001, 115 Stat. 196; Pub. L. 107–147, title IV, § 411(f), Mar. 9, 2002, 116 Stat. 46; Pub. L. 108–121, title I, § 107(a), Nov. 11, 2003, 117 Stat. 1339; Pub. L. 108–311, title IV, §§ 404(a), 406(b), Oct. 4, 2004, 118 Stat. 1188, 1189; Pub. L. 109–135, title IV, § 412(ff), Dec. 21, 2005, 119 Stat. 2639; Pub. L. 110–245, title I, § 109(c), June 17, 2008, 122 Stat. 1632; Pub. L. 115–141, div. U, title I, § 101(l)(16), title IV, § 401(a)(131), (b)(23), Mar. 23, 2018, 132 Stat. 1165, 1190, 1203.) Editorial Notes REFERENCES IN TEXT The date of the enactment of this section, referred to in subsec. (d)(4)(B)(iv), is the date of enactment of Pub. L. 105–34, which enacted this section and was approved Aug. 5, 1997. AMENDMENTS 2018—Subsec. (b)(3)(A)(iii). Pub. L. 115–141, § 401(b)(23)(A), struck out ‘‘(as defined in section 170(e)(6)(F)(i))’’ before ‘‘or Internet’’. Subsec. (b)(3)(C). Pub. L. 115–141, § 401(b)(23)(B), added subpar. (C). Subsec. (d)(2)(C). Pub. L. 115–141, § 101(l)(16), sub- stituted ‘‘American Opportunity’’ for ‘‘Hope’’ in head- ing. Subsec. (d)(9)(B). Pub. L. 115–141, § 401(a)(131), sub- stituted ‘‘by’’ for ‘‘by the’’. 2008—Subsec. (d)(9). Pub. L. 110–245 added par. (9). 2005—Subsec. (b)(2)(A)(ii). Pub. L. 109–135, § 412(ff)(2), substituted ‘‘paragraph (3)’’ for ‘‘paragraph (4)’’. Page 1747 TITLE 26—INTERNAL REVENUE CODE § 530 Subsec. (b)(3) to (5). Pub. L. 109–135, § 412(ff)(1), redes- ignated pars. (4) and (5) as (3) and (4), respectively, and struck out former par. (3) which read as follows: ‘‘The term ‘eligible educational institution’ has the meaning given such term by section 529(e)(5).’’ 2004—Subsec. (d)(2)(C)(i). Pub. L. 108–311, § 404(a), struck out ‘‘higher’’ after ‘‘qualified’’ in introductory provisions. Subsec. (d)(4)(B)(iii). Pub. L. 108–311, § 406(b), sub- stituted ‘‘designated beneficiary’’ for ‘‘account holder’’. 2003—Subsec. (d)(4)(B)(iv), (v). Pub. L. 108–121 added cl. (iv) and redesignated former cl. (iv) as (v). 2002—Subsec. (d)(4)(B)(iv). Pub. L. 107–147 substituted ‘‘by application of paragraph (2)(C)(i)(II)’’ for ‘‘because the taxpayer elected under paragraph (2)(C) to waive the application of paragraph (2)’’. 2001—Pub. L. 107–22, § 1(a)(5), amended section catch- line generally, substituting ‘‘Coverdell education sav- ings’’ for ‘‘Education individual retirement’’. Subsec. (a). Pub. L. 107–22, § 1(a)(2), substituted ‘‘A Coverdell education savings account’’ for ‘‘An edu- cation individual retirement account’’ and ‘‘the Cover- dell education savings account’’ for ‘‘the education in- dividual retirement account’’. Subsec. (b)(1). Pub. L. 107–22, § 1(a)(1), (3), in heading, substituted ‘‘Coverdell education savings account’’ for ‘‘Education individual retirement account’’ and, in in- troductory provisions, substituted ‘‘ ‘Coverdell edu- cation savings account’ ’’ for ‘‘ ‘education individual re- tirement account’ ’’ and ‘‘designated as a Coverdell edu- cation savings account’’ for ‘‘designated as an edu- cation individual retirement account’’. Pub. L. 107–16, § 401(d), inserted concluding provisions. Pub. L. 107–16, § 401(c)(3)(A), struck out ‘‘higher’’ be- fore ‘‘education expenses’’ in introductory provisions. Subsec. (b)(1)(A)(iii). Pub. L. 107–16, § 401(a)(1), sub- stituted ‘‘$2,000’’ for ‘‘$500’’. Subsec. (b)(2). Pub. L. 107–16, § 401(c)(1), amended heading and text of par. (2) generally, substituting present provisions for provisions which defined ‘‘quali- fied higher education expenses’’ as having the meaning given such term by section 529(e)(3), reduced as pro- vided in section 25A(g)(2), and including amounts paid or incurred to purchase tuition credits or certificates, or to make contributions to an account, under a quali- fied State tuition program for the benefit of the bene- ficiary of the account. Subsec. (b)(2)(B). Pub. L. 107–16, § 402(a)(4)(A), (C), in heading, substituted ‘‘Qualified tuition’’ for ‘‘Qualified State tuition’’ and in text, substituted ‘‘qualified tui- tion’’ for ‘‘qualified State tuition’’. Subsec. (b)(4). Pub. L. 107–16, § 401(c)(2), added par. (4). Subsec. (b)(5). Pub. L. 107–16, § 401(f)(1), added par. (5). Subsec. (c)(1). Pub. L. 107–16, § 401(e), substituted ‘‘In the case of a contributor who is an individual, the max- imum amount the contributor’’ for ‘‘The maximum amount which a contributor’’ in introductory provi- sions. Subsec. (c)(1)(A)(ii). Pub. L. 107–16, § 401(b)(1), sub- stituted ‘‘$190,000’’ for ‘‘$150,000’’. Subsec. (c)(1)(B). Pub. L. 107–16, § 401(b)(2), substituted ‘‘$30,000’’ for ‘‘$10,000’’. Subsec. (d)(2). Pub. L. 107–16, § 401(c)(3)(B), struck out ‘‘higher’’ before ‘‘education’’ in heading. Subsec. (d)(2)(A), (B). Pub. L. 107–16, § 401(c)(3)(A), struck out ‘‘higher’’ before ‘‘education’’. Subsec. (d)(2)(C). Pub. L. 107–16, § 401(g)(1), amended heading and text of subpar. (C) generally. Prior to amendment, text read as follows: ‘‘A taxpayer may elect to waive the application of this paragraph for any taxable year.’’ Subsec. (d)(2)(D). Pub. L. 107–16, § 401(g)(2)(C), in head- ing, substituted ‘‘deduction, credit, or exclusion’’ for ‘‘credit or deduction’’ and in text, substituted ‘‘, credit, or exclusion’’ for ‘‘or credit’’. Subsec. (d)(4)(A). Pub. L. 107–22, § 1(a)(1), substituted ‘‘a Coverdell education savings account’’ for ‘‘an edu- cation individual retirement account’’. Subsec. (d)(4)(C). Pub. L. 107–16, § 401(f)(2)(B), sub- stituted ‘‘certain date’’ for ‘‘due date of return’’ in heading. Subsec. (d)(4)(C)(i). Pub. L. 107–16, § 401(f)(2)(A), added cl. (i) and struck out former cl. (i) which read as fol- lows: ‘‘such distribution is made on or before the day prescribed by law (including extensions of time) for fil- ing the beneficiary’s return of tax for the taxable year or, if the beneficiary is not required to file such a re- turn, the 15th day of the 4th month of the taxable year following the taxable year; and’’. Subsec. (d)(5). Pub. L. 107–22, § 1(a)(1), (4), substituted ‘‘distributed from a Coverdell education savings ac- count’’ for ‘‘distributed from an education individual retirement account’’ and ‘‘another Coverdell education savings account’’ for ‘‘another education individual re- tirement account’’. Subsec. (d)(6). Pub. L. 107–22, § 1(a)(1), substituted ‘‘a Coverdell education savings account’’ for ‘‘an edu- cation individual retirement account’’. Subsec. (e). Pub. L. 107–22, § 1(a)(4), substituted ‘‘Coverdell education savings account’’ for ‘‘education individual retirement account’’. Subsec. (h). Pub. L. 107–22, § 1(a)(1), substituted ‘‘a Coverdell education savings account’’ for ‘‘an edu- cation individual retirement account’’. 2000—Subsec. (d)(4)(B)(iii). Pub. L. 106–554 substituted a comma for a semicolon before ‘‘or’’ at end. 1998—Subsec. (b)(1). Pub. L. 105–206, § 6004(d)(1), in- serted ‘‘an individual who is’’ before ‘‘the designated beneficiary’’ in introductory provisions. Subsec. (b)(1)(E). Pub. L. 105–206, § 6004(d)(2)(A), amended subpar. (E) generally. Prior to amendment, subpar. (E) read as follows: ‘‘Upon the death of the des- ignated beneficiary, any balance to the credit of the beneficiary shall be distributed within 30 days after the date of death to the estate of such beneficiary.’’ Subsec. (d)(1). Pub. L. 105–206, § 6004(d)(3)(A), sub- stituted ‘‘section 72’’ for ‘‘section 72(b)’’. Subsec. (d)(2)(D). Pub. L. 105–206, § 6004(d)(5), added subpar. (D). Subsec. (d)(4)(B)(iv). Pub. L. 105–206, § 6004(d)(6), added cl. (iv). Subsec. (d)(4)(C). Pub. L. 105–206, § 6004(d)(7), sub- stituted ‘‘Contributions’’ for ‘‘Excess contributions’’ in heading and amended text of introductory provisions and cl. (i) generally. Prior to amendment, text read as follows: ‘‘Subparagraph (A) shall not apply to the dis- tribution 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’’. Subsec. (d)(5). Pub. L. 105–206, § 6004(d)(8)(A), added first sentence and struck out former first sentence which read as follows: ‘‘Paragraph (1) shall not apply to any amount paid or distributed from an education indi- vidual retirement account to the extent that the amount received is paid into another education indi- vidual 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 beneficiary not later than the 60th day after the date of such payment or distribution.’’ Subsec. (d)(6). Pub. L. 105–206, § 6004(d)(8)(B), inserted before period at end ‘‘and has not attained age 30 as of the date of such change’’. Subsec. (d)(7). Pub. L. 105–206, § 6004(d)(2)(B), inserted at end ‘‘In applying the preceding sentence, members of the family (as so defined) of the designated beneficiary shall be treated in the same manner as the spouse under such paragraph (8).’’ Subsec. (d)(8). Pub. L. 105–206, § 6004(d)(2)(C), added par. (8). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2018 AMENDMENT Amendment by section 101(l)(16) of Pub. L. 115–141 ef- fective as if included in the provision of the Protecting Page 1748 TITLE 26—INTERNAL REVENUE CODE § 531 Americans from Tax Hikes Act of 2015, div. Q of Pub. L. 114–113, to which such amendment relates, see section 101(s) of Pub. L. 115–141, set out as a note under section 24 of this title. EFFECTIVE DATE OF 2008 AMENDMENT Amendment by Pub. L. 110–245 applicable with re- spect to deaths from injuries occurring on or after June 17, 2008, with provision for application of amendment to deaths from injuries occurring on or after Oct. 7, 2001, and before June 17, 2008, see section 109(d)(1), (2) of Pub. L. 110–245, set out as a note under section 408A of this title. EFFECTIVE DATE OF 2004 AMENDMENT Amendment by section 404(a) of Pub. L. 108–311 effec- tive as if included in the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107–16, to which such amendment relates, see section 404(f) of Pub. L. 108–311, set out as a note under section 45A of this title. Amendment by section 406(b) of Pub. L. 108–311 effec- tive as if included in the provisions of the Taxpayer Re- lief Act of 1997, Pub. L. 105–34, to which such amend- ment relates, see section 406(h) of Pub. L. 108–311, set out as a note under section 55 of this title. EFFECTIVE DATE OF 2003 AMENDMENT Pub. L. 108–121, title I, § 107(b), Nov. 11, 2003, 117 Stat. 1339, provided that: ‘‘The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2002.’’ EFFECTIVE DATE OF 2002 AMENDMENT Amendment by Pub. L. 107–147 effective as if included in the provisions of the Economic Growth and Tax Re- lief Reconciliation Act of 2001, Pub. L. 107–16, to which such amendment relates, see section 411(x) of Pub. L. 107–147, set out as a note under section 25B of this title. EFFECTIVE DATE OF 2001 AMENDMENT Amendment by Pub. L. 107–22 effective July 26, 2001, see section 1(c) of Pub. L. 107–22, set out as a note under section 26 of this title. Amendment by section 401(a)(1), (b)–(g)(1), (2)(C) of Pub. L. 107–16 applicable to taxable years beginning after Dec. 31, 2001, see section 401(h) of Pub. L. 107–16, set out as a note under section 25A of this title. Amendment by section 402(a)(4)(A), (C) of Pub. L. 107–16 applicable to taxable years beginning after Dec. 31, 2001, see section 402(h) of Pub. L. 107–16, set out as a note under section 72 of this title. EFFECTIVE DATE OF 1998 AMENDMENT Amendment by Pub. L. 105–206 effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 6024 of Pub. L. 105–206, set out as a note under section 1 of this title. EFFECTIVE DATE Section applicable to taxable years beginning after Dec. 31, 1997, see section 213(f) of Pub. L. 105–34, set out as an Effective Date of 1997 Amendment note under sec- tion 26 of this title. SAVINGS PROVISION For provisions that nothing in amendment by section 401(b)(23) of Pub. L. 115–141 be construed to affect treat- ment of certain transactions occurring, property ac- quired, or items of income, loss, deduction, or credit taken into account prior to Mar. 23, 2018, for purposes of determining liability for tax for periods ending after Mar. 23, 2018, see section 401(e) of Pub. L. 115–141, set out as a note under section 23 of this title. Subchapter G—Corporations Used to Avoid Income Tax on Shareholders Part I. Corporations improperly accumulating sur- plus. II. Personal holding companies. [III. Repealed.] IV. Deduction for dividends paid. Editorial Notes AMENDMENTS 2004—Pub. L. 108–357, title IV, § 413(c)(31), Oct. 22, 2004, 118 Stat. 1509, struck out item for part III ‘‘Foreign per- sonal holding companies’’. PART I—CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS Sec. 531. Imposition of accumulated earnings tax. 532. Corporations subject to accumulated earnings tax. 533. Evidence of purpose to avoid income tax. 534. Burden of proof. 535. Accumulated taxable income. 536. Income not placed on annual basis. 537. Reasonable needs of the business. § 531. Imposition of accumulated earnings tax In addition to other taxes imposed by this chapter, there is hereby imposed for each tax- able year on the accumulated taxable income (as defined in section 535) of each corporation de- scribed in section 532, an accumulated earnings tax equal to 20 percent of the accumulated tax- able income. (Aug. 16, 1954, ch. 736, 68A Stat. 179; Pub. L. 100–647, title I, § 1001(a)(2)(A), Nov. 10, 1988, 102 Stat. 3349; Pub. L. 103–66, title XIII, §§ 13201(b)(1), 13202(b), Aug. 10, 1993, 107 Stat. 459, 461; Pub. L. 107–16, title I, § 101(c)(4), June 7, 2001, 115 Stat. 43; Pub. L. 108–27, title III, § 302(e)(5), May 28, 2003, 117 Stat. 764; Pub. L. 112–240, title I, § 102(c)(1)(A), Jan. 2, 2013, 126 Stat. 2319.) Editorial Notes AMENDMENTS 2013—Pub. L. 112–240 substituted ‘‘20 percent’’ for ‘‘15 percent’’. 2003—Pub. L. 108–27 substituted ‘‘equal to 15 percent of the accumulated taxable income.’’ for ‘‘equal to the product of the highest rate of tax under section 1(c) and the accumulated taxable income.’’ 2001—Pub. L. 107–16 substituted ‘‘equal to the product of the highest rate of tax under section 1(c) and the ac- cumulated taxable income.’’ for ‘‘equal to 39.6 percent of the accumulated taxable income.’’ 1993—Pub. L. 103–66, § 13202(b), substituted ‘‘39.6 per- cent’’ for ‘‘36 percent’’. Pub. L. 103–66, § 13201(b)(1), substituted ‘‘36 percent’’ for ‘‘28 percent’’. 1988—Pub. L. 100–647 amended section generally. Prior to amendment, section read as follows: ‘‘In addition to other taxes imposed by this chapter, there is hereby imposed for each taxable year on the accumulated tax- able income (as defined in section 535) of every corpora- tion described in section 532, an accumulated earnings tax equal to the sum of— ‘‘(1) 271⁄2 percent of the accumulated taxable income not in excess of $100,000, plus ‘‘(2) 381⁄2 percent of the accumulated taxable income in excess of $100,000.’’