[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[S. 120 Introduced in Senate (IS)]

<DOC>






118th CONGRESS
  1st Session
                                 S. 120

 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 SENATE OF THE UNITED STATES

                            January 26, 2023

 Mr. Cassidy (for himself, Mr. Cornyn, Mr. Daines, Mr. Tuberville, Mr. 
Wicker, Mr. Barrasso, Mr. Scott of South Carolina, Mrs. Blackburn, Mr. 
 Braun, Mr. Scott of Florida, Mr. Young, Mr. Boozman, Mr. Hawley, Mr. 
 Tillis, and Mrs. Britt) introduced the following bill; which was read 
             twice and referred to the Committee on Finance

_______________________________________________________________________

                                 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 who is a 
citizen or resident of the United States (as defined in section 
7701(a)(9)), 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 for the purpose of 
        providing scholarships for qualified elementary or secondary 
        education expenses of eligible students.
            ``(3) Qualified elementary or secondary education 
        expense.--The term `qualified elementary or secondary education 
        expense' has the same meaning given the term `qualified higher 
        education expenses' under paragraph (3) of section 529(e), 
        except that--
                    ``(A) such paragraph shall be 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) in subparagraph (B) thereof, by 
                        substituting `such school' for `such 
                        institution' each place it appears, and
                    ``(B) such term shall include tutoring expenses for 
                student academic needs, including for learning loss.
            ``(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) whose substantial purpose is to provide 
                scholarships for qualified elementary or secondary 
                education expenses of eligible students,
                    ``(C)(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, and
                    ``(D) which, separate from any other funds or 
                contributions received by such organization, maintains 
                and accounts for any contributions made by any person 
                for the purpose of providing scholarships for qualified 
                elementary or secondary education expenses of eligible 
                students.
    ``(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 the Internal Revenue Code of 1986 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 the Internal Revenue Code of 
        1986 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 related to activities for 
                providing scholarships for qualified elementary or 
                secondary education expenses of eligible students (as 
                such terms are defined in section 25F(c)) 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) Allocation.--
            (1) 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 shall be $10,000,000,000 for calendar year 2024 and 
        each subsequent year thereafter, with such amount to be 
        allocated as follows:
                    (A) $20,000,000 shall be allocated to each State 
                (as defined in section 7701(a)(10) of the Internal 
                Revenue Code of 1986), with such amount to be made 
                available, in the manner described in subsection (b), 
                for--
                            (i) any individual residing in such State 
                        to claim the credit allowed under section 25F 
                        of the Internal Revenue Code of 1986 with 
                        respect to any qualified contributions (as 
                        defined in such section) made by such 
                        individual during any taxable year beginning 
                        during such calendar year, and
                            (ii) any corporation created or organized 
                        in such State to claim the credit determined 
                        under section 45AA of such Code with respect to 
                        any qualified contributions made by such 
                        corporation during any taxable year beginning 
                        during such calendar year.
                    (B) With respect to the amount remaining after the 
                allocation under subparagraph (A), such amount (as 
                adjusted pursuant to paragraph (3)) shall be made 
                available, in the manner described in subsection (b), 
                for--
                            (i) any individual to claim the credit 
                        allowed under section 25F of the Internal 
                        Revenue Code of 1986 with respect to any 
                        qualified contributions made by such individual 
                        during any taxable year beginning during such 
                        calendar year, and
                            (ii) any corporation to claim the credit 
                        determined under section 45AA of such Code with 
                        respect to any qualified contributions made by 
                        such corporation during any taxable year 
                        beginning during such calendar year.
            (2) Carryover.--The amount of any allotment to a State 
        under paragraph (1)(A) 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 under 
        paragraph (1)(B) for the subsequent calendar year.
            (3) Increase in nationwide volume cap.--For purposes of 
        paragraph (1)(B), if the Secretary determines during any 
        calendar year that the amount of qualified contributions made 
        during such calendar year is equal to or greater than 90 
        percent of the total amount made available under such paragraph 
        for such calendar year, such amount shall be increased by an 
        amount equal to 5 percent of the total amount made available 
        under such paragraph as of January 1 of such calendar year, 
        with such increase to remain in effect 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.

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.
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