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SEF Requests Georgia Department of Revenue to Investigate Illegal Tax Credits for Private School Scholarships

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January 28, 2013

Tens of millions of taxpayer dollars in Georgia have likely been diverted from the state treasury illegally during the last four years through the state’s tax credit scholarship program for private schools, according to a complaint and report filed today with the Georgia Department of Revenue by the Southern Education Foundation.  SEF is asking the revenue department to conduct a full-scale, statewide investigation and to attempt to recover all tax funds that have been used unlawfully in support of private school scholarships across the state.

SEF’s complaint includes more than 300 pages of documents showing that private student scholarship organizations (SSOs) and private schools in Georgia have been assisting parents, relatives, and others to designate students to receive private school scholarships financed by their diverted taxes. Since the tax credit program started in 2008, state tax regulations have explicitly disqualified any contribution of diverted tax credits that are directly or indirectly designated to benefit a particular individual. A 2011 amendment to state law also prohibits any SSO from awarding “a scholarship to a specific eligible student at the request of the donor.”

“The available evidence is clear and convincing that millions of dollars have been diverted illegally to support private school scholarships in Georgia,” says Steve Suitts, SEF Vice President who along with Katherine Dunn, SEF Program Officer, filed the complaint.  “The only question is exactly how much money has been unlawfully diverted, and only the Revenue Department has the investigative powers and records to answer that question.” Over the last four years, a total of more than $170 million in state tax funds have been spent to support private school scholarships in Georgia.

Not all private schools in Georgia receiving tax credit contributions are involved in unlawful practices, but SEF’s complaint demonstrates that illegal practices are widespread. The “available documentary evidence in this report raises serious questions about the legality of state tax credits involving the student scholarship organizations that have raised the vast majority of the $170 million in tax funds diverted from the state treasury … and more than 113 specific private schools – almost one out of every four private schools participating in Georgia’s tax credit scholarship program,” the complaint states.

The questionable practices include tax credit contributions that directly identify individuals, tax credit contributions made and received by parents and relatives for their own family’s children’s scholarships, and tuition rebates and discounts for donating and recruiting tax credit contributions. “All of these methods and schemes involve SSOs and private schools encouraging and assisting taxpayers, especially private school parents and their friends, to provide tax credit contributions and, in effect, to return all or part of a tax credit contribution to help pay designated children’s private school tuition.” All such practices violate the Georgia tax code.

The SEF complaint and report shows that one student scholarship organization, the Georgia Student Scholarship Organization (GASSO), has been active in recruiting illegal tax credit contributions since 2009. “GASSO and Robert Jasion have encouraged and assisted private schools and private school parents in Georgia to divert tax dollars to designated children, usually their own children already in attendance at private schools, during the last four years.”

SEF’s report also documents that State Rep. David Casas, a co-sponsor of the tax credit scholarship law, has helped GASSO encourage parents to divert tax funds for designated students. In a videotaped meeting in Lawrenceville, Georgia in December 2009, Rep. Casas informed the private school audience how they could divert tax dollars away from the state treasury in the following manner:
“You can take this chunk of money and be able to say, “No, I want this money to go to education, and not just education, I want it to go to the school of my choice, and maybe even more detailed the student of my choice.” (emphasis added)
Rep. Casas’ remarks were circulated by GASSO, which inserted a place card in the video before his remarks stating: “Donations Designated for Schools and Students.” The video was distributed to private schools and parents online and remained available until the end of May, 2012, when GASSO took down the video in response to a news story.

SEF’s complaint is not able to provide “dispositive evidence” of massive wrongdoing, since state law hides most of the information about how funds are spent and the children who are awarded tax-funded scholarships through the program.  But, the complaint and report “provide clear and convincing evidence that SSOs and private schools have been and are openly violating the Georgia tax code, Georgia statutes, and federal tax regulations.” The report’s documentary evidence, SEF states in its complaint, is “more than sufficient to establish grounds for a wholesale, statewide special investigation into the tax irregularities of Georgia’s private student scholarship organizations and their affiliated schools.”

Tax cheating is just the latest issue in a long line of problems that has riddled Georgia’s tax credit scholarship program. The law’s sponsors promised the program would help low income students transfer from struggling public schools to a private school offering a chance for a good education. But, the available evidence indicates that the program has primarily assisted wealthier students, many already attending a private school.

SSOs have encouraged private school parents to fill out paperwork to register their own children to attend a public school (with no intention of attending) and afterwards to declare that their children were “enrolled” in a public school and eligible to receive a tax-funded scholarship. As many as one out of four of the program’s participating private schools also have policies and practices that expel or punish gay children.

The state program also fails to provide any reporting or accountability on how diverted tax funds are used by SSOs and private schools. It fails to provide any information on whether students who actually transfer from a public school are performing better in the private school than they had in a public school. In fact, a 2011 amendment to the program’s law makes it a criminal offense to publicly divulge any information submitted by SSOs to the state, including a general financial audit done annually by a certified public accountant.

For this reason, the nation’s oldest journalism organization, the Society of Professional Journalists, awarded Georgia’s tax credit scholarship law the “Black Hole Award” for one of the nation’s “most heinous violations of the public’s right to know.”

For Additional Information Contact: Katherine Dunn 404-991-6764

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