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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                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

[[Page 115 STAT. 60]]

                          (ii) by striking ``credit or deduction'' in 
                      the heading and inserting ``deduction, credit, or 
                      exclusion''.
                    (D) Section 4973(e)(1) <<NOTE: 26 USC 4973.>>  is 
                amended by adding ``and'' at the end of subparagraph 
                (A), by striking subparagraph (B), and by redesignating 
                subparagraph (C) as subparagraph (B).

    (h) <<NOTE: Applicability. 26 USC 25A note.>>  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

[[Page 115 STAT. 61]]

                striking ``qualified State tuition'' each place it 
                appears and inserting ``qualified tuition''.
                    (B) The headings for sections <<NOTE: 26 USC 72, 
                135.>>  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.

[[Page 115 STAT. 62]]

                          ``(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) <<NOTE: 26 USC 135.>>  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

[[Page 115 STAT. 63]]

                                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) <<NOTE: 26 USC 529.>>  (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) <<NOTE: Applicability. 26 USC 72 note.>>  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) <<NOTE: Applicability. 26 USC 51A note.>>  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)''.

[[Page 115 STAT. 64]]

            (3) <<NOTE: Applicability. 26 USC 221 note.>>  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) <<NOTE: 26 USC 221.>>  
        (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) <<NOTE: Applicability. 26 USC 221 note.>>  Effective 
        date.--The amendments made by this subsection shall apply to 
        taxable years ending after December 31, 2001.

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