S. 1813 — High-Quality Charter Schools Act

This section establishes a nonrefundable tax credit equal to 75% of qualified cash or marketable securities contributions (i.e., charitable contributions under IRC §170(c)) by U.S. citizens or residents to eligible charter school organizations for creating or expanding charter schools operated or managed by such organizations. The annual credit is capped at the greater of 10% of adjusted gross income or $5,000, with unused credits carried forward up to five years on a first-in-first-out basis; qualified contributions eligible for the credit are ineligible for the IRC §170 charitable deduction and are subject to an aggregate volume cap established under sec. 4 of the High-Quality Charter Schools Act (with separate State allocations). An eligible charter school organization is a tax-exempt §501(c)(3) (not a private foundation) that is a charter management organization or charter school which either (1) received a replication or expansion grant under ESEA §4305(b) (20 U.S.C. §7221d(b))—which provides competitive grants to charter management organizations to replicate or expand high-quality charter schools—or manages or operates a school supported by such a grant, or (2) is state-selected as among the highest 10% of such organizations or schools for student performance; it must also separately account for such contributions, obtain annual financial and compliance audits by an independent certified public accountant, and certify audit completion to the Treasury Secretary.

This section establishes new IRC §4969 requiring eligible charter school organizations (as defined in IRC §25F(c)(2)) to expend qualified contributions (as defined in IRC §25F(c)(3)) in the required expenditure amount before the expenditure deadline (i.e., the first day of the fifth taxable year following the taxable year of receipt). The required expenditure amount equals 100% of qualified contributions for the year, reduced by reasonable administrative expenses related to charter school creation or expansion (with a safe harbor deeming expenses of 10% or less of total qualified contributions as reasonable) and by carryover amounts of up to 15% elected for the succeeding taxable year, and increased by any carryover from the prior year; expenditures include formal commitments (e.g., amounts set aside for multi-year charter school projects). (Thus, upon a Secretary of the Treasury determination of noncompliance for a taxable year, contributions to the organization in the first subsequent taxable year are ineligible for the IRC §25F tax credit.)

This section establishes a $5 billion annual volume cap on tax credits under new section 25F of the Internal Revenue Code for qualified contributions during taxable years beginning in calendar year 2026 and each subsequent year. It allocates $10 million per state (as defined in IRC §7701(a)(10), i.e., the 50 states, District of Columbia, and possessions) to residents of that state, with the remainder available nationwide on a first-come, first-served basis determined by the date of the qualified contribution; unused state allocations carry over to the next year's nationwide pool. If nationwide credits reach or exceed 90% of the available amount in a calendar year, the nationwide amount increases by 5% for the subsequent year. It directs the Secretary of the Treasury to develop a real-time tracking system for qualified contributions eligible for the credit.

This section prohibits regarding eligible charter school organizations as acting on behalf of any governmental entity solely by virtue of their participation under this Act. The section further directs that the Act be construed, to the extent permissible by law, to provide such organizations maximum freedom from governmental control in addressing the needs of students at the charter schools they operate or manage.