States are electing in and SGOs are forming, but the operational rulebook for the federal Scholarship Tax Credit isn't finished. As of June 2026 Treasury has issued advance-election procedures but not the proposed regulations — and several questions that affect donors and SGOs remain open.
The federal Scholarship Tax Credit (FSTC / ECCA / §25F) is moving on two tracks that haven't fully met. On one track, states are signing up: Treasury and the IRS released Revenue Procedure 2026-6 and Form 15714 on December 12, 2025, giving states the exclusive process to make an “advance election” to become a covered state for 2027. On the other track, the substantive rules that will govern how donors and Scholarship Granting Organizations actually operate are still in progress. The IRS issued Notice 2025-70 on November 25, 2025 requesting public comment, the comment window closed December 26, 2025, and Treasury has said it intends to issue proposed regulations — but as of June 2026 those proposed regulations have not been published.
Several of the open questions directly affect how SGOs must run. The statute requires an SGO to spend at least 90% of its “income” on scholarships, but “income” is not defined — whether it includes investment returns, prior-year carryover, or only current-year contributions is left to guidance. For SGOs operating in more than one state, it is not yet settled whether the 90% test is applied per-state or in the aggregate, nor exactly what it means for scholarship recipients or an SGO to be “located in” a state. These are not academic points: they shape an SGO's chart of accounts and compliance reporting from day one.
Other open items affect donors and families. Treasury has not issued final guidance confirming the joint-filer treatment of the $1,700 cap (the prevailing reading is a single $1,700 per return, not $3,400 for a couple, but it isn't formally settled). Donor substantiation and recordkeeping mechanics, coordination with the Alternative Minimum Tax, and the precise method SGOs must use to verify a household's income against the 300%-of-Area-Median-Gross-Income ceiling — measured on the prior calendar year — all await the proposed regulations. For the 2027 startup year, §25F also tells states to submit their qualifying-SGO list “as early as practicable” rather than by a fixed January 1 date, and the deadline mechanics will be set in future guidance.
The practical posture for anyone acting now — a state weighing its election, an organization standing up as an SGO, or a donor planning 2027 contributions — is to build to the statute and the existing notices while treating the open questions conservatively, and to watch for the proposed regulations as the single most consequential development still ahead before the January 1, 2027 launch. When the proposed rule publishes in the Federal Register, it will open another comment period and is likely to resolve most of the items above at once.