Federal

Educational Choice for Children Act

Source: Congress.gov · 4,318 words in original text

What This Bill Does

This bill creates tax credits for people and corporations who donate money to nonprofit organizations that give scholarships to elementary and secondary school students. The scholarships help pay for education expenses for students from lower-income households. The bill also allows scholarship recipients to exclude their scholarship money from taxable income.

Who It Affects

Individuals who make charitable donations to scholarship organizations; corporations that make charitable donations to scholarship organizations; nonprofit organizations that give scholarships to K-12 students; elementary and secondary school students from households earning up to 300 percent of area median income; private and religious schools that receive scholarship students.

Key Provisions

• Individuals can claim a tax credit equal to their qualified charitable contributions to scholarship organizations, up to the greater of 10 percent of their adjusted gross income or $5,000 per year (Sec. 2(a)). • Corporations can claim a tax credit equal to 5 percent of their taxable income for qualified contributions to scholarship organizations (Sec. 2(b)). • Scholarship organizations must provide scholarships to at least 2 students who do not all attend the same school, maintain separate accounts for donations, and undergo annual financial audits by independent accountants (Sec. 2(a)). • Scholarship organizations must distribute 100 percent of money they receive in scholarships by a deadline, except for reasonable administrative expenses (up to 10 percent) and amounts carried forward (up to 15 percent) to the next year (Sec. 2(c)). • A total nationwide cap of $10,000,000,000 applies annually to all tax credits claimed under this bill, allocated on a first-come, first-served basis (Sec. 3(a)). • Scholarship money is excluded from a student's taxable income (Sec. 4). • No government entity can control scholarship organizations or exclude private or religious schools from receiving scholarship students (Sec. 5).

What Changes

Taxpayers will have new tax credits available when they donate to qualifying scholarship organizations. Nonprofit scholarship organizations will face new requirements including annual financial audits, income verification of eligible students, prohibition on earmarking donations for specific students, and mandatory distribution of funds within specified timeframes. Government entities cannot impose conditions that would exclude private or religious schools from participation in the scholarship program. Students receiving scholarships will not owe taxes on that scholarship money.

Important Definitions

"Eligible student" means a student from a household earning no more than 300 percent of the area median gross income who is eligible to enroll in public elementary or secondary school (Sec. 2(a)). "Qualified contribution" means a cash or securities donation to a scholarship organization (Sec. 2(a)). "Qualified elementary or secondary education expense" means education costs like tuition, fees, and tutoring for K-12 students (Sec. 2(a)). "Scholarship granting organization" means a nonprofit that is tax-exempt, not a private foundation (a restricted type of charity), provides scholarships only for K-12 education expenses, maintains separate accounts for donations, undergoes annual audits, and whose officers have no felony convictions (Sec. 2(a)).

Effective Date

The changes made by this bill apply to tax years beginning after December 31, 2023 (Sec. 6).

I 118TH CONGRESS 1ST SESSION H. R. 531 To amend the Internal Revenue Code of 1986 to allow a credit against tax for charitable donations to nonprofit organizations providing edu- cation scholarships to qualified elementary and secondary students. IN THE HOUSE OF REPRESENTATIVES JANUARY 26, 2023 Mr. SMITH of Nebraska (for himself, Mr. OWENS, Mr. KELLY of Pennsyl- vania, Ms. FOXX, Ms. STEFANIK, Mrs. MILLER-MEEKS, Mr. RESCHENTHALER, Mr. JORDAN, Mr. MCHENRY, Ms. MALLIOTAKIS, Mrs. STEEL, Mr. ALLEN, Mr. FLOOD, Mr. FRY, Mrs. HOUCHIN, Mr. LATURNER, Mr. LAWLER, Ms. LETLOW, Mr. LOUDERMILK, Ms. MACE, Mr. MEUSER, Mr. MOOLENAAR, Mr. RUTHERFORD, Ms. SALAZAR, Mr. WILSON of South Carolina, Mr. YAKYM, and Ms. TENNEY) introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committee on Education and the Work- force, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned 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 quali- fied elementary and secondary students. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 VerDate Sep 11 2014 20:38 Feb 08, 2023 Jkt 039200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H531.IH H531 pbinns on DSKJLVW7X2PROD with $$_JOB 2 •HR 531 IH SECTION 1. SHORT TITLE. 1 This Act may be cited as the ‘‘Educational Choice 2 for Children Act’’. 3 SEC. 2. TAX CREDIT FOR CONTRIBUTIONS TO SCHOLAR- 4 SHIP GRANTING ORGANIZATIONS. 5 (a) CREDIT FOR INDIVIDUALS.— 6 (1) IN GENERAL.—Subpart A of part IV of sub- 7 chapter A of chapter 1 of the Internal Revenue Code 8 of 1986 is amended by inserting after section 25E 9 the following new section: 10 ‘‘SEC. 25F. QUALIFIED ELEMENTARY AND SECONDARY EDU- 11 CATION SCHOLARSHIPS. 12 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in- 13 dividual, there shall be allowed as a credit against the tax 14 imposed by this chapter for the taxable year an amount 15 equal to the amount of qualified contributions made by 16 the taxpayer during the taxable year. 17 ‘‘(b) AMOUNT OF CREDIT.—The credit allowed under 18 subsection (a) in any taxable year shall not exceed an 19 amount equal to the greater of— 20 ‘‘(1) 10 percent of the adjusted gross income of 21 the taxpayer for the taxable year, or 22 ‘‘(2) $5,000. 23 ‘‘(c) DEFINITIONS.—For purposes of this section— 24 ‘‘(1) ELIGIBLE STUDENT.—The term ‘eligible 25 student’ means an individual who— 26 VerDate Sep 11 2014 20:38 Feb 08, 2023 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H531.IH H531 pbinns on DSKJLVW7X2PROD with $$_JOB 3 •HR 531 IH ‘‘(A) is a member of a household with an 1 income which is not greater than 300 percent 2 of the area median gross income (as such term 3 is used in section 42), and 4 ‘‘(B) is eligible to enroll in a public ele- 5 mentary or secondary school. 6 ‘‘(2) QUALIFIED CONTRIBUTION.—The term 7 ‘qualified contribution’ means a charitable contribu- 8 tion (as defined by section 170(c)) to a scholarship 9 granting organization in the form of cash or market- 10 able securities. 11 ‘‘(3) QUALIFIED ELEMENTARY OR SECONDARY 12 EDUCATION EXPENSE.—The term ‘qualified elemen- 13 tary or secondary education expense’ means— 14 ‘‘(A) expenses which would be described in 15 paragraph (3) of section 529(e) (relating to 16 qualified higher education expenses) if such 17 paragraph were applied— 18 ‘‘(i) by substituting ‘elementary school 19 or secondary school (as such terms are de- 20 fined in section 8101 of the Elementary 21 and Secondary Education Act of 1965 (20 22 U.S.C. 7801))’ for ‘eligible educational in- 23 stitution’ each place it appears, and 24 VerDate Sep 11 2014 20:38 Feb 08, 2023 Jkt 039200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H531.IH H531 pbinns on DSKJLVW7X2PROD with $$_JOB 4 •HR 531 IH ‘‘(ii) by substituting ‘such school’ for 1 ‘such institution’ each place it appears in 2 subparagraph (B) thereof, and 3 ‘‘(B) expenses for tutoring to address aca- 4 demic needs (including learning loss) in connec- 5 tion with enrollment or attendance at an ele- 6 mentary school or secondary school (as so de- 7 fined). 8 ‘‘(4) SCHOLARSHIP GRANTING ORGANIZA- 9 TION.—The term ‘scholarship granting organization’ 10 means any organization— 11 ‘‘(A) which— 12 ‘‘(i) is described in section 501(c)(3) 13 and exempt from tax under section 501(a), 14 and 15 ‘‘(ii) is not a private foundation, 16 ‘‘(B) substantially all of the activities of 17 which are providing scholarships for qualified 18 elementary or secondary education expenses of 19 eligible students, 20 ‘‘(C) which prevents the co-mingling of 21 qualified contributions with other amounts by 22 maintaining one or more separate accounts ex- 23 clusively for qualified contributions, and 24 VerDate Sep 11 2014 20:38 Feb 08, 2023 Jkt 039200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H531.IH H531 pbinns on DSKJLVW7X2PROD with $$_JOB 5 •HR 531 IH ‘‘(D)(i) which meets the requirements of 1 subsection (d), or 2 ‘‘(ii) which, pursuant to State law, was 3 able, as of the date of the enactment of the 4 Educational Choice for Children Act, to receive 5 contributions that are eligible for a State tax 6 credit if such contributions are used by the or- 7 ganization to provide scholarships to individual 8 elementary and secondary students, including 9 scholarships for attending private schools. 10 ‘‘(d) REQUIREMENTS FOR SCHOLARSHIP GRANTING 11 ORGANIZATIONS.— 12 ‘‘(1) IN GENERAL.—An organization meets the 13 requirements of this subsection if— 14 ‘‘(A) such organization provides scholar- 15 ships to 2 or more students, provided that not 16 all such students attend the same school, 17 ‘‘(B) such organization does not provide 18 scholarships for any expenses other than quali- 19 fied elementary or secondary education ex- 20 penses, 21 ‘‘(C) such organization provides a scholar- 22 ship to eligible students with a priority for— 23 ‘‘(i) students awarded a scholarship 24 the previous school year, and 25 VerDate Sep 11 2014 20:38 Feb 08, 2023 Jkt 039200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H531.IH H531 pbinns on DSKJLVW7X2PROD with $$_JOB 6 •HR 531 IH ‘‘(ii) after application of clause (i), 1 any such students who have a sibling who 2 was awarded a scholarship from such orga- 3 nization, 4 ‘‘(D) such organization does not earmark 5 or set aside contributions for scholarships on 6 behalf of any particular student, 7 ‘‘(E) such organization takes appropriate 8 steps to verify the annual household income and 9 family size of eligible students to whom it 10 awards scholarships, and limits them to a mem- 11 ber of a household for which the income does 12 not exceed the amount established under sub- 13 section (c)(1)(A), 14 ‘‘(F) such organization— 15 ‘‘(i) obtains from an independent cer- 16 tified public accountant annual financial 17 and compliance audits, and 18 ‘‘(ii) certifies to the Secretary (at such 19 time, and in such form and manner, as the 20 Secretary may prescribe) that the audit de- 21 scribed in clause (i) has been completed, 22 and 23 ‘‘(G) no officer or board member of such 24 organization has been convicted of a felony. 25 VerDate Sep 11 2014 20:38 Feb 08, 2023 Jkt 039200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H531.IH H531 pbinns on DSKJLVW7X2PROD with $$_JOB 7 •HR 531 IH ‘‘(2) INDEPENDENT CERTIFIED PUBLIC AC- 1 COUNTANT.—For purposes of paragraph (1)(F), the 2 term ‘independent certified public accountant’ 3 means, with respect to an organization, a certified 4 public accountant who is not a person described in 5 section 465(b)(3)(A) with respect to such organiza- 6 tion or any employee of such organization. 7 ‘‘(3) PROHIBITION ON SELF-DEALING.— 8 ‘‘(A) IN GENERAL.—A scholarship grant- 9 ing organization may not award a scholarship 10 to any disqualified person. 11 ‘‘(B) DISQUALIFIED PERSON.—For pur- 12 poses of this paragraph, a disqualified person 13 shall be determined pursuant to rules similar to 14 the rules of section 4946. 15 ‘‘(e) DENIAL OF DOUBLE BENEFIT.—Any qualified 16 contribution for which a credit is allowed under this sec- 17 tion shall not be taken into account as a charitable con- 18 tribution for purposes of section 170. 19 ‘‘(f) CARRYFORWARD OF UNUSED CREDIT.— 20 ‘‘(1) IN GENERAL.—If the credit allowable 21 under subsection (a) for any taxable year exceeds 22 the limitation imposed by section 26(a) for such tax- 23 able year reduced by the sum of the credits allowable 24 under this subpart (other than this section, section 25 VerDate Sep 11 2014 20:38 Feb 08, 2023 Jkt 039200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H531.IH H531 pbinns on DSKJLVW7X2PROD with $$_JOB 8 •HR 531 IH 23, and section 25D), such excess shall be carried to 1 the succeeding taxable year and added to the credit 2 allowable under subsection (a) for such taxable year. 3 ‘‘(2) LIMITATION.—No credit may be carried 4 forward under this subsection to any taxable year 5 following the fifth taxable year after the taxable year 6 in which the credit arose. For purposes of the pre- 7 ceding sentence, credits shall be treated as used on 8 a first-in first-out basis. 9 ‘‘(g) APPLICATION OF VOLUME CAP.—A qualified 10 contribution shall be taken into account under this section 11 only if such contribution is not in excess of the volume 12 cap established under section 3 of the Educational Choice 13 for Children Act.’’. 14 (2) CLERICAL AMENDMENT.—The table of sec- 15 tions for subpart A of part IV of subchapter A of 16 chapter 1 of such Code is amended by inserting 17 after the item relating to section 25E the following 18 new item: 19 ‘‘Sec. 25F. Qualified elementary and secondary education scholarships.’’. (b) CREDIT FOR CORPORATIONS.— 20 (1) IN GENERAL.—Subpart D of part IV of 21 subchapter A of chapter 1 of such Code is amended 22 by adding after section 45Z the following: 23 VerDate Sep 11 2014 20:38 Feb 08, 2023 Jkt 039200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H531.IH H531 pbinns on DSKJLVW7X2PROD with $$_JOB 9 •HR 531 IH ‘‘SEC. 45AA. CONTRIBUTIONS TO SCHOLARSHIP GRANTING 1 ORGANIZATIONS. 2 ‘‘(a) GENERAL RULE.—For purposes of section 38, 3 in the case of a corporation, the education scholarship 4 credit determined under this section for the taxable year 5 is the aggregate amount of qualified contributions for the 6 taxable year. 7 ‘‘(b) AMOUNT OF CREDIT.—The credit allowed under 8 subsection (a) for any taxable year shall not exceed 5 per- 9 cent of the taxable income (as defined in section 10 170(b)(2)(D)) of the corporation for such taxable year. 11 ‘‘(c) QUALIFIED CONTRIBUTIONS.—For purposes of 12 this section, the term ‘qualified contribution’ has the 13 meaning given such term under section 25F. 14 ‘‘(d) DENIAL OF DOUBLE BENEFIT.—No deduction 15 shall be allowed under any provision of this chapter for 16 any expense for which a credit is allowed under this sec- 17 tion. 18 ‘‘(e) APPLICATION OF VOLUME CAP.—A qualified 19 contribution shall be taken into account under this section 20 only if such contribution is not in excess of the volume 21 cap established under section 3 of the Educational Choice 22 for Children Act.’’. 23 (2) CONFORMING AMENDMENTS.—Section 24 38(b) of such Code is amended by striking ‘‘plus’’ at 25 the end of paragraph (39), by striking the period 26 VerDate Sep 11 2014 20:38 Feb 08, 2023 Jkt 039200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H531.IH H531 pbinns on DSKJLVW7X2PROD with $$_JOB 10 •HR 531 IH and inserting ‘‘, plus’’ at the end of paragraph (40), 1 and by adding at the end the following new para- 2 graph: 3 ‘‘(41) the education scholarship credit deter- 4 mined under section 45AA(a).’’. 5 (3) CLERICAL AMENDMENT.—The table of sec- 6 tions for subpart D of part IV of subchapter A of 7 chapter 1 of such Code is amended by adding at the 8 end the following new item: 9 ‘‘Sec. 45AA. Contributions to scholarship granting organizations.’’. (c) FAILURE OF SCHOLARSHIP GRANTING ORGANI- 10 ZATIONS TO MAKE DISTRIBUTIONS.— 11 (1) IN GENERAL.—Chapter 42 of such Code is 12 amended by adding at the end the following new 13 subchapter: 14 ‘‘Subchapter I—Scholarship Granting 15 Organizations 16 ‘‘Sec. 4969. Failure to distribute receipts. ‘‘SEC. 4969. FAILURE TO DISTRIBUTE RECEIPTS. 17 ‘‘(a) IN GENERAL.—In the case of any scholarship 18 granting organization (as defined in section 25F) which 19 has been determined by the Secretary to have failed to 20 satisfy the requirement under subsection (b) for any tax- 21 able year, any contribution made to such organization dur- 22 ing the first taxable year beginning after the date of such 23 determination shall not be treated as a qualified contribu- 24 VerDate Sep 11 2014 20:38 Feb 08, 2023 Jkt 039200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H531.IH H531 pbinns on DSKJLVW7X2PROD with $$_JOB 11 •HR 531 IH tion (as defined in section 25F(c)(2)) for purposes of sec- 1 tions 25F and 45AA. 2 ‘‘(b) REQUIREMENT.—The requirement described in 3 this subsection is that the amount of receipts of the schol- 4 arship granting organization for the taxable year which 5 are distributed before the distribution deadline with re- 6 spect to such receipts shall not be less than the required 7 distribution amount with respect to such taxable year. 8 ‘‘(c) DEFINITIONS.—For purposes of this section— 9 ‘‘(1) REQUIRED DISTRIBUTION AMOUNT.— 10 ‘‘(A) IN GENERAL.—The required distribu- 11 tion amount with respect to a taxable year is 12 the amount equal to 100 percent of the total re- 13 ceipts of the scholarship granting organization 14 for such taxable year— 15 ‘‘(i) reduced by the sum of such re- 16 ceipts that are retained for reasonable ad- 17 ministrative expenses for the taxable year 18 or are carried to the succeeding taxable 19 year under subparagraph (C), and 20 ‘‘(ii) increased by the amount of the 21 carryover under subparagraph (C) from 22 the preceding taxable year. 23 ‘‘(B) SAFE HARBOR FOR REASONABLE AD- 24 MINISTRATIVE EXPENSES.—For purposes of 25 VerDate Sep 11 2014 20:38 Feb 08, 2023 Jkt 039200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H531.IH H531 pbinns on DSKJLVW7X2PROD with $$_JOB 12 •HR 531 IH subparagraph (A)(i), if the percentage of total 1 receipts of a scholarship granting organization 2 for a taxable year which are used for adminis- 3 trative purposes is equal to or less than 10 per- 4 cent, such expenses shall be deemed to be rea- 5 sonable for purposes of such subparagraph. 6 ‘‘(C) CARRYOVER.—With respect to the 7 amount of the total receipts of a scholarship 8 granti [Text truncated for display. Full text available on Congress.gov.]

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