The Nine Questions the September Education Freedom Tax Credit Regulations Must Answer

Treasury has committed to issuing proposed regulations under the Education Freedom Tax Credit (Section 25F) by the end of September 2026. Between the June 9, 2026 guidance preview and that filing, there is a set of questions that are genuinely unresolved — not questions where the answer is obvious and the paperwork is pending, but questions where two defensible answers exist and the choice changes what an SGO has to build.

We track nine of them. This post is the working list: the question, what the statute and the preview establish, what remains open, and — the part that matters if you are standing up an organization this fall — how to design so that either answer leaves you compliant.

Everything below describes previewed, not final rules. Nothing here is settled until the proposed regulations are published, and proposed regulations are themselves not final.

1. Do Payment Processing Fees Count Against the 10%?

What is established. At least 90% of an SGO's income has to go to qualified scholarships, leaving an administrative allowance of up to 10%. The federal credit caps at $1,700 per donor per year, which makes this a small-gift program by design.

What is open. Whether credit card interchange is an administrative expense competing inside that 10%, or whether a contribution can be recorded net of the processing cost. On card rails at typical rates, processing can consume roughly a quarter of the entire administrative allowance — the difference between an SGO that can afford staff and one that cannot.

How to build for either answer. Default to ACH. Offer donors the option to cover the processing fee. Record gross and net separately from the first transaction so that whichever measurement the regulations adopt, you can produce the number without reconstructing a year of history.

2. How Are Shared Expenses Allocated Across State Accounts?

What is established. A multistate SGO holds a segregated account per covered state, and the 90/10 test runs on each account independently. Income allocation is mechanical: the donor designates a state, and the dollar lands in that state's account.

What is open. Expense allocation is not mechanical and the guidance is silent. An audit fee, a compliance officer's salary, and a software subscription serve every state at once. Pro rata by contributions? By awards? By applicant volume? Direct tracing where possible and pro rata for the rest?

How to build for either answer. Adopt a written methodology before the first expense, not after — a documented, consistently applied allocation is defensible under any of the plausible rules, and an undocumented one is defensible under none. Record the rationale contemporaneously and keep direct-cost tracing wherever the cost genuinely belongs to one state.

3. Does the Disqualified-Person Rule Run Entity-Wide or Per State?

What is established. Scholarship committee members and their immediate families are expected to be disqualified from receiving scholarships from the SGO they serve.

What is open. Whether that disqualification runs across the whole organization or only within the state account the member's committee decides. For a single-state SGO the question is academic. For a multistate entity running one committee across many dockets, it is the difference between a modest ask of a volunteer and a significant one.

How to build for either answer. Assume entity-wide, and say so to every committee candidate before they accept the seat. Recruiting on the narrower assumption and then widening it is how an organization loses a committee member in its first award cycle.

4. What Is the Scope of the Ten-Student, More-Than-One-School Test?

What is established. An SGO must award scholarships to ten or more students who do not all attend the same school. It is a distribution requirement, not a diversity quota — the threshold is ten students, not ten schools.

What is open. Whether the test is measured on the entity as a whole or on each state account. An SGO listed in eight states with a large program in one and a thin program in another passes easily at the entity level and could fail at the account level in the thin state.

How to build for either answer. Design each state account to clear the test on its own. This is one of several reasons a thin state account is often not worth opening — a state you cannot staff to ten students at more than one school is a state that may not be viable regardless of which reading prevails.

5. Per-State or Aggregate — for Every Other Test Too

What is established. The 90/10 test is per account. That much the preview settled, and it settled it in the strictest direction: no cross-subsidy, so a large state account cannot carry a small one.

What is open. Whether the same per-account logic extends to the rest of the compliance surface — the priority rules, the distribution test above, the treatment of carryover funds between years.

How to build for either answer. Run every test at the account level in your own reporting, even where the entity-level reading might be available. Reporting more granularly than required costs nothing; discovering that you reported less granularly than required costs a restatement.

6. Is There Any Relief for Startup Costs?

What is established. The 90/10 rule is a withdrawal cap, not an expense rule — it governs what may leave the state account, up to 10% of what came in.

What is open. Whether a first-year or partial-year organization gets any smoothing. A new SGO's costs are front-loaded — formation, legal, systems, the first audit — while contributions arrive late in the year. A partial first year can produce a cost base that 10% of a partial year's receipts cannot absorb. Notice 2025-70 raised the question. It did not answer it.

How to build for either answer. Budget as though no relief comes, and fund the launch from outside the scholarship accounts — ordinary charitable operating support, association dues, or sponsoring-organization funding, none of which is constrained by the 10% cap. An SGO that needs first-year relief to survive has a structural problem that relief would only postpone.

7. How Wide Is "Substantial Contributor"?

What is established. A 2% substantial-contributor concept carries into the SGO context, restricting benefits flowing back to major donors.

What is open. Its precise scope — measured against what base, over what period, and with what consequence for a donor whose child is in the applicant pool. In a program capped at $1,700 per donor, the 2% threshold binds at a surprisingly small organization: on a $200,000 state account, 2% is $4,000, which is two married couples giving at the cap.

How to build for either answer. Screen the applicant pool against the donor file every cycle, document the check, and keep the screening ministerial and separate from the deciding. Small accounts should expect this to bind and should design the conflict process accordingly rather than treating it as a large-organization problem.

8. What Happens to an Undesignated Gift?

What is established. A donor designates the state their contribution serves, and the dollar is locked to that state's account. The designation is what makes the certification chain work.

What is open. What an SGO does with a gift that arrives without one — a check in the mail, a lapsed form field, a donor who genuinely does not care. Is it curable by contacting the donor? Is it disqualified? Does it fall to a default?

How to build for either answer. Make designation a required field on every rail you accept, including paper. Hold undesignated funds in suspense rather than assigning them, and cure by contacting the donor in writing. Never assign a designation on the donor's behalf — a corrected gift is a fixable problem, an SGO-assigned designation is a certification problem.

9. What Does "Largely Scholarship-Granting" Mean?

What is established. This is the most consequential open term in the program. The previewed safe harbor measures the 90% test against the segregated scholarship account rather than the organization's total receipts — but the safe harbor is available only to organizations whose activities are largely scholarship-granting. Without it, the test runs against total receipts, which is structurally impossible for a diversified nonprofit.

What is open. The threshold. A majority of activities? A supermajority? Measured by revenue, expenses, staff time, or program count?

How to build for either answer. This is the question that most often decides whether you need a separate entity, and the conservative answer is nearly always the right one: a school association with dues, conferences, and member services should hold its scholarship program in a dedicated affiliate; a diocese should not make the diocese itself the SGO. An organization that already does nothing but grant scholarships — an existing state scholarship organization, for instance — is the case the safe harbor was written for and will likely clear it as-is.

The Tenth Question, Which Is Not About SGOs At All

There is one more open item, and it belongs to states rather than organizations: the listing procedure itself.

Thirty states have filed an advance election for 2027. Not one has published a certified list of SGOs, because the procedure for doing so does not exist. Notice 2025-70 said plainly that "the deadline and procedure for perfecting the Advance Election by submitting the State SGO list will be provided in future guidance."

Two consequences follow, and both are larger than they look:

• There is no federally listed SGO anywhere in the United States today, and there cannot be one until states begin publishing lists. Treat any claim to the contrary accordingly.
• Whether a state that skipped the advance-election window can still elect for 2027, and by when, is unresolved — which is why Michigan's lame-duck window is a real question rather than a closed one.

What to Do Between Now and the Filing

The temptation is to wait for the regulations before starting. That is backwards, because none of the nine questions above touch the work that takes the longest.

Incorporation, the IRS determination, board recruitment, the conflict-of-interest policy, the written no-earmarking policy, charitable registration, the award criteria, and the verification workflow are all unaffected by every question on this list. That sequence runs nine to fifteen months. The regulations will change how you allocate an audit fee across state accounts — not whether you need a board.

What the open questions should change is your design posture: build to the stricter reading of each one, record the numbers both ways where measurement is contested, and write down your methodology before the first transaction rather than reconstructing it under audit.

We will rewrite this post as an answered-and-unanswered scorecard when the proposed regulations are published, and revisit every claim in the surrounding cluster at the same time. Until then, the compliance calendar covers what is already settled, and the OBBBA explainer covers the statutory requirements that no regulation is going to move.

A note on currency. This reflects guidance available as of late August 2026, including Notice 2025-70 and the June 9, 2026 preview. Every rule described as previewed is subject to change in the proposed regulations — verify with counsel before making structural decisions.