To amend the Internal Revenue Code of 1986 to allow a credit for contributions for the benefit of elementary and secondary schools.

Summary: Education Freedom Act - Amends the Internal Revenue Code to permit a tax credit for 50 percent of certain cash contributions by a taxpayer to an education investment organization or to an elementary or secondary school. Sets a maximum credit of $50,000 for corporations and $250 for other taxpayers ($500 for a joint return). Provides other limitations on the amount of the credit in certain specified instances.Excludes from gross income any amount received as a grant for qualified elementary and secondary expenses from an education investment organization. Defines "qualified elementary and secondary expenses" and "education investment organization." Revises definition of "school" for purposes of defining qualified elementary and secondary education expenses.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Education Freedom Act''.

SEC. 2. CREDIT FOR CONTRIBUTIONS FOR THE BENEFIT OF ELEMENTARY AND 
              SECONDARY SCHOOLS.

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

``SEC. 30B. CREDIT FOR CONTRIBUTIONS FOR THE BENEFIT OF ELEMENTARY AND 
              SECONDARY SCHOOLS.

    ``(a) Allowance of Credit.--There shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year an amount 
equal to 50 percent of the qualified charitable contributions of the 
taxpayer for the taxable year.
    ``(b) Limitations.--
            ``(1) Individuals, etc.--In the case of a taxpayer other 
        than a corporation, the credit allowed by subsection (a) for 
        any taxable year shall not exceed $250 ($500 in the case of a 
        joint return).
            ``(2) Corporations.--In the case of a corporation, the 
        credit allowed by subsection (a) shall not exceed $50,000.
            ``(3) Limitation in case of state credit.--Subject to 
        subsection (d)(2), in the case of a taxpayer which claims a 
        credit on a State income tax return for any qualified 
        charitable contribution, the amount of credit under this 
        section shall be the lesser of--
                    ``(A) the amount which, when added to the amount of 
                the State income tax credit, equals the total amount of 
                the taxpayer's qualified charitable contributions, or
                    ``(B) the limitation amount that applies under 
                paragraph (1) or (2).
    ``(c) Qualified Charitable Contribution.--For purposes of this 
section--
            ``(1) In general.--The term `qualified charitable 
        contribution' means, with respect to any taxable year, the 
        aggregate amount allowable as a deduction under section 170 
        (determined without regard to subsection (d)(1)) for cash 
        contributions--
                    ``(A) to an education investment organization, or
                    ``(B) to a public, private, or religious school 
                providing education at the elementary or secondary 
                level.
            ``(2) Education investment organization.--For purposes of 
        this section--
                    ``(A) In general.--The term `education investment 
                organization' means any organization described in 
                section 170(c)(2) if the annual disbursements of the 
                organization in the form of grants for qualified 
                elementary and secondary education expenses are 
                normally not less than 90 percent of the sum of such 
                organization's annual gross income and contributions 
                and gifts.
                    ``(B) 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).
    ``(d) Special Rules.--
            ``(1) Denial of double benefit.--No deduction shall be 
        allowed under this chapter for any contribution for which 
        credit is allowed under this section.
            ``(2) Application with other credits.--The credit allowed 
        by subsection (a) for any taxable year shall not exceed the 
        excess of--
                    ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                    ``(B) the sum of the credits allowable under this 
                part (other than sections 21, 22, 24, 25A, 25B, subpart 
                C, and this section) and under section 1397E.
            ``(3) Controlled groups.--All persons who are treated as 
        one employer under subsection (a) or (b) of section 52 shall be 
        treated as 1 taxpayer for purposes of this section.
    ``(e) Election To Have Credit Not Apply.--A taxpayer may elect to 
have this section not apply for any taxable year.''.
    (b) Clerical Amendment.--The table of sections for subpart B of 
part IV of subchapter A of chapter 1 of such Code is amended by adding 
at the end the following new item:

                              ``Sec. 30B. Credit for contributions for 
                                        the benefit of elementary and 
                                        secondary schools.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 3. EXCLUSION FROM GROSS INCOME OF GRANTS FROM EDUCATION INVESTMENT 
              ORGANIZATIONS.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to items specifically excluded 
from gross income) is amended by inserting after section 117 the 
following new section:

``SEC. 117A. GRANTS FROM EDUCATION INVESTMENT ORGANIZATIONS.

    ``(a) General Rule.--Gross income does not include any amount 
received as a grant for qualified elementary and secondary education 
expenses from an education investment organization.
    ``(b) Definitions.--For purposes of this section, the terms 
`qualified elementary and secondary education expenses' and `education 
investment organization' have the meanings provided by section 30B.''.
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 of such Code is amended by inserting after 
the item relating to section 117 the following:

                              ``Sec. 117A. Grants from education 
                                        investment organizations.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts received in taxable years beginning after December 31, 
2003.

SEC. 4. REVISION OF DEFINITION OF SCHOOL FOR PURPOSES OF QUALIFIED 
              ELEMENTARY AND SECONDARY EDUCATION EXPENSES.

    (a) In General.--Paragraph (4) of section 530(b) of the Internal 
Revenue Code of 1986 (defining qualified elementary and secondary 
education expenses) is amended--
            (1) in clauses (i) and (ii) of subparagraph (A), by 
        striking ``public, private, or religious'', and
            (2) in subparagraph (B), by inserting after ``any school'' 
        the following: ``, including a public, private, religious, or 
        home school,''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.