How to do an SGO — MyChurchSGO

1. Why Churches Are Ideal for Starting an SGO

Churches have unique advantages that make them perfect for launching or joining an SGO under the federal scholarship tax credit program.

a. Strong Donor Buy-In

To motivate donors to contribute (and navigate the tax credit process), they must deeply believe in the SGO's mission—such as helping children attend Christian schools or join enrichment programs their school provides, like an after-school robotics program. Churches already foster this shared commitment among members, making them highly receptive to supporting kingdom-building educational initiatives.

b. Built-In Captive Audience

Church services provide frequent, natural touchpoints—pulpit announcements, bulletins, fellowship events, and sign-up tables—to invite donations. Members arrive ready to serve God and the community. Since donors who owe federal income tax may claim a credit of up to $1,700 a year for their qualified contributions, the barrier to participation can be low.

c. Shared Mission

Donors support causes aligned with the church's values.
A gift supports the SGO's scholarships, not a particular student: the rules bar earmarking a gift for any particular student, and if an SGO gives anything in return for a gift, the qualified contribution is reduced by its value.

2. Should Your Church Start an SGO? Yes!

An SGO lets your church community accept federal scholarship tax credit-eligible donations to help children afford qualified K-12 educational expenses.

Scholarships can support students attending:

Public schools
Private and religious schools
Home schools and co-ops, but only where State law treats them as a school; Treasury has said it will issue guidance on what counts as a school

This approach remains neutral and does not favor private over public education.

Qualified expenses include:

Tuition and fees
Books, supplies, and equipment
Uniforms, transportation, and extended day programs, when the school requires or provides them
Computers, technology, and internet access
Academic tutoring and special needs services

3. What Does It Take to Start an SGO?

The process involves setup, compliance, and certification. Contact My Church SGO—we'll assign an Advocate to guide you step-by-step.

Key Decision: Standalone or Joint?

Solo SGO: Best for larger churches, about 450 or more members (an illustrative figure; see below).
Joint SGO (group of churches): Ideal for smaller ones.

General Size Guidelines (illustrative). These are our own planning estimates, not official figures. We estimate that a mature SGO needs ~125 active donors for sustainability (due to compliance, revenue splits, and rules).

Illustrative planning assumption: about 40% of members owe enough federal income tax to benefit from the credit. Only donors who owe federal income tax benefit in the year they give, though unused credit can carry forward for up to five years.
Target signing up ~70% of those members.
Scholarships must go to 10 or more students who do not all attend the same school.

On these illustrative figures, an SGO should cover ~450 total church members (or ~120 families). Many churches are smaller than that, so several churches often band together. If your church is under 450 members, our Advocate can help you join an existing group or form one with compatible churches.

4. Requirements for a Qualified SGO

An SGO must be:

A nonprofit with 501(c)(3) tax-exempt status from the IRS that is a public charity, not a private foundation.
Focused on awarding K-12 scholarships (unless at least 85% of an organization's activities are scholarship granting, the 90% spending test applies to all of its gross receipts).
Keeping every qualified contribution in a separate account that holds only qualified contributions and their earnings.
Registered on the IRS SGO portal: an organization that plans to solicit qualified contributions must register as soon as possible, and preferably before it appears on any State SGO list; until it registers, it cannot send the donor acknowledgments and IRS reports the credit depends on. We recommend registering before you start soliciting.
Included on a participating State's SGO list for the year (the State submits its list to the IRS).
On the list again each year: a State's election and SGO list cover one calendar year at a time.

Best Practice: Form a new, dedicated 501(c)(3) for tax-credit donations only. Using an existing one is possible but risky: qualified contributions must be kept apart from regular (deduction-only) donations, and an organization that does more than grant scholarships may have to meet the 90% spending test on all of its income.

5. SGO Management Approaches

Full-Service Model: Outsourced compliance, marketing, and distribution, usually at a higher fee.
Self-Service Model (My Church SGO): Affordable and church-empowering.
- Provides an SGO Manager (often your church bookkeeper, leased hourly).
- Offers annual compliance reviews (the annual audit the rules require must be done by a qualified independent third party).
- Supplies a management/accounting platform.
- Tiered fees, from 5% down to 1.75% of donations as total donations grow (tentative; subject to change).
- Leverages existing staff for meaningful, paid extra work.

6. SGO Governance Mechanics

My Church SGO provides templates for Articles of Incorporation, Bylaws, and requirements. This can be done on a website like Legal Zoom.

Mission Statement Example: "To help children find the narrow way by providing scholarships for a faith-centered K-12 education." Any priority in a mission statement comes after the federal priority for students who had a scholarship the previous school year, and then for students who have a sibling who received a scholarship from the SGO.

Two Separate Boards (no overlap of personnel; recommended, not required by the rules)

SGO Board of Directors — Oversees operations (at least 3 members; 5 recommended).
Scholarship Award Board — Decides recipients and amounts (at least 3 members; 5 recommended).

Every member of either board is a disqualified person, so no board member's family can receive scholarships.

Manager

Paid from the share of income not required for scholarships (at most 10%); cannot serve on either board.
Can be a church employee (leased at reasonable hourly rate) or external.
A manager with an officer's powers, or who takes part in choosing recipients, is a disqualified person too.

Disqualified Persons (cannot receive scholarships)

Board members on both boards, and their families.
Officers and anyone with similar powers, such as a manager who runs the SGO, and their families.
Anyone who takes part in choosing recipients or setting awards, and their families.
Substantial contributors (anyone who gave more than $5,000 to the SGO in its taxable year, if that was more than 2% of the year's contributions; a spouse's gifts count together), and their families.
"Family" means the person's spouse; the ancestors and descendants (any generation, including adopted and step-children) of the person or the person's spouse; the siblings of either and the siblings' descendants; and the spouses of all of these. A person stays disqualified through the end of the SGO's next taxable year after leaving the role.
Other employees are not disqualified by the rules unless they hold one of these roles; excluding their families anyway is a sensible policy.

Board Recruitment Ideas

Members none of whose family, as defined above (including grandchildren, great-grandchildren, nieces, nephews, and their descendants), is likely to apply.
Wealthy individuals (above 300% of area median gross income), remembering that their whole family, as defined above, would still be disqualified.

Scholarship Allocation Guidelines

(Set by Governance Board; implemented by Award Board.) The rules do not prescribe award amounts, but they do set who is eligible, the priority order (students who had a scholarship the previous school year, then students who have a sibling who received a scholarship from the SGO), how scholarships are paid, and that an award may not exceed the expenses it covers. After that priority, My Church SGO recommends:

Set aside 10% for special circumstances (need, merit).
Divide 50–80% of the rest equally among eligible applicants.
Distribute remaining 20–50% charitably (more to poorer families, less to wealthier).

Fund the full range of qualified expenses families need, and avoid any appearance of steering funds to insider programs (IRS/state scrutiny). Every expense must still be verified as qualified before it is paid.

7. Launching Your SGO ("Take Off")

Get an SGO Manager

Ideal: church bookkeeper (leased hourly).
Tasks: bookkeeping, thank-you notes, social media, donor/student questions (My Church SGO toolkit provided).
Pay from the share of income not required for scholarships (at most 10%).

Sign Up Donors

Primary target: church members.
Touchpoints: bulletins, pulpit mentions, back-of-church sign-up tables.
Donation options: lump sums, monthly gifts, and after-tax payroll deduction where an employer offers it. Each gift counts only if it is designated as a qualified contribution when it is made.

Collect Donations First

Collect in one year (e.g., 2027), award in the next (2028). The rules allow this: an SGO must spend at least 90% of a year's income on scholarships by the end of the following taxable year, so 2027 income must be spent by the end of 2028 for a calendar-year SGO. Benefits:

Predictable scholarships (notify families 6 months ahead).
Always cash-positive before awards.
Earn a little interest (interest earned on qualified contributions stays in the separate account and counts as income for the 90% test).

Sign Up Students

Touchpoints: community announcements, partner schools, and the SGO's website.
Students who had a scholarship the previous school year, and then students who have a sibling who received a scholarship from the SGO, get priority.
Ensure diversity: 10 or more students, not all at the same school.

8. Awarding Scholarships

Verify expenses via the My Church SGO platform (easy for the manager).

Options:

Bill Pay: Parent submits bill → SGO verifies → pays the school or a verified vendor directly (up to award amount). Tuition, fees, and other school charges must be paid directly to the school.
Reimbursement: Parent pays a non-school vendor → submits receipt → SGO verifies the payment and that the expense qualifies, and checks that no other source already paid it → reimburses.
My Church SGO Marketplace: Pre-approved items, paid to the vendor directly.

9. Yearly Compliance

For a fee, My Church SGO handles:

The annual §25F certification and operating report: an SGO required to file an annual information return under section 6033(a) attaches them to that return (Form 990 or 990-EZ); any other SGO files them separately with the IRS by the 15th day of the 5th calendar month after the period they cover.
Donor acknowledgments by January 31 and the IRS contribution report by February 28.
Support for the annual financial and programmatic audit, which must be performed by a qualified independent third party and sent to each State that lists the SGO.
Paperwork for staying on the State list.

10. End of Year One

Donors receive the SGO's written acknowledgment by January 31 → claim the federal tax credit on Form 8525 with their return. The credit reduces federal income tax owed; it is nonrefundable.

Students receive scholarships for vetted, qualified expenses (all spending approved before funds leave the SGO).

The SGO Manager + My Church SGO team complete compliance (the §25F certification, with the annual information return or filed separately, state paperwork, the IRS contribution report, an internal report for the board), and the independent audit is completed.

Sources

26 U.S.C. §25F; temporary regulations, TD 10057, 91 FR 62655; proposed regulations, REG-117199-25, 91 FR 62818. Reviewed against these sources on October 18, 2026. The proposed regulations may change before they are made final. This is general information, not tax or legal advice; consult a tax professional and counsel before forming an SGO.