Join 30 States Already Opted In

Step 2: Submit your State SGO List

Treasury has not yet issued guidance on the format or deadline for the State SGO Lists. However, Treasury has provided substantial details about the upcoming rules for 2027 so that any governor could feel confident opting in. Among other issues, they have explicitly confirmed that traditional public school students would be eligible and that Treasury would guard against fraud or abuse by taxpayers, SGOs, scholarship recipients, or education providers.

Even without draft rules, several points are already clear in statute (specifically IRC §25F(c)(5)) and in IRS guidance so far.

Governors or states will not be allowed to add to, or subtract from, the requirements for SGOs.

The law does not allow governors to set their own rules around SGOs operating in their states. This is federal tax law, and only the federal requirements are relevant to compliance.

Governors and other state leaders may, however, communicate policy priorities and highlight SGOs serving particular student populations — such as those focused on low-income students, military-connected students, or students with disabilities.

Governors are not a state’s only option.

Statute allows another “individual, agency, or entity” to make the official election so that students in the state can receive FSTC-funded scholarships. They must, however, be designated under State law to make such elections on behalf of the State with respect to Federal tax benefits.

Kansas, Kentucky, and North Carolina have already exercised this option.

The list of statutory requirements for operating as an SGO is clear and limited.

Section 25F of the IRS Code requires SGOs to:

• Be a § 501(c)(3) organization, be exempt from tax under § 501(a), and not be a private foundation as defined in § 509. (Because the IRS requires all 501(c)(3) organizations to have a federal employee identification number, the requirement of a federal EIN is implied.)
• Follow all IRS reporting and recordkeeping requirements. (Treasury will provide more specificity during its rulemaking, but 501(c)(3) organizations already have many requirements around tax filings, reporting, and recordkeeping.)
• Prevent the co-mingling of qualified contributions under § 25F with other funds.
• Spend no less than 90 percent of its income on scholarships for eligible students. (Treasury has formally announced its plan to allow organizations that largely provide scholarships to calculate this 90% based solely on qualified contributions to segregated accounts required under § 25F.)
• Provide scholarships in the state only to students who are eligible to enroll in a public elementary or secondary school.
• Provide scholarships to 10 or more qualified students at more than one school.
• Not provide scholarships for any expenses other than qualified education expenses. Statute refers to a long list of allowed educational expenses in regulations for Coverdell Education Savings Accounts (§ 530(b)(3)(A)).
• Not allow earmarking of contributions to specific students.
• Verify that it provides scholarships only to students who meet the law’s income requirements. (The law limits student eligibility to children in households with incomes “not greater than 300 percent of the area median gross income,” a metric that the Department of Housing and Urban Development generates annually.)
• Not award a scholarship to a “disqualified person” to avoid self-dealing. (Treasury will define “disqualified person” pursuant to rules similar to those in IRC § 4946, which relate to private foundations.)
• Prioritize previous scholarship recipients for scholarships in 2028, followed by siblings of those previous recipients.

In addition to the statutory requirements, Treasury and IRS have already indicated that in the course of implementing the law, SGOs will be expected to:

• Register to do business in a state where it is on the State SGO List.
• Follow all IRS requirements regarding tax receipts and documentation provided to donors.