Education Freedom Scholarships and Opportunity Act
Bill: H.R.889 | Sponsor: Rep. Owens, Burgess (R-UT)
Policy area: Taxation

Summary:
Education Freedom Scholarships and Opportunity Act
This bill allows individual and corporate taxpayers a tax credit for cash contributions to tax-exempt scholarship-granting organizations for elementary and secondary education expenses. It imposes a cap of $5 billion on the amount of contributions that qualify for a tax credit.
The bill directs the Department of Education, in coordination with the Department of the Treasury, to establish, host, and maintain a web portal that (1) lists all eligible scholarship-granting organizations; (2) enables contributions to such organizations; (3) provides information about the benefits of this bill; and (4) enables a state to submit and update information about its programs and scholarship-granting organizations, including information on student eligibility and allowable educational expenses.

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.

    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 ``Education Freedom Scholarships and 
Opportunity Act''.

SEC. 2. PURPOSE.

    The purpose of this Act is to encourage individual and corporate 
taxpayers to contribute to scholarships for individual elementary and 
secondary students through eligible scholarship-granting organizations, 
as identified by States.

        TITLE I--AMENDMENTS TO THE INTERNAL REVENUE CODE OF 1986

SEC. 101. REFERENCES TO THE INTERNAL REVENUE CODE OF 1986.

    Except as otherwise expressly provided, whenever in this title an 
amendment or repeal is expressed in terms of an amendment to, or repeal 
of, a section or other provision, the reference shall be considered to 
be made to a section or other provision of the Internal Revenue Code of 
1986.

SEC. 102. TAX CREDITS FOR CONTRIBUTIONS TO ELIGIBLE SCHOLARSHIP-
              GRANTING ORGANIZATIONS.

    (a) Credit for Individuals.--
            (1) In general.--Subpart A of part IV of subchapter A of 
        chapter 1 is amended by adding after section 25D the following 
        new section:

``SEC. 25E. CONTRIBUTIONS TO ELIGIBLE SCHOLARSHIP-GRANTING 
              ORGANIZATIONS.

    ``(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 sum of any qualified 
contributions made by the taxpayer during the taxable year.
    ``(b) Amount of Credit.--The credit allowed under subsection (a) 
for any taxable year shall not exceed 10 percent of the taxpayer's 
adjusted gross income for the taxable year.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Qualified contribution.--The term `qualified 
        contribution' means a contribution of cash to any eligible 
        scholarship-granting organization.
            ``(2) Qualified expense.--The term `qualified expense' 
        means any educational expense that is--
                    ``(A) for an individual student's elementary or 
                secondary education, as recognized by the State, or
                    ``(B) for the secondary education component of an 
                individual elementary or secondary student's career and 
                technical education, as defined by section 3(5) of the 
                Carl D. Perkins Career and Technical Education Act of 
                2006 (20 U.S.C. 2302(5)).
            ``(3) Secretary.--The term `Secretary' means the Secretary 
        of Education.
            ``(4) Eligible scholarship-granting organization.--The term 
        `eligible scholarship-granting organization' means--
                    ``(A) an organization that--
                            ``(i) is described in section 501(c)(3) and 
                        exempt from taxation under section 501(a);
                            ``(ii) provides qualifying scholarships to 
                        individual elementary and secondary students 
                        who--
                                    ``(I) reside in the State in which 
                                the eligible scholarship-granting 
                                organization is recognized; or
                                    ``(II) in the case of the Bureau of 
                                Indian Education, are members of a 
                                federally recognized tribe;
                            ``(iii) a State reports to the Secretary as 
                        an eligible scholarship-granting organization 
                        under subsection (e)(5)(B);
                            ``(iv) allocates at least 90 percent of 
                        qualified contributions to qualifying 
                        scholarships; and
                            ``(v) provides scholarships to--
                                    ``(I) more than 1 eligible student;
                                    ``(II) more than 1 eligible family; 
                                and
                                    ``(III) different eligible students 
                                attending more than one education 
                                provider; or
                    ``(B) an organization that--
                            ``(i) is described in section 501(c)(3) and 
                        exempt from taxation under section 501(a); and
                            ``(ii) pursuant to State law, was able, as 
                        of the date of the enactment of the Education 
                        Freedom Scholarships and Opportunity 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.
            ``(5) Qualifying scholarship.--The term `qualifying 
        scholarship' means a scholarship granted by an eligible 
        scholarship-granting organization to an individual elementary 
        or secondary student under this section or section 45T.
            ``(6) State.--The term `State' means each of the 50 States, 
        the District of Columbia, the Commonwealth of Puerto Rico, the 
        outlying areas (as defined in section 1121(c) of the Elementary 
        and Secondary Education Act of 1965), and the Department of the 
        Interior (acting through the Bureau of Indian Education).
    ``(d) Rules of Construction.--
            ``(1) In general.--A scholarship awarded to a student from 
        the proceeds of a qualified contribution under this section or 
        section 45T shall not be considered assistance to the school or 
        other educational provider that enrolls, or provides 
        educational services to, the student or the student's parents.
            ``(2) Not treated as income.--The amount of any such 
        scholarship shall not be treated as income of the child or his 
        or her parents for purposes of Federal tax laws or for 
        determining eligibility for any other Federal program.
            ``(3) Prohibition of control over nonpublic education 
        providers.--
                    ``(A) Nothing in this Act shall be construed to 
                permit, allow, encourage, or authorize any Federal 
                control over any aspect of any private, religious, or 
                home education provider, whether or not a home 
                education provider is treated as a private school or 
                home school under State law. This Act shall not be 
                construed to exclude private, religious, or home 
                education providers from participation in programs or 
                services under this Act.
                    ``(B) Nothing in this Act shall be construed to 
                permit, allow, encourage, or authorize an entity 
                submitting a list of eligible scholarship-granting 
                organizations on behalf of a State to mandate, direct, 
                or control any aspect of a private or home education 
                provider, regardless of whether or not a home education 
                provider is treated as a private school under State 
                law.
                    ``(C) No participating State or entity acting on 
                behalf of a State shall exclude, discriminate against, 
                or otherwise disadvantage any education provider with 
                respect to programs or services under this Act based in 
                whole or in part on the provider's religious character 
                or affiliation, including religiously or mission-based 
                policies or practices.
            ``(4) Parental rights to use scholarships.--No 
        participating State or entity acting on behalf of a State shall 
        disfavor or discourage the use of such scholarships for the 
        purchase of elementary and secondary education services, 
        including those services provided by private or nonprofit 
        entities, such as faith-based providers.
            ``(5) State and local authority.--Nothing in this section 
        or section 45T shall be construed to modify a State or local 
        government's authority and responsibility to fund education.
    ``(e) Limitations.--
            ``(1) Tax liability.--No credit allowed under this section 
        or section 45T shall exceed the taxpayer's Federal income tax 
        liability for the taxable year.
            ``(2) Prohibitions.--A taxpayer is prohibited from selling 
        or transferring any portion of a tax credit allowed under this 
        section or section 45T.
            ``(3) Denial of double benefit.--The Secretary of the 
        Treasury shall prescribe such regulations or other guidance to 
        ensure that the sum of the tax benefits provided by Federal, 
        State, or local law for a qualified contribution receiving a 
        Federal tax credit in any taxable year shall not exceed the sum 
        of the qualified contributions made by the taxpayer for the 
        taxable year.
    ``(f) Carryover of Credit.--If a tax credit allowed under this 
section or section 45T is not fully used within the applicable taxable 
year because of insufficient tax liability on the part of the taxpayer, 
the unused amount may be carried forward for a period not to exceed 5 
years.
    ``(g) Election.--This section shall apply to a taxpayer for a 
taxable year only if the taxpayer elects to have this section or 
section 45T apply for such taxable year.
    ``(h) Alternative Minimum Tax.--For purposes of calculating the 
alternative minimum tax under section 55, a taxpayer may use any credit 
received for a qualified contribution under this section.''.
            (2) Clerical amendment.--The table of sections for subpart 
        A of part IV of subchapter A of chapter 1 is amended by 
        inserting after the item relating to section 25D the following 
        new item:

``Sec. 25E. Contributions to eligible scholarship-granting 
                            organizations.''.
    (b) Credit for Corporations.--
            (1) In general.--Subpart D of part IV of subchapter A of 
        chapter 1 is amended by adding at the end the following new 
        section:

``SEC. 45T. CONTRIBUTIONS TO ELIGIBLE SCHOLARSHIP-GRANTING 
              ORGANIZATIONS.

    ``(a) Allowance of Credit.--For purposes of section 38, in the case 
of a domestic corporation, there shall be allowed as a credit against 
the tax imposed by this chapter for the taxable year an amount equal to 
the sum of any qualified contributions (as defined in section 
25E(c)(1)) made by such corporation taxpayer during 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 domestic corporation for 
such taxable year.
    ``(c) Additional Provisions.--For purposes of this section, any 
qualified contributions made by a domestic corporation shall be subject 
to the provisions of section 25E, to the extent applicable.''.
            (2) Credit part of general business credit.--Section 38(b) 
        is amended--
                    (A) by striking ``plus'' at the end of paragraph 
                (31),
                    (B) by striking the period at the end of paragraph 
                (32) and inserting ``, plus'', and
                    (C) by adding at the end the following new 
                paragraph:
            ``(33) the credit for qualified contributions determined 
        under section 45T(a).''.
            (3) Clerical amendment.--The table of sections for subpart 
        D of part IV of subchapter A of chapter 1 is amended by adding 
        at the end the following new item:

``Sec. 45T. Contributions to eligible scholarship-granting 
                            organizations.''.

 TITLE II--EDUCATION FREEDOM SCHOLARSHIPS WEB PORTAL AND ADMINISTRATION

SEC. 201. EDUCATION FREEDOM SCHOLARSHIPS WEB PORTAL AND ADMINISTRATION.

    (a) In General.--The Secretary of Education shall, in coordination 
with the Secretary of the Treasury, establish, host, and maintain a web 
portal that--
            (1) lists all scholarship-granting organizations that are 
        eligible under section 25E or 45T of the Internal Revenue Code 
        of 1986;
            (2) enables a taxpayer to make a qualifying contribution to 
        one or more eligible scholarship-granting organizations and to 
        immediately obtain both a pre-approval of a tax credit for that 
        contribution and a receipt for tax filings;
            (3) provides information about the tax benefits of 
        Education Freedom Scholarships under the Internal Revenue Code 
        of 1986; and
            (4) enables a State to submit and update information about 
        its programs and its eligible scholarship-granting 
        organizations for informational purposes only, including 
        information on--
                    (A) student eligibility;
                    (B) allowable educational expenses;
                    (C) the types of allowable education providers;
                    (D) the percentage of funds an organization may use 
                for program administration; and
                    (E) the percentage of total contributions the 
                organization awards in a calendar year.
    (b) Nonportal Contributions.--A taxpayer may opt to make a 
contribution directly to an eligible scholarship-granting organization, 
instead of through the web portal described in subsection (a), provided 
that the taxpayer, or the eligible scholarship-granting organization on 
behalf of the taxpayer, applies for, and receives pre-approval for a 
tax credit from the Secretary of Education in coordination with the 
Secretary of the Treasury.
    (c) National and State Caps on Credits.--
            (1) National cap.--There is a cap of $5,000,000,000 on the 
        sum of the contributions that qualify for a credit under 
        section 25E and section 45T of the Internal Revenue Code of 
        1986 for each calendar year.
            (2) Allocation of cap.--
                    (A) Initial allocations.--For each calendar year, 
                the Secretary shall--
                            (i) first reserve, for each State, an 
                        amount equal to the sum of the qualifying 
                        contributions made in the State in the previous 
                        year; and
                            (ii) next, allocate the remaining amount 
                        among the participating States by allocating to 
                        each State the sum of--
                                    (I) an amount that bears the same 
                                relationship to 20 percent of such 
                                remaining amount as the number of 
                                individuals aged 5 through 17 in the 
                                State, as determined by the Secretary 
                                on the basis of the most recent 
                                satisfactory data, bears to the number 
                                of those individuals in all such 
                                States, as so determined; and
                                    (II) an amount that bears the same 
                                relationship to 80 percent of such 
                                remaining amount as the number of 
                                individuals aged 5 through 17 from 
                                families with incomes below the poverty 
                                line in the State, as determined by the 
                                Secretary, on the basis of the most 
                                recent satisfactory data, bears to the 
                                number of those individuals in all such 
                                States, as so determined.
                    (B) Minimum allocation.--Notwithstanding 
                subparagraph (A), no State receiving an allotment under 
                this section may receive less than one-half of one 
                percent of the amount allotted for a fiscal year.
                    (C) Alternative allocation.--
                            (i) In general.--Not later than the end of 
                        the fifth year of the program or one year after 
                        the end of the first fiscal year for which the 
                        total amount of credits claimed under section 
                        25E and section 45T of the Internal Revenue 
                        Code of 1986 is $2,500,000,000 or more, 
                        whichever comes first, the Secretary shall, by 
                        regulation, provide for an alternative 
                        allocation method that shall take effect 
                        beginning with the first fiscal year after the 
                        regulation takes effect.
                            (ii) Alternative allocation method.--The 
                        alternative allocation method shall be 
                        expressed as a formula based on a combination 
                        of the following data for each State, as 
                        reported by the State to the Secretary:
                                    (I) The relative percentage of 
                                students in the State who receive a 
                                elementary or secondary scholarship 
                                through a State program that is 
                                financed through State tax-credited 
                                donations or appropriations and that 
                                permits the elementary or secondary 
                                scholarship to be used to attend a 
                                private school.
                                    (II) The total amount of all 
                                elementary and secondary scholarships 
                                awarded through a State program that is 
                                financed through State tax-credited 
                                donations or appropriations compared to 
                                the total amount of current State and 
                                local expenditures for free public 
                                education in the State.
                            (iii) Allocation formula.--For any fiscal 
                        year to which clause (i) applies, the Secretary 
                        shall--
                                    (I) first reserve, for each State, 
                                an amount equal to the sum of the 
                                qualifying contributions made in the 
                                State in the previous year;
                                    (II) next, allocate two-thirds of 
                                the remaining amount of the national 
                                cap for that year using the alternative 
                                allocation method in clause (ii); and
                                    (III) then, allocate one-third of 
                                the remaining amount in accordance with 
                                subparagraph (A)(ii).
                            (iv) Ineligibility.--For any fiscal year to 
                        which clause (i) applies, a State that does not 
                        provide the Secretary with information 
                        described in clause (ii) is not eligible to 
                        receive an allocation through the alternative 
                        allocation method under clause (ii).
            (3) Allowable partnerships.--A State may choose to 
        administer the allocation it receives under paragraph (2) in 
        partnership with 1 or more States, provided that the eligible 
        scholarship-granting organizations in each partner State serve 
        students who reside in all States in the partnership.
            (4) Total allocation.--A State's allocation, for any fiscal 
        year, is the sum of the amount determined for it under 
        subparagraphs (A) and (B) of paragraph (2), except as provided 
        in paragraph (2)(C).
            (5) Allocation and adjustments.--
                    (A) Initial allocation to states.--No later than 
                November 1 of the year preceding a year for which there 
                is a national cap on credits under paragraph (1) 
                (hereafter in this section, the ``applicable year''), 
                or as early as practicable with respect to the first 
                year, the Secretary shall announce the State 
                allocations under paragraph (2) for the applicable 
                year.
                    (B) List of eligible scholarship-granting 
                organizations.--No later than January 1 of each 
                applicable year, or as early as practicable with 
                respect to the first year, each State shall provide the 
                Secretary a list of eligible scholarship-granting 
                organizations described in section 25E(c)(4)(A) of the 
                Internal Revenue Code of 1986, including a 
                certification that the entity submitting the list on 
                behalf of the State has the authority to perform this 
                function. Neither this Act nor any other Federal law 
                shall be construed as limiting the entities that may 
                submit the list on behalf of a State.
                    (C) Reallocation of unclaimed credits.--The 
                Secretary shall reallocate a State's allocation to 
                other States, in accordance with paragraph (2), if the 
                State--
                            (i) chooses not to identify scholarship-
                        granting organizations under subparagraph (B) 
                        in any applicable year; or
                            (ii) does not have an existing eligible 
                        scholarship-granting organization (as defined 
                        in section 25E(c)(4)(B) of the Internal Revenue 
                        Code of 1986).
                    (D) Reallocation.--On or after April 1 of any 
                applicable year, the Secretary may reallocate, to 1 or 
                more other States that have eligible scholarship-
                granting organizations in the States, without regard to 
                paragraph (2), the allocation of a State for which the 
                State's allocation has not been claimed.
    (d) Definitions.--The definitions of terms in section 25E(c) of the 
Internal Revenue Code of 1986 apply to those terms as used in this 
title.
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