In a tax year where the taxpayer pays qualified education
expenses, interest income on the redemption of qualified US
Series EE Bonds may be excluded from gross income. The exclusion
is subject to a modified gross income limitation and a limit
of aggregate bond proceeds in excess of qualified higher education
expenses. Which of the following is (are) true?
I. The exclusion applies for education expenses incurred by
the taxpayer, the taxpayer’s spouse, or any person whom the
taxpayer may claim as a dependent for the year.
II. “Otherwise qualified higher education expenses” must be
reduced by qualified scholarships not includible in gross income.