To: The Honorable Scott Bessent, Secretary, Department of the Treasury and Acting Commissioner, Internal Revenue Service
Re: Request for Comments on Individual Tax Credit for Qualified Contributions to Scholarship Granting Organizations (Notice 2025-70)
Dear Secretary Bessent,
My name is Madelaine Matej MacQueen and I am the Budget Researcher at Policy Matters Ohio. I appreciate the opportunity to comment on the Department of the Treasury and the Internal Revenue Service’s notice, Request for Comments on Individual Tax Credit for Qualified Contributions to Scholarship Granting Organizations (hereinafter Notice 2025-70).[1]
Policy Matters Ohio is a nonprofit research institute with the mission of creating a more vibrant, equitable, inclusive and sustainable Ohio. One of my areas of expertise is K-12 school funding. I am familiar with Ohio’s state-level Scholarship Granting Organizations (SGO) tax credit, and I hope that the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) can apply lessons learned from Ohio’s and other state-level programs.
Overall, I advocate for the Treasury and the IRS’s rulemaking to:
- Delegate SGO approval and regulation to the states.
- Require robust reporting and accountability around SGO finances (donations received and funds disbursed), because the credit comes from taxpayers’ money.
- Ensure that SGOs are set up to support public schools as thoroughly as private schools.
Addressing the topics listed in the notice:
A participating State’s required annual certification of SGOs within the State that meet[s] the statutory requirements to qualify as an SGO
Each state, when opting in to the federal tax credits for donations to SGOs, should be allowed to add its own SGO certification requirements, beyond the minimum requirements laid out in H.R. 1. States should have the power to decide how many SGOs to approve and to select SGOs to ensure that all students and all regions of the state will be served. States should be able to screen SGOs for a history of poor fiscal and academic performance. In the spirit of leaving educational control to the states, states should be allowed to approve only those SGOs that will distribute vouchers in line with the state’s educational priorities and needs.
Policies and procedures implemented by electing States to ensure that the required certification is accurate and complete
We have seen in Ohio that minimal reporting requirements make accountability and enforcement of requirements nearly impossible. According to a representative from the Ohio Attorney General’s Office, SGOs applying for certification for the state program are required to submit financial documentation, showing that they use most of their funds for granting scholarships and that they prioritize scholarships to low-income students. However, the requirements are lax enough that SGO certification is essentially an honor system, in which the Attorney General’s office accepts each organization’s stated goals in lieu of verifiable financial data. The result is that residents of Ohio cannot gather information on the characteristics of scholarship recipients—family income, geographic location, previous attendance of public versus private schools, gender, race, etc. No data on grantees is available, and no information about SGO finances is made public.[2] We recommend a much more rigorous certification and reporting process for the federal SGO program.
Indiana’s reporting requirements for its statewide SGO program are frequently cited as best practices in SGO reporting. In Indiana, SGOs must report on:
- Each scholarship recipient’s
- Gender
- Ethnicity
- Age
- Geographic area type (metropolitan, suburban, rural, etc.)
- Prior in-state public school attendance
- Aggregated
- Participant retention during and between school years
- Number and percentage of award types
- Number and percentage of income eligibility types
- Number and percentage of scholarships at each grade level
- Proportion of scholarships used inside or outside or the “corporation”
- Number of awards by participating schools
The Indiana Department of Education compiles these data and makes their report public.[3]
If the purpose of the federal tax credit voucher program is to improve educational outcomes and parent choice in schooling, this program must be fully transparent, and states must collect sufficient data to determine whether the program is meeting its goals. The Treasury and the IRS should create a rigorous set of minimum reporting requirements, using Indiana’s requirements as a guide, and allow states to require additional reporting as needed.
Issues involving single-State organizations, organizations that may fundraise and award scholarships in more than one State, and organizations operating under other fact patterns that may wish to qualify as SGOs
Because of the need to keep education in the hands of the states, all SGOs should be single-state SGOs. Allowing for multi-state SGOs would funnel local donations and/or federal tax credits out of the state in which the education is occurring. Conflicts would arise, relating to states who opted in, opted out, or created tighter requirements for their SGOs. Only in-state SGOs that are certified under their own state’s rules should be allowed to collect donations or disburse funds in that state.
As the text of H.R. 1 specifies in subsection (c)(5)(1), “The term ‘covered State’ means one of the States, or the District of Columbia, that, for a calendar year, voluntarily elects to participate under this section and to identify scholarship granting organizations in the State, in accordance with subsection (g).”[4] Therefore, the intent of the law is that SGOs must exist and operate in one state—not across state lines.
Allowing multi-state SGOs entails several risks. Large organizations based in one state, such as Florida’s Step Up for Students, could register to do business in any participating state. The organization could collect donations and hand out vouchers in a state where they do not have any authentic connection to the schools, students, or educational priorities. Policy Matters Ohio recommendations that the Treasury and the IRS give state authorities the power to determine which SGOs operate in their state and to require that such SGOs have a direct connection to the state, its taxpayers, and students. In other words, keep donations and scholarship funds in one state.
Through H.R. 1, Congress requires that any eligible SGO provide scholarships to ten or more students. The final rule should specify that those ten students must all live and attend school in the SGO’s home state. Scholarship funds and income tax credits should not be transferred across state lines. Allowing an organization to split its ten-student minimum over multiple states would privilege existing, large SGOs over smaller, more limited organizations, in terms of soliciting and managing donations and directing the distribution of scholarship funds.
SGOs’ reporting and record-keeping requirements
The Department of the Treasury and the IRS should require all SGOs to maintain records of all information required for reporting, certification, and re-certification. At minimum, SGOs should record and report on the list provided on page two of this comment: each scholarship recipient’s gender, ethnicity, age, geographic area type, and prior in-state public school attendance, as well as aggregated participant retention during and between school years, number and percentage of award types, number and percentage of income eligibility types, grade levels, proportion of scholarships used inside or outside or the school district area, and number/type of awards by participating schools.
Record-keeping and reporting should also include donor information. Ohio’s Department of Taxation publishes a yearly expenditure report of “Donations to Scholarship Organizations Credit,” which reports, by year, the number of tax returns that claimed the credit, the total amount of the credit claimed, and projections for the subsequent four years.[5] The Ohio Department of Taxation also publishes a “Summary of Ohio Individual Income Tax Returns, Tax Year 2023,” in which it is possible to see, for each Federal Adjusted Gross Income (FAGI) income class, the number of returns that claimed a Scholarship Donation Credit and the monetary value of all Scholarship Donation Credits in that FAGI class.[6] The IRS should publish similar documentation, so that the American public can see the degree to which filers in each income class benefit from the tax credit.
Ideally, each state, the Department of the Treasury, and the IRS would collaborate to publish a comprehensive report on the federal SGO program every year, compiling information on scholarship recipients, tax credit recipients, and SGOs’ finances all in one place. Because federal funds are used for these scholarships, it is appropriate that the federal government collect financial data. The data and reporting should also include information to enable assessment of the effectiveness of the SGO program in serving students.
Most importantly, it is imperative that states be required to report on the losses of public school enrollment and funding caused by the federal SGO program, as well as the cost to states of implementing and overseeing this program. Each state has its own unique school funding formula, and the federal SGO program may affect different states in different ways. Additionally, the loss of tax dollars to the IRS (because of the tax credit) may limit the federal education funds available to schools across the country. The Department of the Treasury and the IRS owe it to the American people to report on how the federal SGO program impacts public schools. There is no justification to provide anything less than full transparency to the public regarding this program.
Public schools
A broad coalition of education researchers and advocates in Ohio is committed to ensuring that the federal SGO program serves public school students alongside to private school students. As laid out in H.R. 1, federal SGO scholarship funds may be used for any of the “qualified education expenses” as defined in section 530(b)(3)(A), which refers to Coverdell Educational Savings Accounts (ESAs).[7] Unfortunately, most of the qualified education expenses are not applicable to K-12 students in public schools.
To ensure that the SGO program is equally available to public school students, the Department of the Treasury and the IRS should expand the list of qualified education expenses to include:
- Before-school and after-school care
- Extracurricular and enrichment activities
- School-appropriate and weather-appropriate clothing, not limited to school uniforms
- Wraparound services
- School meals (a minimum of breakfast, lunch, and snack) where not already paid through the Free and Reduced Price Meals program administered by the US Department of Agriculture
- Child care and/or camps during school breaks, including summer, when administered by the public school district or its contractor
- Purchase of a safe sleeping space (a bed and bedding).
The above is a preliminary list and is not comprehensive. The Treasury and the IRS should convene a focus group of public school professionals, including teachers, administrators, support staff, family engagement specialists, school counselors, and social workers, to design an inclusive and genuinely useful list of qualified education expenses for K-12 students.
Doubling up on credits
According to the Education Commission of the States, “There are currently 25 tax credit scholarship programs in 21 states.”[8] The Department of the Treasury and the IRS must ensure that individuals cannot claim a state-level tax credit and a federal-level tax credit on the same donation dollars. The federal SGO donation limit is $1,700, and the Ohio SGO donation limit is $750.[9] If an Ohio resident donated $1,700 to an SGO, in theory they could claim a state tax credit of $750 and a federal tax credit of $1,700. Notice 2025-70 addresses this possibility in the section “Request for comments on State tax credit offset.” One suggestion is to require donations to SGOs under the state program to be reported on a separate line of federal and state tax forms than donations to SGOs under the federal program.
Disqualified person
In answer to Notice 2025-70’s question about whether the Treasury Department and the IRS should modify the definition of a disqualified person, my answer is yes. Because the federal SGO tax credit limit of $1,700 is so much smaller than the $5,000 (or 2% of total contributions) cutoff for a disqualified person, I suggest making all donors to SGOs disqualified persons.[10] No one should be able to donate scholarships to their own family members through SGOs. There are other methods for contributing to family members’ educations.
Eligible Students
Notice 2025-70 asks what proof of income a potential scholarship recipient should have to provide in order to demonstrate eligibility. I propose implementing a tiered system in which the lowest-income students have priority—those who are already certified as economically disadvantaged through each state’s process for determining which students will be counted in the Identified Student Percentage (ISP) of economically disadvantaged families. After using the data that is already available related to economic disadvantage, SGOs can branch out to other tiers of eligible students, at which point collecting income information through submission of tax returns or paystubs is probably most efficient.
Thank you again for the opportunity to comment on the Individual Tax Credit for Qualified Contributions to Scholarship Granting Organizations. My colleagues and I at Policy Matters Ohio offer ourselves to you as a resource as you continue to build the rules for the federal SGO program.
[1] “Treasury, IRS request comments on implementation of the new federal tax credit for individual contributions to Scholarship Granting Organizations under the One, Big, Beautiful Bill,” Internal Revenue Service, Nov. 25, 2025, https://www.irs.gov/newsroom/treasury-irs-request-comments-on-implementation-of-the-new-federal-tax-credit-for-individual-contributions-to-scholarship-granting-organizations-under-the-one-big-beautiful-bill.
Edward Waters, “Request for Comments on Individual Tax Credit for Qualified Contributions to Scholarship Granting Organizations,” Internal Revenue Service, https://www.irs.gov/pub/irs-drop/n-25-70.pdf.
[2] Per the Ohio Attorney General’s office, December 17, 2025.
[3] “Choice Scholarship Program Annual Report / Participation & Payment Data: 2023-2024,” Indiana Department of Education, https://www.in.gov/doe/files/2023-2024-Annual-Choice-Report.pdf.
[4] 119th Congress, “H.R.1 – An act to provide for reconciliation pursuant to title II of H. Con. Res. 14.,” July 4, 2025, https://www.congress.gov/bill/119th-congress/house-bill/1/text.
[5] William M. Ullrich, “Tax Expenditure Report FY 2026-2027: Donations to Scholarship Organizations Credit,” Ohio Department of Taxation, September 10, 2024, received through a public records request.
[6] “Table Y-1: Summary of Ohio Individual Income Tax Returns, Tax Year 2023,” Ohio Department of Taxation, May 28, 2025, https://tax.ohio.gov/researcher/tax-analysis/tax-data-series/tds1.
[7] “Internal Revenue Code, Title 26 / Subtitle A / Chapter 1 / Subchapter F / Part VIII / § 529 (b)(7),” US Codes, accessed online December 22, 2025, https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section529&num=0&edition=prelim.
[8] Ben Erwin, “50-State Comparison: Private School Choice,” Education Commission of the States, Jan. 24, 2024, https://www.ecs.org/50-state-comparison-private-school-choice-2024/.
[9] “Ohio Revised Code/Title 57 Taxation/Chapter 5747 Income Tax/ Section 5747.73 | Credit for donations to scholarship organizations,” Ohio Laws and Administrative Rules, https://codes.ohio.gov/ohio-revised-code/section-5747.73.
[10] “IRC Section 4946 – Definition of Disqualified Person,” Internal Revenue Service, https://www.irs.gov/charities-non-profits/irc-section-4946-definition-of-disqualified-person#:~:text=4.,This%20includes%20constructive%20holdings.