SECTION 1. SHORT TITLE.

    This Act may be cited as the ``College Opportunity Tax Credit Act 
of 2006''.

SEC. 2. COLLEGE OPPORTUNITY TAX CREDIT.

    (a) In General.--
            (1) Allowance of credit.--Section 25A(a) of the Internal 
        Revenue Code of 1986 (relating to allowance of credit) is 
        amended--
                    (A) in paragraph (1), by striking ``the Hope 
                Scholarship Credit'' and inserting ``the eligible 
                student credit amount determined under subsection 
                (b)'', and
                    (B) in paragraph (2), by striking ``the Lifetime 
                Learning Credit'' and inserting ``the part-time, 
                graduate, and other student credit amount determined 
                under subsection (c)''.
            (2) Name of credit.--The heading for section 25A of such 
        Code is amended to read as follows:

``SEC. 25A. COLLEGE OPPORTUNITY CREDIT.''.

            (3) Clerical amendment.--The table of sections for subpart 
        A of part IV of subchapter A of chapter 1 of such Code is 
        amended by striking the item relating to section 25A and 
        inserting the following:

``Sec. 25A. College opportunity credit.''.
    (b) Eligible Students.--
            (1) In general.--Paragraph (1) of section 25A(b) of the 
        Internal Revenue Code of 1986 is amended--
                    (A) by striking ``the Hope Scholarship Credit'' and 
                inserting ``the eligible student credit amount 
                determined under this subsection'', and
                    (B) by striking ``Per student credit'' in the 
                heading and inserting ``In general''.
            (2) Amount of credit.--Paragraph (4) of section 25A(b) of 
        such Code (relating to applicable limit) is amended by striking 
        ``2'' and inserting ``3''.
            (3) Credit refundable.--
                    (A) In general.--Section 25A of such Code is 
                amended by redesignating subsection (i) as subsection 
                (j) and by inserting after subsection (h) the following 
                new subsection:
    ``(i) Portion of Credit Refundable.--
            ``(1) In general.--The aggregate credits allowed under 
        subpart C shall be increased by the amount of the credit which 
        would be allowed under this section--
                    ``(A) by reason of subsection (b), and
                    ``(B) without regard to this subsection and the 
                limitation under section 26(a) or subsection (j), as 
                the case may be.
            ``(2) Treatment of credit.--The amount of the credit 
        allowed under this subsection shall not be treated as a credit 
        allowed under this subpart and shall reduce the amount of 
        credit otherwise allowable under subsection (a) without regard 
        to section 26(a) or subsection (j), as the case may be.''.
                    (B) Technical amendment.--Section 1324(b) of title 
                31, United States Code, is amended by inserting ``, or 
                enacted by the College Opportunity Tax Credit Act of 
                2006'' before the period at the end.
            (4) Limitations.--
                    (A) Credit allowed for 4 years.--Subparagraph (A) 
                of section 25A(b)(2) of such Code is amended--
                            (i) by striking ``2'' in the text and in 
                        the heading and inserting ``4'', and
                            (ii) by striking ``the Hope Scholarship 
                        Credit'' and inserting ``the credit 
                        allowable''.
                    (B) Elimination of limitation on first 2 years of 
                postsecondary education.--Section 25A(b)(2) of such 
                Code is amended by striking subparagraph (C) and by 
                redesignating subparagraph (D) as subparagraph (C).
            (5) Conforming amendments.--
                    (A) The heading of subsection (b) of section 25A of 
                such Code is amended to read as follows:
    ``(b) Eligible Students.--''.
                    (B) Section 25A(b)(2) of such Code is amended--
                            (i) in subparagraph (B), by striking ``the 
                        Hope Scholarship Credit'' and inserting ``the 
                        credit allowable'', and
                            (ii) in subparagraph (C), as redesignated 
                        by paragraph (4)(B), by striking ``the Hope 
                        Scholarship Credit'' and inserting ``the credit 
                        allowable''.
    (c) Part-Time, Graduate, and Other Students.--
            (1) In general.--Subsection (c) of section 25A of the 
        Internal Revenue Code of 1986 is amended to read as follows:
    ``(c) Part-Time, Graduate, and Other Students.--
            ``(1) In general.--In the case of any student for whom an 
        election is in effect under this section for any taxable year, 
        the part-time, graduate, and other student credit amount 
        determined under this subsection for any taxable year is an 
        amount equal to the sum of--
                    ``(A) 40 percent of so much of the qualified 
                tuition and related expenses paid by the taxpayer 
                during the taxable year (for education furnished to the 
                student during any academic period beginning in such 
                taxable year) as does not exceed $1,000, plus
                    ``(B) 20 percent of such expenses so paid as 
                exceeds $1,000 but does not exceed the applicable 
                limit.
            ``(2) Applicable limit.--For purposes of paragraph (1)(B), 
        the applicable limit for any taxable year is an amount equal to 
        3 times the dollar amount in effect under paragraph (1)(A) for 
        such taxable year.
            ``(3) Special rules for determining expenses.--
                    ``(A) Coordination with credit for eligible 
                students.--The qualified tuition and related expenses 
                with respect to a student who is an eligible student 
                for whom a credit is allowed under subsection (a)(1) 
                for the taxable year shall not be taken into account 
                under this subsection.
                    ``(B) Expenses for job skills courses allowed.--For 
                purposes of paragraph (1), qualified tuition and 
                related expenses shall include expenses described in 
                subsection (f)(1) with respect to any course of 
                instruction at an eligible educational institution to 
                acquire or improve job skills of the student.''.
            (2) Inflation adjustment.--
                    (A) In general.--Subsection (h) of section 25A of 
                such Code (relating to inflation adjustments) is 
                amended by adding at the end the following new 
                paragraph:
            ``(3) Dollar limitation on amount of credit under 
        subsection (a)(2).--
                    ``(A) In general.--In the case of a taxable year 
                beginning after 2007, each of the $1,000 amounts under 
                subsection (c)(1) shall be increased by an amount equal 
                to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for the 
                        calendar year in which the taxable year begins, 
                        determined by substituting `calendar year 2006' 
                        for `calendar year 1992' in subparagraph (B) 
                        thereof.
                    ``(B) Rounding.--If any amount as adjusted under 
                subparagraph (A) is not a multiple of $100, such amount 
                shall be rounded to the next lowest multiple of 
                $100.''.
                    (B) Conforming amendment.--The heading for 
                paragraph (1) of section 25A(h) of such code is amended 
                by inserting ``under subsection (a)(1)'' after 
                ``credit''.
    (d) Credit Allowed Against Alternative Minimum Tax.--
            (1) In general.--Section 25A of the Internal Revenue Code 
        of 1986, as amended by subsection (b)(3), is amended by 
        redesignating subsection (j) as subsection (k) and by inserting 
        after subsection (h) the following new subsection:
    ``(j) 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 
subsection (a) for the taxable year shall not exceed the excess of--
            ``(1) the sum of the regular tax liability (as defined in 
        section 26(b)) plus the tax imposed by section 55, over
            ``(2) the sum of the credits allowed under this subpart 
        (other than this section and sections 23, 24, and 25B) and 
        section 27 for the taxable year.''.
            (2) Conforming amendment.--Section 25(a)(1) of such Code is 
        amended by inserting ``25A,'' after ``24,''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.
College Opportunity Tax Credit Act of 2006 - Amends the Internal Revenue Code to replace the Hope Scholarship and Lifetime Learning Tax Credits with an increased, partially refundable college opportunity tax credit to cover up to four years (currently, limited to two years) of the tuition and related expenses of full or part-time postsecondary and graduate students.
A bill to amend the Internal Revenue Code of 1986 to replace the Hope and Lifetime Learning credits with a partially refundable college opportunity credit.