Par. 2. Sections 1.25F-0 through 1.25F-5 are added to read as follows:
This section lists the table of contents for §§ 1.25F-1 through 1.25F-5.
§ 1.25F-1 Definitions.
(a) In general.
(1) Advance election.
(2) Covered State.
(3) Disqualified person.
(4) Eligible student.
(i) In general.
(ii) Area median gross income.
(iii) Household.
(5) Foster child.
(i) In general.
(ii) Authorized placement agency.
(6) Guidance.
(7) IRS scholarship granting organization (SGO) list.
(8) IRS SGO portal.
(9) IRS State section 25F portal.
(10) Located in a State.
(11) Multistate SGO.
(12) Qualified contribution.
(i) In general.
(ii) Goods or services received as consideration for the contribution.
(iii) Cash.
(13) Qualified digital wallet.
(14) Qualified elementary or secondary education expense.
(15) Resident of the United States.
(16) Scholarship granting organization (SGO).
(17) School.
(18) Section 25F segregated account.
(19) Sibling.
(20) Single-State SGO.
(21) State.
(22) State credit.
(23) State election.
(24) State SGO list.
(25) Timely written acknowledgement.
(26) Unused credit.
(b) Applicability date.
§ 1.25F-2 Federal scholarship tax credit for qualified contributions.
(a) Allowance of credit.
(1) In general.
(2) Treatment of married taxpayers filing jointly.
(3) Treatment of contributions from partnerships and S corporations.
(b) Donor reliance on SGO status.
(1) In general.
(2) Exception.
(c) Calculation of the section 25F credit.
(1) In general.
(2) Ordering rule for State credit reduction.
(d) Tax liability limitation.
(e) Carryforward of unused credit amounts.
(1) In general.
(2) Five-year carryforward limitation.
(3) First-in first-out.
(f) Denial of double benefit.
(g) Reporting and substantiation of qualified contributions.
(1) In general.
(2) Presumption.
(h) Examples.
(1) Example 1. Annual limitation and no double benefit.
(i) Facts.
(ii) Analysis.
(2) Example 2. Married taxpayers filing jointly.
(i) Facts.
(ii) Analysis.
(3) Example 3. State credit reduces credit under section 25F.
(i) Facts.
(ii) Analysis.
(4) Example 4. Taxpayer designates less than the entire contribution as a qualified contribution.
(i) Facts.
(ii) Analysis
(5) Example 5. Credit carryforward.
(i) Facts.
(ii) Analysis for 2033.
(i) Applicability date.
§ 1.25F-3 Scholarship granting organizations.
(a) Overview.
(b) Scholarship granting organization.
(c) Operational requirements for SGOs.
(1) In general.
(2) Safe harbor for a single-State SGO whose activities are at least 85 percent scholarship granting activities.
(i) In general.
(ii) Application of paragraph (b)(4) of this section to a single-State SGO that qualifies for the safe harbor.
(3) Multistate SGOs.
(4) 90 percent of income spending requirement.
(i) In general.
(ii) Income of the organization.
(A) In general.
(B) Meaning of income for purposes of the safe harbor and multistate SGOs.
(iii) Timing of 90 percent of income spending requirement.
(A) In general.
(B) Amounts treated as spent when paid.
(C) Ordering rule.
(D) Treatment of return of excess payment.
(E) No double counting.
(5) Verification that scholarships are used solely for qualified elementary or secondary education expenses.
(i) In general.
(ii) No funds may be paid directly to the family of the eligible student unless it is a qualified reimbursement.
(iii) Direct payments to the school.
(iv) Paying other vendors directly.
(v) Qualified digital wallet.
(6) Methods of verifying that a student's household income is not greater than 300 percent of the area median gross income.
(i) In general.
(ii) Household income requirement.
(A) Area median gross income.
(B) Family size.
(C) Household income.
(iii) Permissible verification methods.
(A) Direct income verification method.
(B) Categorical eligibility verification method.
(C) Safe harbor for an SGO providing individual scholarships for individual academic tutoring or special needs services at schools in low-income areas.
(1) In general.
(2) Requirements for safe harbor.
(D) Safe harbor for foster children.
(7) Students solely within the State.
(i) In general.
(ii) Exceptions.
(iii) Examples.
(A) Example 1.
(B) Example 2.
(8) Priority in awarding scholarships.
(d) Disqualified person.
(1) In general.
(2) Substantial contributor.
(i) In general.
(ii) Excepted scholarships.
(3) Member of the family.
(i) In general.
(ii) Descendant.
(4) Duration of disqualified person status.
(i) Substantial contributor to the SGO.
(ii) Officers, directors, trustees, individuals having similar powers and responsibilities, and individuals involved in selecting scholarship recipients.
(iii) Members of the family.
(5) Examples.
(i) Example 1. Determination of substantial contributor status.
(A) Facts.
(B) Analysis.
(ii) Example 2. Duration of disqualified person status.
(A) Facts.
(B) Analysis.
(iii) Example 3. Excepted scholarship.
(A) Facts.
(B) Analysis.
(e) Applicability date.
§ 1.25F-4 Reporting and recordkeeping requirements for SGOs.
(a) Overview.
(b) Mandatory registration through IRS SGO portal.
(1) In general.
(2) Time for registration through IRS SGO portal.
(3) Information required to complete registration.
(4) Donor number.
(c) Acknowledgement and reporting of qualified contributions received by SGOs.
(1) Reporting to donor.
(i) In general.
(ii) Time and manner of providing timely written acknowledgement.
(2) Reporting qualified contributions to the IRS.
(i) In general.
(ii) Time and manner of reporting.
(d) Reporting operational information to the IRS.
(1) In general.
(2) Annual certification.
(i) In general.
(ii) Additional certifications relating to operational requirements.
(A) Single-State SGO.
(B) Single-State SGO using the safe harbor found in § 1.25F-3(c)(2).
(C) Multistate SGO.
(3) Required annual information.
(i) In general.
(ii) Single-State SGO using the safe harbor found in § 1.25F-3(c)(2).
(iii) Multistate SGO. (4) Time and manner of reporting.
(e) Required audits.
(1) In general.
(2) Qualified independent third party.
(i) Organizations with annual receipts exceeding $500,000.
(ii) Organizations with annual receipts of $500,000 or less.
(3) Content of audit.
(4) Scope of audit.
(f) Applicability date.
§ 1.25F-5 State election, State SGO list, and certification of SGOs.
(a) Overview.
(b) IRS State section 25F portal.
(1) In general.
(2) Delegation.
(i) In general.
(ii) Designated officials.
(3) Special-purpose EIN.
(4) Information required to complete registration.
(c) State election.
(1) In general.
(2) Authority to make a State's election.
(3) Advance election.
(i) Submission of advance election.
(A) In general.
(B) Transition rule for the first calendar year for which section 25F applies.
(1) Calendar year 2027.
(2) Future years.
(ii) Perfection of advance election.
(A) In general.
(B) Transition rule for the first calendar year for which section 25F applies.
(C) Failure to perfect.
(iii) IRS advance election list.
(4) Election with submission of the State SGO list.
(5) Certifications and other required information.
(d) State SGO lists.
(1) In general.
(2) Required SGO information.
(3) Required SGO certifications.
(4) Transition rule for an organization that has not yet been required to provide information and certifications to the IRS.
(5) Procedure that applies when an organization's application for recognition of tax-exempt status is pending with the IRS.
(6) Certification of State policies and procedures.
(7) Changes to State SGO list.
(i) Changes before the deadline for the elected calendar year.
(ii) Additions to State SGO list after the deadline for the elected calendar year.
(iii) Removal from State SGO list.
(A) Removal request from SGO.
(B) State removal procedures.
(8) Removal of a non-compliant organization from the IRS SGO list.
(i) Removal following change in tax-exempt status.
(ii) IRS determination of non-compliance with applicable requirements.
(iii) Removal following State SGO status determination.
(A) In general.
(B) Multistate SGO.
(9) Publication of covered States and State SGO lists.
(i) In general.
(ii) Addition of organizations with pending tax-exempt status to IRS SGO list.
(e) State administrative requirements.
(1) In general.
(2) Prohibition on additional State requirements or discretionary exclusions.
(3) Federal review.
(f) Applicability date.