TL;DR

  • If you already run a 501(c)(3), most of the formation work is done. Your exemption, EIN, bank accounts, and charitable-solicitation registration all carry over, and no new Form 1023 is required.
  • One test decides whether retrofitting is even the right move: at least 90% of income must go to scholarships, and Treasury’s anticipated reading is all of your income, not just §25F gifts. A scholarship fund retrofits easily. An organization with other real programs usually should form a separate SGO entity instead.
  • The gaps an existing organization has to close are narrow and specific: articles language, §25F language in the bylaws, a conflict-of-interest policy, a separate account used only for qualified contributions, and a board without family or business ties among its members.
  • All of it can be voted at one board meeting, recorded in minutes.
  • Then you rejoin the normal path: qualify under the §25F operating rules and get on your state’s list. The free retrofit audit walks it as a checklist and saves your progress.

Every article about starting a Scholarship Granting Organization starts at incorporation. That is the wrong beginning for a lot of the people reading them. School foundations, parish and synagogue scholarship funds, community charities, and existing state tax-credit scholarship organizations already exist, already hold exemption letters, and already move scholarship money. For them the question is not how to form a nonprofit. It is which parts of the organization they already have will satisfy §25F, and what has to change.

This is that answer: what carries over, what does not, and the honest test for whether your organization should retrofit at all.

Should you retrofit at all?

Start here, because it is the decision that everything else depends on. §25F requires a qualifying SGO to spend at least 90% of its income on scholarships for eligible students. Under Treasury’s anticipated reading, previewed in Notice 2025-70, “income” means the organization’s entire income, not only the qualified contributions that earn the credit.

Read that as a budget rule and the fork becomes obvious. Everything your organization does that is not a scholarship has to fit inside the remaining 10%, alongside your rent, salaries, audit, and software. So:

  • Already essentially a scholarship fund? Retrofit. The test is one you nearly pass already, and the rest of this article is your project plan.
  • Running other real programs? A food pantry, a school, a camp, a community center, an advocacy budget. Form a separate SGO entity instead, and leave your existing organization alone. Filing a fresh nonprofit takes weeks. Restructuring a mixed budget to survive a 90% test takes years, and often destroys the programs that made the organization worth having.
This is the one thing to get right before spending money. Boards routinely amend documents first and run the budget math second, then discover that the organization cannot pass 90% without cutting a program the board will never agree to cut. Run the arithmetic on last year’s actuals: total income, scholarship dollars out. If scholarships are not already north of 90%, ask what would have to disappear to get there, and whether a second entity is simply the cleaner answer.

A second entity is not a defeat. Plenty of organizations run a companion SGO with an overlapping mission and a separate board, precisely because the federal test is unforgiving about mixed budgets. If that is your path, the from-scratch builder starts at stage one, and the full narrative version is how to start an SGO.

What carries over

For organizations on the retrofit side of the fork, the good news is most of stage one is already banked:

  • Your 501(c)(3) determination. §25F requires an organization described in 501(c)(3), exempt under 501(a), and not a private foundation. You already hold the letter, and adding scholarship purposes does not trigger a new exemption application when the new language stays inside 501(c)(3) exempt purposes.
  • Your EIN and corporate existence. Nothing to re-file.
  • Your charitable-solicitation registration. Most established nonprofits already registered with their state charities regulator, which is a step from-scratch founders still have ahead of them. Keep the renewals current.
  • Your banking, accounting, and audit relationships. You will add an account, not replace a stack.
  • Your track record. Not a legal requirement, but when your state opens its §25F process, an organization with years of filed 990s and real scholarship history is a much easier approval than a three-month-old shell.

The five gaps to close

What does not carry over is anything §25F-specific, because §25F did not exist when your documents were drafted. Five gaps show up in almost every existing organization.

1. The §25F language in your governing documents

This is the big one, and it is the one most likely to be missed. Treasury’s previewed framework does not let an organization self-certify to its state. States will have to certify, under penalties of perjury, that they independently determined each listed organization is required by its organizational documents or bylaws to satisfy the federal SGO requirements, and that it operates accordingly.

Generic nonprofit bylaws do not say any of that, so they fail the check. The fix is a bylaws amendment adding a §25F compliance article, passed by whatever vote your own bylaws require. Our bylaws template carries that article and fills in from your organization’s details; you can adopt the whole document or lift the article into yours.

2. Missing clauses in your articles of incorporation

Read your articles for two things: a purpose clause limiting the organization to 501(c)(3) exempt purposes, and a dissolution clause dedicating assets to exempt purposes. Older articles, especially ones drafted from a generic state template, are frequently missing one. If yours are, file a certificate of amendment through the same state office you incorporated with. The articles walkthrough has the language and your state’s filing details.

3. A conflict-of-interest policy

The IRS asks about one on the exemption application, and §25F makes it operationally necessary: scholarships cannot go to disqualified persons, which in practice means insiders and their families. If your organization never adopted a policy, or adopted one nobody has seen since, adopt the IRS sample policy and collect signed annual disclosures from every director.

4. A separate account for qualified contributions

The statute requires an SGO to maintain one or more separate accounts used exclusively for qualified contributions, with no co-mingling. “We track it in a fund in QuickBooks” is not what the statute describes. Open a real, dedicated account, authorize it by board resolution, and keep administrative money out of it. If you end up serving several states, Treasury previewed a per-state segregated account as a safe harbor, so build the habit now.

5. A board that can actually award scholarships

Because §25F bars awards to insiders and their families, a board whose members are related to each other, or to the families you intend to serve, makes the rule nearly impossible to honor. Confirm you have at least three directors with no family or business ties among them. This is also the moment to check that your registered agent is current: stale agents are how corporations quietly get administratively dissolved.

The one board meeting

All five gaps close at a single properly noticed board meeting. The agenda is short:

  1. Approve the articles amendment (if yours needs one).
  2. Approve the bylaws amendment adding the §25F compliance article.
  3. Adopt the conflict-of-interest policy and collect the disclosures.
  4. Authorize opening the segregated account for qualified contributions, and name who can sign on it.
  5. Record the whole thing in minutes, and keep them in the permanent records book.

The builder’s meeting walkthrough scripts that agenda and drafts the minutes from your answers. It is written for a first organizational meeting, and it adapts to a retrofit cleanly: you are amending rather than adopting. If your board meets by video, the same page creates a signing link so directors sign the policy and disclosures electronically instead of chasing paper.

Have a lawyer read the amendments before you file them. Our templates are drafted from the statute and Treasury’s preview, not adapted from lawyer-drafted precedent, because no §25F precedent exists yet. That makes them a strong starting draft and a poor substitute for counsel who knows your state’s nonprofit corporation act. This is legal information, not legal advice.

Four organizations that need a different answer

  • Private foundations. §25F requires a public charity, full stop. Converting a foundation is a real legal project, so the practical path is usually funding or forming a separate public-charity SGO. Confirm your classification on your determination letter or in the IRS Tax Exempt Organization Search before planning anything.
  • Existing state STOs, SGOs, and SSOs. You are the best-positioned organizations in the country, and you still are not automatically federally listed. State program approval and §25F listing are separate processes with separate tests. Your gaps are usually just the governing-document language and the segregated account.
  • A single school’s foundation. §25F requires scholarships to 10 or more students who do not all attend the same school. A foundation that exists to fund one school cannot satisfy that alone; it either broadens its awards or partners with a multi-school SGO. See what §25F means for private schools.
  • Organizations in states that have not opted in. Do the governance work anyway. Forming and getting listed are two different things: you can be fully §25F-ready in a state that has not joined, and some participating states read the statute’s “located in the State” language broadly enough to list organizations incorporated elsewhere. Kentucky’s July 2026 regulation, for example, allows foreign nonprofit entities with confirmed public-charity status to file its SGO declaration. Every state sets its own terms, so treat that as an opportunity to watch, not a guarantee. Check where your state stands.

Cost and timeline

A retrofit is dramatically cheaper than a formation. There is no $600 IRS user fee, because there is no new exemption application. The real costs are a state amendment fee (commonly $25 to $150, and nothing if your articles already have the required clauses), an attorney review of the amendments, and staff time.

The schedule is set by your own board calendar rather than by any agency: one meeting to vote, a few weeks for the state to process an amendment, an afternoon to open the account. What you cannot compress is the part that is not yours to control, which is your state’s §25F list process. Those mechanics were expressly deferred to the proposed regulations, expected by the end of September 2026, so most states will open application windows after that. Being finished before the window opens is the entire advantage of doing this in 2026.

Work it as a checklist

Reading the plan and executing it are different projects. The retrofit audit is this article as a live checklist: you tick what your organization already has, and each row tells you the §25F gap that item typically leaves open and exactly where to close it. Ticking a box there fills in the same checklist the from-scratch path uses, so when the retrofit is done you continue straight into the §25F operating rules, fundraising registration, and the state list without repeating yourself.

It is free, there is no paywall on any of it, and a free account saves your progress across devices and emails you when your state’s SGO process moves.

Frequently asked questions

Can an existing 501(c)(3) become an SGO without a new IRS application?

Yes. Your 501(c)(3) determination carries over, and adding scholarship purposes does not require a new Form 1023 as long as the new language stays within 501(c)(3) exempt purposes. The retrofit work is state-level (a certificate of amendment to your articles, if yours lack the required clauses) and internal governance (a bylaws amendment, a conflict-of-interest policy, and a segregated account). What you cannot skip is the state list: §25F donations are creditable only if your organization appears on a participating state's list for that year.

Does the 90% rule apply to all of our income or only to §25F donations?

Treasury's anticipated reading is all income, not just qualified §25F contributions. That is the single most important number for an existing nonprofit, because it means an organization that runs other programs has to fit every non-scholarship dollar inside the same 10%. The point is not settled until the proposed regulations publish (expected by the end of September 2026), so plan against the stricter reading.

We run other programs besides scholarships. Can we still be an SGO?

Arithmetically, rarely. If scholarships are not already close to the whole budget, the 90% test forces your other programs into the 10% administrative slice, which usually breaks either the test or the program. The cleaner path is a separate SGO entity: a new nonprofit whose only job is scholarships, with your existing organization continuing unchanged. Forming a fresh entity takes weeks of filings; untangling a mixed budget takes years of restructuring.

Our nonprofit is already an approved SGO in our state's own tax-credit program. Are we set?

You are the best-positioned kind of organization in the country, but state program approval is not federal §25F listing. The federal credit has its own entity tests, its own operating rules, and its own list that the state submits to the IRS. Existing state-program SGOs usually have only two gaps: the §25F language in their governing documents, and a separate account used exclusively for qualified federal contributions.

Can a private foundation become an SGO?

Not directly. §25F requires an organization described in 501(c)(3), exempt under 501(a), and not a private foundation. Converting a private foundation to public-charity status is a real legal project (termination or a 60-month conversion), so for most foundations the practical move is funding or forming a separate public-charity SGO. Check your determination letter or the IRS Tax Exempt Organization Search to confirm which you are before you plan anything else.

Do we need to amend our articles of incorporation?

Only if they are missing something. Read them for two things: a purpose clause limiting the organization to 501(c)(3) exempt purposes, and a dissolution clause dedicating assets to exempt purposes. Older articles frequently lack one or both. If a clause is missing, file a certificate of amendment with the same state office you incorporated through; it is usually a short form and a small fee.

When does the retrofit need to be finished?

Contributions become creditable on January 1, 2027, and only to organizations on a participating state's list for that year. The list mechanics are still being written, so the deadline you are actually working toward is your state's application window, which most states will open after Treasury's proposed regulations publish. The governance work (articles, bylaws, policy, account, minutes) is entirely within your control and can be finished long before the window opens, which is the point of doing it now.