text: 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.
target: 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.
feat_title: To amend the Internal Revenue Code of 1986 to permanently extend the exclusion for employer-provided educational assistance programs, to restore such exclusion for graduate level courses, and to allow a deduction for interest on education loans.