II 109th CONGRESS 1st Session S. 1697 IN THE SENATE OF THE UNITED STATES September 14, 2005 Mr. Smith (for himself and Mr. Bingaman) introduced the following bill; which was read twice and referred to the Committee on Finance A BILL To amend the Internal Revenue Code of 1986 to allow the Hope Scholarship Credit to cover fees, books, supplies, and equipment and to exempt Federal Pell Grants and Federal supplemental educational opportunity grants from reducing expenses taken into account for the Hope Scholarship Credit.

1.

Expansion of educational expenses allowed as part of Hope Scholarship Credit

(a)

Qualified tuition and related expenses expanded to include books, supplies, and equipment

Paragraph (1) of section 25A(f) of the Internal Revenue Code of 1986 (defining qualified tuition and related expenses) is amended by adding at the end the following new subparagraph: (D)

Additional expenses allowed for Hope Scholarship Credit

For purposes of the Hope Scholarship Credit, such term shall include fees, books, supplies, and equipment required for courses of instruction at the eligible educational institution. . (b)

Hope Scholarship Credit not reduced by Federal Pell Grants and supplemental educational opportunity grants

Subsection (g) of section 25A of such Code (relating to special rules) is amended by adding at the end the following new paragraph: (8)

Pell and seog grants

For purposes of the Hope Scholarship Credit, paragraph (2) shall not apply to amounts paid for an individual as a Federal Pell Grant or a Federal supplemental educational opportunity grant under subparts 1 and 3, respectively, of part A of title IV of the Higher Education Act of 1965 (20 U.S.C. 1070a and 1070b et seq., respectively). . (c)

Expanded hope expenses not subject to information reporting requirements

Subsection (e) of section 6050S of such Code (relating to definitions) is amended by striking subsection (g)(2) and inserting subsections (f)(1)(D) and (g)(2). (d)

Effective date

The amendments made by this section shall apply to expenses paid after December 31, 2004 (in tax years ending after such date), for education furnished in academic periods beginning after such date.