H.R. 2798 — High-Quality Charter Schools Act

This section establishes a new nonrefundable income tax credit under new IRC §25F (added after §25E) for individuals who are U.S. citizens or residents equal to 75% of qualified contributions (cash or marketable securities) to eligible charter school organizations, capped annually 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. 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 (as defined in ESEA §4310 [20 U.S.C. 7221i]) meeting at least one of the following: (1) it has received, or manages a school that received, a replication or expansion grant under ESEA §4305(b) [20 U.S.C. 7221d(b)]; or (2) a state has selected it as in the top 10% statewide for student performance; and it must separately account for such contributions, obtain annual audits by an independent certified public accountant, and certify completion to the Treasury Secretary. Qualified contributions are ineligible for the charitable deduction under IRC §170 and are subject to an aggregate volume cap established under sec. 4 of the High-Quality Charter Schools Act. (Thus, the credit incentivizes donations specifically for creating or expanding high-quality charter schools managed by proven organizations.)

This section establishes new IRC §4969 requiring eligible charter school organizations (as defined in IRC §25F(c)(2)) to expend qualified contributions (i.e., those eligible for the IRC §25F tax credit for charter school creation or expansion) by the first day of the fifth taxable year following receipt. The required expenditure amount equals 100% of such contributions for the year, reduced by reasonable administrative expenses (deemed reasonable under a 10% safe harbor for admin costs related to charter school creation or expansion) or amounts carried over to the next year (not exceeding 15%), and increased by any prior-year carryover; expenditures include formal commitments (potentially multi-year), and failure to meet the requirement results in contributions received in the subsequent taxable year not qualifying for the §25F credit. (Thus, organizations face a one-year loss of tax credit eligibility for donors if they do not timely spend or commit funds.)

This section establishes a $5 billion annual volume cap on tax credits under new IRC §25F (for qualified individual contributions) for taxable years beginning in calendar year 2026 and thereafter. It (1) allocates $10 million per state (for state residents) with the remainder available nationwide on a first-come, first-served basis (determined by contribution date); (2) carries over unused state allocations to the next year's nationwide amount; and (3) increases the nationwide cap by 5% for the subsequent year if prior-year usage reaches 90% of available credits. This section also directs the Treasury Secretary to develop a real-time tracking system for qualified contributions.

This section prohibits regarding eligible charter school organizations (as defined in new IRC §25F(c)) as acting on behalf of governmental entities solely by virtue of participating under this Act. The section further directs construing this Act to provide such organizations maximum freedom from governmental control, to the extent permissible by law, in addressing the needs of students at charter schools they operate or manage.