Educational Choice for Children Act

Subjects: Taxation, Charitable contributions, Elementary and secondary education, Income tax credits, Student aid and college costs, Tax-exempt organizations

Summary:  <p><strong>Educational Choice for Children Act</strong></p> <p>This bill allows individuals and corporations a new tax credit after 2023 for charitable contributions to tax-exempt organizations that provide scholarships to elementary and secondary school students. Such students must be members of a household with incomes not greater 300% of the area median gross income and be eligible to enroll in a public elementary or secondary school. </p> <p>The bill excludes from the gross income of taxpayer dependents any scholarship amount for the elementary or secondary education expenses of eligible students. It also prohibits governmental control over scholarship granting organizations.</p>

<html><body><pre>[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[H.R. 531 Introduced in House (IH)]

&lt;DOC&gt;






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 
 education 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 
     Pennsylvania, 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 Workforce, 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 qualified elementary and secondary students.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Educational Choice for Children 
Act''.

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

    (a) Credit for Individuals.--
            (1) In general.--Subpart A of part IV of subchapter A of 
        chapter 1 of the Internal Revenue Code of 1986 is amended by 
        inserting after section 25E the following new section:

``SEC. 25F. QUALIFIED ELEMENTARY AND SECONDARY EDUCATION SCHOLARSHIPS.

    ``(a) Allowance of Credit.--In the case of an individual, there 
shall be allowed as a credit against the tax imposed by this chapter 
for the taxable year an amount equal to the amount of qualified 
contributions made by the taxpayer during the taxable year.
    ``(b) Amount of Credit.--The credit allowed under subsection (a) in 
any taxable year shall not exceed an amount equal to the greater of--
            ``(1) 10 percent of the adjusted gross income of the 
        taxpayer for the taxable year, or
            ``(2) $5,000.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Eligible student.--The term `eligible student' means 
        an individual who--
                    ``(A) is a member of a household with an income 
                which is not greater than 300 percent of the area 
                median gross income (as such term is used in section 
                42), and
                    ``(B) is eligible to enroll in a public elementary 
                or secondary school.
            ``(2) Qualified contribution.--The term `qualified 
        contribution' means a charitable contribution (as defined by 
        section 170(c)) to a scholarship granting organization in the 
        form of cash or marketable securities.
            ``(3) Qualified elementary or secondary education 
        expense.--The term `qualified elementary or secondary education 
        expense' means--
                    ``(A) expenses which would be described in 
                paragraph (3) of section 529(e) (relating to qualified 
                higher education expenses) if such paragraph were 
                applied--
                            ``(i) by substituting `elementary school or 
                        secondary school (as such terms are defined in 
                        section 8101 of the Elementary and Secondary 
                        Education Act of 1965 (20 U.S.C. 7801))' for 
                        `eligible educational institution' each place 
                        it appears, and
                            ``(ii) by substituting `such school' for 
                        `such institution' each place it appears in 
                        subparagraph (B) thereof, and
                    ``(B) expenses for tutoring to address academic 
                needs (including learning loss) in connection with 
                enrollment or attendance at an elementary school or 
                secondary school (as so defined).
            ``(4) Scholarship granting organization.--The term 
        `scholarship granting organization' means any organization--
                    ``(A) which--
                            ``(i) is described in section 501(c)(3) and 
                        exempt from tax under section 501(a), and
                            ``(ii) is not a private foundation,
                    ``(B) substantially all of the activities of which 
                are providing scholarships for qualified elementary or 
                secondary education expenses of eligible students,
                    ``(C) which prevents the co-mingling of qualified 
                contributions with other amounts by maintaining one or 
                more separate accounts exclusively for qualified 
                contributions, and
                    ``(D)(i) which meets the requirements of subsection 
                (d), or
                    ``(ii) which, pursuant to State law, was able, as 
                of the date of the enactment of the Educational Choice 
                for Children Act, to receive contributions that are 
                eligible for a State tax credit if such contributions 
                are used by the organization to provide scholarships to 
                individual elementary and secondary students, including 
                scholarships for attending private schools.
    ``(d) Requirements for Scholarship Granting Organizations.--
            ``(1) In general.--An organization meets the requirements 
        of this subsection if--
                    ``(A) such organization provides scholarships to 2 
                or more students, provided that not all such students 
                attend the same school,
                    ``(B) such organization does not provide 
                scholarships for any expenses other than qualified 
                elementary or secondary education expenses,
                    ``(C) such organization provides a scholarship to 
                eligible students with a priority for--
                            ``(i) students awarded a scholarship the 
                        previous school year, and
                            ``(ii) after application of clause (i), any 
                        such students who have a sibling who was 
                        awarded a scholarship from such organization,
                    ``(D) such organization does not earmark or set 
                aside contributions for scholarships on behalf of any 
                particular student,
                    ``(E) such organization takes appropriate steps to 
                verify the annual household income and family size of 
                eligible students to whom it awards scholarships, and 
                limits them to a member of a household for which the 
                income does not exceed the amount established under 
                subsection (c)(1)(A),
                    ``(F) such organization--
                            ``(i) obtains from an independent certified 
                        public accountant annual financial and 
                        compliance audits, and
                            ``(ii) certifies to the Secretary (at such 
                        time, and in such form and manner, as the 
                        Secretary may prescribe) that the audit 
                        described in clause (i) has been completed, and
                    ``(G) no officer or board member of such 
                organization has been convicted of a felony.
            ``(2) Independent certified public accountant.--For 
        purposes of paragraph (1)(F), the term `independent certified 
        public accountant' means, with respect to an organization, a 
        certified public accountant who is not a person described in 
        section 465(b)(3)(A) with respect to such organization or any 
        employee of such organization.
            ``(3) Prohibition on self-dealing.--
                    ``(A) In general.--A scholarship granting 
                organization may not award a scholarship to any 
                disqualified person.
                    ``(B) Disqualified person.--For purposes of this 
                paragraph, a disqualified person shall be determined 
                pursuant to rules similar to the rules of section 4946.
    ``(e) Denial of Double Benefit.--Any qualified contribution for 
which a credit is allowed under this section shall not be taken into 
account as a charitable contribution for purposes of section 170.
    ``(f) Carryforward of Unused Credit.--
            ``(1) In general.--If the credit allowable under subsection 
        (a) for any taxable year exceeds the limitation imposed by 
        section 26(a) for such taxable year reduced by the sum of the 
        credits allowable under this subpart (other than this section, 
        section 23, and section 25D), such excess shall be carried to 
        the succeeding taxable year and added to the credit allowable 
        under subsection (a) for such taxable year.
            ``(2) Limitation.--No credit may be carried forward under 
        this subsection to any taxable year following the fifth taxable 
        year after the taxable year in which the credit arose. For 
        purposes of the preceding sentence, credits shall be treated as 
        used on a first-in first-out basis.
    ``(g) Application of Volume Cap.--A qualified contribution shall be 
taken into account under this section only if such contribution is not 
in excess of the volume cap established under section 3 of the 
Educational Choice for Children Act.''.
            (2) Clerical amendment.--The table of sections for subpart 
        A of part IV of subchapter A of chapter 1 of such Code is 
        amended by inserting after the item relating to section 25E the 
        following new item:

``Sec. 25F. Qualified elementary and secondary education 
                            scholarships.''.
    (b) Credit for Corporations.--
            (1) In general.--Subpart D of part IV of subchapter A of 
        chapter 1 of such Code is amended by adding after section 45Z 
        the following:

``SEC. 45AA. CONTRIBUTIONS TO SCHOLARSHIP GRANTING ORGANIZATIONS.

    ``(a) General Rule.--For purposes of section 38, in the case of a 
corporation, the education scholarship credit determined under this 
section for the taxable year is the aggregate amount of qualified 
contributions for the taxable year.
    ``(b) Amount of Credit.--The credit allowed under subsection (a) 
for any taxable year shall not exceed 5 percent of the taxable income 
(as defined in section 170(b)(2)(D)) of the corporation for such 
taxable year.
    ``(c) Qualified Contributions.--For purposes of this section, the 
term `qualified contribution' has the meaning given such term under 
section 25F.
    ``(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) Application of Volume Cap.--A qualified contribution shall be 
taken into account under this section only if such contribution is not 
in excess of the volume cap established under section 3 of the 
Educational Choice for Children Act.''.
            (2) Conforming amendments.--Section 38(b) of such Code is 
        amended by striking ``plus'' at the end of paragraph (39), by 
        striking the period and inserting ``, plus'' at the end of 
        paragraph (40), and by adding at the end the following new 
        paragraph:
            ``(41) the education scholarship credit determined under 
        section 45AA(a).''.
            (3) Clerical amendment.--The table of sections for subpart 
        D of part IV of subchapter A of chapter 1 of such Code is 
        amended by adding at the end the following new item:

``Sec. 45AA. Contributions to scholarship granting organizations.''.
    (c) Failure of Scholarship Granting Organizations To Make 
Distributions.--
            (1) In general.--Chapter 42 of such Code is amended by 
        adding at the end the following new subchapter:

           ``Subchapter I--Scholarship Granting Organizations

``Sec. 4969. Failure to distribute receipts.

``SEC. 4969. FAILURE TO DISTRIBUTE RECEIPTS.

    ``(a) In General.--In the case of any scholarship granting 
organization (as defined in section 25F) which has been determined by 
the Secretary to have failed to satisfy the requirement under 
subsection (b) for any taxable year, any contribution made to such 
organization during the first taxable year beginning after the date of 
such determination shall not be treated as a qualified contribution (as 
defined in section 25F(c)(2)) for purposes of sections 25F and 45AA.
    ``(b) Requirement.--The requirement described in this subsection is 
that the amount of receipts of the scholarship granting organization 
for the taxable year which are distributed before the distribution 
deadline with respect to such receipts shall not be less than the 
required distribution amount with respect to such taxable year.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Required distribution amount.--
                    ``(A) In general.--The required distribution amount 
                with respect to a taxable year is the amount equal to 
                100 percent of the total receipts of the scholarship 
                granting organization for such taxable year--
                            ``(i) reduced by the sum of such receipts 
                        that are retained for reasonable administrative 
                        expenses for the taxable year or are carried to 
                        the succeeding taxable year under subparagraph 
                        (C), and
                            ``(ii) increased by the amount of the 
                        carryover under subparagraph (C) from the 
                        preceding taxable year.
                    ``(B) Safe harbor for reasonable administrative 
                expenses.--For purposes of subparagraph (A)(i), if the 
                percentage of total receipts of a scholarship granting 
                organization for a taxable year which are used for 
                administrative purposes is equal to or less than 10 
                percent, such expenses shall be deemed to be reasonable 
                for purposes of such subparagraph.
                    ``(C) Carryover.--With respect to the amount of the 
                total receipts of a scholarship granting organization 
                with respect to any taxable year, an amount not greater 
                than 15 percent of such amount may, at the election of 
                such organization, be carried to the succeeding taxable 
                year.
            ``(2) Distributions.--The term `distribution' includes 
        amounts which are formally committed but not distributed. A 
        formal commitment described in the preceding sentence may 
        include contributions set aside for eligible students for more 
        than one year.
            ``(3) Distribution deadline.--The distribution deadline 
        with respect to receipts for a taxable year is the first day of 
        the third taxable year following the taxable year in which such 
        receipts are received by the scholarship granting 
        organization.''.
            (2) Clerical amendment.--The table of subchapters for 
        chapter 42 of such Code is amended by adding at the end the 
        following new item:

         ``subchapter i. scholarship granting organizations''.

SEC. 3. VOLUME CAP.

    (a) In General.--For purposes of sections 25F(g) and 45AA(e) of the 
Internal Revenue Code of 1986 (as added by this Act), the volume cap 
applicable with respect to both such sections (in the aggregate) shall 
be $10,000,000,000 for calendar year 2024 and each subsequent year 
thereafter. Such amount shall be allocated by the Secretary of the 
Treasury (or the Secretary's delegate) as provided in subsection (b), 
except that--
            (1) 10 percent of such amount shall be divided evenly among 
        the States, and shall be available with respect to individuals 
        residing in, and corporations created or organized in, such 
        States, and
            (2) the amount of any allotment to a State under paragraph 
        (1) for any calendar year which is not claimed by taxpayers 
        described in such paragraph during such calendar year shall be 
        added to the allotment provided to such State under such 
        paragraph for the subsequent calendar year.
    (b) First-Come, First-Serve.--For purposes of applying the volume 
cap under this section, such volume cap shall be applied based on a 
first-come, first-serve basis, as determined based on the date on which 
the taxpayer made the qualified contribution.
    (c) Real-Time Information.--For purposes of this section, the 
Secretary of the Treasury (or the Secretary's delegate) shall develop a 
system to track the amount of qualified contributions made during the 
calendar year for which a credit may be claimed under section 25F or 
45AA of the Internal Revenue Code of 1986, with such information to be 
updated in real time.
    (d) Annual Increases.--
            (1) In general.--In the case of the calendar year after a 
        high use calendar year, the dollar amount otherwise in effect 
        under subsection (a) for such calendar year shall be equal to 
        105 percent of the dollar amount in effect for such high use 
        calendar year.
            (2) High use calendar year.--For purposes of this 
        subsection, the term ``high use calendar year'' means any 
        calendar year for which 90 percent or more of the volume cap in 
        effect for such calendar year under subsection (a) is allocated 
        to taxpayers.
            (3) Prevention of decreases in annual volume cap.--The 
        volume cap in effect under subsection (a) for any calendar year 
        shall not be less than the volume cap in effect under such 
        subsection for the preceding calendar year.
            (4) Publication of annual volume cap.--The Secretary of the 
        Treasury (or the Secretary's delegate) shall make publicly 
        available the dollar amount of the volume cap in effect under 
        subsection (a) for each calendar year.
    (e) States.--For purposes of this section, the term ``State'' 
includes the District of Columbia.

SEC. 4. EXEMPTION FROM GROSS INCOME FOR SCHOLARSHIPS FOR QUALIFIED 
              ELEMENTARY OR SECONDARY EDUCATION EXPENSES OF ELIGIBLE 
              STUDENTS.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by inserting before section 
140 the following new section:

``SEC. 139J. SCHOLARSHIPS FOR QUALIFIED ELEMENTARY OR SECONDARY 
              EDUCATION EXPENSES OF ELIGIBLE STUDENTS.

    ``(a) In General.--In the case of an individual, gross income shall 
not include any amounts provided to any dependent of such individual 
pursuant to a scholarship for qualified elementary or secondary 
education expenses of an eligible student which is provided by a 
scholarship granting organization.
    ``(b) Definitions.--In this section, the terms `qualified 
elementary or secondary education expense', `eligible student', and 
`scholarship granting organization' have the same meaning given such 
terms under section 25F(c).''.
    (b) Conforming Amendment.--The table of sections for part III of 
subchapter B of chapter 1 of the Internal Revenue Code of 1986 is 
amended by inserting before the item relating to section 140 the 
following new item:

``Sec. 139J. Scholarships for qualified elementary or secondary 
                            education expenses of eligible students.''.

SEC. 5. ORGANIZATIONAL AND PARENTAL AUTONOMY.

    (a) Prohibition of Control Over Scholarship Organizations.--
            (1) In general.--
                    (A) Treatment.--A scholarship granting organization 
                shall not, by virtue of participation under any 
                provision of this Act or any amendment made by this 
                Act, be regarded as acting on behalf of any 
                governmental entity.
                    (B) No governmental control.--Nothing in this Act, 
                or any amendment made by this Act, shall be construed 
                to permit, allow, encourage, or authorize any Federal, 
                State, or local government entity, or officer or 
                employee thereof, to mandate, direct, or control any 
                aspect of any scholarship granting organization.
                    (C) Maximum freedom.--To the extent permissible by 
                law, this Act, and any amendment made by this Act, 
                shall be construed to allow scholarship granting 
                organizations maximum freedom to provide for the needs 
                of the participants without governmental control.
            (2) Prohibition of control over non-public schools.--
                    (A) No governmental control.--Nothing in this Act, 
                or any amendment made by this Act, shall be construed 
                to permit, allow, encourage, or authorize any Federal, 
                State, or local government entity, or officer or 
                employee thereof, to mandate, direct, or control any 
                aspect of any private or religious elementary or 
                secondary education institution.
                    (B) No exclusion of private or religious schools.--
                No Federal, State, or local government entity, or 
                officer or employee thereof, shall impose or permit the 
                imposition of any conditions or requirements that would 
                exclude or operate to exclude educational expenses at 
                private or religious elementary and secondary education 
                institutions from being considered qualified elementary 
                or secondary education expenses.
                    (C) No exclusion of qualified expenses due to 
                institution's religious character or affiliation.--No 
                Federal, State, or local government entity, or officer 
                or employee thereof, shall exclude, discriminate 
                against, or otherwise disadvantage any elementary or 
                secondary education institution with respect to 
                qualified elementary or secondary education expenses at 
                that institution based in whole or in part on the 
                institution's religious character or affiliation, 
                including religiously based or mission-based policies 
                or practices.
            (3) Parental rights to use scholarships.--No Federal, 
        State, or local government entity, or officer or employee 
        thereof, shall disfavor or discourage the use of scholarships 
        granted by participating scholarship granting organizations for 
        qualified elementary or secondary education expenses at private 
        or nonprofit elementary and secondary education institutions, 
        including faith-based schools.
            (4) Parental right to intervene.--In any action filed in 
        any State or Federal court which challenges the 
        constitutionality (under the constitution of such State or the 
        Constitution of the United States) of any provision of this Act 
        (or any amendment made by this Act), any parent of an eligible 
        student who has received a scholarship from a scholarship 
        granting organization shall have the right to intervene in 
        support of the constitutionality of such provision or 
        amendment. To avoid duplication of efforts and reduce the 
        burdens placed on the parties to the action, the court in any 
        such action may require interveners taking similar positions to 
        file joint papers or to be represented by a single attorney at 
        oral argument, provided that the court does not require such 
        interveners to join any brief filed on behalf of any State 
        which is a defendant in such action.
    (b) Definitions.--For purposes of this section, the terms 
``eligible student'', ``scholarship granting organization'', and 
``qualified elementary or secondary education expense'' shall have the 
same meanings given such terms under section 25F(c) of the Internal 
Revenue Code of 1986 (as added by section 2(a) of this Act).

SEC. 6. EFFECTIVE DATE.

    The amendments made by this Act shall apply to taxable years 
beginning after December 31, 2023.
                                 &lt;all&gt;
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