To amend the Internal Revenue Code of 1986 to combine the Hope and Lifetime Learning credits and to provide a uniform definition of qualifying higher education expenses.

SECTION 1. SHORT TITLE.

    This Act may be cited as ``Education Tax Credit Simplification Act 
of 2004''.

SEC. 2. HOPE AND LIFETIME LEARNING CREDITS COMBINED.

    (a) In General.--So much of section 25A of the Internal Revenue 
Code of 1986 (relating to Hope and Lifetime Learning Credits) as 
precedes subsection (d) is amended to read as follows:

``SEC. 25A. EDUCATION CREDIT.

    ``(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 50 percent of so much of the 
qualified expenses paid by the taxpayer during the taxable year (for 
education furnished to an individual during any academic period 
beginning in such taxable year) as does not exceed $3,000 for such 
taxable year with respect to such individual.
    ``(b) Qualified Expenses.--For purposes of subsection (a), the term 
`qualified expenses' means the sum of--
            ``(1) qualified higher education expenses, and
            ``(2) the expenses described in subsection (d)(1) with 
        respect to any course of instruction at an eligible educational 
        institution to acquire or improve job skills of the 
        individual.''.
    (b) Conforming Amendments to Credit.--
            (1) Section 25A of such Code is amended--
                    (A) by striking subsection (h), and
                    (B) by redesignating subsections (d), (e), (f), 
                (g), and (i) as subsections (c), (d), (e), (f), and 
                (g), respectively.
            (2) Subsection (f)(2) of section 25A of such Code, as so 
        redesignated, is amended by striking ``(before the application 
        of subsections (b), (c), and (d))''.
    (c) Other Conforming and Clerical Amendments.--
            (1) The following provisions of such Code are each amended 
        by striking ``section 25A(g)(2)'' and inserting ``section 
        25A(f)(2)'':
                    (A) Section 72(t)(7)(B).
                    (B) Section 221(d)(2)(B).
                    (C) Section 222(d)(1) (as amended by section 132 of 
                this Act).
                    (D) Section 529(c)(3)(B)(v)(I).
                    (E) Section 530(b)(2)(A).
                    (F) Section 530(d)(2)(C)(i)(I).
                    (G) Section 530(d)(4)(B)(iii).
            (2) Section 221(d) of such Code is amended--
                    (A) in paragraph (2) by striking ``section 
                25A(f)(2)'' and inserting ``section 25A(e)(2)'', and
                    (B) by amending paragraph (3) to read as follows:
            ``(3) 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 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.''.
            (3) Section 529(e)(3)(B)(i) of such Code is amended by 
        striking ``section 25A(b)(3)'' and inserting ``section 
        221(d)(3)''.
            (4) The heading of section 529(c)(3)(B)(v) of such Code is 
        amended to read as follows: ``Coordination with education 
        credit.--''.
            (5) The heading of section 530(d)(2)(C) of such Code is 
        amended to read as follows: ``Coordination with education 
        credit and qualified tuition programs.--''.
            (6) Section 6050S(e) of such Code is amended by striking 
        ``subsection (g)(2)'' and inserting ``subsection (f)(2)''.
            (7) Section 6213(g)(2)(J) of such Code is amended by 
        striking ``section 25A(g)(1)'' and inserting ``section 
        25A(f)(1)''.
            (8) 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. Education Credit.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 3. UNIFORM DEFINITION OF QUALIFYING HIGHER EDUCATION EXPENSES.

    (a) In General.--Paragraph (3) of section 529(e) of such Code 
(relating to other definitions and special rules) is amended to read as 
follows:
            ``(3) Qualified higher education expenses.--
                    ``(A) In general.--The term `qualified higher 
                education expenses' means--
                            ``(i) tuition, fees, books, supplies, and 
                        equipment required for the enrollment or 
                        attendance of a designated beneficiary at an 
                        eligible educational institution; and
                            ``(ii) expenses for special needs services 
                        in the case of a special needs beneficiary 
                        which are incurred in connection with such 
                        enrollment or attendance.
                    ``(B) Room and board included for students who are 
                at least half-time.--
                            ``(i) In general.--In the case of an 
                        individual who is an eligible student for any 
                        academic period, such term shall also include 
                        reasonable costs for such period (as determined 
                        under the qualified tuition program) incurred 
                        by the designated beneficiary for room and 
                        board while attending such institution. For 
                        purposes of subsection (b)(7), a designated 
                        beneficiary shall be treated as meeting the 
                        requirements of this clause.
                            ``(ii) Limitation.--The amount treated as 
                        qualified higher education expenses by reason 
                        of clause (i) shall not exceed--
                                    ``(I) the allowance (applicable to 
                                the student) for room and board 
                                included in the cost of attendance (as 
                                defined in section 472 of the Higher 
                                Education Act of 1965 (20 U.S.C. 
                                1087ll), as in effect on the date of 
                                the enactment of the Economic Growth 
                                and Tax Relief Reconciliation Act of 
                                2001) as determined by the eligible 
                                educational institution for such 
                                period, or
                                    ``(II) if greater, the actual 
                                invoice amount the student residing in 
                                housing owned or operated by the 
                                eligible educational institution is 
                                charged by such institution for room 
                                and board costs for such period.
                            ``(iii) Eligible student.--For purposes of 
                        this subparagraph, the term `eligible student' 
                        means, with respect to any academic period, a 
                        student who--
                                    ``(I) 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
                                    ``(II) is carrying at least \1/2\ 
                                the normal full-time work load for the 
                                course of study the student is 
                                pursuing.
                    ``(C) Exceptions.--
                            ``(i) 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.
                            ``(ii) 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.''.
    (b) Conforming Amendments.--
            (1) Section 25A and 6050S of such Code are each amended by 
        striking ``qualified tuition and related expenses'' each place 
        it appears and inserting ``qualified higher education 
        expenses''.
            (2) Section 25A(e)(1) of such Code (as amended by this Act) 
        is amended to read as follows:
            ``(1) Qualified higher education expenses.--The term 
        `qualified higher education expenses' means the qualified 
        higher education expenses (as defined by section 529(e)(3) 
        without regard to subparagraph (B) thereof) required for the 
        enrollment or attendance of--
                    ``(A) the taxpayer,
                    ``(B) the taxpayer's spouse, or
                    ``(C) 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.''.
            (3) Section 135(c)(2) of such Code is amended--
                    (A) by striking ``tuition and fees'' and inserting 
                ``the qualified higher education expenses (as defined 
                by section 529(e)(3) without regard to subparagraph (B) 
                thereof)'', and
                    (B) by striking subparagraph (B) and redesignating 
                subparagraph (C) as subparagraph (B).
            (4) Section 221(d)(2) of such Code is amended by striking 
        ``the cost of attendance (as defined in section 472 of the 
        Higher Education Act of 1965, 20 U.S.C. 1087ll, as in effect on 
        the day before the date of the enactment of this Act)'' and 
        inserting ``the qualified higher education expenses (as defined 
        by section 529(e)(3) without regard to subparagraph (B) 
        thereof) incurred for attendance''.
            (5)(A) Section 222 of such Code is amended by striking 
        ``qualified tuition and related expenses'' each place it 
        appears and inserting ``qualified higher education expenses''.
            (B) Section 222(d)(1) of such Code is amended to read as 
        follows:
            ``(1) Qualified higher education expenses.--The term 
        `qualified higher education expenses' has the meaning given 
        such term by section 529(e)(3) (without regard to subparagraph 
        (B) thereof). Such expenses shall be reduced in the same manner 
        as under section 25A(f)(2).''.
            (C) Section 222(d) of such Code is amended by redesignating 
        paragraph (6) as paragraph (7) and by inserting after paragraph 
        (5) the following new paragraph:
            ``(6) Room and board included for students who are full-
        time.--No amount shall be taken into account under this section 
        for an expense described in section 529(e)(3)(B) (relating to 
        room and board included for students who are at least half-
        time) unless such individual is an eligible student (as defined 
        in section 25A(b)(3), determined by substituting `the normal 
        full-time work load' in lieu of `\1/2\ the normal full-time 
        work load' in subparagraph (B) thereof.''.
            (D) The heading for section 222 of such Code is amended by 
        striking ``TUITION AND RELATED'' and inserting ``HIGHER 
        EDUCATION''.
            (E) The table of sections for part VII of subchapter B of 
        chapter 1 of such Code is amended by amending the item relating 
        to section 222 to read as follows:

``Sec. 222. Qualified higher education expenses.''.
            (6)(A) Section 6724(d) of such Code is amended--
                    (i) in paragraph (1)(B)(x) by striking ``qualified 
                tuition and related expenses'' and inserting 
                ``qualified higher education expenses'', and
                    (ii) in paragraph (2)(Z) by striking ``qualified 
                tuition and related expenses'' and inserting 
                ``qualified higher education expenses''.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid in taxable years beginning after December 31, 
2003, for education furnished in periods beginning after such date.

Summary: Education Tax Credit Simplification Act of 2004 - Amends the Internal Revenue Code to revise the Hope and Lifetime Learning Tax Credits. Combines both credits into an Education Credit that allows certain students a tax credit of 50 percent of their qualified higher education expenses and educational expenses to acquire or improve job skills, up to $3,000 per year. Eliminates the annual cost of living adjustments to the allowable credit amount.