[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[S. 1810 Introduced in Senate (IS)]
<DOC>
119th CONGRESS
1st Session
S. 1810
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
May 20, 2025
Mr. Cruz 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 ``Universal School Choice 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 aggregate
amount of qualified contributions made by the taxpayer during the
taxable year.
``(b) Limitations.--
``(1) In general.--The credit allowed under subsection (a)
to any taxpayer for any taxable year shall not exceed an amount
equal to the greater of--
``(A) 10 percent of the adjusted gross income of
the taxpayer for the taxable year, or
``(B) $5,000.
``(2) Application of volume cap.--No credit shall be
allowed under subsection (a) to the taxpayer with respect to
the amount of any qualified contribution made during a taxable
year which would result in the aggregate amount of credits
claimed under this section for such taxable year exceeding--
``(A) with respect to qualified contributions for
which the taxpayer is required to designate a
distribution State pursuant to paragraph (4) of section
3(a) of the Universal School Choice Act, the volume cap
allocated to such State pursuant to paragraph (2) of
such section, or
``(B) with respect to qualified contributions which
are not described in subparagraph (A), the volume cap
made available to taxpayers pursuant to paragraph
(3)(B) of such section.
``(3) Reduction based on state credit.--The amount allowed
as a credit under subsection (a) for a taxable year shall be
reduced by the amount allowed as a credit on any State tax
return of the taxpayer for qualified contributions made by the
taxpayer during the taxable year.
``(c) Definitions.--For purposes of this section--
``(1) Eligible student.--The term `eligible student' means
an individual who 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.
``(3) Qualified elementary or secondary education
expense.--
``(A) In general.--The term `qualified elementary
or secondary education expense' means the following
expenses in connection with enrollment or attendance
at, or for students enrolled at or attending, a public
or private elementary or secondary school (including a
religious elementary or secondary school):
``(i) Tuition and required fees.
``(ii) Curricula and curricular materials.
``(iii) Books or other instructional
materials.
``(iv) Online educational materials, as
well as software, courses, and computer
hardware or other technological devices
required to access such materials and which is
primarily used for educational purposes.
``(v) Tuition for tutoring or educational
classes outside of the home or online,
including at a tutoring facility, but only if
the tutor or instructor is not related to the
student and--
``(I) is licensed as a teacher in
any State,
``(II) has taught at--
``(aa) a public or private
elementary or secondary school,
or
``(bb) an institution of
higher education (as defined in
section 101(a) of the Higher
Education Act of 1965 (20
U.S.C. 1001(a))), or
``(III) is a subject matter expert
in the relevant subject.
``(vi) Fees for a nationally standardized
norm-referenced achievement test, an advanced
placement examination, or any examinations
related to admission to an institution of
higher education.
``(vii) Fees for dual enrollment in an
institution of higher education.
``(viii) Educational therapies for students
with disabilities provided by a licensed or
accredited practitioner or provider, including
occupational, behavioral, physical, and speech-
language therapies.
``(ix) Transportation costs incurred for
students to participate in any activity for
which expenses are authorized under this
paragraph.
``(B) Home schooling.--The term `qualified
elementary or secondary education expense' shall
include expenses for the purposes described in clauses
(i) through (ix) of subparagraph (A) in connection with
a home school (whether treated as a home school or a
private school for purposes of applicable State law).
``(C) Prohibition on payments to family members.--
The term `qualified elementary or secondary education
expense' shall not include any expenses related to
services provided to the student which are provided by
an individual who bears a relationship to the student
described in section 152(d)(2).
``(4) Scholarship granting organization.--
``(A) In general.--The term `scholarship granting
organization' means any organization--
``(i) which--
``(I) is described in section
501(c)(3) and exempt from tax under
section 501(a), and
``(II) is not a private foundation,
``(ii) substantially all of the activities
of which are providing scholarships for
qualified elementary or secondary education
expenses of eligible students,
``(iii) which prevents the co-mingling of
qualified contributions with other amounts by
maintaining 1 or more separate accounts
exclusively for qualified contributions, and
``(iv) which meets the requirements of
subsection (d).
``(B) Scholarships for non-eligible students.--For
purposes of determining whether an organization
satisfies the requirement described in subparagraph
(A)(ii), such organization may include activities of
which are providing scholarships for education expenses
of children who are not described in paragraph (1).
``(5) State.--The term `State' means each of the 50 States,
the District of Columbia, the Commonwealth of Puerto Rico,
American Samoa, Guam, the Commonwealth of the Northern Mariana
Islands, the United States Virgin Islands, and the Department
of the Interior (acting through the Bureau of Indian
Education).
``(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) with respect to any amount contributed to
such organization for which a credit is allowed under
this section, such organization does not provide
scholarships for any expenses other than qualified
elementary or secondary education expenses,
``(C) with respect to any amount contributed to
such organization for which a credit is allowed under
this section, such organization provides a scholarship
to eligible students with a priority for--
``(i) students awarded a scholarship the
previous school year,
``(ii) after application of clause (i), any
such students who have a sibling who was
awarded a scholarship from such organization,
and
``(iii) after application of clauses (i)
and (ii), any such students from households
with annual incomes below 500 percent of the
poverty line in the State,
``(D) such organization does not earmark or set
aside contributions for scholarships on behalf of any
particular student at the direction of any individual
or corporation that has made a qualified contribution
to such organization,
``(E) 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
``(F) no officer or board member of such
organization has been convicted of a felony.
``(2) Income verification.--
``(A) In general.--For purposes of paragraph
(1)(C)(iii), in the case where providing such priority
may be applicable with respect to a student, the
organization shall take appropriate steps to verify the
annual household income to the student.
``(B) Safe harbor.--For purposes of subparagraph
(A), review of all of the following (as applicable)
shall be treated as satisfying the requirement to take
appropriate steps to verify annual household income:
``(i) Federal and State income tax returns
or tax return transcripts with applicable
schedules for the taxable year prior to
application.
``(ii) Income reporting statements for tax
purposes or wage and income transcripts from
the Internal Revenue Service.
``(iii) Notarized income verification
letter from employers.
``(iv) Unemployment or workers compensation
statements.
``(v) Budget letters regarding public
assistance payments and Supplemental Nutrition
Assistance Program (SNAP) payments including a
list of household members.
``(3) Independent certified public accountant.--For
purposes of paragraph (1)(E), 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.
``(4) 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) Alternative Minimum Tax.--For purposes of calculating the
alternative minimum tax under section 55, a taxpayer may use any credit
received for a qualified contribution under this section.''.
(2) Conforming amendments.--
(A) Section 25(e)(1)(C) of such Code is amended by
striking ``and 25D'' and inserting ``25D, and 25F''.
(B) 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 45AA the following:
``SEC. 45BB. 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
Universal School Choice Act.''.
(2) Conforming amendments.--Section 38(b) of such Code is
amended by striking ``plus'' at the end of paragraph (40), by
striking the period and inserting ``, plus'' at the end of
paragraph (41), and by adding at the end the following new
paragraph:
``(42) the education scholarship credit determined under
section 45BB(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. 45BB. Contributions to scholarship granting organizations.''.
(c) Failure of Scholarship Granting Organizations To Make
Distributions.--
(1) In general.--Chapter 42 of such Code 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 45BB.
``(b) Requirement.--
``(1) In general.--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.
``(2) 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.
``(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, as reduced
by the sum of such receipts that are retained for
reasonable administrative expenses for the taxable
year.
``(B) Safe harbor for reasonable administrative
expenses.--For purposes of subparagraph (A), if the
percentage of total receipts of a scholarship granting
organization for a taxable year which are used for
administrative purposes is equal to or less than 10
percent, such expenses shall be deemed to be reasonable
for purposes of such subparagraph.
``(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 1 year.''.
(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''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years ending after December 31, 2025.
SEC. 3. VOLUME CAP.
(a) In General.--
(1) National cap.--For purposes of sections 25F(b)(2) and
45BB(e) of the Internal Revenue Code of 1986 (as added by this
Act), the volume cap applicable under this section shall be
$10,000,000,000 for calendar year 2026 and each subsequent year
thereafter.
(2) Allocation of cap.--
(A) In general.--For each calendar year, the
Secretary shall, from the amount allotted under
paragraph (1)--
(i) subject to subparagraph (C), first
reserve, for each State, an amount equal to the
sum of the qualifying contributions designated
under paragraph (4) with respect to such State
in the preceding year; and
(ii) next, allocate the remaining amount
among the States by allocating to each State
the sum of--
(I) an amount that bears the same
relationship to 20 percent of such
remaining amount as the number of
individuals aged 5 through 17 in the
State, as determined by the Secretary
(in coordination with the Secretary of
Education) on the basis of the most
recent satisfactory data, bears to the
number of those individuals in all such
States, as so determined; and
(II) an amount that bears the same
relationship to 80 percent of such
remaining amount as the number of
individuals aged 5 through 17 from
families with incomes below the poverty
line in the State, as determined by the
Secretary (in coordination with the
Secretary of Education), on the basis
of the most recent satisfactory data,
bears to the number of those
individuals in all such States, as so
determined.
(B) Minimum allocation.--Notwithstanding
subparagraph (A), no State receiving an allotment under
this section may receive less than one-half of one
percent of the amount allotted for a calendar year.
(C) Initial year.--For purposes of the first
calendar year with respect to which this section
applies, the amount allocated to each State under this
paragraph shall be determined without respect to
subparagraph (A)(i).
(3) Allocation and adjustments.--
(A) Initial allocation to states.--No later than
November 1 of the year preceding a year for which there
is a volume cap on credits under paragraph (1)
(hereafter in this section, the ``applicable year''),
or as early as practicable with respect to the first
year, the Secretary shall announce the State
allocations under paragraph (2) for the applicable
year.
(B) Reallocation of unclaimed credits.--On or after
July 31 of any applicable year, the Secretary shall--
(i) make available any amounts of the
volume cap which were allocated to States under
paragraph (2) and which have not been claimed;
and
(ii) allocate such amounts on a first-come,
first-serve basis, as determined based on the
time (during such calendar year) at which the
taxpayer made the qualified contribution with
respect to which the allocation is made.
(4) Designation by taxpayer.--
(A) In general.--For purposes of determining the
amount of the volume cap allocated to a State under
paragraph (2) for any calendar year which has been
claimed by taxpayers, the Secretary shall--
(i) as part of the system described in
subsection (c), require each taxpayer making a
qualified contribution to designate the
distribution State with respect to such
contribution; and
(ii) for each State which an allocation has
been made under paragraph (2), ensure that the
total amount of qualified contributions
designated with respect to such State pursuant
to clause (i) during such calendar year does
not exceed the amount of the volume cap
allocated to a State for such calendar year.
(B) Binding on scholarship granting organization.--
The designation by the taxpayer of the distribution
State pursuant to subparagraph (A)(i) shall be binding
on the scholarship granting organization for purposes
of any distribution of the qualified contribution made
by such taxpayer.
(C) Distribution state.--For purposes of this
section, the term ``distribution State'' means the
State for which the scholarship granting organization
shall, pursuant to the requirements under section 4969
of the Internal Revenue Code of 1986, be required to
make distributions with respect to eligible students
residing in such State.
(D) Exception for administrative expenses.--The
requirements applicable to a scholarship granting
organization under subparagraphs (B) and (C) shall not
apply to such portion of the qualified contributions
received by such organization that are used for
administrative purposes (as described in section
4969(c)(1)(B) of the Internal Revenue Code of 1986).
(b) Annual Increases.--
(1) In general.--In the case of the calendar year after a
high use calendar year, the dollar amount otherwise in effect
under subsection (a) for such calendar year shall be equal to
105 percent of the dollar amount in effect for such high use
calendar year.
(2) High use calendar year.--For purposes of this
subsection, the term ``high use calendar year'' means any
calendar year for which 90 percent or more of the volume cap in
effect for such calendar year under subsection (a) is allocated
to taxpayers.
(3) Prevention of decreases in annual volume cap.--The
volume cap in effect under subsection (a) for any calendar year
shall not be less than the volume cap in effect under such
subsection for the preceding calendar year.
(4) Publication of annual volume cap.--The Secretary shall
make publicly available the dollar amount of the volume cap in
effect under subsection (a) for each calendar year.
(c) Real-Time Information.--For purposes of this section, the
Secretary 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 45BB of the Internal Revenue Code of 1986,
with such information to be updated in real time.
(d) Definition.--For purposes of this section, the term
``Secretary'' means the Secretary of the Treasury (or the Secretary's
delegate)
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.''.
(c) Effective Date.--The amendments made by this section shall
apply to amounts received after December 31, 2025, in taxable years
ending after such date.
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).
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