Economic Growth and Tax Relief Reconciliation Act of 2001/Title IV

TITLE IV—AFFORDABLE EDUCATION PROVISIONS

Subtitle A—Education Savings Incentives

SEC. 401. MODIFICATIONS TO EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.

(a) Maximum Annual Contributions.—

(1) In general.—Section 530(b)(1)(A)(iii) (defining education individual retirement account) is amended by striking ``$500'' and inserting ``$2,000''.

(2) Conforming amendment.—Section 4973(e)(1)(A) is amended by striking ``$500'' and inserting ``$2,000''.

(b) Modification of AGI Limits To Remove Marriage Penalty.—Section 530(c)(1) (relating to reduction in permitted contributions based on adjusted gross income) is amended—

(1) by striking ``$150,000'' in subparagraph (A)(ii) and inserting ``$190,000'', and

(2) by striking ``$10,000'' in subparagraph (B) and inserting ``$30,000''.

(c) Tax-Free Expenditures for Elementary and Secondary School Expenses.—

(1) In general.—Section 530(b)(2) (defining qualified higher education expenses) is amended to read as follows:

``(2) Qualified education expenses.—

``(A) In general.—The term `qualified education expenses' means—

``(i) qualified higher education expenses (as defined in section 529(e)(3)), and

``(ii) qualified elementary and secondary education expenses (as defined in paragraph (4)).

``(B) Qualified state tuition programs.—Such term shall include any contribution to a qualified State tuition program (as defined in section 529(b)) on behalf of the designated beneficiary (as defined in section 529(e)(1)); but there shall be no increase in the investment in the contract for purposes of applying section 72 by reason of any portion of such contribution which is not includible in gross income by reason of subsection (d)(2).''.

(2) Qualified elementary and secondary education expenses.—

Section 530(b) (relating to definitions and special rules) is amended by adding at the end the following new paragraph:

``(4) Qualified elementary and secondary education expenses.—

``(A) In general.—The term `qualified elementary and secondary education expenses' means—

``(i) expenses for tuition, fees, academic tutoring, special needs services in the case of a special needs beneficiary, books, supplies, and other equipment which are incurred in connection with the enrollment or attendance of the designated beneficiary of the trust as an elementary or secondary school student at a public, private, or religious school,

``(ii) expenses for room and board, uniforms, transportation, and supplementary items and services (including extended day programs) which are required or provided by a public, private, or religious school in connection with such enrollment or attendance, and

``(iii) expenses for the purchase of any computer technology or equipment (as defined in section 170(e)(6)(F)(i)) or Internet access and related services, if such technology, equipment, or services are to be used by the beneficiary and the beneficiary's family during any of the years the beneficiary is in school.

``Clause (iii) shall not include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature.

``(B) School.—The term `school' means any school which provides elementary education or secondary education (kindergarten through grade 12), as determined under State law.''.

(3) Conforming amendments.—Section 530 is amended—

(A) by striking ``higher'' each place it appears in subsections (b)(1) and (d)(2), and

(B) by striking ``higher'' in the heading for subsection (d)(2).

(d) Waiver of Age Limitations for Children With Special Needs.—Section 530(b)(1) (defining education individual retirement account) is amended by adding at the end the following flush sentence:

``The age limitations in subparagraphs (A)(ii) and (E), and paragraphs (5) and (6) of subsection (d), shall not apply to any designated beneficiary with special needs (as determined under regulations prescribed by the Secretary).''.

(e) Entities Permitted To Contribute to Accounts.—Section 530(c)(1) (relating to reduction in permitted contributions based on adjusted gross income) is amended by striking ``The maximum amount which a contributor'' and inserting ``In the case of a contributor who is an individual, the maximum amount the contributor''.

(f) Time When Contributions Deemed Made.—

(1) In general.—Section 530(b) (relating to definitions and special rules), as amended by subsection (c)(2), is amended by adding at the end the following new paragraph:

``(5) Time when contributions deemed made.—An individual shall be deemed to have made a contribution to an education individual retirement account on the last day of the preceding taxable year if the contribution is made on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (not including extensions thereof).''.

(2) Extension of time to return excess contributions.—

Subparagraph (C) of section 530(d)(4) (relating to additional tax for distributions not used for educational expenses) is amended—

(A) by striking clause (i) and inserting the following new clause:

``(i) such distribution is made before the first day of the sixth month of the taxable year following the taxable year, and'', and

(B) by striking ``due date of return'' in the heading and inserting ``certain date''.

(g) Coordination With Hope and Lifetime Learning Credits and Qualified Tuition Programs.—

(1) In general.—Section 530(d)(2)(C) is amended to read as follows:

``(C) Coordination with hope and lifetime learning credits and qualified tuition programs.—For purposes of subparagraph (A)—

``(i) Credit coordination.—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 allowed to the taxpayer or any other person under section 25A.

``(ii) Coordination with qualified tuition programs.—If, with respect to an individual for any taxable year—

``(I) the aggregate distributions during such year to which subparagraph (A) and section 529(c)(3)(B) apply, exceed

``(II) the total amount of qualified education expenses (after the application of clause (i)) for such year,

``the taxpayer shall allocate such expenses among such distributions for purposes of determining the amount of the exclusion under subparagraph (A) and section 529(c)(3)(B).''.

(2) Conforming amendments.—

(A) Subsection (e) of section 25A is amended to read as follows:

``(e) Election Not To Have Section Apply.—A taxpayer may elect not to have this section apply with respect to the qualified tuition and related expenses of an individual for any taxable year.''.

(B) Section 135(d)(2)(A) is amended by striking ``allowable'' and inserting ``allowed''.

(C) Section 530(d)(2)(D) is amended—

(i) by striking ``or credit'' and inserting ``, credit, or exclusion'', and

(ii) by striking ``credit or deduction'' in the heading and inserting ``deduction, credit, or exclusion''.

(D) Section 4973(e)(1) is amended by adding ``and'' at the end of subparagraph (A), by striking subparagraph (B), and by redesignating subparagraph (C) as subparagraph (B).

(h) Effective Date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

SEC. 402. MODIFICATIONS TO QUALIFIED TUITION PROGRAMS.

(a) Eligible Educational Institutions Permitted To Maintain Qualified Tuition Programs.—

(1) In general.—Section 529(b)(1) (defining qualified State tuition program) is amended—

(A) by inserting ``or by 1 or more eligible educational institutions'' after ``maintained by a State or agency or instrumentality thereof '' in the matter preceding subparagraph (A), and

(B) by adding at the end the following new flush sentence:

``Except to the extent provided in regulations, a program established and maintained by 1 or more eligible educational institutions shall not be treated as a qualified tuition program unless such program provides that amounts are held in a qualified trust and such program has received a ruling or determination that such program meets the applicable requirements for a qualified tuition program. For purposes of the preceding sentence, the term `qualified trust' means a trust which is created or organized in the United States for the exclusive benefit of designated beneficiaries and with respect to which the requirements of paragraphs (2) and (5) of section 408(a) are met.''.

(2) Private qualified tuition programs limited to benefit plans.—Clause (ii) of section 529(b)(1)(A) is amended by inserting ``in the case of a program established and maintained by a State or agency or instrumentality thereof,'' before ``may make''.

(3) Additional tax on nonqualified withdrawals.—Section 529 is amended—

(A) by striking paragraph (3) of subsection (b) and by redesignating paragraphs (4), (5), (6), and (7) of such subsection as paragraphs (3), (4), (5), and (6), respectively, and

(B) by adding at the end of subsection (c) the following new paragraph:

``(6) Additional tax.—The tax imposed by section 530(d)(4) shall apply to any payment or distribution from a qualified tuition program in the same manner as such tax applies to a payment or distribution from an education individual retirement account. This paragraph shall not apply to any payment or distribution in any taxable year beginning before January 1, 2004, which is includible in gross income but used for qualified higher education expenses of the designated beneficiary.''.

(4) Conforming amendments.—

(A) Sections 72(e)(9), 135(c)(2)(C), 135(d)(1)(D), 529, 530(b)(2)(B), 4973(e), and 6693(a)(2)(C) are amended by 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) 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 Distributions 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 an 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 educational 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 allowed to the taxpayer or any other person under section 25A.

``(vi) Coordination with education individual retirement accounts.—If, with respect to an individual for any taxable year—

``(I) the aggregate distributions to which clauses (i) and (ii) and section 530(d)(2)(A) apply, exceed

``(II) the total amount of qualified higher education expenses otherwise taken into account under clauses (i) and (ii) (after the application of clause (v)) for such year,

``the taxpayer shall allocate such expenses among such distributions for purposes of determining the amount of the exclusion under clauses (i) and (ii) and section 530(d)(2)(A).''.

(2) Conforming amendments.—

(A) Section 135(d)(2)(B) is amended by striking ``the exclusion under section 530(d)(2)'' and inserting ``the exclusions under sections 529(c)(3)(B) and 530(d)(2)''.

(B) Section 221(e)(2)(A) is amended by inserting ``529,'' after ``135,''.

(c) Rollover to Different Program for Benefit of Same Designated Beneficiary.—Section 529(c)(3)(C) (relating to change in beneficiaries) is amended—

(1) by striking ``transferred to the credit'' in clause (i) and inserting ``transferred—

``(I) to another qualified tuition program for the benefit of the designated beneficiary, or

``(II) to the credit'',

(2) by adding at the end the following new clause:

``(iii) Limitation on certain rollovers.—

``Clause (i)(I) shall not apply to any transfer if such transfer occurs within 12 months from the date of a previous transfer to any qualified tuition program for the benefit of the designated beneficiary.'', and

(3) by inserting ``or programs'' after ``beneficiaries'' in the heading.

(d) Member of Family Includes First Cousin.—Section 529(e)(2) (defining member of family) is amended by striking ``and'' at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and by inserting ``; and'', and by adding at the end the following new subparagraph:

``(D) any first cousin of such beneficiary.''.

(e) Adjustment of Limitation on Room and Board Distributions.—

Section 529(e)(3)(B)(ii) is amended to read as follows:

``(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.''.

(f) Special Needs Services.—Subparagraph (A) of section 529(e)(3) (defining qualified higher education expenses) is amended to read as follows:

``(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.''.

(g) Technical Amendments.—Section 529(c)(3)(D) is amended—

(1) by inserting ``except to the extent provided by the Secretary,'' before ``all distributions'' in clause (ii), and

(2) by inserting ``except to the extent provided by the Secretary,'' before ``the value'' in clause (iii).

(h) Effective Date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

Subtitle B—Educational Assistance

SEC. 411. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE.

(a) In General.—Section 127 (relating to exclusion for educational assistance programs) is amended by striking subsection (d) and by redesignating subsection (e) as subsection (d).

(b) Repeal of Limitation on Graduate Education.—The last sentence of section 127(c)(1) is amended by striking ``, and such term also does not include any payment for, or the provision of any benefits with respect to, any graduate level course of a kind normally taken by an individual pursuing a program leading to a law, business, medical, or other advanced academic or professional degree''.

(c) Conforming Amendment.—Section 51A(b)(5)(B)(iii) is amended by striking ``or would be so excludable but for section 127(d)''.

(d) Effective Date.—The amendments made by this section shall apply with respect to expenses relating to courses beginning after December 31, 2001.

SEC. 412. ELIMINATION OF 60-MONTH LIMIT AND INCREASE IN INCOME LIMITATION ON STUDENT LOAN INTEREST DEDUCTION.

(a) Elimination of 60-Month Limit.—

(1) In general.—Section 221 (relating to interest on education loans), as amended by section 402(b)(2)(B), is amended by striking subsection (d) and by redesignating subsections (e), (f), and (g) as subsections (d), (e), and (f), respectively.

(2) Conforming amendment.—Section 6050S(e) is amended by striking ``section 221(e)(1)'' and inserting ``section 221(d)(1)''.

(3) Effective date.—The amendments made by this subsection shall apply with respect to any loan interest paid after December 31, 2001, in taxable years ending after such date.

(b) Increase in Income Limitation.—

(1) In general.—Section 221(b)(2)(B) (relating to amount of reduction) is amended by striking clauses (i) and (ii) and inserting the following:

``(i) the excess of—

``(I) the taxpayer's modified adjusted gross income for such taxable year, over

``(II) $50,000 ($100,000 in the case of a joint return), bears to

``(ii) $15,000 ($30,000 in the case of a joint return).''.

(2) Conforming amendment.—Section 221(g)(1) is amended by striking ``$40,000 and $60,000 amounts'' and inserting ``$50,000 and $100,000 amounts''.

(3) Effective date.—The amendments made by this subsection shall apply to taxable years ending after December 31, 2001.

SEC. 413. EXCLUSION OF CERTAIN AMOUNTS RECEIVED UNDER THE NATIONAL HEALTH SERVICE CORPS SCHOLARSHIP PROGRAM AND THE F. EDWARD HEBERT ARMED FORCES HEALTH PROFESSIONS SCHOLARSHIP AND FINANCIAL ASSISTANCE PROGRAM.

(a) In General.—Section 117(c) (relating to the exclusion from gross income amounts received as a qualified scholarship) is amended—

(1) by striking ``Subsections (a)'' and inserting the following:

``(1) In general.—Except as provided in paragraph (2), subsections (a)'', and

(2) by adding at the end the following new paragraph:

``(2) Exceptions.—Paragraph (1) shall not apply to any amount received by an individual under—

``(A) the National Health Service Corps Scholarship Program under section 338A(g)(1)(A) of the Public Health Service Act, or

``(B) the Armed Forces Health Professions Scholarship and Financial Assistance program under subchapter I of chapter 105 of title 10, United States Code.''.

(b) Effective Date.—The amendments made by subsection (a) shall apply to amounts received in taxable years beginning after December 31, 2001.

Subtitle C—Liberalization of Tax-Exempt Financing Rules for Public School Construction

SEC. 421. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION FOR GOVERNMENTAL BONDS USED TO FINANCE EDUCATIONAL FACILITIES.

(a) In General.—Section 148(f)(4)(D)(vii) (relating to increase in exception for bonds financing public school capital expenditures) is amended by striking ``$5,000,000'' the second place it appears and inserting ``$10,000,000''.

(b) Effective Date.—The amendment made by subsection (a) shall apply to obligations issued in calendar years beginning after December 31, 2001.

SEC. 422. TREATMENT OF QUALIFIED PUBLIC EDUCATIONAL FACILITY BONDS AS EXEMPT FACILITY BONDS.

(a) Treatment as Exempt Facility Bond.—Subsection (a) of section 142 (relating to exempt facility bond) is amended by striking ``or'' at the end of paragraph (11), by striking the period at the end of paragraph (12) and inserting ``, or'', and by adding at the end the following new paragraph:

``(13) qualified public educational facilities.''.

(b) Qualified Public Educational Facilities.—Section 142 (relating to exempt facility bond) is amended by adding at the end the following new subsection:

``(k) Qualified Public Educational Facilities.—

``(1) In general.—For purposes of subsection (a)(13), the term `qualified public educational facility' means any school facility which is—

``(A) part of a public elementary school or a public secondary school, and

``(B) owned by a private, for-profit corporation pursuant to a public-private partnership agreement with a State or local educational agency described in paragraph (2).

``(2) Public-private partnership agreement described.—A public-private partnership agreement is described in this paragraph if it is an agreement—

``(A) under which the corporation agrees—

``(i) to do 1 or more of the following: construct, rehabilitate, refurbish, or equip a school facility, and

``(ii) at the end of the term of the agreement, to transfer the school facility to such agency for no additional consideration, and

``(B) the term of which does not exceed the term of the issue to be used to provide the school facility.

``(3) School facility.—For purposes of this subsection, the term `school facility' means—

``(A) any school building,

``(B) any functionally related and subordinate facility and land with respect to such building, including any stadium or other facility primarily used for school events, and

``(C) any property, to which section 168 applies (or would apply but for section 179), for use in a facility described in subparagraph (A) or (B).

``(4) Public schools.—For purposes of this subsection, the terms `elementary school' and `secondary school' have the meanings given such terms by section 14101 of the Elementary and Secondary Education Act of 1965 (20 U.S.C. 8801), as in effect on the date of the enactment of this subsection.

``(5) Annual aggregate face amount of tax-exempt financing.—

``(A) In general.—An issue shall not be treated as an issue described in subsection (a)(13) if the aggregate face amount of bonds issued by the State pursuant thereto (when added to the aggregate face amount of bonds previously so issued during the calendar year) exceeds an amount equal to the greater of—

``(i) $10 multiplied by the State population, or

``(ii) $5,000,000.

``(B) Allocation rules.—

``(i) In general.—Except as otherwise provided in this subparagraph, the State may allocate the amount described in subparagraph (A) for any calendar year in such manner as the State determines appropriate.

``(ii) Rules for carryforward of unused limitation.—A State may elect to carry forward an unused limitation for any calendar year for 3 calendar years following the calendar year in which the unused limitation arose under rules similar to the rules of section 146(f), except that the only purpose for which the carryforward may be elected is the issuance of exempt facility bonds described in subsection (a)(13).''.

(c) Exemption From General State Volume Caps.—Paragraph (3) of section 146(g) (relating to exception for certain bonds) is amended—

(1) by striking ``or (12)'' and inserting ``(12), or (13)'', and

(2) by striking ``and environmental enhancements of hydroelectric generating facilities'' and inserting ``environmental enhancements of hydroelectric generating facilities, and qualified public educational facilities''.

(d) Exemption From Limitation on Use for Land Acquisition.—Section 147(h) (relating to certain rules not to apply to mortgage revenue bonds, qualified student loan bonds, and qualified 501(c)(3) bonds) is amended by adding at the end the following new paragraph:

``(3) Exempt facility bonds for qualified public-private schools.—Subsection (c) shall not apply to any exempt facility bond issued as part of an issue described in section 142(a)(13) (relating to qualified public educational facilities).''.

(e) Conforming Amendment.—The heading for section 147(h) is amended by striking ``Mortgage Revenue Bonds, Qualified Student Loan Bonds, and Qualified 501(c)(3) Bonds'' and inserting ``Certain Bonds''.

(f) Effective Date.—The amendments made by this section shall apply to bonds issued after December 31, 2001.

Subtitle D—Other Provisions

SEC. 431. DEDUCTION FOR HIGHER EDUCATION EXPENSES.

(a) Deduction Allowed.—Part VII of subchapter B of chapter 1 (relating to additional itemized deductions for individuals) is amended by redesignating section 222 as section 223 and by inserting after section 221 the following:

``SEC. 222. QUALIFIED TUITION AND RELATED EXPENSES.

``(a) Allowance of Deduction.—In the case of an individual, there shall be allowed as a deduction an amount equal to the qualified tuition and related expenses paid by the taxpayer during the taxable year.

``(b) Dollar limitations.—

``(1) In general.—The amount allowed as a deduction under subsection (a) with respect to the taxpayer for any taxable year shall not exceed the applicable dollar limit.

``(2) Applicable dollar limit.—

``(A) 2002 and 2003.—In the case of a taxable year beginning in 2002 or 2003, the applicable dollar limit shall be equal to—

``(i) in the case of a taxpayer whose adjusted gross income for the taxable year does not exceed $65,000 ($130,000 in the case of a joint return), $3,000, and—

``(ii) in the case of any other taxpayer, zero.

``(B) 2004 and 2005.—In the case of a taxable year beginning in 2004 or 2005, the applicable dollar amount shall be equal to—

``(i) in the case of a taxpayer whose adjusted gross income for the taxable year does not exceed $65,000 ($130,000 in the case of a joint return), $4,000,

``(ii) in the case of a taxpayer not described in clause (i) whose adjusted gross income for the taxable year does not exceed $80,000 ($160,000 in the case of a joint return), $2,000, and

``(iii) in the case of any other taxpayer, zero.

``(C) Adjusted gross income.—For purposes of this paragraph, adjusted gross income shall be determined—

``(i) without regard to this section and sections 911, 931, and 933, and

``(ii) after application of sections 86, 135, 137, 219, 221, and 469.

``(c) No Double Benefit.—

``(1) In general.—No deduction shall be allowed under subsection (a) for any expense for which a deduction is allowed to the taxpayer under any other provision of this chapter.

``(2) Coordination with other education incentives.—

``(A) Denial of deduction if credit elected.—No deduction shall be allowed under subsection (a) for a taxable year with respect to the qualified tuition and related expenses with respect to an individual if the taxpayer or any other person elects to have section 25A apply with respect to such individual for such year.

``(B) Coordination with exclusions.—The total amount of qualified tuition and related expenses shall be reduced by the amount of such expenses taken into account in determining any amount excluded under section 135, 529(c)(1), or 530(d)(2). For purposes of the preceding sentence, the amount taken into account in determining the amount excluded under section 529(c)(1) shall not include that portion of the distribution which represents a return of any contributions to the plan.

``(3) Dependents.—No deduction shall be allowed under subsection (a) to any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual's taxable year begins.

``(d) Definitions and Special Rules.—For purposes of this section—

``(1) Qualified tuition and related expenses.—The term `qualified tuition and related expenses' has the meaning given such term by section 25A(f). Such expenses shall be reduced in the same manner as under section 25A(g)(2).

``(2) Identification requirement.—No deduction 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 the individual on the return of tax for the taxable year.

``(3) Limitation on taxable year of deduction.—

``(A) In general.—A deduction shall be allowed under subsection (a) for qualified tuition and related expenses for any taxable year only to the extent such expenses are in connection with enrollment at an institution of higher education during the taxable year.

``(B) Certain prepayments allowed.—Subparagraph (A) shall not apply to qualified tuition and related expenses paid during a taxable year if such expenses are in connection with an academic term beginning during such taxable year or during the first 3 months of the next taxable year.

``(4) No deduction 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.

``(5) 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.

``(6) Regulations.—The Secretary may prescribe such regulations as may be necessary or appropriate to carry out this section, including regulations requiring recordkeeping and information reporting.

``(e) Termination.—This section shall not apply to taxable years beginning after December 31, 2005.''.

(b) Deduction Allowed in Computing Adjusted Gross Income.—Section 62(a) is amended by inserting after paragraph (17) the following:

``(18) Higher education expenses.—The deduction allowed by section 222.''.

(c) Conforming Amendments.—

(1) Sections 86(b)(2), 135(c)(4), 137(b)(3), and 219(g)(3) are each amended by inserting ``222,'' after ``221,''.

(2) Section 221(b)(2)(C) is amended by inserting ``222,'' before ``911''.

(3) Section 469(i)(3)(F) is amended by striking ``and 221'' and inserting ``, 221, and 222''.

(4) The table of sections for part VII of subchapter B of chapter 1 is amended by striking the item relating to section 222 and inserting the following:

``Sec. 222. Qualified tuition and related expenses.

``Sec. 223. Cross reference.''.

(d) Effective Date.—The amendments made by this section shall apply to payments made in taxable years beginning after December 31, 2001.