SECTION 1. MASTER TEACHER EXCLUSION.

    (a) Master Teacher Exclusion.--Part III of subchapter B of chapter 
1 of the Internal Revenue Code of 1986 is amended by inserting after 
section 139A the following new section:

``SEC. 139B. CERTAIN WAGES OF CERTIFIED MASTER TEACHERS.

    ``(a) 25 Percent Exclusion.--Gross income does not include 25 
percent of wages earned by a certified master teacher in remuneration 
for employment at a qualified school in need of improvement or a Head 
Start program assisted under the Head Start Act (42 U.S.C. 9831 et 
seq.).
    ``(b) Certified Master Teacher.--For purposes of this section--
            ``(1) In general.--The term `certified master teacher' 
        means any eligible teacher who is certified by a State as being 
        eligible for the exclusion from gross income provided under 
        subsection (a) with respect to wages earned during a 4-year 
        certification period. A teacher shall not be treated as a 
        certified master teacher except during the certification 
        period.
            ``(2) Recertification prohibited.--A teacher shall not be 
        certified as a certified master teacher for more than one 
        certification period.
            ``(3) State limitation on number of certified master 
        teachers.--A State may not certify any teacher if such 
        certification would result (at the time of such certification) 
        in more than 10 percent of the State's public school teachers 
        being certified master teachers.
    ``(c) Qualified School in Need of Improvement.--For purposes of 
this section, the term `qualified school in need of improvement' means, 
with respect to any certified master teacher--
            ``(1) the school in need of improvement which first employs 
        such teacher during the certification period,
            ``(2) any school in need of improvement which subsequently 
        employs such teacher, but only if each school in need of 
        improvement which previously employed such teacher during the 
        certification period has ceased to be a school in need of 
        improvement, and
            ``(3) any school described in paragraph (1) or (2) which 
        ceases to be a school in need of improvement, but only if such 
        teacher was employed by such school (during such teacher's 
        certification period) at the time that such school ceased to be 
        a school in need of improvement.
    ``(d) School in Need of Improvement.--For purposes of this section, 
the term `school in need of improvement' means a public elementary or 
secondary school that--
            ``(1) is identified for school improvement, corrective 
        action, or restructuring under section 1116 of the Elementary 
        and Secondary Education Act of 1965 (20 U.S.C. 6316), and
            ``(2) is eligible for a schoolwide program under section 
        1114 of the Elementary and Secondary Education Act of 1965 (20 
        U.S.C. 6314).
    ``(e) Eligible Teacher.--For purposes of this section, the term 
`eligible teacher' means a teacher who--
            ``(1) has had at least 5 years of teaching experience in a 
        public elementary or secondary school,
            ``(2) is highly qualified, as defined in section 9101 of 
        the Elementary and Secondary Education Act of 1965 (20 U.S.C. 
        7801),
            ``(3) has a master's degree, and
            ``(4) has earned--
                    ``(A) advanced certification in the teacher's State 
                licensing system, or
                    ``(B) in the case of a teacher in a State that does 
                not offer advanced certification, certification from 
                the National Board for Professional Teaching Standards.
    ``(f) Certification Period.--For purposes of this section, the term 
`certification period' means, with respect to any certified master 
teacher, the 4-year period described in subsection (b).
    ``(g) State Identification Required on Return.--With respect to any 
certified master teacher, no exclusion shall be allowed under 
subsection (a) for any taxable year unless the certified master teacher 
includes the State in which the teacher has been certified on the 
certified master teacher's return of tax for such taxable year.
    ``(h) Termination.--This section shall not apply to any taxable 
year beginning after December 31, 2013.''.
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 of the Internal Revenue Code of 1986 is 
amended by inserting after the item relating to section 139A the 
following new item:

``Sec. 139B. Certain wages of certified master teachers''.
    (c) Report to Congress.--The Secretary of the Treasury shall 
transmit to the Congress for each of calendar years 2007 through 2013 
an annual report stating, with respect to each State, the number of 
individuals certified by such State as certified master teachers who 
were allowed an exclusion from gross income under section 139B of the 
Internal Revenue Code of 1986 for a taxable year ending in such 
calendar year.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.
Output: Amends the Internal Revenue Code to exclude from gross income up to 25 percent of the wages earned by a certified master teacher in certain schools identified as in need of improvement or in a Head Start program. Defines "certified master teacher" as a teacher who: (1) has at least five years teaching experience in a public elementary or secondary school; (2) is highly qualified as defined by the Elementary and Secondary Education Act of 1965; (3) has a master's degree; and (4) has advanced certification in the applicable State licensing system. Terminates such exclusion after 2013.