Treasury says the §25F proposed regulations will arrive no later than the end of September 2026, and previewed what's in them: a segregated-account safe harbor for the 90% test, a definition of “located in” a state, a path for multistate SGOs, income-verification safe harbors, audit requirements, and a planned IRS portal.
The single most consequential open item in the federal Scholarship Tax Credit (FSTC / ECCA / §25F) program now has a date and a shape. On June 9, 2026, Deputy Assistant Secretary for Tax Policy Kevin Salinger told a roundtable of Scholarship Granting Organizations, state representatives, and education stakeholders that Treasury and the IRS expect to issue the §25F proposed regulations “no later than the end of September”, and that states, SGOs, and taxpayers will be able to rely on those proposed regulations for tax year 2027. Treasury published the remarks and an accompanying press release on June 10, branding the program the “Education Freedom Tax Credit.” Treasury Secretary Scott Bessent said the department is “committed to providing certainty to states, scholarship-granting organizations, taxpayers, and families alike.”
The preview resolves several questions SGO founders have been building around blind. On the statute's 90%-of-income spending requirement, Treasury expects the rules to measure the test against the organization's total receipts, unreduced by expenses, but with a safe harbor: an organization whose activities are largely scholarship-granting can instead measure “income of the organization” by the amount held in a §25F segregated account, including qualified contributions and earnings. For multistate SGOs, the safe harbor must be satisfied separately for each state-specific segregated account. Treasury also defined the long-ambiguous “located in” standard: an SGO is located in a state if it is authorized to do business there and complies with the state's generally applicable charitable-organization rules, and states may not impose SGO-specific requirements more restrictive than §25F's own.
The multistate question, whether one SGO can serve families in several participating states, gets an explicit yes. An SGO may appear on more than one state's list as long as it is located in each state and maintains a separate §25F account per state, with most operational requirements applied per-account. On student eligibility, Treasury previewed a layered verification regime: direct income documentation (paystubs, tax returns, IRS transcripts, W-2s, or commercial data sources), categorical eligibility based on a household member's participation in a needs-based federal, state, or tribal program, and a safe harbor treating foster children as income-qualified with no separate verification. “School” will be defined consistent with section 530 to include public, private, and religious K-12 schools as determined under state law, including home schools where state law treats them as schools, and schools operated by federally recognized Tribes.
Compliance architecture got equal billing. Every SGO would need an annual financial and programmatic audit by a qualified independent third party, furnished to each state on whose list it appears, though smaller SGOs could substitute an internal-committee audit signed under penalties of perjury. On the donor side, Treasury previewed a unique-donor-number system: the SGO issues each donor a written acknowledgment with a number generated under an IRS-provided method, reports contributions to the IRS under that number, and the donor reports it on their federal return, letting the IRS match claimed credits to real donors and real SGOs without donors ever giving an SGO their Social Security number. Treasury also said the proposed rules will contemplate an IRS portal for SGO administration and reporting, built out in phases.
Two caveats temper the good news. First, the preview is “subject to ongoing legal review”, Treasury intends the proposed regulations to be consistent with it, but nothing is law until the rule publishes. Second, some open items weren't addressed: the joint-filer treatment of the $1,700 cap, coordination with the Alternative Minimum Tax, and the state-list deadline mechanics for the 2027 startup year all remain to be settled. Guidance on the scope of eligible expenses under section 530, including tutoring and special-needs services, which Treasury says it “fully intend[s]” scholarships to support, will come as a separate workstream after the §25F regulations. For anyone forming an SGO now, the practical translation: set up a segregated §25F account from day one, plan for an annual audit, and expect the full rulebook before the back-to-school season ends. We've archived the full text of the guidance preview and the press release, and published a practical walkthrough of every item in the preview.
