Computer science scholarship procedures approved

Plain-English summary

A private foundation proposed a nationwide, one-year scholarship for a high school senior intending to study computer science and enter professional web development. Applicants needed a minimum grade point average, college acceptance, recommendations, and an essay, and the foundation's board would score applications using academic, leadership, community, and other criteria. The award would be paid directly to the recipient's college in two installments, with the second conditioned on maintaining a 3.3 grade point average. The IRS approved the procedures under IRC § 4945(g)(1), so qualifying expenditures would not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's procedures for a national computer science scholarship qualify for advance approval under IRC § 4945(g)?
• Outcome: Approved
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), and 4945(g)

Full text (IRS public release)

Internal Revenue Service
P.O. Box 2508
Cincinnati, OH 45201

Department of the Treasury

Release Number: 201443023
Release Date: 10/24/2014
Date: July 29, 2014

Employer Identification Number:

Contact person - ID number:

Contact telephone number:

LEGEND

X= Name
Y= Name
b dollars = Amount

UIL: 4945.04-04

Dear :

You asked for advance approval of your scholarship grant procedures under
Internal Revenue Code section 4945(g). This approval is required because you are
a private foundation that is exempt from federal income tax. You requested
approval of your scholarship program to fund the education of certain qualifying
students.

Our determination

We approved your procedures for awarding scholarships. Based on the information
you submitted, and assuming you will conduct your program as proposed, we
determined that your procedures for awarding scholarships meet the requirements
of Code section 4945(g)(1). As a result, expenditures you make under these
procedures won’t be taxable.

Also, awards made under these procedures are scholarship or fellowship grants and are
not taxable to the recipients if they use them for qualified tuition and related expenses
(subject to the limitations in Code section 117(b)).

Description of your request

Your letter indicates you will operate a scholarship program for college bound high school
students. You are committed to encouraging math and science high school students to
study computer science at the college level and to become professional web developers.

You will award one scholarship per year for b dollars which was determined by your
current income and assets along with your other programs. The scholarship is non-
renewable (i.e., it can only be awarded for one year to any scholarship recipient).

Letter 4792 (10-2012)
Catalog Number 58263T

2

You reserve the right to increase the number and the dollar amount of the scholarships
awarded each year should the assets and income support these adjustments. The final
determination on whether to increase the number of scholarships and the amount
awarded in a single year shall rest with your board of directors. Adjustments in the dollar
amount of the scholarship will be made before applications are accepted for
consideration for the next scholarship award year. The scholarship amount awarded will
not be increased until the recipient has been selected.

Your program will be publicized nationwide through your webpage, press releases, blog
posts and social media platforms such as Facebook, Twitter and Google+. In addition,
you will reach out directly to high school guidance counselors via X and through the Y
organization.

Any high school senior in the United States who intends to study computer science at an
accredited college or university described in 170(b)(1)(A)(ii) within the United States and
meets the scholarship criteria may apply for the scholarship. The criteria include:

• Cumulative high school G.P.A. of 3.3 or better;

• An intent to study computer science;

• Acceptance at an accredited college or university within the United States.

Applicants must provide:

• Official high school transcript;

• Resume describing any extracurricular activities and employment experience;

• Two letters of recommendation, one of which should be from a math or science
teacher familiar with the student;

• Completed application form;

• Copy of official college/university acceptance letter;

• One-page essay describing how the student hopes to participate in the
professional software development industry;

• Description of Y organization involvement, if any.

A grant committee consisting of your board of directors will judge and select the recipient;
vacancies on the committee will be filled by your board of directors. Each committee
member will use a scholarship judging form to assign a score to each application and the
scores will be averaged for that scholarship application. The criteria used to award points
are:

• Active in school related organizations;

• Elected leadership position in school or community related clubs or organizations;

• Demonstrates community involvement;

• SAT and/or ACT Score;

• Grade Point Average;

• GPA requirements;

• References;

Letter 4792 (10-2012)
Catalog Number 58263T

3

• Essay;

• Participation in Y (Students who have participated in Y will be given extra
consideration and assigned extra points in the evaluation process even though this
is not a requirement for scholarship consideration).

The top scoring application will be awarded the scholarship. Should multiple applications
have the same top score, the committee will deliberate among those applications to
determine the scholarship recipient for that year.

The scholarship award will be made in two equal payments directly to the student’s
college or university at the beginning of each semester. The scholarship recipient must
maintain a minimum 3.3 GPA during the first semester to receive the second payment.
The scholarship recipient’s school must provide proof of the student’s GPA after the first
semester, proof that the student is in good standing and is enrolled for the upcoming
semester, as well as receipts for each check received from you on the student’s behalf.
High school and college transcripts will provide proof of the necessary GPA. Payments
to the college directly along with receipts signed by the college will prevent
misappropriation or improper use of funds.

You represent that you will complete the following: (1) arrange to receive and review
grantee reports annually and upon completion of the purpose for which the grant was
awarded, (2) investigate diversion of funds from their intended purposes, and (3) take all
reasonable and appropriate steps to recover the diverted funds, ensure other grant funds
held by a grantee are used for their intended purposes, and (4) withhold further payments
to grantees until you obtain grantees’ assurances that future diversions will not occur and
that grantees will take extraordinary precautions to prevent future diversion from
occurring.

You represent that you will maintain the following: (1) all records relating to individual
grants including information obtained to evaluate grantees, (2) identify a grantee is a
disqualified person, (3) establish the amount and purpose of each grant, and (4) establish
that you undertook the supervision and investigation of grants described above.

Basis for our determination

The law imposes certain excise taxes on the taxable expenditures of private foundations
(Code section 4945). A taxable expenditure is any amount a private foundation pays as a
grant to an individual for travel, study, or other similar purposes. However, a grant that
meets all of the following requirements of Code section 4945(g) is not a taxable
expenditure.

• The foundation awards the grant on an objective and nondiscriminatory basis.

• The IRS approves in advance the procedure for awarding the grant.

• The grant is a scholarship or fellowship subject to the provisions of Code section
117(a).

• The grant is to be used for study at an educational organization described in Code
section 170(b)(1)(A)(ii).

Letter 4792 (10-2012)
Catalog Number 58263T

4

Other conditions that apply to this determination

• This determination only covers the grant program described above. This approval
will apply to succeeding grant programs only if their standards and procedures
don’t differ significantly from those described in your original request.

• This determination applies only to you. It may not be cited as a precedent.

• You cannot rely on the conclusions in this letter if the facts you provided have
changed substantially. You may report any significant changes to your program by
completing Form 8940 and sending it to the Cincinnati Office of Exempt
Organizations at:

Internal Revenue Service

Exempt Organizations Determinations
P.O. Box 2508

Cincinnati, OH 45201

• You cannot award grants to your creators, officers, directors, trustees, foundation
managers, or members of selection committees or their relatives.

• All funds distributed to individuals must be made on a charitable basis and further
the purposes of your organization. You cannot award grants for a purpose that is
inconsistent with Code section 170(c)(2)(B).

• You should keep adequate records and case histories so that you can substantiate
your grant distributions with the IRS if necessary.

We’ve sent a copy of this letter to your representative as indicated in your power of
attorney.

Please keep a copy of this letter in your records.

If you have questions, please contact the person listed at the top of this letter.

Sincerely,

Director, Exempt Organizations

Letter 4792 (10-2012)
Catalog Number 58263T