Exactly what to do
- List everything the organization does. Under the proposed regulations (October 2026), scholarship granting counts whether it’s §25F, a state tax-credit scholarship program, or any other scholarship program, and administration, fundraising, governance, investment, compliance, and outreach count to the extent they support scholarship granting. Everything else (running a school, after-school programs, camps, other charitable services) sits on the other side of the line. This activity test is separate from the 90% spending test, where only scholarship payments count. Treasury hasn’t said how to measure activities: it asked for comments on whether to use receipts, expenditures, staff time, program-service activity, or another metric, and on whether 85% is the right threshold. So pick a reasonable measure, apply it the same way every year, and write down how you counted; the annual certification asks you to certify the 85% level.
- At or above 85%, on one state’s list: you may apply the operational requirements (10+ students, the 90% test, expense and eligibility verification, residence, priority, no earmarking) to your §25F segregated account rather than the whole organization. Income for the 90% test becomes the account’s qualified contributions plus earnings, overhead can be funded from separate gifts, and the disqualified-person rule must be met at the account level as well as for the organization. The rule requires no board vote to use the safe harbor, but our template makes it a recorded board decision: if you’ll rely on it, adopt the resolution in section 8.6 of the bylaws template.
Below 85%: the tests apply to the whole organization, the 90% test counts every dollar you receive, and you can’t be on more than one state’s list (a multistate SGO must be at least 85% scholarship granting).
Treasury itself says the safe harbor “may require the formation of new organizations to conduct section 25F activities.” For a school, or a charity with large non-scholarship programs, the usual answer is a separate SGO formed through stage 1 (the safe harbor explained).
Questions people actually ask
We're a private school. Can we run §25F scholarships ourselves?
In practice, no. Running a school is a school’s main activity, so it won’t reach 85% scholarship granting; the 90% test would then cover all of its receipts, tuition included, which no operating school can meet. And an SGO must fund students who don’t all attend the same school. A separate SGO that funds students at many schools is the realistic structure.
We already run a state tax-credit scholarship program. Does that count?
Yes. The proposed regulations count state tax-credit scholarships, and any other scholarship granting, toward the 85% along with the §25F work, so an existing scholarship organization is the type the safe harbor was built for. Keep the §25F money in its own segregated account either way.
Primary sources: Treasury proposed regulations, October 2026 (our summary) · The 85% safe harbor explained
