SECTION 2. BACKGROUND

.01 Overview of § 25F Credit . Section 25F provides a nonrefundable income tax credit (§ 25F credit) allowable to a taxpayer for qualified contributions to SGOs made by an individual who is a citizen or resident of the United States (within the meaning of § 7701(a)(9)). Section 25F(c) (3) defines a “qualified contribution” as a charitable contribution of cash to an SGO that uses the contribution to fund scholarships for eligible students (as defined in § 25F(c)(2)) solely within the State in which the organization is listed pursuant to § 25F(g). In order for a contribution made by a taxpayer to an SGO in a State to be a qualified contribution eligible for a § 25F credit, the State must have voluntarily elected to participate under § 25F and must have identified the SGO as one that satisfies the requirements of § 25F(c)(5) for the applicable calendar year in accordance with § 25F(g). See sections 2.04 and 3 of this notice regarding State lists and certifications necessary for State elections.

.02 Amount of § 25F Credit . Section 25F(a) provides that, in the case of an

individual who is a citizen or resident of the United States (within the meaning of § 7701(a)(9)), there is allowed as a credit against the tax imposed by chapter 1 of the Code for the taxable year an amount equal to the aggregate amount of qualified contributions made by the taxpayer during the taxable year. The amount of the § 25F credit allowable to a taxpayer for a taxable year is subject to two limitations in § 25F(b). First, § 25F(b)(1) provides that the amount of the § 25F credit allowed to any taxpayer for any taxable year may not exceed $1,700. Second, § 25F(b)(2) provides that the amount allowed as a § 25F credit for a taxable year is reduced by the amount allowed as a credit on any State tax return of the taxpayer for qualified contributions made by the taxpayer during the taxable year. In addition, § 25F(e) prohibits a double benefit to a taxpayer by providing that any qualified contribution for which a § 25F credit is allowed cannot be taken into account as a charitable contribution for purposes of § 170.

Section 25F(f) provides for the carryforward of unused § 25F credit amounts. Section 25F(f)(1) provides that, if the § 25F credit allowable for any taxable year exceeds the limitation imposed by § 26(a) for such taxable year reduced by the sum of the credits allowable under §§ 21, 22, 24, 25, 25A, 25B, 25C, 25E, and 26, such excess is carried to the succeeding taxable year and added to the credit allowable under § 25F(a) for such taxable year. In addition, § 25F(f)(2) provides that no credit may be carried forward under § 25F(f) to any taxable year following the fifth taxable year after the taxable year in which the credit arose. For this purpose, § 25F(f) provides that § 25F credits are treated as used on a first-in, first-out basis.

.03 SGO Requirements . (1) Section 25F(c)(5) . An organization can qualify as an SGO only if it satisfies each requirement set forth in § 25F(c)(5). The SGO requirements under § 25F(c)(5) are that the organization must:

(a) be described in § 501(c)(3), be exempt from tax under § 501(a), and not be a private foundation;

(b) prevent the co-mingling of qualified contributions with other amounts by maintaining one or more separate accounts exclusively for qualified contributions;

(c) satisfy each of the requirements of § 25F(d); and

(d) be included on the list submitted for the applicable covered State under § 25F(g) for the applicable year. For this purpose, § 25F(c)(1) defines a “covered State” as “one of the States, or the District of Columbia,” that, for a calendar year, voluntarily elects to participate under § 25F and to identify the SGOs located in the State, in accordance with § 25F(g).

(2) Section 25F(d) . The requirements in § 25F(d) that an SGO must satisfy are as follows:

(a) The organization must provide scholarships to 10 or more students who do not all attend the same school.

(b) The organization cannot spend less than 90 percent of its income on scholarships for eligible students.

(c) The organization cannot provide scholarships for any expenses other than qualified elementary or secondary education expenses. Section 25F(c)(4) defines a qualified elementary or secondary education expense as any expense described in § 530(b)(3)(A) (relating to Coverdell education savings accounts) of an eligible student. Section 530(b)(3)(A) identifies these expenses to include certain expenses incurred at, required by, or provided by a public, private, or religious school.

(d) The organization must provide scholarships to eligible students with a priority for:

(i) students awarded a scholarship the previous school year, and thereafter, and

(ii) any eligible students who have a sibling who was awarded a scholarship from such organization.

(e) The organization cannot earmark or set aside contributions for scholarships on behalf of any particular student.

(f) The organization must: (i) verify the annual household income and family size of eligible students who apply for scholarships to ensure such students meet the area median gross income requirement of § 25F(c)(2)(A), and

1 Unless otherwise provided, all "section" or "§" references are to sections of the Code.

2 Pursuant to § 25F(c)(1), for purposes of this notice, the term “State” means one of the 50 States or the District of Columbia.

December 8, 2025 774 Bulletin No. 2025–50

(ii) limit the awarding of scholarships to eligible students who are members of a household for which the income does not exceed the amount established under § 25F(c)(2)(A).

(g) The organization cannot award a scholarship to any disqualified person, which § 25F(d)(2)(B) provides is determined pursuant to rules similar to the rules of § 4946 (relating to private foundations).

.04 State lists and certifications . Section 25F(g) provides that:

(1) Not later than January 1 of each calendar year (or, with respect to the 2027 calendar year, as early as practicable), a State that voluntarily elects to participate under § 25F must provide to the Secretary of the Treasury or the Secretary’s delegate (Secretary) a list of the SGOs that meet the requirements described in § 25F(c)(5) and are located in the State (State list).

(2) The election under § 25F(g) 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.

(3) Each State list must include a certification that the individual, agency, or entity submitting such list on behalf of the State has the authority to perform this function.

.05 Regulations and guidance . Section 25F(h) directs the Secretary to issue such regulations or other guidance as the Secretary determines necessary to carry out the purposes of § 25F, including regulations or other guidance:

(1) providing for enforcement of the requirements under § 25F(d) and (g), and

(2) with respect to recordkeeping or information reporting for purposes of administering the requirements of § 25F.