Federal

Education Freedom Scholarships and Opportunity Act

Source: Congress.gov · 4,868 words in original text

What This Bill Does

This bill creates two federal tax credits that encourage people and corporations to donate money to scholarship organizations and workforce training programs. The scholarships help students pay for elementary, secondary, and vocational education expenses. The bill also requires the Secretary of Education to set up a website where people can make donations and get approval for their tax credits.

Who It Affects

Individual taxpayers who donate to eligible scholarship organizations and workforce training organizations. Domestic corporations that make qualified contributions. States that participate in the program. Eligible scholarship-granting organizations and workforce training organizations. Elementary and secondary students, and secondary and postsecondary students in vocational training programs. The Secretary of Education, Secretary of the Treasury, and Secretary of Labor.

Key Provisions

• Individuals can claim a tax credit equal to the amount of their cash donations to eligible scholarship-granting organizations and eligible workforce training organizations, but the credit cannot exceed 10 percent of their adjusted gross income for that year (Sec. 102(a), 25F(b)). • Domestic corporations can claim a tax credit equal to the amount of their qualified contributions, but the credit cannot exceed 5 percent of the corporation's taxable income for that year (Sec. 102(b), 45AA(b)). • The Secretary of Education must establish and maintain a website that lists eligible organizations, allows taxpayers to make donations and receive immediate pre-approval for tax credits, and provides information about tax benefits (Sec. 201(a)). • A national cap of $10,000,000,000 applies each calendar year to total qualifying contributions, split equally between scholarship-granting organizations and workforce training organizations (Sec. 201(c)(1)). • States must submit lists of eligible scholarship-granting organizations and workforce training organizations by January 1 of each applicable year, and their allocations from the national cap are reallocated if they fail to do so and do not have certain existing eligible organizations (Sec. 201(c)(5)(B), 201(c)(5)(C)).

What Changes

The Internal Revenue Code is amended to add two new tax credits: Section 25F for individuals (Sec. 102(a)) and Section 45AA for corporations (Sec. 102(b)). These credits apply only if taxpayers elect to use them in a given tax year. Unused credits can be carried forward for up to 5 years. Scholarships awarded from contributions cannot be considered income to students or their parents for federal tax purposes. The bill prohibits federal control over private, religious, or home education providers and prevents states from excluding or discriminating against education providers based on religious character or affiliation.

Important Definitions

Qualified contribution: A cash donation to an eligible scholarship-granting organization or eligible workforce training organization (25F(c)(1)). Qualified expense: Educational expenses for elementary or secondary education as recognized by the state, secondary education components of career and technical education, or vocational education, workforce development, apprenticeship training, portable certificates or credentials, and industry-recognized certification or credentialing programs including preparation and examination costs (25F(c)(2)). Eligible scholarship-granting organization: A nonprofit organization that provides scholarships only to individual elementary and secondary students who reside in the state where it is recognized, allocates at least 90 percent of qualified contributions to scholarships, provides scholarships to multiple eligible students from multiple eligible families attending more than one education provider, and is either reported by the state or was able to receive state tax-credited contributions as of the bill's enactment date (25F(c)(3)). Eligible workforce training organization: A nonprofit organization that is not a private foundation (as defined in tax code), provides vocational education and training, workforce development, or apprenticeship training, complies with applicable state laws, is reported by the state to the Secretary of Education, and meets certain distribution requirements (25F(c)(4)). Qualifying scholarship: A scholarship granted by an eligible scholarship-granting organization to an individual elementary or secondary student, or by an eligible workforce training organization to a secondary or postsecondary student for vocational education, workforce development, portable certificates or credentials, or industry-recognized certification or credentialing programs including preparation and examination costs (25F(c)(5)). State: The 50 states, District of Columbia, Puerto Rico, American Samoa, Guam, Northern Mariana Islands, U.S. Virgin Islands, and the Department of the Interior acting through the Bureau of Indian Education (25F(c)(6)).

II 118TH CONGRESS 1ST SESSION S. 56 To amend the Internal Revenue Code of 1986 to establish tax credits to encourage individual and corporate taxpayers to contribute to scholar- ships for students through eligible scholarship-granting organizations and eligible workforce training organizations, and for other purposes. IN THE SENATE OF THE UNITED STATES JANUARY 24 (legislative day, JANUARY 3), 2023 Mr. CRUZ (for himself, Mrs. BLACKBURN, Mr. CRAMER, Mr. LANKFORD, and Mr. SCOTT of Florida) 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 establish tax credits to encourage individual and corporate tax- payers to contribute to scholarships for students through eligible scholarship-granting organizations and eligible workforce training organizations, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Education Freedom 4 Scholarships and Opportunity Act’’. 5 VerDate Sep 11 2014 23:41 Jan 28, 2023 Jkt 039200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S56.IS S56 kjohnson on DSK79L0C42PROD with BILLS 2 •S 56 IS SEC. 2. PURPOSE. 1 The purpose of this Act is to encourage individual 2 and corporate taxpayers to contribute to scholarships for 3 individual students through eligible scholarship-granting 4 organizations and eligible workforce training organiza- 5 tions, as identified by States. 6 TITLE I—AMENDMENTS TO THE 7 INTERNAL REVENUE CODE 8 OF 1986 9 SEC. 101. REFERENCES TO THE INTERNAL REVENUE CODE 10 OF 1986. 11 Except as otherwise expressly provided, whenever in 12 this title an amendment or repeal is expressed in terms 13 of an amendment to, or repeal of, a section or other provi- 14 sion, the reference shall be considered to be made to a 15 section or other provision of the Internal Revenue Code 16 of 1986. 17 SEC. 102. TAX CREDITS FOR CONTRIBUTIONS TO ELIGIBLE 18 SCHOLARSHIP-GRANTING ORGANIZATIONS 19 AND ELIGIBLE WORKFORCE TRAINING ORGA- 20 NIZATIONS. 21 (a) CREDIT FOR INDIVIDUALS.— 22 (1) IN GENERAL.—Subpart A of part IV of sub- 23 chapter A of chapter 1 is amended by adding after 24 section 25E the following new section: 25 VerDate Sep 11 2014 23:41 Jan 28, 2023 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S56.IS S56 kjohnson on DSK79L0C42PROD with BILLS 3 •S 56 IS ‘‘SEC. 25F. CONTRIBUTIONS TO ELIGIBLE SCHOLARSHIP- 1 GRANTING ORGANIZATIONS AND ELIGIBLE 2 WORKFORCE TRAINING ORGANIZATIONS. 3 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in- 4 dividual, there shall be allowed as a credit against the tax 5 imposed by this chapter for the taxable year an amount 6 equal to the sum of any qualified contributions made by 7 the taxpayer during the taxable year. 8 ‘‘(b) AMOUNT OF CREDIT.—The credit allowed under 9 subsection (a) in any taxable year shall not exceed 10 per- 10 cent of the taxpayer’s adjusted gross income for the tax- 11 able year. 12 ‘‘(c) DEFINITIONS.—For purposes of this section— 13 ‘‘(1) QUALIFIED CONTRIBUTION.—The term 14 ‘qualified contribution’ means a contribution of cash 15 to any eligible scholarship-granting organization or 16 eligible workforce training organization. 17 ‘‘(2) QUALIFIED EXPENSE.—The term ‘quali- 18 fied expense’ means any educational expense that 19 is— 20 ‘‘(A) for an individual student’s elementary 21 or secondary education, as recognized by the 22 State, 23 ‘‘(B) for the secondary education compo- 24 nent of an individual elementary or secondary 25 student’s career and technical education, as de- 26 VerDate Sep 11 2014 23:41 Jan 28, 2023 Jkt 039200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S56.IS S56 kjohnson on DSK79L0C42PROD with BILLS 4 •S 56 IS fined by section 3(5) of the Carl D. Perkins Ca- 1 reer and Technical Education Act of 2006 (20 2 U.S.C. 2302(5)), or 3 ‘‘(C) for the purpose of providing eligible 4 individual participants with scholarships for 5 secondary or postsecondary vocational education 6 and training, workforce development, or appren- 7 ticeship training, including preparation and ex- 8 amination costs relating to portable certificates 9 or credentials, or industry recognized certifi- 10 cation or credentialing programs. 11 ‘‘(3) ELIGIBLE SCHOLARSHIP-GRANTING ORGA- 12 NIZATION.—The term ‘eligible scholarship-granting 13 organization’ means— 14 ‘‘(A) an organization that— 15 ‘‘(i) is described in section 501(c)(3) 16 and exempt from taxation under section 17 501(a), 18 ‘‘(ii) provides qualifying scholarships 19 for qualified expenses to only individual el- 20 ementary and secondary students who— 21 ‘‘(I) reside in the State in which 22 the eligible scholarship-granting orga- 23 nization is recognized, or 24 VerDate Sep 11 2014 23:41 Jan 28, 2023 Jkt 039200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S56.IS S56 kjohnson on DSK79L0C42PROD with BILLS 5 •S 56 IS ‘‘(II) in the case of the Bureau of 1 Indian Education, are members of a 2 federally recognized tribe, 3 ‘‘(iii) a State reports to the Secretary 4 of Education as an eligible scholarship- 5 granting organization pursuant to section 6 201(c)(5)(B) of the Education Freedom 7 Scholarships and Opportunity Act, 8 ‘‘(iv) allocates at least 90 percent of 9 qualified contributions to qualifying schol- 10 arships for qualified expenses, and 11 ‘‘(v) provides scholarships to— 12 ‘‘(I) more than 1 eligible student, 13 ‘‘(II) more than 1 eligible family, 14 and 15 ‘‘(III) different eligible students 16 attending more than one education 17 provider, or 18 ‘‘(B) an organization that— 19 ‘‘(i) is described in section 501(c)(3) 20 and exempt from taxation under section 21 501(a), and 22 ‘‘(ii) pursuant to State law, was able, 23 as of the date of the enactment of the 24 Education Freedom Scholarships and Op- 25 VerDate Sep 11 2014 23:41 Jan 28, 2023 Jkt 039200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S56.IS S56 kjohnson on DSK79L0C42PROD with BILLS 6 •S 56 IS portunity Act, to receive contributions that 1 are eligible for a State tax credit if such 2 contributions are used by the organization 3 to provide scholarships to individual ele- 4 mentary and secondary students, including 5 scholarships for attending private schools. 6 ‘‘(4) ELIGIBLE WORKFORCE TRAINING ORGANI- 7 ZATION.— 8 ‘‘(A) IN GENERAL.—The term ‘eligible 9 workforce training organization’ means any or- 10 ganization— 11 ‘‘(i) which is— 12 ‘‘(I) described in section 13 501(c)(3) and exempt from taxation 14 under section 501(a), and 15 ‘‘(II) not a private foundation (as 16 defined in section 509), 17 ‘‘(ii) whose purpose is to provide voca- 18 tional education and training, workforce 19 development, or apprenticeship training to 20 eligible potential secondary or postsec- 21 ondary students, including organizations 22 whose purpose is to provide scholarships 23 for portable certificates or credentials, or 24 industry recognized certifications or 25 VerDate Sep 11 2014 23:41 Jan 28, 2023 Jkt 039200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S56.IS S56 kjohnson on DSK79L0C42PROD with BILLS 7 •S 56 IS credentialing programs, including prepara- 1 tion and examination costs, 2 ‘‘(iii) which is in compliance with ap- 3 plicable State laws, 4 ‘‘(iv) which a State has reported to 5 the Secretary of Education as an eligible 6 workforce training organization pursuant 7 to section 201(c)(5)(B) of the Education 8 Freedom Scholarships and Opportunity 9 Act, and 10 ‘‘(v) which satisfies the requirements 11 described in clauses (iv) and (v) of para- 12 graph (3)(A). 13 ‘‘(B) POTENTIAL ELIGIBLE WORKFORCE 14 TRAINING ORGANIZATIONS.—Eligible workforce 15 training organizations may include, but are not 16 limited to, organizations such as the following 17 (provided that such organizations satisfy the re- 18 quirements under subparagraph (A)): 19 ‘‘(i) Community colleges. 20 ‘‘(ii) Workforce training programs (as 21 defined by the applicable State workforce 22 agency). 23 ‘‘(iii) Organizations which provide— 24 VerDate Sep 11 2014 22:31 Jan 30, 2023 Jkt 039200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S56.IS S56 kjohnson on DSK79L0C42PROD with BILLS 8 •S 56 IS ‘‘(I) career and technical edu- 1 cation, or 2 ‘‘(II) training or apprenticeships, 3 including, but not limited to, training 4 or apprenticeships operated by a col- 5 lective bargaining organization or that 6 provide industry recognized certifi- 7 cations or credentials. 8 ‘‘(iv) Community organizations that 9 provide training that results in a certifi- 10 cation. 11 ‘‘(5) QUALIFYING SCHOLARSHIP.—The term 12 ‘qualifying scholarship’ means— 13 ‘‘(A) a scholarship granted by an eligible 14 scholarship-granting organization to an indi- 15 vidual elementary or secondary student, or 16 ‘‘(B) a scholarship granted by an eligible 17 workforce training organization as a scholarship 18 to a secondary or postsecondary student for the 19 purpose of vocational education and training, 20 workforce development, obtaining portable cer- 21 tificates or credentials, or industry recognized 22 certification or credentialing programs, includ- 23 ing preparation and examination costs, 24 under this section. 25 VerDate Sep 11 2014 23:41 Jan 28, 2023 Jkt 039200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S56.IS S56 kjohnson on DSK79L0C42PROD with BILLS 9 •S 56 IS ‘‘(6) STATE.—The term ‘State’ means each of 1 the 50 States, the District of Columbia, the Com- 2 monwealth of Puerto Rico, American Samoa, Guam, 3 the Commonwealth of the Northern Mariana Is- 4 lands, the United States Virgin Islands, and the De- 5 partment of the Interior (acting through the Bureau 6 of Indian Education). 7 ‘‘(d) RULES OF CONSTRUCTION.— 8 ‘‘(1) IN GENERAL.—A scholarship awarded to a 9 student from the proceeds of a qualified contribution 10 under this section or section 45AA shall not be con- 11 sidered assistance to the school, eligible workforce 12 training organization, or other educational provider 13 that enrolls, or provides educational services to, the 14 student or the student’s parents. 15 ‘‘(2) NOT TREATED AS INCOME.—The amount 16 of any such scholarship shall not be treated as in- 17 come of the student or their parents for purposes of 18 Federal tax laws or for determining eligibility for 19 any other Federal program. 20 ‘‘(3) PROHIBITION OF CONTROL OVER NON- 21 PUBLIC EDUCATION PROVIDERS.— 22 ‘‘(A) Nothing in this Act shall be con- 23 strued to permit, allow, encourage, or authorize 24 any Federal control over any aspect of any pri- 25 VerDate Sep 11 2014 23:41 Jan 28, 2023 Jkt 039200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S56.IS S56 kjohnson on DSK79L0C42PROD with BILLS 10 •S 56 IS vate, religious, or home education provider, 1 whether or not a home education provider is 2 treated as a private school or home school 3 under State law. This Act shall not be con- 4 strued to exclude private, religious, or home 5 education providers from participation in pro- 6 grams or services under this Act. 7 ‘‘(B) Nothing in this Act shall be con- 8 strued to permit, allow, encourage, or authorize 9 an entity submitting a list of eligible scholar- 10 ship-granting organizations or eligible workforce 11 training organizations on behalf of a State to 12 mandate, direct, or control any aspect of a pri- 13 vate or home education provider, regardless of 14 whether or not a home education provider is 15 treated as a private school under State law. 16 ‘‘(C) No participating State or entity act- 17 ing on behalf of a State shall exclude, discrimi- 18 nate against, or otherwise disadvantage any 19 education provider with respect to programs or 20 services under this Act based in whole or in 21 part on the provider’s religious education char- 22 acter or affiliation, including religiously or mis- 23 sion-based policies or practices. 24 VerDate Sep 11 2014 22:31 Jan 30, 2023 Jkt 039200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S56.IS S56 kjohnson on DSK79L0C42PROD with BILLS 11 •S 56 IS ‘‘(4) PARENTAL RIGHTS TO USE SCHOLAR- 1 SHIPS.—No participating State or entity acting on 2 behalf of a State shall disfavor or discourage the use 3 of such scholarships for the purchase of elementary 4 and secondary or workforce training education serv- 5 ices, including those services provided by private or 6 nonprofit entities, such as faith-based providers. 7 ‘‘(5) STATE AND LOCAL AUTHORITY.—Nothing 8 in this section or section 45AA shall be construed to 9 modify a State or local government’s authority and 10 responsibility to fund education. 11 ‘‘(e) LIMITATIONS.— 12 ‘‘(1) TAX LIABILITY.—No credit allowed under 13 this section or section 45AA shall exceed the tax- 14 payer’s Federal income tax liability for the taxable 15 year. 16 ‘‘(2) PROHIBITIONS.—A taxpayer is prohibited 17 from selling or transferring any portion of a tax 18 credit allowed under this section or section 45AA. 19 ‘‘(3) DENIAL OF DOUBLE BENEFIT.—The Sec- 20 retary shall prescribe such regulations or other guid- 21 ance to ensure that the sum of the tax benefits pro- 22 vided by Federal, State, or local law for a qualified 23 contribution receiving a Federal tax credit in any 24 taxable year shall not exceed the sum of the quali- 25 VerDate Sep 11 2014 23:41 Jan 28, 2023 Jkt 039200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S56.IS S56 kjohnson on DSK79L0C42PROD with BILLS 12 •S 56 IS fied contributions made by the taxpayer for the tax- 1 able year. 2 ‘‘(f) CARRYOVER OF CREDIT.—If a tax credit allowed 3 under this section or section 45AA is not fully used within 4 the applicable taxable year because of insufficient tax li- 5 ability on the part of the taxpayer, the unused amount 6 may be carried forward for a period not to exceed 5 years. 7 ‘‘(g) ELECTION.—This section shall apply to a tax- 8 payer for a taxable year only if the taxpayer elects to have 9 this section apply for such taxable year. 10 ‘‘(h) ALTERNATIVE MINIMUM TAX.—For purposes of 11 calculating the alternative minimum tax under section 55, 12 a taxpayer may use any credit received for a qualified con- 13 tribution under this section.’’. 14 (2) CLERICAL AMENDMENT.—The table of sec- 15 tions for subpart A of part IV of subchapter A of 16 chapter 1 of is amended by inserting after the item 17 relating to section 25E the following new item: 18 ‘‘Sec. 25F. Contributions to eligible scholarship-granting organizations and eli- gible workforce training organizations.’’. (b) CREDIT FOR CORPORATIONS.— 19 (1) IN GENERAL.—Subpart D of part IV of 20 subchapter A of chapter 1 is amended by adding at 21 the end the following new section: 22 VerDate Sep 11 2014 23:41 Jan 28, 2023 Jkt 039200 PO 00000 Frm 00012 Fmt 6652 Sfmt [Text truncated for display. Full text available on Congress.gov.]

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