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:

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:

Education scholarship organizations

Sec. 4966. Tax on failure to distribute receipts.

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.