PUBLIC LAW 107-16—JUNE 7, 2001 115 STAT. 61 striking "qualified State tuition" each place it appears and inserting "qualified tuition". (B) The headings for sections 72(e)(9) and 135(c)(2)(C) 26 USC 72,135. are amended by striking "QUALIFIED STATE TUITION" each place it appears and inserting "QUALIFIED TUITION". (C) The headings for sections 529(b) and 530(b)(2)(B) are amended by striking "QUALIFIED STATE TUITION" each place it appears and inserting "QUALIFIED TUITION". (D) The heading for section 529 is amended by striking "STATE". (E) The item relating to section 529 in the table of sections for part VIII of subchapter F of chapter 1 is amended by striking "State". (b) EXCLUSION FROM GROSS INCOME OF EDUCATION DISTRIBU- TIONS FROM QUALIFIED TUITION PROGRAMS.— (1) IN GENERAL.— Section 529(c)(3)(B) (relating to distributions) is amended to read as follows: " (B) DISTRIBUTIONS FOR QUALIFIED HIGHER EDUCATION EXPENSES. —For purposes of this paragraph— "(i) IN-KIND DISTRIBUTIONS. — No amount shall be includible in gross income under subparagraph (A) by ' reason of a distribution which consists of providing a benefit to the distributee which, if paid for by the distributee, would constitute payment of a qualified higher education expense. "(ii) CASH DISTRIBUTIONS.— In the case of distributions not described in clause (i), if— "(I) such distributions do not exceed the qualified higher education expenses (reduced by expenses described in clause (i)), no amount shall be includible in gross income, and "(II) in any other case, the amount otherwise includible in gross income shall be reduced by £Ui amount which bears the same ratio to such amount as such expenses bear to such distributions. "(iii) EXCEPTION FOR INSTITUTIONAL PROGRAMS. — In the case of any taxable year beginning before January 1, 2004, clauses (i) and (ii) shall not apply with respect to any distribution during such taxable year under a qualified tuition program established and maintained by 1 or more eligible educationgJ institutions. "(iv) TREATMENT AS DISTRIBUTIONS. —Any benefit furnished to a designated beneficiary under a qualified tuition program shall be treated as a distribution to the beneficiary for purposes of this paragraph. " (v) COORDINATION WITH HOPE AND LIFETIME LEARNING CREDITS.—The total amount of qualified higher education expenses with respect to an individual for the taxable year shall be reduced— "(I) as provided in section 25A(g)(2), and "(II) by the amount of such expenses which were taken into account in determining the credit edlowed to the taxpayer or any other person under section 25A.
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