SECTION 3. REQUEST FOR

COMMENTS ON STATE LISTS AND CERTIFICATIONS

.01 Overview . Sections 3.02 and 3.03 of this notice describe the certification process currently envisioned by the Treasury Department and the IRS for covered States to elect to participate under § 25F in accordance with § 25F(g). The Treasury Department and the IRS request comments on all aspects of this certification process. Sections 3.04 through 3.06 of this notice

set forth specific questions regarding particular aspects of the State certification process on which the Treasury Department and the IRS request comments.

.02 State election and list . Section 25F(g) provides that a State that voluntarily elects to participate under § 25F must provide to the Secretary a list of the SGOs that meet the requirements described in § 25F(c)(5) and are located in the State. Thus, the election by a State to participate under § 25F (State election) may be made prior to or contemporaneously with the submission of the State’s list of those organizations. The Treasury Department and the IRS anticipate that the forthcoming proposed regulations would require each State electing to participate under § 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 § 25F(c)(5) for the 2027 calendar year along with the State’s certification under § 25F(g)(2). The forthcoming proposed regulations would include a similar requirement for submission of an annual list and certification from each electing State for subsequent years.

However, the Treasury Department and the IRS understand that potential SGOs may need sufficient time to prepare for the commencement of this new credit in 2027 and assurance that the State in which they are located will elect to participate under § 25F. Accordingly, the Treasury Department and the IRS intend to issue future published guidance providing States with the option to submit, beginning early in 2026, the State election to participate under § 25F for calendar year 2027.

The Treasury Department and the IRS anticipate that the forthcoming proposed regulations would require the State to electronically submit the State election, the State list and certification to the IRS, as an electronic submission is more efficient and timelier than paper submissions.

The Treasury Department and the IRS anticipate that the forthcoming proposed regulations would provide, consistent with § 25F(g)(1)(A), that the State list must include all organizations located in the State that have requested to be designated as an SGO and that meet the § 25F(c) (5) statutory requirements. However, the Treasury Department and the IRS do not

anticipate that the forthcoming proposed regulations would prohibit an SGO from itself imposing additional governing provisions beyond the requirements imposed by § 25F(c)(5) unless such a provision would conflict with the ability of the SGO to satisfy such requirements.

The Treasury Department and the IRS anticipate that the forthcoming proposed regulations would provide that, if a donor makes a contribution to an organization that, at the time of the contribution, is on the list of organizations for that taxable year, the donor would generally be treated as having made a contribution to an SGO for purposes of § 25F. However, if the recipient organization is later determined not to qualify as an SGO, the IRS would not be precluded from disallowing a § 25F credit for any contribution made to that organization if the donor either was aware of, or was responsible to any extent for, the activities or deficiencies that gave rise to the organization’s eventual loss of SGO status.

.03 Contents of State certification . The Treasury Department and the IRS interpret § 25F(g) as requiring each covered State to verify that each organization on the State’s list satisfies all of the requirements of § 25F(c)(5). The Treasury Department and the IRS also understand that organizations seeking to satisfy the requirements to be an SGO for purposes of § 25F may be structured and/or operated in different ways. Specifically, some organizations may operate entirely within a single State, and some may raise funds and award scholarships to eligible students in a region consisting of multiple States. The forthcoming proposed regulations would require covered States to verify information about each of these types of organizations that qualify as an SGO. Reliance by a covered State on self-certifications by SGOs would not be sufficient for this purpose. The Treasury Department and the IRS anticipate that the annual certification of the State’s list that would be required of each covered State would include certification by the individual who, or an authorized representative of the agency or entity that, has authority to perform this function on behalf of the State, under penalties of perjury, of at least the following information:

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(1) Identification and contact informa- tion : The name, IRS employer identification number (EIN), address, and telephone number of each organization on the State list; the name, title and contact information of the covered State’s point of contact for this credit; and the identification of each organization as a State or multistate organization.

(2) Federal tax-exempt status : That each organization on the State list is currently described in § 501(c)(3) and exempt from tax pursuant to § 501(a), and is not a private foundation, as defined in § 509.

(3) No co-mingling : That each organization on the State list maintains one or more separate accounts exclusively for qualified contributions, as that term is defined in § 25F(c)(3), to prevent the co-mingling of qualified contributions with other amounts.

(4) Information regarding single-State organizations : If the organization is located solely in one State (single-State organization), then, in accordance with § 25F and any regulations thereunder, certification that the single-State organization:

(a) Provides scholarships to ten (10) or more students in that State who do not all attend the same school;

(b) Spends not less than ninety (90) percent of its income on scholarships for eligible students, as that term is defined in § 25F(c)(2);

(c) Does not provide scholarships for any expenses other than qualified elementary or secondary education expenses, as that term is defined in § 25F(c)(4);

(d) Selects students receiving scholarships only from among eligible students who reside in that State, and only from among eligible students who are members of a household for which the income does not exceed the amount established under § 25F(c)(2)(A), and by giving priority first to those who received a scholarship from the organization for the previous school year, and then those who have a sibling who received a scholarship from the organization for the previous school year;

(e) Does not earmark or set aside contributions for scholarships on behalf of any particular student; and

(f) Does not award a scholarship to any disqualified person, as defined for purposes of § 25F(d)(2).

(5) Information regarding multistate organizations : If the organization is not solely located in one State and grants scholarships in more than one State (multistate organization), then certification that the multistate organization:

(a) Funds scholarships to eligible students in the State providing the certification;

(b) Requires donors to designate the State, on whose State list the organization is named, in which their qualified contribution is to be used;

(c) Tracks and matches qualifying contributions that are designated by the donor to be spent within the State with scholarships to eligible students within the State; and

(d) Satisfies each of the requirements for single-State organizations in the State, as set forth in section 3.03(4) of this notice.

(6) State policies and procedures: That the State has adopted, and is complying with, policies and procedures designed to enable the State to make its own independent determination that each organization on the State list is required by the organization’s organizational documents or bylaws to satisfy, and is operating in a manner that satisfies, each of the requirements of § 25F(c)(5), as provided in section 2.03 of this Notice. With respect to a State’s independent determination that an organization is described in § 501(c)(3) and exempt from tax under § 501(a), and is not a private foundation, policies and procedures that include, for example, consideration of whether the organization is identified as an exempt organization with 501(c) (3) status (and not a private foundation) in the EO BMF Extract available on irs.gov (https://www.irs.gov/charities-non-profits/exempt-organizations-business-master-file-extract-eo-bmf) would be sufficient for purposes of § 25F(c)(5)(A).

(7) Notification to the IRS of removal from State list : That the State will promptly notify the IRS of any determination by the State that an organization listed on its State list is being removed from its State list and the effective date of removal.

(8) Applicable State tax credits : If applicable, that, for the calendar year for which the State list is submitted to the IRS, the State offers a tax credit for qualified contributions pursuant to State law, and a description of that credit including

relevant State statutes, regulations, and other authoritative guidance.

(9) Authority to act on behalf of State : That the individual, agency, or entity submitting the election, the list, and these certifications on behalf of the State has the authority to perform this function.

.04 Request for comments on State policies and procedures . Section 25F(g) requires that a State that voluntarily elects to participate under § 25F must provide to the Secretary a list of the SGOs “that meet the requirements” described in § 25F(c) (5) and are located in the State. 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.

(1) What types of uniform policies, procedures, recordkeeping or other requirements would be reasonable to help ensure that a State will be able to reliably verify that each SGO meets each of the requirements in § 25F(c)(5)?

(2) For States already participating in State-level programs similar to § 25F, how do those States determine that organizations are meeting the applicable State requirements?

.05 Request for comments on “located in the State .” Section 25F(g)(1)(A) requires the State list to identify the SGOs that meet the requirements described in § 25F(c)(5) and are “located in the State.”

(1) How should “located” be defined for this purpose? Should organizations that are authorized to operate in the State be considered located in the State?

(2) For States that currently offer tax credits for contributions to scholarship awarding entities, are there jurisdictional or other similar nexus requirements that an organization must satisfy in order for contributions to the organization to qualify for the State tax credit?

.06 Request for comments on State tax credit offset . Section 25F(b)(2) requires that the amount of a § 25F credit allowed under § 25F must be reduced by the amount allowed as a State tax credit for qualified contributions made by the taxpayer during the taxable year. What information can a State provide to the IRS, consistent with applicable State law, to ensure taxpayer compliance with this requirement?

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