This is the stage that separates an SGO from a generic scholarship charity. The tests below come straight from the statute (we host the full §25F text), with the detail Treasury added in its October 2026 regulations. Those regulations also raise the stakes on where the rules live: until your first annual certification is on file, your state can list you only after determining that your governing documents, policies, and procedures expressly require you to satisfy each one (a temporary regulation, binding and applying from September 1, 2026). One choice comes before the rest: whether at least 85% of your activities are scholarship granting, which decides how the 90% test applies to you.
Some of these rules are proposed, not final. Treasury released the §25F regulations on October 1, 2026, in two parts. The temporary regulations are binding rules, not proposals, and apply from September 1, 2026: registering in the IRS SGO portal, donor acknowledgments and IRS reporting, and how states build their SGO lists. Most of the rest, including the 85% safe harbor, the details of the 90% test, income verification, payment rules, disqualified persons, and the annual certification and audit, comes from the proposed regulations. Taxpayers, SGOs, and states may rely on those for 2027 contributions if they follow them in full, but comments are open until December 1, 2026 (hearing December 15) and the final rules could change them. Items tagged Proposed rule rest on that part; we re-verify each one when the final regulations publish, and our news feed tracks every change.
The requirements
Three structural tests, all properties of what you already built: 501(c)(3) public charity (your 1023 classification), governing documents that expressly require each §25F operating rule (the bylaws template's Article VIII; the temporary regulations make this the test a state applies to a new SGO), and the segregated §25F account. If stage 1 went by the book, this is a checkmark, not a project.
0/1 insideStep-by-step guide →The rules in your award policy: 10+ students who don't all attend the same school; prior-year recipients first, then siblings (Treasury's proposed regulations let tutoring and special-needs awards go by need instead); no donor earmarking; household income at or below 300% of area median gross income; students who RESIDE in the state that lists you (where they go to school doesn't count); and no scholarships to disqualified persons. Under the proposed regulations that means directors, officers, anyone who helps pick recipients or set awards (committee members included, with no exception for blind review), donors who gave more than $5,000 and more than 2% of a year's contributions, and the families of all of them. Your bylaws already require these rules; here you operationalize.
0/2 insideStep-by-step guide →Who qualifies for scholarshipsEligibility calculatorDisqualified persons explained
At least 90% of your income goes to scholarships for eligible students. Under Treasury's proposed regulations, "income" means your organization's total gross receipts from all sources (cash basis, before expenses) unless you qualify for the 85% safe harbor in step 4, and at least 90% of each year's income must be paid out by the last day of the following tax year. Scholarships pay only qualified §530(b)(3)(A) expenses: tuition, fees, tutoring, books, supplies, computers, special-needs services. Treasury's separate guidance on the full expense list and what counts as a "school" is not out yet.
0/2 insideStep-by-step guide →90/10 deep dive90/10 calculatorQualified expenses explainedThe two-year spending window
The fork that decides how the 90% test applies to you. Under Treasury's proposed regulations, if at least 85% of your activities are scholarship granting (state tax-credit and other scholarships count, and so do administration, fundraising, and compliance work to the extent they support them), a single-state SGO applies the operating tests, including the 90% test, to its §25F segregated account instead of the whole organization. Below 85%, the 90% test covers all of your organization's receipts and you cannot be on more than one state's list. Treasury itself says this may require forming a new organization for §25F work, which is the usual answer for schools and mixed-program charities. Treasury has asked for comments on how to measure activities, so record how you counted.
0/2 insideStep-by-step guide →The 85% safe harbor explainedExisting nonprofit? The retrofit audit
Treasury's proposed regulations allow four ways to show a student's household is at or below 300% of area median gross income (measured for the calendar year before the application, using HUD's Section 8 method and family size): direct documents such as pay stubs, prior-year tax returns, IRS transcripts, and W-2s; an award letter dated within the last 12 months showing someone in the household gets SNAP, TANF, WIC, Section 8 housing, or SSI (school lunch status is not on the list); a safe harbor for school-selected tutoring or special-needs services at schools in HUD qualified census tracts (or where at least 80% of students live in one), which requires an annual third-party audit; and foster children, who qualify automatically. You may set a lower limit than 300%. The IRS has not yet published the area median income figures.
0/2 insideStep-by-step guide →How scholarship money moves, per Treasury's proposed regulations: tuition, fees, and room and board go directly to the school; other vendors are paid directly only if you have verified them as appropriate providers and they are not related to the student; families receive money only as a reimbursement backed by a receipt proving payment and a qualified expense, after your duplicate check; or use a qualified digital wallet. Build fraud procedures that stop two awards from covering the same expense, and require schools and vendors to refund overpayments and errors (a refund counts as new income, spendable through the end of the following year).
0/2 insideStep-by-step guide →
Frequently asked questions
Do the SGO rules need to be in our bylaws, or is a policy manual enough?
Put them in the governing documents. Under Treasury's temporary regulations, binding rules that apply from September 1, 2026, a state listing a new SGO (one that hasn't yet filed its first annual certification with the IRS) may rely on its governing documents, policies, and procedures, but only after determining that they expressly require the SGO to meet each §25F operating requirement, “beyond a general requirement to comply with applicable law.” A one-line promise to follow §25F does not meet that test. Write each rule into the bylaws, and use a policy manual for the procedures that carry them out.
Does the 90% rule count all our income or just §25F donations?
It depends on your structure. Under Treasury's proposed regulations (October 2026), which SGOs may rely on for 2027, “income” means your organization's total gross receipts from all sources, on a cash basis and before expenses. If at least 85% of your activities are scholarship granting, a single-state SGO may instead apply the test to its §25F segregated account, counting only the qualified contributions and earnings credited to it; an SGO on more than one state's list must meet the 85% test and applies the 90% test to each state's account separately. Either way, at least 90% of each year's income must be spent by the last day of the following tax year. The final regulations could change these details.
Can a donor fund a specific child's scholarship?
No. §25F prohibits earmarking contributions for any particular student. Gift forms, campaigns, and donor conversations all need to respect it.
Can a board member's or selection committee member's child get a scholarship?
No. §25F bars scholarships to disqualified persons, and Treasury's proposed regulations define them to include officers, directors, trustees, anyone who takes part in selecting recipients or setting awards (committee members included), donors who gave more than $5,000 and more than 2% of the year's contributions, and the families of all of these: spouses, ancestors, descendants, siblings and their descendants, and the spouses of those relatives. Treasury rejected an exception for blind or anonymized selection, and a person who leaves the board or committee stays disqualified through the end of the following tax year.
We run other programs besides scholarships. Can we still be an SGO?
Possibly, but the structure matters. Under the proposed regulations, an organization whose activities are less than 85% scholarship granting gets no safe harbor: the 90% test applies to all of its receipts, and it cannot be on more than one state's list. Treasury itself says the safe harbor “may require the formation of new organizations to conduct section 25F activities,” and for most mixed-program charities a separate SGO is the cleaner path. See the retrofit audit.
