Par. 2. Sections 1.25F-0 through 1.25F-5 are added to read as follows:
(a) In general. The definitions of terms in this paragraph (a) apply for purposes of section 25F of the Internal Revenue Code (Code) and the section 25F regulations (that is, this section and §§ 1.25F-2 through 1.25F-5).
(1) Advance election. The term advance election means a State's submission described in § 1.25F-5(c)(3).
(2) Covered State. The term covered State means a State that makes a State election, in accordance with § 1.25F-5(c), to participate under section 25F for a particular calendar year.
(3) Disqualified person. The term disqualified person is defined in § 1.25F-3(d).
(4) Eligible student —(i) In general. The term eligible student means an individual who:
(A) Is a member of a household with an income that, for the calendar year prior to the date of the application for a scholarship, is not greater than 300 percent of the area median gross income; and
(B) Is eligible to enroll in a public elementary or secondary school.
(ii) Area median gross income. The term area median gross income means area median gross income calculated in a manner consistent with determinations of area median gross income under section 8 of the United States Housing Act of 1937 (or, if such program is terminated, under such program as in effect immediately before such termination), including adjustments for family size, meaning the number of persons who are part of a household for purposes of section 25F. Area median gross income will be published in the Internal Revenue Bulletin annually by the Internal Revenue Service.
(iii) Household. The term household includes the individual whose status as an eligible student is being determined, and the group of persons residing with that individual. See § 1.25F-3(c)(6)(ii)(B) if an individual resides in multiple households during the year.
(5) Foster child— (i) In general. The term foster child means a child who has been removed from the custody of a parent or legal guardian and placed under the care or placement authority of, or has become the legal responsibility of, a child welfare agency, regardless of whether the child has been or will be placed with a person by an authorized placement agency or by judgment, decree, custody order, or any other order of any court of competent jurisdiction (other than an order appointing a legal guardian of the child).
(ii) Authorized placement agency. The term authorized placement agency means a State, the District of Columbia, a possession of the United States, a foreign country, an Indian Tribal government (as defined in section 7701(a)(40)), or an agency or organization that is authorized by a State (including a non-federally recognized Tribe that otherwise is authorized to act on such matters under applicable State law), or a political subdivision of any of the foregoing, to place children for legal adoption or in foster care.
(6) Guidance. The term guidance means guidance published in the Federal Register or Internal Revenue Bulletin ( see §§ 601.601(d)(2) and 601.602 of this chapter) or, as appropriate, in forms, instructions, and publications available on https://www.irs.gov and through the IRS SGO portal or IRS State section 25F portal, as applicable.
(7) IRS scholarship granting organization (SGO) list. The term IRS SGO list means the aggregated list of SGOs included on one or more State SGO lists that the IRS maintains and publishes on https://www.irs.gov in accordance with § 1.25F-5(d)(9).
(8) IRS SGO portal. The term IRS SGO portal consists of the module(s) on https://www.irs.gov that an SGO is required by § 1.25F-4(b) to use, in accordance with the instructions provided therein, to electronically obtain instructions for creating a unique donor number in a uniform format to be used by all SGOs, authorize disclosure of its name and identifying information on the IRS SGO list, and report specified information.
(9) IRS State section 25F portal. The term IRS State section 25F portal consists of the module(s) on https://www.irs.gov that a State is required by § 1.25F-5(b) to use, in accordance with guidance, to electronically transmit its State election (or advance election), State SGO list, any changes to the State SGO list, annual certifications, and any other information required in guidance.
(10) Located in a State. An organization is located in a State if the organization is authorized to do business in the State and is in compliance with the generally applicable State laws and requirements for charitable organizations in the State, including provisions for transparency, accountability, and fraud prevention. But see § 1.25F-5(e)(2) (prohibiting covered States from imposing requirements on SGOs that are more restrictive than the requirements in section 25F(c)(5)).
(11) Multistate SGO. The term multistate SGO means an SGO that is included on the State SGO list of more than one covered State.
(12) Qualified contribution —(i) In general. The term qualified contribution means a charitable contribution of cash made by an individual to an SGO to the extent that the donor designates to the recipient SGO, at the time of making the contribution, that the contribution is intended to be a qualified contribution for purposes of section 25F. Such designation, once made, is irrevocable.
(ii) Goods or services received as consideration for the contribution. If the SGO provides any goods or services as consideration for any part of the contribution, then the value of those goods and services must be subtracted from the amount of the charitable contribution to arrive at the amount of the qualified contribution.
(iii) Cash. For purposes of paragraph (a)(12)(i) of this section, the term cash —
(A) Means physical currency, check, money order, electronic transfer, after-tax payroll deduction, or other similar method, in each case all in U.S. dollars, and
(B) Does not mean any digital asset.
(13) Qualified digital wallet. The term qualified digital wallet means an electronic payment platform in which a third-party provider provides a streamlined interface for managing the administration of section 25F scholarships by having eligible students and their families submit purchase requests, tracking approved expenses, and maintaining controls to ensure that all payments are made for qualified elementary or secondary education expenses by pre-approving vendors and paying vendors directly or requiring timely submission of receipts.
(14) Qualified elementary or secondary education expense. The term qualified elementary or secondary education expense means any expense of an eligible student that is described in section 530(b)(3)(A) and any guidance thereunder.
(15) Resident of the United States. The term resident of the United States means an individual who is a resident of the United States under section 7701(b) or in accordance with an election under section 6013(g) or (h). For this purpose, the term United States means only the 50 States and the District of Columbia. See section 7701(a)(9).
(16) Scholarship granting organization (SGO). The term SGO is defined in section 25F(c)(5) and § 1.25F-3(b).
(17) School. The term school has the definition set forth in section 530(b)(3)(B) and any guidance issued thereunder.
(18) Section 25F segregated account. The term section 25F segregated account means the separate account exclusively for qualified contributions and the earnings therefrom that the SGO must maintain pursuant to section 25F(c)(5)(B) and § 1.25F-3(b)(2) (in the case of a single-State SGO) or § 1.25F-3(c)(3) (in the case of a multistate SGO).
(19) Sibling. The term sibling means an individual's brothers and sisters, adopted siblings, foster siblings, half-siblings, and step-siblings.
(20) Single-State SGO. The term single-State SGO means an organization included on the State SGO list of only one covered State.
(21) State. References to State include each of the 50 States and the District of Columbia.
(22) State credit. The term State credit means any tax credit offered by a State for making a contribution to an SGO that is allowed on a State tax return of the taxpayer (whether or not such return is filed jointly with a spouse) for the taxable year. For this purpose, any State tax credit carryforward or carryback amount attributable to a contribution to an SGO will be treated as allowed for the taxable year of the contribution. See § 1.25F-2(c)(2) for an ordering rule that applies in the case of a State credit that is allowed for contributions that are not qualified contributions.
(23) State election. The term State election means a State election to participate under section 25F for a particular calendar year that is made in accordance with the procedures set forth in § 1.25F-5(b) and (c).
(24) State SGO list. The term State SGO list means the list of all SGOs located in the State that the covered State submits to the IRS for a particular calendar year in accordance with § 1.25F-5(d) (and that may be changed during such calendar year in accordance with § 1.25F-5(d)(7)).
(25) Timely written acknowledgement. The term timely written acknowledgement means the written acknowledgement an SGO must provide to donors with respect to qualified contributions made during the calendar year in accordance with § 1.25F-4(c)(1).
(26) Unused credit. The term unused credit means the amount of the credit determined under § 1.25F-2(c) for a taxable year that is not used by reason of the tax liability limitation in section 26(a).
(b) Applicability date. This section applies to taxable years ending on or after [date of publication of the final regulations in the Federal Register ].