How to start a Scholarship Granting Organization (SGO) under the EFTC

This is the complete, start-from-nothing guide to launching a Scholarship Granting Organization (SGO) so that donors can give to you and claim the federal Education Freedom Tax Credit (EFTC, also called the Federal Scholarship Tax Credit and codified at IRC §25F). If you’ve never run a nonprofit, start here, every step below says what it is, who issues it, what it costs, and roughly how long it takes. If you just want the conceptual overview first, read what an SGO is.

Start here: the two layers

The single most important thing to understand before you spend a dollar is that becoming an SGO is really two separate jobs:

• The federal layer (same in every state). What makes your organization a qualifying SGO under §25F: being a 501(c)(3) public charity that meets the program’s operating rules, which Treasury spelled out in proposed regulations on October 1, 2026. You can do all of this now, and it does not change based on where you live.
• The state layer (each state runs its own application, inside a federal frame). The federal credit only works if the state where your organization is located, not you, chooses to participate and then puts your organization on the SGO list it sends to the IRS. If you are not on a participating state’s list, gifts to you earn no credit. Where the donor lives does not matter: under the proposed regulations, a donor anywhere in the country can give to an SGO on any participating state’s list.

Decide your structure first: the 85% test

Before you file anything, decide what kind of organization will run the scholarships. Treasury’s proposed regulations make this a real choice because they read the statute’s 90% rule strictly: the “income” an SGO must spend 90% of on scholarships is its total gross receipts from all sources, counted on the cash method and unreduced by expenses. Then they add a safe harbor tied to what the organization does:

• At least 85% of your activities are scholarship granting: the safe harbor. A single-state SGO whose activities are at least 85% scholarship granting (§25F scholarships, state tax-credit scholarships, or any other scholarships) applies the operating rules, including the 90% test, to its §25F segregated account instead of the whole organization. “Income” then means the qualified contributions and earnings credited to that account. Administration, fundraising, governance, investment, compliance, and outreach count toward the 85% to the extent they support the scholarship work, and Treasury says the safe harbor lets SGOs raise funds for administrative costs that do not count toward the 90%.
• Below 85%: no safe harbor. The 90% test applies to everything the organization takes in. A school foundation or community nonprofit with other programs would have to spend 90% of all its receipts, including money raised for those programs, on scholarships.
• On more than one state’s list: no choice. A multistate SGO must be at least 85% scholarship granting, keep a separate §25F account for each state, let donors choose how their gift is allocated among those states, and meet the 90% test and the other operating rules separately for each state’s account.

For most founders that points to a dedicated organization whose work is scholarships, which is what this guide walks through. Treasury expected as much: it wrote that the safe harbor “may require the formation of new organizations to conduct section 25F activities,” and paired it with relief for organizations whose 501(c)(3) application is still pending (Step 3). If you already run a nonprofit, read whether your existing nonprofit can become an SGO or run the builder’s retrofit audit before deciding. The 85% line is a proposed rule: Treasury asked for comments on how activities should be measured (receipts, spending, staff time, or another metric) and whether 85% is the right threshold, so final rules could adjust it. Our read of the 85% safe harbor has the numbers behind it.

Before you begin: cost & time at a glance

Here is the whole journey in one table, so you can see what you’re committing to. Government fees are the firm numbers; professional help is optional.

The 2027 dates to plan around

Treasury’s October 1, 2026 rules put real dates on the first year. The ones a new SGO works backward from, with the rule each comes from (temporary regulations take effect without a comment period and apply from September 1, 2026; proposed regulations may be relied on for 2027 but are not final):

From 2028 on, the state calendar moves earlier and repeats every year: a state may file an advance election between January 2 and September 30 of the prior year (or, after its first year, elect when it submits its list) and submits its list between October 1 and January 1, so a 2028 list is due by January 1, 2028. Our calendar breakdown and the SGO compliance calendar have the full cycle.

1. Incorporate the nonprofit

Your SGO has to be a legal entity before it can be anything else. You create one by filing articles of incorporation as a nonprofit (nonstock) corporation with your state, usually the Secretary of State. This is the document that brings the organization into existence, and the date it takes effect is your formation date. If you are aiming for a 2027 state list, file before January 1, 2027 (Step 3 explains why).

What you need in place

• A name that’s available in your state.
• A state to incorporate in. Your SGO must be “located in” each state whose list it wants, which under Treasury’s temporary regulations means authorized to do business there and compliant with that state’s general charity laws. You do not need a headquarters or staff there. Incorporating in the state you plan to serve is the simplest way to meet the first half; for any other state, you register to do business there (Step 5).
• A registered agent, a person or service with a physical address in the state who can receive legal mail. You can be your own agent, or pay a registered-agent service (commonly $100-$300/year).
• A board of directors. The IRS effectively expects at least three unrelated directors for public-charity status; your state sets its own legal minimum (often one to three). Three independent board members is the safe baseline. Recruit with §25F in mind: under Treasury’s proposed regulations every officer and director, and every member of their families, is a disqualified person who cannot receive a scholarship, through the end of the year after the director leaves. A director whose children would otherwise apply takes them out of the pool (Step 6).
• IRS-compliant purpose and dissolution language in the articles. To qualify for 501(c)(3), your articles must limit the organization to exempt purposes and dedicate assets to another exempt organization on dissolution. Use the IRS’s suggested language so your exemption application isn’t bounced.

Then adopt your governing documents

After incorporating, hold an organizational meeting and adopt bylaws (how the organization is governed) and a conflict-of-interest policy (the IRS asks about this on the exemption application, and you’ll need it anyway to handle the §25F disqualified-person rules). Keep minutes, they’re part of your permanent record.

You do not have to draft any of that from scratch. The builder’s bylaws template (its §25F article writes each of those rules in as an express obligation) and the IRS sample conflict-of-interest policy fill in from your answers and download as PDFs, and the organizational-meeting walkthrough builds your first set of minutes (with online signing if your board meets over video). Step-by-step filing help for this stage: file the articles.

2. Get an EIN

An Employer Identification Number (EIN) is your organization’s federal tax ID, the nonprofit equivalent of a Social Security number. You need it to open a bank account, apply for tax exemption, register in the IRS SGO portal, and file returns; it also goes on every acknowledgment you send §25F donors. Apply directly with the IRS (Form SS-4, or the IRS online EIN application). It is free and issued immediately online. Ignore any site that charges you for one. The EIN walkthrough has the exact answers the online application expects from a nonprofit.

3. Apply for 501(c)(3) status

This is the step that legally makes you a charity the IRS recognizes, and §25F is explicit that an SGO must be described in section 501(c)(3), exempt under 501(a), and not a private foundation. You apply on one of two forms, filed through Pay.gov:

One subtlety that matters for §25F: make sure your determination puts you in a public-charity classification, not a private foundation. §25F disqualifies private foundations outright, so this isn’t cosmetic, getting classified wrong means you cannot be an SGO at all.

Why January 1, 2027 matters for a 2027 list

You do not necessarily need your determination letter in hand to be listed for 2027. Under Treasury’s temporary regulations, a state may include organizations whose 501(c)(3) applications are still pending with the IRS. It is the state’s option, and a state that uses it must include every pending applicant that seeks inclusion, review each one under the new-organization rule (your governing documents, Step 1), mark each as pending on its list, and certify that each one’s exemption, if granted, will be effective on or before January 1 of the list year. The IRS adds a pending organization to its public SGO list once the exemption is recognized and the organization authorizes disclosure.

Treasury says whether an exemption reaches back to January 1 depends on when the organization was formed, when it applied, and whether it had to make material changes to qualify. Under the IRS’s general exemption rules (the revenue procedure Treasury cites, not the §25F regulations themselves), an application filed within 27 months after the end of the month you formed generally makes exemption retroactive to the formation date. So the practical rule: form before January 1, 2027 and file Form 1023 promptly. An organization formed after January 1, 2027 cannot use this route for a 2027 list. Our breakdown of the first-year calendar covers the details.

4. Open the bank account(s)

Once you have your EIN (and ideally your incorporation paperwork), open a dedicated nonprofit bank account in the organization’s name. You cannot run an SGO out of a personal account or a shared account, and for an SGO specifically, the separate account isn’t just bookkeeping hygiene, it’s a definitional requirement.

Practically, most SGOs open (and ledger) at least two buckets:

• The §25F segregated account, the walled-off account that holds designated §25F contributions and their earnings and pays out scholarships. This is what proves you didn’t co-mingle, and under the 85% safe harbor it is also the base the 90% test is measured against. A multistate SGO opens one for each state whose list it is on and deposits each gift according to the state allocation the donor chose.
• An operating account, for everything else: undesignated gifts, grants, and the money that covers staff, software, and overhead. Under the safe harbor, this is where money you raise separately for administration lives. Without the safe harbor, the 90% test reaches these receipts too, and administration has to fit inside the 10% of total receipts the test leaves.

Set this up before a single donation arrives. Retrofitting clean fund segregation after money has moved is painful and audit-risky, and the 90% spending test (Step 6) is far easier to prove when the accounts were separate from day one. Bring your articles, EIN letter, and a board resolution authorizing the account when you go to the bank.

5. Register to fundraise

Asking the public for donations is regulated at the state level. Most states, roughly 40 of them, require a charity to register before soliciting their residents for contributions, and if you fundraise across state lines you may need to register in multiple states. A handful of states have no requirement.

• Where: usually the state Attorney General or Secretary of State’s charities division.
• When: before you solicit, not after the money comes in.
• Renewal: registration is typically annual, with a financial report attached.

This is separate from, and in addition to, the §25F state-list step (Step 7). One governs asking for money; the other governs whether your donors get the credit. The builder’s home-state registration walkthrough names your state’s charities regulator, and the multistate assessment tells you when soliciting across state lines pulls you into another state’s registration.

This step also does double duty for §25F. Under Treasury’s temporary regulations, an SGO is “located in” a state if it is authorized to do business there and complies with that state’s generally applicable laws for charities, including its transparency, accountability, and fraud-prevention rules. No headquarters or in-state staff is required. Incorporating in the state (or, elsewhere, registering to do business there as an out-of-state nonprofit) covers the first half; charity registration and annual filings cover the second. Every participating state must require that general charity-law compliance of the SGOs it lists. If you plan to be on more than one state’s list, you need both halves in each of those states, and the multistate rules in Step 7 apply.

6. Build to the §25F bar

Everything so far makes you a nonprofit. These rules make you a qualifying SGO. They come from IRC §25F and the detail Treasury added in its proposed regulations (October 2026), which SGOs may rely on for contributions made from January 1, 2027 if they follow them in full and consistently, until final rules publish. They’re the same in every state: the temporary regulations bar a state from requiring SGOs to operate more restrictively than §25F. Design your operations around them from the start. We cover them in depth in the 90/10 rule & compliance guide; here’s the working summary.

The 10-student / multi-school rule

You must provide scholarships to 10 or more students who do not all attend the same school. This stops an SGO from being a private conduit for one school or one family. A single-school “SGO” does not qualify. The proposed regulations define “school” the Coverdell way (§530(b)(3)(B)): a school providing K-12 education as determined under state law, and they use the same definition here and for qualified expenses.

The 90/10 rule

At least 90% of the organization’s income must be spent on scholarships for eligible students, and only scholarship payments count toward it. Note the statute says “income,” which is broader than “donations.” Treasury’s proposed regulations, released October 1, 2026, measure the test against total gross receipts from all sources, unreduced by expenses, which leaves at most 10% of everything you take in for all other costs combined. The exception is the 85% safe harbor (see Decide your structure): a single-state SGO whose activities are at least 85% scholarship granting measures “income” by its §25F segregated account (qualified contributions plus earnings), and a multistate SGO does the same separately for each state’s account. Money you raise outside that account can then pay for administration.

The proposal also settles timing. Each year’s income has until the last day of the following taxable year to be spent, so a first-year SGO has until the end of its second year. Amounts count when paid (cash method), the oldest income is treated as spent first, a multi-year award counts in each year a payment goes out, and a refund from a school or vendor is new income in the year it comes back. This is one of the strictest pass-through standards in the nonprofit world, and it’s the reason SGOs lean so hard on automation. Our breakdown of the two-year spending window has worked examples.

The 300% AMGI eligibility ceiling

Scholarships may only go to eligible students: children who are eligible to enroll in a public elementary or secondary school and live in households at or below 300% of area median gross income (the AMGI measure used in IRC §42), measured on the prior calendar year’s income and family size. Under the proposed regulations, AMGI is figured the way HUD’s Section 8 program figures it, adjusted for family size, and the IRS will publish the figures each year in the Internal Revenue Bulletin (the first tables are not out yet). The household is the student plus everyone living with the student; with shared custody, it is the household where the student lives longest (if time is split evenly, the higher-income one). Only cash income counts, including child support and alimony that are not taxable, with no imputed return on assets such as home or stock appreciation. A student does not have to be enrolled anywhere yet: Treasury’s example is an award made the summer before the school year for expenses tied to enrolling later that year.

You must verify household income, you can’t take an applicant’s word for it, and the proposed regulations give you four ways to do it:

• Direct verification: pay stubs, prior-year federal or state tax returns, IRS transcripts, Forms W-2, evidence of income those documents miss (such as untaxed child support or alimony) or a certification that there is none, or other relevant data sources.
• Categorical eligibility: a letter, such as an award letter, dated within the last 12 months showing that someone in the student’s household currently receives SNAP, TANF, WIC, Section 8 housing, or SSI. Only those five programs count; school-wide free or reduced-price lunch status does not. Treasury has asked for comments on adding state or tribal programs.
• Foster children are treated as meeting the income test without verification.
• Low-income-area tutoring and special-needs safe harbor: for individual academic tutoring, or special-needs services for a special-needs student, where the school selects the students by need and the school is in a HUD qualified census tract (or certifies that at least 80% of its students live in one). Using it requires an annual third-party audit, which you give to the state.

The 300% figure is a ceiling. Treasury’s preamble says an SGO may narrow its own focus, for example to students below 80% of AMGI or to subjects such as science or foreign languages, and still qualify. See income verification for SGOs for the operator mechanics and scholarship eligibility for the family-facing details.

Students must live in your state

§25F requires scholarships to go to eligible students “solely within the State,” and the proposed regulations define that by residence: the student must reside, under state law, in the state whose list you are on. Where the student attends school, or where the family buys things, does not count. A resident of your state can use your scholarship at a school across the state line; a student who lives in a neighboring state cannot get one from an SGO listed only in yours. There are two exceptions: dependents of members of the Armed Forces count in both their state of domicile and the state where the service member resides, and dependents of individuals residing on Indian lands count in both their state of residence and the state where they attend school.

Qualified expenses only

Scholarship dollars may only pay qualified K-12 education expenses, the Coverdell list cross-referenced at §530(b)(3)(A): tuition and fees, books, supplies and equipment, academic tutoring, special-needs services, room and board, uniforms, transportation, and extended-day programs that the school requires or provides, and certain computer technology and internet costs. The proposed regulations define the term as §530(b)(3)(A) “and any guidance thereunder,” and Treasury says separate §530 guidance on qualified expenses and what counts as a school is a high priority. It has not been issued yet, so edge cases such as homeschool and microschool costs remain open (see qualified expenses under §25F). Your state cannot narrow the list: the temporary regulations bar a state from limiting the types of schools recipients may attend or the types of qualified expenses scholarships may cover.

How scholarship money may move

The proposed regulations also set how money leaves your §25F account. You need reasonable procedures to prevent and detect fraud, including a system that stops two awards from paying for the same expense, and you may pay:

• The school directly, which is required for tuition, fees, room and board, and similar charges the school bills.
• Other vendors directly if you have verified them as appropriate providers and they are not related, directly or indirectly, to the student.
• Families, only as a qualified reimbursement: they show a receipt proving the payment and that the expense qualifies, and you confirm first that no other source has already covered it.
• Through a qualified digital wallet, a third-party platform where families submit purchase requests and payments go to pre-approved vendors or are backed by timely receipts.

Schools and vendors must return overpayments and payments made in error. See the four ways to pay out scholarship money and our guide to disbursing funds to schools.

Priority, anti-earmarking, and no self-dealing

• Award priority: prior-year recipients first, then their siblings, before new awards. The proposed regulations allow flexibility by award type: renewal and sibling priority matter most for tuition, fees, and room and board, so a student can stay at the same school, while awards for individual tutoring or special-needs services can be prioritized by need.
• No earmarking: a donor can pick which SGO to support, but cannot direct a gift to a named child. Section 25F(d)(1)(E) bars earmarking “on behalf of any particular student.” School-level designation is different: neither the statute nor Treasury’s proposed regulations prohibit letting donors direct gifts toward a specific partner school’s scholarship fund, a common practice in state programs, so long as the SGO makes every award decision (see designating gifts to schools).
• No self-dealing: you cannot award scholarships to disqualified persons, which Treasury’s proposed regulations define more broadly than many founders expect (below). Your conflict-of-interest policy and a disqualified-person list enforce this.

Who can never receive a scholarship from you

Under the proposed regulations, the disqualified persons are:

• Officers, directors, and trustees, and anyone with similar powers.
• Anyone who takes part in selecting recipients or setting award amounts, including every member of a selection committee.
• Substantial contributors: anyone who gives more than $5,000 in your taxable year, if that is also more than 2% of the total contributions you received that year. A spouse’s gifts count as the donor’s. The test runs at the organization level and again at the §25F account level.
• Family members of all of the above: spouses; ancestors and descendants of the person or the spouse; siblings of either; the siblings’ descendants; and the spouses of those relatives. Adopted children and stepchildren count.

Treasury rejected the two workarounds operators most often propose. There is no exception for blind or anonymized selection (Treasury notes that renewal and sibling priority make truly blind selection impossible anyway) and none for unpaid volunteers with no financial stake, because what matters is the ability to steer an award. Status also lingers: a substantial contributor is disqualified for that year and the next, and a director or committee member stays disqualified through the end of the year after leaving. Substantial-contributor status is tested at year-end, with an exception for an award made before the donor crossed the line if you did not know or expect it would happen. Treasury’s own examples: a $6,000 gift is 1.33% of an SGO’s $450,000 in contributions for the year (not substantial), but 2.14% of $280,000 (substantial for that year and the next). Details in our read of the disqualified-person rules.

7. Get on your state’s list

Here is the part that surprises most founders: you do not apply to the federal government to become creditable. Under §25F, the state makes an advance election to participate by filing IRS Form 15714, and then the state submits a list of qualifying SGOs located in the state to the IRS. A donation is only §25F-creditable if your SGO is on a covered state’s list for that year. You do register with the IRS as well (below), but that registration does not put you on a list; your state does.

What your state will ask a new SGO for

The temporary regulations tell you what a state reviews. For an organization that has not yet filed an annual §25F certification and audit, which for 2027 is every SGO, new or established, the state may rely on your governing documents or bylaws, written policies and procedures, and other documentation, as long as they expressly require each §25F operating rule and show your ability and intent to meet them (see the callout in Step 1). The state must also confirm that you are located in the state, keep a §25F segregated account, and meet the operating rules, and it determines whether you will be a single-state or multistate SGO. If your 501(c)(3) is still pending, the state may list you only under the pending-exemption rule in Step 3. Once you have a year of operations behind you, the state reviews your annual certification and audit instead (Step 9).

States that already run their own tax-credit-scholarship programs show how this kind of review tends to work. Across them, a clear pattern holds: a state agency certifies or designates eligible organizations, and the requirements rhyme with §25F. These are state programs, not the federal §25F process, and a state may not carry any rule into §25F that is more restrictive than the federal one, but they show the documentation states are used to collecting:

• Arizona: the Department of Revenue certifies School Tuition Organizations (STOs); a certified STO must allocate at least 90% of contributions to scholarships and cannot limit scholarships to one school.
• Ohio: the Attorney General’s Charitable Law Section certifies SGOs, you must be a 501(c)(3) that primarily awards K-12 scholarships and prioritizes low-income students.
• Indiana: the Department of Education certifies SGOs (application plus 501(c)(3) proof, articles showing a scholarship purpose, and your policies).
• Florida: a two-agency model, the Department of Education designates eligible scholarship-funding organizations while the Department of Revenue handles the credits.
• Iowa: STOs file an annual report (board members, contributions and credits, donor and school detail, students served) and provide a reviewed financial statement.

Expect your state to ask for similar things: proof of 501(c)(3) status (or of a pending application), evidence you meet the §25F operating rules, and an application to a designated agency. First, confirm your state is participating; for the mechanics of how states opt in, read how states opt in. The builder’s state-list stage walks through the application. And because participation is annual, getting listed is not one-and-done: a state elects one calendar year at a time, from 2028 its list is due by January 1, and you stay listed by staying compliant.

Register in the IRS SGO portal

Under the temporary regulations, every organization that plans to solicit qualified contributions must register electronically in the IRS SGO portal “as soon as possible and preferably before the organization appears on any State SGO list.” You provide your name, EIN, address, phone number, year of formation, and taxable year, plus a contact who can legally bind the organization (or who holds a Form 2848 power of attorney). Registration gets you the IRS’s uniform format for donor numbers, without which you cannot send the acknowledgments donors need, and it is where you authorize the IRS to publish your name on its public IRS SGO list. The portal had not opened as of October 1, 2026; register as soon as it does.

If you want more than one state’s list

An SGO on two or more states’ lists is a multistate SGO. It must be located in each of those states (authorized to do business and compliant with each one’s charity laws) and apply to each state’s list. Under the proposed regulations it must also be at least 85% scholarship granting, keep a separate §25F account for each state, let donors choose how their gift is allocated among those states and deposit it accordingly, and meet the 90% test and the other operating rules separately for each account. Scholarships from each state’s account go only to students who live in that state. If one state removes you, you stay listed in the others as long as you still qualify there. The rules do not say what happens to a gift where the donor names no state, so build your giving form to ask.

8. Stand up donor & family operations

With the legal entity and §25F design in place, you need the machinery to actually take money in and send scholarships out.

Donor side

• Accept cash contributions and capture the designation. Under the proposed regulations, a qualified contribution is cash (currency, check, money order, electronic transfer including credit and debit cards, or after-tax payroll deduction, in U.S. dollars; never crypto or other digital assets, and stock is not cash) from an individual who designates it to you as a §25F contribution at the time of the gift. The designation is irrevocable, and a donor may designate only part of a gift. A partner’s or S corporation shareholder’s share of the entity’s gift does not count, so individuals must give directly. Every designated dollar goes into your §25F segregated account.
• Take donors from anywhere. A donor in any state, participating or not, can give to an SGO on any covered state’s list, and generally may rely on your appearing on the IRS SGO list (and not shown as removed) at the time of the gift.
• Let each spouse give separately. The credit is up to $1,700 per taxpayer, and spouses filing jointly are treated as separate taxpayers, so a couple can claim up to $3,400 when each spouse makes and designates their own gift (Treasury’s example: $2,000 each, $1,700 credit each). Build intake so each spouse can give and designate in their own name.
• Acknowledge every donor by January 31. Under the temporary regulations, each donor gets a written acknowledgment by January 31 of the following year showing your EIN, the total they designated for the year, their unique donor number, and whether you provided any goods or services (with a description and good-faith value). Electronic delivery works with the donor’s consent. Donors will list the number on Form 8525 (not yet released) when they claim the credit, and you never need their Social Security number.
• Report to the IRS by February 28: each donor number with the donor’s name, address, and annual total, through the IRS SGO portal.
• Explain the coordination rules up front. A credited gift cannot also be deducted under §170, though the uncredited portion may be. A state credit for the gift comes off the gift before the $1,700 cap, so a donor who gives $2,500 and gets a $500 state credit still gets the full $1,700 federal credit.

Family side

• Take applications and verify eligibility: household income and family size against the 300% AMGI ceiling (using one of the four methods in Step 6), residence in your state, and eligibility to enroll in a public school.
• Award under the required priority order (renewals, then siblings, then new awards, with need-based priority allowed for tutoring and special-needs awards) and your published criteria, screening every award against your disqualified-person list.
• Disburse through the approved rails: directly to the school for tuition and fees, directly to verified, unrelated vendors, through a qualified digital wallet, or by reimbursement against receipts. Keep the paper trail.

9. Stay compliant

Being an SGO is an ongoing obligation, not a one-time setup. The recurring load includes:

• Annual IRS Form 990. Tax-exempt organizations file a 990-series return every year; miss it three years running and the IRS automatically revokes your exemption. Under the proposed regulations, your §25F certification rides along with it (below).
• Prove the 90% test each year. Maintain accounting that can demonstrate at least 90% of each year’s income (all receipts, or the §25F account under the safe harbor) was paid out as scholarships by the end of the following taxable year, on the cash method, oldest income first.
• Federal donor reporting (temporary regulations, which apply from September 1, 2026). Stay registered in the IRS SGO portal, give each donor an acknowledgment with a unique donor number by January 31, and report each donor’s total to the IRS by February 28.
• An annual §25F certification and report (proposed). Attached to your Form 990 (organizations that don’t file one send it separately by the 15th day of the fifth month after year-end), you certify that you met every requirement: 501(c)(3) public-charity status, the §25F segregated account, each operating requirement, the disqualified-person rule, location in each listing state, timely donor acknowledgments, and the audit. You also report applications, awards, the highest, lowest, and average award, the number of schools, spending by expense category, your income, and the amount and percentage spent for the prior and current year. A copy goes to every state that lists you.
• State reporting. A state must require its own application, documentation, and financial reporting, reasonably tailored to the federal tests and to fraud prevention. The Iowa model above shows what annual state reports have looked like in an existing program.
• An annual §25F audit (proposed). Under Treasury’s proposed regulations, every SGO commissions an annual financial and programmatic audit and gives the results to each state on whose list it appears. If your total receipts for the year (all receipts, not only the §25F account) are more than $500,000, it must be done by an external, independent professional or accredited body; at $500,000 or less, you may use a committee of independent persons unrelated to your management, with the report signed under penalties of perjury. It covers how you find applicants and verify eligibility, select recipients (including priority and the disqualified-person screen), set award amounts, pay out money, and verify expenses, plus your location in the state and every operating requirement. See our read of the audit and certification rules.
• Staying on the lists. Under the temporary regulations, your state can remove you, through a due-process procedure, if you stop meeting the requirements, and must honor your own request to be removed. The IRS removes any organization that loses its 501(c)(3) public-charity status and may remove one that fails the §25F or reporting rules (you can seek review by the IRS Independent Office of Appeals). Removed SGOs stay on the public IRS list, marked as removed with the date.
• Charitable-solicitation renewals and, depending on size and state, an independent audit or reviewed financial statement. These filings also keep you “located in” the state.
• Recordkeeping for income verification and substantiation, the documents behind every eligibility decision and every donor receipt.

Other items aren’t federally mandated by §25F but are standard good governance for an organization handling other people’s money: directors-and-officers (D&O) insurance, written financial controls, and background checks where you work directly with families. Some state programs also require audits or reviewed financials above a revenue threshold, separate from the federal §25F audit, so check your state’s rules.

Where software becomes necessary

Here’s the honest bottleneck. The 90/10 rule means everything in Steps 6, 8, and 9 has to be paid for out of a thin slice of what you raise: 10% of total receipts for an organization without the safe harbor, or separately raised administrative money for one that has it. Most of that work is repetitive, high-volume, and auditable: verifying every household’s income and residence, applying the renewal/sibling priority, screening for disqualified persons, keeping qualified contributions segregated, generating an acknowledgment with a donor number for every donor, proving the 10-student/multi-school test, and producing state and IRS reports. Done by hand, that work can push an organization past its 10%, which is itself a compliance failure, or swell the overhead it has to raise separately.

For the full breakdown of what to look for, and how to think about build-vs-buy, see our guide to SGO software.

The full checklist

Copy this and work top to bottom. The federal section you can complete today, in any state; the state section follows your state’s decision.

For the dated rollout, advance elections, list submissions, and when donations start counting, see the EFTC timeline and key dates.

Frequently asked questions