Can You Use an Existing 501(c)(3) as Your SGO — and Just Register It in Every State?

A board chair, a diocesan CFO, and a family foundation director have all asked us the same question this summer, in almost the same words: we already have a 501(c)(3). It has been running for years. It has a board, an EIN, a determination letter, an audit history, and a donor file. Can we just use that as our SGO and register it in every state?

The question deserves two answers, because it is really two questions, and they point in different directions.

On the law, yes. Nothing in Section 25F requires a new entity. There is no formation-date test, no clause limiting the program to organizations created after the One Big Beautiful Bill Act, and no requirement that the organization be new to scholarship work. An existing charity that meets the requirements is a scholarship granting organization exactly as much as one incorporated last week. Using an established charity is not a workaround, and nobody should treat it as one.

On the fit, usually no — and the reason is one sentence in Treasury's June 2026 preview about how the 90 percent test gets measured. That sentence turns "we already have a charity" from an asset into the obstacle for most organizations that ask.

The second half of the question — register it in every state — is a separate misunderstanding, with its own arithmetic and its own price tag.

What follows is drawn from the statutory text, IRS Notice 2025-70, and Treasury's June 9, 2026 guidance preview. One thing to hold onto throughout: the proposed regulations are not out yet. Treasury has said they will issue no later than the end of September 2026, and several of the questions that decide this exact issue are still on the open list. Nothing here is legal advice.

What Section 25F Actually Requires of an Organization

Section 25F(c)(5) sets four conditions. The organization must:

• be described in Section 501(c)(3), be exempt from tax under Section 501(a), and not be a private foundation;
• prevent the co-mingling of qualified contributions with other amounts by maintaining one or more separate accounts used exclusively for qualified contributions;
• satisfy each of the requirements of Section 25F(d); and
• appear on the list a covered state submits for the applicable year under Section 25F(g).

Section 25F(d) supplies the operating rules: scholarships to ten or more students who do not all attend the same school; not less than 90 percent of the income of the organization spent on scholarships for eligible students; no scholarships for anything other than qualified elementary or secondary education expenses under the Coverdell framework; priority for students awarded a scholarship the previous school year and then for their siblings; no earmarking or setting aside of contributions on behalf of any particular student; verification of annual household income and family size against 300 percent of area median gross income; and no awards to disqualified persons, determined under rules similar to Section 4946.

Read that list again and notice what is absent. There is no purpose clause. The statute never says an SGO must be organized and operated exclusively to grant scholarships. Several published summaries say it does; the statutory requirements enumerated in Notice 2025-70 do not. Your fifteen-year-old charity is not disqualified by its history, its name, or its other programs.

What does the work instead is the 90 percent test. Everything turns on how it is measured.

The Test That Decides It: Ninety Percent of What?

Notice 2025-70 said Treasury anticipated that the forthcoming regulations would provide that the income of the organization includes all income of the organization, including unrelated business income, and is not limited to the qualified contributions segregated in the separate account. Read that way, essentially no diversified nonprofit could ever be an SGO — and Treasury asked in the same breath whether that interpretation posed practical challenges.

The June preview softened it, but only for one kind of organization. In the Deputy Assistant Secretary's words: the proposed rules will generally measure the 90 percent spending requirement against the organization's total receipts, unreduced by expenses — but if the organization's activities are largely scholarship-granting activities, the organization could use a safe harbor under which income of the organization is measured by the amount held in a Section 25F segregated account, including qualified contributions and earnings.

So there are two rules. The default measures 90 percent against total receipts. The safe harbor measures it against the segregated account, and you only reach the safe harbor if your activities are largely scholarship-granting.

That condition is the whole ballgame for an existing charity, so put numbers on it.

Say your organization took in $4 million last year: $2.6 million in program service revenue, $1.2 million in contributions, and $200,000 from a thrift store. In its first Section 25F year it raises $500,000 in qualified contributions. Under the default rule, income for the test is roughly $4.5 million, and the organization must spend at least $4.05 million on Section 25F scholarships for eligible students. It has $500,000 in the account. It fails by a factor of eight, and no bookkeeping fixes it, because the test measures receipts rather than the scholarship program.

The safe harbor is the only escape, and the safe harbor is precisely the thing a multi-program charity cannot claim. A parish with a scholarship fund is not largely scholarship-granting. Neither is a school with an endowment, a camp with a tuition assistance program, a pregnancy center that also gives book stipends, or a community foundation carrying a hundred donor-advised funds.

Here is the practical test. If someone reading your Form 990 cold would describe your organization as a scholarship organization, converting it is worth analyzing. If they would describe it as something else that also has a scholarship program, the entity is the problem, and the answer is a new entity rather than an amendment to this one.

How much "largely" means has not been defined. It sits on our open-questions list for the September regulations, and it is the number to watch if your organization is anywhere near the line. The fuller treatment of the safe harbor is here, and the mechanics of the spending cap itself are in the 90/10 rule.

Private Foundation Status Is the Other Hard Stop

Section 25F(c)(5)(A) excludes private foundations, and there is no cure inside the program. This catches more organizations than people expect: classic grantmaking foundations, family foundations that already run a scholarship program, and private operating foundations, which are still private foundations for this purpose.

The good news is that this one is cheap to check, and you should check it the way your state will. Notice 2025-70 tells states that policies and procedures including consideration of whether the organization is identified as an exempt organization with 501(c)(3) status, and not a private foundation, in the IRS Exempt Organizations Business Master File Extract would be sufficient for this requirement. That is the record a revenue department will pull. Go look at your own entry before you build a plan on top of it, because what your determination letter says in a drawer matters less than what the IRS file says today.

If your organization is a private foundation, terminating that status under Section 507 is a multi-year project with its own tax consequences. In practice, the foundation funds the formation of a separate public charity instead — which is a normal, well-trodden structure, not a compromise.

One adjacent classification is worth naming. A supporting organization under Section 509(a)(3) is not a private foundation, so it clears this bar — but one that exists to support a single school runs straight into the ten-students, more-than-one-school rule, which is the same wall a single school hits.

Your Governing Documents Have to Require Compliance

This is the requirement that most surprises boards, and it is the one that makes "just use the existing charity" more than a filing exercise.

Notice 2025-70 describes what a state must certify under penalties of perjury. Among the items: that the state has adopted, and is complying with, policies and procedures designed to enable it to make its own independent determination that each organization on the list is required by the organization's organizational documents or bylaws to satisfy, and is operating in a manner that satisfies, each of the requirements of Section 25F(c)(5).

Two words in that sentence do the damage. Not "is able to" satisfy. Not "intends to." Is required by its own articles or bylaws. And states may not rely on self-certification by the SGO — the Notice says so directly.

Most existing charities' governing documents are silent on all of it. Silence is a fixable problem: you amend, the board adopts, and you are done. What is not always fixable is a governing document that says something incompatible. We have seen all of these in real articles and bylaws:

• scholarships restricted to students of a named school, which conflicts with the ten-students, more-than-one-school requirement;
• awards limited to members of a congregation, a parish, or an association's member families, which produces the same concentration by another route;
• preferences for descendants of the founder or for children of employees, which collides with the disqualified-person rules;
• awards decided by the full board or by the executive director, where the program needs a selection committee that can be screened for conflicts;
• purposes drawn so narrowly that scholarship-granting is arguably outside them, which is a state corporate-law problem before it is ever a tax problem.

Notice 2025-70 also anticipates that the regulations would not prohibit an SGO from imposing additional governing provisions beyond the Section 25F requirements — unless such a provision would conflict with the ability of the SGO to satisfy those requirements. That is the standard your existing documents get read against. A charity that was carefully drafted twenty years ago to serve one community may be carefully drafted into ineligibility.

Amending articles is a state filing plus a board vote, and in most cases no new IRS determination letter is needed or available — the IRS generally stopped issuing updated determination letters for changes in activities, and the change gets reported on your next Form 990. That is a modest process. The hard part is the board conversation about what you are agreeing to stop being able to promise.

A Long Donor History Is a Long Disqualified-Person List

Section 25F(d)(2)(B) prohibits awards to disqualified persons under rules similar to Section 4946, which pulls in substantial contributors as defined in Section 507(d)(2): a person who contributed more than $5,000, where that amount is more than 2 percent of total contributions received by the organization from its inception through the close of the taxable year in which the contribution was received.

For an existing charity this cuts both ways, and the direction is not the one people assume.

The good news: the denominator is contributions from inception. A charity with twenty years of fundraising has a very large denominator, so relatively few donors clear 2 percent. A brand-new SGO has the opposite problem — its first significant donor is almost automatically a substantial contributor, and therefore that donor's family cannot receive scholarships from the organization.

The bad news: you have to be able to prove it. The test looks back to inception, which means your records have to support a 2 percent calculation across the organization's entire life. Charities that migrated CRMs in 2014 and left the old data behind often cannot reconstruct that. And Treasury has asked whether it should drop the $5,000 floor for Section 25F purposes and define substantial contributor as anyone above 2 percent, full stop. If that lands, the arithmetic changes for every organization on the day the rules issue.

Then add the other category. Treasury expects the regulations to provide that a member of the SGO's selection committee, or a member of that person's immediate family, is a disqualified person with respect to that SGO. In an established organization with a long-serving, deeply networked board, that list is longer than a new organization's, and it is drawn from exactly the families most invested in the program. We covered the committee design problem in its own post.

One narrow relief valve exists: under Section 507(d)(2), a person can cease to be treated as a substantial contributor after a ten-year period with no contributions, no service as a manager, and contributions the Secretary determines to be insignificant relative to another contributor's. It is real but rarely the answer for anyone currently involved.

Restricted Funds and Donor Intent Do Not Convert

The last item is not tax law at all, and it is the one that most often gets skipped.

An established charity generally carries restricted gifts, board-designated funds, and sometimes a true endowment. None of that money becomes Section 25F money because the board voted to become an SGO. Restrictions run with the gift, and the fiduciary duty to honor donor intent runs with them. Modifying or releasing a restriction is a court process in most states, with narrow administrative alternatives under UPMIFA — typically limited to small, old funds, and usually requiring advance notice to the state attorney general.

There is also the honest version of the "is this okay?" question, and it deserves a direct answer. Converting an existing charity is entirely legitimate. What is not legitimate is converting one in order to keep doing exactly what you were doing while collecting a federal credit for it. If your organization has always funded one school's families and the plan is to keep funding one school's families, the entity change does not solve anything — the ten-students, more-than-one-school requirement and the earmarking prohibition still bind, and they bind on outcomes, not intentions. And if a meaningful part of your existing base gave for a different purpose, the board owes them a conversation before the mission moves, not after.

The Other Half: "Register It in Every State"

Now the second question, which conflates three separate things.

There are not fifty states to register in. Section 25F counts the fifty states and the District of Columbia, but only a state that voluntarily elects to participate has a list to be on. As of the IRS participating-state list dated July 24, 2026, thirty states had filed an advance election for 2027. Six have declined outright, two are studying it, and twelve have taken no action. You cannot register as an SGO in a state that has not elected, because there is nothing to register for. And elections are annual — the set changes year to year, in both directions. Current status is on our state tracker, sourced against the IRS list.

"Located in" is the actual test, and it is not free. Treasury previewed that an SGO will be treated as located in a state if it is authorized to do business in that state and complies with generally applicable state charitable-organization rules, including rules for transparency, accountability, and fraud prevention — with the important protection that states may not impose SGO-specific requirements more restrictive than Section 25F itself. No office and no staff are required. What is required is the ordinary out-of-state charity compliance stack, and per state that typically means a foreign qualification with the secretary of state, a registered agent, an annual or biennial report, and charitable solicitation registration with annual renewal.

Roughly forty jurisdictions require charitable solicitation registration before you fundraise there; the states usually listed as requiring none are Delaware, Idaho, Indiana, Iowa, Montana, Nebraska, South Dakota, Utah, Vermont, and Wyoming. Foreign qualification fees commonly run $100 to $300, with outliers from roughly $50 to $750; registered agent service runs about $100 to $200 per state per year; and several states require audited or reviewed financials above a revenue threshold as part of charitable registration, on top of the entity-level Section 25F audit.

Across thirty states that is a real recurring number, and none of it buys a single scholarship. Note also that what "authorized to do business" actually requires — full foreign qualification, or charitable registration alone — is itself unsettled until the proposed regulations define it.

Being located in a state still does not put you on its list. This is the step people miss entirely. The state has to verify you against every Section 25F(c)(5) requirement and include you on the list it sends the IRS, and the Notice is explicit that self-certification by the SGO is not sufficient for that purpose. Most states have not published how any of that will work. Nebraska's revenue department, one of the more forthcoming, says plainly that it will post SGO forms and procedures once they are established, which will be after the final federal guidance has been published.

That is the timing crux for anyone planning a conversion. No SGO is federally listed anywhere yet, in any state, because no state has submitted a certified list. Thirty states have said they intend to participate; none has yet published the door you walk through.

Register Where Your Students Are, Not Where Your Donors Are

The instinct behind "register everywhere" is usually about fundraising reach, and that instinct is aimed at the wrong variable.

Nothing in Section 25F requires a donor to live in a participating state. Eligibility for the credit turns on where the SGO is listed and where the student resides. A donor in a state that never opts in can give to an SGO listed elsewhere, claim the full federal credit, and fund that state's students. We laid out that asymmetry here.

So a national donor base does not require a national listing footprint. Your listing footprint should be determined by where your students are, because that is what the state accounts are for — and adding states you cannot fill is the expensive version of a fundraising strategy you already have.

The Per-State Math Punishes Breadth

The final argument against a wide footprint is arithmetic, and it is the one that ends most of these conversations.

Section 25F(c)(3) requires a qualified contribution to fund scholarships for eligible students solely within the state in which the organization is listed. Donors designate a state at the moment of giving; that dollar is locked to that state's segregated account for its entire life. And the safe harbor for the 90 percent test, per the June preview, must be satisfied separately for each state-specific segregated account.

There is no cross-subsidy. Each account releases at most 10 percent for everything that is not a scholarship. An account holding $80,000 can release $8,000 — which will not cover that state's share of registration, agent fees, verification labor, and the state report, let alone anything else. Opening a thin state is not merely inefficient; the arithmetic does not close. The full multistate structure is here, and why the 10 percent behaves as a withdrawal cap rather than an expense budget is here.

The one genuine economy of scale runs the other way and is worth knowing: the annual financial and programmatic audit is an entity-level obligation, furnished to each state on whose list you appear. One audit, many states. That is a strong argument for one multistate entity over a constellation of single-state ones — but it is not an argument for adding states that cannot sustain their own accounts.

When an Existing Charity Is the Right Vehicle

Three profiles genuinely work, and if you are one of them the conversion analysis is worth the legal fees.

You already operate a state tax-credit scholarship program. Arizona STOs, Indiana SGOs, Florida and Georgia scholarship organizations, Pennsylvania EITC organizations: you are already largely scholarship-granting, you already verify income, and you already disburse against enrollment. You are the best candidate in the program. Be aware that the federal program is parallel rather than an upgrade — there is no grandfathering onto a federal list, some state programs permit school designations that Section 25F prohibits, and Section 25F(b)(2) reduces the federal credit by any state credit allowed for the same contribution. We wrote that transition up separately.

You are a dedicated scholarship fund with a broad award pool. A community scholarship foundation that already awards across many schools may need governing-document amendments, a segregated account, a committee rebuild, and new verification workflows — but the entity itself is sound.

Your organization is scholarships and almost nothing else. If the other programs are genuinely incidental, run the total-receipts arithmetic honestly, and if it clears with room, take it to counsel.

For everyone else, the honest read is that the existing charity is not a shortcut. It is a set of constraints — a purpose statement, a donor history, a restricted-fund ledger, and a revenue mix — that you would not choose if you were starting today.

The Structure That Works for Everyone Else

The pattern the safe harbor pushes almost every diversified organization toward is a separate, dedicated 501(c)(3) whose activities are scholarship-granting and essentially nothing else, affiliated with the parent by overlapping but not identical governance.

It gets you a clean total-receipts denominator, so the safe harbor is available. It gets you articles written for Section 25F from the first draft rather than amended toward it. It gets you a segregated-account structure that does not have to be carved out of an existing chart of accounts. It keeps restricted funds and legacy donor intent where they belong. And it gives the parent organization's other programs room to keep operating without dragging the scholarship entity's 90 percent test around behind them.

It costs a formation, a board, a bank account, and a second annual filing set — usually less than an amendment project that may not survive the September rules. The step-by-step formation sequence is here; if you have not settled whether the SGO should be yours at all, start with the form-or-join framework or with joining an SGO that already runs.

What the End of September Could Still Change

Treasury has said the proposed regulations will issue no later than the end of September 2026, and that states, SGOs, and taxpayers will be able to rely on them for tax year 2027. Until then everything above is the statute plus a preview, and the preview items were expressly described as subject to ongoing legal review.

Several open questions bear directly on whether an existing charity works:

• How much is "largely" scholarship-granting? No threshold has been proposed. If your organization is close to the line, this single number decides your structure.
• Will there be startup or smoothing relief for the 90 percent test? Notice 2025-70 asked whether the regulations should address fluctuations in income and expenses, including first-year startup costs or smoothing the calculation over several years. That Treasury asked tells you it knows year one is hard.
• What is a substantial contributor? If the $5,000 floor is dropped in favor of a flat 2 percent, every disqualified-person list gets longer, and long-established charities have to run the calculation against their entire history.
• Do the operational tests run per state or in aggregate? Notice 2025-70 asked this about the ten-students rule, the 90 percent test, the expense limits, the priority rules, the earmarking prohibition, income verification, and self-dealing. The answers change committee design and footprint strategy.
• What does "authorized to do business" require? The difference between full foreign qualification and charitable registration alone is thousands of dollars a year across a wide footprint.
• And most directly on point: Notice 2025-70 includes a request for comments on other fact patterns, noting that Treasury is aware of organizations operating in other ways that may wish to qualify as SGOs — including fundraising organizations that distribute to other organizations rather than awarding scholarships themselves, and organizations operating under state tax credit programs whose structures are not expressly addressed. Treasury asked whether such organizations could satisfy all of the Section 25F(c)(5) requirements. That is the government saying, in writing, that the existing-organization question is open.

If your plan depends on any of those answers, do the preparatory work now and hold the irreversible step.

What to Do Between Now and Then

Work that pays off no matter how the regulations land:

• Pull your EO Business Master File entry and confirm your 501(c)(3) status and, critically, that you are not classified as a private foundation. This is the record your state will check.
• Run the total-receipts arithmetic on last year's actuals: total receipts unreduced by expenses, times 0.9, against the scholarship volume you can realistically award. If the gap is large, you have your answer and it is a new entity.
• Read your articles and bylaws against the Section 25F(c)(5) list and mark every provision that conflicts. Bring that markup to counsel rather than a general question.
• Test whether you can produce a contributions-from-inception total. If you cannot, start reconstructing now; it will not get easier.
• Inventory restricted and board-designated funds and identify anything that cannot follow a scholarship mission.
• Decide your footprint on student density, not donor geography — and check which of your target states have actually elected.
• Do not file an amendment, a foreign qualification, or a charitable registration you do not already need until the proposed regulations are out. Registrations renew annually and are the easiest cost to incur prematurely.
• Get on your state revenue department's notification list for SGO certification. Most states will publish procedures only after the federal rules issue, and those windows will be short.

The compliance rhythm you would be signing up for is laid out in the SGO compliance calendar, and it is worth reading before you decide the existing charity's staff can absorb it.

Not Legal Advice — and Not Final Rules

Two things to be clear about.

This is not legal or tax advice. It is a reading of the statute, one IRS notice, and a set of publicly previewed regulatory intentions. Whether your particular organization can serve as an SGO depends on its classification, its governing documents, its revenue mix, its restricted funds, its donor history, and the law of its state — none of which we know. Take this analysis to your own counsel and accountant, and give them the markup and the arithmetic rather than the question.

The rules are not final. Treasury's proposed regulations are expected no later than the end of September 2026. Several of the questions that determine whether an existing 501(c)(3) can be converted are explicitly on Treasury's open list — including one request for comments aimed squarely at organizations that already exist and want in. Anyone telling you today that your existing charity definitely qualifies, or definitely does not, is ahead of the record.

Which is exactly why this is worth a conversation rather than a checklist. We track this daily, we will publish a full analysis within days of the proposed regulations landing, and we would rather walk you through your specific facts than have you guess. If you are weighing whether to convert an existing 501(c)(3), form a dedicated entity, or join an SGO that already operates — reach out. Tell us what the organization is, what it takes in, and which states your students live in, and we will walk you through what the current rules say, what is still open, and what we would wait on. The newsletter signup below is the fastest way to get the September analysis the day it publishes.