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Toomey Statement on Treasury Guidance for School Choice Scholarship Programs

January 7, 2019
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Allentown, Pa. - U.S. Senator Pat Toomey (R-Pa.) released the following statement regarding the U.S. Department of Treasury's latest guidance on corporate giving to state tax credit programs, such as the Pennsylvania Educational Improvement Tax Credit (EITC):

"Pennsylvania's EITC program provides scholarships to thousands of disadvantaged children so they can escape failing schools. Treasury's new guidance is welcome news for those students and their families - explicitly stating that business contributions to programs, like the EITC, will remain deductible. In the coming months, I will continue to work with Treasury to ensure donors have the guidance they need to support school choice programs."

Pennsylvania's EITC program is largely funded by contributions from businesses.

Background

On August 27th, the Treasury Department published a new rule on state or local tax credit programs. Unfortunately, the regulation's initial construction would have disallowed any charitable deduction for contributions with a state and local tax credit component, including programs like the Pennsylvania Educational Improvement Tax Credit. This guidance was prompted by the new limitation on state and local tax deductions in the Tax Cuts and Jobs Act (TCJA) and efforts by some states to work-around the limitation with state-run charities. The state and local tax deduction limitation in the TCJA does not apply to businesses, thus businesses have no incentive to circumvent TCJA's new limits. On September 5th, the IRS released an FAQ that allows businesses to deduct contributions to state tax credit programs as a business expense if they have a business purpose as determined by tax law principles.

Pennsylvania's EITC program was established in 2001 and today provides $160 million annually in funds for scholarships to children in families meeting certain income requirements, as well as for innovative programs in public schools. In 2012, a parallel program known as the opportunity scholarship tax credit was created to provide an additional $50 million in funds for scholarships exclusively to students in low-achieving school zones. These programs provide children across Pennsylvania with access to choice in education, and an escape route from underperforming schools.

The new guidance can be found here.