I 

116TH CONGRESS 

1ST SESSION H. R. 1434 

To amend the Internal Revenue Code of 1986 to establish tax credits to 

encourage individual and corporate taxpayers to contribute to scholarships for elementary and secondary students through eligible scholarshipgranting organizations, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

FEBRUARY 28, 2019 

Mr. BYRNE (for himself, Mr. WRIGHT, Mr. LAMALFA, Ms. FOXX of North 

Carolina, Mr. ROONEY of Florida, Mrs. LESKO, Mr. BANKS, Mr. GAETZ, 

Mr. MITCHELL, Mrs. WALORSKI, Mr. ALLEN, Mr. POSEY, Mr. BUDD, 

Mr. STIVERS, Mr. GOSAR, Mr. BISHOP of Utah, Mr. MOONEY of West 

Virginia, Mr. MEADOWS, Mr. HAGEDORN, Mr. GIANFORTE, Mr. 

HUIZENGA, Mr. BIGGS, Mr. WALBERG, Mr. TIMMONS, Mr. WEBER of 

Texas, Mr. NEWHOUSE, Mr. NORMAN, Mr. SCALISE, Mr. FLORES, Mr. 

ROGERS of Alabama, Mr. SMITH of Nebraska, Mr. HARRIS, Mrs. ROBY, 

Mr. WILSON of South Carolina, Mr. YOHO, Mr. LOUDERMILK, Mr. 

CHABOT, Mr. BABIN, Mr. BARR, and Mr. DUNCAN) introduced the following bill; which was referred to the Committee on Ways and Means, 

and in addition to the Committee on Education and Labor, 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 establish 

tax credits to encourage individual and corporate taxpayers to contribute to scholarships for elementary and 

secondary students through eligible scholarship-granting 

organizations, and for other purposes. 


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1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Education Freedom 

5 Scholarships and Opportunity Act’’. 

6 SEC. 2. PURPOSE. 

7 The purpose of this Act is to encourage individual 

8 and corporate taxpayers to contribute to scholarships for 

9 individual elementary and secondary students through eli10 gible scholarship-granting organizations, as identified by 

11 States. 

12 TITLE I—AMENDMENTS TO THE 

13 INTERNAL REVENUE CODE 

14 OF 1986 

15 SEC. 101. REFERENCES TO THE INTERNAL REVENUE CODE 

16 OF 1986. 

17 Except as otherwise expressly provided, whenever in 

18 this title an amendment or repeal is expressed in terms 

19 of an amendment to, or repeal of, a section or other provi20 sion, the reference shall be considered to be made to a 

21 section or other provision of the Internal Revenue Code 

22 of 1986. 

23 SEC. 102. TAX CREDITS FOR CONTRIBUTIONS TO ELIGIBLE 

24 SCHOLARSHIP-GRANTING ORGANIZATIONS. 

25 (a) CREDIT FOR INDIVIDUALS.— 


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1 (1) IN GENERAL.—Subpart A of part IV of sub2 chapter A of chapter 1 is amended by adding after 

3 section 25D the following new section: 

4 ‘‘SEC. 25E. CONTRIBUTIONS TO ELIGIBLE SCHOLARSHIP5 GRANTING ORGANIZATIONS. 

6 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in7 dividual, there shall be allowed as a credit against the tax 

8 imposed by this chapter for the taxable year an amount 

9 equal to the sum of any qualified contributions made by 

10 the taxpayer during the taxable year. 

11 ‘‘(b) AMOUNT OF CREDIT.—The credit allowed under 

12 subsection (a) for any taxable year shall not exceed 10 

13 percent of the taxpayer’s adjusted gross income for the 

14 taxable year. 

15 ‘‘(c) DEFINITIONS.—For purposes of this section— 

16 ‘‘(1) QUALIFIED CONTRIBUTION.—The term 

17 ‘qualified contribution’ means a contribution of cash 

18 to any eligible scholarship-granting organization. 

19 ‘‘(2) QUALIFIED EXPENSE.—The term ‘quali20 fied expense’ means any educational expense that 

21 is— 

22 ‘‘(A) for an individual student’s elementary 

23 or secondary education, as recognized by the 

24 State, or 


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1 ‘‘(B) for the secondary education compo2 nent of an individual elementary or secondary 

3 student’s career and technical education, as de4 fined by section 3(5) of the Carl D. Perkins Ca5 reer and Technical Education Act of 2006 (20 

6 U.S.C. 2302(5)). 

7 ‘‘(3) SECRETARY.—The term ‘Secretary’ means 

8 the Secretary of Education. 

9 ‘‘(4) ELIGIBLE SCHOLARSHIP-GRANTING ORGA10 NIZATION.—The term ‘eligible scholarship-granting 

11 organization’ means— 

12 ‘‘(A) an organization that— 

13 ‘‘(i) is described in section 501(c)(3) 

14 and exempt from taxation under section 

15 501(a); 

16 ‘‘(ii) provides qualifying scholarships 

17 to individual elementary and secondary 

18 students who— 

19 ‘‘(I) reside in the State in which 

20 the eligible scholarship-granting orga21 nization is recognized; or 

22 ‘‘(II) in the case of the Bureau of 

23 Indian Education, are members of a 

24 federally recognized tribe; 


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1 ‘‘(iii) a State reports to the Secretary 

2 as an eligible scholarship-granting organi3 zation under subsection (e)(5)(B); 

4 ‘‘(iv) allocates at least 90 percent of 

5 qualified contributions to qualifying schol6 arships; and 

7 ‘‘(v) provides scholarships to— 

8 ‘‘(I) more than 1 eligible student; 

9 ‘‘(II) more than 1 eligible family; 

10 and 

11 ‘‘(III) different eligible students 

12 attending more than one education 

13 provider; or 

14 ‘‘(B) an organization that— 

15 ‘‘(i) is described in section 501(c)(3) 

16 and exempt from taxation under section 

17 501(a); and 

18 ‘‘(ii) pursuant to State law, was able, 

19 as of the date of the enactment of the 

20 Education Freedom Scholarships and Op21 portunity Act, to receive contributions that 

22 are eligible for a State tax credit if such 

23 contributions are used by the organization 

24 to provide scholarships to individual eleVerDate Sep 11 2014 03:34 Mar 14, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H1434.IH H1434

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1 mentary and secondary students, including 

2 scholarships for attending private schools. 

3 ‘‘(5) QUALIFYING SCHOLARSHIP.—The term 

4 ‘qualifying scholarship’ means a scholarship granted 

5 by an eligible scholarship-granting organization to 

6 an individual elementary or secondary student under 

7 this section or section 45T. 

8 ‘‘(6) STATE.—The term ‘State’ means each of 

9 the 50 States, the District of Columbia, the Com10 monwealth of Puerto Rico, the outlying areas (as de11 fined in section 1121(c) of the Elementary and Sec12 ondary Education Act of 1965), and the Department 

13 of the Interior (acting through the Bureau of Indian 

14 Education). 

15 ‘‘(d) RULES OF CONSTRUCTION.— 

16 ‘‘(1) IN GENERAL.—A scholarship awarded to a 

17 student from the proceeds of a qualified contribution 

18 under this section or section 45T shall not be con19 sidered assistance to the school or other educational 

20 provider that enrolls, or provides educational services 

21 to, the student or the student’s parents. 

22 ‘‘(2) NOT TREATED AS INCOME.—The amount 

23 of any such scholarship shall not be treated as in24 come of the child or his or her parents for purposes 


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1 of Federal tax laws or for determining eligibility for 

2 any other Federal program. 

3 ‘‘(3) PROHIBITION OF CONTROL OVER NON4 PUBLIC EDUCATION PROVIDERS.— 

5 ‘‘(A) Nothing in this Act shall be con6 strued to permit, allow, encourage, or authorize 

7 any Federal control over any aspect of any pri8 vate, religious, or home education provider, 

9 whether or not a home education provider is 

10 treated as a private school or home school 

11 under State law. This Act shall not be con12 strued to exclude private, religious, or home 

13 education providers from participation in pro14 grams or services under this Act. 

15 ‘‘(B) Nothing in this Act shall be con16 strued to permit, allow, encourage, or authorize 

17 an entity submitting a list of eligible scholar18 ship-granting organizations on behalf of a State 

19 to mandate, direct, or control any aspect of a 

20 private or home education provider, regardless 

21 of whether or not a home education provider is 

22 treated as a private school under State law. 

23 ‘‘(C) No participating State or entity act24 ing on behalf of a State shall exclude, discrimi25 nate against, or otherwise disadvantage any 


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1 education provider with respect to programs or 

2 services under this Act based in whole or in 

3 part on the provider’s religious character or af4 filiation, including religiously or mission-based 

5 policies or practices. 

6 ‘‘(4) PARENTAL RIGHTS TO USE SCHOLAR7 SHIPS.—No participating State or entity acting on 

8 behalf of a State shall disfavor or discourage the use 

9 of such scholarships for the purchase of elementary 

10 and secondary education services, including those 

11 services provided by private or nonprofit entities, 

12 such as faith-based providers. 

13 ‘‘(5) STATE AND LOCAL AUTHORITY.—Nothing 

14 in this section or section 45T shall be construed to 

15 modify a State or local government’s authority and 

16 responsibility to fund education. 

17 ‘‘(e) LIMITATIONS.— 

18 ‘‘(1) TAX LIABILITY.—No credit allowed under 

19 this section or section 45T shall exceed the tax20 payer’s Federal income tax liability for the taxable 

21 year. 

22 ‘‘(2) PROHIBITIONS.—A taxpayer is prohibited 

23 from selling or transferring any portion of a tax 

24 credit allowed under this section or section 45T. 


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1 ‘‘(3) DENIAL OF DOUBLE BENEFIT.—The Sec2 retary of the Treasury shall prescribe such regula3 tions or other guidance to ensure that the sum of 

4 the tax benefits provided by Federal, State, or local 

5 law for a qualified contribution receiving a Federal 

6 tax credit in any taxable year shall not exceed the 

7 sum of the qualified contributions made by the tax8 payer for the taxable year. 

9 ‘‘(f) CARRYOVER OF CREDIT.—If a tax credit allowed 

10 under this section or section 45T is not fully used within 

11 the applicable taxable year because of insufficient tax li12 ability on the part of the taxpayer, the unused amount 

13 may be carried forward for a period not to exceed 5 years. 

14 ‘‘(g) ELECTION.—This section shall apply to a tax15 payer for a taxable year only if the taxpayer elects to have 

16 this section or section 45T apply for such taxable year. 

17 ‘‘(h) ALTERNATIVE MINIMUM TAX.—For purposes of 

18 calculating the alternative minimum tax under section 55, 

19 a taxpayer may use any credit received for a qualified con20 tribution under this section.’’. 

21 (2) CLERICAL AMENDMENT.—The table of sec22 tions for subpart A of part IV of subchapter A of 

23 chapter 1 is amended by inserting after the item re24 lating to section 25D the following new item: 

‘‘Sec. 25E. Contributions to eligible scholarship-granting organizations.’’. 

25 (b) CREDIT FOR CORPORATIONS.— 


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1 (1) IN GENERAL.—Subpart D of part IV of 

2 subchapter A of chapter 1 is amended by adding at 

3 the end the following new section: 

4 ‘‘SEC. 45T. CONTRIBUTIONS TO ELIGIBLE SCHOLARSHIP5 GRANTING ORGANIZATIONS. 

6 ‘‘(a) ALLOWANCE OF CREDIT.—For purposes of sec7 tion 38, in the case of a domestic corporation, there shall 

8 be allowed as a credit against the tax imposed by this 

9 chapter for the taxable year an amount equal to the sum 

10 of any qualified contributions (as defined in section 

11 25E(c)(1)) made by such corporation taxpayer during the 

12 taxable year. 

13 ‘‘(b) AMOUNT OF CREDIT.—The credit allowed under 

14 subsection (a) for any taxable year shall not exceed 5 per15 cent of the taxable income (as defined in section 

16 170(b)(2)(D)) of the domestic corporation for such taxable 

17 year. 

18 ‘‘(c) ADDITIONAL PROVISIONS.—For purposes of this 

19 section, any qualified contributions made by a domestic 

20 corporation shall be subject to the provisions of section 

21 25E, to the extent applicable.’’. 

22 (2) CREDIT PART OF GENERAL BUSINESS

23 CREDIT.—Section 38(b) is amended— 

24 (A) by striking ‘‘plus’’ at the end of para25 graph (31), 


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1 (B) by striking the period at the end of 

2 paragraph (32) and inserting ‘‘, plus’’, and 

3 (C) by adding at the end the following new 

4 paragraph: 

5 ‘‘(33) the credit for qualified contributions de6 termined under section 45T(a).’’. 

7 (3) CLERICAL AMENDMENT.—The table of sec8 tions for subpart D of part IV of subchapter A of 

9 chapter 1 is amended by adding at the end the fol10 lowing new item: 

‘‘Sec. 45T. Contributions to eligible scholarship-granting organizations.’’. 

11 TITLE II—EDUCATION FREEDOM 

12 SCHOLARSHIPS WEB PORTAL 

13 AND ADMINISTRATION 

14 SEC. 201. EDUCATION FREEDOM SCHOLARSHIPS WEB POR15 TAL AND ADMINISTRATION. 

16 (a) IN GENERAL.—The Secretary of Education shall, 

17 in coordination with the Secretary of the Treasury, estab18 lish, host, and maintain a Web portal that— 

19 (1) lists all scholarship-granting organizations 

20 that are eligible under section 25E or 45T of the In21 ternal Revenue Code of 1986; 

22 (2) enables a taxpayer to make a qualifying 

23 contribution to one or more eligible scholarship24 granting organizations and to immediately obtain 


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1 both a pre-approval of a tax credit for that contribu2 tion and a receipt for tax filings; 

3 (3) provides information about the tax benefits 

4 of Education Freedom Scholarships under the Inter5 nal Revenue Code of 1986; and 

6 (4) enables a State to submit and update infor7 mation about its programs and its eligible scholar8 ship-granting organizations for informational pur9 poses only, including information on— 

10 (A) student eligibility; 

11 (B) allowable educational expenses; 

12 (C) the types of allowable education pro13 viders; 

14 (D) the percentage of funds an organiza15 tion may use for program administration; and 

16 (E) the percentage of total contributions 

17 the organization awards in a calendar year. 

18 (b) NONPORTAL CONTRIBUTIONS.—A taxpayer may 

19 opt to make a contribution directly to an eligible scholar20 ship-granting organization, instead of through the Web 

21 portal described in subsection (a), provided that the tax22 payer, or the eligible scholarship-granting organization on 

23 behalf of the taxpayer, applies for, and receives pre-ap24 proval for a tax credit from the Secretary of Education 

25 in coordination with the Secretary of the Treasury. 


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1 (c) NATIONAL AND STATE CAPS ON CREDITS.— 

2 (1) NATIONAL CAP.—There is a cap of 

3 $5,000,000,000 on the sum of the contributions that 

4 qualify for a credit under section 25E and section 

5 45T of the Internal Revenue Code of 1986 for each 

6 calendar year. 

7 (2) ALLOCATION OF CAP.— 

8 (A) INITIAL ALLOCATIONS.—For each cal9 endar year, the Secretary shall— 

10 (i) first reserve, for each State, an 

11 amount equal to the sum of the qualifying 

12 contributions made in the State in the pre13 vious year; and 

14 (ii) next, allocate the remaining 

15 amount among the participating States by 

16 allocating to each State the sum of— 

17 (I) an amount that bears the 

18 same relationship to 20 percent of 

19 such remaining amount as the num20 ber of individuals aged 5 through 17 

21 in the State, as determined by the 

22 Secretary on the basis of the most re23 cent satisfactory data, bears to the 

24 number of those individuals in all 

25 such States, as so determined; and 


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1 (II) an amount that bears the 

2 same relationship to 80 percent of 

3 such remaining amount as the num4 ber of individuals aged 5 through 17 

5 from families with incomes below the 

6 poverty line in the State, as deter7 mined by the Secretary, on the basis 

8 of the most recent satisfactory data, 

9 bears to the number of those individ10 uals in all such States, as so deter11 mined. 

12 (B) MINIMUM ALLOCATION.—Notwith13 standing subparagraph (A), no State receiving 

14 an allotment under this section may receive less 

15 than one-half of one percent of the amount al16 lotted for a fiscal year. 

17 (C) ALTERNATIVE ALLOCATION.— 

18 (i) IN GENERAL.—Not later than the 

19 end of the fifth year of the program or one 

20 year after the end of the first fiscal year 

21 for which the total amount of credits 

22 claimed under section 25E and section 

23 45T of the Internal Revenue Code of 1986 

24 is $2,500,000,000 or more, whichever 

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1 tion, provide for an alternative allocation 

2 method that shall take effect beginning 

3 with the first fiscal year after the regula4 tion takes effect. 

5 (ii) ALTERNATIVE ALLOCATION METH6 OD.—The alternative allocation method 

7 shall be expressed as a formula based on 

8 a combination of the following data for 

9 each State, as reported by the State to the 

10 Secretary: 

11 (I) The relative percentage of 

12 students in the State who receive a el13 ementary or secondary scholarship 

14 through a State program that is fi15 nanced through State tax-credited do16 nations or appropriations and that 

17 permits the elementary or secondary 

18 scholarship to be used to attend a pri19 vate school. 

20 (II) The total amount of all ele21 mentary and secondary scholarships 

22 awarded through a State program 

23 that is financed through State tax24 credited donations or appropriations 

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1 rent State and local expenditures for 

2 free public education in the State. 

3 (iii) ALLOCATION FORMULA.—For any 

4 fiscal year to which clause (i) applies, the 

5 Secretary shall— 

6 (I) first reserve, for each State, 

7 an amount equal to the sum of the 

8 qualifying contributions made in the 

9 State in the previous year; 

10 (II) next, allocate two-thirds of 

11 the remaining amount of the national 

12 cap for that year using the alternative 

13 allocation method in clause (ii); and 

14 (III) then, allocate one-third of 

15 the remaining amount in accordance 

16 with subparagraph (A)(ii). 

17 (iv) INELIGIBILITY.—For any fiscal 

18 year to which clause (i) applies, a State 

19 that does not provide the Secretary with 

20 information described in clause (ii) is not 

21 eligible to receive an allocation through the 

22 alternative allocation method under clause 

23 (ii). 

24 (3) ALLOWABLE PARTNERSHIPS.—A State may 

25 choose to administer the allocation it receives under 


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1 paragraph (2) in partnership with 1 or more States, 

2 provided that the eligible scholarship-granting orga3 nizations in each partner State serve students who 

4 reside in all States in the partnership. 

5 (4) TOTAL ALLOCATION.—A State’s allocation, 

6 for any fiscal year, is the sum of the amount deter7 mined for it under subparagraphs (A) and (B) of 

8 paragraph (2), except as provided in paragraph 

9 (2)(C). 

10 (5) ALLOCATION AND ADJUSTMENTS.— 

11 (A) INITIAL ALLOCATION TO STATES.—No 

12 later than November 1 of the year preceding a 

13 year for which there is a national cap on credits 

14 under paragraph (1) (hereafter in this section, 

15 the ‘‘applicable year’’), or as early as prac16 ticable with respect to the first year, the Sec17 retary shall announce the State allocations 

18 under paragraph (2) for the applicable year. 

19 (B) LIST OF ELIGIBLE SCHOLARSHIP20 GRANTING ORGANIZATIONS.—No later than 

21 January 1 of each applicable year, or as early 

22 as practicable with respect to the first year, 

23 each State shall provide the Secretary a list of 

24 eligible scholarship-granting organizations de25 scribed in section 25E(c)(4)(A) of the Internal 


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1 Revenue Code of 1986, including a certification 

2 that the entity submitting the list on behalf of 

3 the State has the authority to perform this 

4 function. Neither this Act nor any other Fed5 eral law shall be construed as limiting the enti6 ties that may submit the list on behalf of a 

7 State. 

8 (C) REALLOCATION OF UNCLAIMED CRED9 ITS.—The Secretary shall reallocate a State’s 

10 allocation to other States, in accordance with 

11 paragraph (2), if the State— 

12 (i) chooses not to identify scholarship13 granting organizations under subparagraph 

14 (B) in any applicable year; or 

15 (ii) does not have an existing eligible 

16 scholarship-granting organization (as de17 fined in section 25E(c)(4)(B) of the Inter18 nal Revenue Code of 1986). 

19 (D) REALLOCATION.—On or after April 1 

20 of any applicable year, the Secretary may re21 allocate, to 1 or more other States that have el22 igible scholarship-granting organizations in the 

23 States, without regard to paragraph (2), the al24 location of a State for which the State’s alloca25 tion has not been claimed. 


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1 (d) DEFINITIONS.—The definitions of terms in sec2 tion 25E(c) of the Internal Revenue Code of 1986 apply 

3 to those terms as used in this title. 

Æ 


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