The Four Structural Requirements

Section 25F establishes four structural requirements that a Scholarship Granting Organization must meet. These are federal statutory requirements — they cannot be waived by states, and they apply regardless of how a state structures its own program.

1. 501(c)(3) with SGO primary mission

The SGO must be organized and operated exclusively for educational purposes, hold 501(c)(3) tax-exempt status, and have a primary mission of providing scholarships to eligible students.

The primary mission requirement has real teeth. An organization whose 501(c)(3) determination letter describes a broad educational mission — "promoting education in the community" — may not qualify without amending its governing documents to reflect an SGO-specific primary mission. The IRS will look at both the governing documents and the actual operations to determine whether the primary mission requirement is satisfied.

Organizations with existing 501(c)(3) status should treat this as a threshold question. If your primary mission as stated does not clearly center on providing scholarships to income-eligible students, a governing document amendment is probably necessary before state approval can be sought.

2. State approval

The SGO must appear on the certified list of a state that has elected to participate. Without that listing, no donor can claim the federal tax credit for contributions to the SGO — regardless of how well-structured the organization is from a federal compliance standpoint.

Getting listed is on the critical path, and the timeline for it is not yet knowable. No state has submitted a Section 25F SGO list: the IRS deferred that deadline and procedure to future guidance, expected with the proposed regulations due by the end of September 2026. States adapting an existing scholarship-credit framework will likely move fastest; states building one from scratch will not. Organizations targeting a January 1, 2027 operational date should be finished with the federal work and ready to file the day their state opens its process.

3. Multi-student, multi-school distribution

Scholarships must be awarded to ten or more students who do not all attend the same school. This requirement has two components that both must be satisfied:

The numerical minimum — at least ten scholarship recipients — applies per award cycle. An SGO that awards nine scholarships in a given year falls short of the minimum regardless of how those scholarships are distributed.

The distribution requirement — recipients must not all attend the same school — is a structural constraint on award design. An SGO that awards ten scholarships but concentrates all of them at a single school violates this requirement even if the numerical minimum is met.

The practical implication: SGOs must design their applicant pool development and award processes to achieve distribution across multiple schools. This requires marketing to families across a geographic area broad enough to generate a diverse applicant pool, and award processes that do not systematically concentrate awards at any single school.

4. No earmarking

Scholarship awards cannot be conditioned on a donor's identity or preferences. A donor cannot designate that their contribution benefit a specific student, a student at a specific school, or a student from a specific community. The no-earmarking prohibition applies explicitly to:

• Direct earmarking ("I want my donation to help the Johnson family")
• Structural earmarking (allocating funds by school in proportion to donations from each school's community)
• Implicit conditioning (informally accepting donations with the understanding that they will benefit specific students)

The no-earmarking rule is one of the most commonly misunderstood compliance requirements in the SGO context. It does not mean that donors cannot know that their contributions fund scholarships in their community — it means that the award decisions must be genuinely independent of who donated and what their preferences were.