The complete operating system for Scholarship Granting Organizations
The OBBBA created the most generous individual education giving tax credit in American history. Organizations that want to be accepting donations on January 1, 2027 need compliant infrastructure in place now. That is what we build.
A new federal tax credit.
A real compliance infrastructure requirement.
Section 25F of the Internal Revenue Code — created by the One Big Beautiful Bill Act and effective January 1, 2027 — allows individual taxpayers to claim a dollar-for-dollar federal tax credit for donations to qualifying Scholarship Granting Organizations. This is not a deduction. It is a full credit against federal tax liability, one of the most powerful individual giving incentives ever enacted.
Dollar-for-dollar federal tax credit per individual donor, per year
Maximum credit for married couples filing jointly
Minimum portion of all donations that must fund student scholarships directly
Carry-forward period for unused credits
Maximum area median gross income for student household eligibility
What is an SGO?
A Scholarship Granting Organization is a 501(c)(3) nonprofit whose primary mission is to collect donations and distribute them as scholarships to income-eligible K–12 students for qualified educational expenses. Qualified expenses mirror Coverdell ESA definitions: tuition, fees, books, supplies, equipment, tutoring, special needs services, and technology — at both private and public schools.
Any qualifying 501(c)(3) may form an SGO — churches, school networks, dioceses, educational foundations, and community organizations. States must voluntarily opt in to the program and submit lists of approved SGOs to the IRS, which means regulatory requirements vary significantly by state.
The market moment
There is no federal cap on total tax credits claimed or total donors. If millions of taxpayers participate, tens of billions of dollars could flow through SGOs annually. No established infrastructure providers exist yet — the dominant platform will be built in 2026.
The IRS is still finalizing Section 25F regulations through a public comment period ending in 2026. States are establishing their opt-in frameworks in parallel. The organizations that build compliant infrastructure now will be positioned to capture this opportunity from day one.
Running a compliant SGO is more complex than it looks
Most organizations that can launch an SGO — churches, school networks, dioceses, community foundations — have no existing infrastructure for any of what federal law requires. The stakes of getting it wrong are significant: donors can lose their tax credits, and organizations can lose their approved SGO status.
Federal Requirements
- 501(c)(3) status with primary mission aligned to SGO purpose
- Full compliance with Section 25F of the Internal Revenue Code
- No scholarship earmarking — arm's-length award decisions legally required
- Priority system enforcement: returning recipients first, then siblings of current recipients
- Continuous 90/10 spending ratio monitoring — a hard federal floor
- Qualified expense verification for every individual scholarship disbursement
- Precise IRS-compliant tax credit receipts for every donor (errors cost donors their full credit)
- Multi-school distribution: awards must reach 10+ students across multiple schools
State-Level Requirements
- State opt-in and SGO approval process — procedures vary dramatically
- Additional eligibility rules layered on top of federal minimums
- Annual state compliance reporting, format varies by state
- State-specific income verification standards
- Approval timelines vary: some states approve in weeks, others in months
- Some states require additional auditing or financial reporting
- Rules still being established in many states through 2026
- Ongoing regulatory monitoring as state frameworks evolve
Operational Requirements
- Income verification using 300% of area median gross income by county or metro
- Scholarship application portal accessible to all eligible families
- Eligibility screening and documentation collection for each applicant
- Award decision support tools for SGO board governance
- Scholarship disbursement processing directly to families
- Donor CRM with per-donor $1,700 credit limit enforcement
- Recurring giving management, renewal campaigns, and married couple optimization
- Complete audit trail maintenance for IRS documentation and state reporting
The organizations best positioned to run an SGO — churches, school networks, dioceses — typically have no dedicated compliance staff for any of these functions. Attempting to build this infrastructure internally while managing ministry, academics, or community work creates significant regulatory and operational risk.
This is what we handle →Six products. One complete platform.
Organizations building SGOs from the ground up
Full use case detailCatholic diocese or multi-school Christian network
The Challenge
A diocese with 15 schools across a metro area wants to create an SGO to fund scholarships for low and middle-income families. Coordinating scholarship distribution across 15 campuses, managing thousands of applicants, ensuring no earmarking violations when parish families donate expecting to help "their" school, navigating the state's SGO approval process, and building donor management infrastructure from scratch — each of these is a significant compliance challenge on its own.
How ClearPath SGO Helps
ClearPath SGO handles the entire operational backend for the diocesan SGO: state registration, branded donor portal, applicant screening and income verification, award decision support, multi-school compliance tracking, and 90/10 monitoring across the full network. Diocese administrators focus on ministry, not compliance.
The program activates January 1, 2027.
The infrastructure takes months to build.
The IRS is still finalizing Section 25F regulations. States are determining whether to opt in and establishing their approval processes. For organizations that want to be accepting donations on January 1, 2027 — the day the credit becomes available — the time to begin formation is now.
Formation & Registration Window
- IRS finalizing Section 25F regulations (public comment period closes)
- State opt-in processes open and establish approval frameworks
- SGO formation, 501(c)(3) setup, and state approval begins
- Donor and scholarship platform infrastructure deployed
Pre-Launch Readiness
- State approval processes resolve for organized applicants
- Donor portal live and accepting pre-registrations
- Scholarship application system ready for families
- Compliance monitoring and reporting infrastructure operational
Section 25F Activates
- Dollar-for-dollar federal tax credit becomes available to donors
- SGOs begin accepting qualified donations
- Tax credit receipts must be generated correctly from day one
- Organizations without compliant infrastructure cannot operate
First Full Program Cycle
- First annual scholarship cycle runs
- State reporting requirements commence
- IRS documentation for donor tax credit claims due
- Program scaling — organizations positioned early capture the most
If you’re not in formation now, you’re already behind.
State approval processes have lead times. Infrastructure build takes time. The organizations that start in early 2026 will be operational on January 1, 2027.
Ready to build your SGO?
The regulatory window, the competitive landscape, and the program timeline all point to 2026 as the year to act. Tell us about your organization and we’ll schedule an initial consultation.
What happens next
We review your submission and prepare for your organization's specific situation
Initial consultation — typically 45–60 minutes — to assess your structure and goals
We outline a formation and operational plan with a clear scope and timeline
Engagement begins with a defined phase 1 scope