What is an SGO? A guide to EFTC Scholarship Granting Organizations

What an SGO is

A Scholarship Granting Organization is a tax-exempt 501(c)(3) public charity (a private foundation does not qualify) whose primary mission is to award K-12 scholarships using funds donated under EFTC, the federal program also known as the Federal Scholarship Tax Credit (FSTC). The model isn’t new: many states have run their own scholarship tax credit programs through similar nonprofit intermediaries for years. EFTC creates the first nationwide federal version.

SGOs serve three constituencies: donors (who give and claim the federal credit), families (who apply for and receive scholarships), and educational providers (who receive scholarship payments on behalf of students).

The rules in this guide come from three layers: §25F itself; Treasury’s temporary regulations (October 2026), which take effect without a comment period, apply from September 1, 2026, and cover definitions, registration, donor acknowledgments, and state lists; and its proposed regulations, which are not final but which SGOs, donors, and states may rely on for contributions made on or after January 1, 2027. Comments on the proposal are due December 1, 2026.

How SGOs get designated

1. The organization meets baseline federal criteria. It must be a 501(c)(3) public charity that keeps a segregated §25F account holding only qualified contributions and their earnings, follows the §25F operating rules (including the 90% spending test), and is capable of administering scholarships at scale. For an organization that has not yet filed its first §25F certification and audit, the state relies on its governing documents and written policies, which must expressly require it to meet those operating rules.
2. The state has opted in. An SGO can only be designated through a state that has elected to participate, and elections run one calendar year at a time. For 2027, a state must file its advance election (Form 15714) by January 1, 2027. The SGO itself can be headquartered anywhere: under Treasury’s temporary regulations it is “located in” a state if it is authorized to do business there and complies with that state’s general charity laws, with no in-state office or staff required.
3. The organization registers in the IRS SGO portal. Every organization that plans to solicit §25F contributions must register, preferably before it appears on any state list. Registration provides the uniform donor-number format and authorizes the IRS to list the organization. The portal was not yet open as of October 1, 2026.
4. The governor (or designated authority) submits the SGO on the state’s annual list. The list is filed with the IRS through its State §25F portal by January 1 each participating year (for 2027 only, by February 15, 2027). The state must include every organization located in the state that seeks inclusion and meets the federal requirements, and it can remove one only through a procedure that affords due process.
5. The IRS publishes the IRS SGO list. The list on irs.gov is organized by state, and a donor may rely on an organization appearing on it (and not marked as removed) at the time of the gift. How the federal SGO list works, and how donors verify an organization.

The 90/10 rule

Per §25F(d)(1)(B), an SGO must spend at least 90% of its income on scholarships for eligible students. The statute does not say what the other 10% is for; “90/10” is shorthand for the fact that no more than 10% of income can go anywhere other than scholarships, administration included. The statute uses the word “income” (not “donations”), and Treasury’s proposed regulations read it as the organization’s total gross receipts from all sources, on the cash method and unreduced by expenses. That is a stricter standard than typical nonprofit pass-through ratios (where 70-85% program-spending is considered strong).

The proposed regulations add a safe harbor. If at least 85% of an organization’s activities are scholarship granting (state tax-credit and other scholarships count, as does the administration, fundraising, and compliance work that supports them), it can apply the 90% test to its segregated §25F account instead of the whole organization; income then means the qualified contributions and earnings credited to that account. Treasury says the point is to let SGOs raise separate funds for administrative costs that do not count toward the 90%. An SGO listed by two or more states must meet the 85% test and runs the 90% test separately for each state’s account. Each year’s income has until the last day of the following taxable year to be spent, and money counts as spent when it is paid.

What doesn’t count toward the 90%? Under the proposed regulations, only spending on scholarships for eligible students counts. Everything else sits outside it, including:

• Salaries and benefits for SGO staff, including the staff who run scholarship administration
• Office space, utilities, equipment
• Marketing, fundraising, donor stewardship
• Professional services (legal, the required annual audit, accounting)
• Compliance and reporting

An SGO without the safe harbor has to fit all of that, and any other program it runs, inside 10% of everything it takes in. An SGO with the safe harbor can fund it from non-§25F money, but still has to spend 90% of its §25F account’s income on scholarships. Either way, many SGOs use technology to automate eligibility verification, awards, and disbursement to keep overhead low. The 90/10 rule deep dive covers the timing rules and the safe harbor in detail.

How donors choose an SGO

Donors typically pick an SGO based on:

• Geography: Donors who want their dollars to support students in their home community pick an SGO operating there. Under Treasury’s proposed regulations, a donor can also give to an SGO listed in any other participating state, including a donor who lives in a state that has not opted in; the scholarships go to students who reside in the state that lists the SGO.
• Mission: Some SGOs focus on Catholic schools, others on special-needs students, others on microschool networks, others on a broad mix.
• Track record: An SGO’s history with prior state scholarship programs is a strong signal of its administrative capacity.
• Transparency: Reputable SGOs publish award criteria, financials, and outcomes. Donors should look for these materials before giving.

The official IRS SGO list, which the IRS will publish on irs.gov organized by state, is built from the states’ annual lists; for 2027, states have until February 15, 2027 to submit theirs. Under the proposed regulations, a donor may rely on an organization’s appearing on that list (and not marked as removed) at the time of the gift, unless the donor knew it did not qualify or was involved in the problem that got it removed. Until the list is published, see our SGO directory page for the current status and trusted third-party trackers.

Self-dealing rules

§25F(d)(2) prohibits SGOs from awarding scholarships to “disqualified persons”, determined under rules similar to IRC §4946. Treasury’s proposed regulations define the group: substantial contributors (anyone who gives more than $5,000 in the SGO’s taxable year, if that is also more than 2% of its total contributions that year, tested for the organization and separately for its §25F account); officers, directors, and trustees; anyone who takes part in selecting recipients or setting award amounts, including committee members; and the family members of all of them. There is no exception for blind or anonymized selection or for unpaid volunteers, and officers and selectors stay disqualified through the end of the year after they leave. The rule prevents SGO insiders from steering funds to their own families and protects the integrity of awards. More in our coverage of the disqualified-person rules.

How families work with an SGO

For families seeking a scholarship, the SGO is the front door. The family submits an application directly to one or more SGOs serving their state. The SGO verifies eligibility (household income at or below 300% of area median gross income, residence in the state, and eligibility to enroll in a public K-12 school) and either makes an award or places the family on a waitlist depending on funding availability. Treasury’s proposed regulations give SGOs four ways to verify income: income documents, a recent SNAP, TANF, WIC, Section 8, or SSI award letter, a safe harbor for tutoring and special-needs awards at schools in low-income areas, and automatic eligibility for foster children. See income verification for SGOs.

Residence is what counts: a student who lives in a participating state can use a scholarship from an SGO listed there at a school in another state, but a student who lives elsewhere cannot get one from that SGO (the proposed regulations make narrow exceptions for dependents of military members and of individuals living on Indian Lands).

Once awarded, scholarships are paid in ways that keep the money tied to qualified expenses. Under the proposed regulations, tuition, fees, and room and board charged by a school must be paid directly to the school; other vendors may be paid directly if the SGO has verified them and they are not related to the student; families receive money only as reimbursements backed by receipts; and a qualified digital wallet is also allowed. See how scholarship funds reach schools and our coverage of the payment rules.

How to start an SGO

Starting an SGO is a multi-step process. The high-level path is below; for a full walkthrough see our step-by-step guide to starting an SGO and the 90/10 rule & compliance deep dive.

1. Form a nonprofit and obtain 501(c)(3) status from the IRS. This is foundational and typically takes 3-9 months. Under Treasury’s temporary regulations, a state may list an organization whose application is still pending, as long as the exemption, once granted, is effective by January 1 of the list year, so a new organization aiming at a 2027 list should be formed (and file for exemption on time under the IRS’s general exemption rules, which Treasury’s preamble cites, so it reaches back to formation) by January 1, 2027. See the 2027 calendar.
2. Build administrative infrastructure to handle eligibility verification, awards, disbursement, and reporting within the 90/10 budget constraint, plus the segregated §25F account and the written policies a state will review. Most new SGOs license technology platforms rather than building from scratch.
3. Register in the IRS SGO portal once it opens, so you can issue donor numbers and appear on the IRS SGO list.
4. Engage with state authorities about getting on your state’s annual SGO list. Each state runs its own application process, but its requirements must be tied to the federal tests and fraud prevention, and it must list every qualifying organization located in the state that seeks inclusion.
5. Establish school/provider relationships so awarded scholarships have somewhere to go. Most SGOs partner with a network of schools rather than working with each one ad hoc.
6. Plan a donor-development strategy. Even with the federal credit, SGOs need to attract and retain donors. Marketing and donor stewardship do not count toward the 90%, so they come out of the remaining 10% or, for an organization using the 85% safe harbor, out of separate non-§25F money.

Compliance and reporting

SGOs must comply with multiple layers of oversight:

• Federal: IRS requirements for 501(c)(3) status, EFTC-specific rules (90/10, eligibility verification, anti-earmarking on donations, the disqualified-person bar, and the payment rules).
• State: The participating state’s general charity laws, plus whatever application, documentation, and financial-reporting requirements it sets for its annual SGO list. Those must be tailored to the federal tests and fraud prevention; a state cannot impose stricter operating rules.
• Donor substantiation: SGOs must give each donor a written acknowledgment by January 31 (EIN, total designated contributions, the donor’s unique donor number, and any goods or services provided) and report each donor number to the IRS by February 28. The donor number means SGOs do not collect donors’ Social Security numbers.
• Annual reporting: Under the proposed regulations, every SGO attaches an annual certification and report to its Form 990 (applications, awards, the high, low, and average award, number of schools, expense categories, income, and the share spent on scholarships), sends a copy to each state that lists it, and undergoes an annual financial and programmatic audit. Organizations with more than $500,000 in total receipts need an independent professional auditor; smaller ones may use a committee of independent people. More on the audit rule.

Frequently asked questions