What Treasury's rules mean for Christian schools and their SGO

Most of Treasury's 181 pages are about the organization in the middle: the scholarship granting organization that takes the donations, checks the families and pays the schools. For a CEN partner school, that organization is CEN SGO. Here's what the rules ask of us, and what little they ask of you. (Source: Prop. Reg. §1.25F-3, §1.25F-4)

The 90% test, measured on everything

The statute says an organization must spend at least 90% of its income on scholarships. Treasury measures that against all of the organization's receipts, before any expenses. Money counts as spent when it's paid to a school or vendor, or moved into a qualified digital wallet for a family. Each year's receipts have to be spent by the end of the following year, oldest money first. (Source: Prop. Reg. §1.25F-3(c)(4))

The 85% safe harbor

Here Treasury gave organizations like ours room to work. If at least 85% of an organization's activities are scholarship granting, counting the fundraising, administration and compliance that support it, the organization can apply the operational rules to its federal-credit account alone rather than to the whole organization. CEN's team already runs a scholarship program under Ohio's state credit. The safe harbor lets the state program and the federal one run side by side, each in its own account. An organization that does more than 15% other work, such as a school foundation, doesn't get the safe harbor. Treasury expects about 450 organizations to qualify this way. (Source: Prop. Reg. §1.25F-3(c)(2))

An organization listed in more than one state has to be at least 85% scholarship granting as well, and keeps a separate federal-credit account for each state. Donors say which state's account their donation is for. (Source: Prop. Reg. §1.25F-3(c)(3))

Who can't receive a scholarship

The rules name the disqualified persons: an organization's officers, directors and trustees, anyone who helps select recipients, paid or not, and anyone who gives more than $5,000 to the federal-credit account in a year when that's more than 2% of what the account received. The families of all of these are disqualified too, for that year and the next. For a school, the point to note is the selection one. Anyone at your school who takes part in choosing CEN scholarship recipients puts their own children out of the running. CEN makes every award, so most schools never touch selection. (Source: Prop. Reg. §1.25F-3(d))

Audits and reporting

Every organization needs a financial and programmatic audit each year. Organizations with more than $500,000 in receipts use an independent professional auditor. Smaller ones can use a committee of independent people with no ties to management. The audit report goes to every state that lists the organization, and an annual certification goes to the IRS with the organization's Form 990. CEN SGO's financials are already audited every year. (Source: Prop. Reg. §1.25F-4(d))

Every organization also registers in a new IRS portal, which issues the format for donor numbers and takes the yearly report of donations. Donors get their acknowledgment by January 31 and the IRS gets the report by February 28. (Source: Prop. Reg. §1.25F-4(b), (c))

How the money moves

Tuition and other charges a school bills go to the school. Other costs, such as tutoring or books, go to a vendor the organization has verified and that isn't related to the family, or are reimbursed to the family against receipts. Organizations can use qualified digital wallets. Whatever the route, the organization has to check that the same cost isn't paid twice, including by a state program. Expect CEN to ask about other aid your students receive. (Source: Prop. Reg. §1.25F-3(c)(5))

Checking family income

Income means cash income. Families show it with pay stubs, last year's return, an IRS transcript or W-2s, or with a letter showing they receive SNAP, TANF, WIC, Section 8 or SSI. Foster children qualify without a check. Schools don't check income. CEN does. (Source: Prop. Reg. §1.25F-3(c)(6))

What states can and can't do

States must confirm that an organization meets the federal rules and can ask for applications, documents and financial reports. They can't require organizations to operate more restrictively than the statute. A state can't limit which kinds of school a scholarship can be used at, or which qualified expenses it covers. That protects Christian schools in every participating state. (Source: T.D. 10057, §1.25F-5T(e))

An organization is located in a state when it's authorized to do business there and follows the state's charity laws. No office in the state is needed. That's how CEN SGO can be listed in every participating state. (Source: T.D. 10057, §1.25F-1T)

What this leaves to your school

Register with CEN. Run your pledge campaign this fall. Confirm enrollment before payments start. Tell CEN about other aid a student receives. Keep anyone who helps pick recipients, and their families, out of the applicant pool. The rest is ours. What CEN does and what your school does