```

[House Report 113-526]
[From the U.S. Government Publishing Office]

113th Congress  }                                            {   Report
  2d Session    }        HOUSE OF REPRESENTATIVES            {  113-526

=======================================================================
 
               STUDENT AND FAMILY TAX SIMPLIFICATION ACT 

                                _______
                                

 July 17, 2014.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

            Mr. Camp, from the Committee on Ways and Means, 
                        submitted the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 3393]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 3393) to amend the Internal Revenue Code of 1986 to 
consolidate certain tax benefits for educational expenses, and 
for other purposes, having considered the same, report 
favorably thereon with an amendment and recommend that the bill 
as amended do pass.

                                CONTENTS

                                                                   Page
  I. SUMMARY AND BACKGROUND...........................................5
          A. Purpose and Summary.................................     5
          B. Background and Need for Legislation.................     5
          C. Legislative History.................................     6
 II. EXPLANATION OF THE BILL..........................................6
          A. Modification of Tax Benefits For Tuition and Tax 
              Treatment of Certain Scholarships (secs. 25A, 117, 
              222 and 6050S of the Code).........................     6
III. VOTES OF THE COMMITTEE..........................................12
 IV. BUDGET EFFECTS OF THE BILL......................................12
          A. Committee Estimate of Budgetary Effects.............    12
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................    15
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    15
          D. Macroeconomic Impact Analysis.......................    18
  V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......18
          A. Committee Oversight Findings and Recommendations....    18
          B. Statement of General Performance Goals and 
              Objectives.........................................    18
          C. Information Relating to Unfunded Mandates...........    18
          D. Applicability of House Rule XXI 5(b)................    18
          E. Tax Complexity Analysis.............................    18
          F. Congressional Earmarks, Limited Tax Benefits, and 
              Limited Tariff Benefits............................    19
          G. Duplication of Federal Programs.....................    19
          H. Disclosure of Directed Rule Makings.................    19
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........19
VII. DISSENTING VIEWS................................................38

    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Student and Family Tax Simplification 
Act''.

SEC. 2. CONSOLIDATION OF CERTAIN TAX BENEFITS FOR EDUCATIONAL EXPENSES.

  (a) American Opportunity Tax Credit.--Section 25A of the Internal 
Revenue Code of 1986 is amended to read as follows:

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

  ``(a) In General.--In the case of an individual, there shall be 
allowed as a credit against the tax imposed by this chapter for the 
taxable year, with respect to each eligible student, an amount equal to 
the sum of--
          ``(1) 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
          ``(2) 25 percent of so much of such expenses so paid as 
        exceeds the dollar amount in effect under paragraph (1) but 
        does not exceed twice such dollar amount.
  ``(b) Portion of Credit Refundable.--So much of the credit allowable 
under subsection (a) with respect to each eligible student (determined 
without regard to this subsection and section 26(a) and after 
application of all other provisions of this section) as does not exceed 
$1,500 shall be treated as a credit allowable under subpart C (and not 
under this part). The preceding sentence shall not apply to any 
taxpayer for any taxable year if such taxpayer is a child to whom 
section 1(g) applies for such taxable year.
  ``(c) Limitation Based on Modified Adjusted Gross Income.--
          ``(1) In general.--The amount allowable as a credit under 
        subsection (a) for any taxable year shall be reduced (but not 
        below zero) by an amount which bears the same ratio to the 
        amount so allowable (determined without regard to this 
        subsection and subsection (b) but after application of all 
        other provisions of this section) as--
                  ``(A) the excess of--
                          ``(i) the taxpayer's modified adjusted gross 
                        income for such taxable year, over
                          ``(ii) $80,000 (twice such amount in the case 
                        of a joint return), bears to
                  ``(B) $10,000 (twice such amount in the case of a 
                joint return).
          ``(2) Modified adjusted gross income.--For purposes of this 
        subsection, 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.
  ``(d) Other Limitations.--No credit shall be allowed under this 
section with respect to any eligible student for any taxable year if--
          ``(1) such student was taken into account in determining the 
        credit allowed under this section (by the taxpayer or any other 
        individual) for any 4 prior taxable years, or
          ``(2) such student has completed (before the beginning of 
        such taxable year) the first 4 years of postsecondary education 
        at an eligible educational institution.
  ``(e) Definitions.--For purposes of this section--
          ``(1) Eligible student.-- The term `eligible student' means, 
        with respect to any academic period, a student who--
                  ``(A) meets the requirements of section 484(a)(1) of 
                the Higher Education Act of 1965 (20 U.S.C. 
                1091(a)(1)), as in effect on August 5, 1997, and
                  ``(B) is carrying at least \1/2\ the normal full-time 
                work load for the course of study the student is 
                pursuing.
          ``(2) Qualified tuition and related expenses.--
                  ``(A) In general.--The term `qualified tuition and 
                related expenses' means tuition, fees, and course 
                materials, required for 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.
          ``(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 (20 U.S.C. 1088), as in effect on 
                August 5, 1997, and
                  ``(B) which is eligible to participate in a program 
                under title IV of such Act.
  ``(f) Special Rules.--
          ``(1) Identification requirement.--No credit shall be allowed 
        under subsection (a) to a taxpayer with respect to the 
        qualified tuition and related expenses of an individual unless 
        the taxpayer includes the name and taxpayer identification 
        number of such individual, and the employer identification 
        number of any institution to which such expenses were paid, on 
        the return of tax for the taxable year.
          ``(2) Adjustment for certain scholarships, etc.--
                  ``(A) In general.--The amount of qualified tuition 
                and related expenses otherwise taken into account under 
                subsection (a) with respect to an individual for an 
                academic period shall be reduced (before the 
                application of subsection (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.--For purposes 
                of subparagraph (A), the amount of any Federal Pell 
                Grant under section 401 of the Higher Education Act of 
                1965 (20 U.S.C. 1070a) shall be reduced (but not below 
                zero) by the amount of 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 this 
                paragraph) of such individual at an eligible 
                educational institution for the academic period for 
                which the credit under this section is being 
                determined.
          ``(3) 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 subsection (a) 
                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.
          ``(4) 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.
          ``(5) Denial of double benefit.--No credit shall be allowed 
        under this section for any amount for which a deduction is 
        allowed under any other provision of this chapter.
          ``(6) 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.
          ``(7) 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.
  ``(g) Inflation Adjustment.--
          ``(1) In general.--In the case of a taxable year beginning 
        after 2018, the $2,000 amount in subsection (a)(1), the $1,500 
        amount in subsection (b), and the $80,000 amount in subsection 
        (c)(1)(A)(ii) shall each be increased by an amount equal to--
                  ``(A) such dollar amount, multiplied by
                  ``(B) 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 2017' for `calendar year 1992' in 
                subparagraph (B) thereof.
          ``(2) Rounding.--If any amount as adjusted under paragraph 
        (1) is not a multiple of $100 ($1,000 in the case of the amount 
        in subsection (c)(1)(A)(ii)), such amount shall be rounded to 
        the next lowest multiple of $100 ($1,000 in the case of the 
        amount in subsection (c)(1)(A)(ii)).
  ``(h) Regulations.--The Secretary may prescribe such regulations or 
other guidance 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) Requirement to Report Tuition Paid Rather Than Tuition Billed.--
Section 6050S(b)(2)(B)(i) is amended by striking ``or the aggregate 
amount billed''.
  (c) Repeal of Deduction for Qualified Tuition and Related Expenses.--
Part VII of subchapter B of chapter 1 of such Code is amended by 
striking section 222 (and by striking the item relating to such section 
in the table of sections for such part).
  (d) Conforming Amendments.--
          (1) Section 62(a) of such Code is amended by striking 
        paragraph (18).
          (2) Section 72(t)(7)(B) of such Code is amended by striking 
        ``section 25A(g)(2)'' and inserting ``section 25A(f)(2)''.
          (3) Sections 86(b)(2)(A), 135(c)(4)(A), 137(b)(3)(A), 
        199(d)(2)(A), 219(g)(3)(A)(ii), and 221(b)(2)(C)(i) of such 
        Code are each amended by striking ``222,''.
          (4) Section 469(i)(3)(F)(iii) of such Code is amended by 
        striking ``221, and 222'' and inserting ``and 221''.
          (5) Section 529(c)(3)(B)(v)(I) of such Code is amended by 
        striking ``section 25A(g)(2)'' and inserting ``section 
        25A(f)(2)''.
          (6) Section 529(e)(3)(B)(i) of such Code is amended by 
        striking ``section 25A(b)(3)'' and inserting ``section 
        25A(d)''.
          (7) Section 530(d)(2)(C) of such Code is amended--
                  (A) by striking ``section 25A(g)(2)'' in clause 
                (i)(I) and inserting ``section 25A(f)(2)'', and
                  (B) by striking ``Hope and lifetime learning 
                credits'' in the heading and inserting ``American 
                opportunity tax credit''.
          (8) Section 530(d)(4)(B)(iii) of such Code is amended by 
        striking ``section 25A(g)(2)'' and inserting ``section 
        25A(d)(4)(B)''.
          (9) Section 6050S(e) of such Code is amended by striking 
        ``subsection (g)(2)'' and inserting ``subsection (f)(2)''.
          (10) Section 6211(b)(4)(A) of such Code is amended by 
        striking ``subsection (i)(6)'' and inserting ``subsection 
        (b)''.
          (11) Section 6213(g)(2)(J) of such Code is amended by 
        striking ``TIN required under section 25A(g)(1)'' and inserting 
        ``TIN, and employer identification number, required under 
        section 25A(f)(1)''.
          (12) Section 1004(c) of division B of the American Recovery 
        and Reinvestment Tax Act of 2009 is amended--
                  (A) in paragraph (1)--
                          (i) by striking ``section 25A(i)(6)'' each 
                        place it appears and inserting ``section 
                        25A(b)'',
                          (ii) by striking ``with respect to taxable 
                        years beginning after 2008 and before 2018'' in 
                        subparagraph (A) and inserting ``with respect 
                        to each taxable year'', and
                          (iii) by striking ``for taxable years 
                        beginning after 2008 and before 2018'' in 
                        subparagraph (B) and inserting ``for each 
                        taxable year'',
                  (B) in paragraph (2), by striking ``Section 
                25A(i)(6)'' and inserting ``Section 25A(b)'', and
                  (C) in paragraph (3)(C), by striking ``subsection 
                (i)(6)'' and inserting ``subsection (b)''.
          (13) 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 by striking the item relating to section 25A and 
        inserting the following new item:

``Sec. 25A. American opportunity tax credit.''.

  (e) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2014.

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--
          (1) by striking the period at the end and inserting ``, or'',
          (2) by striking ``received by an individual as a 
        scholarship'' and inserting the following: ``received by an 
        individual--
                  ``(A) as a scholarship'', and
          (3) by adding at the end the following new subparagraph:
                  ``(B) as a Federal Pell Grant under section 401 of 
                the Higher Education Act of 1965 (20 U.S.C. 1070a).''.
  (b) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2014.

                       I. SUMMARY AND BACKGROUND

                         A. Purpose and Summary

    Similar to a provision contained in the discussion draft of 
the ``Tax Reform Act of 2014'' released on February 26, 2014, 
the bill, H.R. 3393, reported by the Committee on Ways and 
Means, provides a permanent, partially refundable tax credit of 
up to $2,500 per student per year for qualified higher 
education expenses, replacing four overlapping education tax 
benefits, while making other improvements to help those 
students most in need and to promote greater compliance. One of 
the education tax benefits that would be consolidated under the 
legislation expired for tax years beginning after December 31, 
2013, while another is scheduled to expire for tax years 
beginning after December 31, 2017.

                 B. Background and Need for Legislation

    While the Committee continues actively to pursue 
comprehensive tax reform as a critical means of promoting 
economic growth, job creation, and tax simplification, the 
Committee also believes that it is important to act immediately 
to simplify and consolidate the current, complicated array of 
education-related tax benefits, while providing students and 
their families permanent tax relief to help them better afford 
the rising costs of higher education. By making permanent and 
increasing the larger credit amount available under the 
American Opportunity Tax Credit, H.R. 3393 would preserve and 
expand an important benefit for taxpayers pursuing higher 
education. This bipartisan proposal--developed by Reps. Diane 
Black (R-TN) and Danny Davis (D-IL) as a result of their work 
on the Committee's 2013 Tax Reform Working Group on Education 
and Family Benefits--would streamline and simplify four complex 
and overlapping education-related tax benefits available under 
present law. Additionally, by improving the tax treatment of 
Pell Grants and the interaction of those grants with other 
benefits, H.R. 3393 would especially help those most in need 
cope with the increasing costs of higher education. 
Furthermore, by improving the reporting requirements for higher 
education institutions, H.R. 3393 would help ensure that 
education-related tax benefits are administered correctly. 
According to testimony received by the Committee, streamlining 
and consolidating the definitions, eligibility, and income 
phaseouts for the current patchwork of education benefits on a 
permanent basis would provide critical certainty and stability 
to students and their families.

                         C. Legislative History

Background

    H.R. 3393 was introduced on October 30, 2013, and was 
referred to the Committee on Ways and Means.

Committee action

    The Committee on Ways and Means marked up H.R. 3393, the 
``Student and Family Tax Simplification Act,'' on June 25, 
2014, and ordered the bill, as amended, favorably reported 
(with a quorum being present).

Committee hearings

    The need for a workable, permanent higher education tax 
credit was discussed at no fewer than three hearings during the 
112th and 113th Congresses:
     Full Committee hearing on How the Tax Code's 
Burdens on Individuals and Families Demonstrate the Need for 
Comprehensive Tax Reform (April 13, 2011).
     Oversight Subcommittee hearing on Improper 
Payments in the Administration of Refundable Tax Credits (May 
25, 2011).
     Full Committee hearing on the President's Fiscal 
Year 2015 Budget Proposal with the U.S. Department of the 
Treasury Secretary Jacob J. Lew (Mar. 6, 2014).

                      II. EXPLANATION OF THE BILL

   A. Modification of Tax Benefits For Tuition and Tax Treatment of 
    Certain Scholarships (secs. 25A, 117, 222 and 6050S of the Code)

                              PRESENT LAW

Tax credits for qualified tuition and related expenses

            Hope credit and American Opportunity credit
    For taxable years beginning before 2009 and after 2017, an 
individual may claim a tax credit, the Hope credit, for 
qualified tuition and related expenses paid for the first two 
years of the student's post-secondary education in a degree or 
certificate program.\1\ Although temporarily superseded by the 
American Opportunity tax credit (described below), the Hope 
credit in 2014, if it were in effect, would be 100 percent on 
the first $1,300 of qualified tuition and related expenses, and 
50 percent on the next $1,300 of qualified tuition and related 
expenses, for up to $1,950 per eligible student per year.\2\ 
These dollar amounts are indexed for inflation, with the amount 
rounded down to the next lowest multiple of $100.\3\ Thus, for 
example, the Hope credit for a taxpayer who incurs $1,300 of 
qualified tuition and related expenses for an eligible student 
(subject to the modified adjusted gross income (``MAGI'') 
phaseout described below) would be $1,300. If a taxpayer incurs 
$2,600 of qualified tuition and related expenses for an 
eligible student, then the Hope credit would be $1,950.
---------------------------------------------------------------------------
    \1\Sec. 25A(a)(1). Unless otherwise stated, all section references 
are to the Internal Revenue Code of 1986, as amended (the ``Code'').
    \2\Sec. 25A(b)(1). The $1,300 amount, determined by the staff of 
the Joint Committee on Taxation, is the statutory amount of $1,000, 
indexed for inflation from 2001.
    \3\Sec. 25A(h).
---------------------------------------------------------------------------
    The Hope credit that a taxpayer may otherwise claim is 
phased out ratably for taxpayers with MAGI between $55,000 and 
$65,000 ($110,000 and $130,000 for married taxpayers filing a 
joint return) for 2014.\4\ MAGI includes certain otherwise 
excludable income earned by U.S. citizens or residents living 
abroad or in certain U.S. territories.\5\ The beginning points 
of the MAGI phaseout ranges are indexed for inflation, with the 
amount rounded down to the next lowest multiple of $1,000. The 
size of the phaseout ranges for single and married taxpayers 
are always $10,000 and $20,000 respectively.\6\
---------------------------------------------------------------------------
    \4\Based on inflation adjustments determined by the staff of the 
Joint Committee on Taxation.
    \5\Sec. 25A(d)(3).
    \6\Sec. 25A(d)(2)(B).
---------------------------------------------------------------------------
    A taxpayer may not claim the Hope credit with respect to 
qualified tuition and related expenses for the enrollment or 
attendance of a student, if the student has been convicted of a 
Federal or State felony offense consisting of the possession or 
distribution of a controlled substance before the end of the 
taxable year.\7\ Additionally, a taxpayer must include the name 
and taxpayer identification number of the student on whose 
behalf the qualified tuition and related expenses were paid in 
order to be eligible for the credit.\8\
---------------------------------------------------------------------------
    \7\Sec. 25A(b)(2)(D).
    \8\Sec. 25A(g)(1).
---------------------------------------------------------------------------
    The credit is allowable against both the regular tax and 
the alternative minimum tax (``AMT'').
    For taxable years beginning after December 31, 2008, and 
before January 1, 2018, an individual may claim the American 
Opportunity tax credit (``AOTC''), which is a modified version 
of the Hope credit.\9\ The maximum allowable AOTC is $2,500 per 
eligible student per year for qualified tuition and related 
expenses paid for each of the first four years of the student's 
post-secondary education in a degree or certificate program. 
The AOTC rate is 100 percent on the first $2,000 of qualified 
tuition and related expenses, and 25 percent on the next $2,000 
of qualified tuition and related expenses.\10\ For purposes of 
the AOTC, the definition of qualified tuition and related 
expenses is expanded to include course materials. Forty percent 
of a taxpayer's otherwise allowable AOTC is refundable. The 
AOTC that a taxpayer may otherwise claim is phased out ratably 
for taxpayers with MAGI between $80,000 and $90,000 ($160,000 
and $180,000 for married taxpayers filing a joint return).\11\ 
Neither the credit rate nor the phaseout thresholds are indexed 
for inflation.
---------------------------------------------------------------------------
    \9\Sec. 25A(i).
    \10\Sec. 25A(i)(1).
    \11\Sec. 25A(i)(5).
---------------------------------------------------------------------------
            Lifetime Learning credit
    An individual taxpayer may claim a nonrefundable tax 
credit, the Lifetime Learning credit, equal to 20 percent of 
qualified tuition and related expenses incurred during the 
taxable year on behalf of the taxpayer, the taxpayer's spouse, 
or any dependents.\12\ Up to $10,000 of qualified tuition and 
related expenses per taxpayer return are eligible for the 
Lifetime Learning credit (i.e., the maximum credit per taxpayer 
return is $2,000). In contrast with the Hope credit, the 
maximum credit amount is not indexed for inflation.
---------------------------------------------------------------------------
    \12\Sec. 25A(c).
---------------------------------------------------------------------------
    In contrast to the Hope and American Opportunity tax 
credits, a taxpayer may claim the Lifetime Learning credit for 
an unlimited number of taxable years.\13\ Also in contrast to 
the Hope and American Opportunity tax credits, the maximum 
amount of the Lifetime Learning credit that may be claimed on a 
taxpayer's return does not vary based on the number of students 
in the taxpayer's family--that is, the Hope credit is computed 
on a per student basis while the Lifetime Learning credit is 
computed on a family-wide basis. The Lifetime Learning credit 
amount that a taxpayer may otherwise claim is phased out 
ratably for taxpayers with MAGI between $55,000 and $65,000 
($110,000 and $130,000 for married taxpayers filing a joint 
return) in 2014. These phaseout ranges are the same as those 
for the Hope credit as it applies for tax years beginning 
before 2009 and after 2017, and are similarly indexed for 
inflation.
---------------------------------------------------------------------------
    \13\Sec. 25A(a)(2).
---------------------------------------------------------------------------

Deduction for qualified tuition and related expenses

    For taxable years ending prior to January 1, 2014, an 
individual who has not elected to take the above-described 
credits is allowed an above-the-line deduction for qualified 
tuition and related expenses for higher education paid by the 
individual during the taxable year.\14\ Qualified tuition 
includes tuition and fees required for the enrollment or 
attendance by the taxpayer, the taxpayer's spouse, or any 
dependent of the taxpayer with respect to whom the taxpayer may 
claim a personal exemption, at an eligible institution of 
higher education for courses of instruction of such individual 
at such institution. The expenses must be in connection with 
enrollment at an institution of higher education during the 
taxable year, or with an academic term beginning during the 
taxable year or during the first three months of the next 
taxable year. The deduction is not available for tuition and 
related expenses paid for elementary or secondary education.
---------------------------------------------------------------------------
    \14\Sec. 222(a).
---------------------------------------------------------------------------
    The maximum deduction is $4,000 for an individual whose AGI 
for the taxable year does not exceed $65,000 ($130,000 in the 
case of a joint return), or $2,000 for other individuals whose 
AGI does not exceed $80,000 ($160,000 in the case of a joint 
return).\15\ No deduction is allowed for an individual whose 
AGI exceeds the relevant AGI limitations, for a married 
individual who does not file a joint return, or for an 
individual with respect to whom a personal exemption deduction 
may be claimed by another taxpayer for the taxable year.\16\ 
The deduction is not available for taxable years beginning 
after December 31, 2013.
---------------------------------------------------------------------------
    \15\Sec. 222(b)(2)(B).
    \16\See secs. 222(c) and (d).
---------------------------------------------------------------------------
    Additionally, a taxpayer must include the name and taxpayer 
identification number of the student on whose behalf the 
qualified tuition and related expenses were paid in order to be 
eligible to claim the deduction.\17\
---------------------------------------------------------------------------
    \17\Sec. 222(d)(2).
---------------------------------------------------------------------------

Tax treatment of qualified scholarships

    Present law provides an exclusion from gross income and 
wages for amounts received as a qualified scholarship by an 
individual who is a candidate for a degree at a qualifying 
educational organization.\18\ Generally, the exclusion does not 
apply to amounts received by a student that represent payment 
for teaching, research, or other services by the student as a 
condition for receiving the scholarship.\19\
---------------------------------------------------------------------------
    \18\Secs. 117(a) and 3121(a)(20).
    \19\Sec. 117(c).
---------------------------------------------------------------------------
    In general, a qualified scholarship is any amount received 
by such an individual as a scholarship or fellowship grant if 
the amount is used for qualified tuition and related 
expenses.\20\ Qualified tuition and related expenses include 
tuition and fees required for enrollment or attendance, or for 
fees, books, supplies, and equipment required for courses of 
instruction, at the qualifying educational organization.\21\ 
This definition does not include regular living expenses, such 
as room and board. Thus, for example, the portion of a Federal 
Pell Grant under section 401 of the Higher Education Act of 
1965\22\ (``Pell Grant'') that is not attributed to qualified 
tuition and related expenses is not a qualified scholarship and 
is included in an individual's gross income. A qualifying 
educational organization is an educational organization which 
normally maintains a regular faculty and curriculum and 
normally has a regularly enrolled body of pupils or students in 
attendance at the place where its educational activities are 
regularly carried on.\23\
---------------------------------------------------------------------------
    \20\Sec. 117(b)(1).
    \21\Sec. 117(b)(2).
    \22\20 U.S.C. sec. 1070(a).
    \23\Sec. 117(b)(2)(A).
---------------------------------------------------------------------------

Coordination of tax benefits for qualified tuition and scholarships

    The amount of qualified tuition and related expenses paid, 
for purposes of computing the value of the Hope, American 
Opportunity, or Lifetime Learning credits, as well as the 
deduction for qualified tuition and related expenses, generally 
includes only out-of-pocket expenses. Qualified tuition and 
related expenses do not include expenses covered by employer-
provided educational assistance and scholarships that are not 
required to be included in the gross income of either the 
student or the taxpayer claiming the credit. Thus, total 
qualified tuition and related expenses are reduced by any 
scholarship or fellowship grants excludable from gross income 
under section 117 and any other tax-free educational benefits 
received by the student (or the taxpayer claiming the credit) 
during the taxable year.

Reporting requirements for eligible institutions

    Section 6050S imposes reporting requirements, related to 
higher education tax benefits, on eligible educational 
institutions if the institution receives payments for qualified 
tuition and related expenses with respect to any individual for 
any calendar year. The information an institution subject to 
the reporting requirements is required to provide includes 
providing either the aggregate amount of payments received or 
the aggregate amount billed for qualified tuition and related 
expenses during the calendar year period.\24\
---------------------------------------------------------------------------
    \24\Sec. 6050S(b)(2)(B)(i).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that, with the cost of post-
secondary education increasing at a rate in excess of the rate 
of inflation for nearly 30 years, it is appropriate to help 
mitigate the burden on individuals wishing to pursue a college 
education. The Committee believes that the AOTC is an important 
means by which to accomplish this goal. The Committee believes 
that permanently extending this provision will provide 
taxpayers with the certainty necessary to plan for college, and 
that indexing both the credit rate and the phaseout thresholds 
for inflation is necessary to ensure that the assistance 
provided by the credit is not diluted over time. Furthermore, 
the Committee believes that by consolidating the Hope, AOTC, 
Lifetime Learning credit and deduction for tuition and related 
expenses into one consolidated credit, simplification is 
provided in an area where tax benefits have grown increasingly 
complex.
    By increasing the maximum portion of the AOTC that is 
refundable from $1,000 to $1,500, the Committee believes the 
AOTC will become a more effective means by which the government 
can provide assistance to low-income taxpayers without tax 
liability who wish to attend college.
    The Committee believes that Pell Grants should be excluded 
from taxable income, without regard to whether those funds were 
used for tuition or other non-tuition expenses while attending 
school. Because Pell Grants in particular serve students with 
the greatest financial need, excluding the entirety of Pell 
Grant funds from taxation is an appropriate means by which to 
assist low-income students wishing to pursue a college 
education. Furthermore, the Committee believes it is 
appropriate to coordinate Pell Grant funds and the AOTC such 
that a student may receive the maximum benefit of the AOTC 
without regard to whether the Pell Grant funds were used for 
tuition or non-tuition costs of college attendance.
    Finally, the Committee believes that the reporting 
requirements on the Form 1098-T should be modified to more 
accurately reflect the basis of the AOTC. Because the AOTC is 
based on tuition paid by a student to an educational 
institution (and not the amount of tuition billed to that 
student), reporting the tuition that the student has actually 
paid to the institution provides both the student and the 
Internal Revenue Service with the relevant information for 
computing the credit.

                        EXPLANATION OF PROVISION

Consolidation and modification of tuition credits and deduction

    The provision permanently replaces the Hope credit with a 
modified version of the AOTC, and repeals both the Lifetime 
Learning credit and the now-expired deduction for qualified 
tuition expenses. As under present law, the credit is claimed 
on a per-student basis and the credit rate is 100 percent on 
the first $2,000 of qualified tuition and related expenses, and 
25 percent on the next $2,000 of qualified tuition and related 
expenses, for a maximum credit of $2,500. Under the proposal, 
the taxpayer's credit for the first $1,500 of qualified tuition 
and related expenses is refundable.
    The provision retains the phaseout range of the AOTC (i.e., 
the credit will continue to be phased out ratably for taxpayers 
with MAGI between $80,000 and $90,000 ($160,000 and $180,000 
for married taxpayers filing a joint return). The provision 
provides that both the credit amounts and the phaseout ranges 
are indexed for inflation for taxable years beginning after 
2018.
    The provision does not retain the rule that denies the 
credit with respect to qualified tuition and related expenses 
for the enrollment or attendance of any student who has been 
convicted of a felony offense consisting of the possession or 
distribution of a controlled substance.
    The provision adds a requirement that a taxpayer must 
include the employer identification number of the institution 
to which qualified tuition and related expenses was paid.

Coordination of Pell Grants with credit for tuition

    The provision alters the determination of qualified tuition 
and related expenses for students who are recipients of Pell 
Grants. Under the provision, for purposes of reducing the 
amount of qualified tuition and related expenses owing to 
receipt of scholarships, the recipient of the Pell Grant may 
disregard an amount of the Pell Grant equaling the amount of 
expenses (other than qualified tuition and related expenses) 
that are taken into account in determining the cost of 
attendance (as defined in section 472 of the Higher Education 
Act of 1965). That is, the student may first apply the Pell 
Grant to certain living expenses before any excess is deemed to 
reduce the amount of tuition and related expenses eligible for 
the AOTC. For example, under present law, if a student had 
$2,000 in tuition and related expenses, $4,000 in living 
expenses related to the cost of attendance, and received a 
$3,000 Pell Grant, if that student had applied the Pell Grant 
towards his or her tuition first, the student would not be 
eligible for any AOTC because the qualified tuition and related 
expenses ($2,000) is reduced by the amount of the Pell Grant 
($3,000), leaving no qualified tuition and related expenses. 
Under the provision, the $3,000 Pell Grant is disregarded to 
the extent of living expenses related to the cost of attendance 
($4,000), thus leaving the full $2,000 in qualified tuition and 
related expenses eligible for the AOTC.

Modification of treatment of Pell Grant scholarships

    The provision modifies the exclusion for qualified 
scholarships by providing that Pell Grants are excluded from 
gross income, without regard to whether the grant is used for 
qualified tuition and related expenses.

Modification of reporting requirements

    The provision modifies present-law reporting requirements, 
such that an eligible educational institution may only report 
the aggregate amount of tuition received with respect to any 
individual during the calendar year period.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2014.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the vote of the Committee on Ways and Means in its 
consideration of H.R. 3393, the Student and Family Tax 
Simplification Act, on June 25, 2014.
    The bill, H.R. 3393, was ordered favorably reported as 
amended by a roll call vote of 22 yeas to 13 nays (with a 
quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Camp.......................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Johnson....................        X   ........  .........  Mr. Rangel.......  ........  ........  .........
Mr. Brady......................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. Ryan.......................        X   ........  .........  Mr. Lewis........  ........        X   .........
Mr. Nunes......................        X   ........  .........  Mr. Neal.........  ........        X   .........
Mr. Tiberi.....................        X   ........  .........  Mr. Becerra......  ........        X   .........
Mr. Reichert...................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. Boustany...................        X   ........  .........  Mr. Thompson.....  ........        X   .........
Mr. Roskam.....................        X   ........  .........  Mr. Larson.......  ........        X   .........
Mr. Gerlach....................        X   ........  .........  Mr. Blumenauer...  ........        X   .........
Mr. Price......................        X   ........  .........  Mr. Kind.........  ........        X   .........
Mr. Buchanan...................        X   ........  .........  Mr. Pascrell.....  ........  ........  .........
Mr. Smith......................        X   ........  .........  Mr. Crowley......  ........  ........  .........
Mr. Schock.....................        X   ........  .........  Ms. Schwartz.....  ........        X   .........
Ms. Jenkins....................        X   ........  .........  Mr. Davis........  ........        X   .........
Mr. Paulsen....................        X   ........  .........  Ms. Sanchez......  ........        X   .........
Mr. Marchant...................        X   ........  .........  .................
Ms. Black......................        X   ........  .........
Mr. Reed.......................  ........  ........  .........
Mr. Young......................        X   ........  .........
Mr. Kelly......................        X   ........  .........
Mr. Griffin....................        X   ........  .........
Mr. Renacci....................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL

               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill, H.R. 3393, as 
reported.
    The bill, as reported, is estimated to have the following 
effect on Federal budget receipts for fiscal years 2014-2024 
(with no effect on such receipts in fiscal year 2014):

                                                                                          FISCAL YEARS
                                                                                      [Billions of Dollars]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                      Item                           2015        2016        2017        2018        2019        2020        2021        2022        2023        2024       2015-19     2015-24
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Revenues[\1\]...................................      [\2\]        -1.0        -0.9        -1.5       -14.5       -14.4       -15.5       -15.5       -15.9       -17.1       -18.1      -96.5
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NOTE: Details do not add to totals due to rounding.

                                                     2015        2016        2017        2018        2019        2020        2021        2022        2023        2024       2015-19     2015-24

[\1\] Estimate contains the following outlay      ..........        3.4         3.2         3.2        10.2        10.1        10.8        10.7        10.8        11.5        19.9        73.7
 effects........................................
[\2\] Loss of less than $50 million

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves new or increased budget authority. The Committee 
further states that the revenue-reducing tax provisions involve 
increased tax expenditures. (See amounts in table in Part IV.A, 
above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, July 7, 2014.
Hon. Dave Camp,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3393, the Student 
and Family Tax Simplification Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Logan 
Timmerhoff.
            Sincerely,
                                          Peter A. Fontaine
                               (For Douglas W. Elmendorf, Director)
    Enclosure.

H.R. 3393--Student and Family Tax Simplification Act

    H.R. 3393 would amend certain education-related provisions 
of the Internal Revenue Code. The bill would permanently 
extend, in modified form, the American Opportunity Tax Credit 
(AOTC) for tuition and related post-secondary expenses that is 
currently scheduled to expire at the end of 2017. Modifications 
to the credit would include increasing the refundable portion 
(starting in 2015) and indexing the credit and income phaseout 
amounts for inflation (starting in 2019). The Hope tax credit, 
which is scheduled to come back into effect in 2018 when the 
AOTC expires, would be replaced by the AOTC, and the Lifetime 
Learning tax credit would be repealed. In addition, for Pell 
grant recipients, the bill would increase the amount of 
expenses that potentially qualify for the AOTC, and Pell grant 
amounts that exceeded certain education expenses would no 
longer be considered taxable income. The bill would also modify 
the information-reporting requirements on higher educational 
institutions.
    The staff of the Joint Committee on Taxation (JCT) 
estimates that enacting H.R. 3393 would increase direct 
spending over the 2014-2024 period by about $73.7 billion, and 
reduce revenues over that period by about $22.7 billion. JCT 
therefore estimates that enacting the legislation would 
increase federal budget deficits by about $96.5 billion over 
the 2014-2024 period.
    The Statutory Pay-As-You-Go Act of 2010 establishes budget-
reporting and enforcement procedures for legislation affecting 
direct spending and revenues. Because enacting H.R. 3393 would 
affect revenues and direct spending, pay-as-you-go procedures 
apply. The net changes in revenues and outlays that are subject 
to pay-as-you-go procedures are shown in the following table.
    JCT has determined that the bill contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act.
    The CBO staff contact for this estimate is Logan 
Timmerhoff. The estimate was approved by David Weiner, 
Assistant Director for Tax Analysis.

                               CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 3393, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON JUNE 25, 2014
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   By fiscal year, in millions of dollars--
                                            ----------------------------------------------------------------------------------------------------------------------------------------------------
                                               2014     2015     2016     2017     2018       2019         2020         2021         2022         2023         2024      2014-2019    2014-2024
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                   NET INCREASE IN THE DEFICIT

Statutory Pay-As-You-Go Effects............        0       45    1,038      936    1,519       14,531       14,354       15,492       15,515       15,941       17,082       18,068       96,453
Memorandum:
    Changes in Outlays.....................        0        0    3,350    3,215    3,162       10,152       10,085       10,766       10,743       10,806       11,462       19,879       73,740
    Changes in Revenues....................        0      -45    2,312    2,279    1,643       -4,379       -4,269       -4,726       -4,772       -5,135       -5,620        1,811     -22,713
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation
Note: Components may not sum to totals because of rounding.

                    D. Macroeconomic Impact Analysis

    In compliance with clause 3(h)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made by the Joint Committee on Taxation with respect to the 
provisions of the bill amending the Internal Revenue Code of 
1986: the effects of the bill on economic activity are so small 
as to be incalculable within the context of a model of the 
aggregate economy.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was as a result of the 
Committee's review of the provisions of H.R. 3393 that the 
Committee concluded that it is appropriate to report the bill, 
as amended, favorably to the House of Representatives with the 
recommendation that the bill do pass.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

              C. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                D. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the bill, and states that the bill does not 
involve any Federal income tax rate increases within the 
meaning of the rule.

                       E. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service 
Restructuring and Reform Act of 1998 requires the staff of the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Treasury Department) to provide a tax 
complexity analysis. The complexity analysis is required for 
all legislation reported by the Senate Committee on Finance, 
the House Committee on Ways and Means, or any committee of 
conference if the legislation includes a provision that 
directly or indirectly amends the Code and has widespread 
applicability to individuals or small businesses.
    Pursuant to clause 3(h)(1) of rule XIII of the Rules of the 
House of Representatives, the staff of the Joint Committee on 
Taxation has determined that a complexity analysis is not 
required under section 4022(b) of the IRS Reform Act because 
the bill contains no provisions that amend the Code and that 
have ``widespread applicability'' to individuals or small 
businesses, within the meaning of the rule.

  F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
                                Benefits

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill, and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                   G. Duplication of Federal Programs

    In compliance with sec. 3(j)(2) of H. Res. 5 (113th 
Congress), the Committee states that the Government 
Accountability Office has included the American Opportunity Tax 
Credit and Form 1098-T (the form on which educational 
institutions report tuition-related information) in reports to 
Congress pursuant to section 21 of Public Law 111-139. The 
Committee also states that the most recent Catalog of Federal 
Domestic Assistance, published pursuant to the Federal Program 
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 
98-169), identified programs related to the American 
Opportunity Tax Credit.

                 H. Disclosure of Directed Rule Makings

    In compliance with sec. 3(k) of H. Res. 5 (113th Congress), 
the following statement is made concerning directed rule 
makings: The Committee estimates that the bill requires no 
directed rule makings within the meaning of such section.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *

Subtitle A--Income Taxes

           *       *       *       *       *       *       *

CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *

Subchapter A--Determination of Tax Liability

           *       *       *       *       *       *       *

PART IV--CREDITS AGAINST TAX

           *       *       *       *       *       *       *

               Subpart A--Nonrefundable Personal Credits

     * * * * * * *
[Sec. 25A. Hope and Lifetime Learning credits.]
Sec. 25A. American opportunity tax credit.

           *       *       *       *       *       *       *

[SEC. 25A. HOPE AND LIFETIME LEARNING CREDITS.

  [(a) Allowance of Credit.--In the case of an individual, 
there shall be allowed as a credit against the tax imposed by 
this chapter for the taxable year the amount equal to the sum 
of--
          [(1) the Hope Scholarship Credit, plus
          [(2) the Lifetime Learning Credit.
  [(b) Hope Scholarship Credit.--
          [(1) Per student credit.--In the case of any eligible 
        student for whom an election is in effect under this 
        section for any taxable year, the Hope Scholarship 
        Credit is an amount equal to 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 $1,000, plus
                  [(B) 50 percent of such expenses so paid as 
                exceeds $1,000 but does not exceed the 
                applicable limit.
          [(2) Limitations applicable to hope scholarship 
        credit.--
                  [(A) Credit allowed only for 2 taxable 
                years.--An election to have this section apply 
                with respect to any eligible student for 
                purposes of the Hope Scholarship Credit under 
                subsection (a)(1) may not be made for any 
                taxable year if such an election (by the 
                taxpayer or any other individual) is in effect 
                with respect to such student for any 2 prior 
                taxable years.
                  [(B) Credit allowed for year only if 
                individual is at least 1/2 time student for 
                portion of year.--The Hope Scholarship Credit 
                under subsection (a)(1) shall not be allowed 
                for a taxable year with respect to the 
                qualified tuition and related expenses of an 
                individual unless such individual is an 
                eligible student for at least one academic 
                period which begins during such year.
                  [(C) Credit allowed only for first 2 years of 
                post-secondary education.--The Hope Scholarship 
                Credit under subsection (a)(1) shall not be 
                allowed for a taxable year with respect to the 
                qualified tuition and related expenses of an 
                eligible student if the student has completed 
                (before the beginning of such taxable year) the 
                first 2 years of postsecondary education at an 
                eligible educational institution.
                  [(D) Denial of credit if student convicted of 
                a felony drug offense.--The Hope Scholarship 
                Credit under subsection (a)(1) shall not be 
                allowed for qualified tuition and related 
                expenses for the enrollment or attendance of a 
                student for any academic period if such student 
                has been convicted of a Federal or State felony 
                offense consisting of the possession or 
                distribution of a controlled substance before 
                the end of the taxable year with or within 
                which such period ends.
          [(3) Eligible student.--For purposes of this 
        subsection, the term ``eligible student'' means, with 
        respect to any academic period, a student who--
                  [(A) meets the requirements of section 
                484(a)(1) of the Higher Education Act of 1965 
                (20 U.S.C. 1091(a)(1)), as in effect on the 
                date of the enactment of this section, and
                  [(B) is carrying at least 1/2 the normal 
                full-time work load for the course of study the 
                student is pursuing.
          [(4) Applicable limit.--For purposes of paragraph 
        (1)(B), the applicable limit for any taxable year is an 
        amount equal to 2 times the dollar amount in effect 
        under paragraph (1)(A) for such taxable year.
  [(c) Lifetime Learning Credit.--
          [(1) Per taxpayer credit.--The Lifetime Learning 
        Credit for any taxpayer for any taxable year is an 
        amount equal to 20 percent of so much of the qualified 
        tuition and related expenses paid by the taxpayer 
        during the taxable year (for education furnished during 
        any academic period beginning in such taxable year) as 
        does not exceed $10,000 ($5,000 in the case of taxable 
        years beginning before January 1, 2003).
          [(2) Special rules for determining expenses.--
                  [(A) Coordination with hope scholarship.--The 
                qualified tuition and related expenses with 
                respect to an individual who is an eligible 
                student for whom a Hope Scholarship Credit 
                under subsection (a)(1) is allowed for the 
                taxable year shall not be taken into account 
                under this subsection.
                  [(B) Expenses eligible for lifetime learning 
                credit.--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 individual.
  [(d) Limitation Based on Modified Adjusted Gross Income.--
          [(1) In general.--The amount which would (but for 
        this subsection) be taken into account under subsection 
        (a) for the taxable year shall be reduced (but not 
        below zero) by the amount determined under paragraph 
        (2).
          [(2) 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--
                  [(A) the excess of--
                          [(i) the taxpayer's modified adjusted 
                        gross income for such taxable year, 
                        over
                          [(ii) $40,000 ($80,000 in the case of 
                        a joint return), bears to (B) $10,000 
                        ($20,000 in the case of a joint 
                        return).
          [(3) Modified adjusted gross income.--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.
  [(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) Qualified tuition and related expenses.--
                  [(A) In general.--The term ``qualified 
                tuition and related expenses'' means tuition 
                and fees 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.
          [(2) 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 (20 U.S.C. 1088), 
                as in effect on the date of the enactment of 
                this section, and
                  [(B) which is eligible to participate in a 
                program under title IV of such Act.
  [(g) Special Rules.--
          [(1) Identification requirement.--No credit shall be 
        allowed under subsection (a) to a taxpayer with respect 
        to the qualified tuition and related expenses of an 
        individual unless the taxpayer includes the name and 
        taxpayer identification number of such individual on 
        the return of tax for the taxable year.
          [(2) Adjustment for certain scholarships, etc..--The 
        amount of qualified tuition and related expenses 
        otherwise taken into account under subsection (a) with 
        respect to an individual for an academic period shall 
        be reduced (before the application of subsections (b), 
        (c), and (d)) by the sum of any amounts paid for the 
        benefit of such individual which are allocable to such 
        period as--
                  [(A) a qualified scholarship which is 
                excludable from gross income under section 117,
                  [(B) 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
                  [(C) 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.
          [(3) 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 
                subsection (a) 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.
          [(4) 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.
          [(5) 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.
          [(6) 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.
          [(7) 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.
  [(h) Inflation Adjustments.--
          [(1) Dollar limitation on amount of credit.--
                  [(A) In general.--In the case of a taxable 
                year beginning after 2001, each of the $1,000 
                amounts under subsection (b)(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 2000'' 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.
          [(2) Income limits.--
                  [(A) In general.--In the case of a taxable 
                year beginning after 2001, the $40,000 and 
                $80,000 amounts in subsection (d)(2) shall each 
                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 2000'' for ``calendar 
                        year 1992'' in subparagraph (B) 
                        thereof.
                  [(B) Rounding.--If any amount as adjusted 
                under subparagraph (A) is not a multiple of 
                $1,000, such amount shall be rounded to the 
                next lowest multiple of $1,000.
  [(i) American Opportunity Tax Credit.--In the case of any 
taxable year beginning after 2008 and before 2018--
          [(1) Increase in credit.--The Hope Scholarship Credit 
        shall be an amount equal to 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 $4,000.
          [(2) Credit allowed for first 4 years of post-
        secondary education.--Subparagraphs (A) and (C) of 
        subsection (b)(2) shall be applied by substituting 
        ``4'' for ``2''.
          [(3) Qualified tuition and related expenses to 
        include required course materials.--Subsection 
        (f)(1)(A) shall be applied by substituting ``tuition, 
        fees, and course materials'' for ``tuition and fees''.
          [(4) Increase in agi limits for hope scholarship 
        credit.--In lieu of applying subsection (d) with 
        respect to the Hope Scholarship Credit, such credit 
        (determined without regard to this paragraph) shall be 
        reduced (but not below zero) by the amount which bears 
        the same ratio to such credit (as so determined) as--
                  [(A) the excess of--
                          [(i) the taxpayer's modified adjusted 
                        gross income (as defined in subsection 
                        (d)(3)) for such taxable year, over
                          [(ii) $80,000 ($160,000 in the case 
                        of a joint return), bears to (B) 
                        $10,000 ($20,000 in the case of a joint 
                        return).
          [(5) Portion of credit made refundable.--40 percent 
        of so much of the credit allowed under subsection (a) 
        as is attributable to the Hope Scholarship Credit 
        (determined after application of paragraph (4) and 
        without regard to this paragraph and section 26(a)) 
        shall be treated as a credit allowable under subpart C 
        (and not allowed under subsection (a)). 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.
          [(6) Coordination with midwestern disaster area 
        benefits.--In the case of a taxpayer with respect to 
        whom section 702(a)(1)(B) of the Heartland Disaster Tax 
        Relief Act of 2008 applies for any taxable year, such 
        taxpayer may elect to waive the application of this 
        subsection to such taxpayer for such taxable year.
  [(j) 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.]

SEC. 25A. AMERICAN OPPORTUNITY TAX CREDIT.

  (a) In General.--In the case of an individual, there shall be 
allowed as a credit against the tax imposed by this chapter for 
the taxable year, with respect to each eligible student, an 
amount equal to the sum of--
          (1) 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
          (2) 25 percent of so much of such expenses so paid as 
        exceeds the dollar amount in effect under paragraph (1) 
        but does not exceed twice such dollar amount.
  (b) Portion of Credit Refundable.--So much of the credit 
allowable under subsection (a) with respect to each eligible 
student (determined without regard to this subsection and 
section 26(a) and after application of all other provisions of 
this section) as does not exceed $1,500 shall be treated as a 
credit allowable under subpart C (and not under this part). The 
preceding sentence shall not apply to any taxpayer for any 
taxable year if such taxpayer is a child to whom section 1(g) 
applies for such taxable year.
  (c) Limitation Based on Modified Adjusted Gross Income.--
          (1) In general.--The amount allowable as a credit 
        under subsection (a) for any taxable year shall be 
        reduced (but not below zero) by an amount which bears 
        the same ratio to the amount so allowable (determined 
        without regard to this subsection and subsection (b) 
        but after application of all other provisions of this 
        section) as--
                  (A) the excess of--
                          (i) the taxpayer's modified adjusted 
                        gross income for such taxable year, 
                        over
                          (ii) $80,000 (twice such amount in 
                        the case of a joint return), bears to
                  (B) $10,000 (twice such amount in the case of 
                a joint return).
          (2) Modified adjusted gross income.--For purposes of 
        this subsection, 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.
  (d) Other Limitations.--No credit shall be allowed under this 
section with respect to any eligible student for any taxable 
year if--
          (1) such student was taken into account in 
        determining the credit allowed under this section (by 
        the taxpayer or any other individual) for any 4 prior 
        taxable years, or
          (2) such student has completed (before the beginning 
        of such taxable year) the first 4 years of 
        postsecondary education at an eligible educational 
        institution.
  (e) Definitions.--For purposes of this section--
          (1) Eligible student.-- The term ``eligible student'' 
        means, with respect to any academic period, a student 
        who--
                  (A) meets the requirements of section 
                484(a)(1) of the Higher Education Act of 1965 
                (20 U.S.C. 1091(a)(1)), as in effect on August 
                5, 1997, and
                  (B) is carrying at least \1/2\ the normal 
                full-time work load for the course of study the 
                student is pursuing.
          (2) Qualified tuition and related expenses.--
                  (A) In general.--The term ``qualified tuition 
                and related expenses'' means tuition, fees, and 
                course materials, required for 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.
          (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 (20 U.S.C. 1088), 
                as in effect on August 5, 1997, and
                  (B) which is eligible to participate in a 
                program under title IV of such Act.
  (f) Special Rules.--
          (1) Identification requirement.--No credit shall be 
        allowed under subsection (a) to a taxpayer with respect 
        to the qualified tuition and related expenses of an 
        individual unless the taxpayer includes the name and 
        taxpayer identification number of such individual, and 
        the employer identification number of any institution 
        to which such expenses were paid, on the return of tax 
        for the taxable year.
          (2) Adjustment for certain scholarships, etc.--
                  (A) In general.--The amount of qualified 
                tuition and related expenses otherwise taken 
                into account under subsection (a) with respect 
                to an individual for an academic period shall 
                be reduced (before the application of 
                subsection (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.--
                For purposes of subparagraph (A), the amount of 
                any Federal Pell Grant under section 401 of the 
                Higher Education Act of 1965 (20 U.S.C. 1070a) 
                shall be reduced (but not below zero) by the 
                amount of 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 this paragraph) of 
                such individual at an eligible educational 
                institution for the academic period for which 
                the credit under this section is being 
                determined.
          (3) 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 
                subsection (a) 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.
          (4) 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.
          (5) Denial of double benefit.--No credit shall be 
        allowed under this section for any amount for which a 
        deduction is allowed under any other provision of this 
        chapter.
          (6) 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.
          (7) 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.
  (g) Inflation Adjustment.--
          (1) In general.--In the case of a taxable year 
        beginning after 2018, the $2,000 amount in subsection 
        (a)(1), the $1,500 amount in subsection (b), and the 
        $80,000 amount in subsection (c)(1)(A)(ii) shall each 
        be increased by an amount equal to--
                  (A) such dollar amount, multiplied by
                  (B) 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 2017'' for 
                ``calendar year 1992'' in subparagraph (B) 
                thereof.
          (2) Rounding.--If any amount as adjusted under 
        paragraph (1) is not a multiple of $100 ($1,000 in the 
        case of the amount in subsection (c)(1)(A)(ii)), such 
        amount shall be rounded to the next lowest multiple of 
        $100 ($1,000 in the case of the amount in subsection 
        (c)(1)(A)(ii)).
  (h) Regulations.--The Secretary may prescribe such 
regulations or other guidance 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.

           *       *       *       *       *       *       *

Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *

  PART I--DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE 
INCOME, ETC

           *       *       *       *       *       *       *

SEC. 62. ADJUSTED GROSS INCOME DEFINED.

  (a) General Rule.--For purposes of this subtitle, the term 
``adjusted gross income'' means, in the case of an individual, 
gross income minus the following deductions:
          (1) * * *

           *       *       *       *       *       *       *

          [(18) Higher education expenses.--The deduction 
        allowed by section 222.]

           *       *       *       *       *       *       *

PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME

           *       *       *       *       *       *       *

SEC. 72. ANNUITIES; CERTAIN PROCEEDS OF ENDOWMENT AND LIFE INSURANCE 
                    CONTRACTS.

  (a) * * *

           *       *       *       *       *       *       *

  (t) 10-Percent Additional Tax on Early Distributions from 
Qualified Retirement Plans.--
          (1) * * *

           *       *       *       *       *       *       *

          (7) Qualified higher education expenses.--For 
        purposes of paragraph (2)(E)--
                  (A) * * *
                  (B) Coordination with other benefits.--The 
                amount of qualified higher education expenses 
                for any taxable year shall be reduced as 
                provided in [section 25A(g)(2)] section 
                25A(f)(2).

           *       *       *       *       *       *       *

SEC. 86. SOCIAL SECURITY AND TIER 1 RAILROAD RETIREMENT BENEFITS.

  (a) * * *
  (b) Taxpayers to Whom Subsection (a) Applies.--
          (1) * * *
          (2) Modified adjusted gross income.--For purposes of 
        this subsection, the term ``modified adjusted gross 
        income'' means adjusted gross income--
                  (A) determined without regard to this section 
                and sections 135, 137, 199, 221, [222,] 911, 
                931, and 933, and

           *       *       *       *       *       *       *

PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

           *       *       *       *       *       *       *

SEC. 117. QUALIFIED SCHOLARSHIPS.

  (a) * * *
  (b) Qualified Scholarship.--For purposes of this section--
          (1) In general.--The term ``qualified scholarship'' 
        means any amount [received by an individual as a 
        scholarship] received by an individual--
                  (A) 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
                  (B) as a Federal Pell Grant under section 401 
                of the Higher Education Act of 1965 (20 U.S.C. 
                1070a).

           *       *       *       *       *       *       *

SEC. 135. INCOME FROM UNITED STATES SAVINGS BONDS USED TO PAY HIGHER 
                    EDUCATION TUITION AND FEES.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Definitions.--For purposes of this section--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Modified adjusted gross income.--The term 
        ``modified adjusted gross income'' means the adjusted 
        gross income of the taxpayer for the taxable year 
        determined--
                  (A) without regard to this section and 
                sections 137, 199, 221, [222,] 911, 931, and 
                933, and

           *       *       *       *       *       *       *

SEC. 137. ADOPTION ASSISTANCE PROGRAM.

  (a) * * *
  (b) Limitations.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Determination of adjusted gross income.--For 
        purposes of paragraph (2), adjusted gross income shall 
        be determined--
                  (A) without regard to this section and 
                sections 199, 221, [222,] 911, 931, and 933, 
                and

           *       *       *       *       *       *       *

PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

           *       *       *       *       *       *       *

SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION ACTIVITIES.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Definitions and Special Rules.--
          (1) * * *
          (2) Application to individuals.--In the case of an 
        individual, subsections (a)(1)(B) and (d)(9)(A)(iii) 
        shall be applied by substituting ``adjusted gross 
        income'' for ``taxable income''. For purposes of the 
        preceding sentence, adjusted gross income shall be 
        determined--
                  (A) after application of sections 86, 135, 
                137, 219, 221, [222,] and 469, and

           *       *       *       *       *       *       *

        PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS

Sec. 211. Allowance of deductions.
     * * * * * * *
[Sec. 222. Qualified tuition and related expenses.]

           *       *       *       *       *       *       *

SEC. 219. RETIREMENT SAVINGS.

  (a) * * *

           *       *       *       *       *       *       *

  (g) Limitation on Deduction for Active Participants in 
Certain Pension Plans.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Adjusted gross income; applicable dollar 
        amount.--For purposes of this subsection--
                  (A) Adjusted gross income.--Adjusted gross 
                income of any taxpayer shall be determined--
                          (i) * * *
                          (ii) without regard to sections 135, 
                        137, 199, 221, [222,] and 911 or the 
                        deduction allowable under this section.

           *       *       *       *       *       *       *

SEC. 221. INTEREST ON EDUCATION LOANS.

  (a) * * *
  (b) Maximum Deduction.--
          (1) * * *
          (2) Limitation based on modified adjusted gross 
        income.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Modified adjusted gross income.--The term 
                ``modified adjusted gross income'' means 
                adjusted gross income determined--
                          (i) without regard to this section 
                        and sections 199, [222,] 911, 931, and 
                        933, and

           *       *       *       *       *       *       *

[SEC. 222. QUALIFIED TUITION AND RELATED EXPENSES.

  [(a) Allowance of Deduction.--In the case of an individual, 
there shall be allowed as a deduction an amount equal to the 
qualified tuition and related expenses paid by the taxpayer 
during the taxable year.
  [(b) Dollar Limitations.--
          [(1) In general.--The amount allowed as a deduction 
        under subsection (a) with respect to the taxpayer for 
        any taxable year shall not exceed the applicable dollar 
        limit.
          [(2) Applicable dollar limit.--
                  [(A) 2002 and 2003.--In the case of a taxable 
                year beginning in 2002 or 2003, the applicable 
                dollar limit shall be equal to--
                          [(i) in the case of a taxpayer whose 
                        adjusted gross income for the taxable 
                        year does not exceed $65,000 ($130,000 
                        in the case of a joint return), $3,000, 
                        and--
                          [(ii) in the case of any other 
                        taxpayer, zero.
                  [(B) After 2003.--In the case of any taxable 
                year beginning after 2003, the applicable 
                dollar amount shall be equal to--
                          [(i) in the case of a taxpayer whose 
                        adjusted gross income for the taxable 
                        year does not exceed $65,000 ($130,000 
                        in the case of a joint return), $4,000,
                          [(ii) in the case of a taxpayer not 
                        described in clause (i) whose adjusted 
                        gross income for the taxable year does 
                        not exceed $80,000 ($160,000 in the 
                        case of a joint return), $2,000, and
                          [(iii) in the case of any other 
                        taxpayer, zero.
                  [(C) Adjusted gross income.--For purposes of 
                this paragraph, adjusted gross income shall be 
                determined--
                          [(i) without regard to this section 
                        and sections 199, 911, 931, and 933, 
                        and
                          [(ii) after application of sections 
                        86, 135, 137, 219, 221, and 469.
  [(c) No Double Benefit.--
          [(1) In general.--No deduction shall be allowed under 
        subsection (a) for any expense for which a deduction is 
        allowed to the taxpayer under any other provision of 
        this chapter.
          [(2) Coordination with other education incentives.--
                  [(A) Denial of deduction if credit elected.--
                No deduction shall be allowed under subsection 
                (a) for a taxable year with respect to the 
                qualified tuition and related expenses with 
                respect to an individual if the taxpayer or any 
                other person elects to have section 25A apply 
                with respect to such individual for such year.
                  [(B) Coordination with exclusions.--The total 
                amount of qualified tuition and related 
                expenses shall be reduced by the amount of such 
                expenses taken into account in determining any 
                amount excluded under section 135, 529(c)(1), 
                or 530(d)(2). For purposes of the preceding 
                sentence, the amount taken into account in 
                determining the amount excluded under section 
                529(c)(1) shall not include that portion of the 
                distribution which represents a return of any 
                contributions to the plan.
          [(3) Dependents.--No deduction shall be allowed under 
        subsection (a) to any individual with respect to whom a 
        deduction under section 151 is allowable to another 
        taxpayer for a taxable year beginning in the calendar 
        year in which such individual's taxable year begins.
  [(d) Definitions and Special Rules.--For purposes of this 
section--
          [(1) Qualified tuition and related expenses.--The 
        term ``qualified tuition and related expenses'' has the 
        meaning given such term by section 25A(f). Such 
        expenses shall be reduced in the same manner as under 
        section 25A(g)(2).
          [(2) Identification requirement.--No deduction shall 
        be allowed under subsection (a) to a taxpayer with 
        respect to the qualified tuition and related expenses 
        of an individual unless the taxpayer includes the name 
        and taxpayer identification number of the individual on 
        the return of tax for the taxable year.
          [(3) Limitation on taxable year of deduction.--
                  [(A) In general.--A deduction shall be 
                allowed under subsection (a) for qualified 
                tuition and related expenses for any taxable 
                year only to the extent such expenses are in 
                connection with enrollment at an institution of 
                higher education during the taxable year.
                  [(B) Certain prepayments allowed.--
                Subparagraph (A) shall not apply to qualified 
                tuition and related expenses paid during a 
                taxable year if such expenses are in connection 
                with an academic term beginning during such 
                taxable year or during the first 3 months of 
                the next taxable year.
          [(4) No deduction 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.
          [(5) 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.
          [(6) Regulations.--The Secretary may prescribe such 
        regulations as may be necessary or appropriate to carry 
        out this section, including regulations requiring 
        recordkeeping and information reporting.
  [(e) Termination.--This section shall not apply to taxable 
years beginning after December 31, 2013.]

           *       *       *       *       *       *       *

Subchapter E--Accounting Periods and Methods of Accounting

           *       *       *       *       *       *       *

PART II--METHODS OF ACCOUNTING

           *       *       *       *       *       *       *

Subpart C--Taxable Year for Which Deductions Taken

           *       *       *       *       *       *       *

SEC. 469. PASSIVE ACTIVITY LOSSES AND CREDITS LIMITED.

  (a) * * *

           *       *       *       *       *       *       *

  (i) $25,000 offset for rental real estate activities
          (1) * * *

           *       *       *       *       *       *       *

          (3) Phase-out of exemption.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (F) Adjusted gross income.--For purposes of 
                this paragraph, adjusted gross income shall be 
                determined without regard to--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) the amounts allowable as a 
                        deduction under sections 199, 219, 
                        [221, and 222] and 221, and

           *       *       *       *       *       *       *

Subchapter F--Exempt Organizations

           *       *       *       *       *       *       *

              PART VIII--HIGHER EDUCATION SAVINGS ENTITIES

SEC. 529. QUALIFIED TUITION PROGRAMS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Tax Treatment of Designated Beneficiaries and 
Contributors.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Distributions.--
                  (A) * * *
                  (B) Distributions for qualified higher 
                education expenses.--For purposes of this 
                paragraph--
                          (i) * * *

           *       *       *       *       *       *       *

                          (v) Coordination with Hope and 
                        Lifetime Learning credits.--The total 
                        amount of qualified higher education 
                        expenses with respect to an individual 
                        for the taxable year shall be reduced--
                                  (I) as provided in [section 
                                25A(g)(2)] section 25A(f)(2), 
                                and

           *       *       *       *       *       *       *

  (e) Other Definitions and Special Rules.--For purposes of 
this section--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Qualified higher education expenses.--
                  (A) * * *
                  (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)] 
                        section 25A(d)) 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)(6), a 
                        designated beneficiary shall be treated 
                        as meeting the requirements of this 
                        clause.

           *       *       *       *       *       *       *

SEC. 530. COVERDELL EDUCATION SAVINGS ACCOUNTS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Tax Treatment of Distributions.--
          (1) * * *
          (2) Distributions for qualified education expenses.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Coordination with [hope and lifetime 
                learning credits]  american opportunity tax 
                credit and qualified 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)] section 25A(f)(2), 
                                and

           *       *       *       *       *       *       *

          (4) Additional tax for distributions not used for 
        educational expenses.--
                  (A) * * *
                  (B) Exceptions.--Subparagraph (A) shall not 
                apply if the payment or distribution is--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) made on account of a 
                        scholarship, allowance, or payment 
                        described in [section 25A(g)(2)] 
                        section 25A(d)(4)(B) received by the 
                        designated beneficiary to the extent 
                        the amount of the payment or 
                        distribution does not exceed the amount 
                        of the scholarship, allowance, or 
                        payment,

           *       *       *       *       *       *       *

Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *

CHAPTER 61--INFORMATION AND RETURNS

           *       *       *       *       *       *       *

Subchapter A--Returns and Records

           *       *       *       *       *       *       *

PART III--INFORMATION RETURNS

           *       *       *       *       *       *       *

Subpart B--Information Concerning Transactions with Other Persons

           *       *       *       *       *       *       *

SEC. 6050S. RETURNS RELATING TO HIGHER EDUCATION TUITION AND RELATED 
                    EXPENSES.

  (a) * * *
  (b) Form and Manner of Returns.--A return is described in 
this subsection if such return--
          (1) * * *
          (2) contains--
                  (A) * * *
                  (B) the--
                          (i) aggregate amount of payments 
                        received [or the aggregate amount 
                        billed] for qualified tuition and 
                        related expenses with respect to the 
                        individual described in subparagraph 
                        (A) during the calendar year,

           *       *       *       *       *       *       *

  (e) Definitions.--For purposes of this section, the terms 
``eligible educational institution'' and ``qualified tuition 
and related expenses'' have the meanings given such terms by 
section 25A (without regard to [subsection (g)(2)] subsection 
(f)(2) thereof), and except as provided in regulations, the 
term ``qualified education loan'' has the meaning given such 
term by section 221(d)(1).

           *       *       *       *       *       *       *

CHAPTER 63--ASSESSMENT

           *       *       *       *       *       *       *

  Subchapter B--Deficiency Procedures in the Case of Income, Estate, 
                     Gift, and Certain Excise Taxes

SEC. 6211. DEFINITION OF A DEFICIENCY.

  (a) * * *
  (b) Rules for Application of Subsection (a).--For purposes of 
this section--
          (1) * * *

           *       *       *       *       *       *       *

          (4) For purposes of subsection (a)--
                  (A) any excess of the sum of the credits 
                allowable under sections 24(d), 25A by reason 
                of [subsection (i)(6)] subsection (b) thereof, 
                32, 34, 35, 36, 36A, 36B, 53(e), 168(k)(4), 
                6428, and 6431 over the tax imposed by subtitle 
                A (determined without regard to such credits), 
                and

           *       *       *       *       *       *       *

SEC. 6213. RESTRICTIONS APPLICABLE TO DEFICIENCIES; PETITION TO TAX 
                    COURT.

  (a) * * *

           *       *       *       *       *       *       *

  (g) Definitions.--For purposes of this section--
          (1) * * *
          (2) Mathematical or clerical error.--The term 
        ``mathematical or clerical error'' means--
                  (A) * * *

           *       *       *       *       *       *       *

                  (J) an omission of a correct [TIN required 
                under section 25A(g)(1)] TIN, and employer 
                identification number, required under section 
                25A(f)(1) (relating to higher education tuition 
                and related expenses) to be included on a 
                return,

           *       *       *       *       *       *       *

                              ----------                              

 SECTION 1004 OF THE AMERICAN RECOVERY AND REINVESTMENT TAX ACT OF 2009

SEC. 1004. AMERICAN OPPORTUNITY TAX CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Treatment of Possessions.--
          (1) Payments to possessions.--
                  (A) Mirror code possession.--The Secretary of 
                the Treasury shall pay to each possession of 
                the United States with a mirror code tax system 
                amounts equal to the loss to that possession by 
                reason of the application of [section 
                25A(i)(6)] section 25A(b) of the Internal 
                Revenue Code of 1986 (as added by this section) 
                [with respect to taxable years beginning after 
                2008 and before 2018] with respect to each 
                taxable year. Such amounts shall be determined 
                by the Secretary of the Treasury based on 
                information provided by the government of the 
                respective possession.
                  (B) Other possessions.--The Secretary of the 
                Treasury shall pay to each possession of the 
                United States which does not have a mirror code 
                tax system amounts estimated by the Secretary 
                of the Treasury as being equal to the aggregate 
                benefits that would have been provided to 
                residents of such possession by reason of the 
                application of [section 25A(i)(6)] section 
                25A(b) of such Code (as so added) [for taxable 
                years beginning after 2008 and before 2018] for 
                each taxable year if a mirror code tax system 
                had been in effect in such possession. The 
                preceding sentence shall not apply with respect 
                to any possession of the United States unless 
                such possession has a plan, which has been 
                approved by the Secretary of the Treasury, 
                under which such possession will promptly 
                distribute such payments to the residents of 
                such possession.
          (2) Coordination with credit allowed against united 
        states income taxes.--[Section 25A(i)(6)] Section 
        25A(b) of such Code (as added by this section) shall 
        not apply to a bona fide resident of any possession of 
        the United States.
          (3) Definitions and special rules.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Treatment of payments.--For purposes of 
                section 1324(b)(2) of title 31, United States 
                Code, the payments under this subsection shall 
                be treated in the same manner as a refund due 
                from the credit allowed under section 25A of 
                the Internal Revenue Code of 1986 by reason of 
                [subsection (i)(6)] subsection (b) of such 
                section (as added by this section).

           *       *       *       *       *       *       *

                         VII. DISSENTING VIEWS

    Notwithstanding that there is strong support for 
streamlining the education tax benefits, we opposed this bill 
because it takes away benefits from certain students--graduate 
students, lifetime learners, and non-traditional undergraduate 
students--to pay for educational benefits available to a 
narrower set of students--primarily, traditional undergraduate 
students who complete their degrees in four years.
    The bill will negatively impact many low-income and middle-
income students and families who benefit from the education tax 
provisions under current law. By replacing the Hope Scholarship 
Credit and repealing both the Lifetime Learning Credit (LLC) 
and the now-expired deduction for qualified tuition expenses, 
this bill will harm traditional middle-income undergraduates, 
adult learners, and low-income and middle-income graduate 
students. The bill appears to be based on outdated assumptions 
about the typical student in higher education--the student who 
enrolls in college full-time and completes a degree within four 
years. While the median time to degree for all bachelor's 
degree recipients is 4.3 years, the median time for adult 
students (between ages 24-29) is 6.6 years. Thus, the bill's 
four-year limit on benefits, in combination with the 
elimination of the LLC and tuition deduction for which part-
time students are eligible, will cost many undergraduates much 
needed financial assistance.
    The bill also provides no educational benefits to lifetime 
learners or graduate students. These learners are the primary 
beneficiaries of the LLC. Many of these learners are low-income 
and need assistance in pursuing additional skill development or 
advanced degrees that employers require.
    In addition to our substantive concerns with the bill, we 
also believe that it should not be made permanent by adding to 
the deficit without any revenue offset. In three short months, 
Republicans on the Committee have approved 14 tax bills that 
would add a stunning $825 billion to the deficit--and there 
does not appear to be an end in sight. Chairman Camp's Tax 
Reform Act of 2014 discussion draft (the ``Republican tax 
reform plan'') was revenue neutral and did not add to the 
deficit. These bills are going in the opposite direction. We 
should be considering these bills in the context of a revenue-
neutral, bipartisan tax reform plan.
    To put the combined $825 billion cost into context, it is 
1.7 times the entire projected federal deficit for this year 
and $241 billion more than what the total non-defense 
discretionary spending (e.g., medical research, education, 
veterans' pensions and health care, transportation, etc.) will 
be in 2014. It is more than nine times what we spend annually 
on education, job training, and social services. It is almost 
14 times what we appropriate for veterans' health care and 
benefits in a year, and it is 27 times more than we spend on 
medical research. It is more than we spend to pay earned Social 
Security benefits to 58 million Americans--one in four American 
families--for a year. Unoffset tax cuts amounting to $825 
billion mean $2,600 in debt for every man, woman, and child in 
the United States.
    Make no mistake, this is part of the Republicans' bigger 
plan to force cuts in spending in response to the increased 
deficit from their reckless tax cuts. Republicans already have 
cut non-defense appropriations below the level needed to keep 
up with inflation every year since 2011, putting us on a path 
to the lowest level of domestic investment (as a percent of 
GDP) since we began tracking it in 1962. By 2018, real non-
defense discretionary spending is projected to be 18 percent 
lower than it was in 2010. Americans feel those cuts every day. 
They result in overcrowded classrooms for our children, fewer 
food safety inspections, slower progress on medical research to 
fight deadly diseases, delays in highway repairs, waiting lists 
for child care, early national park closings, reduced 
investment in small businesses, and delays in awarding earned 
Medicare and Social Security benefits.
    We found it hypocritical that, six months ago, Republicans 
let emergency unemployment insurance expire for more than 1.3 
million Americans, a number that has now grown to 3 million, by 
arguing that an adequate offset had yet to be proposed. In 
early April, the Senate came to a bipartisan agreement on an 
offset after months of painstaking negotiations. Yet House 
Republicans still refuse to act.

                                                   Sander M. Levin.

                                  
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