article: SECTION 1. EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE. (a) Permanent Extension.--Section 127 of the Internal Revenue Code of 1986 (relating to exclusion for educational assistance programs) is amended by striking subsection (d) and by redesignating subsection (e) as subsection (d). (b) Restoration of Exclusion for Graduate Education.--The last sentence of paragraph (1) of section 127(c) of such Code 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) Effective Dates.-- (1) Extension.--The amendments made by subsection (a) shall apply to taxable years beginning after December 31, 1996. (2) Graduate education.--The amendment made by subsection (b) shall apply with respect to expenses relating to courses beginning after December 31, 1996. SEC. 2. DEDUCTION FOR INTEREST ON EDUCATION LOANS. (a) In General.--Part VII of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to additional itemized deductions for individuals) is amended by redesignating section 221 as section 222 and by inserting after section 220 the following new section: ``SEC. 221. INTEREST ON EDUCATION LOANS. ``(a) Allowance of Deduction.--In the case of an individual, there shall be allowed as a deduction for the taxable year an amount equal to the interest paid by the taxpayer during the taxable year on any qualified education loan. ``(b) Limitation Based on Modified Adjusted Gross Income.-- ``(1) In general.--The amount allowed as a deduction under subsection (a) shall be reduced (but not below zero) by the amount determined under paragraph (2). ``(2) Amount of reduction.--The amount determined under this paragraph equals the amount which bears the same ratio to the deduction (determined without regard to this subsection) as-- ``(A) the excess of-- ``(i) the taxpayer's modified adjusted gross income for such taxable year, over ``(ii) $50,000 ($80,000 in the case of a joint return), bears to ``(B) $20,000. ``(3) Modified adjusted gross income.--For purposes of paragraph (2), the term `modified adjusted gross income' means the adjusted gross income of the taxpayer for the taxable year determined-- ``(A) without regard to this section and sections 911, 931, and 933, and ``(B) after the application of sections 86, 135, 137, 219, and 469. For purposes of sections 86, 135, 219, and 469, adjusted gross income shall be determined without regard to the deduction allowed under this section. ``(4) Inflation adjustment.-- ``(A) In general.--In the case of a taxable year beginning after 1997, the $50,000 and $80,000 amounts in paragraph (2)(A)(ii) shall each be increased by an amount equal to-- ``(i) such dollar amounts, 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 1996' for `calendar year 1992' in subparagraph (B) thereof. ``(B) Rounding.--If any amount as adjusted under subparagraph (A) is not a multiple of $5,000, such amount shall be rounded to the next lowest multiple of $5,000. ``(c) Dependents Not Eligible for Deduction.--No deduction shall be allowed by this section to an individual for the taxable year if a deduction under section 151 with respect to such individual is allowed to another taxpayer for the taxable year beginning in the calendar year in which such individual's taxable year begins. ``(d) Definitions.--For purposes of this section-- ``(1) Qualified education loan.--The term `qualified education loan' means any indebtedness incurred to pay qualified higher education expenses-- ``(A) which are incurred on behalf of the taxpayer or the taxpayer's spouse, ``(B) which are paid or incurred within a reasonable period of time before or after the indebtedness is incurred, and ``(C) which are attributable to education furnished during a period during which the recipient was at least a half-time student. Such term includes indebtedness used to refinance indebtedness which qualifies as a qualified education loan. The term `qualified education loan' shall not include any indebtedness owed to a person who is related (within the meaning of section 267(b) or 707(b)(1)) to the taxpayer. ``(2) Qualified higher education expenses.-- ``(A) In general.--The term `qualified higher education expenses' means the excess of-- ``(i) tuition and fees required for the enrollment or attendance of-- ``(I) the taxpayer, ``(II) the taxpayer's spouse, or ``(III) any dependent of the taxpayer with respect to whom the taxpayer is allowed a deduction under section 151, as an eligible student at an institution of higher education, over ``(ii) the sum of-- ``(I) the amount excluded from gross income under section 135 by reason of such tuition and fees, and ``(II) the amount of the reduction described in section 135(d)(1). ``(B) Exceptions.--Such term does not include-- ``(i) expenses with respect to any course or other education involving sports, games, or hobbies, unless such course or other education is part of the student's degree program, and ``(ii) student activity fees, athletic fees, insurance expenses, or other expenses unrelated to a student's academic course of instruction. ``(C) Eligible student.--The term `eligible student' means, with respect to any academic period, a student who-- ``(i) meets the requirements of section 484(a)(1) of the Higher Education Act of 1965 (20 U.S.C. 1091(a)(1)), as in effect on the date of the enactment of this section, and ``(ii) is carrying at least \1/2\ the normal full-time work load for the course of study the student is pursuing, as reasonably determined by the institution of higher education. ``(3) Institution of higher education.--The term `institution of higher education' means an institution-- ``(A) which is described in section 481 of the Higher Education Act of 1965 (20 U.S.C. 1088), as in effect on the date of the enactment of this section, and ``(B) which is eligible to participate in programs under title IV of such Act. Such term includes an institution conducting an internship or residency program leading to a degree or certificate awarded by an institution of higher education, a hospital, or a health care facility which offers postgraduate training. ``(4) Full-time student.--The term `full-time student' means any student who is carrying at least the normal full-time work load for the course of study the student is pursuing, as reasonably determined by the institution of higher education. ``(5) Half-time student.--The term `half-time student' means any individual who would be a student as defined in section 151(c)(4) if `half-time' were substituted for `full- time' each place it appears in such section. ``(6) Dependent.--The term `dependent' has the meaning given such term by section 152. ``(e) Special Rules.-- ``(1) Denial of double benefit.--No deduction shall be allowed under this section for any amount for which a deduction is allowable under any other provision of this chapter. ``(2) Married couples must file joint return.--If the taxpayer is married at the close of the taxable year, the deduction shall be allowed under subsection (a) only if the taxpayer and the taxpayer's spouse file a joint return for the taxable year. ``(3) Marital status.--Marital status shall be determined in accordance with section 7703.'' (b) Deduction Allowed Whether or Not Taxpayer Itemizes Other Deductions.--Subsection (a) of section 62 of such Code is amended by inserting after paragraph (16) the following new paragraph: ``(17) Interest on education loans.--The deduction allowed by section 221.'' (c) Reporting Requirement.-- (1) In general.--Subpart B of part III of subchapter A of chapter 61 of such Code (relating to information concerning transactions with other persons) is amended by inserting after section 6050R the following new section: ``SEC. 6050S. RETURNS RELATING TO EDUCATION LOAN INTEREST RECEIVED IN TRADE OR BUSINESS FROM INDIVIDUALS. ``(a) Education Loan Interest of $600 or More.--Any person-- ``(1) who is engaged in a trade or business, and ``(2) who, in the course of such trade or business, receives from any individual interest aggregating $600 or more for any calendar year on 1 or more qualified education loans, shall make the return described in subsection (b) with respect to each individual from whom such interest was received at such time as the Secretary may by regulations prescribe. ``(b) Form and Manner of Returns.--A return is described in this subsection if such return-- ``(1) is in such form as the Secretary may prescribe, ``(2) contains-- ``(A) the name, address, and TIN of the individual from whom the interest described in subsection (a)(2) was received, ``(B) the amount of such interest received for the calendar year, and ``(C) such other information as the Secretary may prescribe. ``(c) Application to Governmental Units.--For purposes of subsection (a)-- ``(1) Treated as persons.--The term `person' includes any governmental unit (and any agency or instrumentality thereof). ``(2) Special rules.--In the case of a governmental unit or any agency or instrumentality thereof-- ``(A) subsection (a) shall be applied without regard to the trade or business requirement contained therein, and ``(B) any return required under subsection (a) shall be made by the officer or employee appropriately designated for the purpose of making such return. ``(d) Statements To Be Furnished to Individuals With Respect to Whom Information Is Required.--Every person required to make a return under subsection (a) shall furnish to each individual whose name is required to be set forth in such return a written statement showing-- ``(1) the name and address of the person required to make such return, and ``(2) the aggregate amount of interest described in subsection (a)(2) received by the person required to make such return from the individual to whom the statement is required to be furnished. The written statement required under the preceding sentence shall be furnished on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made. ``(e) Qualified Education Loan Defined.--For purposes of this section, except as provided in regulations prescribed by the Secretary, the term `qualified education loan' has the meaning given such term by section 221(d)(1). ``(f) Returns Which Would Be Required To Be Made by 2 or More Persons.--Except to the extent provided in regulations prescribed by the Secretary, in the case of interest received by any person on behalf of another person, only the person first receiving such interest shall be required to make the return under subsection (a).'' (2) Assessable penalties.--Section 6724(d) of such Code (relating to definitions) is amended-- (A) by redesignating clauses (x) through (xv) as clauses (xi) through (xvi), respectively, in paragraph (1)(B) and by inserting after clause (ix) of such paragraph the following new clause: ``(x) section 6050S (relating to returns relating to education loan interest received in trade or business from individuals),'', and (B) by striking ``or'' at the end of the next to last subparagraph, by striking the period at the end of the last subparagraph and inserting ``, or'', and by adding at the end the following new subparagraph: ``(Z) section 6050R (relating to returns relating to education loan interest received in trade or business from individuals).'' (d) Clerical Amendments.-- (1) The table of sections for part VII of subchapter B of chapter 1 of such Code is amended by striking the last item and inserting the following new items: ``Sec. 221. Interest on education loans. ``Sec. 222. Cross reference.'' (2) The table of sections for subpart B of part III of subchapter A of chapter 61 of such Code is amended by inserting after the item relating to section 6050R the following new item: ``Sec. 6050S. Returns relating to education loan interest received in trade or business from individuals.'' (e) Effective Date.--The amendments made by this section shall apply to any qualified education loan (as defined in section 221(d)(1) of the Internal Revenue Code of 1986, as added by this section) incurred on, before, or after the date of the enactment of this Act, but only with respect to any loan interest payment due after December 31, 1996.
summary: Amends the Internal Revenue Code to with respect to the income exclusion for employer-provided educational assistance programs to: (1) make such exclusion permanent; and (2) include graduate school assistance. Provides an income-based deduction for interest on qualified education loans incurred on behalf of a taxpayer or spouse (excludes dependents). Sets forth reporting requirements for persons in the business of receiving interest from such loans.