U.S. Department of the Treasury · Office of Tax Policy · June 9, 2026
Preview of Forthcoming Section 25F Guidance
Update, October 1, 2026: Treasury and the IRS have now issued the proposed regulations (REG-117199-25) and companion temporary regulations (T.D. 10057), filed for Federal Register public inspection that day. The text below is archived as delivered on June 9, 2026; where it differs from the published rules, the rules control. Our topic-by-topic comparison follows the remarks.
Remarks delivered by Deputy Assistant Secretary for Tax Policy Kevin Salinger on Tuesday, June 9, 2026:
Treasury and the IRS expect to issue proposed regulations this coming back-to-school season - no later than the end of September. States, SGOs, and taxpayers will be able to rely on those proposed regulations for tax year 2027. But we recognize the need to plan, so today I’m going to preview key issues in those forthcoming proposed regulations. These items remain subject to ongoing legal review, but we intend for the proposed regulations to be consistent with this preview. Many of you have been eagerly awaiting this information, and Treasury is pleased to deliver it today.
(ninety-percent-safe-harbor)Safe harbor for 90% in a segregated account
Let me start with the 90-percent spending requirement. As many of you know, an eligible SGO must spend at least 90% of the income of the organization on scholarships for eligible students. We expect the proposed rules will generally measure the 90-percent spending requirement against the organization’s total receipts, unreduced by expenses. But if the organization’s activities are largely scholarship-granting activities, the organization could use a safe harbor under which “income of the organization” is measured by the amount held in a section 25F segregated account, including qualified contributions and earnings. For a multistate SGO, that safe harbor would have to be satisfied separately for each State-specific segregated account.
(located-in-the-state)“Located in the State”
The next issue is what it means for an SGO to be “located in” a participating State. We expect the proposed rules will define an SGO as “located in” a State if it is authorized to do business in that State and complies with generally applicable State charitable-organization rules, including rules for transparency, accountability, and fraud prevention. At the same time, States may not impose substantive SGO-specific requirements that are more restrictive than section 25F’s requirements.
(multistate-sgo)Multistate SGO definition and eligibility standard
We also recognize that some SGOs may want to operate in more than one participating State, and the proposed rules are expected to provide a path for that. An SGO may be listed on more than one participating state SGO list as long as it is located in that State and maintains a separate section 25F account for that State. Most operational requirements would be applied separately to the State account, while certain organization-wide rules would apply to the multistate SGO as a whole.
(definition-of-school)Definition of school
We also expect to address the types of schools that may be served by scholarships under the program. We expect the proposed rules will define “school” consistent with section 530 to include public, private, and religious schools providing K-12 elementary or secondary education as determined under State law. Accordingly, a home school would be treated as a school if it is treated as a school under State law. We expect the proposed rules will clarify that K-12 schools operated by a federally recognized Tribe or tribal organization qualify as elementary or secondary schools.
(income-verification)Verification of student's income qualification
Verification of student’s income qualification through direct income verification, categorical eligibility, foster-child safe harbor, and additional safe harbors.
Another important implementation question is how SGOs can verify student eligibility in a way that is reliable, but not unnecessarily burdensome for families. We expect the proposed rules will allow SGOs to verify a student’s household income directly through documents such as paystubs, tax returns, IRS transcripts, Forms W-2, or through crediting agencies or commercial data sources. They also would allow determination of eligibility based on recent documentation that a household member participates in a needs-based Federal, State, or Tribal program with income limits at or below the specified threshold, and would treat foster children as satisfying the income requirement without separate income verification. We are also considering other safe harbors for students attending schools in low-income areas.
(fraud-and-abuse)Preventing fraud and abuse
We know that States have raised real concerns about fraud and abuse, and our goal is to pair broad opportunity with strong, administrable safeguards. Each SGO would have to obtain an annual financial and programmatic audit by a qualified independent third party and provide it to each covered State on whose list it appears. For smaller SGOs, the proposed rules would allow a more streamlined alternative: the audit could be conducted by an internal committee unrelated to the organization’s management, with the report signed under penalties of perjury.
The audit is intended to make State oversight manageable. Rather than requiring States to recreate the compliance review from scratch, States could use the audit to help verify that each organization satisfies the requirements to be an SGO under section 25F, identify apparent deficiencies, and determine whether further inquiry or removal from the State list is appropriate.
Participating States would still be expected to take reasonable steps to prevent fraud and abuse, including processes to prevent duplicate awards to the same student for the same expense. One possible approach would be to require a formal scholarship acceptance certifying that no other award has been received for the same expense, but we welcome input on administrable ways to address this risk. We are also considering appropriate safeguards to help prevent misuse of scholarship funds.
(unique-donor-number)Unique donor number reporting requirement
On the donor side, we are focused on a reporting approach that supports compliance without requiring SGOs to collect more sensitive information than necessary. The SGO would provide each donor a timely written acknowledgment of their annual contributions, including the total amount of the donor’s qualified contributions and a unique donor number generated under an IRS-provided method. The SGO would also report donor and contribution information to the IRS using the unique donor number, and taxpayers claiming the credit generally would report that number on their Federal return. This information can be used in a matching process that is intended to help prevent fraud by allowing the IRS to confirm that a claimed credit corresponds to an actual donor, an actual SGO, and qualified contributions reported by that SGO, without requiring a donor to provide his or her Social Security Number to the SGO.
(irs-portal)Planned IRS SGO portal
We are also thinking ahead about the infrastructure needed to make administration easier over time. We expect the proposed rules will contemplate an IRS portal to support SGO administration and reporting. The goal is to build a user-friendly interface that can streamline interactions between SGOs and the IRS, but the precise functionality and timing may develop in phases rather than all being available on day one.
(section-530)Section 530 guidance
Finally, we know that many stakeholders are focused on the scope of eligible expenses, including services that help meet students’ individual needs. We recognize that additional guidance under section 530 regarding the scope of eligible expenses will be important, and we expect that to be a separate workstream that will follow the issuance of the section 25F proposed regulations. Consistent with the statutory text of section 530, we fully intend that scholarships may be used to support additive academic tutoring and special needs services, and we expect future guidance to address those issues in more detail.
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How the October 1, 2026 rules compare to this preview
Our notes, in the order of the remarks. “Prop.” sections are proposed regulations (not final; taxpayers may rely on them for contributions made on or after January 1, 2027). “T” sections are temporary regulations, which take effect without a comment period and apply from September 1, 2026.
- Timing. The proposed regulations were released October 1, 2026. Comments are due December 1, 2026, with a public hearing scheduled for December 15.
- 90% safe harbor. Followed, with a number: “largely scholarship-granting” became at least 85% of the organization’s activities, for a single-state SGO (prop. § 1.25F-3(c)(2)). Under the safe harbor, income means the qualified contributions and earnings credited to the §25F segregated account; otherwise it means total gross receipts from all sources, unreduced by expenses (prop. § 1.25F-3(c)(4)(ii)). New in the proposal: each year’s income must be spent by the end of the following taxable year (prop. § 1.25F-3(c)(4)(iii)).
- “Located in the State.” Followed: authorized to do business in the state and in compliance with its generally applicable charity laws (§ 1.25F-1T(a)(10)). States may not require SGOs to operate more restrictively than §25F, for example by limiting the types of schools or expenses (§ 1.25F-5T(e)(2)).
- Multistate SGOs. Followed, with an added condition: a multistate SGO must be at least 85% scholarship granting, keep a separate §25F account for each state, let donors designate how a gift is allocated among its states, and meet the operating rules separately for each state account (prop. § 1.25F-3(c)(3)).
- Definition of school. The proposal adopts the §530(b)(3)(B) definition (a K-12 school “as determined under State law”) for both qualified expenses and the 10-students-not-all-at-one-school test (prop. § 1.25F-1(a)(17)). The rule text does not itself mention home schools or tribal schools; Treasury says separate §530 guidance on expenses and schools will follow “as soon as possible.” Until it does, how home schools are treated remains open.
- Income verification. Narrower than previewed in two places. Direct verification uses pay stubs, tax returns, IRS transcripts, Forms W-2, evidence of other income, or “other relevant data sources”; the remarks’ crediting agencies and commercial data sources are not named. Categorical eligibility is limited to a letter dated within the last 12 months showing a household member receives SNAP, TANF, WIC, Section 8 housing, or SSI, not any needs-based federal, state, or tribal program; Treasury asks for comments on adding more. Foster children qualify automatically, as previewed. The low-income-area idea became a safe harbor for individual tutoring and special-needs awards at schools in a HUD qualified census tract, or where at least 80% of students live in one, backed by an annual third-party audit (prop. § 1.25F-3(c)(6)).
- Fraud, abuse, and audits. Followed. Every SGO gets an annual financial and programmatic audit: by an outside professional or accredited body when total receipts exceed $500,000, or by a committee of independent persons, signed under penalties of perjury, at $500,000 or less (prop. § 1.25F-4(e)). SGOs must run systems that prevent duplicate awards for the same expense (prop. § 1.25F-3(c)(5)(i)), and states require reporting tailored to fraud prevention (§ 1.25F-5T(e)(1)). The “formal scholarship acceptance” floated in the remarks is not in the rule text. The proposal adds payment rules: school charges such as tuition are paid directly to the school, families receive money only as receipted reimbursements, and qualified digital wallets are allowed (prop. § 1.25F-3(c)(5)).
- Unique donor number. Followed. SGOs send each donor a written acknowledgment with a unique donor number by January 31 and report to the IRS by February 28; donors do not give the SGO a Social Security number (§ 1.25F-4T(c)). Donors list the number on Form 8525 (prop. § 1.25F-2(g)).
- IRS SGO portal. Followed, and mandatory: an organization that plans to solicit qualified contributions must register “as soon as possible and preferably before” it appears on a state list (§ 1.25F-4T(b)). The portal is not open yet.
- Section 530 guidance. Still pending. Treasury calls it “a high priority.”
These remarks preview, but are not, the proposed regulations, Treasury notes the items “remain subject to ongoing legal review.” For our plain-English analysis see our coverage of the preview, and see the proposed-regulations page for the rule itself, issued October 1, 2026. The accompanying press release is also archived here.
