This week, Deputy Assistant Secretary for Tax Policy Kevin Salinger announced that scholarship-granting organizations (SGOs) and state leaders, including a growing contingent of Democratic governors, will need to wait until the end of September for the full guidance on the Education Freedom Tax Credit (EFTC) program.

Deputy Assistant Secretary Salinger did, however, offer an early look at key elements of what might be included in forthcoming Section 25F regulations, providing an initial roadmap for the operational and compliance requirements likely to shape implementation when the program goes live in January 2027. 

The Department’s guidance, which includes operational flexibilities for SGOs, should make it easier for more SGOs to participate in the program. But the preview also clarified that states wouldn’t have the ability to place “substantive SGO-specific requirements” beyond those in the federal law, which may deter participation from state leaders who were hoping for greater flexibility in shaping their programs. Indeed, Treasury’s position played a role in Oregon Gov. Tina Kotek’s announcement today that she will not participate in the program.

Additional key takeaways from Treasury’s sneak peek: 

  • Ensuring flexibility for SGOs: The provisions of the federal scholarship tax credit programs raised immediate questions about how SGOs would navigate potentially complex operational hurdles, such as the requirement that SGOs spend at least 90 percent of their income on scholarships, and confirm the eligibility of recipients of the scholarships. In their preview, Treasury signaled that they heard those concerns and will provide some flexibility to SGOs—including, for instance, a safe-harbor mechanism for the 90% provision—helping reduce operational and compliance burdens for organizations.  
  • Deferring to states on eligibility and compliance: Treasury signaled that the forthcoming regulations will lean on state rules when it comes to answering some key questions.  Is a homeschool a “school” for purposes of the federal scholarship program? It is—if it’s considered a school under state law.* Similarly, questions about whether an SGO is located in a state will come down to compliance with state rules. 
  • Expanding participation while ensuring safeguards: As noted in Treasury’s preview, the goal with their regulations will be to “pair broad opportunity with strong, administrable safeguards.” A unique donor-number reporting system, audit requirements, and a future IRS portal—in addition to flexibility for SGOs and the prohibition on states to impose rules on SGOs that go beyond the provisions of 25F—reflect an effort to make participation easier for families, donors, states, and SGOs while protecting against fraud and abuse. 

The wait isn’t over for the stakeholders seeking clarity on the new federal program, but Treasury’s preview offers insight of what lies ahead as states and SGOs prepare for the program’s launch come January.

*In addressing the definition of “school” within the statute, Treasury also confirmed that public schools and schools “operated by a federally recognized Tribe or tribal organization” will qualify as schools.

This article is sourced from Whiteboard Notes, our weekly newsletter of the latest education policy and industry news read by thousands of education leaders, investors, grantmakers, and entrepreneurs. Subscribe here.