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.

April 2, 2004

Mr. HOUGHTON introduced the following bill; which was referred to the Committee on Ways and Means

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.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

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.

END