SECTION 4. REQUEST FOR — Internal Revenue Bulletin 2025-50

COMMENTS REGARDING SGO REQUIREMENTS

.01 Request for comments regarding income . Section 25F(d)(1)(B) requires an SGO to spend “not less than 90 percent of the income of the organization on scholarships for eligible students.” The Treasury Department and the IRS anticipate that the forthcoming proposed regulations would provide that the income of the organization includes all income of the organization, including unrelated business income, and is not limited to qualified contributions segregated in the separate account(s) described in § 25F(c)(5)(B).

(1) Does this interpretation of income pose practical challenges for SGOs? If so, what alternative interpretation would be allowed under the statute, and why would any alternative interpretation be a superior reading of the statute?

(2) Should forthcoming proposed regulations address potential fluctuations in income and expenses, such as potential start-up costs to the organization in its first year of operation or the smoothing of this calculation over a certain number of years?

.02 Request for comments on multistate organizations . The Treasury Department and the IRS are aware that organizations may fundraise and award scholarships in more than one State (see section 3.03(5) of this notice). However, § 25F(c)(3) requires that a qualifying contribution must be used to fund scholarships for eligible students “solely within the State in which the organization is listed.”

(1) As noted above, the Treasury Department and the IRS anticipate that the forthcoming proposed regulations would require a multistate organization to ask donors to designate the State in which the donor intends the qualified contribution to be used. If a donor does not designate a particular State, what rules should apply?

(2) For a multistate organization, should the requirement that it provide scholarships to 10 or more students who do not all attend the same school apply with respect to scholarships provided by the organization in all states in the aggregate or on a state-by-state basis?

(3) For a multistate organization, should the requirement that it spend not

less than 90 percent of its income on scholarships for eligible students apply with respect to the organization’s operations in all states in the aggregate or on a state-by-state basis? If the latter, how should the organization’s income be allocated for this purpose?

(4) For a multistate organization, should satisfaction of the following requirements be analyzed with respect to all states on whose State list it appears, or on a state-by-state basis:

(a) does not provide scholarships for any expenses other than qualified elementary or secondary education expenses,

(b) provides a scholarship to eligible students with a priority for students awarded a scholarship the previous school year, and then for any eligible students who have a sibling who was awarded a scholarship from such organization,

(d) verifies the annual household income and family size of eligible students who apply for scholarships to ensure the annual household income of such students does not exceed 300 percent of area median gross income (as such term is used in § 42), and limits the awarding of scholarships to eligible students who are a member of a household whose income does not exceed such income limit, and

(e) does not engage in self-dealing? .03 Request for comments on other fact patterns. The Treasury Department and the IRS are aware that there currently are organizations operating in other ways or under other fact patterns that may wish to qualify as SGOs. For example, there currently are “fundraising organizations” raising funds to provide scholarships that, instead of awarding scholarships themselves, make distributions to other organizations that may be defined as SGOs. In addition, there are organizations that operate in States with State tax credits similar to the § 25F credit that may want to qualify as SGOs described in § 25F(c)(5) but currently have structures or operations not expressly addressed in this notice. The Treasury Department and the IRS request additional information regarding such organizations and whether they could satisfy all of the requirements of § 25F(c)(5).

.04 Request for comments on definition of disqualified person . Section 25F(d)(2) prohibits an SGO from awarding a scholarship to any “disqualified person” and provides that, for this purpose, a disqualified person is determined pursuant to rules similar to the rules of § 4946 (relating to private foundations). Section 4946 provides that “substantial contributors” to a private foundation are considered disqualified persons. For purposes of § 4946, a “substantial contributor” includes any person that made contributions during the taxable year in the aggregate of at least $5,000, if that amount is more than 2 percent of the total contributions the foundation or organization received from its inception through the end of the taxable year in which that person’s contributions were received.

(1) The Treasury Department and the IRS are considering whether the forthcoming proposed regulations should propose to modify this definition, for purposes of § 25F, to state that the term “substantial contributor,” with respect to an SGO, means any person who contributed an aggregate amount of more than 2 percent of the total contributions received by the SGO from its inception through the end of the taxable year in which that person’s contributions were received. The Treasury Department and the IRS request comments on this potential definition and whether any alternative interpretation would be a superior reading of the statute.

(2) The Treasury Department and the IRS expect that the forthcoming proposed regulations would provide that an individual who is a member of the SGO’s selection committee, or part of the immediate family of such a member, is a disqualified person with respect to that SGO. Under what circumstances should such an individual not be considered a disqualified person for purposes of the § 25F credit?

.05 Request for comments on reporting and recordkeeping requirements.

(1) Pursuant to the authority provided by § 25F(h), the Treasury Department and the IRS anticipate issuing guidance that would require organizations seeking to satisfy the requirements to be an SGO to report certain information to the IRS and to retain certain records to ensure that the requirements of § 25F are met.

Bulletin No. 2025–50 777 December 8, 2025

This required reporting and recordkeeping may include the following information:

(a) Information on an IRS form or schedule pertaining to § 25F to be filed annually by the organization with the IRS;

(b) Information on each qualified contribution received by the organization, including the donor’s taxpayer identification number, to facilitate comparison with the donor’s Federal tax credit claimed; and

(c) Information on each scholarship recipient awarded a scholarship by the organization, to ensure that each recipient meets the requirements of § 25F.

(2) These reporting requirements would apply to charitable organizations seeking to satisfy the requirements to be an SGO that may not normally be required under § 6033 to file an annual return with the IRS. These reporting requirements also would apply to subordinate organizations recognized as tax-exempt under § 501(c)(3) on the basis of a group exemption letter issued to a central organization.

(a) How should reporting and recordkeeping requirements be designed to balance the IRS’s need for information for Federal income tax administration purposes with the burden imposed on the reporting organizations?

(b) Is there any current reporting by such organizations of such information to States, and, if so, what is reported and what form does the reporting take?

(3) Section 25F(c)(2)(A) defines an “eligible student” as an individual who is a member of a household with an income that, for the calendar year prior to the date of the application for a scholarship, is not greater than 300 percent of the area median gross income (as such term is used in § 42). How should an SGO verify this information? For example, should the SGO require the eligible student to provide a copy of the most recently filed Federal income tax return (Form 1040, U.S. Individual Income Tax Return ) that was filed for each member of the household with a Federal tax return filing require

ment? Should additional information be required? If any member of the household of the eligible student did not have a Federal return filing requirement, how should the SGO verify such household member’s income?

(4) Section 25F(c)(5)(B) prohibits an SGO from co-mingling qualified contributions with other amounts and requires that it maintain one or more separate accounts exclusively for qualified contributions.

(a) At the time of a donation, what kind of information would allow the SGO to determine that the cash is intended to be a qualified contribution entitling the donor to a credit under § 25F that thus needs to be segregated?

(b) Should the donor be required to provide this information to the SGO in order to take the § 25F credit?

(c) Should the SGO be required to provide the donor with written substantiation in order for the donor to take the § 25F credit?

(5) What information should an SGO be required to provide to its donor?

(a) Should the SGO be required to inform the donor that only the first $1,700 of qualified contributions to SGOs may entitle the donor to a § 25F credit?

(b) Should the SGO be required to inform the donor that additional amounts over the first $1,700 may qualify for a Federal tax deduction under § 170 (but that any qualified contribution for which a § 25F credit is allowed may not be taken into account as a charitable contribution for purposes of § 170)?

(c) Should the SGO be required to inform the donor that any § 25F credit must be reduced by any credit on any State tax return of the taxpayer for qualified contributions made by the taxpayer during the taxable year. If so, when should the SGO be required to inform the donor of the requirement to reduce the § 25F credit by any such State credit?

(6) For a multistate organization (see sections 3.03(5) and 4.02 of this notice), what types of reporting and recordkeeping requirements could allow the organization to demonstrate that it satisfies, for each State on whose State list it appears, the requirements of § 25F(c)(5), including that at least 90 percent of its income allo

cated to a State is spent on scholarships within that State?

(7) For multistate organizations, if such an organization could be eligible to be listed on one or more State lists as an SGO, what recordkeeping or other requirements could allow such an organization to establish that contributions to it qualify as contributions to an SGO defined in § 25F(c)(5)?