AMERICAN OPPORTUNITY TAX CREDIT.

SEC. 1004. AMERICAN OPPORTUNITY TAX CREDIT.(a) In General.—Section 25A (relating to Hope scholarship credit) is amended by redesignating subsection (i) as subsection (j) and by inserting after subsection (h) the following new subsection:“(i) American Opportunity Tax Credit.—In the case of any taxable year beginning in 2009 or 2010—“(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) Credit allowed against alternative minimum tax.—In the case of a taxable year to which section 26(a)(2) does not apply, so much of the credit allowed under subsection (a) as is attributable to the Hope Scholarship Credit shall not exceed the excess of—“(A) the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over“(B) the sum of the credits allowable under this subpart (other than this subsection and sections 23, 25D, and 30D) and section 27 for the taxable year.123 STAT. 314Any reference in this section or section 24, 25, 26, 25B, 904, or 1400C to a credit allowable under this subsection shall be treated as a reference to so much of the credit allowable under subsection (a) as is attributable to the Hope Scholarship Credit.“(6) 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)(2) or paragraph (5), as the case may be) 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.“(7) 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.”.(b) Conforming Amendments.—(1) Section 24(b)(3)(B) is amended by inserting “25A(i),” after “23,”.(2) Section 25(e)(1)(C)(ii) is amended by inserting “25A(i),” after “24,”.(3) Section 26(a)(1) is amended by inserting “25A(i),” after “24,”.(4) Section 25B(g)(2) is amended by inserting “25A(i),” after “23,”.(5) Section 904(i) is amended by inserting “25A(i),” after “24,”.(6) Section 1400C(d)(2) is amended by inserting “25A(i),” after “24,”.(7) Section 6211(b)(4)(A) is amended by inserting “25A by reason of subsection (i)(6) thereof,” after “24(d),”.(8) Section 1324(b)(2) of title 31, United States Code, is amended by inserting “25A,” before “35”.(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) of the Internal Revenue Code of 1986 (as added by this section) with respect to taxable years beginning in 2009 and 2010. 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) of such Code (as so added) for taxable years beginning in 2009 and 2010 if a mirror code tax 123 STAT. 315 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) 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) Possession of the united states.—For purposes of this subsection, the term “possession of the United States” includes the Commonwealth of Puerto Rico and the Commonwealth of the Northern Mariana Islands.(B) Mirror code tax system.—For purposes of this subsection, the term “mirror code tax system” means, with respect to any possession of the United States, the income tax system of such possession if the income tax liability of the residents of such possession under such system is determined by reference to the income tax laws of the United States as if such possession were the United States.(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) of such section (as added by this section).(d) Effective Date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2008.(e) Application of EGTRRA Sunset.—The amendment made by subsection (b)(1) shall be subject to title IX of the Economic Growth and Tax Relief Reconciliation Act of 2001 in the same manner as the provision of such Act to which such amendment relates.(f) Treasury Studies Regarding Education Incentives.—(1) Study regarding coordination with non-tax student financial assistance.—The Secretary of the Treasury and the Secretary of Education, or their delegates, shall—(A) study how to coordinate the credit allowed under section 25A of the Internal Revenue Code of 1986 with the Federal Pell Grant program under section 401 of the Higher Education Act of 1965 to maximize their effectiveness at promoting college affordability, and(B) examine ways to expedite the delivery of the tax credit.(2) Study regarding inclusion of community service requirements.—The Secretary of the Treasury and the Secretary of Education, or their delegates, shall study the feasibility of requiring including community service as a condition of taking their tuition and related expenses into account under section 25A of the Internal Revenue Code of 1986.(3) Report.—Not later than 1 year after the date of the enactment of this Act, the Secretary of the Treasury, or the Secretary’s delegate, shall report to Congress on the results of the studies conducted under this paragraph.123 STAT. 316