Louisiana Tuition Donation Rebate Program

Paging Poodlebrain and any other CPAs / rich people that have had experience...

Client brought this to me yesterday. I had heard about it when it was passed a couple of years ago, but had never seen it in real life until now. Here are the basics, as far as I can tell:

1) Client donates money - say 100K - to a Tuition Scholarship Org in 2015. Org issues charitable donation receipt for 100K. Client takes 2015 charitable contribution of 100K.

2) During 2015-2016 school year, TSO gives scholarships to kids to attend private school. They must obligate at least 95 percent of the donation to scholarship - only up to 5 percent can be used for admin costs. Checks are issued to the school throughout the school year.

3) At end of school year, TSO certifies how much of the money was spent on scholarships, and sends this information to the donor. The donor then sends that info to LDR, and LDR cuts a check for the amount certified. So, for example, if donation was 100K and 95K was used for scholarships (with 5K used for admin), then LDR issues a check for 95K to the donor. Donor then claims 95K on their 2016 income tax return as income.

Basically, it appears to me, you are netting a 5 percent charitable contribution, front-loaded.

My questions are:

1) Has anyone had any success with this?

2) Where is the state getting the money to refund the 95K?