The SGO Compliance Calendar: What Your Organization Must Do Every Month and Year

Most organizations approaching SGO formation focus on what they need to do to get started — the legal formation, the IRS application, the state approval. That is the right focus during the formation phase. But the harder, longer-term question is what your organization needs to do to stay compliant once it is up and running.

A Section 25F SGO has ongoing compliance obligations at multiple time horizons: some things need to happen in real time with each contribution or scholarship award, some things need to happen on a monthly basis, some are quarterly, and some are annual. Organizations that treat compliance as a year-end exercise discover mid-year problems too late to fix them without significant disruption.

This calendar covers the ongoing compliance obligations for an operating SGO.

Real-Time: With Each Contribution

Verify donor eligibility and contribution limits. Not every person who wants to contribute to your SGO is eligible for the Section 25F credit — the credit is only available to individual taxpayers, not corporations or businesses. Before accepting a contribution, confirm it is from an individual donor. Also track each donor's cumulative contributions for the year to enforce the $1,700 per-taxpayer annual cap. A donor who contributes $1,000 in March and $1,000 in October has exceeded the cap — only the first $1,700 of contributions generates a credit.

Issue a Section 25F tax credit receipt promptly. When a donor makes a qualified contribution, issue a receipt that complies with Section 25F requirements. The receipt should document the contribution amount, the date, the SGO's state approval information, and the donor's eligibility for the credit. Do not batch receipts at year end — issue them promptly when contributions are received.

Record the contribution in your donor management system. Your records need to track each donor's contributions across the full calendar year. Integrate contribution records into your 90/10 ratio tracking from the moment the contribution is received.

Real-Time: With Each Scholarship Award

Verify income eligibility before awarding. The income verification must be completed and documented before the scholarship is awarded, not after. An award made without income verification is a compliance failure regardless of whether the recipient would have qualified.

Document the committee's award decision. The scholarship committee's meeting, the applications reviewed, the criteria applied, and the awards made should be documented in meeting minutes or a decision record. This does not need to be elaborate, but it needs to exist.

Confirm multi-school distribution at each award cycle. Before finalizing any award cycle, verify that the awards being made — combined with any prior awards in the same cycle — will meet the multi-school distribution requirement. Do not complete an award cycle in which all scholarships go to students at the same school.

Issue scholarship disbursements in accordance with the award. Pay qualifying expenses directly to the institution or vendor when possible. When reimbursement is necessary, collect receipts that document the qualified expenses.

Monthly: Ongoing Operations

Track the 90/10 overhead ratio. At the end of each month, calculate your year-to-date overhead ratio: total overhead costs to date divided by total revenues to date. This number should never approach 10% in a way that is not controllable. If your overhead ratio is tracking toward the limit in the first half of the year, you have time to accelerate fundraising or reduce discretionary costs. If you discover this in November, your options are much more limited.

Reconcile contribution records. Monthly bank reconciliation is standard accounting practice. For SGOs, it also serves a compliance function: verifying that contributions received match your donor management records and that no contributions were received that are not properly recorded.

Review any pending income verification cases. Applications where income documentation is incomplete or borderline should not sit unresolved. Monthly review of pending verification cases keeps your award pipeline from backing up.

Monitor regulatory developments. The regulatory environment for Section 25F is actively developing. IRS guidance, state regulatory updates, and legislative changes can affect your compliance obligations. Monthly monitoring — at minimum a review of IRS releases and state agency communications — keeps your organization ahead of regulatory change.

Quarterly: Process and Governance

Scholarship committee meeting (if quarterly award cycles). Many SGOs run scholarship award cycles on a quarterly basis. Each cycle requires a committee meeting, documented deliberations, and award decisions that meet the arm's-length standard. Do not let cycles run without formal committee meetings.

Board report on compliance metrics. The SGO's board has governance responsibility for the organization's compliance. Each quarter, the board should receive a report that includes: contributions received and the 90/10 ratio to date, scholarships awarded and multi-school distribution status, any pending income verification issues, and any regulatory developments that may affect operations. Board governance that is disconnected from compliance metrics is not effective governance.

State reporting check-in. Review your state's annual reporting requirements and the documentation you are accumulating toward that report. If your state requires specific data that you are not currently collecting, identify the gap while there is time to fill it.

Review donor communications for compliance. Periodically review your donor-facing materials — website content, fundraising communications, social media — to ensure that no language implies donors can direct contributions to specific students or schools. The no-earmarking prohibition applies to implied earmarking, not just explicit requests.

Annually: Required Filings and Formal Reviews

State annual report. Section 25F requires that approved SGOs file annual reports with the state in which they are approved. Each state specifies the content and format of its annual report. Most states will require: total contributions received, total scholarships awarded, distribution of scholarships by school and expense category, the income verification methodology, and a certification that the SGO met its compliance obligations for the year. File on time — state annual reports are a condition of maintaining approved status.

IRS Form 990. As a 501(c)(3) organization, your SGO must file an annual information return with the IRS. The form appropriate for your organization depends on gross receipts: 990-N for organizations with gross receipts under $50,000, 990-EZ for organizations with receipts between $50,000 and $200,000, and full Form 990 for organizations with receipts over $200,000. Most meaningful SGOs will file the full Form 990. The 990 is a public document — it will be reviewed by donors, researchers, and regulators.

Annual financial review or audit. Depending on your state's requirements and your organization's size, an annual financial review or audit may be required. Even where it is not required, a financial review provides valuable assurance that your accounting practices are sound and your 90/10 calculations are accurate.

Board governance review. Once per year, the board should formally review: the SGO's scholarship criteria (are they still appropriate for the mission?), the scholarship committee structure (does it have appropriate independence?), the donor communications (do they comply with the no-earmarking requirement?), and the organization's overhead structure (is the 90/10 ratio sustainable at current program scale?).

Regulatory update review. At the end of each calendar year, conduct a formal review of regulatory developments from the prior year and assess their implications for your organization's operations. Update your income verification thresholds for the new year using current HUD AMI data. Assess whether any changes to state regulations require amendments to your governing documents or operational procedures.

Update AMI thresholds. HUD publishes updated area median income figures each year. Update your income eligibility thresholds as soon as new figures are available — typically mid-year. Document the update and the date it was implemented.

The Compliance Culture

A calendar of tasks does not create a compliance culture. Compliance culture comes from an organization's leadership understanding that the tax credits donors receive are real federal tax benefits, and that those benefits depend on the SGO operating exactly as the statute requires.

Organizations that treat compliance as a burden to be minimized — doing the minimum to check the boxes — are the organizations that accumulate the small lapses that become large problems. Organizations that treat compliance as the foundation of their credibility with donors, students, and states are the ones that build lasting, successful scholarship programs.

The compliance calendar is a tool. The commitment behind it is what makes it work.