SGO software: the management platform for Scholarship Granting Organizations (§25F)

Why an SGO needs software

A Scholarship Granting Organization is the operational engine of the Education Freedom Tax Credit (EFTC / §25F): donors give, claim the federal credit, and the SGO turns those dollars into K-12 scholarships. If you’re still scoping the model, start with how to start an SGO. This page is about the system that runs it.

The binding constraint is the 90/10 rule: §25F(d)(1)(B) requires at least 90% of income to go to scholarships for eligible students. Treasury’s proposed regulations read “income” as total gross receipts from all sources, so no more than 10% is left for everything else, staff, verification, audits, fundraising, and technology combined. An SGO whose activities are at least 85% scholarship granting can instead apply the test to its §25F segregated account alone and pay overhead from money it raises outside that account, but 90% of what comes into the account still has to go out as scholarships on time, so an SGO funded mainly by designated gifts is back to the same 10%. That is one of the strictest pass-through standards in the nonprofit world, and it makes manual, spreadsheet-driven operations a liability the moment you have real volume. SGO software exists to do the repetitive, high-stakes work automatically so your administrative spend stays under the cap.

There is a second, quieter reason the software matters. The donor-facing half of this system is where the credit’s adoption gap is won or lost: awareness, easy paperwork, and trust all live at the point where you ask for the gift. Frictionless onboarding and instant, clean receipts aren’t just compliance, they’re the difference between a would-be donor who follows through and one who gives up.

What SGO software does

Good SGO software runs the full pipeline, with each stage mapped to a §25F requirement. The requirements below come from the statute and from Treasury’s October 1, 2026 temporary regulations (registration, donor numbers, IRS reporting) and proposed regulations (everything else; not final, but available to rely on for 2027):

Donor side

• Donor onboarding & identity verification, collect cash contributions (the credit is cash-only: checks, cards, electronic transfers, and after-tax payroll deductions count; crypto and stock don’t) and verify who gave. The IRS report needs each donor’s name and address but not a Social Security number; the unique donor number takes its place.
• Designation at the time of the gift: record how much of each gift the donor designates as a §25F qualified contribution (it can be part of the gift, and the designation is irrevocable) and, for a multistate SGO, which state each dollar goes to.
• Payment processing into the correct §25F segregated account, one per state for an SGO on more than one state’s list, so every designated dollar lands there and qualified contributions never co-mingle (§25F(c)(5)(B)).
• Unique donor numbers and January 31 acknowledgments: a donor number in the IRS’s uniform format for each donor (the format comes with the SGO’s registration in the IRS SGO portal), and a written acknowledgment by January 31 with your EIN, the designated total, the donor number, and any goods or services provided. Donors report that number on Form 8525 to claim the credit. See our donor number explainer.
• The February 28 IRS report: each donor’s name, address, and annual total, filed through the IRS SGO portal under the donor number.
• No-double-benefit support: separate designated from non-designated dollars on every acknowledgment, so donors and their preparers can apply the rules on their own returns. A credited gift can’t also be deducted under §170, and a state credit comes off the gift before the $1,700 cap, applied first to any non-designated dollars.

Family & scholarship side

• Family applications and document collection.
• Income verification against 300% of area median gross income, computed the Section 8 (HUD) way and adjusted for family size, using the household’s income for the calendar year before the application. The software should support all four permitted methods: direct documents (pay stubs, tax returns, IRS transcripts, W-2s, proof of untaxed child support or alimony); a benefit letter dated in the last 12 months for SNAP, TANF, WIC, Section 8 housing, or SSI (school-lunch status doesn’t count); the low-income-area tutoring and special-needs safe harbor; and foster children, who qualify automatically. It should also handle shared custody (the household where the student lives longest) and keep the evidence for the audit. See income verification for SGOs.
• A residence check: scholarships from a state’s account go only to students who live in that state, wherever they attend school, with broader rules for military families and families living on Indian lands.
• An award engine that enforces the required priority: prior-year recipients first, then their siblings (§25F(d)(1)(D)). The proposed rules let priority follow need for tutoring and special-needs awards.
• Anti-earmarking and self-dealing controls, no donor-designated students, no awards to disqualified persons: substantial contributors, officers, directors, trustees, anyone who helps select recipients or set awards (committee members included), and their families. The system has to track substantial contributors (more than $5,000 and more than 2% of the year’s contributions, spouses combined) at the organization level and at each §25F account level, tested at year end, and keep former officers and committee members disqualified through the end of the year after they leave. Blind selection is no exception.
• Payments through the allowed rails: tuition, fees, and room and board paid directly to the school; other vendors paid directly only if verified as appropriate providers and not related to the student; money to families only as reimbursements backed by a receipt proving payment of a qualified expense; or a qualified digital wallet. Before each payment, check for duplicate awards for the same expense, and track overpayments schools and vendors must return. See disbursing funds to schools.

Compliance & reporting

• Separate-account fund accounting (complete books for each §25F account) and a clean audit trail.
• Annual certification data: the proposed annual certification, attached to Form 990 and copied to each state that lists you, reports applications, awards, the highest, lowest, and average award, the number of schools, spending by expense category, income, and the amount and percentage spent for the prior and current year, per account. The system should produce it from the records, along with whatever reporting each participating state requires.
• Audit support: an annual financial and programmatic audit (an outside auditor above $500,000 in total receipts) reviews your application, selection, award-amount, and payment procedures.
• 90/10 monitoring by year of receipt: each year’s income must be spent by the end of the following year, counted when paid, oldest income first, with a multi-year award counted only as each payment goes out and refunds treated as new income. Real-time tracking shows, per account, whether you’re on pace and inside the administrative cap.

SGO software buyer’s checklist

When you evaluate a platform, hold it against the federal requirements. Ask whether it does all of the following out of the box:

• Issues unique donor numbers in the IRS format, sends January 31 acknowledgments, and files the February 28 donor report through the IRS SGO portal.
• Records the donor’s §25F designation at the time of the gift, including partial designations and, for a multistate SGO, the state allocation.
• Enforces separate accounts (one per state if you’re multistate) and shows credited dollars flowing only to qualifying scholarships.
• Verifies household income against 300% AMGI by all four permitted methods and stores the documentation.
• Confirms each student lives in the state.
• Applies the renewal-then-sibling award priority without manual tracking.
• Blocks earmarked donations and awards to disqualified persons, including substantial contributors tracked at the organization and account level.
• Pays only through the allowed methods and catches duplicate awards for the same expense.
• Separates designated from non-designated dollars so donors can apply the no-double-benefit rule with §170 and state credits.
• Produces the annual certification data and your state’s reporting, and keeps an audit trail.
• Surfaces your 90/10 position by year of receipt so you never blow the administrative cap or the two-year spending deadline.

Build vs. buy

Some founders consider building in-house or stitching together a generic CRM, a payment processor, and spreadsheets. The math usually doesn’t work for an SGO.

What it should cost

Don’t evaluate price in a vacuum, evaluate it against the cap. The right question is not “what’s the cheapest tool,” it’s “what keeps the most of my income in scholarships while staying compliant.” Software that replaces manual verification, disbursement, and receipting labor typically pays for itself by keeping administrative spend inside the 10% the 90/10 rule leaves. Budget for the audit too: Treasury estimates the annual audit its proposed rules require at roughly $10,000 a year for SGOs with total receipts of $500,000 or less and about $30,000 for larger ones.

Choosing a platform

1. Confirm it’s built for §25F, not retrofitted from a generic nonprofit CRM. Walk the checklist above point by point.
2. Match it to your state. If you operate where a state program already exists, the platform should handle both the state rules and the federal §25F layer, keeping §25F dollars in their own account. Under Treasury’s temporary regulations a state can’t add operating rules stricter than §25F’s, but it must require applications, documentation, and financial reporting tied to the federal tests. Check your state’s status.
3. Decide before launch. Adopt during formation so your accounts and workflows are built around it from day one.
4. Plan for annual re-certification. Participation isn’t one-time: each state certifies its list again every year and reviews your audit and annual certification before it does. Your platform should make yearly reporting routine; our SGO compliance calendar lists the dates.

New to the program entirely? Read what an SGO is and how to start one, then come back to choose the system that runs it.

The buying-decision questions to ask

The checklist above tells you whether a platform can do the federal job. These four questions separate platforms once you know they can, the ones a vendor won’t always volunteer. Ask every one before you sign.

1. How does the pricing actually work?

A flat monthly fee, a per-transaction fee, and a percentage of donations are very different things measured against the 90/10 cap. Ask for the all-in number: every fee a dollar passes through before it reaches a scholarship, not just the headline subscription. A platform that looks cheap but charges separately for payments, receipting, and reporting can eat more of your 10% than a single transparent rate.

2. Who actually holds the money?

This is the question most buyers skip and later regret. Some platforms take custody of donor funds and move them on your behalf; others never touch the money, routing it through a bank account in your SGO’s own name so you keep custody and control. Custody affects your audit, your liability, and how fast you can disburse. Ask where donations sit between the gift and the scholarship, whose name is on the account, and who controls the float. Under Treasury’s proposed rules it also affects your 90% timing: money moved to a third party for disbursement through a qualified digital wallet counts as spent on the transfer date only if the SGO does not keep ownership of it.

3. What controls protect a disbursement?

Credited dollars are the IRS’s business now. Ask whether the platform enforces dual control on disbursements, keeps an immutable audit trail tying each scholarship back to qualified contributions, and blocks earmarked or self-dealing awards by design rather than by policy memo. Treasury’s proposed rules make several of these controls mandatory: systems that stop duplicate awards for the same expense, tuition paid directly to the school, vendors verified and unrelated to the student, and no money to families except receipted reimbursements. Controls you have to remember to follow are the ones an audit finds missing.

4. Can you leave?

Ask how you get your data out, donor records, receipts, award history, and fund accounting, in a usable format, and what it costs. A platform that makes leaving painful is a platform you have stopped choosing and started tolerating. Portability is cheap insurance against a vendor whose priorities drift from yours.

Frequently asked questions