To amend the Internal Revenue Code of 1986 to provide for a credit which is dependent on enactment of State qualified scholarship tax credits and which is allowed against the Federal income tax for charitable contributions to education investment organizations that provide assistance for elementary and secondary education.

Summary: Children's Hope Act of 2005 - Amends the Internal Revenue Code to allow a tax credit, up to $100 ($200 for joint returns), for charitable contributions to an education investment organization that disburses 90% of its contributions to provide grants to students for elementary and secondary education expenses, if at least 50% of such disbursements go to students who qualify for free or reduced-cost school lunches. Requires a taxpayer claiming such credit to first claim a state qualified scholarship tax credit, as defined by this Act, as a condition of eligibility for the federal tax credit.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Children's Hope Act of 2005''.

SEC. 2. TAX CREDIT FOR CONTRIBUTIONS TO EDUCATION INVESTMENT 
              ORGANIZATIONS.

    (a) In General.--Subpart B of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to other credits) is 
amended by inserting after section 30C the following new section:

``SEC. 30D. CONTRIBUTIONS TO EDUCATION INVESTMENT ORGANIZATIONS.

    ``(a) In General.--There shall be allowed as a credit against the 
tax imposed by this chapter for the taxable year the aggregate amount 
of qualified contributions for the taxable year.
    ``(b) Limitation.--The amount allowed as a credit under subsection 
(a) for a taxable year shall not exceed $100 ($200 in the case of a 
joint return).
    ``(c) Qualified Contributions.--For purposes of this section--
            ``(1) In general.--The term `qualified contribution' means 
        a charitable contribution (as defined by section 170(c)) to an 
        education investment organization.
            ``(2) Education investment organization.--The term 
        `education investment organization' means any organization 
        described in section 170(c)(2) if--
                    ``(A) normally not less than 90 percent of the 
                annual cash contributions to such organization are 
                disbursed in the form of grants to students for 
                qualified elementary and secondary education expenses, 
                and
                    ``(B) not less than \1/2\ of such disbursements are 
                to students who are eligible for free or reduced-cost 
                lunches under the school lunch program established 
                under the Richard B. Russell National School Lunch Act.
            ``(3) Qualified elementary and secondary education 
        expenses.--The term `qualified elementary and secondary 
        education expenses' has the meaning given such term by section 
        530(b)(4), except that `child' shall be substituted for 
        `beneficiary' and `a child' shall be substituted for `the 
        designated beneficiary of the trust' in clauses (i) and (iii) 
        of subparagraph (A).
            ``(4) State credit must be taken first.--
                    ``(A) No credit shall be allowed to a taxpayer 
                under this section for a taxable year unless, for the 
                taxable year, the taxpayer is allowed on the taxpayer's 
                State tax return the minimum State qualified 
                scholarship tax credit (as defined in section 3 of the 
                Children's Hope Act of 2003).
                    ``(B) No credit shall be allowed to a taxpayer 
                under this section for such taxable year for any 
                contributions that were taken into account for purposes 
                of such State qualified scholarship tax credit.
    ``(d) Special Rules.--
            ``(1) 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.
            ``(2) Time when contributions deemed made.--For purposes of 
        this section, a taxpayer shall be deemed to have made a 
        contribution to an education investment organization on the 
        last day of the preceding taxable year if the contribution is 
        made on account of such taxable year and is made not later than 
        the time prescribed by law for filing the return for such 
        taxable year (not including extensions thereof).''.
    (b) Scholarships From Education Investment Organizations Excluded 
From Income.--Section 74 of such Code (relating to prizes and awards) 
is amended by adding at the end the following new subsection:
    ``(d) Scholarships From Education Investment Organizations.--Gross 
income does not include amounts received as a scholarship from an 
education investment organization (as defined in section 30D(c)(2)) for 
qualified elementary and secondary education expenses (as defined in 
section 30D(c)(3)). Such scholarship shall not be taken into account 
for purposes of determining eligibility for any Federal program.''.
    (c) Clerical Amendment.--The table of sections for such subpart B 
is amended by inserting after the item relating to section 30C the 
following new item:

``Sec. 30D. Contributions to education investment organizations.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2004.

SEC. 3. FEDERAL SCHOLARSHIP TAX CREDIT CONDITIONED ON STATE QUALIFIED 
              SCHOLARSHIP TAX CREDIT.

    (a) In General.--For purposes of section 30D(e) of the Internal 
Revenue Code of 1986 (as added by section 2 of this Act) a scholarship 
tax credit shall not be treated as a State qualified scholarship tax 
credit unless the requirements of subsection (b) are met.
    (b) Requirements Relating to State Qualified Scholarship Tax 
Credit.--
            (1) In general.--For purposes of subsection (a), the 
        requirements of this subsection are met only if--
                    (A) the tax credit is for an amount of not less 
                than $250 per taxpayer and is allowed against the State 
                income tax (property tax for those States that don't 
                have income tax) for the amount of voluntary cash 
                contributions made by the taxpayer during the taxable 
                year to a school tuition organization described in 
                paragraph (2),
                    (B) the excess of such credit over tax liability 
                may be carried forward for not more than five years,
                    (C) if the taxpayer does not require, as a 
                condition of the contribution, that the contribution 
                must benefit a specific child, and
                    (D) such credit is not allowable for direct 
                donations to private schools.
            (2) School tuition organization.--For purposes of paragraph 
        (1), a school tuition organization is described in this 
        paragraph if such organization--
                    (A) is an organization operating in the State and 
                is described in section 501(c)(3), and is exempt from 
                tax under section 501(a), of the Internal Revenue Code 
                of 1986,
                    (B) expends at least 90 percent of its annual cash 
                contributions for educational scholarships or tuition 
                grants to children to allow them to attend any 
                qualified school chosen at the sole discretion of their 
                parents, and
                    (C) disburses at least 90 percent of its annual 
                cash contributions within one year of their receipt.
            (3) Qualified school.--For purposes of paragraph (2), the 
        term ``qualified school'' means any elementary school or 
        secondary school that is located in the State in which the 
        taxpayer resides and does not discriminate on the basis of 
        race, color, handicap, familial status, or national origin and 
        that satisfies the requirements prescribed by State law for 
        such schools as of December 31, 2004.
            (4) Educational scholarships or tuition grants.--The term 
        ``educational scholarship or a tuition grant'' means any 
        scholarship or grant awarded for qualified elementary and 
        secondary education expenses (as defined in section 530(b)(4) 
        of the Internal Revenue Code of 1986).
    (c) State.--For purposes of this section, the term ``State'' means 
any of the several States.