PLR 200032051: scholarship grant procedures approved

Plain-English summary

An organization asked the IRS to approve its procedures for awarding individual scholarships. The IRS ruled that the proposed procedures met section 4945(g)(1)'s standards for objective, nondiscriminatory grants, so grants made under them would not be taxable expenditures. The ruling also states that qualifying amounts used for tuition and related expenses are eligible for the section 117 exclusion. Approval depends on the program operating as proposed, avoiding grants to organizational insiders and improper political purposes, and maintaining records. Later programs remain covered only while their standards and procedures do not materially change.

Ruling snapshot

• Question: Do the organization's scholarship selection procedures satisfy section 4945(g)(1)?
• Outcome: Approved, subject to the stated operating conditions.
• Key authorities: IRC §§ 4945(g)(1), 4945(d)(3), 117(a), 170(c)(2)(B), and 501(c)(3).

Full text (IRS public release)

DEPARTMENT OF THE TREASURY 200032051

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

Date: MAY 16 2000

Contact Person:

ID Number:

Telephone Number:

[illegible]

UIL No.

Employer Identification Number: [illegible]

Dear Applicant:

We have considered your grant-making procedures, as outlined in your letter of June 7, 1999 and
subsequent correspondence, under section 4945(g) of the Internal Revenue Code.

Based upon the information you submitted, and assuming your program will be conducted as
proposed, with a view to providing objectivity and nondiscrimination in the awarding of grants, we rule that
your procedures in the awarding of scholarship grants comply with the requirements of section 4945(g)(1)
of the Code. Expenditures made in accordance with these procedures will not constitute "taxable
expenditures" within the meaning of section 4945(d)(3) of the Code, and as such are eligible for the
exclusion from income provided for in section 117(a) of the Code to the extent that such grants are
actually used for qualified tuition and related expenses within the meaning of section 117(b)(2) of the
Code. Our ruling is based, in part, on your representation that you will not select or place grantees so as
to benefit particular legislators or political parties or to attempt to influence legislation.

This ruling is conditioned on the understanding that there will be no material change in the facts
upon which it is based. It is further conditioned on the premise that no grants will be awarded to your
organization's creators, officers, directors, trustees, or members of the selection committee, or for a
purpose that is inconsistent with the purposes described in section 170(c)(2)(B) and 501(c)(3) of the
Code. We note that the placement of grantees will be regarded as important evidence in determining
whether grantees are selected for improper purposes.

The approval of your grant-making procedures is a one-time approval of your system of standards
and procedures for selecting recipients of grants that meet the requirements of section 4945(g)(1) of the
Code. Thus, approval will apply to succeeding grant programs only as long as the standards and
procedures under which they are conducted do not differ materially from those described in your request.

Any funds you distribute to individuals must be made on a true charitable basis in furtherance of
the purposes for which you are organized. Therefore, you should maintain adequate records and case
histories so that any or all grant distributions can be substantiated upon request by the Internal Revenue
Service.

This ruling is directed only to you. Section 6110(k)(3) of the Code provides that it may not be
used or cited as precedent.

Because this letter could help resolve any future questions about the application of section
4945(g) of the Code to your activities, you should keep a copy of this ruling in your permanent records.


200032051

We are sending the Ohio Key District Office a copy of this ruling.

Sincerely yours,

(signed) Garland A. Carter

Garland A. Carter
Manager, Exempt Organizations
Technical Group 2