Write the award rules: who gets scholarships

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Exactly what to do

1. 2.1Write the six rules into your award policy
   These follow Treasury’s proposed regulations (October 2026), which SGOs may rely on for 2027 contributions.
   1. Ten or more students, not all one school. Design your catchment wider than a single school from day one. (“School” means a K-12 school as determined under your state’s law; Treasury’s separate §530 guidance on what counts as a school, homeschools included, isn’t out yet.)
   2. Priority order. Last year’s recipients first, then any eligible student whose sibling (adopted, foster, half-, and step-siblings count) has received a scholarship from you, then everyone else; budget renewals before recruiting new students. The order matters most for tuition, fees, and room and board, so a student can stay at the same school with siblings alongside; tutoring and special-needs awards may be prioritized by need instead.
   3. No earmarking. Donors may not designate a particular student; strip designation options from every gift form and marketing surface.
   4. Eligible students only. The two-part definition: household income for the calendar year before the application at or below 300% of area median gross income, adjusted for family size (eligibility calculator; how to verify it is step 5) AND the student is eligible to enroll in a public elementary or secondary school (current enrollment isn’t required, so a student can be funded the summer before starting). Write both tests into the policy, not just the income line.
   5. Students who live in your state. A §25F scholarship goes only to a student who resides in the state whose list funds it, under that state’s law. Where the student goes to school doesn’t count either way: a resident may use the scholarship at a school across the state line, and a nonresident attending a school in your state can’t be funded. Two exceptions: a dependent of a member of the Armed Forces counts in both the domicile state and the state where the service member lives, and a dependent of someone living on Indian Lands counts in both the state of residence and the state where the student attends school.
   6. No disqualified persons. No scholarship to a substantial contributor (more than $5,000 in your taxable year, if that is more than 2% of that year’s contributions to the organization or to a §25F account, spouses combined); a director, officer, or trustee; anyone who helps select recipients or set award amounts, committee members and unpaid volunteers included; or a family member of any of them (spouse; ancestors and descendants of the person or the spouse; siblings of either and the siblings’ descendants; and the spouses of all of those). Treasury rejected exceptions for blind selection and unpaid volunteers; the rule text doesn’t mention recusal, and the policy below treats it as no exception either, as our own conservative choice. The status runs through the end of the taxable year after the one in which someone leaves the role.

   Don’t draft from scratch; adopt this by board vote and adapt only what your program genuinely needs. It is a written policy a state may rely on when listing a new SGO, so it states each requirement expressly. A few lines go further than the rule text as our conservative policy choice, and say so (10 students in each year, keeping foster-status documentation, recusal as no exception). It is drafted from §25F and Treasury’s proposed regulations, not from attorney precedent: have counsel review it before the board adopts it.

   SCHOLARSHIP AWARD POLICY: paste-ready starting pointPDFCopy

   SCHOLARSHIP AWARD POLICY OF [ORGANIZATION NAME] 1. Eligible students. Scholarships are awarded only to eligible students: students who (a) are members of a household whose income for the calendar year before the date of the application is not greater than 300 percent of area median gross income for the household's area and family size, as determined under section 25F of the Internal Revenue Code and the regulations under it, and (b) are eligible to enroll in a public elementary or secondary school. The household is the student and everyone living with the student; for a student who lives in more than one household during the year, it is the household where the student lives longest (or, if the time is equal, the higher-income household). 2. Income verification. Before any award, household income is verified by one or more of these methods only: (a) documents such as pay stubs, prior-year federal or state tax returns, IRS transcripts, Forms W-2, and evidence of other income such as child support or alimony not reported as income (or a certification that there is none), or other relevant data sources; (b) an award letter or similar document dated within the last 12 months showing that a household member currently is approved for or participates in SNAP, TANF, WIC, Section 8 housing, or SSI; (c) for individual tutoring or special-needs scholarships at schools in low-income areas, the safe harbor in the section 25F regulations, with the annual third-party audit it requires; or (d) for a foster child, the foster-child safe harbor in the section 25F regulations, under which household income need not be verified (as its own policy, the organization keeps documentation of foster-child status). School-wide free or reduced-price lunch status is not used to verify income. 3. Residence. Scholarships funded with qualified contributions are awarded only to students who reside in [STATE] under [STATE] law, verified before each award, except as the section 25F regulations provide for dependents of members of the Armed Forces and of individuals residing on Indian Lands. A recipient may use a scholarship at a school in another state. 4. Breadth. The organization awards scholarships to 10 or more students who do not all attend the same school and, as its own policy, meets that number in each year. 5. Priority. Awards are made first to students who received a scholarship from the organization for the previous school year; second, to eligible students with a sibling (including an adopted, foster, half-, or step-sibling) who received a scholarship from the organization; then to other eligible students under criteria the board adopts. For individual tutoring and special-needs awards, priority may instead be based on need for the services. 6. No earmarking. The organization does not accept, and its solicitation materials do not offer, contributions designated for a particular student. 7. Disqualified persons. No scholarship is awarded to a disqualified person: a substantial contributor (a person who gave more than $5,000 in the organization's taxable year, if that is more than 2 percent of the contributions the organization, or the relevant section 25F account, received that year, counting a spouse's gifts together), for that year and the next; a director, officer, or trustee, or anyone with similar powers; anyone who participates in selecting recipients or determining awards, including committee members; or a family member of any of them (spouse; ancestors and descendants of the person or the spouse; siblings of either and the siblings' descendants; and the spouses of all of these). Directors, officers, and selection participants remain disqualified through the end of the taxable year after the year they leave. Blind selection and unpaid service do not create exceptions, and under this policy neither does recusal from a particular decision. Every application asks about these relationships, and each applicant is screened before any award. 8. Qualified expenses and payment. Scholarships pay only qualified elementary and secondary education expenses within the meaning of section 530(b)(3)(A) of the Internal Revenue Code and guidance under it. Tuition, fees, room and board, and similar school charges are paid directly to the school. Other expenses are paid directly to vendors verified as appropriate providers and not related to the recipient, through a qualified digital wallet, or as a reimbursement to the family only on a receipt showing both payment and a qualified expense, after a check that no other source has paid it. Schools and vendors must return overpayments and payments made in error. 9. Fraud and duplicates. The organization maintains procedures to prevent and detect fraud and abuse, including duplicate awards to the same student for the same expense that together exceed its cost. 10. Administration. The scholarship committee administers this policy; exceptions require a board vote recorded in minutes, and no exception may conflict with section 25F or the regulations under it. This policy implements the organization's bylaws and section 25F of the Internal Revenue Code, and is reviewed annually. Adopted by the Board of Directors on [DATE].

2. 2.2Screen at application time
   Four screens on every application: income (household income + family size for the calendar year before the application, against the area median, checked by a permitted verification method with documents in a verification file), residence (the student lives in your state), insiders (a short relationship question catching the families of directors, officers, committee members and anyone else who selects recipients, and substantial contributors), and duplicates (the same expense isn’t already covered by another award). Then protect the data: access-limit the income file, keep income status out of anything public, and destroy documents on a schedule.

Questions people actually ask

Primary sources: Treasury proposed regulations, October 2026 (our summary) · §25F statute text