Pub.L. 107-017 To extend for 4 additional months the period for which chapter 12 of title 11 of the United States Code is reenacted. <> ...

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                earned'', and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(B) Joint returns.--In the case of a joint return 
                filed by an eligible individual and such individual's 
                spouse, the phaseout amount determined under 
                subparagraph (A) shall be increased by--
                          ``(i) $1,000 in the case of taxable years 
                      beginning in 2002, 2003, and 2004,
                          ``(ii) $2,000 in the case of taxable years 
                      beginning in 2005, 2006, and 2007, and
                          ``(iii) $3,000 in the case of taxable years 
                      beginning after 2007.''.
            (2) Inflation adjustment.--Paragraph (1)(B) of section 32( 
        j) (relating to inflation adjustments) is amended to read as 
        follows:
                    ``(B) the cost-of-living adjustment determined under 
                section 1(f )(3) for the calendar year in which the 
                taxable year begins, determined--
                          ``(i) in the case of amounts in subsections 
                      (b)(2)(A) and (i)(1), by substituting `calendar 
                      year 1995' for `calendar year 1992' in 
                      subparagraph (B) thereof, and
                          ``(ii) in the case of the $3,000 amount in 
                      subsection (b)(2)(B)(iii), by substituting 
                      `calendar year 2007' for `calendar year 1992' in 
                      subparagraph (B) of such section 1.''.
            (3) Rounding.--Section 32( j)(2)(A) (relating to rounding) 
        is amended by striking ``subsection (b)(2)'' and inserting 
        ``subsection (b)(2)(A) (after being increased under subparagraph 
        (B) thereof )''.

    (b) Earned Income To Include Only Amounts Includible in Gross 
Income.--Clause (i) of section 32(c)(2)(A) (defining earned income) is 
amended by inserting ``, but only if such amounts are includible in 
gross income for the taxable year'' after ``other employee 
compensation''.
    (c) Repeal of Reduction of Credit to Taxpayers Subject to 
Alternative Minimum Tax.--Section 32(h) is repealed.
    (d) Replacement of Modified Adjusted Gross Income With Adjusted 
Gross Income.--
            (1) In general.--Section 32(a)(2)(B) is amended by striking 
        ``modified''.
            (2) Conforming amendments.--
                    (A) Section 32(c) is amended by striking paragraph 
                (5).
                    (B) Section 32(f )(2)(B) is amended by striking 
                ``modified'' each place it appears.

    (e) Relationship Test.--

[[Page 115 STAT. 56]]

            (1) In general.--Clause (i) of section 
        32(c)(3)(B) <<NOTE: 26 USC 32.>>  (relating to relationship 
        test) is amended to read as follows:
                          ``(i) In general.--An individual bears a 
                      relationship to the taxpayer described in this 
                      subparagraph if such individual is--
                                    ``(I) a son, daughter, stepson, or 
                                stepdaughter, or a descendant of any 
                                such individual,
                                    ``(II) a brother, sister, 
                                stepbrother, or stepsister, or a 
                                descendant of any such individual, who 
                                the taxpayer cares for as the taxpayer's 
                                own child, or
                                    ``(III) an eligible foster child of 
                                the taxpayer.''.
            (2) Eligible foster child.--
                    (A) In general.--Clause (iii) of section 32(c)(3)(B) 
                is amended to read as follows:
                          ``(iii) Eligible foster child.--For purposes 
                      of clause (i), the term `eligible foster child' 
                      means an individual not described in subclause (I) 
                      or (II) of clause (i) who--
                                    ``(I) is placed with the taxpayer by 
                                an authorized placement agency, and
                                    ``(II) the taxpayer cares for as the 
                                taxpayer's own child.''.
                    (B) Conforming amendment.--Section 32(c)(3)(A)(ii) 
                is amended by striking ``except as provided in 
                subparagraph (B)(iii),''.

    (f ) 2 or More Claiming Qualifying Child.--Section 32(c)(1)(C) is 
amended to read as follows:
                    ``(C) 2 or more claiming qualifying child.--
                          ``(i) In general.--Except as provided in 
                      clause (ii), if (but for this paragraph) an 
                      individual may be claimed, and is claimed, as a 
                      qualifying child by 2 or more taxpayers for a 
                      taxable year beginning in the same calendar year, 
                      such individual shall be treated as the qualifying 
                      child of the taxpayer who is--
                                    ``(I) a parent of the individual, or
                                    ``(II) if subclause (I) does not 
                                apply, the taxpayer with the highest 
                                adjusted gross income for such taxable 
                                year.
                          ``(ii) More than 1 claiming credit.--If the 
                      parents claiming the credit with respect to any 
                      qualifying child do not file a joint return 
                      together, such child shall be treated as the 
                      qualifying child of--
                                    ``(I) the parent with whom the child 
                                resided for the longest period of time 
                                during the taxable year, or
                                    ``(II) if the child resides with 
                                both parents for the same amount of time 
                                during such taxable year, the parent 
                                with the highest adjusted gross 
                                income.''.

    (g) Expansion of Mathematical Error Authority.--Paragraph (2) of 
section 6213(g) is amended by striking ``and'' at the end of 
subparagraph (K), by striking the period at the end of subparagraph (L) 
and inserting ``, and'', and by inserting after subparagraph (L) the 
following new subparagraph:

[[Page 115 STAT. 57]]

                    ``(M) the entry on the return claiming the credit 
                under section 32 with respect to a child if, according 
                to the Federal Case Registry of Child Support Orders 
                established under section 453(h) of the Social Security 
                Act, the taxpayer is a noncustodial parent of such 
                child.''.

    (h) Clerical Amendment.--Subparagraph (E) of section 
32(c)(3) <<NOTE: 26 USC 32.>>  is amended by striking ``subparagraphs 
(A)(ii) and (B)(iii)(II)'' and inserting ``subparagraph (A)(ii)''.

    (i) <<NOTE: 26 USC 32 note.>>  Effective Dates.--
            (1) In <<NOTE: Applicability.>>  general.--Except as 
        provided in paragraph (2), the amendments made by this section 
        shall apply to taxable years beginning after December 31, 2001.
            (2) Subsection (g).--The amendment made by subsection (g) 
        shall take effect on January 1, 2004.

                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).''.

[[Page 115 STAT. 58]]

            (2) Qualified elementary and secondary education expenses.--
        Section 530(b) <<NOTE: 26 USC 530.>>  (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) <<NOTE: Regulations.>>  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

[[Page 115 STAT. 59]]

        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) <<NOTE: 26 USC 530.>>  
        (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 

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