Rule2026-20264
Federal Scholarship Tax Credit
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 2, 2026
Effective
December 1, 2026
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains temporary regulations that address the new nonrefundable Federal tax credit for qualified contributions to scholarship granting organizations made in 2027 and later taxable years to fund qualified elementary and secondary education scholarships. The temporary regulations implement certain requirements and procedures for States that make elections to participate in this Federal tax credit and organizations that have been certified as scholarship granting organizations by one or more participating States. The temporary regulations affect such States and organizations, and individuals who make qualified contributions to scholarship granting organizations.
Full Text
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<title>Federal Register, Volume 91 Issue 190 (Friday, October 2, 2026)</title>
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[Federal Register Volume 91, Number 190 (Friday, October 2, 2026)]
[Rules and Regulations]
[Pages 62655-62672]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-20264]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 10057]
RIN 1545-BS17
Federal Scholarship Tax Credit
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Temporary regulations.
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SUMMARY: This document contains temporary regulations that address the
new nonrefundable Federal tax credit for qualified contributions to
scholarship granting organizations made in 2027 and later taxable years
to fund qualified elementary and secondary education scholarships. The
temporary regulations implement certain requirements and procedures for
States that make elections to participate in this Federal tax credit
and organizations that have been certified as scholarship granting
organizations by one or more participating States. The temporary
regulations affect such States and organizations, and individuals who
make qualified contributions to scholarship granting organizations.
DATES:
Effective date: These temporary regulations are effective on
December 1, 2026.
Applicability date: For dates of applicability, see Sec. Sec.
1.25F-1T(b), 1.25F-4T(f), and 1.25F-5T(f).
FOR FURTHER INFORMATION CONTACT: Concerning these temporary
regulations, Constance Chien, (202) 317-7009, or Andrew Fahmy, (202)
317-6487 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Authority
This document amends 26 CFR part 1 (Income Tax Regulations) by
adding temporary regulations that address certain aspects of the
application of the credit available for qualified contributions under
section 25F of the Internal Revenue Code (Code),\1\ as added by section
70411 of Public Law 119-21, 139 Stat. 72 (July 4, 2025), commonly known
as the One, Big, Beautiful Bill Act (OBBBA).
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\1\ Unless otherwise indicated, all section references are to
the Internal Revenue Code or the Treasury Regulations issued
thereunder.
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The temporary regulations are issued under section 25F(h), which
expressly delegates authority to the Secretary of the Treasury or the
Secretary's delegate (Secretary) to issue such regulations or other
guidance as the Secretary determines necessary to carry out the
purposes of section 25F, including regulations or other guidance (1)
providing for enforcement of the requirements under section 25F(d) and
(g), and (2) with respect to recordkeeping or information reporting for
purposes of administering the requirements of section 25F. The
temporary regulations also are issued under the express delegation of
authority in section 7805(a) of the Code, which authorizes the
Secretary to prescribe all needful rules and regulations for the
enforcement of the Code, including all rules and regulations as may be
necessary by reason of any alteration of law in relation to internal
revenue.
[[Page 62656]]
Background
As added by section 70411(a) of the OBBBA, the nonrefundable income
tax credit under section 25F (section 25F credit) is allowed to an
individual who is a citizen or resident of the United States (within
the meaning of section 7701(a)(9)) who makes qualified contributions to
a ``scholarship granting organization'' (SGO). Pursuant to section
70411(c)(1) of the OBBBA, the provisions of section 25F apply to
taxable years ending after December 31, 2026. Additionally, for taxable
years ending after December 31, 2026, section 139K, as added by section
70411(b) of the OBBBA, excludes from the gross income of individuals or
their dependents any amounts received after December 31, 2026, pursuant
to SGO-provided scholarships for qualified elementary or secondary
education expenses of eligible students. See section 70411(c)(2) of the
OBBBA.
A notice of proposed rulemaking (REG-117199-25) containing a
comprehensive set of proposed regulations under section 25F (proposed
regulations) is published in the Proposed Rules section of this issue
of the Federal Register and provides detailed information regarding the
provisions of section 25F and the proposed regulations, including
requirements for an organization to qualify as an SGO, for a
contribution to qualify as a ``qualified contribution'' eligible for a
section 25F credit, and for a State to qualify as a ``covered State''
that participates under section 25F.
The temporary regulations contained in this Treasury decision
provide reporting and recordkeeping requirements for SGOs and
requirements for elections that States must make to participate under
section 25F. The proposed regulations satisfy the requirement of
section 7805(e)(1) for proposed regulations to be published
concurrently with the publication of temporary regulations. The text of
the proposed regulations is identical to the text of the temporary
regulations at Sec. Sec. 1.25F-1T, 1.25F-4T(b) and (c), and 1.25F-5T
(except that the temporary regulations cross-reference other provisions
of the temporary regulations and do not refer to any provision of the
proposed regulations). Interested persons are directed to the ADDRESSES
and COMMENTS and PUBLIC HEARING sections of the preamble to REG-117199-
25 for information on submitting public comments or requesting to
testify at, or attend, the public hearing for the proposed regulations.
Explanation of Provisions
I. Definitions
Section 1.25F-1T provides definitions of terms generally applicable
for purposes of applying the temporary regulations, including certain
defined terms explained in this part of the Explanation of Provisions
to provide additional context.
1. Located in the State
Section 25F(g)(1)(A) states that an electing State must provide a
list of the SGOs that meet the requirements described in section
25F(c)(5) and are located in the State. In responding to a request for
feedback in Notice 2025-70, 2025-50 I.R.B. 773, many stakeholders
suggested that ``located in the State'' should mean registered to do
business in the State and in compliance with otherwise applicable State
laws for nonprofit organizations. Some of these stakeholders stated
that requiring a physical headquarters or in-State staff would be
unnecessary, inconsistent with existing State tax credit programs, and
would significantly hinder effective multistate SGOs that are well-
positioned to deliver scholarships at scale.
Other stakeholders stated that an SGO should be required to have a
physical presence in the State if required by State law, arguing that
``located in the State'' straightforwardly means headquartered in the
State, rather than simply being authorized or registered to solicit
donations there. These stakeholders stated that the phrase ``located in
the State'' appears in more than 90 sections of the U.S. Code and that
none could be read to mean ``authorized to operate.'' Many of these
stakeholders expressed the concern that allowing large multistate SGOs
to be located in a State where they did not have a physical presence
might limit a State's ability to implement its educational policies.
Section 1.25F-1T(a)(10) provides that an organization is ``located
in a State'' if the organization is authorized to do business in the
State and is in compliance with the generally applicable State laws and
requirements for charitable organizations in the State, including
provisions for transparency, accountability, and fraud prevention.\2\
The Treasury Department and the IRS have determined that this
definition is consistent with the legislative purpose of section 25F to
increase access to scholarship funds.
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\2\ However, Sec. 1.25F-5T(e)(2) prohibits covered States from
imposing requirements on SGOs that are more restrictive than the
requirements in section 25F(c)(5).
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2.Qualified Contribution
Section 1.25F-1T(a)(12) provides that a ``qualified contribution''
is a charitable cash contribution made by an individual to an SGO to
the extent it is designated as such by the donor at the time of
contribution. If the SGO provides any goods or services as
consideration for any part of the contribution, then the value of those
goods and services must be subtracted from the amount of the charitable
contribution to arrive at the amount of the qualified contribution.
For this purpose, the term ``cash'' means physical currency, check,
money order, electronic transfer (including, for example, by credit or
debit card), after-tax payroll deduction, or other similar method, in
each case all in U.S. dollars, but does not include any digital assets.
Under this definition, a donor is required to designate to the
recipient SGO, at the time of making the contribution, that the
contribution is intended to be a qualified contribution, which requires
the SGO to deposit the contribution into the SGO's section 25F
segregated account as part of the SGO's compliance with sections
25F(c)(3) and 25F(c)(5)(B). If the SGO is a multistate SGO, the donor
would be able to direct the recipient SGO to allocate the qualified
contribution to the multistate SGO's section 25F segregated account for
any one or more of the covered States on whose State SGO list the SGO
appears. Once a qualified contribution has been deposited into an SGO's
section 25F segregated account, the SGO must use the funds in
accordance with the operational requirements in section 25F(d) to
maintain its status as an SGO.
3. Scholarship Granting Organization
Section 1.25F-1T(a)(16) provides that a ``scholarship granting
organization'' or ``SGO'' is an organization defined in section
25F(c)(5). Accordingly, donations made to an organization that
generates State tax credits may or may not give rise to a section 25F
credit, depending on whether the organization separately satisfies the
Federal tax law requirements to be an SGO for purposes of the section
25F credit. For example, a contribution to an organization that
qualifies for State tax credits but is not included on the State SGO
list of one or more covered States in which the SGO is located, does
not give rise to the section 25F credit.
Notice 2025-70 recognized that organizations may fundraise and
award scholarships in more than one State and distinguished an
organization that is located in only one State (single-State
organization) from one that is located in
[[Page 62657]]
more than one State (multistate organization). The temporary
regulations preserve this distinction in Sec. 1.25F-1T(a)(20),
defining a ``single-State SGO'' as an organization included on the
State SGO list of only one covered State, and Sec. 1.25F-1T(a)(11),
defining a ``multistate SGO'' as an SGO that is included on the State
SGO list of more than one covered State.
Although Sec. 1.25F-5T(e)(2) clarifies that a State may not narrow
the required elements of an SGO as described in section 25F(c)(5), any
particular SGO may narrow its own focus and adopt more stringent
requirements than those applicable under section 25F. For example, an
SGO may choose to limit its scholarships for qualified elementary and
secondary education expenses to specific subject matter areas such as
science or foreign languages, or to students whose household income is
less than 80 percent of the area median gross income, provided that the
SGO meets the statutory and regulatory requirements for SGOs. The
Treasury Department and the IRS assume that SGOs will publicize their
particular missions, the scope of their scholarships for eligible
students, and their successes in achieving better student outcomes, in
order to attract more qualified contributions from taxpayers supportive
of their mission.
II. Reporting and Recordkeeping Requirements for SGOs
A. Overview
Pursuant to the authority granted by section 25F(h)(2), Sec.
1.25F-4T provides rules requiring electronic registration and
contribution reporting by SGOs. Section 1.25F-4T(b) describes the
mandatory registration process for organizations through the IRS SGO
portal. Section 1.25F-4T(c) provides the requirements for an
organization's acknowledgement, recordkeeping and reporting for the
receipt of amounts designated as qualified contributions.
B. Mandatory Registration Through IRS SGO Portal
In determining how to enforce and administer the requirements of
section 25F, the Treasury Department and the IRS considered paper or
electronic communications and determined that an IRS SGO portal
provides the most efficient way to interact with SGOs in a timely
manner. Section 1.25F-4T(b) requires an organization to register
electronically through the IRS SGO portal, which allows each
organization to obtain instructions for creating a unique donor number,
based on a uniform format to be used by all SGOs, and report qualified
contribution information to the IRS. The organization also uses the IRS
SGO portal to periodically authorize disclosure of the organization's
name and identifying information on the IRS SGO list for a calendar
year, available on <a href="https://www.irs.gov">https://www.irs.gov</a>. An organization must authorize
such disclosure if it wants the IRS to publish such information on the
IRS SGO list.
Because an organization will not be able to generate the unique
donor number to provide to a donor until the organization registers in
the IRS SGO portal, and because a donor will need that unique donor
number to substantiate a qualified contribution, Sec. 1.25F-4T(b)(2)
requires an organization to complete the registration process with the
IRS as soon as possible and preferably before the organization appears
on any State SGO list.
Section 1.25F-4T(b)(3) describes the information required to
register, specifically: the organization's name, IRS employer
identification number (EIN), address, telephone number, and year of
formation; the name of a person whom the IRS may contact if there is an
issue with the organization's registration; the organization's taxable
year; and any other information the IRS deems necessary for purposes of
administering the requirements of section 25F as provided in guidance.
Section 1.25F-4T(b)(4) provides that the IRS will review the
information provided to verify that all the required information has
been submitted and will provide instructions to the organization for
creating a unique donor number in a uniform format to be used by all
SGOs, for each donor who has designated at least one payment to the
organization as a qualified contribution to the SGO during the calendar
year.
C. Donor Acknowledgement and Reporting of Qualified Contributions
Received by SGOs
Notice 2025-70 asked what information SGOs should be required to
provide to their donors, including whether SGOs should be required to
provide the donor with written substantiation in order for the donor to
take the section 25F credit. Many stakeholders recommended that SGOs
provide a standardized donor acknowledgement form to taxpayers that
would include the donor's name and address, the name of the SGO and its
EIN, and the amount of the qualified contribution. Other stakeholders
suggested that SGOs should not be responsible for reporting the
particulars of a donation, other than informing donors that the
donation could be eligible for the section 25F credit.
Section 1.25F-4T(c)(1) requires the organization to transmit a
timely written acknowledgement to each donor with respect to qualified
contributions made by such donor during the calendar year. Section
1.25F-4T(c)(1)(i) requires the timely written acknowledgement to
include: the organization's EIN; the total amount of contributions made
by the donor to the organization during the calendar year that the
donor designated as qualified contributions; the unique donor number
provided to the donor; a statement as to whether the organization
provided any goods or services in consideration for any qualified
contributions made by the donor; and a description and good faith
estimate of the value of any such goods or services. Section 1.25F-
4T(c)(1)(ii) requires organizations to provide the timely written
acknowledgement to the donor no later than January 31 of the calendar
year following the calendar year in which the donor made a qualified
contribution. The timely written acknowledgement may be provided in
writing or in any other form acceptable to the donor, including by
electronic delivery if the donor consents to receiving the statement
electronically and has not withdrawn the consent before the statement
is furnished.
Section 1.25F-4T(c)(2) requires organizations to report information
about qualified contributions to the IRS. Section 1.25F-4T(c)(2)(i)
requires the following information to be reported with respect to each
unique donor number assigned by the organization: the donor's name and
address; the aggregate amount of qualified contributions made by the
donor to the organization during the calendar year; and any other
information the IRS deems necessary for purposes of administering the
requirements of section 25F, as may be described in further guidance.
Section 1.25F-4T(c)(2)(ii) requires organizations to report this
information no later than February 28 of the year following the
calendar year in which such qualified contributions were made. Unless
otherwise provided in guidance, the reporting is required to be done
through the IRS SGO portal in accordance with the instructions provided
therein.
III. State Election, State SGO List and Certification of SGOs
A. Overview
Section 1.25F-5T provides rules for a State election and a State's
identification and certification of organizations located in the State
that
[[Page 62658]]
are SGOs. Section 1.25F-5T(b) describes rules for the State to register
in the IRS State section 25F portal, which, except for the first year
for which the State makes an election, may be used for the submission
of the State election (including advance election), State SGO list, any
changes to the State SGO list, annual certifications, and any other
information required in accordance with guidance. Section 1.25F-5T(c)
describes the requirements for a State election. Section 1.25F-5T(d)
provides rules regarding the State SGO list, including information and
certifications a State is required to provide for each organization
included on the State SGO list and procedures a State is required to
use in determining whether an organization is an SGO. Section 1.25F-
5T(e) addresses State administrative requirements for SGOs.
B. IRS State Section 25F Portal
Notice 2025-70 stated that the Treasury Department and the IRS
anticipated that the forthcoming proposed regulations under section 25F
would require the State to electronically submit the State election,
the State SGO list, and certification to the IRS. Commenters supported
an electronic process for States to submit State SGO lists, as they
considered electronic submissions to be more efficient and timelier
than paper submissions. Thus, Sec. 1.25F-5T(b) requires a State that
chooses to participate under section 25F to register for and use the
IRS State section 25F portal in accordance with the instructions
therein.
Section 1.25F-5T(b)(2)(i) provides that the Governor of the State
or such other individual, agency, or entity as is designated under
State law to make elections with respect to Federal tax benefits on
behalf of the State may authorize up to two designated officials to
register for and use the IRS State section 25F portal. Section 1.25F-
5T(b)(2)(ii) requires each designated official to be an elected
official, the Director of Taxation, or an appointed official of the
State. Section 1.25F-5T(b)(3) requires States to obtain or be assigned
a special-purpose EIN for purposes of registering. The IRS will inform
States how to obtain this EIN, and States will not be required to use a
Form SS-4, Application for Employer Identification Number, for these
purposes. Section 1.25F-5T(b)(4) requires that the following
information be provided to register: the special-purpose EIN; contact
information, including the name, official title, telephone number, and
email address of the State's designated officials; and any other
information the IRS deems necessary for purposes of administering the
requirements of section 25F as may be described in future guidance.
At the conclusion of the registration process, a State will be able
to electronically transmit through the IRS State section 25F portal its
State election (including advance election), State SGO list, any
changes to the State SGO list, annual certifications, and any other
information required in future guidance.
To mitigate the risk of any State's implementation issues for the
first year for which the IRS State section 25F portal will be
operational, the IRS is considering the creation of alternative
temporary procedures that would be outlined in future guidance to help
ensure that all States that wish to participate under section 25F are
reasonably able to complete their registration for the IRS State
section 25F portal or otherwise submit the State election and State SGO
list.
C. State Election
1. In General
Section 1.25F-5T(c) provides the procedure for making a State
election. Section 1.25F-5T(c)(1) provides that, except as provided in
Sec. 1.25F-5T(c)(3), the State election may be made either as an
advance election that is perfected through the submission of the State
SGO list or as an election made with such submission.
Several stakeholders recommended restricting a State's ability to
``opt out'' after having made an election. Many stakeholders stated
that States should not be able to opt out on a year-to-year basis, as
families and students will rely on these scholarships for multiple
years. However, in response to that feedback and to clarify the
application of section 25F(g), Sec. 1.25F-5T(c)(1) confirms that an
election to participate under section 25F is made only for a single
calendar year, and that all of the requirements in Sec. 1.25F-5T(c)
must be satisfied for each year for which an election is made. The
advance election procedure in Sec. 1.25F-5T(c)(3), discussed in part
III.C.2. of this Explanation of Provisions, enables a State to opt in
for an upcoming calendar year by making an advance election and then
later, in effect, opt out by failing to perfect the election in
accordance with Sec. 1.25F-5T(c)(3)(ii). The Treasury Department and
the IRS do not interpret section 25F(g) as allowing for any revocation
once a State has completed its State election for the year, including
an advance election that has been perfected.
As described in section 25F(g)(1)(B), Sec. 1.25F-5T(c)(2)
specifies that an election must be made by the Governor of the State or
by such other individual, agency, or entity as is designated under
State law to make such elections on behalf of the State with respect to
Federal tax benefits.
2. Advance Election Procedure
Notice 2025-70 stated that the Treasury Department and the IRS read
section 25F(g) to provide that an election by a State to participate
under section 25F may be made prior to or contemporaneously with the
submission of the State's list of all organizations located in the
State that satisfy the definition of an SGO. On December 12, 2025, the
Treasury Department and the IRS issued Rev. Proc. 2026-6, Advance
Election to Participate Under Section 25F for 2027, to allow States,
including the District of Columbia, to make an Advance Election to
participate in a new tax credit for calendar year 2027.
Section 1.25F-5T(c)(3) provides guidance for States on how to
submit an election in advance of the submission of the State SGO list,
including guidance for States that have submitted an advance election
for 2027 on Form 15714, Advance Election to Participate Under Section
25F for 2027. A State's failure to timely perfect its advance election
by providing its State SGO list for a calendar year by the specified
date in Sec. 1.25F-5T(c)(3)(ii) would result in a failure to meet the
requirements of section 25F(g), effectively preventing any organization
in the State from qualifying as an SGO for the calendar year for which
the advance election was not perfected.
Section 1.25F-5T(c)(3)(iii) provides that the IRS will maintain and
publish on <a href="https://www.irs.gov">https://www.irs.gov</a> a list of States that have made an
advance election.
3. Timing of State Elections Under Sec. 1.25F-5T(c)(3)(i) and (c)(4)
Section 1.25F-5T(c)(3)(i) identifies the time period during which
an advance election may be made and Sec. 1.25F-5T(c)(4) identifies the
time period during which a State election may be made with the
submission of the State SGO list.
Notice 2025-70 stated that the Treasury Department and the IRS
anticipated that the forthcoming proposed regulations under section 25F
would require each State electing to participate under section 25F for
the 2027 calendar year to submit to the IRS, by a specified date before
January 1, 2027, the State's list of organizations located in that
State meeting the requirements of section 25F(c)(5) for the 2027
calendar year along with the State's certification under section
[[Page 62659]]
25F(g)(2), and that those forthcoming proposed regulations would
include a similar requirement for submission of an annual list and
certification from each electing State for subsequent years.
Section 1.25F-5T(c)(3)(i)(A) provides that, except as otherwise
provided in the transition rule in Sec. 1.25F-5T(c)(3)(i)(B), a State
may submit an advance election through the IRS State section 25F portal
on or after January 2 and on or before September 30 of the calendar
year immediately preceding the calendar year for which the election is
being made. The IRS will acknowledge or otherwise confirm receipt of a
State's advance election.
Section 1.25F-5T(c)(3)(i)(B) provides a transition rule for the
first calendar year for which the State makes an election. Section
1.25F-5T(c)(3)(i)(B)(1) provides that, for calendar year 2027, a State
must submit an advance election on Form 15714 on or before January 1,
2027. Section 1.25F-5T(c)(3)(i)(B)(2) provides that, for future years,
a State making its first election to participate under section 25F must
submit an advance election as provided in future guidance. Consistent
with these transition rules, Sec. 1.25F-5T(c)(4) provides that, for
the first year in which the State is electing to participate under
section 25F, it cannot make its election with the submission of the
State SGO list.
During the last three months of the immediately preceding calendar
year or on January 1 of the year for which the election is being made,
a State may make its election to participate under section 25F either
as part of submitting its State SGO list for that year with the
required information and certifications, or by perfecting its advance
election made under Sec. 1.25F-5T(c)(3)(i)(A) by providing its State
SGO list for that year with the required information and
certifications.
Several stakeholders requested clarification that the deadline for
an election to participate for the 2027 calendar year should be after
January 1, 2027, consistent with section 25F(g)(1)(A). For calendar
year 2027 only, a State must submit its advance election on or before
January 1, 2027, however, the State may perfect its advance election by
submitting its State SGO list on or before February 15, 2027.
Some stakeholders recommended clarifying that the election deadline
for calendar years after 2027 should be no later than 11:59 p.m. on
January 1 of the calendar year, to accommodate an election made by a
Governor who is newly inaugurated. The Treasury Department and the IRS
agree and clarify that, for these purposes, ``on or before January 1 of
that year'' means up to 11:59 p.m. on January 1.
4. Certifications and Other Required Information for State Elections
Section 1.25F-5T(c)(5) requires that the person with authority to
make the State election, or a designated official, certify that the
individual, agency, or entity making the State election has the
authority to make the State election on behalf of the State, and the
person authorizing any individuals as designated officials under Sec.
1.25F-5T(b)(2) has the authority to do so.
In addition, Sec. 1.25F-5T(c)(5) requires the person with
authority to make the State election or a designated official to:
(1) Provide the enacted statutory or regulatory provisions that are
binding on the State and establish the authority of an individual to
make the State election on behalf of the State, if the individual
making the election is not the Governor of the State (or the Mayor of
the District of Columbia);
(2) Provide the required information and certifications for each
SGO on the State SGO list;
(3) Certify that the State SGO list includes every organization
located in the State that is seeking inclusion on the State SGO list,
that meets the definition of an SGO, and is operating in a manner that
satisfies the operational requirements in section 25F(d) and the
applicable State requirements;
(4) Provide the certification of State policies and procedures
required for its State SGO list in Sec. 1.25F-5T(d)(6);
(5) Describe any tax credit (including relevant State statutes,
regulations, and other authoritative guidance) available under State
law for contributions made to SGOs during the calendar year for which
the State is electing to participate under section 25F; and
(6) Provide any other information and certifications described in
future guidance.
D. State SGO Lists
1. Overview
Section 3.03 of Notice 2025-70 stated that the Treasury Department
and the IRS interpret section 25F(g) as requiring each covered State to
verify that each organization on the State's list satisfies all the
requirements of section 25F(c)(5). Section 3.04 of Notice 2025-70
further stated that the Treasury Department and the IRS anticipate that
States will be required to have implemented, and to comply with,
various procedures to verify that the required information submitted by
the covered State is accurate and complete. Section 3.04 of Notice
2025-70 requested comments on what types of uniform policies,
procedures, recordkeeping, or other requirements would be reasonable to
ensure States can reliably verify that each organization meets the
requirements of section 25F(c)(5), and, for States with similar
programs, how those States determine whether organizations are meeting
applicable requirements.
Many stakeholders favored self-attestation by SGOs that they met
the requirements of section 25F(c)(5) so as to avoid the need for any
State-level review process, stating that requiring States to verify
compliance is overly burdensome and could discourage participation.
Several stakeholders expressed concern that providing States with
significant discretion over organizations seeking certification as an
SGO would permit State officials to discriminate against organizations
based on factors other than compliance with the requirements of section
25F. Some stakeholders requested explicit limits on State authority to
prevent intrusion into SGO operations, as well as an appeals process
for any organizations excluded from a State's list based on the State's
administration of SGO requirements.
Section 1.25F-5T(d) provides guidance on State SGO lists. Section
1.25F-5T(d)(2) and (3) describe the information and certifications
required as part of the State's election or advance election for a
calendar year. Section 1.25F-5T(d)(4) provides a transition rule for an
organization that has not yet been required to provide information and
certifications. Section 1.25F-5T(d)(5) provides a procedure that
applies when an organization's application for recognition of tax-
exempt status is pending with the IRS. Section 1.25F-5T(d)(6) requires
a State to make a certification regarding its policies and procedures.
Section 1.25F-5T(d)(7) provides rules for changes to a State SGO list,
and Sec. 1.25F-5T(d)(8) provides rules for the removal of an SGO from
the IRS SGO list. Section 1.25F-5T(d)(9) provides for the publication
of the names of covered States and their State SGO lists on <a href="https://www.irs.gov">https://www.irs.gov</a>.
2. Information the State Is Required To Provide About Each SGO on Its
State SGO List
Section 1.25F-5T(d)(2) sets forth the information that a State must
provide annually with respect to each organization named on the State
SGO list, including the name, the EIN, address, and telephone number of
the organization; whether the organization has received recognition as
a public charity under section 501(c)(3) (section
[[Page 62660]]
501(c)(3) public charity), or has a pending application for such
recognition; and any other information the IRS deems necessary for
purposes of administering the requirements of section 25F as may be
described in future guidance.
3. Certifications the State Is Required To Provide About Each SGO on
Its State SGO List
Except as provided by the transition rule described in part
III.D.3. of this Explanation of Provisions, Sec. 1.25F-5T(d)(3)
requires the State to certify that, with respect to each organization
included on the State SGO list, the organization is located in the
State and the organization prevents the co-mingling of qualified
contributions with other amounts by maintaining a segregated section
25F account exclusively for qualified contributions, depositing all
qualified contributions into its section 25F segregated account, and
maintaining a complete set of books and records for its section 25F
segregated account. The State also must certify that the organization
satisfies each of the operational requirements in section 25F(d) and
that the State has determined whether the SGO is a single-State or
multistate SGO, reviewed the annual financial and programmatic audit
report the organization is required to provide to the State, reviewed
annual certifications and other information the organization is
required to provide to the IRS and investigated any failure by the SGO
to provide the required certifications and other information and has
become reasonably satisfied that the SGO has corrected the failure, if
possible, or has put in place procedures to prevent future failures.
Finally, a State must certify that the organization satisfies any other
requirements the IRS deems necessary for purposes of administering
section 25F as may be described in future guidance.
The Treasury Department and the IRS request comments on the
certifications States are required to make in accordance with Sec.
1.25F-5T(d)(3), including any other certifications that should be
required for a multistate SGO. Comments are also requested on whether
any certification is disproportionately burdensome compared to the
benefits to tax administration.
4. Transition Rule for an Organization That Has Not Yet Been Required
To Provide Information and Certifications to the IRS
In recognition of the fact that much of the required reporting is
of data derived from operations in the prior fiscal year, Sec. 1.25F-
5T(d)(4) provides a transition rule for recently formed entities and
other organizations without such historical data that have not yet been
required to report on their operations as an SGO. This transition rule
allows the State to rely on the organization's governing documents or
bylaws, written policies and procedures, and other documentation the
organization provides to the State as part of its request to be
included on its State SGO list, reducing the burden on the State for
this type of SGO.
However, for each year for which such an organization is included
on the State SGO list during this transition period, Sec. 1.25F-
5T(d)(4) requires the State to determine that the organization's
provisions, policies, and procedures expressly require the organization
to satisfy the operational requirements in section 25F(d), and that the
documentation and information available to the State evidences the
organization's ability and intent to satisfy such operational
requirements. Section 1.25F-5T(d)(4) also requires the organization to
concurrently provide the State with a copy of any information and
certifications required to be provided to the IRS before the end of the
transition period.
5. Procedure for When an Organization's Application for Recognition of
Tax-Exempt Status Is Pending With the IRS
Section 1.25F-5T(d)(5) allows a State to include on its State SGO
list those organizations whose applications for recognition of tax-
exempt status are pending with the IRS, but only if the State includes
on its State SGO list all organizations seeking inclusion on that list
whose application for recognition of tax-exempt status is pending with
the IRS, the State has complied with the requirements of Sec. 1.25F-
5T(d)(4) for each organization, and the State makes the required
certifications regarding the organization's tax-exempt status. The
required certifications include that the organization has applied for
tax-exempt status as a section 501(c)(3) public charity, the
organization's tax-exempt status, if granted, will be effective
retroactively to a date that is on or before January 1 of the year for
which the State SGO list applies, and the State SGO list indicates that
such organization's tax-exempt status is pending IRS recognition.
Whether tax-exempt status will be effective retroactively to a date on
or before that January 1 of the year for which the State SGO list
applies is determined by the date of the formation of the organization,
the date of its application for recognition of tax-exempt status, and
whether any material changes to the organization's activities were
required for it to qualify for exemption. See section 6.09 of Rev.
Proc. 2026-5, 2026-1 I.R.B. 258 (updated annually).
As provided in Sec. 1.25F-5T(d)(9)(ii), which is discussed in part
III.D.8 of this Explanation of Provisions, the IRS will add each of
these organizations to the IRS SGO list upon determining that the
organization qualifies for tax-exempt status as a section 501(c)(3)
public charity, if the organization consents to being included on the
IRS SGO list.
6. Certification of State Policies and Procedures
Section 1.25F-5T(d)(6) requires a State to certify that its
policies and procedures, including its procedures for assessing and
responding to audit results, enable the State to make its own
determination that each organization on the State SGO list is located
in the State, is in compliance with section 25F(c)(5)(A) and (B) and is
operating in a manner that satisfies the operational requirements in
section 25F(d) and the applicable State requirements. Section 1.25F-
5T(d)(6) also requires that a State certify that its policies and
procedures provide for the prompt removal of an organization from the
State SGO list, and notification to the IRS through the IRS State
section 25F portal of such removal, upon a determination that an
organization is not an SGO or does not meet the applicable State
requirements. A State must certify that its policies and procedures
require any publicly available lists of SGOs maintained by the State to
be identical to the most recently submitted State SGO list and include
the IRS SGO list's URL (Uniform Resource Locator). Finally, Sec.
1.25F-5T(d)(6) requires that the State certify that its policies and
procedures ensure that the State's procedures before and after the
removal of an organization from the State SGO list are fairly
administered and afford due process in accordance with applicable
Federal and State laws.
7. Changes to State SGO List
Section 1.25F-5T(d)(7)(i) and (ii) provide guidance regarding the
time period during which a State may replace or supplement its State
SGO list for a calendar year. A State may replace or supplement its
State SGO list for a calendar year at any time before the deadline for
perfecting or completing an election for that year by submitting the
change in the IRS State section 25F portal in accordance with future
guidance. A State will not be able to make any additions to the State
SGO list for a calendar year after that deadline;
[[Page 62661]]
instead, any additions a State seeks to make after such deadline may be
included as part of the State's submission of its State SGO list for
the following calendar year.
Section 1.25F-5T(d)(7)(iii) provides that a State may remove an SGO
from its State SGO list at any time during the calendar year to which
that list applies. If an SGO requests to be removed from a State SGO
list, the State is required to comply.
Many stakeholders requested guidance regarding the State's
discretion in removing an SGO from the State SGO list. Stakeholders
expressed concern that States could remove SGOs arbitrarily or for
political reasons and sought rules to ensure transparency and
uniformity regarding the removal process. In response, Sec. 1.25F-
5T(d)(7)(iii) provides that a State may remove an organization from its
State SGO list if the State determines, through a procedure providing
due process to the organization, that the organization is not located
in the State, does not satisfy the requirements for an SGO in section
25F(c)(5)(A) or (B), or is not operating in a manner that satisfies the
operational requirements in section 25F(d) and the applicable State
requirements. In each event, the State must indicate the removal and
its effective date on its State SGO list and promptly notify the IRS so
the IRS can remove the SGO from the IRS SGO list for the current year.
The organization will be removed from the relevant part of the IRS SGO
list for the current year to ensure that any contributions to the
organization after the date of its removal from the State or IRS SGO
list are not treated as qualified contributions.
8. Removal of a Non-Compliant Organization From the IRS SGO List
Section 1.25F-5T(d)(8) provides the list of circumstances under
which an organization may be removed from the IRS SGO list. Under Sec.
1.25F-5T(d)(8)(i), the IRS will remove an organization from the IRS SGO
list following its determination that the organization is not a section
501(c)(3) public charity or automatic revocation of the organization's
tax-exempt status by function of section 6033(j). Section 1.25F-
5T(d)(8)(ii) further provides that the IRS may remove an organization
following its determination that the organization has failed to comply
with a requirement of section 25F (other than the tax-exempt status
requirement in section 25F(c)(5)(A)), or has failed to comply with the
applicable reporting and recordkeeping requirements, including a
failure to report qualified contributions in accordance with Sec.
1.25F-4T(c). This IRS determination of non-compliance with the
requirements of section 25F is a Federal tax controversy under section
7803(e)(3) and Sec. 301.7803-2, which provides the organization an
opportunity to seek review by the IRS Independent Office of Appeals in
the time and manner prescribed in applicable forms, instructions, or
other administrative guidance. Under Sec. 1.25F-5T(d)(8)(iii)(A), the
IRS will remove an organization from the part of the IRS SGO list for a
particular covered State upon notification that it has been removed
from the State SGO list of that covered State.
Finally, Sec. 1.25F-5T(d)(8)(iii)(B) provides that, if a
multistate SGO that is removed from a State SGO list under Sec. 1.25F-
5T(d)(8)(iii)(A) continues to satisfy the operational requirements in
section 25F(d) and one or more other covered States' applicable
requirements as described in Sec. 1.25F-5T(e)(1), the SGO will remain
on the IRS SGO list with respect to such other covered States, subject
to any further discretionary examination of the SGO by such other
covered States or the IRS.
9. Publication of Covered States and State SGO Lists
Section 1.25F-5T(d)(9)(i) provides that the IRS will maintain and
publish the IRS SGO list on <a href="https://www.irs.gov">https://www.irs.gov</a>. For those SGOs that
have authorized the disclosure of their information on the IRS SGO
list, the IRS SGO list will contain each SGO included on a State SGO
list for each of the covered States for the calendar year and reflect
each removal from a State SGO list and the date of the removal. If an
SGO is removed from the IRS SGO list, its name and identifying
information will be displayed in strike-through text, along with the
date of the organization's removal from the list, to provide taxpayers
with the information they may need in determining if their contribution
is being made, or was made, to a valid SGO and thus is a qualified
contribution eligible for the section 25F credit.
Section 1.25F-5T(d)(9)(ii) provides for updating the IRS SGO list
to include an organization whose tax-exempt status was pending when the
State SGO list was submitted. Upon determining that the organization
qualifies for tax-exempt status and that the effective date of such
tax-exempt status is on or before January 1 of the calendar year for
which the State SGO list applies, the IRS will add the organization to
the IRS SGO list for that year as soon as the organization gives
permission to be included on that list.
The publication of an IRS SGO list is consistent with feedback
requesting that the IRS publish information to facilitate taxpayers'
ability to determine which tax-exempt organizations are eligible to
receive qualified contributions.
E. State Administrative Requirements
Stakeholders submitted a broad range of comments regarding the
level of discretion the State should have in reviewing and certifying
SGOs. Concerns were raised that States might seek to prioritize
particular types of schools or students, or otherwise implement State
education policies in a manner inconsistent with section 25F.
Section 1.25F-5T(e) provides guidance on State administrative
requirements. Section 1.25F-5T(e)(1) provides that a State must require
that SGOs meet all generally applicable State requirements for
charitable organizations, including any State requirements that any
organization must satisfy to be authorized to do business in the State
and to solicit charitable contributions in the State. Additionally,
States are required to impose certain application, documentation and
financial reporting requirements that are reasonably tailored to
support the State's determination that the organization satisfies the
operational requirements in section 25F(d), and to facilitate the
prevention and detection of fraud or abuse, including the misuse of
scholarship funds such as through the duplication of scholarship awards
to the same student for the same qualified elementary or secondary
education expense.
Section 1.25F-5T(e)(2) prohibits a State from requiring SGOs to
operate in a manner that is more restrictive than the requirements set
forth in section 25F(c)(5), such as by limiting the type of school that
scholarship recipients may attend or the types of qualified elementary
or secondary education expenses for which scholarship funds may be
used. This prohibition is responsive to stakeholder feedback expressing
concern that permitting States to impose additional requirements on
SGOs or to exercise discretion to exclude an otherwise qualifying
organization from the State SGO list could lead to arbitrary
determinations and improper discrimination.
Section 1.25F-5T(e)(3) provides that the procedures a State
implements in accordance with Sec. 1.25F-5T(e) are subject to Federal
review. Upon discovering a pattern of irregularities or noncompliance,
the IRS, in its discretion, may require a State to modify its
procedures to ensure that its
[[Page 62662]]
determinations regarding an organization's location in the State, and
its satisfaction of the operational requirements in section 25F(d) are
being administered in accordance with the applicable statutory,
regulatory, and appropriate State-level requirements.
Nothing in section 25F or these temporary regulations would alter
States' obligations to comply with all other applicable Federal and
State law, for example, the requirements under the Individuals with
Disabilities Education Act, 20 U.S.C. 1400 et. seq.
IV. Applicability Date
These temporary regulations under Sec. Sec. 1.25F-1T, 4T, and 5T
apply on or after September 1, 2026, so that the Treasury Department
and the IRS have procedural rules in place with which to develop the
necessary implementation processes. See section 7805(b)(2). The
temporary regulations expire on October 1, 2029.
Special Analyses
I. Good Cause
The Administrative Procedure Act (5 U.S.C. Subchapter II) provides
that advance notice and the opportunity for public comment are not
required with respect to a rulemaking when an ``agency for good cause
finds (and incorporates the finding and a brief statement of reasons
therefor in the rules issued) that notice and public procedure thereon
are impracticable, unnecessary, or contrary to the public interest.''
The Treasury Department and the IRS find that good cause exists for
making these temporary regulations immediately effective without notice
and comment, including because failure to do so would be impracticable,
contrary to the public interest, and against the intent of Congress.
Congress intended for the section 25F credit to be available for
taxpayers making contributions beginning in taxable year 2027.
Beginning on January 1, 2027, individual taxpayers will be able to make
contributions to any eligible SGOs that have been certified by the
States on whose SGO list they appear. The States' election to
participate and certification of SGOs are critical prerequisites to
implementing the section 25F credit. As Congress expressly required in
section 25F(g), States that voluntarily elect to participate under
section 25F are required to annually submit a list of SGOs located in
the State that meet the requirements described in section 25F(c)(5).
Additionally, to facilitate the proper administration of the
section 25F credit, SGOs must be required and able to track
contributions received that are designated as qualified contributions
that may give rise to credits to individual taxpayers as of January 1,
2027.
In order for the section 25F credit to operate as intended by
Congress, taxpayers require certainty that a State has certified that
an SGO satisfies the statutory requirements of section 25F prior to
donating funds to organizations beginning on January 1, 2027. It is
therefore important to immediately put into effect the necessary State
certification procedures and recordkeeping requirements for SGOs.
The process of State certification of SGOs requires the State to
ensure that each organization seeking to appear on its list of SGOs has
met the criteria found in section 25F(c)(5). This certification process
requires SGOs to submit certain documentation to support their
assertion that they meet the statutory requirements. The State can only
then review the submissions and, upon the State's certification that an
organization meets the criteria set forth in section 25F(c)(5), include
the organization on its list of SGOs for the following calendar year.
In addition, it is critical for SGOs to understand the necessary
recordkeeping requirements for contributions to ensure that all section
25F credits claimed by taxpayers for a given taxable year correspond to
verifiable qualified contributions. These requirements help maintain
the integrity of the section 25F credit by preventing duplication and
improper or excessive credits being claimed.
The Treasury Department and the IRS find that failure to make these
temporary regulations effective prior to notice and comment would be
contrary to the public interest. Without these temporary regulations,
the IRS would be unable to ensure that States are able to adequately
review applicant SGOs, complete their elections to participate under
section 25F (or to perfect advance elections), and certify the SGOs
that meet the statutory requirements before January 1, 2027. These
temporary regulations must be issued promptly to allow enough time for
organizations to submit the required documentation to States
participating under section 25F, and for States to determine whether
each organization meets all of the statutory requirements for inclusion
on the State SGO list.
Additionally, the SGO reporting requirements must be made effective
through these temporary regulations so that each SGO may obtain
instructions for creating unique donor numbers that will be used to
validate qualified contributions to the SGO. Taxpayers may begin making
qualified contributions on January 1, 2027. The first step in an SGO
creating standardized unique donor numbers is an electronic
registration process that is completed through the IRS SGO portal
before January 1, 2027. Registration will allow SGOs to obtain
instructions for creating unique donor numbers for donors in a uniform
format to be used by all SGOs and to authorize disclosure of their
identifying information, allowing the IRS to include SGOs that have
provided such authorization on the IRS SGO list. Accordingly, these
requirements must be implemented before the time qualified
contributions begin to be made on January 1, 2027.
The public interest is served by the certainty that these temporary
regulations will provide to taxpayers, SGOs, and States. The Treasury
Department and the IRS expect that many new SGOs will be created, and
these temporary regulations will provide those organizations certainty
in their formation and operations and will reduce the costs of
uncertainty that would result if final regulations are not issued prior
to taxpayers making contributions that they expect will be eligible for
the section 25F credit.
The Treasury Department and the IRS also find that good cause
exists for making these temporary regulations immediately effective
because it would be impracticable to comply with the notice and comment
process in time to achieve the previously described results intended by
Congress. The section 25F credit involves novel issues, including
federalism aspects, that interact with established tax law in
complicated ways. This credit requires the creation of new IRS portals
to interface both with SGOs and States, significant actions by States
in identifying and certifying SGOs and ongoing administration with
respect to SGOs, and IRS publication of the IRS SGO list, each of which
must be developed before January 1, 2027. In addition, the IRS must
establish systems to facilitate matching of reported qualified
contributions against individual income tax returns. Each of these
features presents unique tax administration challenges. In order to
facilitate implementation of the section 25F credit, rules addressing
the submission of State elections, SGO lists, and certifications and
SGO registration and recordkeeping of contributions must be implemented
by January 1, 2027.
The Treasury Department and the IRS understand the need to
carefully consider all public comments and
[[Page 62663]]
provide robust responses to all relevant comments. The limited time
available between the publication of proposed regulations and the
effective date of the section 25F credit, at which point State lists of
SGOs must be certified and submitted and contributions may begin to be
made, is insufficient to receive, review, and meaningfully respond to
public comments. Since the enactment of the OBBBA, and especially since
the release of Notice 2025-70, the Treasury Department and the IRS have
been actively engaged with stakeholders and have been responsive to
feedback, some of which has been incorporated in these temporary
regulations. Furthermore, there would not be sufficient time after the
receipt of public comments on proposed regulations to make any
necessary changes to the applicable procedures or to the State and SGO
portals in time for the January 1, 2027, effective date of the section
25F credit.
Comments are being solicited in the notice of proposed rulemaking
(REG-117199-25) published in the Proposed Rules section of this issue
of the Federal Register. Any comments will be considered before final
regulations are issued.
II. Regulatory Planning and Review--Economic Analysis
Executive Orders 12866 and 13563 direct agencies to assess costs
and benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, public health and safety
effects, distributive impacts, and equity). Executive Order 13563
emphasizes the importance of quantifying both costs and benefits, of
reducing costs, of harmonizing rules, and of promoting flexibility.
These temporary regulations, and the notice of proposed rulemaking
(REG-117199-25) published elsewhere in this issue of the Federal
Register, have been designated by the Office of Management and Budget's
(OMB) Office of Information and Regulatory Affairs (OIRA) as subject to
review under Executive Order 12866 pursuant to the Memorandum of
Agreement (July 4, 2025) between the Treasury Department and OMB
regarding review of tax regulations. OIRA has determined that these
temporary regulations and the corresponding proposed rulemaking are
economically significant and subject to review under section 3(f) of
Executive Order 12866 and section 1(c) of the Memorandum of Agreement.
Accordingly, these temporary regulations, and the proposed regulations
contained in the notice of proposed rulemaking (REG-117199-25)
published in the Proposed Rules section of this issue of the Federal
Register, have been reviewed by OMB. Please refer to part I of the
Special Analyses section of the notice of proposed rulemaking for the
Regulatory Planning and Review discussion.
Executive Order 14192, titled ``Unleashing Prosperity Through
Deregulation,'' was issued on January 31, 2025. Section 3(a) of E.O.
14192 requires an agency, unless prohibited by law, to identify at
least 10 existing regulations to be repealed when the agency issues a
new regulation. In furtherance of this requirement, section 3(c) of
E.O. 14192 requires that the ``new incremental costs associated with
new regulations shall, to the extent permitted by law, be offset by the
elimination of existing costs'' associated with prior regulations. A
significant regulatory action (as defined in section 3(f) of E.O.
12866) that would impose total costs greater than zero is considered an
E.O. 14192 regulatory action. This final rule is considered an E.O.
14192 regulatory action. Details on the estimated costs of this final
rule can be found in the rule's economic analysis.
III. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA)
generally requires that a Federal agency obtain the approval of the OMB
before collecting information from the public, whether that collection
of information is mandatory, voluntary, or required to obtain or retain
a benefit. An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it displays
a valid control number. Books or records relating to a collection of
information must be retained if their contents may become material in
the administration of any Internal Revenue law. Generally, tax returns
and tax return information are confidential, as required by section
6103.
The collections of information in these temporary regulations
include reporting, third-party disclosure, and recordkeeping
requirements for States and SGOs. Therefore, the likely respondents are
State governments and tax-exempt organizations. The collection
requirements are necessary to administer the section 25F credit for
contributions to SGOs. The collections of information generally would
be used by the States to be able to identify and certify SGOs in the
State; by SGOs to provide information to donors on their qualified
contributions to enable them to qualify for the credit; by SGOs to
report information on those contributions to the IRS; and by the IRS to
administer the credit to ensure that only qualified contributions give
rise to the tax credit.
A. Collection Requirements Applicable to States
The collections of information applicable to States can be grouped
into three categories: (1) registering through the IRS State section
25F portal; (2) electing to participate under section 25F, and (3)
submitting the State SGO list, required certifications about the SGOs,
and the State's policies for certifying SGOs.
1. State Registration
Section 1.25F-5T provides rules under section 25F(g) for a State's
election to participate under section 25F and the State's
identification and certification of organizations located in the State
that are SGOs. Section 1.25F-5T(b) describes the IRS State section 25F
portal used for the submission of State elections and State SGO lists.
Section 1.25F-5T(b)(1) requires a State that chooses to make an
election to participate under section 25F to obtain a special-purpose
EIN under the procedures in Sec. 1.25F-5T(b)(3) and complete a
registration process under the procedures in Sec. 1.25F-5T(b)(4) on
<a href="https://www.irs.gov">https://www.irs.gov</a> to electronically transmit information through the
IRS State section 25F portal.
A State will use the IRS State section 25F portal to submit the
State election and State SGO list and required certifications and
information. To complete its registration, Sec. 1.25F-5T(b)(4)
requires a State to provide the special-purpose EIN, contact
information for the State, and any other information the IRS deems
necessary for purposes of administering the requirements of section
25F. The State registration and the requirement to obtain a special-
purpose EIN will be approved by OMB under control number 1545-2335,
pursuant to the emergency procedures in 5 CFR 1320.13, and its
associated burden will be reflected in Tables 1 and 2 of this section.
2. State Election To Participate
Section 1.25F-5T(c) provides rules for State elections. As part of
providing an election and the State SGO list, the State must provide
certain certifications and other required information as described in
Sec. 1.25F-5T(c)(5), which includes the information and certifications
required by Sec. 1.25F-5T(d)(2) through (5) for each organization on
the State SGO list and
[[Page 62664]]
a certification that the State SGO list includes every organization
located in the State that is described in section 25F(c)(5)(A) and (B),
is seeking inclusion on the State SGO list, and is operating in a
manner that satisfies the operational requirements in section 25F(d)
and the applicable State requirements described in Sec. 1.25F-
5T(e)(1). The State election will be approved by OMB under control
number 1545-2335 pursuant to the emergency procedures in 5 CFR 1320.13
and its associated burden will be reflected in Tables 1 and 2 of this
section.
3. State Submission of State SGO List and Required Certification
The collection of information in Sec. 1.25F-5T includes
recordkeeping requirements related to the section 25F credit. A State
will use these records to submit its State SGO list and the required
certifications and other information. These recordkeeping requirements
are considered general tax records under Sec. 1.6001-1(e). For PRA
purposes, general tax records and their associated burdens are already
approved by OMB under control number 1545-0047 for tax-exempt
organizations and governmental entities.
Section 1.25F-5T(d)(1) requires a State to provide its State SGO
list and include the information and certifications required under
Sec. 1.25F-5T(d)(2) and (3) as part of its State election. Section
1.25F-5T(d)(6) requires a State to provide a certification regarding
its policies and procedures for determining whether an organization is
an SGO. Section 1.25F-5T(d)(7)(iii)(B) provides rules for a State's
removal of an SGO from the State SGO list. Section 1.25F-5T(e) provides
general guidance regarding the policies and procedures States adopt for
SGOs and Federal review of such policies and procedures. The submission
of the State SGO list and required certification will be approved by
OMB under control number 1545-2335 pursuant to the emergency procedures
in 5 CFR 1320.13 and its associated burden will be reflected in Tables
1 and 2 of this section.
B. Collection Requirements Applicable to SGOs
The collections of information in these temporary regulations
applicable to SGOs can be grouped into two categories: (1) registering
through the IRS SGO portal and (2) providing the donor with a written
acknowledgement of the qualified contribution as well as reporting
information related to those contributions to the IRS.
1. SGO Registration
SGOs will need to report information related to qualified
contributions made by the donor to the SGO during the calendar year
through the IRS SGO portal, described in Sec. 1.25F-1T(a)(8), in
accordance with the instructions provided therein. As such, SGOs will
need to register through the IRS SGO portal and provide the information
required to complete the registration process.
Section 1.25F-4T(b) provides rules regarding the mandatory
registration through the IRS SGO portal that an organization must
complete. An organization needs to complete the registration process
electronically through the IRS SGO portal and in accordance with the
instructions provided therein, providing the information in Sec.
1.25F-4T(b)(3). This includes the organization's general information, a
point of contact, the organization's tax year, and any other
information required in guidance. As part of the registration process,
SGOs may authorize the IRS to disclose their information for inclusion
on the IRS SGO list, as described in Sec. 1.25F-4T(b)(1). The SGO
registration will be approved by OMB under control number 1545-2335
pursuant to the emergency procedures in 5 CFR 1320.13, and its
associated burden will be reflected in Tables 1 and 2 of this section.
2. Collections of Information by SGOs Related to Contributions
Section 1.25F-4T(c) provides rules on the reporting, recordkeeping,
and third-party disclosure requirements of qualified contributions made
by the donor to the SGO during the calendar year.
The collections of information in Sec. 1.25F-4T(c) include
recordkeeping requirements related to the section 25F credit. An SGO
will use these records to enable it to provide the donor with a timely
written acknowledgement of a contribution and to report to the IRS the
necessary information about qualified contributions made by the donor
to the SGO during the calendar year. These recordkeeping requirements
are considered general tax records under Sec. 1.6001-1(e). For PRA
purposes, general tax records and their associated burdens are already
approved by OMB under control number 1545-0047 for tax-exempt
organizations.
Section 1.25F-4T(c)(1)(i) provides that an SGO must provide a
timely written acknowledgement to each donor with respect to qualified
contributions made by the donor to the SGO during the calendar year.
The timely written acknowledgement must include the total amount of
contributions made by the donor, the unique donor number the SGO
created for the donor (pursuant to Sec. 1.25F-4T(b)(4)), and a
statement as to whether or not the SGO provided any goods or services
in consideration, in whole or in part, for any qualified contributions
made by the donor and if so, a description and good faith estimate of
the value of any goods or services. The SGO can provide timely written
acknowledgement in writing, or in any other form acceptable to the
donor, including by electronic delivery. The timely written
acknowledgement must be provided no later than January 31 of the
calendar year following the calendar year in which a donor made a
qualified contribution to the SGO. The timely written acknowledgement
will be approved by OMB under control number 1545-2335 pursuant to the
emergency procedures in 5 CFR 1320.13, and its associated burden will
be reflected in Tables 1 and 2 of this section.
Section 1.25F-4T(c)(2) requires an SGO to annually report to the
IRS, no later than February 28 of the year following the year in which
qualified contributions were made, information with respect to each
unique donor number assigned by the SGO, including the donor's name and
address, the aggregate amount of qualified contributions made by the
donor to the SGO during the calendar year, and any other information
the IRS deems necessary for purposes of administering the requirements
of section 25F as may be described in future guidance. The SGO will
need to report the information to the IRS through the IRS SGO portal in
accordance with the instructions provided therein. This information is
necessary to allow the IRS to validate donor information collected by
SGOs against filed tax returns claiming the section 25F credit.
Availability of this information through the portal may facilitate
earlier identification and resolution of discrepancies between filed
returns and SGO data, allowing for timelier resolution of any
disparities and limiting duplication, fraud, or abuse in the operation
of the credit. This annual reporting will be approved by OMB under
control number 1545-2335 pursuant to the emergency procedures in 5 CFR
1320.13, and its associated
[[Page 62665]]
burden will be reflected in Tables 1 and 2 of this section.
---------------------------------------------------------------------------
\3\ States will consider, approve, submit and certify to
multiple SGOs (650). (650 total SGOs divided by 51 States =
approximately 13 SGOs per State).
\4\ As States submit new SGO lists every year, the list for the
next year can show changes from the prior year. If, however, an SGO
needs to be removed from the State SGO list during the current year,
the State must report that removal to the IRS. The IRS anticipates
that few States will be required, or choose, to report changes
throughout the year. Therefore, the IRS estimates only 15% of the
States (8) will do this for approximately 1% of the total SGO
population (7).
\5\ The IRS anticipates that SGOs already have procedures in
place to generate acknowledgements to donors for other purposes, but
the IRS anticipates SGOs will need some time to create a process for
generating and tracking the unique donor number and including that
number in the acknowledgement. IRS anticipates this will be a one-
time startup burden on SGOs.
\6\ The IRS anticipates that most acknowledgements will be
issued electronically to contributors and less than 1% may be issued
as a paper version. The burden to issue the acknowledgement could
take less than 1 minute to send electronically and up to 30 minutes
to issue a paper version. Therefore, the IRS estimates it could take
15 minutes to issue an acknowledgement.
\7\ SGOs will give information to multiple contributors each
year (11 million total contributors divided by 650 SGOs =
approximately 16,923 contributors per SGO per year).
Table 1--Affected Entities
------------------------------------------------------------------------
Entity type Number of entities
------------------------------------------------------------------------
States and District of Columbia........ 51.
Scholarship Granting Organizations 600 to 700.
(SGOs).
Individual Contributors................ 11 million.
------------------------------------------------------------------------
Table 2--Estimated Burden
----------------------------------------------------------------------------------------------------------------
Estimated Estimated Estimated Estimated total
Collection number of frequency of total Estimated burden annual burden
respondents responses responses per response hours
----------------------------------------------------------------------------------------------------------------
STATE COLLECTIONS
----------------------------------------------------------------------------------------------------------------
Registration Sec. 1.25F- 51 Once (1)........ 51 1 hour 2 minutes 53 hours.
5T(b). (1.03 hours).
Election Sec. 1.25F-5T(c)(1)- 51 Annually (1).... 51 17 minutes (0.29 15 hours.
(4). hours).
State compiling and submitting 51 Annually \3\ 650 10 hours........ 6,500 hours.
the SGO list Sec. 1.25F- (13).
5T(d) certifications and
information regarding SGOs on
State SGO list required by
Sec. 1.25F-5(d)(2) and (3).
State certifications-- 51 Annually (1).... 51 1 hour 43 87 hours.
certifications and minutes (1.71
information required by Sec. hours).
1.25F-5T(c)(5) & (d)(6)
(policies and procedures).
State removal of SGO 8 On Occasion \4\ 56 30 minutes...... 28 hours.
(reporting changes as needed (7).
or required) Sec. 1.25F-
5T(d)(7)(iii).
----------------------------------------------------------------------------------------------------------------
SGO COLLECTIONS
----------------------------------------------------------------------------------------------------------------
RegistrationSec. 1.25F-4T(b) 650 Once (1)........ 650 1 hour 20 865 hours.
minutes (1.33
hours).
Contribution Related 650 Once (1)........ 650 2 hours \5\..... 1,300 hours.
Collection--Drafting Template
for Acknowledgement and
unique ID generation process
Sec. 1.25F-4T(c)(1).
Contribution Related 650 Annually \7\ 11,000,000 15 minutes...... 2,750,000 hours.
Collection--SGO giving (16,923).
contributors a written
acknowledgement \6\ Sec.
1.25F-4T(c)(1).
Contribution Related 650 Annually 11,000,000 30 minutes...... 5,500,000 hours.
Collection (Annual Report to (16,923).
IRS of Contributor
Information) Sec. 1.25F-
4T(c)(2).
----------------------------------------------------------------------------------------------------------------
IV. Regulatory Flexibility Act
For applicability of the Regulatory Flexibility Act, please refer
to the notice of proposed rulemaking (REG-117199-25) published in the
Proposed Rules section of this issue of the Federal Register.
[[Page 62666]]
V. Section 7805(f)
Pursuant to section 7805(f) of the Code, these temporary
regulations will be submitted to the Chief Counsel for the Office of
Advocacy of the Small Business Administration for comment on their
impact on small business.
VI. Unfunded Mandates Reform Act
Section 202 (2 U.S.C. 1532(a)) of the Unfunded Mandates Reform Act
of 1995 (UMRA) requires that agencies assess anticipated costs and
benefits and take certain other actions before issuing a final rule
that includes any Federal mandate that may result in expenditures in
any one year by a State, local, or Tribal government, in the aggregate,
or by the private sector, of $100 million in 1995 dollars, updated
annually for inflation. The Treasury Department and the IRS have
concluded that these temporary regulations, and the notice of proposed
rulemaking (REG-117199-25) published in the Proposed Rules section of
this issue of the Federal Register, do not include any Federal mandate
that may result in expenditures by State, local, or Tribal governments,
or by the private sector, in excess of that threshold.
A ``Federal intergovernmental mandate'' is defined in 2 U.S.C.
658(5)(A), in part, as any provision in legislation, statute, or
regulation that would impose an enforceable duty upon State, local, or
Tribal governments, except for a duty arising from participation in a
voluntary Federal program. Among other things, ``federal tax policies
that preempt specific state and local tax policies, and administrative
rules issued by federal agencies cannot be avoided, [therefore] they
are enforceable duties and are covered under UMRA.'' Adam G. Levin,
Unfunded Mandates Reform Act: History, Impact, and Issues (CRS Report
No: R40957) (2021) <a href="https://www.congress.gov/crs-product/R40957">https://www.congress.gov/crs-product/R40957</a>.
Section 1.25F-5T provides rules for the State's submission of its
election to participate under section 25F and the State SGO list; rules
regarding the information and certifications a State is required to
provide for each organization included on the State SGO list;
requirements that States must use in determining whether organizations
meet the requirements of section 25F(c)(5); procedures for notifying
the IRS of any determination by the State that an organization on the
State SGO list is being removed from such list for not satisfying each
of the requirements of section 25F(c)(5); and procedures regarding
State requirements for SGOs.
These rules do not create a Federal intergovernmental mandate as
defined in Title 2 of the United States Code. First, the rules do not
impose an ``enforceable duty'' on the States. These rules do not
preempt any State tax policies. Rather, for States that provide a State
tax credit for donations to scholarship granting entities, these rules
act in concert with State laws in this area and do not replace them.
Second, even if these rules imposed an ``enforceable duty,'' that duty
arises from a State's voluntary participation in a Federal tax credit.
Section 25F(g)(1)(A) provides that a State voluntarily elects to
participate under section 25F. If a State does not want to participate,
it is not required to do so.
A ``Federal private sector mandate'' is defined in 2 U.S.C.
658(7)(A), in part, as any provision in legislation, statute, or
regulation that would impose an enforceable duty upon the private
sector, except for a duty arising from participation in a voluntary
Federal program. 2 U.S.C. 658(9) provides that the term ``private
sector'' means ``all persons or entities in the United States,
including individuals, partnerships, associations, corporations, and
educational and nonprofit institutions, but shall not include State,
local, or tribal governments.''
Section 1.25F-4T(b) provides rules for the mandatory registration
process through the IRS SGO portal that each SGO must complete. Section
1.25F-4T(c) provides the requirements for acknowledgement,
recordkeeping, and reporting of qualified contributions received by the
SGO.
These rules do not create a Federal private sector mandate as
defined in title 2, United States Code. First, the rules do not impose
an ``enforceable duty'' on any member of the private sector. These
rules do not include direct statutory orders, a total or partial
preemption, or administrative rules issued by Federal agencies that
cannot be avoided. Instead, they fall squarely in the exception for a
duty arising from voluntary participation in a Federal tax credit. Tax-
exempt organizations are not required to be SGOs, but to the extent
that an organization wants to be an SGO, the organization would then be
subject to the rules in these regulations. Likewise, an individual
taxpayer is not required to claim a credit under section 25F, but to
the extent that a taxpayer wants to claim a credit, the taxpayer would
need to follow the rules provided in the proposed regulations.
If these rules were to create a Federal mandate, based on OIRA's
determination that these temporary regulations and the corresponding
proposed rulemaking are economically significant and subject to review
under section 3(f) of Executive Order 12866, the UMRA would require the
Treasury Department and the IRS to assess anticipated costs and
benefits and take certain other actions before issuing a final rule.
For a discussion of such an assessment and analysis, see the discussion
of the Regulatory Flexibility Act and E.O. 12866 in the Special
Analyses section of the notice of proposed rulemaking (REG-117199-25)
published in the Proposed Rules section of this issue of the Federal
Register.
VII. Executive Order 13132: Federalism
Executive order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive Order. The Treasury Department and the IRS
conclude that these temporary regulations do not have federalism
implications, do not impose substantial direct compliance costs on
State and local governments, and do not preempt State law within the
meaning of the Executive order.
Section 1(a) of Executive Order 13132 provides that, for purposes
of the order, ``Policies that have federalism implications'' refers to
regulations, legislative comments or proposed legislation, and other
policy statements or actions that have substantial direct effects on
the States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government.'' As such, Executive Order 13132
prohibits an agency from publishing a rule if the rule either imposes
substantial, direct compliance costs on State and local governments,
and is not required by statute, or preempts State law, unless the
agency meets the consultation and funding requirements of section 6 of
the Executive Order. The Tenth Amendment to the United States
Constitution provides that ``[t]he powers not delegated to the United
States by the Constitution, nor prohibited by it to the States, are
reserved to the States respectively, or to the people.'' Section 1.25F-
5T of these temporary regulations makes States responsible for ensuring
SGOs on their SGO list have complied with the requirements of section
25F, but only if a State ``voluntarily elects to participate under''
section 25F. These temporary regulations do not violate the Executive
Order or the Tenth
[[Page 62667]]
Amendment because States will only need to comply with the guidance if
they voluntarily elect to participate under section 25F.
The temporary regulations would not coerce State governments into
administering Federal law in violation of the Executive Order or the
Tenth Amendment because States do not lose any funding or face any
other negative consequences if they decline to participate under
section 25F. A State that does not want to ensure that organizations
have complied with reporting requirements can decline to submit an
annual list of SGOs under section 25F(g)(1)(A). If a State does not
submit a list of SGOs, it does not need to comply with any guidance
related to section 25F.
In addition, section 25F and these temporary regulations would not
insulate the Federal or State governments from political
accountability, which indicates that the section and guidance would be
permissible under the Tenth Amendment. If residents want their State to
submit a list of SGOs (and to take on the resulting administrative
responsibilities), they can lobby their State government to do so. The
same is true for residents who do not want their State to participate
under the section. Thus, rather than invading the domain of State
authority, section 25F enables States to determine whether to implement
a Federal policy. Any State that does not want to participate in
section 25F can decline to submit a list of SGOs, which would prevent
taxpayers from claiming credits based on contributions to organizations
within the State that would otherwise be SGOs.
Further, these temporary regulations do not impose substantial
direct compliance costs on State and local governments. While States
will incur some costs in complying with the requirements of these
temporary regulations, those costs will not be substantial. See the
discussion of the Regulatory Flexibility Act and Executive Order 12866
elsewhere in this Special Analyses section.
VIII. Congressional Review Act
Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.),
the Office of Information and Regulatory Affairs designated this rule
as a major rule as defined by 5 U.S.C. 804(2).
Drafting Information
The principal authors of these regulations are Nicole Cammarota of
the Office of Division Counsel (Litigation & Advisory), Constance Chien
of the Office of Associate Chief Counsel (Income Tax & Accounting), and
Andrew Fahmy of the Office of Associate Chief Counsel (Corporate).
However, other personnel from the Treasury Department and the IRS
participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, the Treasury Department and the IRS amend 26 CFR part
1 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by adding the
following entries for Sec. Sec. 1.25F-1T, 1.25F-4T, and 1.25F-5T in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805. * * *
* * * * *
Section 1.25F-1T also issued under 26 U.S.C. 25F(h).
Section 1.25F-4T also issued under 26 U.S.C. 25F(h).
Section 1.25F-5T also issued under 26 U.S.C. 25F(h).
* * * * *
0
Par. 2. Section 1.25F-1T is added to read as follows:
Sec. 1.25F-1T Definitions (temporary).
(a) In general. The definitions of terms in this paragraph (a)
apply for purposes of section 25F and the section 25F regulations (that
is, this section and Sec. Sec. 1.25F-4T and 1.25F-5T).
(1) Advance election. The term advance election means a State's
submission described in Sec. 1.25F-5T(c)(3).
(2) Covered State. The term covered State means a State that makes
a State election, in accordance with Sec. 1.25F-5T(c), to participate
under section 25F for a particular calendar year.
(3)-(5) [Reserved]
(6) Guidance. The term guidance means guidance published in the
Federal Register or Internal Revenue Bulletin (see Sec. Sec.
601.601(d)(2) and 601.602 of this chapter) or, as appropriate, in
forms, instructions, and publications available on <a href="https://www.irs.gov">https://www.irs.gov</a>
and through the IRS SGO portal or IRS State section 25F portal, as
applicable.
(7) IRS SGO list. The term IRS SGO list means the aggregated list
of SGOs included on one or more State SGO lists that the IRS maintains
and publishes on <a href="https://www.irs.gov">https://www.irs.gov</a> in accordance with Sec. 1.25F-
5T(d)(9).
(8) IRS SGO portal. The term IRS SGO portal consists of the
module(s) on <a href="https://www.irs.gov">https://www.irs.gov</a> that an SGO is required by Sec.
1.25F-4T(b) to use, in accordance with the instructions provided
therein, to electronically obtain instructions for creating a unique
donor number in a uniform format to be used by all SGOs, authorize
disclosure of its name and identifying information on the IRS SGO list,
and report specified information.
(9) IRS State section 25F portal. The term IRS State section 25F
portal consists of the module(s) on <a href="https://www.irs.gov">https://www.irs.gov</a> that a State is
required by Sec. 1.25F-5T(b) to use, in accordance with guidance, to
electronically transmit its State election (or advance election), State
SGO list, any changes to the State SGO list, annual certifications, and
any other information required in guidance.
(10) Located in a State. An organization is located in a State if
the organization is authorized to do business in the State and is in
compliance with the generally applicable State laws and requirements
for charitable organizations in the State, including provisions for
transparency, accountability, and fraud prevention. But see Sec.
1.25F-5T(e)(2) (prohibiting covered States from imposing requirements
on SGOs that are more restrictive than the requirements in section
25F(c)(5)).
(11) Multistate SGO. The term multistate SGO means an SGO that is
included on the State SGO list of more than one covered State.
(12) Qualified contribution--(i) In general. The term qualified
contribution means a charitable contribution of cash made 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 for purposes of
section 25F. Such designation, once made, is irrevocable.
(ii) Goods or services received as consideration for the
contribution. If the SGO provides any goods or services as
consideration for any part of the contribution, then the value of those
goods and services must be subtracted from the amount of the charitable
contribution to arrive at the amount of the qualified contribution.
(iii) Cash. For purposes of paragraph (a)(12)(i) of this section,
the term cash--
(A) Means physical currency, check, money order, electronic
transfer, after-tax payroll deduction, or other similar method, in each
case all in U.S. dollars, and
(B) Does not mean any digital asset.
(13)-(15) [Reserved]
(16) Scholarship granting organization (SGO). The term SGO is
defined in section 25F(c)(5).
[[Page 62668]]
(17) [Reserved]
(18) Section 25F segregated account. The term section 25F
segregated account means the separate account exclusively for qualified
contributions and the earnings therefrom that the SGO must maintain
pursuant to section 25F(c)(5)(B).
(19) [Reserved]
(20) Single-State SGO. The term single-State SGO means an
organization included on the State SGO list of only one covered State.
(21) State. References to State include each of the 50 States and
the District of Columbia.
(22) [Reserved]
(23) State election. The term State election means a State election
to participate under section 25F for a particular calendar year that is
made in accordance with the procedures set forth in Sec. 1.25F-5T(b)
and (c).
(24) State SGO list. The term State SGO list means the list of all
SGOs located in the State that the covered State submits to the IRS for
a particular calendar year in accordance with Sec. 1.25F-5T(d) (and
that may be changed during such calendar year in accordance with Sec.
1.25F-5T(d)(7)).
(25) Timely written acknowledgement. The term timely written
acknowledgement means the written acknowledgement an SGO must provide
to donors with respect to qualified contributions made during the
calendar year in accordance with Sec. 1.25F-4T(c)(1).
(26) [Reserved]
(b) Applicability date--(1) In general. This section applies on or
after September 1, 2026. The applicability of this section expires on
or before October 1, 2029.
(2) [Reserved]
0
Par. 3. Sections 1.25F-4T and 1.25F-5T are added to read as follows:
Sec. 1.25F-4T Reporting and recordkeeping requirements for SGOs
(temporary).
(a) [Reserved]
(b) Mandatory registration through IRS SGO portal--(1) In general.
Except to the extent otherwise provided in guidance, an organization
that plans to solicit qualified contributions must electronically
register through the IRS SGO portal in accordance with the instructions
provided therein. Registration through the IRS SGO portal will allow
the organization to obtain instructions for creating a unique donor
number in a uniform format to be used by all SGOs, authorize disclosure
of its name and identifying information on the IRS SGO list, and report
qualified contribution information. An organization must authorize
disclosure in accordance with section 6103(c) of its name and
identifying information on the IRS SGO list for a calendar year if the
organization wants the IRS to publish such information on the IRS SGO
list for that year.
(2) Time for registration through IRS SGO portal. An organization
must register with the IRS as soon as possible and preferably before
the organization appears on any State SGO list. Until the organization
has registered in the IRS SGO portal, the organization will not be able
to comply with the acknowledgement and reporting requirements in
paragraph (c) of this section, and that compliance is a necessary part
of substantiating that a donor's qualified contribution is eligible for
the credit allowed under section 25F.
(3) Information required to complete registration. An organization
must provide the following information to the IRS to register in the
IRS SGO portal:
(i) The organization's name, IRS employer identification number
(EIN), address, telephone number, and year of formation;
(ii) The name of a person whom the IRS may contact if there is an
issue with the registration, and who either possesses legal authority
to bind the organization or provides a properly executed power of
attorney on Form 2848, Power of Attorney and Declaration of
Representative;
(iii) The organization's taxable year; and
(iv) Any other information the IRS deems necessary for purposes of
administering the requirements of section 25F as provided in guidance.
(4) Donor number. The IRS will review the registration submission
to verify that all the required information has been submitted and will
provide the organization with instructions for creating a unique donor
number for each donor who has designated at least one payment to the
organization as a qualified contribution to the SGO during the calendar
year.
(c) Acknowledgement and reporting of qualified contributions
received by SGOs--(1) Reporting to donor--(i) In general. An
organization must provide a timely written acknowledgement to each
donor that includes the following information:
(A) The organization's EIN;
(B) The total amount of contributions made by the donor to the
organization during the calendar year that the donor designated as
qualified contributions;
(C) The unique donor number the organization created for the donor
in accordance with paragraph (b)(4) of this section;
(D) A statement as to whether or not the organization provided any
goods or services in consideration, in whole or in part, for any
qualified contributions made by the donor to the SGO during the
calendar year; and
(E) A description and good faith estimate of the value of any goods
or services described in paragraph (c)(1)(i)(D) of this section, if
any.
(ii) Time and manner of providing timely written acknowledgement.
An organization must provide the timely written acknowledgement no
later than January 31 of the calendar year following the calendar year
in which a donor made a qualified contribution to the organization. The
timely written acknowledgement can be provided in writing or in any
other form acceptable to the donor, including by electronic delivery if
the donor consents to receive the statement electronically and does not
withdraw the consent before the statement is furnished.
(2) Reporting qualified contributions to the IRS--(i) In general.
An organization must annually report to the IRS the following
information with respect to each unique donor number assigned by the
organization as set forth in paragraph (b)(4) of this section:
(A) The donor's name;
(B) The donor's address;
(C) The aggregate amount of qualified contributions made by the
donor to the organization during the calendar year; and
(D) Any other information the IRS deems necessary for purposes of
administering the requirements of section 25F as may be described in
future guidance.
(ii) Time and manner of reporting. An organization must report the
information described in paragraph (c)(2)(i) of this section no later
than February 28 of the year following the year in which such qualified
contributions were made. Unless otherwise provided in guidance, the
reporting must be done through the IRS SGO portal in accordance with
the instructions provided therein.
(d) and (e) [Reserved]
(f) Applicability date--(1) In general. This section applies on or
after September 1, 2026. The applicability of this section expires on
or before October 1, 2029.
(2) [Reserved]
Sec. 1.25F-5T State election, State SGO list, and certification of
SGOs (temporary).
(a) Overview. This section provides rules under section 25F(g) for
a State election and participation under section 25F. Paragraph (b) of
this section describes the IRS State section 25F
[[Page 62669]]
portal used for the submission of State elections and State SGO lists
and the reporting of any changes to State SGO lists and other required
information. Paragraph (c) of this section provides rules for the State
election, including an advance election, and the provision of the State
SGO list. Paragraph (d) of this section provides rules regarding State
SGO lists. Paragraph (e) of this section provides general guidance
regarding Federal review of the policies and procedures States adopt
for SGOs.
(b) IRS State section 25F portal--(1) In general. A State that
chooses to participate under section 25F must register in the IRS State
section 25F portal in accordance with the instructions therein.
Registration requires obtaining or being assigned a special-purpose
employer identification number (EIN) in accordance with paragraph
(b)(3) of this section and then providing the information required by
paragraph (b)(4) of this section. At the conclusion of the registration
process, a State will be able to electronically transmit through the
IRS State section 25F portal its State election (including an advance
election), State SGO list, any changes to the State SGO list, annual
certifications, and any other information required by future guidance.
(2) Delegation--(i) In general. The Governor of the State or such
other individual, agency, or entity as is designated under State law to
make elections with respect to Federal tax benefits on behalf of the
State may authorize up to two designated officials, as described in
paragraph (b)(2)(ii) of this section, to register for and use the IRS
State section 25F portal. The State must provide any information and
documentation necessary, in accordance with future guidance, to
establish an individual's authority to use the IRS State section 25F
portal on behalf of the State.
(ii) Designated officials. A designated official for purposes of
the delegation described in paragraph (b)(2)(i) of this section must be
one of the following individuals:
(A) An elected official;
(B) The Director of Taxation; or
(C) An appointed official.
(3) Special purpose EIN. Before a State may begin the registration
process for the IRS State section 25F portal, the State must obtain or
be assigned a special-purpose EIN, to be used only for purposes of
section 25F, in accordance with applicable IRS guidance. The State may
not obtain its own special-purpose EIN using the general guidance for
obtaining an EIN set forth in Sec. 301.6109-1(d)(2)(i) of this
chapter. The special-purpose EIN cannot be used for any other purpose
under the Code.
(4) Information required to complete registration. A State must
provide the following information to complete the registration process
for the IRS State section 25F portal:
(i) The State's special-purpose EIN obtained or assigned in
accordance with paragraph (b)(3) of this section;
(ii) Contact information, including the name, official title,
telephone number, and email address of each of the State's designated
officials (if any) authorized as provided in paragraph (b)(2) of this
section; and
(iii) Any other information the IRS deems necessary for purposes of
administering the requirements of section 25F as may be described in
future guidance.
(c) State election--(1) In general. Except as provided in paragraph
(c)(3)(i)(B) of this section (providing a special rule for the first
year a State makes an election), a State election may be made either as
an advance election that is perfected, as described in paragraph (c)(3)
of this section, or as an election made as part of the submission of
the State SGO list, as described in paragraph (c)(4) of this section.
The State election is made only for a single calendar year, and all the
requirements in this paragraph (c) must be satisfied for each year for
which an election is made.
(2) Authority to make a State's election. A State election,
including an advance election, must be made either by the Governor of
the State (or the Mayor of the District of Columbia) or by such other
individual, agency, or entity as is designated under State law to make
such elections with respect to Federal tax benefits on behalf of the
State.
(3) Advance election--(i) Submission of advance election--(A) In
general. Except as provided in the transition rule in paragraph
(c)(3)(i)(B) of this section (or as otherwise provided in guidance), a
State may submit an advance election through the IRS State section 25F
portal on or after January 2 and on or before September 30 of the
calendar year immediately preceding the calendar year for which the
election is being made. The IRS will acknowledge or otherwise confirm
receipt of a State's advance election.
(B) Transition rule for the first calendar year for which the State
makes an election--(1) Calendar year 2027. For calendar year 2027 only,
a State must submit an advance election on Form 15714, Advance Election
to Participate Under Section 25F for 2027, on or before January 1,
2027. The IRS will acknowledge or otherwise confirm receipt of a
State's advance election.
(2) Future years. For calendar years after 2027, a State making its
first election to participate under section 25F must submit an advance
election as provided in future guidance.
(ii) Perfection of advance election--(A) In general. If a State has
submitted an advance election in accordance with paragraph (c)(3)(i) of
this section, the State must perfect its election by providing its
State SGO list for a calendar year, with the information and
certifications required in paragraph (c)(5) of this section, on or
before January 1 of that year, but not earlier than October 1 of the
immediately preceding calendar year.
(B) Transition rule for the first calendar year for which section
25F applies. For calendar year 2027 only, a State may provide its State
SGO list on or before February 15, 2027.
(C) Failure to perfect. Because a State that makes an advance
election is required by section 25F(g) to provide its State SGO list as
part of its State election, a failure to perfect its advance election
within the time period set forth in this paragraph (c)(3)(ii) would
result in a failure to meet the requirements of section 25F(g).
Accordingly, no organization in that State would qualify as an SGO for
the calendar year for which the advance election was not perfected.
(iii) IRS advance election list. The IRS will maintain and publish
on <a href="https://www.irs.gov">https://www.irs.gov</a> a list of States that have made an advance
election.
(4) Election with submission of the State SGO list. Except for the
first year for which the State makes its election (see paragraph
(c)(3)(i)(B) of this section), a State may make its State election for
a calendar year when the State submits its State SGO list for that year
by providing its State election and State SGO list for that calendar
year, with the information and certifications required in paragraph
(c)(5) of this section, on or before January 1 of that year, but not
earlier than October 1 of the immediately preceding calendar year.
(5) Certifications and other required information. As part of
providing a State election and the State SGO list under this paragraph
(c), the person with authority to make the State election, as described
in paragraph (c)(2) of this section, or a designated official, as
described in paragraph (b)(2) of this section, must, in accordance with
future guidance:
(i) Certify that the individual, agency, or entity making the State
election has
[[Page 62670]]
the authority to make the State election on behalf of the State;
(ii) Certify that the person authorizing any individuals as
designated officials under paragraph (b)(2) of this section has the
authority to do so;
(iii) Provide the enacted statutory or regulatory provisions that
are binding on the State and establish the authority of an individual
to make the election on behalf of the State, if the individual making
the election is not the Governor of the State (or the Mayor of the
District of Columbia);
(iv) Provide the information and certifications required by
paragraphs (d)(2) and (3) of this section for each SGO on the State SGO
list;
(v) Certify that the State SGO list includes every organization
located in the State that is described in section 25F(c)(5)(A) and (B),
is seeking inclusion on the State SGO list, and is operating in a
manner that satisfies the operational requirements in section 25F(d)
and the applicable State requirements described in paragraph (e)(1) of
this section;
(vi) Provide the certification of State procedures as required by
paragraph (d)(6) of this section;
(vii) Describe any tax credit (including relevant State statutes,
regulations, and other authoritative guidance) available under State
law for contributions made to SGOs during the calendar year for which
the State is electing to participate under section 25F; and
(viii) Provide any other information and certifications described
in future guidance.
(d) State SGO lists--(1) In general. Except to the extent otherwise
provided in future guidance, a State must provide its State SGO list
and include the information and certifications required under
paragraphs (d)(2) and (3) of this section as part of its State
election. Paragraph (d)(4) of this section provides a transition rule
for an organization that has not yet been required to provide
information and certifications to the IRS. Paragraph (d)(5) of this
section provides a procedure that applies when an organization's
application for recognition of tax-exempt status is pending with the
IRS. Paragraph (d)(6) of this section requires a State to provide a
certification regarding its policies and procedures for determining
whether an organization is included on the State SGO list. Paragraph
(d)(7) of this section provides rules for changes to a State SGO list,
and paragraph (d)(8) of this section provides rules for the removal of
an SGO from the IRS SGO list. Paragraph (d)(9) of this section provides
for the publication of the names of covered States and their State SGO
lists on <a href="https://www.irs.gov">https://www.irs.gov</a>.
(2) Required SGO information. For each organization named on the
State SGO list, a State must provide:
(i) The name, EIN, address, and telephone number of the
organization;
(ii) The Federal tax-exempt status of the organization, meaning
that the organization either is currently described in section
501(c)(3), exempt from tax under section 501(a), and not a private
foundation as defined in section 509(a), or, if paragraph (d)(5) of
this section applies, that the organization's application for
recognition of tax-exempt status is pending with the IRS; and
(iii) Any other information the IRS deems necessary for purposes of
administering the requirements of section 25F as may be described in
future guidance.
(3) Required SGO certifications. Except as provided for the
transition rule in paragraph (d)(4) of this section, for each
organization named on the State SGO list, the State must certify that:
(i) The organization is located in the State;
(ii) The organization prevents the co-mingling of qualified
contributions with other amounts by maintaining a section 25F
segregated account, which must contain only qualified contributions and
the earnings therefrom, depositing all qualified contributions into its
section 25F segregated account and maintaining a complete set of books
and records for its section 25F segregated account;
(iii) The organization meets all the operational requirements
described in section 25F(d);
(iv) As part of the State's determination that an organization is
or will be an SGO, the State has:
(A) Determined whether the organization is or will be a single-
State SGO or a multistate SGO;
(B) Reviewed the annual financial and programmatic audit report the
organization is required to provide to the State in accordance with
guidance;
(C) Reviewed the annual certifications and other information the
organization is required to provide to the IRS; and
(D) Investigated any failure by the SGO to provide the required
certifications and other information, and, with respect to any such
failure, has become reasonably satisfied that the SGO has corrected the
failure, if possible, or has put in place procedures to prevent future
failures in a manner that satisfies the State that the SGO will satisfy
the requirements to be an SGO located in the State; and
(v) The organization satisfies any other requirements the IRS deems
necessary for purposes of administering section 25F as may be described
in future guidance.
(4) Transition rule for an organization that has not yet been
required to provide information and certifications to the IRS. Until an
organization first provides information establishing its satisfaction
of the operational requirements of section 25F(d) in accordance with
guidance, a State may rely, in determining whether the organization may
be treated as an SGO, on the organization's governing documents or
bylaws, written policies and procedures, and other documentation the
organization provides to the State as part of its submission requesting
inclusion on the State SGO list. However, for each year during this
transition period for which the organization is listed as an SGO on the
State SGO list, the State must:
(i) Determine that the SGO satisfies all requirements of section
25F(c)(5)(A) and (B);
(ii) Determine that the SGO's provisions, policies, and procedures
expressly require (beyond a general requirement to comply with
applicable law) the SGO to satisfy the operational requirements for an
SGO in section 25F(d);
(iii) Determine that the documentation and information available to
the State evidences the SGO's ability and intent to satisfy the
operational requirements in section 25F(d); and
(iv) Require the SGO to concurrently provide the State with a copy
of any information and certifications required to be provided to the
IRS before the end of the transition period in accordance with
guidance.
(5) Procedure that applies when an organization's application for
recognition of tax-exempt status is pending with the IRS. A State SGO
list may include organizations whose applications for recognition of
tax-exempt status are pending with the IRS as of the date of submission
of the State SGO list if the State includes on its State SGO list all
organizations seeking inclusion on the State SGO list whose application
for recognition of tax-exempt status is then pending with the IRS,
provides the information and certifications required under paragraphs
(d)(2) and (3) of this section for each such organization, and
certifies, for each such organization, that:
(i) The organization has applied for, but has not yet received, IRS
recognition of its status as an organization described in section
501(c)(3);
[[Page 62671]]
(ii) The organization's tax-exempt status, if granted, will be
effective retroactively to a date that is on or before January 1 of the
year for which the State SGO list applies;
(iii) The State SGO list indicates that such organization's tax-
exempt status is pending IRS recognition; and
(iv) The State has complied with the requirements of paragraph
(d)(4) of this section for each such organization.
(6) Certification of State policies and procedures. A State must
certify that its policies and procedures, including its procedures for
assessing and responding to audit results:
(i) Enable the State to make its own determination that each
organization on the State SGO list is located in the State, is in
compliance with the requirements of section 25F(c)(5)(A) and (B), and
is operating in a manner that satisfies the operational requirements in
section 25F(d) and the applicable State requirements described in
paragraph (e)(1) of this section;
(ii) Provide for the prompt removal of an organization from the
State SGO list, and notification to the IRS through the IRS State
section 25F portal, upon a determination that the organization does not
satisfy each of the required criteria referenced in paragraph (d)(6)(i)
of this section;
(iii) Require that any publicly available list of SGOs maintained
by the State is identical to the most recently submitted State SGO list
and includes the IRS SGO list's URL (Uniform Resource Locator); and
(iv) Ensure that the State's procedures before and after the
removal of an organization from the State SGO list are fairly
administered and afford due process in accordance with applicable
Federal and State laws.
(7) Changes to State SGO list--(i) Changes before the deadline for
the elected calendar year. A State may replace or supplement its State
SGO list for a calendar year at any time before the deadline for
perfecting or completing an election for that year by submitting the
change in the IRS State section 25F portal in accordance with future
guidance.
(ii) Additions to State SGO list after the deadline for the elected
calendar year. Except to the extent provided otherwise in guidance, a
State may not make any additions to the State SGO list for a calendar
year after the deadline provided in paragraph (c)(3)(ii) or (c)(4) of
this section, as applicable. Any additions a State seeks to make after
that deadline may be included as part of the State's submission of its
State SGO list for the following calendar year.
(iii) Removal from State SGO list--(A) Removal request from SGO. If
an SGO requests to be removed from a State SGO list, a State must
comply, indicate the removal and its effective date on that list, and
promptly notify the IRS of that removal through the IRS State section
25F portal so the IRS can remove the SGO from the IRS SGO list for the
current year.
(B) State removal procedures. A State may remove an SGO from its
State SGO list if the State determines, through a procedure providing
due process to the organization, that the SGO is not located in the
State, or that the SGO does not satisfy the requirements for an SGO in
section 25F(c)(5) or (d) or the applicable State requirements described
in paragraph (e)(1) of this section. The State must promptly notify the
IRS of the removal and its effective date through the IRS State section
25F portal.
(8) Removal of a non-compliant organization from the IRS SGO list.
An organization may be removed from the IRS SGO list, and will be shown
on that list as having been removed as of the date the IRS removes the
organization from that list, in the following circumstances:
(i) Removal following change in tax-exempt status. The IRS will
remove an organization from the IRS SGO list if:
(A) The organization is not described in section 501(c)(3) and
exempt from tax under section 501(a); or
(B) The organization is a private foundation.
(ii) IRS determination of non-compliance with applicable
requirements. The IRS may remove an organization from the IRS SGO list
following a determination that the organization has failed to comply
with a requirement of section 25F (other than the tax-exempt status
requirement in section 25F(c)(5)(A)) or has failed to comply with the
applicable reporting, recordkeeping, or audit requirements, including a
failure to report qualified contributions in accordance with Sec.
1.25F-4T(c). Such an IRS determination is a Federal tax controversy
under section 7803(e)(3), which gives the SGO an opportunity to seek
review of the determination by the IRS Independent Office of Appeals in
the time and manner prescribed in applicable forms, instructions, or
other administrative guidance.
(iii) Removal following State SGO status determination--(A) In
general. If a State removes an SGO from its State SGO list in
accordance with paragraph (d)(7)(iii) of this section, the IRS will
remove an SGO from the relevant part of the IRS SGO list.
(B) Multistate SGO. If a State removes a multistate SGO from its
State SGO list under paragraph (d)(7)(iii) of this section, but the SGO
continues to satisfy all applicable requirements for an SGO in a
different covered State on whose State SGO list it appears, as well as
the applicable requirements as described in paragraph (e)(1) of this
section in such other State(s), the SGO will remain on the IRS SGO list
with respect to such other covered State(s), subject to any further
discretionary examination of the SGO by such other covered States or
the IRS.
(9) Publication of covered States and State SGO lists--(i) In
general. The IRS will maintain and publish the IRS SGO list on <a href="https://www.irs.gov">https://www.irs.gov</a>. For those SGOs that have authorized the disclosure of
their information on the IRS SGO list, the IRS SGO list will contain
each SGO included on a State SGO list for each of the covered States
for the calendar year and reflect each removal from a State SGO list
and the date of the removal.
(ii) Addition of organizations with pending tax-exempt status to
IRS SGO list. Upon determining that an organization described in
paragraph (d)(5) of this section qualifies for tax-exempt status and
that the effective date of such tax-exempt status is on or before
January 1 of the calendar year for which the State SGO list applies,
the IRS will add the organization to the IRS SGO list for that year if,
and as soon as, the organization authorizes publication of its
information to be included on that list.
(e) State administrative requirements--(1) In general. Except as
provided in paragraph (e)(2) of this section, a State must:
(i) Require that organizations meet all generally applicable State
requirements for charitable organizations, including any State
requirements that any organization must satisfy to be authorized to do
business in the State and to solicit charitable contributions in the
State; and
(ii) Require SGOs to comply with application, documentation, and
financial reporting requirements that are reasonably tailored to:
(A) Support the State's certifications under paragraph (d)(3) of
this section; and
(B) Facilitate the prevention and detection of fraud or abuse,
including the misuse of scholarship funds, such as through the
duplication of scholarship awards to the same student for the same
qualified elementary or secondary education expense.
(2) Prohibition on additional State requirements or discretionary
[[Page 62672]]
exclusions. A State may not require SGOs to operate in a manner that is
more restrictive than the requirements set forth in section 25F(c)(5),
such as by limiting the type of school that scholarship recipients may
attend or the types of qualified elementary or secondary education
expenses for which scholarship funds may be used. Accordingly, the
State requirements provided in paragraph (e)(1)(ii) of this section
must be reasonably related to determining whether an organization is
located in the State, meets the requirements of section 25F(c)(5) and
the operational requirements in section 25F(d), and satisfies the
generally applicable State requirements for charitable organizations in
the State for accountability and fraud prevention.
(3) Federal review. The procedures a State implements in accordance
with this paragraph (e) are subject to Federal review. Upon discovering
a pattern of irregularities or noncompliance, the IRS, in its
discretion, may require a State to modify its procedures to ensure that
its determinations regarding an organization's satisfaction of the
requirements in section 25F(c)(5) and (d) are being administered in
accordance with the applicable statutory, regulatory, and appropriate
State requirements.
(f) Applicability date. This section applies on or after September
1, 2026. The applicability of this section expires on or before October
1, 2029.
Frank J. Bisignano,
Chief Executive Officer.
Approved: September 10, 2026.
Kevin Salinger,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2026-20264 Filed 10-1-26; 8:45 am]
BILLING CODE 4831-GV-P
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</html>Indexed from Federal Register on October 2, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.