# Prop. Treas. Reg. § 1.25F-2: Federal scholarship tax credit for qualified contributions. Proposed regulation, not in force. REG-117199-25, 91 FR 62818, published 2026-10-02 . Interprets 26 U.S.C. § 25F. Par. 2. Sections 1.25F-0 through 1.25F-5 are added to read as follows: (a) Allowance of credit —(1) In general. Under section 25F(a) of the Internal Revenue Code (Code), an individual taxpayer who is a U.S. citizen or a resident of the United States for all or any portion of a taxable year is allowed a nonrefundable credit determined in accordance with paragraph (c) of this section for qualified contributions made by the taxpayer in the portion of that taxable year during which the taxpayer is a U.S. citizen or a resident of the United States (section 25F credit). A section 25F credit is allowed against the tax imposed for the taxable year by sections 1 and 55(a). In making a contribution to an organization to obtain a section 25F credit, a taxpayer may rely, in accordance with paragraph (b) of this section, on the donee organization's presence on the IRS scholarship granting organization (SGO) list at the time of the contribution to establish that the organization is an SGO. A taxpayer may make a qualified contribution to any SGO on any State SGO list, regardless of the taxpayer's State of residence. The amount of the section 25F credit allowed for a taxable year generally is equal to the aggregate amount of qualified contributions made by the taxpayer during the taxable year, reduced by the amount of any State credits claimed for such qualified contributions, and subject to a cap of $1,700. However, because the section 25F credit used in a particular year cannot exceed the tax liability of the individual taxpayer for that year, the section 25F credit is limited to the amount of the taxpayer's tax liability, as determined under paragraph (d) of this section. Any unused section 25F credit may be carried forward for up to five years, as provided in paragraph (e) of this section. Rules relating to the denial of a double benefit are provided in paragraph (f) of this section. Rules relating to the reporting and substantiation of qualified contributions are provided in paragraph (g) of this section. Paragraph (h) of this section contains examples illustrating the application of the rules of this section. (2) Treatment of married taxpayers filing jointly. For purposes of section 25F(b)(1), married taxpayers who elect to file a joint return under section 6013(a) and § 1.6013-1(a) are treated as separate taxpayers. (3) Treatment of contributions from partnerships and S corporations. A partner may not take into account such partner's distributive share of the partnership's charitable contributions to an SGO in determining the amount of the partner's qualified contributions under section 25F and paragraph (a) of this section. Similarly, a shareholder of an S corporation may not take into account such shareholder's pro rata share of the S corporation's charitable contributions to an SGO in determining the amount of the shareholder's qualified contributions under section 25F and paragraph (a) of this section. This paragraph (a)(3) applies whether or not a partner or an S corporation shareholder may treat the partner's or shareholder's share of such contributions as deductible under section 170. (b) Donor reliance on SGO status —(1) In general. Except as provided in paragraph (b)(2) of this section, a taxpayer may rely on the fact that an organization is listed on the IRS SGO list (and not listed as removed from that list) at the time a contribution is made to establish that the taxpayer's contribution is being made to an SGO. See § 1.25F-5(d)(9) for additional guidance on the publication and maintenance of the IRS SGO list, including for the IRS's addition of SGOs whose tax-exempt status is recognized after the State's submission of the State SGO list. (2) Exception. A taxpayer may not rely on the fact that an organization is listed on the IRS SGO list (and not listed as removed from that list) at the time a contribution is made to establish that the organization is an SGO if the taxpayer: (i) Had knowledge that the recipient organization did not satisfy the requirements of section 25F(c)(5) and § 1.25F-3(b) at the time the contribution was made; or (ii) Was at least in part responsible for, or was aware of, the act, the failure to act, or the substantial and material change on the part of the organization that gave rise to the removal of the organization from the IRS SGO list in accordance with § 1.25F-5(d)(8) after the date of the taxpayer's contribution. (c) Calculation of the section 25F credit —(1) In general. A taxpayer's section 25F credit is the lesser of: (i) The aggregate amount of qualified contributions made during the taxable year while the taxpayer was a United States citizen or a resident of the United States reduced (but not to below zero) by the sum of any State credits with regard to those qualified contributions; or (ii) $1,700. (2) Ordering rule for State credit reduction. For purposes of this section, if a State credit is allowed with respect to an individual's contributions of cash to an SGO that includes both a qualified contribution and an amount that is not a qualified contribution, then the State credit will be treated as first being allowed with respect to the amount of the donor's contribution that is not a qualified contribution and only thereafter treated as being allowed with respect to the donor's qualified contributions to an SGO. (d) Tax liability limitation. The section 25F credit allowed for a taxable year may not exceed the taxpayer's tax liability as defined in section 26(a), based on the tax imposed for such taxable year as reduced by the sum of the nonrefundable personal credits allowable under sections 21, 22, 24, 25, 25A, 25B, 25C and 25E. See paragraph (e) of this section for rules regarding the carryforward of unused credit amounts. (e) Carryforward of unused credit amounts— (1) In general. Under section 25F(f), a taxpayer may carry forward any unused credit to one or more succeeding taxable years and add it to the section 25F credit allowable for such taxable year(s), in accordance with this paragraph (e). (2) Five-year carryforward limitation. No unused credit may be carried forward to any taxable year following the fifth taxable year after the taxable year in which the section 25F credit arose. (3) First-in first-out. Section 25F credits carried forward to a taxable year pursuant to this paragraph (e) are used on a first-in first-out basis. Thus, a section 25F credit carried forward must be used prior to using any section 25F credit that arose for such taxable year. (f) Denial of double benefit. Any qualified contribution for which a credit is allowed under section 25F may not be taken into account as a charitable contribution for purposes of section 170. For this purpose, an amount is treated as allowed if it may be carried forward pursuant to paragraph (e) of this section. Any portion of a qualified contribution for which a credit under section 25F is not allowed may be deductible as a charitable contribution if it meets the requirements of section 170 and the regulations thereunder. (g) Reporting and substantiation of qualified contributions— (1) In general. A taxpayer who claims the section 25F credit on the taxpayer's Federal income tax return must substantiate the credit on Form 8525, Federal Scholarship Tax Credit (or successor form), by reporting such information as may be required in the form and instructions, including, for each SGO to which the taxpayer has made a qualified contribution during the taxable year, the unique donor number that the SGO was required to provide as part of a timely written acknowledgement in accordance with § 1.25F-4(c). (2) Presumption. A taxpayer that does not provide the required donor number(s) on the taxpayer's Form 8525, Federal Scholarship Tax Credit (or successor form), will be presumed not to have made a qualified contribution to that SGO. However, this presumption may be rebutted by the taxpayer's submission of the timely written acknowledgement from the SGO that includes such unique donor number or other evidence satisfactory to the Commissioner of the amount of the contribution(s) from the taxpayer and the fact that the contributions were designated as qualified contributions, all within the response time prescribed in a written request from the IRS. (h) Examples. The following examples illustrate the application of the rules of this section. For purposes of these examples, Org X and Org Y are listed on the IRS SGO list at the time of the contribution. In each case, the taxpayer provides the unique donor number for each SGO on the taxpayer's Form 8525, Federal Scholarship Tax Credit (or any successor form). (1) Example 1: Annual limitation and no double benefit —(i) Facts. In January 2027, Taxpayer A contributes $2,000 to Org X, designates the entire amount of the contribution as a qualified contribution, and receives a timely written acknowledgement in accordance with § 1.25F-4(c). A's qualified contribution does not satisfy the requirements for any State credit. (ii) Analysis. A's $2,000 qualified contribution results in a $1,700 allowed section 25F credit that may be claimed on A's return for 2027, subject to the tax liability limitation under section 26(a). See paragraph (c) of this section. This $1,700 portion of the qualified contribution cannot be taken into account as a charitable contribution for purposes of section 170. The remaining $300 from the $2,000 qualified contribution may be deductible as a charitable contribution if it meets the requirements of section 170 and the regulations thereunder. (2) Example 2: Married taxpayers filing jointly —(i) Facts. In January 2027, Taxpayer B and Taxpayer C are a married couple. B and C each contribute $2,000 to Org X. Each designates the entire amount of their contribution as a qualified contribution and each receives a timely written acknowledgement in accordance with § 1.25F-4(c). Neither B's nor C's contribution satisfies the requirements for any state credits. (ii) Analysis. Each of B and C's contributions result in a $1,700 allowed section 25F credit, resulting in a total of $3,400 that may be claimed on B and C's joint return. The credit will be subject to their combined tax liability limitation under section 26(a). See paragraph (c) of this section. The $3,400 of qualified contributions cannot be taken into account as a charitable contribution for purposes of section 170. The remaining $600 from the combined $4,000 qualified contributions may be deductible as a charitable contribution if it meets the requirements of section 170 and the regulations thereunder. (3) Example 3: State credit reduces credit under section 25F —(i) Facts. In January 2027, Taxpayer D contributes $1,500 to Org X and $500 to Org Y. D designates the entire amount of each contribution as a qualified contribution and receives a timely written acknowledgement for each in accordance with § 1.25F-4(c). In addition, Org X qualifies as a State tuition granting organization under the laws of State Q. State Q offers a State credit equal to 40 percent of an individual's contributions up to $1,000 to a State tuition granting organization, and D's $1,500 contribution to Org X also satisfies the requirements for the State credit. In February 2028, D files a 2027 Form 1040 and the appropriate State Q income tax return. D claims a State credit of $400 on the State Q income tax return. (ii) Analysis. D's $2,000 of qualified contributions are reduced by $400, the amount of State credits claimed on the taxpayer's State tax return with regard to those qualified contributions. The remaining $1,600 of qualified contributions is less than $1,700, so D is allowed a $1,600 section 25F credit that may be claimed on D's return for 2027, subject to the tax liability limitation under section 26(a) and paragraph (d) of this section. See paragraph (c) of this section. (4) Example 4: Taxpayer designates less than the entire contribution as a qualified contribution —(i) Facts. In January 2027, Taxpayer E contributes $4,000 to Org X. E designates $1,700 as a qualified contribution and receives a timely written acknowledgement in accordance with § 1.25F-4(c). In addition, Org X qualifies as a State tuition granting organization under the laws of State Z. State Z offers a $400 State credit equal to 10 percent of an individual's contributions of up to $4,000 to a State tuition granting organization, and E's entire contribution (both the qualified contribution and non-qualified contribution portions) also satisfies the requirements for the State credit. In February 2028, E files a 2027 Form 1040 and the appropriate State Z income tax return. E claims a State tax credit of $400 on the State Z income tax return. (ii) Analysis. Based on the ordering provision in paragraph (c)(2) of this section, E's $400 State credit is treated as being allowed first from the $2,300 non-qualified contribution to the SGO, so the $1,700 qualified contribution is not reduced by the $400 State credit. E's $1,700 qualified contribution to the SGO results in $1,700 of allowed section 25F credit that may be claimed on E's return for 2027, subject to the tax liability limitation under section 26(a) and paragraph (d) of this section. See paragraph (c) of this section. (5) Example 5: Credit carryforward —(i) Facts. Taxpayer F has credit carryforwards under section 25F(f) for the last five years, as shown in Table 1 in this paragraph (h)(4)(i). F made qualified contributions of $2,000 in 2033 and has a limitation under section 26(a) of $4,500 for that year. F has no other nonrefundable credits. The difference between the qualified contribution in the year the carryforward was generated and the credit used in such year is based on F's section 26(a) limitation for each year. **Table 1 to Paragraph (h)(5)(i)** | Year | Cumulative carryforward from prior years | Qualified contributions | Section 25F credit used after application of section 26(a) | Carryforward from that year to future years under section 25F(f) and paragraph (e) of this section | | --- | --- | --- | --- | --- | | 2027 | 0 | $1,000 | $900 | $100 | | 2028 | $100 | 1,000 | 0 | 1,000 | | 2029 | 1,100 | 1,000 | 0 | 1,000 | | 2030 | 2,100 | 1,500 | 0 | 1,500 | | 2031 | 3,600 | 1,500 | 0 | 1,500 | | 2032 | 5,100 | 2,000 | 0 | 1,700 | (ii) Analysis for 2033. In taxable year 2033, F may use the section 25F(f) credit carryforwards from taxable years 2028 through 2032, but the carryforward from taxable year 2027 has expired as it was from more than five taxable years preceding the current taxable year. See paragraph (e)(2) of this section. As a result, the cumulative carryforward to 2033 is the sum of the amount carried forward to 2032 ($5,100) less the amount from 2027 ($100), plus the carryforward from 2032 ($1,700), for a total carryforward available in 2033 of $6,700. F's section 26(a) limitation of $4,500 will determine the amount of carryforwards F may use against F's income tax for taxable year 2033. Pursuant to paragraph (e)(3) of this section, F uses the credits in the following order: $1,000 from 2028, $1,000 from 2029, $1,500 from 2030, and $1,000 from 2031 for a total of $4,500. The remaining $500 from 2031, $1,700 from 2032, and the $1,700 from 2033 will be carried forward to a future year because they are limited by the section 26(a) limitation. See paragraphs (d) and (e) of this section. **Table 2 to Paragraph (h)(5)(ii)** | Year | Carryforward to future years | Carryforward used in 2033 | Carryforwards to 2034 | | --- | --- | --- | --- | | 2027 | $100 | $0—(expired) | $0 | | 2028 | 1,000 | $1,000 | 0 | | 2029 | 1,000 | $1,000 | 0 | | 2030 | 1,500 | $1,500 | 0 | | 2031 | 1,500 | $1,000 (partially used) | 500 | | 2032 | 1,700 | $0 | 2,200 | | 2033 (current year) | 1,700 | $0 | 3,900 | (i) Applicability date. This section applies to taxable years ending on or after [date of publication of the final regulations in the Federal Register ].