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Becoming an SGO
What Is an SGO?
A Scholarship Granting Organization (SGO) is a 501(c)(3) nonprofit that collects contributions from donors and awards scholarships to eligible K–12 students. SGOs ensure that funds are distributed fairly, transparently, and in compliance with federal requirements.
Qualifications
To qualify as an SGO under the Federal Scholarship Tax Credit Program, your organization must:
- Be a registered 501(c)(3) nonprofit operating in the same state as the students it serves
- Spend at least 90% of received contributions on scholarships each year
- Provide scholarships to at least 10 students who do not all attend the same school
- Maintain separate accounting for scholarship funds and general operations
- Follow the federal rules for verifying family income and student eligibility
Registration and Annual Approval
Participation is state-based. Each state must elect to participate annually, and SGOs must be approved by that state before being listed with the U.S. Department of the Treasury.
Once approved:
- SGOs will appear on the federal list of qualified organizations
- Only these approved SGOs may receive contributions eligible for the federal tax credit
- Approval must be renewed annually with supporting documentation
Tip: If your organization already operates as a tuition-assistance nonprofit, you may qualify with limited adjustments.
How to Take Advantage of the Program
The Federal Scholarship Tax Credit Program offers SGOs new opportunities to serve families and attract donor support. Here’s how to make the most of it.
- Educate current and potential donors about the 100% federal tax credit and $1,700 annual limit.
- Emphasize the local impact: donations help Kentucky students directly.
- Provide simple giving instructions and templates donors can use for tax documentation.
- Collaborate with local schools to identify eligible families and promote scholarship opportunities.
- Host joint information sessions with schools and parent associations.
- Encourage schools to share SGO application information during enrollment.
- Maintain a public webpage that clearly explains how funds are used.
- Publish annual reports summarizing scholarship awards and impact metrics.
- Share success stories with donors and community partners.
- Use approachable language that focuses on opportunity, not complexity.
- Create visual materials that explain the donor-to-scholarship flow.
- Highlight stories of Kentucky families whose lives have changed through the program.
Examples of effective SGO practices include:
- Building a regional focus (for example, serving a specific county or diocese)
- Creating donor circles that match contributors with specific school communities
- Partnering with local businesses or civic organizations to expand awareness
Managing a Scholarship Program
Compliance Requirements
To remain in good standing, SGOs must:
- Spend at least 90% of donations on scholarships each year
- Verify household income for every scholarship recipient
- Prioritize students according to federal guidelines
- Keep scholarship funds in a separate, auditable account
- File appropriate reports with the IRS and the approving state agency
Prioritization Rules
When awarding scholarships, SGOs must give preference to:
- Students from low-income households (as defined by HUD income limits)
- Continuing students who remain eligible in subsequent years
- Siblings of students who received a scholarship.
Sample Policies
Consider implementing:
- A Scholarship Award Policy outlining eligibility and prioritization
- A Conflict of Interest Policy to ensure fairness
- A Transparency and Reporting Policy detailing how funds are tracked and reported
Reporting and Accountability
SGOs are required to submit annual reports summarizing:
- Total donations received
- Scholarships awarded and total value
- Number of students served
- Administrative expenses (must not exceed 10%)
Need Guidance?
Visit our FAQ Page for more details, or Contact Us to connect with EdChoice Kentucky for assistance or resources.
Still have questions?
Visit the SGO & Schools FAQ for more information.