[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 3940 Introduced in Senate (IS)]








109th CONGRESS
  2d Session
                                S. 3940

  To amend the Internal Revenue Code of 1986 to extend and expand tax 
             incentives that promote affordable education.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           September 26, 2006

Mr. Smith (for himself and Mrs. Lincoln) 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 extend and expand tax 
             incentives that promote affordable education.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Educational Opportunity and 
Affordability Act of 2006''.

SEC. 2. EXTENSION AND EXPANSION OF ABOVE-THE-LINE DEDUCTION FOR CERTAIN 
              EXPENSES OF ELEMENTARY AND SECONDARY SCHOOL TEACHERS.

    (a) In General.--
            (1) In general.--Subparagraph (D) of section 62(a)(2) of 
        the Internal Revenue Code of 1986 (relating to certain expenses 
        of elementary and secondary school teachers) is amended to read 
        as follows:
                    ``(D) Certain expenses of elementary and secondary 
                school teachers.--
                            ``(i) In general.--The deductions allowed 
                        by section 162 which consist of expenses, not 
                        in excess of $450, paid or incurred by an 
                        eligible educator--
                                    ``(I) in connection with books, 
                                supplies (other than nonathletic 
                                supplies for courses of instruction in 
                                health or physical education), computer 
                                equipment (including related software 
                                services) and other equipment, and 
                                supplementary materials used by the 
                                eligible educator, and
                                    ``(II) for the professional 
                                development of the eligible educator.
                            ``(ii) Inflation adjustment.--In the case 
                        of any taxable year beginning after 2006, the 
                        $450 dollar amount under clause (i) shall be 
                        increased by an amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for the calendar year in which 
                                the taxable year begins, determined by 
                                substituting `calendar year 2005' for 
                                `calendar year 1992' in subparagraph 
                                (B) thereof.
                        If any amount as adjusted under the preceding 
                        sentence is not a multiple of $10, such amount 
                        shall be rounded to the next lowest multiple of 
                        $10.''.
    (b) Eligible Educator.--
            (1) Modification to hours requirement.--Subparagraph (A) of 
        section 62(d)(1) of the Internal Revenue Code of 1986 (relating 
        to eligible educator) is amended by striking ``900 hours'' and 
        inserting ``450 hours''.
            (2) Inclusion of athletic coaches, trainers, and 
        assistants.--Subparagraph (A) of section 62(d)(1) of such Code 
        is amended by striking ``or aide'' and inserting ``aide, or 
        athletic coach, trainer, or assistant''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2005.

SEC. 3. EXPANSION OF EDUCATIONAL EXPENSES ALLOWED AS PART OF HOPE 
              SCHOLARSHIP CREDIT.

    (a) Credit Allowed for First 3 Years of Postsecondary Education.--
Subparagraph (C) of section 25A(b)(2) of the Internal Revenue Code of 
1986 (relating to credit allowed only for first 2 years of 
postsecondary education) is amended by striking ``2'' in both the 
heading and the text and inserting ``3''.
    (b) 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.''.
    (c) 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).''.
    (d) 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)''.
    (e) Effective Date.--The amendments made by this section shall 
apply to expenses paid after December 31, 2006 (in tax years ending 
after such date), for education furnished in academic periods beginning 
after such date.

SEC. 4. INCREASED EMPLOYER PROVIDED EDUCATIONAL ASSISTANCE.

    (a) In General.--Paragraph (2) of section 127(a) of the Internal 
Revenue Code of 1986 (relating to exclusion from gross income) is 
amended to read as follows:
            ``(2) Maximum exclusion.--
                    ``(A) In general.--If, but for this paragraph, this 
                section would exclude from gross income more than 
                $8,000 of educational assistance furnished to an 
                individual during a calendar year, this section shall 
                apply only to the first $8,000 of such assistance so 
                furnished.
                    ``(B) Inflation adjustment.--
                            ``(i) In general.--In the case of a 
                        calendar year beginning after 2007, the $8,000 
                        amount in subparagraph (A) shall be increased 
                        by an amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for the calendar year, 
                                determined by substituting `calendar 
                                year 2006' for `calendar year 1992' in 
                                subparagraph (B) thereof.
                            ``(ii) Rounding.--If any amount as adjusted 
                        under clause (i) is not a multiple of $100, 
                        such amount shall be rounded to the next lowest 
                        multiple of $100.''.
    (b) Repeal of EGTRRA Sunset.--Section 901 of the Economic Growth 
and Tax Relief Reconciliation Act of 2001 shall not apply to section 
411 of such Act.
    (c) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2006.

SEC. 5. INCREASED DEDUCTION FOR STUDENT LOAN INTEREST.

    (a) Increase in Deduction Amount; Removal of Income Caps.--
Subsection (b) section 221 of the Internal Revenue Code of 1986 
(relating to maximum deduction) is amended to read as follows:
    ``(b) Maximum Deduction.--The deduction allowed by subsection (a) 
for the taxable year shall not exceed $3,500.''.
    (b) Application of EGTRRA Sunset.--The amendment made by subsection 
(a) shall be subject to section 901 of the Economic Growth and Tax 
Relief Reconciliation Act of 2001 to the same extent and in the same 
manner as section 412(b) of such Act.
    (c) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2006.

SEC. 6. EXTENSION AND EXPANSION OF QZABS.

    (a) Extension.--Section 1397E(e)(1) of the Internal Revenue Code of 
1986 (relating to national limitation) is amended by striking ``and 
2005'' and inserting ``2005, 2006, 2007, 2008, 2009, and 2010''.
    (b) Expansion of Qualified Zone Academy Bonds for Public Schools in 
Counties With National Forest System Lands and Rural Counties.--
            (1) In general.--Section 1397E(f) of the Internal Revenue 
        Code of 1986 (relating to other definitions) is amended by 
        adding at the end the following new paragraph:
            ``(4) Qualified zone academy bond.--The term `qualified 
        zone academy bond' means any qualified zone academy bond 
        described in subsection (d) and any qualified zone academy bond 
        described in subsection (j).''.
            (2) Qualified zone academy bonds for public schools in 
        counties with national forest system lands and rural 
        counties.--Section 1397E of the Internal Revenue Code of 1986 
        (relating to credit for holders of qualified zone academy 
        bonds) is amended by adding at the end the following new 
        subsection:
    ``(j) Qualified Zone Academy Bond Described in Subsection (j).--For 
purposes of this section--
            ``(1) In general.--The term `qualified zone academy bond 
        described in subsection (j)' means any bond issued as part of 
        an issue if--
                    ``(A) 95 percent or more of the proceeds of such 
                issue are to be used for a qualified purpose with 
                respect to a qualified zone academy,
                    ``(B) the bond is issued by a State on behalf of an 
                eligible county within the jurisdiction of which such 
                school is located or by such an eligible county,
                    ``(C) the issuer--
                            ``(i) designates such bond for purposes of 
                        this section, and
                            ``(ii) certifies that it has the written 
                        approval of the eligible county for such bond 
                        issuance,
                    ``(D) the term of each bond which is part of such 
                issue does not exceed the maximum term permitted under 
                subsection (d)(3), and
                    ``(E) the issue meets the requirements of 
                paragraphs (6), (7), (8), and (9).
            ``(2) Qualified zone academy.--For purposes of this 
        subsection, the term `qualified zone academy' means any public 
        school which is located in an eligible county and provides 
        education or training below the postsecondary level.
            ``(3) Eligible county.--For purposes of this subsection, 
        the term `eligible county' means any county--
                    ``(A) which received payments under the Secure 
                Rural Schools Act for fiscal year 2006, or
                    ``(B) within which there is a qualified zone 
                academy with a locale code of 7 or 8, or which is 
                otherwise designated as a rural school, as determined 
                by the Secretary of Education.
            ``(4) Qualified purpose.--For purposes of this subsection, 
        the term `qualified purpose' means, with respect to any 
        qualified zone academy, any capital expenditure, employees' 
        salaries, or any other purpose described in subsection (d)(5).
            ``(5) Limitation on amount of bonds designated.--
                    ``(A) National limitation.--There is a national 
                limitation for qualified zone academy bonds described 
                in subsection (j) for each calendar year. Such 
                limitation is $400,000,000 for 2006, 2007, 2008, 2009, 
                and 2010, and, except as provided in subparagraph (D), 
                zero thereafter.
                    ``(B) Allocation of limitation.--The national 
                limitation for qualified zone academy bonds described 
                in subsection (j) for a calendar year shall be 
                allocated by the Secretary among the States with 
                respect to the eligible counties located in each such 
                State. Such allocation limitation shall be determined 
                by the Secretary and shall be based on--
                            ``(i) the ratio of county payments received 
                        by a county for such fiscal year under the 
                        Secure Rural Schools Act bears to the total 
                        amount of such payments for all eligible 
                        counties for such fiscal year, and
                            ``(ii) the population of a county.
                The limitation amount allocated by a State to an 
                eligible county under this subparagraph shall be 
                allocated by the eligible county to qualified zone 
                academies within such county.
                    ``(C) Designation subject to limitation amount.--
                The maximum aggregate face amount of bonds issued 
                during any calendar year which may be designated under 
                paragraph (1) with respect to any qualified zone 
                academy shall not exceed the limitation amount 
                allocated to such academy under subparagraph (B) for 
                such calendar year.
                    ``(D) Carryover of unused limitation.--If for any 
                calendar year--
                            ``(i) the limitation amount for any 
                        eligible county, exceeds
                            ``(ii) the amount of bonds issued during 
                        such year which are designated under paragraph 
                        (1) with respect to qualified zone academies 
                        within such county,
                the limitation amount for such county for the following 
                calendar year shall be increased by the amount of such 
                excess. Any carryforward of a limitation amount may be 
                carried only to the first 2 years following the unused 
                limitation year. For purposes of the preceding 
                sentence, a limitation amount shall be treated as used 
                on a first-in first-out basis.
            ``(6) Ratable principal amortization required.--An issue 
        shall be treated as meeting the requirements of this paragraph 
        if such issue provides for an equal amount of principal to be 
        paid by the issuer during each calendar year that the issue is 
        outstanding.
            ``(7) Special rules relating to expenditures.--
                    ``(A) In general.--An issue shall be treated as 
                meeting the requirements of this paragraph if, as of 
                the date of issuance, the issuer reasonably expects--
                            ``(i) at least 95 percent of the proceeds 
                        from the sale of the issue are to be spent for 
                        1 or more qualified purposes with respect to 
                        qualified zone academies within the 5-year 
                        period beginning on the date of issuance of the 
                        qualified zone academy bond described in 
                        subsection (j),
                            ``(ii) a binding commitment with a third 
                        party to spend at least 10 percent of the 
                        proceeds from the sale of the issue will be 
                        incurred within the 6-month period beginning on 
                        the date of issuance of the qualified zone 
                        academy bond described in subsection (j), and
                            ``(iii) such purposes will be completed 
                        with due diligence and the proceeds from the 
                        sale of the issue will be spent with due 
                        diligence.
                    ``(B) Extension of period.--Upon submission of a 
                request prior to the expiration of the period described 
                in subparagraph (A)(i), the Secretary may extend such 
                period if the issuer establishes that the failure to 
                satisfy the 5-year requirement is due to reasonable 
                cause and the related purposes will continue to proceed 
                with due diligence.
                    ``(C) Failure to spend required amount of bond 
                proceeds within 5 years.--To the extent that less than 
                95 percent of the proceeds of such issue are expended 
                by the close of the 5-year period beginning on the date 
                of issuance (or if an extension has been obtained under 
                subparagraph (B), by the close of the extended period), 
                the issuer shall redeem all of the nonqualified bonds 
                within 90 days after the end of such period. For 
                purposes of this subparagraph, the amount of the 
                nonqualified bonds required to be redeemed shall be 
                determined in the same manner as under section 142.
            ``(8) Special rules relating to arbitrage.--An issue shall 
        be treated as meeting the requirements of this paragraph if the 
        issuer satisfies the arbitrage requirements of section 148 with 
        respect to proceeds of the issue.
            ``(9) Reporting.--Issuers of qualified zone academy bonds 
        described in subsection (j) shall submit reports similar to the 
        reports required under section 149(e).
            ``(10) Application of special rules.--For purposes of this 
        subsection, rules similar to the rules under paragraphs (3) and 
        (4) of section 54(i) shall apply.''.
            (3) No limitation on taxpayers eligible for credit.--
        Section 1397E(a) of the Internal Revenue Code of 1986 is 
        amended by striking ``In the case of an eligible taxpayer who 
        holds a qualified academy zone bond'' and inserting ``In the 
        case of an eligible taxpayer who holds a qualified academy zone 
        bond described in subsection (d) or any taxpayer who holds a 
        qualified academy zone bond described in subsection (j)''.
            (4) Conforming amendments.--
                    (A) So much of subsection (d) of section 1397E of 
                the Internal Revenue Code of 1986 as precedes 
                subparagraph (A) of paragraph (1) is amended to read as 
                follows:
    ``(d) Qualified Zone Academy Bond Described in Subsection (d).--For 
purposes of this section--
            ``(1) In general.--The term `qualified zone academy bond 
        described in subsection (d)'means any bond issued as a part of 
        an issue if--''.
                    (B) So much of paragraph (4) of section 1397E(d) of 
                such Code as precedes subparagraph (A) is amended to 
                read as follows:
            ``(4) Qualified zone academy.--For purposes of this 
        subsection--''.
                    (C) Paragraphs (1) and (2) of section 1397E(e) of 
                such Code are each amended by striking ``national zone 
                academy bond limitation'' and inserting ``national 
                limitation for qualified zone academy bonds described 
                in subsection (d)''.
                    (D) Section 1397E(i) of such Code is amended by 
                inserting ``described in subsection (d)'' after 
                ``bond''.
    (c) Effective Date.--The amendments made by this section shall 
apply to bonds issued after December 31, 2005.

SEC. 7. INCREASED LIMITATION FOR DEDUCTION FOR HIGHER EDUCATION 
              EXPENSES.

    (a) In General.--Paragraph (2) of section 222(b) of the Internal 
Revenue Code of 1986 (relating to applicable dollar limit) is amended 
by striking subparagraphs (A) and (B) and inserting the following:
                    ``(A) In general.--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 (twice such amount in the 
                        case of a joint return), $6,000,
                            ``(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 (twice such amount in the case of a 
                        joint return), $4,000,
                            ``(iii) in the case of a taxpayer not 
                        described in clause (i) or (ii) whose adjusted 
                        gross income for the taxable year does not 
                        exceed $100,000 (twice such amount in the case 
                        of a joint return), $2,000, and
                            ``(iv) in the case of any other taxpayer, 
                        zero.
                    ``(B) Inflation adjustment.--
                            ``(i) Limitation amount.--In the case of 
                        any taxable year beginning after 2006, the 
                        $6,000 amount in subparagraph (A)(i), the 
                        $4,000 amount in subparagraph (A)(ii), and the 
                        $2,000 amount in subparagraph (A)(iii) shall 
                        each be increased by an amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for the calendar year in which 
                                the taxable year begins, determined by 
                                substituting `calendar year 2005' for 
                                `calendar year 1992' in subparagraph 
                                (B) thereof.
                        If any amount as adjusted under the preceding 
                        sentence is not a multiple of $100, such amount 
                        shall be rounded to the next lowest multiple of 
                        $100.
                            ``(ii) Income thresholds.--In the case of 
                        any taxable year beginning after 2006, the 
                        $65,000 amount in subparagraph (A)(i), the 
                        $80,000 amount in subparagraph (A)(ii), and the 
                        $100,000 amount in subparagraph (A)(iii) shall 
                        each be increased by an amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for the calendar year in which 
                                the taxable year begins, determined by 
                                substituting `calendar year 2005' for 
                                `calendar year 1992' in subparagraph 
                                (B) thereof.
                        If any amount as adjusted under the preceding 
                        sentence is not a multiple of $1,000, such 
                        amount shall be rounded to the next lowest 
                        multiple of $1,000.''.
    (b) Application of EGTRRA Sunset.--The amendment made by subsection 
(a) shall be subject to section 901 of the Economic Growth and Tax 
Relief Reconciliation Act of 2001 to the same extent and in the same 
manner as the amendments made by section 431 of such Act.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2005.
                                 <all>