[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[S. 120 Introduced in Senate (IS)]
<DOC>
118th CONGRESS
1st Session
S. 120
To amend the Internal Revenue Code of 1986 to allow a credit against
tax for charitable donations to nonprofit organizations providing
education scholarships to qualified elementary and secondary students.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
January 26, 2023
Mr. Cassidy (for himself, Mr. Cornyn, Mr. Daines, Mr. Tuberville, Mr.
Wicker, Mr. Barrasso, Mr. Scott of South Carolina, Mrs. Blackburn, Mr.
Braun, Mr. Scott of Florida, Mr. Young, Mr. Boozman, Mr. Hawley, Mr.
Tillis, and Mrs. Britt) 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 a credit against
tax for charitable donations to nonprofit organizations providing
education scholarships to qualified elementary and secondary students.
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 Choice for Children
Act''.
SEC. 2. TAX CREDIT FOR CONTRIBUTIONS TO SCHOLARSHIP GRANTING
ORGANIZATIONS.
(a) Credit for Individuals.--
(1) In general.--Subpart A of part IV of subchapter A of
chapter 1 of the Internal Revenue Code of 1986 is amended by
inserting after section 25E the following new section:
``SEC. 25F. QUALIFIED ELEMENTARY AND SECONDARY EDUCATION SCHOLARSHIPS.
``(a) Allowance of Credit.--In the case of an individual who is a
citizen or resident of the United States (as defined in section
7701(a)(9)), there shall be allowed as a credit against the tax imposed
by this chapter for the taxable year an amount equal to the amount of
qualified contributions made by the taxpayer during the taxable year.
``(b) Amount of Credit.--The credit allowed under subsection (a) in
any taxable year shall not exceed an amount equal to the greater of--
``(1) 10 percent of the adjusted gross income of the
taxpayer for the taxable year, or
``(2) $5,000.
``(c) Definitions.--For purposes of this section--
``(1) Eligible student.--The term `eligible student' means
an individual who--
``(A) is a member of a household with an income
which is not greater than 300 percent of the area
median gross income (as such term is used in section
42), and
``(B) is eligible to enroll in a public elementary
or secondary school.
``(2) Qualified contribution.--The term `qualified
contribution' means a charitable contribution (as defined by
section 170(c)) to a scholarship granting organization in the
form of cash or marketable securities for the purpose of
providing scholarships for qualified elementary or secondary
education expenses of eligible students.
``(3) Qualified elementary or secondary education
expense.--The term `qualified elementary or secondary education
expense' has the same meaning given the term `qualified higher
education expenses' under paragraph (3) of section 529(e),
except that--
``(A) such paragraph shall be applied--
``(i) by substituting `elementary school or
secondary school (as such terms are defined in
section 8101 of the Elementary and Secondary
Education Act of 1965 (20 U.S.C. 7801))' for
`eligible educational institution' each place
it appears, and
``(ii) in subparagraph (B) thereof, by
substituting `such school' for `such
institution' each place it appears, and
``(B) such term shall include tutoring expenses for
student academic needs, including for learning loss.
``(4) Scholarship granting organization.--The term
`scholarship granting organization' means any organization--
``(A) which--
``(i) is described in section 501(c)(3) and
exempt from tax under section 501(a), and
``(ii) is not a private foundation,
``(B) whose substantial purpose is to provide
scholarships for qualified elementary or secondary
education expenses of eligible students,
``(C)(i) which meets the requirements of subsection
(d), or
``(ii) which, pursuant to State law, was able, as
of the date of the enactment of the Educational Choice
for Children Act, to receive contributions that are
eligible for a State tax credit if such contributions
are used by the organization to provide scholarships to
individual elementary and secondary students, including
scholarships for attending private schools, and
``(D) which, separate from any other funds or
contributions received by such organization, maintains
and accounts for any contributions made by any person
for the purpose of providing scholarships for qualified
elementary or secondary education expenses of eligible
students.
``(d) Requirements for Scholarship Granting Organizations.--
``(1) In general.--An organization meets the requirements
of this subsection if--
``(A) such organization provides scholarships to 2
or more students, provided that not all such students
attend the same school,
``(B) such organization does not provide
scholarships for any expenses other than qualified
elementary or secondary education expenses,
``(C) such organization provides a scholarship to
eligible students with a priority for--
``(i) students awarded a scholarship the
previous school year, and
``(ii) after application of clause (i), any
such students who have a sibling who was
awarded a scholarship from such organization,
``(D) such organization does not earmark or set
aside contributions for scholarships on behalf of any
particular student,
``(E) such organization takes appropriate steps to
verify the annual household income and family size of
eligible students to whom it awards scholarships, and
limits them to a member of a household for which the
income does not exceed the amount established under
subsection (c)(1)(A),
``(F) such organization--
``(i) obtains from an independent certified
public accountant annual financial and
compliance audits, and
``(ii) certifies to the Secretary (at such
time, and in such form and manner, as the
Secretary may prescribe) that the audit
described in clause (i) has been completed, and
``(G) no officer or board member of such
organization has been convicted of a felony.
``(2) Independent certified public accountant.--For
purposes of paragraph (1)(F), the term `independent certified
public accountant' means, with respect to an organization, a
certified public accountant who is not a person described in
section 465(b)(3)(A) with respect to such organization or any
employee of such organization.
``(3) Prohibition on self-dealing.--
``(A) In general.--A scholarship granting
organization may not award a scholarship to any
disqualified person.
``(B) Disqualified person.--For purposes of this
paragraph, a disqualified person shall be determined
pursuant to rules similar to the rules of section 4946.
``(e) Denial of Double Benefit.--Any qualified contribution for
which a credit is allowed under this section shall not be taken into
account as a charitable contribution for purposes of section 170.
``(f) Carryforward of Unused Credit.--
``(1) In general.--If the credit allowable under subsection
(a) for any taxable year exceeds the limitation imposed by
section 26(a) for such taxable year reduced by the sum of the
credits allowable under this subpart (other than this section,
section 23, and section 25D), such excess shall be carried to
the succeeding taxable year and added to the credit allowable
under subsection (a) for such taxable year.
``(2) Limitation.--No credit may be carried forward under
this subsection to any taxable year following the fifth taxable
year after the taxable year in which the credit arose. For
purposes of the preceding sentence, credits shall be treated as
used on a first-in first-out basis.
``(g) Application of Volume Cap.--A qualified contribution shall be
taken into account under this section only if such contribution is not
in excess of the volume cap established under section 3 of the
Educational Choice for Children Act.''.
(2) Clerical amendment.--The table of sections for subpart
A of part IV of subchapter A of chapter 1 of such Code is
amended by inserting after the item relating to section 25E the
following new item:
``Sec. 25F. Qualified elementary and secondary education
scholarships.''.
(b) Credit for Corporations.--
(1) In general.--Subpart D of part IV of subchapter A of
chapter 1 of the Internal Revenue Code of 1986 is amended by
adding after section 45Z the following:
``SEC. 45AA. CONTRIBUTIONS TO SCHOLARSHIP GRANTING ORGANIZATIONS.
``(a) General Rule.--For purposes of section 38, in the case of a
corporation, the education scholarship credit determined under this
section for the taxable year is the aggregate amount of qualified
contributions for the taxable year.
``(b) Amount of Credit.--The credit allowed under subsection (a)
for any taxable year shall not exceed 5 percent of the taxable income
(as defined in section 170(b)(2)(D)) of the corporation for such
taxable year.
``(c) Qualified Contributions.--For purposes of this section, the
term `qualified contribution' has the meaning given such term under
section 25F.
``(d) Denial of Double Benefit.--No deduction shall be allowed
under any provision of this chapter for any expense for which a credit
is allowed under this section.
``(e) Application of Volume Cap.--A qualified contribution shall be
taken into account under this section only if such contribution is not
in excess of the volume cap established under section 3 of the
Educational Choice for Children Act.''.
(2) Conforming amendments.--Section 38(b) of such Code is
amended by striking ``plus'' at the end of paragraph (39), by
striking the period and inserting ``, plus'' at the end of
paragraph (40), and by adding at the end the following new
paragraph:
``(41) the education scholarship credit determined under
section 45AA(a).''.
(3) Clerical amendment.--The table of sections for subpart
D of part IV of subchapter A of chapter 1 of such Code is
amended by adding at the end the following new item:
``Sec. 45AA. Contributions to scholarship granting organizations.''.
(c) Failure of Scholarship Granting Organizations To Make
Distributions.--
(1) In general.--Chapter 42 of the Internal Revenue Code of
1986 is amended by adding at the end the following new
subchapter:
``Subchapter I--Scholarship Granting Organizations
``Sec. 4969. Failure to distribute receipts.
``SEC. 4969. FAILURE TO DISTRIBUTE RECEIPTS.
``(a) In General.--In the case of any scholarship granting
organization (as defined in section 25F) which has been determined by
the Secretary to have failed to satisfy the requirement under
subsection (b) for any taxable year, any contribution made to such
organization during the first taxable year beginning after the date of
such determination shall not be treated as a qualified contribution (as
defined in section 25F(c)(2)) for purposes of sections 25F and 45AA.
``(b) Requirement.--The requirement described in this subsection is
that the amount of receipts of the scholarship granting organization
for the taxable year which are distributed before the distribution
deadline with respect to such receipts shall not be less than the
required distribution amount with respect to such taxable year.
``(c) Definitions.--For purposes of this section--
``(1) Required distribution amount.--
``(A) In general.--The required distribution amount
with respect to a taxable year is the amount equal to
100 percent of the total receipts of the scholarship
granting organization for such taxable year--
``(i) reduced by the sum of such receipts
that are retained for reasonable administrative
expenses for the taxable year or are carried to
the succeeding taxable year under subparagraph
(C), and
``(ii) increased by the amount of the
carryover under subparagraph (C) from the
preceding taxable year.
``(B) Safe harbor for reasonable administrative
expenses.--For purposes of subparagraph (A)(i), if the
percentage of total receipts of a scholarship granting
organization for a taxable year which are used for
administrative purposes related to activities for
providing scholarships for qualified elementary or
secondary education expenses of eligible students (as
such terms are defined in section 25F(c)) is equal to
or less than 10 percent, such expenses shall be deemed
to be reasonable for purposes of such subparagraph.
``(C) Carryover.--With respect to the amount of the
total receipts of a scholarship granting organization
with respect to any taxable year, an amount not greater
than 15 percent of such amount may, at the election of
such organization, be carried to the succeeding taxable
year.
``(2) Distributions.--The term `distribution' includes
amounts which are formally committed but not distributed. A
formal commitment described in the preceding sentence may
include contributions set aside for eligible students for more
than one year.
``(3) Distribution deadline.--The distribution deadline
with respect to receipts for a taxable year is the first day of
the third taxable year following the taxable year in which such
receipts are received by the scholarship granting
organization.''.
(2) Clerical amendment.--The table of subchapters for
chapter 42 of such Code is amended by adding at the end the
following new item:
``subchapter i. scholarship granting organizations''.
SEC. 3. VOLUME CAP.
(a) Allocation.--
(1) In general.--For purposes of sections 25F(g) and
45AA(e) of the Internal Revenue Code of 1986 (as added by this
Act), the volume cap applicable with respect to both such
sections shall be $10,000,000,000 for calendar year 2024 and
each subsequent year thereafter, with such amount to be
allocated as follows:
(A) $20,000,000 shall be allocated to each State
(as defined in section 7701(a)(10) of the Internal
Revenue Code of 1986), with such amount to be made
available, in the manner described in subsection (b),
for--
(i) any individual residing in such State
to claim the credit allowed under section 25F
of the Internal Revenue Code of 1986 with
respect to any qualified contributions (as
defined in such section) made by such
individual during any taxable year beginning
during such calendar year, and
(ii) any corporation created or organized
in such State to claim the credit determined
under section 45AA of such Code with respect to
any qualified contributions made by such
corporation during any taxable year beginning
during such calendar year.
(B) With respect to the amount remaining after the
allocation under subparagraph (A), such amount (as
adjusted pursuant to paragraph (3)) shall be made
available, in the manner described in subsection (b),
for--
(i) any individual to claim the credit
allowed under section 25F of the Internal
Revenue Code of 1986 with respect to any
qualified contributions made by such individual
during any taxable year beginning during such
calendar year, and
(ii) any corporation to claim the credit
determined under section 45AA of such Code with
respect to any qualified contributions made by
such corporation during any taxable year
beginning during such calendar year.
(2) Carryover.--The amount of any allotment to a State
under paragraph (1)(A) for any calendar year which is not
claimed by taxpayers described in such paragraph during such
calendar year shall be added to the allotment provided under
paragraph (1)(B) for the subsequent calendar year.
(3) Increase in nationwide volume cap.--For purposes of
paragraph (1)(B), if the Secretary determines during any
calendar year that the amount of qualified contributions made
during such calendar year is equal to or greater than 90
percent of the total amount made available under such paragraph
for such calendar year, such amount shall be increased by an
amount equal to 5 percent of the total amount made available
under such paragraph as of January 1 of such calendar year,
with such increase to remain in effect for the subsequent
calendar year.
(b) First-Come, First-Serve.--For purposes of applying the volume
cap under this section, such volume cap shall be applied based on a
first-come, first-serve basis, as determined based on the date on which
the taxpayer made the qualified contribution.
(c) Real-Time Information.--For purposes of this section, the
Secretary of the Treasury (or the Secretary's delegate) shall develop a
system to track the amount of qualified contributions made during the
calendar year for which a credit may be claimed under section 25F or
45AA of the Internal Revenue Code of 1986, with such information to be
updated in real time.
SEC. 4. EXEMPTION FROM GROSS INCOME FOR SCHOLARSHIPS FOR QUALIFIED
ELEMENTARY OR SECONDARY EDUCATION EXPENSES OF ELIGIBLE
STUDENTS.
(a) In General.--Part III of subchapter B of chapter 1 of the
Internal Revenue Code of 1986 is amended by inserting before section
140 the following new section:
``SEC. 139J. SCHOLARSHIPS FOR QUALIFIED ELEMENTARY OR SECONDARY
EDUCATION EXPENSES OF ELIGIBLE STUDENTS.
``(a) In General.--In the case of an individual, gross income shall
not include any amounts provided to any dependent of such individual
pursuant to a scholarship for qualified elementary or secondary
education expenses of an eligible student which is provided by a
scholarship granting organization.
``(b) Definitions.--In this section, the terms `qualified
elementary or secondary education expense', `eligible student', and
`scholarship granting organization' have the same meaning given such
terms under section 25F(c).''.
(b) Conforming Amendment.--The table of sections for part III of
subchapter B of chapter 1 of the Internal Revenue Code of 1986 is
amended by inserting before the item relating to section 140 the
following new item:
``Sec. 139J. Scholarships for qualified elementary or secondary
education expenses of eligible students.''.
SEC. 5. ORGANIZATIONAL AND PARENTAL AUTONOMY.
(a) Prohibition of Control Over Scholarship Organizations.--
(1) In general.--
(A) Treatment.--A scholarship granting organization
shall not, by virtue of participation under any
provision of this Act or any amendment made by this
Act, be regarded as acting on behalf of any
governmental entity.
(B) No governmental control.--Nothing in this Act,
or any amendment made by this Act, shall be construed
to permit, allow, encourage, or authorize any Federal,
State, or local government entity, or officer or
employee thereof, to mandate, direct, or control any
aspect of any scholarship granting organization.
(C) Maximum freedom.--To the extent permissible by
law, this Act, and any amendment made by this Act,
shall be construed to allow scholarship granting
organizations maximum freedom to provide for the needs
of the participants without governmental control.
(2) Prohibition of control over non-public schools.--
(A) No governmental control.--Nothing in this Act,
or any amendment made by this Act, shall be construed
to permit, allow, encourage, or authorize any Federal,
State, or local government entity, or officer or
employee thereof, to mandate, direct, or control any
aspect of any private or religious elementary or
secondary education institution.
(B) No exclusion of private or religious schools.--
No Federal, State, or local government entity, or
officer or employee thereof, shall impose or permit the
imposition of any conditions or requirements that would
exclude or operate to exclude educational expenses at
private or religious elementary and secondary education
institutions from being considered qualified elementary
or secondary education expenses.
(C) No exclusion of qualified expenses due to
institution's religious character or affiliation.--No
Federal, State, or local government entity, or officer
or employee thereof, shall exclude, discriminate
against, or otherwise disadvantage any elementary or
secondary education institution with respect to
qualified elementary or secondary education expenses at
that institution based in whole or in part on the
institution's religious character or affiliation,
including religiously based or mission-based policies
or practices.
(3) Parental rights to use scholarships.--No Federal,
State, or local government entity, or officer or employee
thereof, shall disfavor or discourage the use of scholarships
granted by participating scholarship granting organizations for
qualified elementary or secondary education expenses at private
or nonprofit elementary and secondary education institutions,
including faith-based schools.
(4) Parental right to intervene.--In any action filed in
any State or Federal court which challenges the
constitutionality (under the constitution of such State or the
Constitution of the United States) of any provision of this Act
(or any amendment made by this Act), any parent of an eligible
student who has received a scholarship from a scholarship
granting organization shall have the right to intervene in
support of the constitutionality of such provision or
amendment. To avoid duplication of efforts and reduce the
burdens placed on the parties to the action, the court in any
such action may require interveners taking similar positions to
file joint papers or to be represented by a single attorney at
oral argument, provided that the court does not require such
interveners to join any brief filed on behalf of any State
which is a defendant in such action.
(b) Definitions.--For purposes of this section, the terms
``eligible student'', ``scholarship granting organization'', and
``qualified elementary or secondary education expense'' shall have the
same meanings given such terms under section 25F(c) of the Internal
Revenue Code of 1986 (as added by section 2(a) of this Act).
SEC. 6. EFFECTIVE DATE.
The amendments made by this Act shall apply to taxable years
beginning after December 31, 2023.
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