This is the fifth of a series of
bulletins NHELD is preparing detailing, section by section, the exact language
of HR3753/S1691, the “Home School Non-Discrimination Act of 2005”, or “HoNDA”, as proposed in the House and Senate. The bulletins will provide the exact language
from the bill, along with the exact text of the existing federal law that the
bill proposes to amend. The bulletins
will also include NHELD’s comments on those
provisions. The first bulletin was Bulletin #44
- HONDA Re-Introduced Examining Sections
1, 2 and 3 issued 10/17/2005, and the second bulletin #47 was HONDA Re-Introduced examining Section 4(a) issued 01/23/06 and the third bulletin #48
was Section 4(b) issued 1/24/2005, and the fourth bulletin #49 was about
section 5.
NHELD
believes this entire bill should be killed and all previous federal laws
already adopted having anything to do with the rights of parents to instruct
their children at home should be repealed.
NHELD
believes that there can be no compromises on any federal legislation regarding
the rights of parents to instruct their children at home.
NHELD believes all federal legislation regarding the rights
of parents to instruct their children at home, no matter how beneficial the
legislation appears, is wholly unconstitutional, in violation of the Tenth
Amendment to the
As always, we strive
to provide our readers with all of the facts so that they can reach their own
conclusions. Please bear with us as we reprint the relevant and exact statute
excerpts, which are both important and tedious at times to read. Following the specifics of the legislation,
we will provide you with a more reader-friendly analysis.
Do
you know what Section 6 of the HONDA bill does? Section 6 of the proposed HoNDA
bill purports to add certain language to an existing portion of the IRS Code.
The portion of the IRS Code that would be amended is Section 530. It can be found, in its entirety at:
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=browse_usc&docid=Cite:+26USC530
The Senate version of Section 6 of the Home School Non
Discrimination Act, or HoNDA, S1691, is identical to
the House version of Section 6 of HoNDA, HR3753.
The House version of HoNDA, in
its entirety, can be found at: http://thomas.loc.gov
by searching for HR3753. The bill is
currently before the House Subcommittee on Education Reform.
Section 530 establishes provisions for Coverdell Education
Savings Accounts. Those are trust
accounts set up for families to use tax exempt money to pay for certain
educational expenses for children in elementary, secondary, and higher
education.
Section 6 of the HoNDA bill would
add a paragraph to that particular portion of the IRS Code, ostensibly, to
allow home school families to benefit.
Section 6 of HoNDA, as proposed, reads as follows:
(a)
In General-
Paragraph (4) of section 530(b) of the Internal Revenue Code of 1986 (relating
to qualified elementary and secondary education expenses) is amended by adding
at the end the following new subparagraph:
`(C) SPECIAL RULE FOR HOME SCHOOLS- For
purposes of clauses (i) and (iii) of subparagraph
(A), the terms `public, private, or religious school’ and school’ shall include
any home school which provides
elementary or secondary education if such school is treated as a home school or
private school under State law.'.
(b) Effective Date- The
amendment made by subsection (a) shall apply to taxable years beginning after
the date of the enactment of this Act.”
The subparagraph proposed as the addition to the IRS Code,
as underlined above, would be inserted into Section 530 so that the relevant
portion of the IRS Code would read as follows:
“Sec. 530. Coverdell education savings accounts
(a) General rule A Coverdell education savings account shall be exempt from taxation under this subtitle. Notwithstanding the preceding sentence, the
Coverdell 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 account'' means a trust created or organized in the United States purpose of paying the qualified education expenses of an individual who is the designated beneficiary of the trust (and designated as a Coverdell education savings account at the time created or organized), but only if the written governing instrument creating the trust meets the following requirements: (A) No contribution will be accepted-- (i) unless it is in cash, (ii) after the date on which such beneficiary attains age 18, or (iii) except in the case of rollover contributions, if such contribution would result in aggregate contributions for the taxable year exceeding $2,000. (B) The trustee is a bank (as defined in section 408(n)) or another person who demonstrates to the satisfaction of the Secretary 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 individual retirement plan. (C) No part of the trust assets will be invested 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 beneficiary attains age 30 shall be distributed within 30 days after such date to the beneficiary or, if the beneficiary dies before attaining age 30, shall be distributed within 30 days after the date of death of such beneficiary. The age limitations in subparagraphs (A)(ii) and (E), and paragraphs (5) and (6) of subsection (d), shall not apply to any designated beneficiary with special needs (as determined under regulations prescribed by the Secretary). (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 paragraph (4)). (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 investment in the contract for purposes of applying section 72 by reason of any portion of such contribution which is not includible in gross income by reason of subsection (d)(2). (3) Eligible educational institution The term ``eligible educational institution'' has the meaning given such term by section 529(e)(5). (4) Qualified elementary and secondary education expenses (A) In general The term ``qualified elementary and secondary education expenses'' means--
(i) expenses for tuition, fees, academic tutoring, special needs services in the case of a special needs beneficiary, books, supplies, and other equipment which are incurred in connection with the enrollment or attendance of the designated beneficiary of the trust as an elementary or secondary school student at a public, private, or religious school, (ii) expenses for room and board, uniforms, 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 attendance, and (iii) expenses for the purchase of any computer technology or equipment (as defined in section 170(e)(6)(F)(i)) 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 predominantly educational in nature. (B) School The term ``school'' means any school which provides elementary education or secondary education (kindergarten through grade 12), as determined under State law. (C) SPECIAL RULE FOR HOME SCHOOLS- For purposes of clauses (i) and (iii) of subparagraph (A), the terms `public,
private, or religious school’ and school’ shall include any home school which
provides elementary or secondary education if such school is treated as a home
school or private school under State law.”
Under
Section 530 as it currently exists, a Coverdell Education Savings Account is a
trust created exclusively for paying the “qualified education expenses”
of the beneficiary of the trust.
Of course,
the law imposes certain conditions in order to benefit from such an account, as
well as technicalities involving how the money can be distribute and under what
circumstances. There is even a provision in Section 530 advising readers that
other federal laws also apply to these accounts. In fact, references to other
federal laws are sprinkled throughout Section 530, making it more time
consuming to piece together the meaning of the law. For example, as you can see from the text
above, the existing law allows for a tax exemption for “qualified higher
education expenses” and “qualified elementary and secondary education
expenses”. As you also can see, Section 530 defines “qualified higher education
expenses” by reference to a definition in section 529(e)(3).
http://66.161.141.176/cgi-bin/texis/web/usstat/+9wwBmeCFugen6pxwwxFqH6sm6+8hmhwmwmKhqq9_6XxmnvqmxwqhX/bvindex.html Section 529(e)(3) defines “qualified higher education expenses” as:
“(A) In general
The term
"qualified higher education expenses" means -
(i) tuition, fees, books,
supplies, and equipment required for the enrollment or attendance of a
designated beneficiary at an eligible educational institution; and
(ii) expenses for special needs services in the case of
a special needs beneficiary which are incurred in connection with such
enrollment or attendance.
(B) Room
and board included for students who are at least half-time
(i) In general
In the case
of an individual who is an eligible student (as defined in section 25A(b)(3))
for any academic period, such term shall also include reasonable costs for such
period (as determined under the qualified tuition program) incurred by the
designated beneficiary for room and board while attending such institution. For
purposes of subsection (b)(7), a designated
beneficiary shall be treated as meeting the requirements of this clause.
(ii)
Limitation
The amount
treated as qualified higher education expenses by reason of clause (i) shall not exceed -
(I) the
allowance (applicable to the student) for room and board included in the cost
of attendance (as defined in section 472 of the Higher Education Act of 1965
(20 U.S.C. 1087ll), as in effect on the date of the enactment of the Economic
Growth and Tax Relief Reconciliation Act of 2001) as determined by the eligible
educational institution for such period, or
(II) if greater, the actual invoice amount the student residing
in housing owned or operated by the eligible educational institution is charged
by such institution for room and board costs for such period.”
In other words, “qualified
higher education expenses” includes items like tuition, books, supplies and
equipment “required for the enrollment or attendance” of a child “at
an eligible educational institution”.
It also includes room and board for an “eligible student”, as defined in
yet another section of the IRS Code, except for certain limitations on those
allowable expenses.
Another portion of Section
529 provides further relevant and explanatory information. Section 529(e)(5), defines an “eligible
educational institution” as
“an institution -
(A) which is described in
section 481 of the Higher Education Act of 1965 (20 U.S.C. 1088), as in
effect on the date of the enactment of this paragraph, and
(B) which is eligible to participate in a program under title IV
of such Act.”
In order to more fully
appreciate that definition, one needs to read Section 481 of the Higher
Education Act of 1965, 20 U.S.C. 1088. http://66.161.141.176/cgi-bin/texis/web/usstat/+QwwBmeZFugenVVxwwxFqH6sm6+8hmhwmwmKhqq9_6XxmnvqmxwqhX/bvindex.html
Section 481 specifies: “20 USC § 1088
Definitions
SUBCHAPTER IV
- STUDENT ASSISTANCE
Part F -
General Provisions Relating to Student Assistance Programs
(a) Academic
and award year
(1) For the
purpose of any program under this subchapter and part C of subchapter I of
chapter 34 of title 42, the term "award year" shall be defined as the
period beginning July 1 and ending June 30 of the following year.
(2) For the
purpose of any program under this subchapter and part C of subchapter I of
chapter 34 of title 42, the term "academic year" shall require a minimum
of 30 weeks of instructional time, and, with respect to an undergraduate course
of study, shall require that during such minimum period of instructional time a
full-time student is expected to complete at least 24 semester or trimester
hours or 36 quarter hours at an institution that measures program length in
credit hours, or at least 900 clock hours at an institution that measures
program length in clock hours. The Secretary may reduce such minimum of 30
weeks to not less than 26 weeks for good cause, as determined by the Secretary
on a case-by-case basis, in the case of an institution of higher education that
provides a 2-year or 4-year program of instruction for which the institution
awards an associate or baccalaureate degree.
(b) Eligible
program
(1) For purposes
of this subchapter and part C of subchapter I of chapter 34 of title 42, the
term "eligible program" means a program of at least -
(A) 600
clock hours of instruction, 16 semester hours, or 24 quarter hours, offered
during a minimum of 15 weeks, in the case of a program that -
(i) provides a program of training
to prepare students for gainful employment in a recognized profession; and
(ii) admits students who have not completed the equivalent of an
associate degree; or
(B) 300
clock hours of instruction, 8 semester hours, or 12 hours, offered during a
minimum of 10 weeks, in the case of -
(i) an undergraduate program that
requires the equivalent of an associate degree for admissions; or
(ii) a graduate or professional program.
(2)(A) A
program is an eligible program for purposes of part B of this subchapter if it
is a program of at least 300 clock hours of instruction, but less than 600
clock hours of instruction, offered during a minimum of 10 weeks, that -
(i) has a verified completion rate
of at least 70 percent, as determined in accordance with the regulations of the
Secretary;
(ii) has a verified placement rate of at least 70 percent, as
determined in accordance with the regulations of the Secretary; and
(iii) satisfies such further criteria as the Secretary may
prescribe by regulation.
(B) In the
case of a program being determined eligible for the first time under this paragraph, such determination shall be made by the Secretary
before such program is considered to have satisfied the requirements of this
paragraph.
(c) Third
party servicer For purposes of this subchapter and
part C of subchapter I of chapter 34 of title 42, the term "third party servicer" means any individual, or any State, or
private, profit or nonprofit organization which enters into a contract with -
(1) any
eligible institution of higher education to administer, through either manual
or automated processing, any aspect of such institution's student assistance
programs under this subchapter and part C of subchapter I of chapter 34 of
title 42; or
(2) any
guaranty agency, or any eligible lender, to administer, through either manual
or automated processing, any aspect of such guaranty agency's or lender's
student loan programs under part B of this subchapter, including originating,
guaranteeing, monitoring, processing, servicing, or collecting loans.”
Quite often the language of
a statute is not as clear as it could be, leaving room for multiple
interpretations. One would assume that
in order to obtain the tax break, the “eligible educational institution” would
need to comply with the provisions in 20
USC § 1088 for an “eligible program.” Looking
at yet another provision of Section 529, Section 529(b)(1),
the term "qualified tuition program" is defined as:
“a program established and maintained by a State or agency or
instrumentality thereof or by 1 or more eligible educational institutions…” and
which meets certain other requirements. That section also specifies that a
program is not “qualified” unless it “received a ruling or determination that
such program meets the applicable requirements for a qualified tuition
program.”
In still another section,
Section 529(d), it is explained that the officer or employee in control of the
“qualified tuition program” is required to
“make such reports regarding such program to the Secretary
and to designated beneficiaries 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 required by the
Secretary.”
The reports are to be sent,
presumably, to the Secretary of the Treasury, in charge of the IRS.
In order to participate in
the Coverdell Education Savings Accounts regarding expenses for higher
education, one can see that there are many provisions that the parents must
abide by and there are still other provisions that a “qualified” educational
institution or program must abide by to avoid penalties.
Regarding expenses for
elementary and secondary education expenses, Section 530 of the IRS Code, as it
exists today, specifies still other provisions. http://66.161.141.176/cgi-bin/texis/web/usstat/+FwwBmeCFugenG3xwwxFqHsmvs_xX8q8xs_KswxWX_m8q+ns+W6w9v/bvindex.html
Section 530(b)(4)
defines “Qualified elementary and secondary expenses” as:
“(A) In general
The term ``qualified elementary and secondary education expenses'' means-- (i) expenses for tuition, fees, academic tutoring, special needs services in the case of a special needs beneficiary, books, supplies, and other equipment which are incurred in connection with the enrollment or attendance of the designated beneficiary of the trust as an elementary or secondary school student at a public, private, or religious school, (ii) expenses for room and board, uniforms, 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 attendance, and (iii) expenses for the purchase of any computer technology or equipment (as defined in section 170(e)(6)(F)(i)) 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 predominantly educational in nature. (B) School The term ``school'' means any school which provides elementary education or secondary education (kindergarten through grade 12), as determined under State law.” In other words, under
existing law, parents could get a tax exemption for tuition, fees, tutoring,
special needs, expenses for room and board, and computer technology if those
expenses are “incurred in connection with the enrollment or attendance of”
the child as an “elementary or secondary school student at a public,
private, or religious school”. The
term, “school” is defines as a “school which provides elementary education or
secondary education…as determined under State law.”
As stated above, the HoNDA bill, Section 6, would add to Section 530(b) the
following paragraph to that section of the existing law:
“(C) SPECIAL RULE FOR HOME SCHOOLS- For purposes of
clauses (i) and (iii) of subparagraph (A), the terms
`public, private, or religious school’ and school’ shall include any home school which provides elementary or secondary
education if such school is treated as a home school or private school under
State law.”
If this section of HoNDA
is adopted, this new paragraph purportedly would entitle parents of
homeschooled children to set up a Coverdell education savings account and use
the tax exempt money in the trust to pay for:
“(i) expenses for tuition, fees, academic tutoring, special needs services in the case of a special needs beneficiary, books, supplies, and other equipment which are incurred in connection with the enrollment or attendance of the designated beneficiary of the trust as an elementary or secondary school student at a public, private, or religious school”; and “(iii) expenses for the purchase of any computer technology or equipment (as defined in section 170(e)(6)(F)(i)) 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.”
So what’s wrong with
that? Wouldn’t it be beneficial for
parents to be able to receive a tax exemption for money spent educating their
child? While it sounds like a good thing
on the surface, in reality, it could prove to be a nightmare.
For one thing, parents
could use the Coverdell Savings Account tax exempt money to pay for those expenses,
but only if those expenses “are incurred in connection with the enrollment
or attendance” of the child “as an elementary or secondary school
student…” Home schooled students in
many states are not considered to be “enrolled in” or “in attendance in” any
“school”. In many states, the terms
“enrolled” and “attendance” legally relate only to brick and mortar public and
private schools, and not to children being instructed at home by their parents. In such a case, either the parents would not
be able to “benefit” from the tax exemption, or, the law would need to be
changed such that homeschooled students would be considered “enrolled” and “in
attendance.” Once that law is changed,
other laws may newly apply to homeschooled students. One such law would be the “truancy” law. In some states, “truancy” only applies to
children who are “enrolled” or who “attend” a school and who have a certain
number of “unexcused” absences. Truancy
might apply in those states where it never before applied.
For another thing, the bill
provides for a new definition of the terms “public, private, or religious
school” to include a “home school” “which provides elementary or secondary
education” “if such school is treated as a home school or private school under
State law.” Let’s just examine that
definition one step at a time.
Without having it spelled
out anywhere in the new law, “public, private, or religious school” would also
automatically mean a “home school”. What if during the debate on this
bill on the floor of the House or the Senate, or in a conference committee
meeting between the two houses, the bill is amended to include a provision
regulating a public, private, or religious school” in some manner. That regulation, whatever it is, necessarily,
also would apply to a home school. What if that doesn’t happen during the
debate on its passage, but next year, the year after that, or the year after
that, the law is amended to include still more regulations. Guess what?
The regulations, whatever they are, necessarily, also would apply to a
home school. Do we really want to leave
the door open to this kind of interpretation and unintended consequence?
The bill also says that the
terms “public, private, or religious school” will include a “home school” “which
provides elementary or secondary education”. That phrase also is open to
interpretation. Does it mean that the
home school “provides elementary or secondary education” as defined by the
federal government, by the state government, or by the parents? If it means that
the home school “provides elementary or secondary education” as defined by any
governmental entity, what exactly is the “education” that is supposed to be
provided? Is it the education provided
in the richest public school in the state, the poorest school in the state, or
the education that is “supposed” to be provided in accordance with some
statute? The bill certainly doesn’t make
clear what elementary or secondary education is to be provided. Do we really want to leave the door open to
any kind of interpretation of this phrase by any governmental entity? What kind of unintended consequence will that
have? What kind of governmental abuses
will result when parents disagree with the government over the meaning of that
phrase?
The bill also says the
terms “public, private, or religious school” will include a “home school” “if
such school is treated as a home school or private school under State law”. In some states currently, a “home school” is
treated as just that, a “home school”.
In other states, a “home school” is treated as a “private school”. In still other states, what we think of as a
“home school” is not defined in any way in state law as a “home school”. It may be defined as “instruction by
parents”, or it may not be defined at all but is assumed to be the mandatory
duty of parents to instruct their children.
Under this proposed bill, only those parents whose children are educated
in “home schools” that are “treated as a home school or private school under
State law” would be eligible for the tax exemption. What happens if the parents in one state
disagree with the government in that state concerning the meaning of that
state’s statutes regarding how a “home school” is “treated under State law”? What if one group of homeschoolers wants to
have “home school” “treated” as qualifying for the tax exemption, and another
group of homeschoolers does not want to have “home school” “treated” as
qualifying for it? Do we really want to
see those battles looming in our future?
What if, as a result of those battles, the “home school” law in that
state changes completely? What if the
legislature in that state decides that more regulation is necessary,
particularly if parents are going to receive a tax exemption? What other unintended consequences will we
face?
More importantly, consider
this. If the bill is adopted, and
homeschoolers are able to receive a tax exemption for their expenditures, those
expenditures will be subject to auditing by the Internal Revenue Service. The IRS, with all of its awesome powers, will
be authorized to scrutinize every book, every material, every
supply you purchased to determine whether it qualifies for a tax
exemption. More than that, the IRS will
have the authority to determine whether your “home school” qualifies as a “home
school” under State law for purposes of obtaining the exemption.
Should the IRS deem your
“home school” not to qualify as a “home school” under State law such that you
improperly reported the expenditures as a tax exemption, you would be subject
to all applicable fines and penalties, including, but not limited to
imprisonment. Also, since the IRS is a governmental entity, and since there
seems to be an increasing number of laws and exceptions to laws that promote
the sharing of personal information from one governmental entity to another,
there is little doubt that an agency such as the Department of Education or the
Department of Children and Families could receive information that your “home
school” does not “qualify” as a “home school under State law.” In such a case, those Departments also are
authorized to take steps to rectify the situation, including, but not limited
to, fines, penalties, imprisonment, and taking the care and custody of the
children away from the parents.
After all, there already is
a provision in Section 530 of the IRS Code that requires people participating
in Coverdell Education Savings Accounts to “report” to the “Secretary”. Section 530(h) specifies:
“(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 required.”
Take a look at that
again. The trustees, the banks holding
the funds, are to make “reports” to the “Secretary”, that is, to the IRS,
regarding the accounts “and such other matters as the Secretary may
require.” The Secretary could
“require” almost anything to be “reported.”
In addition, even though HoNDA section 6 purports only to add one paragraph to a
section of the IRS Code, the IRS also can adopt regulations to “implement” the
Code. Generally speaking, Codes, or
statutes, are adopted in fairly broad language.
Regulations are adopted by various governmental agencies in order to
implement the statutes. The regulations,
therefore, are more specific and particularized in detail. Also generally speaking, it can be more
difficult to find out about proposed regulations and to affect their change
should it become necessary.
The questions to ask
regarding this section of HoNDA are these: Do we
really want to open up another area in which the federal government can adopt
regulations specifically having to do with whether our curricular books,
materials, and supplies “qualify” as a home school tax exempt expense? Do we really want to give that much authority
to the Secretary of the Treasury for the IRS?
Do we really want to give such authority to individual IRS agents? Do we really want to open our home school
curriculum to anyone from the IRS for inspection and authorization? Do we really want to suffer those kinds of
consequences? Is a tax exemption worth
that kind of risk to a homeschooling family? NHELD thinks not.
Attorney
Deborah Stevenson - Executive Director of National Home Education Legal
Defense. – www.nheld.com or email
: info@nheld.com
Judy Aron - Director of
Research, NHELD – imjfaron@sbcglobal.net