To amend the Internal Revenue Code of 1986 to allow a business tax credit for contributions to education scholarship organizations.

Summary: Businesses Supporting Education Act of 2006 - Amends the Internal Revenue Code to allow business entities a tax credit for contributions to a tax-exempt education scholarship organization which provides scholarships to elementary or secondary school students from low or moderate income families. Limits the annual amount of such credit to $100,000.

Imposes a penalty tax on education scholarship organizations that fail to make required distributions of scholarship funds.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Businesses Supporting Education Act 
of 2006''.

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

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to business related 
credits) is amended by adding at the end the following new section:

``SEC. 45N. CONTRIBUTIONS TO EDUCATION SCHOLARSHIP ORGANIZATIONS.

    ``(a) General Rule.--For purposes of section 38, in the case of a 
corporation, partnership, or trade or business carried on as a sole 
proprietorship, the education scholarship credit determined under this 
section for the taxable year is the aggregate amount of qualified 
contributions for the taxable year.
    ``(b) Limitation.--
            ``(1) Dollar limitation.--The amount of the credit 
        determined under this section for any taxable year shall not 
        exceed $100,000.
            ``(2) Application to partnerships and s corporations.--In 
        the case of a partnership, the limitations of paragraph (1) 
        shall apply with respect to the partnership and with respect to 
        each partner. A similar rule shall apply in the case of an S 
        corporation and its shareholders.
    ``(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 scholarship organization.
            ``(2) Education scholarship organization.--The term 
        `education scholarship organization' means any organization 
        which is described in section 170(c)(2) and exempt from tax 
        under section 501(a) and whose exclusive purpose is to provide 
        scholarships for the qualified elementary and secondary 
        education expenses of eligible students.
            ``(3) Eligible student.--The term `eligible student' means 
        an individual--
                    ``(A) who is enrolled in an elementary or secondary 
                school (within the meaning of section 530(b)(4)(B)),
                    ``(B) who is a member of a household with a total 
                annual household income which does not exceed 250 
                percent of the Federal poverty guidelines (as 
                determined by the Secretary of Health and Human 
                Services), and
                    ``(C) with respect to whom the taxpayer is entitled 
                to a deduction for the taxable year under section 151.
            ``(4) 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) thereof.
            ``(5) Scholarship.--The term `scholarship' does not include 
        any payment to fulfill or fund any obligation or project of any 
        school or school system to provide a free, appropriate public 
        education.
    ``(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) Election.--This section shall apply to a taxpayer for a 
taxable year only if such taxpayer elects to have this section apply 
for such taxable year.''.
    (b) Excise Tax on Failure of Education Scholarship Organizations to 
Make Distributions.--
            (1) In general.--Chapter 42 of such Code (relating to 
        private foundations and certain other tax-exempt organizations) 
        is amended by adding at the end the following new subchapter:

          ``Subchapter F--Education Scholarship Organizations

``Sec. 4966. Tax on failure to distribute receipts.

``SEC. 4966. TAX ON FAILURE TO DISTRIBUTE RECEIPTS.

    ``(a) Tax Imposed.--There is hereby imposed a tax on the failure of 
an education scholarship organization to make required distributions 
before the distribution deadline.
    ``(b) Amount of Tax.--The tax imposed by subsection (a) shall be 
equal to 15 percent of the excess (if any) of--
            ``(1) the required distribution amount with respect to a 
        taxable year, over
            ``(2) the amount of receipts of the education scholarship 
        organization for such taxable year which are distributed before 
        the distribution deadline with respect to such receipts.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Required distribution amount.--The required 
        distribution amount with respect to a taxable year is the 
        amount equal to 90 percent of the total receipts of the 
        education scholarship organization for such taxable year.
            ``(2) Distributions.--Distributions include amounts which 
        are formally committed but not distributed.
            ``(3) Distribution deadline.--The distribution deadline 
        with respect to receipts for a taxable year is the first day of 
        the second taxable year following the taxable year in which 
        such receipts are received by the education scholarship 
        organization.
    ``(d) Reasonable Cause Exception.--The tax imposed by subsection 
(a) shall not apply with respect to any failure to make required 
distributions before the distribution deadline which is not willful and 
is due to reasonable cause.''.
            (2) Abatement of tax.--
                    (A) General rule.--Subsection (b) of section 4962 
                of such Code (defining qualified first tier tax) is 
                amended by striking ``or D'' and inserting ``D, or F''.
                    (B) First tier tax.--Subsection (a) of section 4963 
                of such Code (defining first tier tax) is amended by 
                inserting ``4966,'' after ``4958,''.
                    (C) Taxable event.--Subsection (c) of section 4963 
                of such Code (defining taxable event) is amended by 
                inserting ``4966,'' after ``4958,''.
            (3) Correction period.--Subparagraph (A) of section 
        4963(e)(2) of such Code (relating to special rules for when 
        taxable event occurs) is amended by inserting ``or 4966'' after 
        ``4942''.
            (4) Conforming amendment.--The table of subchapters for 
        chapter 42 of such Code is amended by adding at the end the 
        following new item:

         ``subchapter f. education scholarship organizations''.
    (c) Credit to Be Part of General Business Credit.--Subsection (b) 
of section 38 of such Code (relating to general business credit) is 
amended by striking ``plus'' at the end of paragraph (29), by striking 
the period at the end of paragraph (30) and inserting ``, plus'' , and 
by adding at the end the following new paragraph:
            ``(31) the education scholarship credit section 45N(a).''.
    (d) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 of such Code is amended by 
inserting after the item relating to section 45M the following new 
item:

``Sec. 45M. Contributions to education scholarship organizations.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2005.