Can donors direct an EFTC gift to a specific school? What §25F actually prohibits

What the statute actually prohibits

The question comes up constantly, from donors who care about one school in particular and from schools wondering whether they can tell their community “give through our SGO partner and your gift supports our families.” The answer turns on a single clause of the enacted statute. §25F(d)(1)(E) requires that a Scholarship Granting Organization:

Read it carefully. The prohibition names students, not schools. That word choice does the work: Congress barred donors from buying a scholarship for a person, and it stopped there. Nothing in §25F prohibits an SGO from accepting a donor’s preference that a gift fund scholarships at a particular partner school. Treasury’s proposed regulations (October 2026) repeat the clause word for word as an operational requirement and add an annual certification that the SGO “did not earmark or set aside contributions for scholarships on behalf of any particular student,” but they add nothing about schools.

What donors can never do

Start with the hard boundary, because it is genuinely hard. Under §25F(d)(1)(E), no donor can:

• Name a student or family as the intended recipient of a scholarship funded by their donation.
• Fund their own child’s award. A parent cannot route a credited donation to an SGO on the understanding that it comes back as their child’s scholarship. That is earmarking for a particular student, exactly what the clause forbids. (A donor’s child can still apply and win an award through the SGO’s normal process, unless the donor is a disqualified person; see below.)
• Condition a gift on any identified student receiving an award, formally or through a wink-and-nod understanding with the SGO.

An SGO that earmarks for particular students fails subsection (d), which means it fails the definition of a scholarship granting organization. Under Treasury’s October 2026 regulations, the IRS can remove a noncompliant SGO from the IRS SGO list. Donors who gave while it was listed can generally rely on that listing for their credit, but under the proposed rules that protection does not cover a donor who knew the SGO didn’t qualify or was responsible for the failure, which describes the donor who arranged the earmark. The stakes are program-wide, not gift-by-gift, so well-run SGOs police this line strictly.

The rule that stops donor-to-own-child schemes

The earmarking ban works alongside the disqualified-person rule (§25F(d)(2)), which Treasury’s proposed regulations spell out. An SGO may not award a scholarship to a disqualified person or to that person’s family. Disqualified persons include the SGO’s officers, directors, and trustees; anyone who participates in selecting recipients or setting award amounts, committee members and unpaid volunteers included; and substantial contributors: anyone who gives more than $5,000 in the SGO’s taxable year, if that is also more than 2% of the contributions the SGO received that year. The test runs against the whole organization and again against its §25F segregated account, a spouse’s gifts count together, and the status lasts for that year and the next. Family means a spouse, ancestors and descendants of the person or the spouse, siblings of either, siblings’ descendants, and the spouses of all of those.

Treasury looked at going further. Some commenters wanted a ban on scholarships to the families of any donor; Treasury declined, reasoning that the substantial-contributor test already catches the donors with real influence and that a wider ban would deter ordinary gifts. So a parent who gives a typical credit-sized gift is not barred from having a child apply. A family that gives enough to cross the $5,000 and 2% line is. In Treasury’s own example, a $6,000 gift is 1.33% of an SGO that raises $450,000 in the year (not substantial) but 2.14% of one that raises $280,000 (substantial, for that year and the next). Our news read of the disqualified-person rules walks through the rest.

School designation is a different question

School-level designation means a donor directs a gift toward a specific partner school’s scholarship fund: “apply my donation to scholarships for students attending St. Mary’s.” The SGO pools those school-directed dollars and awards scholarships from them, to eligible students at that school, on the SGO’s own criteria and the statute’s priority rules.

The donor has chosen a destination, not a recipient. Every decision the statute cares about, who is eligible, who has priority, who actually receives an award and for how much, remains entirely with the SGO. That separation is what keeps designation on the right side of §25F(d)(1)(E).

One structural rule bears on this. §25F(d)(1)(A) requires an SGO to provide scholarships to 10 or more students who do not all attend the same school. So an SGO cannot exist as a single-school pass-through, even if every donor designates the same school. A school that wants its community giving through §25F needs an SGO partner that genuinely serves multiple schools, and the designation option lives inside that broader organization. Treasury’s proposed regulations define “school” for this test by the §530 definition: a school providing K-12 education as determined under state law.

The designations the rules do require

Under Treasury’s October 2026 rules, “designation” has a specific legal meaning, and it isn’t about schools. Two designations matter:

1. Designating the gift as a §25F contribution. A qualified contribution is a cash gift by an individual to an SGO “to the extent that the donor designates to the recipient SGO, at the time of making the contribution, that the contribution is intended to be a qualified contribution.” The designation, once made, is irrevocable, and a donor may designate only part of a gift. The SGO must deposit every designated gift into its §25F segregated account, whether or not the donor ends up claiming a credit. This definition is in the temporary regulations, which take effect without a comment period and apply from September 1, 2026.
2. Choosing a state, for a multistate SGO. An SGO on more than one covered state’s list keeps a separate §25F account for each state, must let donors designate how their gift is allocated among those states, and must deposit it accordingly. Each state’s account can fund only students who live in that state. The rules don’t say what happens to a gift that names no state.

For an SGO that also offers school preferences, the practical consequence is a donation form with separate fields: a §25F designation (and, if multistate, a state selector) that the rules require, and a school preference that the rules don’t mention. Keeping them apart makes it clear which choice is a legal designation and which is a request the SGO intends to honor.

How state programs handle it

This is not a novel design question. State scholarship tax credit programs have operated for decades, and school designation is common practice in them. Georgia’s GOAL program, one of the largest, lets donors designate the participating school they want their contribution to support, while the scholarship organization retains full control over which students receive awards. Donors expect the option; schools build fundraising campaigns around it; the student-level firewall holds.

That operating history matters for §25F because the federal credit runs through the same kind of scholarship organization. Congress wrote a ban that names students, not schools, against a backdrop where school designation was already common practice in the state programs. SGOs setting up for the federal program can borrow a playbook the states have already tested, but a §25F SGO is measured against the federal rules, and those are silent on school preferences.

The rules that still apply

A school preference changes nothing about the SGO’s statutory duties. Within a preferred school’s applicant pool, the SGO must still:

1. Verify household income. Every scholarship recipient must belong to a household at or below 300% of area median gross income, measured for the prior calendar year, and the SGO must verify it (§25F(d)(1)(F)). See who qualifies for an EFTC scholarship for the full eligibility picture.
2. Fund only students who live in the state. Under Treasury’s proposed regulations, a §25F scholarship follows the student’s state of residence, not the school’s location. A preferred school near a state line may enroll students the SGO cannot fund from that state’s account, and a student who lives in the state can use the scholarship at a school across the line.
3. Honor the statutory priority order. §25F(d)(1)(D) requires priority first for students who received a scholarship the previous school year, then for siblings of prior recipients. A donor’s designation cannot jump a new applicant ahead of a renewing student at the same school. (The proposed regulations let priority vary by award type: it matters most for tuition, fees, and room and board, while tutoring and special-needs awards can be prioritized by need.)
4. Make every award decision itself. Among the preferred school’s eligible students, the SGO alone decides who receives an award and how much.
5. Follow the rest of subsection (d). The 90% spending requirement, the qualified-expense limits, the ban on awards to disqualified persons, and the proposed payment rules (tuition and other school charges paid directly to the school) all apply to dollars a donor wanted at one school exactly as they do to every other dollar in the §25F account.

The donor’s side is unchanged too: the credit is worth up to $1,700 per taxpayer per year, cash only, for donations on or after January 1, 2027, whether or not a school is designated. Under Treasury’s proposed regulations, a married couple filing jointly can claim up to $3,400 when each spouse gives and designates their own gift. The mechanics are covered in the federal tax credit, explained for donors.

What Treasury has and hasn’t said

Honesty requires a caveat. Treasury’s proposed regulations, released October 1, 2026, are the first detailed §25F rules, and they do not address school-level designation or donor school preferences at all. The case for school preferences rests on the statute’s plain text (a student-only prohibition), on the same student-only wording in the proposed rules, and on decades of state-program practice. That is a strong position, but it is not the same as a regulation saying “school designation is permitted.”

What the preamble does say is relevant. When Treasury set the substantial-contributor test, it had asked in Notice 2025-70 whether to drop the $5,000 floor to stop “small organizations intended to benefit small groups of related people without explicitly violating the earmarking prohibition.” It kept the $5,000 floor and said the existing private benefit doctrine already handles that concern, because such an organization couldn’t properly be recognized as a 501(c)(3) and so couldn’t be an SGO. Elsewhere in the preamble, Treasury cites a 1969 IRS ruling denying exemption to a parents’ group that ran school buses for its own members’ children (Rev. Rul. 69-175) as an example of private benefit. Treasury also declined to bar SGO insiders and substantial contributors from having financial ties to the schools recipients attend, leaving those conflicts to existing 501(c)(3) and section 4958 scrutiny. The practical reading for school preferences: a setup where a small, related group’s gifts flow back to that group’s own children is the pattern Treasury points to the private benefit doctrine to stop, even if no gift names a student.

Each SGO decides for itself whether to offer school preferences at all. Some will build their entire donor experience around them, since school-affiliated giving is the strongest fundraising motivator in the state programs. Others may prefer a single general fund. Both models fit the statute and the proposed rules.

What this means for donors and SGOs

If you’re a donor

Ask the SGO whether it accepts school designations before you give. If supporting a particular school is the point of your gift, choose an SGO that partners with that school and offers the option. And understand what you are and aren’t getting: your dollars flow toward that school’s scholarship fund, but the SGO picks the recipients, and no arrangement can steer an award to a student you name. When you give, designate the gift as a §25F contribution (the SGO’s form should ask), and if the SGO is listed in more than one state, pick the state: your gift will fund students who live there. Under Treasury’s proposed rules you can give to an SGO in any participating state, even if you live in a state that hasn’t opted in; check which states are participating.

If you’re a school

You can tell your community that gifts designated to your school support scholarships for your families, and that framing is accurate as long as the SGO’s award authority stays intact. What you cannot promise is that any specific family’s gift will fund any specific family’s aid. Two more limits are worth knowing. The SGO can fund only students who live in its state, so students who cross a state line to attend your school need an SGO listed in their own state. And if your staff or board members sit on the SGO’s board or selection committee, their own families cannot receive that SGO’s scholarships.

If you’re an SGO

Decide your designation policy early and write it down: whether you offer it, how firmly you honor it, and what happens to school-directed dollars a school’s eligible applicants can’t absorb. Keep the school preference on the donation form separate from the §25F designation checkbox and, if you are multistate, the state selector. Track each donor’s giving (spouses combined) against the $5,000 and 2% line before awards go out, because a donor who crosses it makes their own relatives ineligible for that year and the next. Keep the student-level firewall visible in your donor-facing materials, because the fastest way to lose the option is to let donors believe it buys more than it does.

Frequently asked questions