The U.S. Department of the Treasury and IRS recently issued temporary regulations (T.D. 10057) providing guidance on the new Federal Scholarship Tax Credit established under the One, Big, Beautiful Bill Act. Beginning in 2027, the credit will be available to eligible individuals who make qualified contributions to scholarship granting organizations (“SGOs”) that fund elementary and secondary education scholarships.
The newly issued regulations establish requirements and procedures for states and SGOs participating in the program. Specifically, the regulations address state elections, registration requirements, reporting obligations, and compliance measures.
Key provisions of the temporary regulations include:
- State Participation: States must elect to participate in the program annually and submit a list of qualifying SGOs to the IRS. For 2027, states must submit an advance election by January 1, 2027, and their qualifying organization lists on or before February 15, 2027.
- SGO Registration: Participating organizations must register electronically through an IRS portal and provide identifying information. The registration process also allows organizations to generate unique donor numbers used to substantiate qualified contributions.
- Contribution Requirements: Qualified contributions must be charitable cash contributions designated by donors as qualifying contributions at the time they are made. SGOs must maintain separate accounts for these contributions.
- Reporting Requirements: SGOs must provide donors with written acknowledgments of their qualified contributions by January 31 of the following year and report contribution information to the IRS by February 28.
- Compliance and Oversight: States must verify that participating SGOs satisfy applicable requirements. The IRS may remove organizations from its list of eligible SGOs for failure to comply with federal requirements.
The regulations also address organizations operating in multiple states and provide for a publicly available IRS list of participating SGOs to assist taxpayers in identifying eligible organizations.
The temporary regulations are effective on December 1, 2026, and generally apply on or after September 1, 2026.
As the Federal Scholarship Tax Credit approaches implementation in 2027, taxpayers, scholarship-granting organizations, and participating states should familiarize themselves with the new requirements and potential implications. Contact Liskow Transactional and Tax attorneys Leon Rittenberg III, Caroline Lafourcade, or Abby Strohmeyer, and visit our Tax Practice page for additional information.