HOPE AND LIFETIME LEARNING CREDITS.

SEC. 201. HOPE AND LIFETIME LEARNING CREDITS. (a) In General.—Subpart A of part IV of subchapter A of chapter 1 (relating to nonrefundable personal credits) is amended by inserting after section 25 the following new section: “SEC. 25A. HOPE AND LIFETIME LEARNING CREDITS. “(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 the sum of— “(1) the Hope Scholarship Credit, plus “(2) the Lifetime Learning Credit. “(b) Hope Scholarship Credit.— “(1) Per student credit.—In the case of any eligible student for whom an election is in effect under this section for any taxable year, the Hope Scholarship Credit is 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 111 STAT. 800during any academic period beginning in such taxable year) as does not exceed $1,000, plus “(B) 50 percent of such expenses so paid as exceeds $1,000 but does not exceed the applicable limit. “(2) Limitations applicable to hope scholarship credit.— “(A) Credit allowed only for 2 taxable years.—An election to have this section apply with respect to any eligible student for purposes of the Hope Scholarship Credit under subsection (a)(1) may not be made for any taxable year if such an election (by the taxpayer or any other individual) is in effect with respect to such student for any 2 prior taxable years. “(B) Credit allowed for year only if individual is at least 14 time student for portion of year.—The Hope Scholarship Credit under subsection (a)(1) shall not be allowed for a taxable year with respect to the qualified tuition and related expenses of an individual unless such individual is an eligible student for at least one academic period which begins during such year. “(C) Credit allowed only for first 2 years of postsecondary education.—The Hope Scholarship Credit under subsection (a)(1) shall not be allowed for a taxable year with respect to the qualified tuition and related expenses of an eligible student if the student has completed (before the beginning of such taxable year) the first 2 years of postsecondary education at an eligible educational institution. “(D) Denial of credit if student convicted of a felony drug offense.—The Hope Scholarship Credit under subsection (a)(1) shall not be allowed for qualified tuition and related expenses for the enrollment or attendance of a student for any academic period if such student has been convicted of a Federal or State felony offense consisting of the possession or distribution of a controlled substance before the end of the taxable year with or within which such period ends. “(3) Eligible student.—For purposes of this subsection, 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 14 the normal full-time work load for the course of study the student is pursuing. “(4) Applicable limit.—For purposes of paragraph (1)(B), the applicable limit for any taxable year is an amount equal to 2 times the dollar amount in effect under paragraph (1)(A) for such taxable year. “(c) Lifetime Learning Credit.— “(1) Per taxpayer credit.—The Lifetime Learning Credit for any taxpayer for any taxable year is an amount equal to 20 percent of so much of the qualified tuition and related expenses paid by the taxpayer during the taxable year (for education furnished during any academic period beginning in 111 STAT. 801such taxable year) as does not exceed $10,000 ($5,000 in the case of taxable years beginning before January 1, 2003). “(2) Special rules for determining expenses.— “(A) Coordination with hope scholarship.—The qualified tuition and related expenses with respect to an individual who is an eligible student for whom a Hope Scholarship Credit under subsection (a)(1) is allowed for the taxable year shall not be taken into account under this subsection. “(B) Expenses eligible for lifetime learning credit.—For purposes of paragraph (1), qualified tuition and related expenses shall include expenses described in subsection (f)(1) with respect to any course of instruction at an eligible educational institution to acquire or improve job skills of the individual. “(d) Limitation Based on Modified Adjusted Gross Income.— “(1) In general.—The amount which would (but for this subsection) be taken into account under subsection (a) for the taxable year shall be reduced (but not below zero) by the amount determined under paragraph (2). “(2) Amount of reduction.—The amount determined under this paragraph is the amount which bears the same ratio to the amount which would be so taken into account as— “(A) the excess of— “(i) the taxpayer’s modified adjusted gross income for such taxable year, over “(ii) $40,000 ($80,000 in the case of a joint return), bears to “(B) $10,000 ($20,000 in the case of a joint return). “(3) Modified adjusted gross income.—The term ‘modified adjusted gross income’ means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933. “(e) Election To Have Section Apply.— “(1) In general.—No credit shall be allowed under subsection (a) for a taxable year with respect to the qualified tuition and related expenses of an individual unless the taxpayer elects to have this section apply with respect to such individual for such year. “(2) Coordination with exclusions.—An election under this subsection shall not take effect with respect to an individual for any taxable year if any portion or any distribution during such taxable year from an education individual retirement account is excluded from gross income under section 530(d)(2). “(f) Definitions.—For purposes of this section— “(1) Qualified tuition and related expenses.— “(A) In general.—The term ‘qualified tuition and related expenses’ means tuition and fees required for the enrollment or attendance of— “(i) the taxpayer, “(ii) the taxpayer’s spouse, or “(iii) any dependent of the taxpayer with respect to whom the taxpayer is allowed a deduction under section 151, 111 STAT. 802at an eligible educational institution for courses of instruction of such individual at such institution. “(B) 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. “(C) 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. “(2) 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 (20 U.S.C. 1088), as in effect on the date of the enactment of this section, and “(B) which is eligible to participate in a program under title IV of such Act. “(g) Special Rules.— “(1) Identification requirement.—No credit shall be allowed under subsection (a) to a taxpayer with respect to the qualified tuition and related expenses of an individual unless the taxpayer includes the name and taxpayer identification number of such individual on the return of tax for the taxable year. “(2) Adjustment for certain scholarships, etc.—The amount of qualified tuition and related expenses otherwise taken into account under subsection (a) with respect to an individual for an academic period shall be reduced (before the application of subsections (b), (c), and (d)) by the sum of any amounts paid for the benefit of such individual which are allocable to such period as— “(A) a qualified scholarship which is excludable from gross income under section 117, “(B) an educational assistance allowance 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 “(C) a payment (other than a gift, bequest, devise, or inheritance within the meaning of section 102(a)) for such individual’s educational expenses, or attributable to such individual’s enrollment at an eligible educational institution, which is excludable from gross income under any law of the United States. “(3) Treatment of expenses paid by dependent.—If a deduction under section 151 with respect to an individual is allowed to another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins— “(A) no credit shall be allowed under subsection (a) 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. “(4) Treatment of certain prepayments.—If qualified tuition and related expenses are paid by the taxpayer during a taxable year for an academic period which begins during 111 STAT. 803the 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 individual 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. “(h) Inflation Adjustments.— “(1) Dollar limitation on amount of credit.— “(A) In general.—In the case of a taxable year beginning after 2001, each of the $1,000 amounts under subsection (b)(1) shall be increased by an amount equal to— “(i) such dollar amount, multiplied by “(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting ‘calendar year 2000’ for ‘calendar year 1992’ in subparagraph (B) thereof. “(B) Rounding.—If any amount as adjusted under subparagraph (A) is not a multiple of $100, such amount shall be rounded to the next lowest multiple of $100. “(2) Income limits.— “(A) In general.—In the case of a taxable year beginning after 2001, the $40,000 and $80,000 amounts in subsection (d)(2) shall each be increased by an amount equal to— “(i) such dollar amount, multiplied by “(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting ‘calendar year 2000’ for ‘calendar year 1992’ in subparagraph (B) thereof. “(B) Rounding.—If any amount as adjusted under subparagraph (A) is not a multiple of $1,000, such amount shall be rounded to the next lowest multiple of $1,000. “(i) 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 determining the amount of such credit.”. (b) Extension of Procedures Applicable to Mathematical or Clerical Errors.—Paragraph (2) of section 6213(g) (relating to the definition of mathematical or clerical errors), as amended by section 101, is amended by striking “and” at the end of subparagraph (H), by striking the period at the end of subparagraph (I) 111 STAT. 804and inserting “, and”, and by inserting after subparagraph (I) the following new subparagraph: “(J) an omission of a correct TIN required under section 25A(g)(1) (relating to higher education tuition and related expenses) to be included on a return.”. (c) Returns Relating to Tuition and Related Expenses.— (1) In general.—Subpart B of part III of subchapter A of chapter 61 (relating to information concerning transactions with other persons) is amended by inserting after section 6050R the following new section: “SEC. 6050S. RETURNS RELATING TO HIGHER EDUCATION TUITION AND RELATED EXPENSES. “(a) In General.—Any person— “(1) which is an eligible educational institution which receives payments for qualified tuition and related expenses with respect to any individual for any calendar year, or “(2) which is engaged in a trade or business and which, in the course of such trade or business, makes payments during any calendar year to any individual which constitute reimbursements or refunds (or similar amounts) of qualified tuition and related expenses of such individual, shall make the return described in subsection (b) with respect to the individual at such time as the Secretary may by regulations prescribe. “(b) Form and Manner of Returns.—A return is described in this subsection if such return— “(1) is in such form as the Secretary may prescribe, “(2) contains— “(A) the name, address, and TIN of the individual with respect to whom payments described in subsection (a) were received from (or were paid to), “(B) the name, address, and TIN of any individual certified by the individual described in subparagraph (A) as the taxpayer who will claim the individual as a dependent for purposes of the deduction allowable under section 151 for any taxable year ending with or within the calendar year, and “(C) the— “(i) aggregate amount of payments for qualified tuition and related expenses received with respect to the individual described in subparagraph (A) during the calendar year, and “(ii) aggregate amount of reimbursements or refunds (or similar amounts) paid to such individual during the calendar year, and “(D) such other information as the Secretary may prescribe. “(c) Application to Governmental Units.—For purposes of this section— “(1) a governmental unit or any agency or instrumentality thereof shall be treated as a person, and “(2) any return required under subsection (a) by such governmental entity shall be made by the officer or employee appropriately designated for the purpose of making such return. “(d) Statements To Be Furnished to Individuals With Respect to Whom Information Is Required.—Every person 111 STAT. 805required to make a return under subsection (a) shall furnish to each individual whose name is required to be set forth in such return under subparagraph (A) or (B) of subsection (b)(2) a written statement showing— “(1) the name, address, and phone number of the information contact of the person required to make such return, and “(2) the aggregate amounts described in subparagraph (C) of subsection (d)(2). The written statement required under the preceding sentence shall be furnished on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made. “(e) Definitions.—For purposes of this section, the terms ‘eligible educational institution’ and ‘qualified tuition and related expenses’ have the meanings given such terms by section 25A. “(f) Returns Which Would Be Required To Be Made by 2 or More Persons.—Except to the extent provided in regulations prescribed by the Secretary, in the case of any amount received by any person on behalf of another person, only the person first receiving such amount shall be required to make the return under subsection (a). “(g) Regulations.—The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this section. No penalties shall be imposed under part II of subchapter B of chapter 68 with respect to any return or statement required under this section until such time as such regulations are issued.”. (2) Assessable penalties.— (A) Subparagraph (B) of section 6724(d)(1) (relating to definitions) is amended by redesignating clauses (ix) through (xiv) as clauses (x) through (xv), respectively, and by inserting after clause (viii) the following new clause: “(ix) section 6050S (relating to returns relating to payments for qualified tuition and related expenses),”. (B) Paragraph (2) of section 6724(d) is amended by striking “or” at the end of the next to last subparagraph, by striking the period at the end of the last subparagraph and inserting “, or”, and by adding at the end the following new subparagraph: “(Z) section 6050S(d) (relating to returns relating to qualified tuition and related expenses).”. (3) Clerical amendment.—The table of sections for subpart B of part III of subchapter A of chapter 61 is amended by inserting after the item relating to section 6050R the following new item: “Sec. 6050S. Returns relating to higher education tuition and related expenses.”. (d) Coordination With Section 135.—Subsection (d) of section 135 is amended by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), respectively, and by inserting after paragraph (1) the following new paragraph: “(2) Coordination with higher education credit.—The amount of the qualified higher education expenses otherwise taken into account under subsection (a) with respect to the education of an individual shall be reduced (before the application of subsection (b)) by the amount of such expenses which are taken into account in determining the credit allowable 111 STAT. 806to the taxpayer or any other person under section 25A with respect to such expenses.”. (e) Clerical Amendment.—The table of sections for subpart A of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 25 the following new item: “Sec. 25A. Higher education tuition and related expenses.”. (f) Effective Dates.— (1) In general.—The amendments made by this section shall apply to expenses paid after December 31, 1997 (in taxable years ending after such date), for education furnished in academic periods beginning after such date. (2) Lifetime learning credit.—Section 25A(a)(2) of the Internal Revenue Code of 1986 shall apply to expenses paid after June 30, 1998 (in taxable years ending after such date), for education furnished in academic periods beginning after such dates.