A bill to amend the Internal Revenue Code of 1986 to extend and modify the American Opportunity Tax Credit, and for other purposes.

Summary: American Opportunity Tax Credit Permanence and Consolidation Act of 2012 - Amends the Internal Revenue Code to replace the Hope Scholarship and Lifetime Learning tax credits with a new American Opportunity Tax Credit that: (1) allows an income tax credit of up to $3,000 of the qualified tuition and related expenses of a student who is carrying at least one half of a normal course load, (2) increases the income threshold for reductions in the credit amount based upon modified adjusted gross income, (3) allows a lifetime dollar limitation on such credit of $15,000 for all taxable years, and (4) makes 40% of the credit refundable. Allows an exclusion from gross income of any amount received as a Federal Pell Grant.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``American Opportunity Tax Credit 
Permanence and Consolidation Act of 2012''.

SEC. 2. EXTENSION AND MODIFICATION OF AMERICAN OPPORTUNITY TAX CREDIT.

    (a) In General.--Section 25A of the Internal Revenue Code of 1986 
is amended to read as follows:

``SEC. 25A. AMERICAN OPPORTUNITY TAX CREDIT.

    ``(a) Allowance of Credit.--In the case of an individual who is an 
eligible student for any taxable year, there shall be allowed as a 
credit against the tax imposed by this chapter for such taxable year 
the amount determined under subsection (b) with respect to such 
individual.
    ``(b) Amount of Credit.--
            ``(1) Student enrolled at least \1/2\ time.--In the case of 
        an eligible student who is carrying at least \1/2\ the normal 
        full-time workload for the course of study the student is 
        pursuing, the amount determined under this subsection with 
        respect to such individual is the sum of--
                    ``(A) 100 percent of so much of the qualified 
                tuition and related expenses paid by the taxpayer 
                during the taxable year (for education furnished to the 
                eligible student during any academic period beginning 
                in such taxable year) as does not exceed $2,000, plus
                    ``(B) 25 percent of such expenses so paid as 
                exceeds $2,000 but does not exceed $6,000.
            ``(2) Other students.--In the case of an eligible student 
        not described in paragraph (1), the amount determined under 
        this subsection with respect to such individual is 30 percent 
        of so much of the qualified tuition and related expenses paid 
        by the taxpayer during the taxable year (for education 
        furnished to the eligible student during any academic period 
        beginning in such taxable year) as does not exceed $10,000.
    ``(c) Dollar Limitations.--
            ``(1) Limitation based on modified adjusted gross income.--
                    ``(A) In general.--The amount which would (but for 
                this paragraph) be taken into account under this 
                section for the taxable year shall be reduced (but not 
                below zero) by the amount determined under paragraph 
                (2).
                    ``(B) Amount of reduction.--The amount determined 
                under this paragraph is the amount which bears the same 
                ratio to the amount which would be so taken into 
                account as--
                            ``(i) the excess of--
                                    ``(I) the taxpayer's modified 
                                adjusted gross income for such taxable 
                                year, over
                                    ``(II) $80,000 ($160,000 in the 
                                case of a joint return), bears to
                            ``(ii) $20,000 ($40,000 in the case of a 
                        joint return).
                    ``(C) Modified adjusted gross income.--For purposes 
                of this paragraph, the term `modified adjusted gross 
                income' means the adjusted gross income of the taxpayer 
                for the taxable year increased by any amount excluded 
                from gross income under section 911, 931, or 933.
            ``(2) Limitation based on amount of tax.--In the case of a 
        taxable year to which section 26(a)(2) does not apply, the 
        credit allowed under this section shall not exceed the excess 
        of--
                    ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                    ``(B) the sum of the credits allowable under this 
                subpart (other than this subsection and sections 23, 
                25D, and 30D) and section 27 for the taxable year.
    ``(d) Other Limitations and Special Rules.--For purposes of this 
section:
            ``(1) Lifetime dollar limitation.--In the case of qualified 
        tuition and related expenses with respect to any individual, 
        the aggregate amount of the credits claimed under this section 
        for all taxable years shall not exceed $15,000, determined 
        without regard to whether--
                    ``(A) such credits are claimed on the return of tax 
                filed by the individual or by another taxpayer, or
                    ``(B) such expenses are treated as paid by the 
                individual or by another taxpayer.
            ``(2) Reporting.--No credit shall be allowed under this 
        section to a taxpayer with respect to the qualified tuition and 
        related expenses of an eligible student unless the taxpayer 
        includes the name and taxpayer identification number of such 
        eligible student on the return of tax for the taxable year.
            ``(3) Adjustment for certain scholarships, etc.--
                    ``(A) In general.--The amount of qualified tuition 
                and related expenses otherwise taken into account under 
                this section with respect to an individual for an 
                academic period shall be reduced (before the 
                application of subsections (b) and (c)) by the sum of 
                any amounts paid for the benefit of such individual 
                which are allocable to such period as--
                            ``(i) a qualified scholarship which is 
                        excludable from gross income under section 117,
                            ``(ii) an educational assistance allowance 
                        under chapter 30, 31, 32, 34, or 35 of title 
                        38, United States Code, or under chapter 1606 
                        of title 10, United States Code, and
                            ``(iii) a payment (other than a gift, 
                        bequest, devise, or inheritance within the 
                        meaning of section 102(a)) for such 
                        individual's educational expenses, or 
                        attributable to such individual's enrollment at 
                        an eligible educational institution, which is 
                        excludable from gross income under any law of 
                        the United States.
                    ``(B) Coordination with pell grants not used for 
                qualified tuition and related expenses.--Any amount 
                determined with respect to an individual under 
                subparagraph (A) which is attributable to a Federal 
                Pell Grant under section 401 of the Higher Education 
                Act of 1965 shall be reduced (but not below zero) by 
                the amount of the expenses (other than qualified 
                tuition and related expenses) which are taken into 
                account in determining the cost of attendance (as 
                defined in section 472 of the Higher Education Act of 
                1965, as in effect on the date of the enactment of the 
                American Opportunity Tax Credit Permanence and 
                Consolidation Act of 2012) of such individual at an 
                eligible educational institution for the academic 
                period for which the credit under this section is being 
                determined.
            ``(4) Treatment of expenses paid by dependent.--If a 
        deduction under section 151 with respect to an individual is 
        allowed to another taxpayer for a taxable year beginning in the 
        calendar year in which such individual's taxable year begins--
                    ``(A) no credit shall be allowed under this section 
                to such individual for such individual's taxable year, 
                and
                    ``(B) qualified tuition and related expenses paid 
                by such individual during such individual's taxable 
                year shall be treated for purposes of this section as 
                paid by such other taxpayer.
            ``(5) Treatment of certain prepayments.--If qualified 
        tuition and related expenses are paid by the taxpayer during a 
        taxable year for an academic period which begins during the 
        first 3 months following such taxable year, such academic 
        period shall be treated for purposes of this section as 
        beginning during such taxable year.
            ``(6) Denial of double benefit.--No credit shall be allowed 
        under this section for any expense for which a deduction is 
        allowed under any other provision of this chapter.
            ``(7) No credit for married individuals filing separate 
        returns.--If the taxpayer is a married individual (within the 
        meaning of section 7703), this section shall apply only if the 
        taxpayer and the taxpayer's spouse file a joint return for the 
        taxable year.
            ``(8) Nonresident aliens.--If the taxpayer is a nonresident 
        alien individual for any portion of the taxable year, this 
        section shall apply only if such individual is treated as a 
        resident alien of the United States for purposes of this 
        chapter by reason of an election under subsection (g) or (h) of 
        section 6013.
    ``(e) Election Not To Have Section Apply.--A taxpayer may elect not 
to have this section apply with respect to the qualified tuition and 
related expenses of an individual for any taxable year.
    ``(f) Definitions.--For purposes of this section:
            ``(1) Eligible student.--The term `eligible student' means, 
        with respect to any taxable year, an individual who--
                    ``(A) is enrolled for at least one academic period 
                which begins during such taxable year at an eligible 
                educational institution, and
                    ``(B) meets the requirements of section 484(a)(1) 
                of the Higher Education Act of 1965, as in effect on 
                the date of the enactment of the American Opportunity 
                Tax Credit Permanence and Consolidation Act of 2012.
            ``(2) Qualified tuition and related expenses.--
                    ``(A) In general.--The term `qualified tuition and 
                related expenses' means tuition, fees, and course 
                materials required for the enrollment or attendance 
                of--
                            ``(i) the taxpayer,
                            ``(ii) the taxpayer's spouse, or
                            ``(iii) any dependent of the taxpayer with 
                        respect to whom the taxpayer is allowed a 
                        deduction under section 151,
                at an eligible educational institution for courses of 
                instruction of such individual at such institution.
                    ``(B) Exception for education involving sports, 
                etc.--Such term does not include expenses with respect 
                to any course or other education involving sports, 
                games, or hobbies, unless such course or other 
                education is part of the individual's degree program.
                    ``(C) Exception for nonacademic fees.--Such term 
                does not include student activity fees, athletic fees, 
                insurance expenses, or other expenses unrelated to an 
                individual's academic course of instruction.
                    ``(D) Computer technology and equipment.--Such term 
                includes expenses for the purchase of computer 
                technology or equipment (as defined in section 
                170(e)(6)(F)(i)), or Internet access and related 
                services, only to the extent the purchase of such 
                technology, equipment, or services is specifically 
                required by the individual's academic course of 
                instruction or degree program.
            ``(3) Eligible educational institution.--The term `eligible 
        educational institution' means an institution--
                    ``(A) which is described in section 481 of the 
                Higher Education Act of 1965, as in effect on the date 
                of the enactment of the American Opportunity Tax Credit 
                Permanence and Consolidation Act of 2012, and
                    ``(B) which is eligible to participate in a program 
                under title IV of such Act.
    ``(g) Portion of Credit Refundable.--Forty percent of the credit 
allowed under this section (determined after application of subsections 
(c)(1) and (d) and without regard to this subsection and section 
26(a)(2) or subsection (c)(2), as the case may be) shall be treated as 
a credit allowable under subpart C (and not allowed under this 
section). The preceding sentence shall not apply to any taxpayer for 
any taxable year if such taxpayer is a child to whom subsection (g) of 
section 1 applies for such taxable year.
    ``(h) Regulations.--The Secretary may prescribe such regulations as 
may be necessary or appropriate to carry out this section, including 
regulations providing for a recapture of the credit allowed under this 
section in cases where there is a refund in a subsequent taxable year 
of any amount which was taken into account in determining the amount of 
such credit.''.
    (b) Clerical Amendment.--The item relating to section 25A in the 
table of sections for subpart A of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 is amended to read as follows:

``Sec. 25A. American Opportunity Tax Credit.''.
    (c) Conforming Amendments.--
            (1) Subparagraph (B) of section 24(b)(3) of the Internal 
        Revenue Code of 1986 is amended by striking ``25A(i)'' and 
        inserting ``25A''.
            (2) Clause (ii) of section 25(e)(1)(C) of such Code is 
        amended by striking ``25A(i)'' and inserting ``25A''.
            (3) Paragraph (2) of section 25B(g) of such Code is amended 
        by striking ``25A(i)'' and inserting ``25A''.
            (4) Paragraph (1) of section 26(a) of such Code is amended 
        by striking ``25A(i)'' and inserting ``25A''.
            (5) Subparagraph (B) of section 72(t)(7) of such Code is 
        amended by striking ``25A(g)(2)'' and inserting ``25A(d)(3)''.
            (6) Paragraph (2) of section 221(d) of such Code is 
        amended--
                    (A) by striking ``25A(g)(2)'' in subparagraph (B) 
                and inserting ``25A(d)(3)'', and
                    (B) by striking ``25A(f)(2)'' and inserting 
                ``25A(f)(3)''.
            (7) Paragraph (3) of section 221(d) of such Code is amended 
        by striking ``25A(b)(3)'' and inserting ``25A(f)(1) (but only 
        with respect to a student who is carrying at least \1/2\ the 
        normal full-time workload for the course of study the student 
        is pursuing)''.
            (8) Paragraph (1) of section 222(d) of such Code is 
        amended--
                    (A) by striking ``25A(f)'' and inserting 
                ``25A(f)(2)'', and
                    (B) by striking ``25A(g)(2)'' and inserting 
                ``25A(d)(3)''.
            (9) Clause (v) of section 529(c)(3)(B) of such Code is 
        amended--
                    (A) by striking ``25A(g)(2)'' in subclause (I) and 
                inserting ``25A(d)(3)'', and
                    (B) by striking ``Hope and lifetime learning 
                credits'' in the heading and inserting ``American 
                opportunity credit''.
            (10) Clause (i) of section 529(e)(3)(B) of such Code is 
        amended by striking ``25A(b)(3)'' and inserting ``25A(f)(1) 
        (but only with respect to a student who is carrying at least 
        \1/2\ the normal full-time workload for the course of study the 
        student is pursuing)''.
            (11) Subparagraph (C) of section 530(d)(2) of such Code is 
        amended--
                    (A) by striking ``25A(g)(2)'' in clause (i)(I) and 
                inserting ``25A(d)(3)'', and
                    (B) by striking ``Hope and lifetime learning 
                credits'' in the heading and inserting ``American 
                opportunity credit''.
            (12) Clause (iii) of section 530(d)(4)(B) of such Code is 
        amended by striking ``25A(g)(2)'' and inserting ``25A(d)(3)''.
            (13) Subsection (i) of section 904 of such Code is amended 
        by striking ``25A(i)'' and inserting ``25A''.
            (14) Paragraph (2) of section 1400C(d) of such Code is 
        amended by striking ``25A(i)'' and inserting ``25A''.
            (15) Section 1400O of such Code is amended--
                    (A) by striking ``25A(f)(2)'' and inserting 
                ``25A(f)(3)'',
                    (B) by inserting ``(as in effect on the date of the 
                enactment of this section)'' after ``25A(b)(1)'' in 
                paragraph (2), and
                    (C) by inserting ``(as in effect on the date of the 
                enactment of this section)'' after ``25A(c)(1)'' in 
                paragraph (3).
            (16) Subsection (e) of section 6050S of such Code is 
        amended by striking ``subsection (g)(2)'' and inserting 
        ``subsection (d)(3)''.
            (17) Subparagraph (A) of section 6211(b)(4) of such Code is 
        amended by striking ``subsection (i)(6)'' and inserting 
        ``subsection (g)''.
            (18) Subparagraph (J) of section 6213(g)(2) of such Code is 
        amended by striking ``25A(g)(1)'' and inserting ``25A(d)(2)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2011.

SEC. 3. EXPANSION OF PELL GRANT EXCLUSION FROM GROSS INCOME.

    (a) In General.--Paragraph (1) of section 117(b) of the Internal 
Revenue Code of 1986 is amended by striking ``received by an 
individual'' and all that follows and inserting ``received by an 
individual--
            ``(1) as a scholarship or fellowship grant to the extent 
        the individual establishes that, in accordance with the 
        conditions of the grant, such amount was used for qualified 
        tuition and related expenses, or
            ``(2) as a Federal Pell Grant under section 401 of the 
        Higher Education Act of 1965 (as in effect on the date of the 
        enactment of the American Opportunity Tax Credit Permanence and 
        Consolidation Act of 2012).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2011.