Sec. 401. Education Freedom Scholarships and Opportunity
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In this subsection: The definitions in section 25E(c) of the Internal Revenue Code of 1986, as added by subsection (b), shall apply to this subsection, except as otherwise provided. The term emergency education freedom grant funds means the amount of funds available under paragraph (2)(A) for this subsection that are not reserved under paragraph (3)(A)(i). The term Secretary means the Secretary of Education. The term State means each of the 50 States, the District of Columbia, and the Commonwealth of Puerto Rico.
From any amounts appropriated for section 18003 of division B of the CARES Act ( Public Law 116–136 ) on or after the date of enactment of this Act, the Secretary shall, notwithstanding any other provision of title XVIII of division B of the CARES Act, use 10 percent of such amounts to carry out paragraph
(3)and award emergency education freedom grants to States with approved applications, in order to enable the States to award subgrants to eligible scholarship-granting organizations under paragraph (4). The Secretary shall make the allotments required under this paragraph by not later than 30 days after the date of enactment of this Act. From the amounts made available under paragraph (2)(A), the Secretary shall— reserve— one-half of 1 percent for allotments for the United States Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands, to be distributed among those outlying areas on the basis of their relative need, as determined by the Secretary, in accordance with the purpose of this subsection; and one-half of 1 percent of such amounts for the Secretary of the Interior, acting through the Bureau of Indian Education, to be used to provide subgrants described in paragraph
(4)to eligible scholarship-granting organizations that serve students attending elementary schools or secondary schools operated or funded by the Bureau of Indian Education; and subject to subparagraph (B), allot each State that submits an approved application under this subsection the sum of— the amount that bears the same relation to 20 percent of the emergency education freedom grant funds 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, as so determined, in all such States that submitted approved applications; and an amount that bears the same relationship to 80 percent of the emergency education freedom grant funds 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, as so determined, in all such States that submitted approved applications. No State shall receive an allotment under this paragraph for a fiscal year that is less than one-half of 1 percent of the emergency education freedom grant funds available for such fiscal year. A State that receives an allotment under this subsection shall use the allotment to award subgrants, on a basis determined appropriate by the State, to eligible scholarship-granting organizations in the State. Not later than 30 days after receiving an allotment under paragraph (3)(A)(ii), a State with an existing, as of the date of application for an allotment under this subsection, tax credit scholarship program shall use not less than 50 percent of the allotment to award subgrants to eligible scholarship-granting organizations in the State. By not later than 60 days after receiving an allotment under paragraph (3)(A)(ii), a State without a tax credit scholarship program shall use not less than 50 percent of the allotment to award subgrants to eligible scholarship-granting organizations in the State. An eligible scholarship-granting organization that receives a subgrant under this paragraph— may reserve not more than 5 percent of the subgrant funds for public outreach, student and family support activities, and administrative expenses related to the subgrant; and shall use not less than 95 percent of the subgrant funds to provide qualifying scholarships for qualified expenses only to individual elementary school and secondary school students who reside in the State in which the eligible scholarship-granting organization is recognized. A State shall return to the Secretary any amounts of the allotment received under this subsection that the State does not award as subgrants under paragraph
(4)by March 30, 2021, and the Secretary shall reallocate such funds to the remaining eligible States in accordance with paragraph (3)(A)(ii). The rules of construction under section 25E(d) of the Internal Revenue Code of 1986, as added by subsection (b), shall apply to this subsection in the same manner as such rules apply to section 25E of such Code, as so added. Subpart A of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding after section 25D the following new section: Subject to section 401(c)(3) of the RECOVERY Act , 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. 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. For purposes of this section— The term eligible scholarship-granting organization means— an organization that— is described in section 501(c)(3) and exempt from taxation under section 501(a), provides qualifying scholarships to individual elementary and secondary students who— reside in the State in which the eligible scholarship-granting organization is recognized, or in the case of the Bureau of Indian Education, are members of a federally recognized tribe, a State identifies to the Secretary as an eligible scholarship-granting organization under section 401(c)(3)(E)(ii) of the RECOVERY Act , allocates at least 90 percent of qualified contributions to qualifying scholarships on an annual basis, and provides qualifying scholarships to— more than 1 eligible student, more than 1 eligible family, and different eligible students attending more than 1 education provider, or an organization that— is described in section 501(c)(3) and exempt from taxation under section 501(a), and pursuant to State law, was able, as of January 1, 2021, 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. The term qualified contribution means a contribution of cash to any eligible scholarship-granting organization. The term qualified expense means any educational expense that is— for an individual student’s elementary or secondary education, as recognized by the State, or 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) ). The term qualifying scholarship means a scholarship granted by an eligible scholarship-granting organization to an individual elementary or secondary student for a qualified expense. 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 ( 20 U.S.C. 6331(c) ), and the Department of the Interior (acting through the Bureau of Indian Education). A qualifying scholarship awarded to a student from the proceeds of a qualified contribution under this section 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. Gross income shall not include any amount received by an individual as a qualifying scholarship and such amount shall not be taken into account as income or resources for purposes of determining the eligibility of such individual or any other individual for benefits or assistance, or the amount or extent of such benefits or assistance, under any Federal program or under any State or local program financed in whole or in part with Federal funds. Nothing in this section 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 section shall not be construed to exclude private, religious, or home education providers from participation in programs or services under this section. Nothing in this section shall be construed to permit, allow, encourage, or authorize an entity submitting a list of eligible scholarship-granting organizations on behalf of a State pursuant to section 401(c)(3)(E) of the RECOVERY Act 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. No participating State or entity acting on behalf of a State pursuant to section 401(c)(3)(E) of the RECOVERY Act shall exclude, discriminate against, or otherwise disadvantage any education provider with respect to programs or services under this section based in whole or in part on the provider’s religious character or affiliation, including religiously based or mission-based policies or practices. No participating State or entity acting on behalf of a State pursuant to section 401(c)(3)(E) of the RECOVERY Act shall disfavor or discourage the use of qualifying scholarships for the purchase of elementary and secondary education services, including those services provided by private or nonprofit entities, such as faith-based providers. Nothing in this section shall be construed to modify a State or local government’s authority and responsibility to fund education. 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 does not exceed the sum of the qualified contributions made by the taxpayer for the taxable year. If a tax credit allowed under this section 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. 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. 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. . The table of sections for subpart A of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 25D the following new item: Sec. 25E. Contributions to eligible scholarship-granting organizations. . Subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section: Subject to section 401(c)(3) of the RECOVERY Act , 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)(2)) made by such corporation taxpayer during the taxable year. 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. For purposes of this section, any qualified contributions made by a domestic corporation shall be subject to the provisions of section 25E (including subsection
(d)of such section), to the extent applicable. 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. . Section 38(b) is amended— by striking plus at the end of paragraph (32); by striking the period at the end of paragraph
(33)and inserting , plus ; and by adding at the end the following new paragraph: the credit for qualified contributions determined under section 45U(a). . 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. 45U. Contributions to eligible scholarship-granting organizations. . The amendments made by this subsection shall apply to taxable years beginning after December 31, 2020. The Secretary of the Treasury shall, in coordination with the Secretary of Education, establish, host, and maintain a web portal that— lists all eligible scholarship-granting organizations; enables a taxpayer to make a qualifying contribution to 1 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; provides information about the tax benefits under sections 25E and 45U of the Internal Revenue Code of 1986; and enables a State to submit and update information about its programs and its eligible scholarship-granting organizations for informational purposes only, including information on— student eligibility; allowable educational expenses; the types of allowable education providers; the percentage of funds an organization may use for program administration; and the percentage of total contributions the organization awards in a calendar year. A taxpayer may opt to make a contribution directly to an eligible scholarship-granting organization, instead of through the web portal described in paragraph (1), 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 the Treasury in coordination with the Secretary of Education. For each fiscal year, the total amount of qualifying contributions for which a credit is allowed under sections 25E and 45U of the Internal Revenue Code of 1986 shall not exceed $5,000,000,000. For each calendar year, with respect to the limitation under subparagraph (A), the Secretary of the Treasury, in consultation with the Secretary of Education, shall— allocate to each State an amount equal to the sum of the qualifying contributions made in the State in the previous year; and from any amounts remaining following allocations made under subclause (I), allocate to each participating State an amount equal to the sum of— 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 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. Notwithstanding clause (i), no State receiving an allocation under this subsection may receive less than one-half of 1 percent of the amount allocated for a fiscal year. Not later than the end of the fifth year of the program or 1 year after the end of the first fiscal year for which the total amount of credits claimed under section 25E and section 45U of the Internal Revenue Code of 1986 is $2,500,000,000 or more, whichever comes first, the Secretary of the Treasury, in consultation with the Secretary of Education, shall, by regulation, provide for an alternative allocation method that shall take effect beginning with the first fiscal year after such regulation takes effect. 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 of the Treasury: 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. 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. For any fiscal year to which subclause
(I)applies, the Secretary of the Treasury, in consultation with the Secretary of Education, shall— for each State, allocate an amount equal to the sum of the qualifying contributions made in the State in the previous year; allocate 2/3 of the remaining amount (after application of item (aa)) of the national limitation for that year using the alternative allocation method under subclause (II); and allocate 1/3 of the remaining amount (after application of item
(aa)and (bb)) in accordance with clause (i)(II). For any fiscal year to which subclause
(I)applies, a State that does not provide the Secretary of the Treasury with information described in subclause
(II)is not eligible to receive an allocation through the alternative allocation method under such subclause. A State may choose to administer the allocation it receives under subparagraph
(B)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. A State’s allocation, for any fiscal year, is the sum of the amount determined for such State under clauses
(i)and
(ii)of subparagraph (B), except as provided in subparagraph (B)(iii). Not later than November 1 of the year preceding a year for which there is a national limitation on credits under subparagraph
(A)(referred to in this subsection as the applicable year ), or as early as practicable with respect to the first year, the Secretary of the Treasury shall announce the State allocations under subparagraph
(B)for the applicable year. Not 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 the Treasury a list of eligible scholarship-granting organizations, including a certification that the entity submitting the list on behalf of the State has the authority to perform this function. Neither this subsection nor any other Federal law shall be construed as limiting the entities that may submit the list on behalf of a State. The Secretary of the Treasury shall reallocate a State’s allocation to other States, in accordance with subparagraph (B), if the State— chooses not to identify scholarship-granting organizations under clause
(ii)in any applicable year; or does not have an existing eligible scholarship-granting organization. On or after April 1 of any applicable year, the Secretary of the Treasury may reallocate, to 1 or more other States that have eligible scholarship-granting organizations in the States, without regard to subparagraph (B), the allocation of a State for which the State’s allocation has not been claimed. Any term used in this subsection which is also used in section 25E of the Internal Revenue Code of 1986 shall have the same meaning as when used in such section.
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Sec. 401
Education Freedom Scholarships and Opportunity
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