tivity fees, athletic fees, insurance expenses, or 
other expenses unrelated to an individual’s aca-
demic 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, as in effect 
on August 5, 1997, and 
‘‘(B) which is eligible to participate in a 
program under title IV of such Act. 
‘‘(f) OTHER LIMITATIONS AND SPECIAL RULES.— 
For purposes of this section: 
‘‘(1) 
IDENTIFICATION
REQUIREMENT.—No 
credit shall be allowed under this section to a tax-
payer with respect to the qualified tuition and re-
lated expenses of an individual unless the taxpayer 
includes the name and taxpayer identification num-
ber of such individual on the return of tax for the 
taxable year. 
‘‘(2) ADJUSTMENT
FOR
CERTAIN
SCHOLAR-
SHIPS, ETC.— 
‘‘(A) IN GENERAL.—The amount of quali-
fied tuition and related expenses otherwise 
taken into account under this section with re-
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spect to an individual for an academic period 
shall be reduced (before the application of sub-
sections (a) and (c)) by the sum of any 
amounts paid for the benefit of such individual 
which are allocable to such period as— 
‘‘(i) a qualified scholarship which is 
excludable from gross income under section 
117, 
‘‘(ii) an educational assistance allow-
ance 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 indi-
vidual’s educational expenses, or attrib-
utable to such individual’s enrollment at an 
eligible educational institution, which is ex-
cludable from gross income under any law 
of the United States. 
‘‘(B) COORDINATION WITH PELL GRANTS 
NOT USED FOR QUALIFIED TUITION AND RE-
LATED
EXPENSES.—Any amount determined 
with respect to an individual under subpara-
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graph (A) which is attributable to a Federal 
Pell Grant under section 401 of the Higher 
Education Act of 1965 shall be reduced (but 
not below zero) by the amount of the expenses 
(other than qualified tuition and related ex-
penses) which are taken into account in deter-
mining 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 subparagraph) 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 DE-
PENDENT.—If a deduction under section 151 with 
respect to an individual is allowed to another tax-
payer for a taxable year beginning in the calendar 
year in which such individual’s taxable year begins— 
‘‘(A) no credit shall be allowed under this 
section to such individual for such individual’s 
taxable year, and 
‘‘(B) qualified tuition and related expenses 
paid by such individual during such individual’s 
taxable year shall be treated for purposes of 
this section as paid by such other taxpayer. 
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‘‘(4) 
TREATMENT
OF
CERTAIN
PREPAY-
MENTS.—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 in-
dividual 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) PORTION OF CREDIT REFUNDABLE.— 
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‘‘(1) IN GENERAL.—80 percent of the amount 
which would (but for this subsection and section 26) 
be allowed as a credit allowed under this section for 
the taxable year shall be treated as a credit allow-
able under subpart C (and not allowed under this 
section). The preceding sentence shall not apply to 
any taxpayer for any taxable year if such taxpayer 
is a child to whom subsection (g) of section 1 applies 
for such taxable year. 
‘‘(2) MAXIMUM
AMOUNT
REFUNDABLE.—The 
amount treated by paragraph (1) as a credit allow-
able under subpart C for any taxable year shall not 
exceed $1,500. 
‘‘(h) INFLATION ADJUSTMENTS.— 
‘‘(1) IN GENERAL.—In the case of taxable years 
beginning after 2014, the $2,500 and $3,000 
amounts in subsection (a), the $10,000 amount in 
subsection (b), the $80,000 amount in subsection 
(c)(2)(A)(ii), and the $1,500 in subsection (g)(2) 
shall each be increased by an amount equal to— 
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar 
year in which the taxable year begins, deter-
mined by substituting ‘calendar year 2013’ for 
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‘calendar year 1992’ in subparagraph (B) 
thereof. 
‘‘(2) ROUNDING.— 
‘‘(A) IN GENERAL.—If the $1,500, $2,500, 
$3,000, or $10,000 amount as adjusted under 
paragraph (1) is not a multiple of $100, such 
amount shall be rounded to the next lowest 
multiple of $100. 
‘‘(B) $80,000 AMOUNT.—If the $80,000 
amount as adjusted under paragraph (1) is not 
a multiple of $1,000, such amount shall be 
rounded to the next lowest multiple of $1,000. 
‘‘(i) ELECTION NOT TO HAVE SECTION APPLY.—A 
taxpayer may elect not to have this section apply with re-
spect to the qualified tuition and related expenses of an 
individual for any 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 deter-
mining the amount of such credit. 
‘‘(k) PILOT PROGRAM TO MAKE PERIODIC PAY-
MENTS AS COLLEGE EXPENSES INCURRED.— 
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‘‘(1) IN
GENERAL.—The Secretary of the 
Treasury and the Secretary of Education shall joint-
ly establish a program designed to make payments 
periodically to or on behalf of an eligible student as 
the student incurs qualified expenses during the tax-
able year. The total amount that may be so paid to 
or on behalf of an eligible student through this pro-
gram shall not exceed the credit which would (but 
for paragraph (2)) be allowable under this section if 
subsection (c) were applied by using the taxpayer’s 
modified adjusted gross income for the preceding 
taxable year. 
‘‘(2) CREDIT
REDUCED
BY
PILOT
PROGRAM 
PAYMENTS.—The credit allowable under this section 
(without regard to this paragraph) for any taxable 
year shall be reduced (but not below zero) by the 
payments made with respect to a student under 
paragraph (1) for expenses which would otherwise be 
taken into account in determining the credit under 
this section for such year. 
‘‘(3) PROGRAM
PARTICIPATION.—Participation 
in the program established under this subsection 
shall be voluntary with respect to both students and 
educational institutions; except that, institutions 
which are taxable under this chapter (other than by 
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reason of section 511) may not participate in such 
program. 
‘‘(4) PROGRAM PERIOD.—The program estab-
lished under this subsection shall apply to expenses 
for academic periods beginning during the 5-year pe-
riod which begins on the date which is 1 year after 
the date of the enactment of this subsection. 
‘‘(5) PAYMENTS NOT TREATED AS RESOURCES 
FOR
FINANCIAL
AID.—Payments made under this 
subsection shall not be treated as resources for pur-
poses of determining the amount of any financial aid 
which is funded in whole or part with Federal funds. 
Payments under the program shall not be made in 
a manner that would reduce the State, private, or 
institutional aid available to an eligible student. 
‘‘(6) NOTICE OF PROGRAM.—Educational insti-
tutions participating in the program established 
under this subsection shall provide appropriate no-
tices to parents and students of the option of pay-
ments under such program. Such notices shall not 
be considered tax advice for purposes of any Federal 
law or regulation. 
‘‘(7) REPORTING.—The Secretary of the Treas-
ury and the Secretary of Education shall jointly sub-
mit annual reports to Congress on the program es-
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tablished under this subsection, together with any 
recommendations with respect to such program.’’. 
(b) CLERICAL AMENDMENT.—The item relating to 
section 25A in the table of sections for subpart A of part 
IV of subchapter A of chapter 1 of such Code is amended 
to read as follows: 
‘‘Sec. 25A. American Opportunity Tax Credit.’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Subparagraph (B) of section 72(t)(7) of 
such Code is amended by striking ‘‘25A(g)(2)’’ and 
inserting ‘‘25A(f)(2)’’. 
(2) Paragraph (2) of section 221(d) of such 
Code is amended— 
(A) by striking ‘‘25A(g)(2)’’ in subpara-
graph (B) and inserting ‘‘25A(f)(2)’’, and 
(B) by striking ‘‘25A(f)(2)’’ and inserting 
‘‘25A(e)(3)’’. 
(3) Paragraph (3) of section 221(d) of such 
Code is amended by striking ‘‘25A(b)(3)’’ and in-
serting ‘‘25A(e)(1)’’. 
(4) Paragraph (1) of section 222(d) of such 
Code is amended— 
(A) by striking ‘‘25A(f)’’ and inserting 
‘‘25A(e)(2)’’, and 
(B) by striking ‘‘25A(g)(2)’’ and inserting 
‘‘25A(f)(2)’’. 
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(5) Clause (v) of section 529(c)(3)(B) of such 
Code is amended— 
(A) by striking ‘‘25A(g)(2)’’ in subclause 
(I) and inserting ‘‘25A(f)(2)’’, and 
(B) by striking ‘‘HOPE
AND
LIFETIME 
LEARNING CREDITS’’ in the heading and insert-
ing ‘‘AMERICAN OPPORTUNITY TAX CREDIT’’. 
(6) Clause (i) of section 529(e)(3)(B) of such 
Code is amended by striking ‘‘25A(b)(3)’’ and in-
serting ‘‘25A(e)(1)’’. 
(7) Subparagraph (C) of section 530(d)(2) of 
such Code is amended— 
(A) by striking ‘‘25A(g)(2)’’ in clause (i)(I) 
and inserting ‘‘25A(f)(2)’’, and 
(B) by striking ‘‘HOPE
AND
LIFETIME 
LEARNING CREDITS’’ in the heading and insert-
ing ‘‘AMERICAN OPPORTUNITY TAX CREDIT’’. 
(8) Clause (iii) of section 530(d)(4)(B) of such 
Code is amended by striking ‘‘25A(g)(2)’’ and in-
serting ‘‘25A(f)(2)’’. 
(9) Section 1400O of such Code is amended— 
(A) by striking ‘‘25A(f)(2)’’ and inserting 
‘‘25A(e)(3)’’, 
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(B) by inserting ‘‘(as in effect on the date 
of the enactment of this section)’’ after 
‘‘25A(b)(1)’’ in paragraph (2), and 
(C) by inserting ‘‘(as in effect on the date 
of the enactment of this section)’’ after 
‘‘25A(c)(1)’’ in paragraph (3). 
(10) Subsection (e) of section 6050S of such 
Code is amended by striking ‘‘subsection (g)(2)’’ and 
inserting ‘‘subsection (f)(2)’’. 
(11) Subparagraph (A) of section 6211(b)(4) of 
such Code is amended by striking ‘‘subsection 
(i)(6)’’ and inserting ‘‘subsection (g)’’. 
(12) Subparagraph (J) of section 6213(g)(2) of 
such Code is amended by striking ‘‘25A(g)(1)’’ and 
inserting ‘‘25A(f)(1)’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2013. 
SEC. 3. EXPANSION OF PELL GRANT EXCLUSION FROM 
GROSS INCOME. 
(a) IN GENERAL.—Paragraph (1) of section 117(b) 
of the Internal Revenue Code of 1986 is amended by strik-
ing ‘‘received by an individual’’ and all that follows and 
inserting ‘‘received by an individual— 
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