[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[S. 56 Introduced in Senate (IS)]

<DOC>






118th CONGRESS
  1st Session
                                 S. 56

To amend the Internal Revenue Code of 1986 to establish tax credits to 
     encourage individual and corporate taxpayers to contribute to 
    scholarships for students through eligible scholarship-granting 
 organizations and eligible workforce training organizations, and for 
                            other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

             January 24 (legislative day, January 3), 2023

 Mr. Cruz (for himself, Mrs. Blackburn, Mr. Cramer, Mr. Lankford, and 
  Mr. Scott of Florida) 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 establish tax credits to 
     encourage individual and corporate taxpayers to contribute to 
    scholarships for students through eligible scholarship-granting 
 organizations and eligible workforce training 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 students through 
eligible scholarship-granting organizations and eligible workforce 
training 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 AND ELIGIBLE WORKFORCE TRAINING 
              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 25E the following 
        new section:

``SEC. 25F. CONTRIBUTIONS TO ELIGIBLE SCHOLARSHIP-GRANTING 
              ORGANIZATIONS AND ELIGIBLE WORKFORCE TRAINING 
              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) in 
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 or eligible workforce 
        training 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,
                    ``(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)), or
                    ``(C) for the purpose of providing eligible 
                individual participants with scholarships for secondary 
                or postsecondary vocational education and training, 
                workforce development, or apprenticeship training, 
                including preparation and examination costs relating to 
                portable certificates or credentials, or industry 
                recognized certification or credentialing programs.
            ``(3) 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 for 
                        qualified expenses to only 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 of 
                        Education as an eligible scholarship-granting 
                        organization pursuant to section 201(c)(5)(B) 
                        of the Education Freedom Scholarships and 
                        Opportunity Act,
                            ``(iv) allocates at least 90 percent of 
                        qualified contributions to qualifying 
                        scholarships for qualified expenses, 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.
            ``(4) Eligible workforce training organization.--
                    ``(A) In general.--The term `eligible workforce 
                training organization' means any organization--
                            ``(i) which is--
                                    ``(I) described in section 
                                501(c)(3) and exempt from taxation 
                                under section 501(a), and
                                    ``(II) not a private foundation (as 
                                defined in section 509),
                            ``(ii) whose purpose is to provide 
                        vocational education and training, workforce 
                        development, or apprenticeship training to 
                        eligible potential secondary or postsecondary 
                        students, including organizations whose purpose 
                        is to provide scholarships for portable 
                        certificates or credentials, or industry 
                        recognized certifications or credentialing 
                        programs, including preparation and examination 
                        costs,
                            ``(iii) which is in compliance with 
                        applicable State laws,
                            ``(iv) which a State has reported to the 
                        Secretary of Education as an eligible workforce 
                        training organization pursuant to section 
                        201(c)(5)(B) of the Education Freedom 
                        Scholarships and Opportunity Act, and
                            ``(v) which satisfies the requirements 
                        described in clauses (iv) and (v) of paragraph 
                        (3)(A).
                    ``(B) Potential eligible workforce training 
                organizations.--Eligible workforce training 
                organizations may include, but are not limited to, 
                organizations such as the following (provided that such 
                organizations satisfy the requirements under 
                subparagraph (A)):
                            ``(i) Community colleges.
                            ``(ii) Workforce training programs (as 
                        defined by the applicable State workforce 
                        agency).
                            ``(iii) Organizations which provide--
                                    ``(I) career and technical 
                                education, or
                                    ``(II) training or apprenticeships, 
                                including, but not limited to, training 
                                or apprenticeships operated by a 
                                collective bargaining organization or 
                                that provide industry recognized 
                                certifications or credentials.
                            ``(iv) Community organizations that provide 
                        training that results in a certification.
            ``(5) Qualifying scholarship.--The term `qualifying 
        scholarship' means--
                    ``(A) a scholarship granted by an eligible 
                scholarship-granting organization to an individual 
                elementary or secondary student, or
                    ``(B) a scholarship granted by an eligible 
                workforce training organization as a scholarship to a 
                secondary or postsecondary student for the purpose of 
                vocational education and training, workforce 
                development, obtaining portable certificates or 
                credentials, or industry recognized certification or 
                credentialing programs, including preparation and 
                examination costs,
        under this section.
            ``(6) State.--The term `State' means each of the 50 States, 
        the District of Columbia, the Commonwealth of Puerto Rico, 
        American Samoa, Guam, the Commonwealth of the Northern Mariana 
        Islands, the United States Virgin Islands, 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 45AA shall not be considered assistance to the school, 
        eligible workforce training organization, 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 student or 
        their 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 or eligible workforce training 
                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 education 
                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 or workforce training 
        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 45AA 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 45AA 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 45AA.
            ``(3) Denial of double benefit.--The Secretary 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 45AA 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 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 of is amended by 
        inserting after the item relating to section 25E the following 
        new item:

``Sec. 25F. Contributions to eligible scholarship-granting 
                            organizations and eligible workforce 
                            training 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. 45AA. CONTRIBUTIONS TO ELIGIBLE SCHOLARSHIP-GRANTING 
              ORGANIZATIONS AND ELIGIBLE WORKFORCE TRAINING 
              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 
25F(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 25F, to the extent applicable.
    ``(d) Election.--This section shall apply to a taxpayer for a 
taxable year only if the taxpayer elects to have this section apply for 
such taxable year.''.
            (2) Credit part of general business credit.--Section 38(b) 
        is amended--
                    (A) by striking ``plus'' at the end of paragraph 
                (39);
                    (B) by striking the period at the end of paragraph 
                (40) and inserting ``, plus''; and
                    (C) by adding at the end the following new 
                paragraph:
            ``(41) the credit for qualified contributions determined 
        under section 45AA(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. 45AA. Contributions to eligible scholarship-granting 
                            organizations and eligible workforce 
                            training organizations.''.

TITLE II--EDUCATION FREEDOM SCHOLARSHIPS AND OPPORTUNITY ACT WEB PORTAL 
                           AND ADMINISTRATION

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

    (a) In General.--The Secretary of Education shall, in coordination 
with the Secretary of the Treasury and the Secretary of Labor, 
establish, host, and maintain a Web portal that--
            (1) lists all scholarship-granting organizations and 
        workforce training organizations that are eligible under 
        section 25F or 45AA 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 
        eligible workforce training 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 the 
        provisions of the Education Freedom Scholarships and 
        Opportunity Act 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 and eligible workforce training 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 
or an eligible workforce training organization, instead of through the 
Web portal described in subsection (a), provided that the taxpayer, or 
the eligible scholarship-granting organization or eligible workforce 
training 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 $10,000,000,000 on the 
        sum of the contributions that qualify for a credit under 
        section 25F and section 45AA of the Internal Revenue Code of 
        1986 for each calendar year, of which--
                    (A) $5,000,000,000 shall be allotted for qualified 
                contributions to eligible scholarship-granting 
                organizations; and
                    (B) $5,000,000,000 shall be allotted for qualified 
                contributions to eligible workforce training 
                organizations.
            (2) Allocation of cap.--
                    (A) Initial allocations.--For each calendar year, 
                the Secretary of Education, in coordination with the 
                Secretary of Labor, shall--
                            (i) from the amount allotted under 
                        paragraph (1)(A)--
                                    (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--
                                            (aa) 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 of Education on 
                                        the basis of the most recent 
                                        satisfactory data, bears to the 
                                        number of those individuals in 
                                        all such States, as so 
                                        determined; and
                                            (bb) 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 of Education, 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) from the amount allotted under 
                        paragraph (1)(B)--
                                    (I) first reserve, for each State, 
                                an amount equal to the sum of the 
                                qualifying contributions made in the 
                                State in the previous year attributable 
                                to eligible workforce training 
                                organizations; and
                                    (II) next, allocate the remaining 
                                amount among the participating States 
                                by allocating to each State an amount 
                                determined through a system, as 
                                established and maintained by the 
                                Secretary of Labor, that accurately 
                                reflects demand and potential qualified 
                                participants for apprenticeships and 
                                workforce training within that State.
                    (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 for qualified 
                contributions to eligible scholarship-granting 
                organizations.--
                            (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 
                        25F and section 45AA of the Internal Revenue 
                        Code of 1986 for qualified contributions to 
                        eligible scholarship-granting organizations is 
                        $2,500,000,000 or more, whichever comes first, 
                        the Secretary of Education shall, by 
                        regulation, provide for an alternative 
                        allocation method for the amount described in 
                        paragraph (1)(A) that shall take effect 
                        beginning with the first fiscal year after the 
                        regulation takes effect.
                            (ii) Alternative allocation method.--The 
                        alternative allocation method described in 
                        clause (i) 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 of Education:
                                    (I) The relative percentage of 
                                students in the State who receive an 
                                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 
                        of Education 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 of Education 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 one or more States, provided that the eligible 
        scholarship-granting organizations or eligible workforce 
        training 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 of Education shall announce the 
                State allocations under paragraph (2) for the 
                applicable year.
                    (B) List of eligible scholarship-granting 
                organizations and eligible workforce training 
                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 of Education a list of eligible scholarship-
                granting organizations and eligible workforce training 
                organizations described in paragraphs (3)(A) and (4) of 
                section 25F(c) 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.--
                            (i) In general.--The Secretary of Education 
                        shall, in accordance with paragraph (2), 
                        reallocate to any other States the allocation 
                        of a State which, for any applicable year--
                                    (I) fails to provide the Secretary 
                                of Education a list of eligible 
                                scholarship-granting organizations and 
                                eligible workforce training 
                                organizations pursuant to subparagraph 
                                (B); and
                                    (II) does not have an eligible 
                                scholarship-granting organization (as 
                                described in section 25F(c)(3)(B) of 
                                the Internal Revenue Code of 1986) 
                                located in such State.
                            (ii) Unclaimed credits.--On or after April 
                        1 of any applicable year, the Secretary of 
                        Education may reallocate, to one or more other 
                        States that have eligible scholarship-granting 
                        organizations and eligible workforce training 
                        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 25F(c) of the 
Internal Revenue Code of 1986 apply to those terms as used in this 
title.
    (e) Authorization of Appropriations.--For the purpose of 
administering this section and sections 25F and 45AA of the Internal 
Revenue Code of 1986, there are authorized to be appropriated, and 
there are appropriated, such sums as may be necessary for fiscal year 
2023 and each succeeding fiscal year.
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