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Concern that IRS rule may hurt private school scholarships

August 28, 2018

MONTGOMERY, Ala. (AP) — Advocates of a state-supported private school scholarship program are concerned that donations could drop under proposed new Internal Revenue Service rules by reducing the tax break that donors get.

The program, known as the Alabama Accountability Act, gives donors an income tax break for donations to groups that provide private school scholarships for low-income students. The program provided more than 4,000 scholarships in 2016.

Currently, donors get a dollar-for-dollar reduction on their state income tax bill, and can also claim a federal tax deduction. The rules proposed last week would end the ability for large donors to claim the federal tax deduction in addition to the 100 percent state tax credit.

Lesley Searcy, executive director of the Alabama Opportunity Scholarship Fund — which provides scholarships to 1,600 children— said the proposed rules are “disappointing.”

“The IRS states that only a ‘small percent’ of donors nationally will be affected by the rule, but many of those donors are the very ones who support our students,” Searcy wrote in an email.

Searcy said she hopes a compromise can be reached that carves out preexisting scholarship programs like the Alabama Opportunity Scholarship Fund.

“The future of thousands of children from low income families depends on it,” Searcy wrote.

The Alabama Accountability Act sets aside up to $30 million in tax credits each year for donations to the program.

The 2013 law was touted as a way to help students escape “failing” schools with chronically low test scores. However, many of the students who have benefited from the law did not attend the schools defined as failing by the law. However, advocates say it has benefited thousands of low-income children who would otherwise attend underperforming schools.

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