What Treasury Has Previewed About the Coming §25F Rules, and What It Means for Donors and SGOs

On June 10, 2026, Treasury released a preview of the forthcoming regulations for the Education Freedom Tax Credit (EFTC), the closest thing to a finished rulebook anyone has seen since the credit was enacted. The full proposed regulations are expected no later than the end of September 2026, and Treasury has said states, Scholarship Granting Organizations (SGOs), and taxpayers will be able to rely on them for the 2027 tax year, meaning the program launches on January 1, 2027 using this proposed framework even if the final rule takes longer to complete.

Here is what the preview covers, and what remains genuinely open.

The 90% spending test gets a practical safe harbor

The law requires an SGO to spend at least 90% of its income on scholarships, and “income” has been the single most consequential undefined term in the statute. Treasury’s preview offers a safe harbor: an organization whose activities are largely scholarship-granting can measure “income” by the amount held in a dedicated, segregated account for qualified contributions, rather than arguing over what counts within its total receipts. This rewards clean fund segregation from the start.

Multistate organizations get a clear path

A donation only generates the credit if it supports an SGO “located in” a participating state, and the preview defines that as being authorized to do business there and compliant with that state’s general charitable-organization rules. Notably, states cannot impose SGO-specific requirements stricter than the federal law itself, a ceiling on state-level gatekeeping. This means one SGO can appear on more than one state’s list, as long as it maintains a separate dedicated account for each state it serves — the kind of multistate structure AFC Scholarship Fund already operates.

“School” is defined consistent with existing law, decided state by state. The preview confirms that “school” will be defined the same way as under existing Coverdell rules: public, private, and religious schools providing K-12 education, “as determined under State law.” That includes a clarification that a home school is treated as a school wherever state law treats it as one, and that K-12 schools operated by a federally recognized Tribe qualify as well.

Income verification gets multiple paths, not just paperwork

Families may verify income through direct documentation such as pay stubs, tax returns, or W-2s; through categorical eligibility, meaning recent proof that a household participates in another needs-based program with an income limit at or below this program’s threshold; or, for foster children, with no separate verification required at all. Treasury has signaled it wants this process to be reliable without being unnecessarily burdensome for families.

Every SGO will need an annual audit

The preview describes an annual financial and programmatic audit by a qualified independent third party, furnished to each state where the organization appears on the list, with a lighter alternative available for smaller organizations. This is designed to give states a dependable way to verify compliance without building their own review process from scratch.

Donor substantiation runs through the unique donor number, which lets the IRS match a claimed credit to a real donor and a real SGO without ever requiring a Social Security number.

What’s still genuinely open

Whether a married couple filing jointly receives one $1,700 cap or two remains unresolved; the prevailing, conservative reading is a single $1,700 per joint return. Coordination with the alternative minimum tax has not been addressed. And the exact deadline and process for a state’s first-year list of qualifying SGOs is still to be set.

The honest caveat

Everything in the preview remains “subject to ongoing legal review,” in Treasury’s own words. It represents Treasury’s stated intent, not yet a final, binding rule. Build plans around it, but watch for the actual proposed regulations as they publish.