Exactly what to do
- Month-end: income, scholarships paid, admin spent, and one live number for each income base the proposed regulations have you test: the whole organization, or your §25F account if you use the 85% safe harbor (stage 2, step 4), or each state’s account if you’re multistate. Track it by the year the income arrived: each year’s income must be 90% paid out by the end of the following year, and payments come out of the oldest year first. Put the number in front of the board quarterly; a drifting ratio caught in June is a budget fix, caught in December it's a crisis. Same rhythm for your disqualified-person list: substantial-contributor status is tested at each year end, for the organization and for each §25F account. The calculator does the math.
- The acknowledgment starts at the gift. A gift is a qualified contribution only if the donor designates it as §25F at the time of the gift (all or part of it; the designation can’t be undone), so your gift form must ask, and a multistate SGO must also ask which state. Only cash counts: card, check, transfer, or after-tax payroll deduction, in dollars; no crypto or other digital assets, and a business’s gift (including a partnership’s or S corporation’s) doesn’t qualify. Every designated dollar goes into the §25F account, recorded under the donor’s unique donor number, so credits match real donors without anyone handing you an SSN. The year-end paperwork, January 31 acknowledgments and the February 28 IRS report, is step 3. One discipline meanwhile: never double-promise the tax treatment; the credited amount can’t also be deducted, though the part of a gift above the credit may be.
- Retain board minutes, award and income-verification records, donor acknowledgments, and the complete set of books the proposed regulations require for each §25F account. The working schedule: governing documents, determination letter, and minutes are kept permanently; financial and award records at least seven years (the common nonprofit standard, comfortably past the IRS's usual three-year exam window); income-verification files are access-limited and destroyed when that same written schedule says so, adopt it as a one-page board policy. Federal law requires your 990s and exemption application to be available for public inspection; the income files are the opposite. Public what must be public, private what must be private.
