As part of President Trump’s One Big Beautiful Bill Act (OBBBA), Congress enacted Internal Revenue Code §25F, creating a new federal income tax credit for individuals who contribute to Scholarship Granting Organizations (SGOs). The statute is intended to encourage private donations to support elementary and secondary education scholarships, while establishing baseline requirements for how those funds may be raised and used.
The statute itself establishes the credit amount, defines who may claim it, and sets high-level requirements for SGOs. However, Congress intentionally left many operational questions unanswered. The law does not explain, in practical terms, how states are expected to approve SGOs, how SGOs should demonstrate compliance, how multi-state organizations should operate, or how certain financial tests should be calculated year to year.
Treasury and the IRS addressed those open questions through Notice 2025-70.
Core Statutory Requirements Applicable to SGOs
Under §25F, an organization may qualify as an SGO only if it meets several core conditions. In broad terms, an SGO must be a tax-exempt public charity, must award scholarships to multiple students at more than one school, and must use the overwhelming majority of its funds for qualified education expenses.
The statute also requires that SGOs avoid donor control over individual awards, verify student eligibility based on income, and refrain from awarding scholarships to certain insiders or major contributors. In addition, SGOs must be identified and listed by a state that voluntarily elects to participate in the federal program.
The statute does not explain how these requirements should be administered in practice, including how states should verify compliance, what documentation SGOs must provide, how financial thresholds should be measured, or how existing nonprofit structures should be treated.
Treasury’s Interpretive Framework Under Notice 2025-70
Notice 2025-70 sets forth Treasury’s preliminary interpretations of the statute and requests public comment before regulations are proposed.
In several areas, Treasury’s approach reflects a preference for formal verification, state-level oversight, and detailed tracking. Treasury interprets the statute as requiring states to independently confirm that each listed SGO satisfies every federal requirement, rather than relying on representations from the organizations themselves. Treasury also proposes broad interpretations of financial tests, such as treating all organizational income as subject to the ninety-percent scholarship spending rule.
These interpretations are not expressly dictated by the statute and, as written, would, in Roth&Co’s view, impose additional administrative and operational requirements on SGOs beyond those explicitly described in §25F.
Roth&Co submitted comments in response to Notice 2025-70 to address these concerns and to advocate on behalf of the nonprofit organizations, donors, and communities that would be directly affected by the proposed interpretations and that Roth represents. The comments are intended to ensure that the final regulations reflect both the statutory framework Congress enacted and the practical realities faced by SGOs and the families they serve.
At a high level, Roth’s comments emphasize three main themes:
- Treasury should enforce the statutory requirements Congress enacted without adding procedural hurdles not found in the statute.
- Statutory ambiguities should be interpreted consistently with existing charitable law and IRS practice.
- The rules should preserve sufficient flexibility for smaller, newer, or multi-purpose nonprofit organizations to participate in the program.
The sections below examine Treasury’s proposed interpretations of each issue and explain Roth’s specific comments on each point. Our full comments to Treasury can be read here:
I. State Certification and Oversight of SGOs
Treasury’s Proposal
Treasury interprets §25F as requiring states to verify that each organization listed as an SGO satisfies all statutory requirements. Notice 2025-70 states that SGO self-certifications alone are insufficient, and anticipates that states will adopt policies and procedures to independently confirm compliance.
Roth’s Comment
Roth&Co supports the requirement that states submit complete lists of all SGOs that meet the federal requirements, rather than allowing states to selectively approve organizations. However, Roth cautions that Treasury’s approach could create administrative burdens that exceed those imposed on other charitable organizations.
Roth recommended that SGO compliance be demonstrated through affidavits or certifications made under penalties of perjury, supported by basic documentation such as proof of tax-exempt status and governing documents. This approach mirrors existing IRS practices for scholarship programs and other nonprofit compliance regimes.
Definition of “Located in the State”
Treasury’s Question
The statute requires that SGOs be “located in the State,” but does not define the term. Treasury asks how “located” should be interpreted and whether authorization to operate in a state should be sufficient.
Roth’s Comment
Roth recommended that an SGO be treated as “located in the State” if it is properly registered to do business in the state and complies with applicable charitable solicitation and regulatory requirements. This interpretation aligns with established federal tax practice and avoids imposing a physical presence requirement not stated in the statute.
II. The 90%Scholarship Expenditure Requirement
Treasury’s Interpretation
Section 25F requires an SGO to spend at least ninety percent of its income on scholarships. Treasury proposes interpreting “income” to include all income of the organization, including unrelated business income, rather than limiting the calculation to qualified contributions.
Roth’s Comment
Roth explained that interpreting “income” as including all organizational receipts would create significant operational challenges, particularly for new or multi-purpose nonprofits. Under Treasury’s approach, SGOs could be required to segregate administrative funding, form separate legal entities, or curtail existing scholarship programs.
Roth recommended interpreting “income” to mean qualified scholarship contributions and suggested allowing multi-year averaging or transitional relief during early years of operation.
III. Interaction Between Federal and State Scholarship Tax Credits
Treasury’s Rule
Notice 2025-70 explains that the federal §25F credit must be reduced by the amount of any state tax credit allowed for the same contribution.
Roth’s Comment
Roth noted that many states offer partial tax credits for scholarship contributions. Roth recommended that the federal credit remain available for the portion of a contribution not offset by a state credit and that reductions be based on credits actually claimed, rather than credits merely available under state law.
IV. Treatment of Multi-state SGOs
Treasury’s Proposal
Treasury anticipates requiring multi-state SGOs to ask donors to designate the state in which their contribution is intended to be used and is considering whether core statutory requirements should be applied on a state-by-state basis.
Roth’s Comment
Roth explained that applying these requirements separately by state would significantly increase administrative complexity without advancing the statute’s purpose. Roth recommended applying spending thresholds, student counts, and similar requirements on an organization-wide basis, and not on a state-by-state basis, provided that scholarship funds are used only in states where the SGO is properly listed.
V. Definition and Treatment of Disqualified Persons
Treasury’s Consideration
Treasury is considering whether to modify the definition of a “substantial contributor” for purposes of determining disqualified persons, potentially lowering the threshold to a percentage-only test.
Roth’s Comment
Roth cautioned that removing the existing dollar threshold could cause most or all donors to many small SGOs to become disqualified persons. Roth recommended retaining the current standard derived from private foundation rules, which requires both a dollar threshold and a percentage test.
VI. Reporting and Recordkeeping Obligations
Treasury’s Proposal
Treasury anticipates imposing reporting and recordkeeping requirements on SGOs, potentially including donor identification information and detailed data on scholarship recipients.
Roth’s Comment
Roth urged Treasury to balance the IRS’s need for information with donor privacy and administrative burden. Roth pointed out that the tax benefit associated with an SGO contribution is not greater than the benefit associated with a $10,000 charitable contribution by a taxpayer in the highest marginal tax bracket. Roth recommended aligning reporting requirements with existing charitable contribution standards, rather than imposing heightened requirements disproportionate to the tax benefit involved.
VII. Application of the Credit Limitation to Joint Filers
Roth’s Comment
Roth requested clarification that the $1,700 credit limitation applies per taxpayer and not per return, meaning married couples filing jointly should be eligible for a combined $3,400 credit. Roth noted that the statute refers to taxpayers rather than tax returns and requested explicit guidance to avoid inconsistent application.
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While §25F establishes clear substantive guardrails for Scholarship Granting Organizations, it leaves meaningful discretion as to how those requirements are administered. Several interpretations described in Notice 2025-70 would, if adopted, materially narrow participation in the program beyond what Congress enacted. Roth&Co’s comments urge Treasury to implement the statute in a manner consistent with existing nonprofit law and IRS practice, preserving flexibility for SGOs while maintaining appropriate oversight as the program moves toward full implementation.
This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
