Job training and college scholarship procedures receive approval

Plain-English summary

A private foundation proposed two programs for low-income residents of a specified metropolitan area. One would pay the full cost of approved job-training programs, with selection based on factors such as employment history, references, English literacy, and ability to complete the training. The other would support qualifying high school seniors pursuing two-year or four-year degrees, with selection based on academic record, recommendations, an essay, intended field, and financial need. The foundation would use independent committees, pay institutions directly, monitor progress and renewals, recover diverted funds when possible, and exclude employees, business partners, and their families. The IRS approved both programs under IRC § 4945(g)(1).

Ruling snapshot

• Question: Did the foundation's job-training and educational scholarship procedures satisfy the advance-approval rules for avoiding taxable expenditures?
• Outcome: Approved
• Key authorities: IRC §§ 117(b), 170(b)(1)(A)(ii), and 4945(g)(1)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
P.O. Box 2508
Cincinnati, OH 45201

Release Number: 201447047 Employer Identification Number:

Release Date: 11/21/2014
Date: August 27, 2014 Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04

X=
Y=

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 provide in Code section 117(b)).

Description of your request

Your purpose is to manage two distinct scholarship programs; a Job Training Scholarship
Program and an Educational Scholarship Program. Each program is described below:

Job Training Scholarship Program:

You will award the job training scholarships to eligible individuals to help them gain
a better education, to allow them to pursue a better-paying career choice, and to
help the individuals lead better lives in hope that it helps bring them out of poverty.

Letter 4792 (10-2012)
Catalog Number 58263T

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The amount of the scholarships will vary depending on the cost of the training and
the amount of donations you receive. The amount will vary year-to-year and
individual-to-individual.

Scholarships will be publicized via direct contact in underserved communities as
well as through the localities’ local housing authority. Additionally, the scholarship
form will be available online.

The individuals eligible to apply for a scholarship for a job training program are
those who are low income (up to 80% of AMI based on Y MSA) applying for career
specific scholarships. The individuals cannot be related to X or any X business
partners and must reside in the Y Metro area. Further, some pre -selected
programs have more stringent qualifications such as having a High-School
Diploma/GED, being able to read/write at a specific grade level. These
requirements are program specific, therefore the broad criteria to apply is listed
above. Those individuals applying to a program with more detailed requirements
will be evaluated based on the program’s requirements.

You will form an independent selection committee that will review the scholarship
applications and rank the individuals based on the type of scholarship requested.
You will use the following to select recipients (in no particular order):

1. Employment history
2. Interview with selection committee member
3. Professional reference
4. Completed application
5. Applicant's ability to read and write English
6. Applicant's ability to complete all requirements of the program (the applicant
   will be able to attend all classes, get to and from training on time, meets the
   requirements of the selected program)

The amount of scholarships you award will depend on the program selected. You
will pay 100% of the fee for the cost of the job training program. As the various
preapproved programs cost different amounts, there will not be a set amount given
to each applicant that is awarded a scholarship. The amount paid to the institution
will be the amount of the fee of the program.

For job training programs which require completion of multiple classes, recipient
must submit proof of passing (C or better) to receive additional funding.

For job training programs with ongoing requirements, recipients must submit proof
of completion of passing to receive additional funds. You will request transcripts
from all recipients for record-keeping purposes. If the recipient withdraws from the
class(es) prematurely, the recipient will be ineligible for future award and the you
will attempt to recover funds from the institution directly (if any full or partial refund
is available). The recipient will never be financially liable to the Foundation.

Letter 4792 (10-2012)
Catalog Number 58263T

3

The job training scholarship selection committee is comprised of three X
employees.

The committees were selected based on their ability to be objective in respect to
reviewing and selecting scholarship/grant recipients. Replacing members
(including nomination and selection) of the selection committee will require a
majority vote. You will not award any funds whatsoever to any past, present or
future an employee, or business partner, or family member of your organization.

Educational Scholarship Program:

You will award the educational scholarship to assist low-income students pay for a
two or four-year degree at an accredited institution with the hope that this helps
them gain a better-paying job than otherwise would be attainable as well as help
them succeed in life. The scholarships will be used to provide job training (for pre-
selected programs in areas such as nursing, construction, and other vocational
trades). The amount of the scholarships/grants will vary depending on the cost of
the education and based on the amount of donations you receive. You expect this
amount to vary year-to-year.

The educational scholarship program will be publicized via direct contact in
underserved communities. Additionally, the scholarship form will be available
online.

The individuals eligible to apply for an educational scholarship/grant are those who
are current seniors in high school, have been accepted to a two or four- year
program, come from low-income-families, and who are in the top 50% of their
class. The applicants must also reside in the Y Metro area. The applicant cannot
be related to any employee or business partners of X or your organization.

You will form an independent selection committee that will review the
scholarship/grant applications and rank the individuals based on the following
criteria (listed in no particular order):

1. Student’s GPA and class rank
2. Two letters of recommendation from the school
   counselor/teachers/community leaders
3. Letter of intention from student
4. 200-word essay
5. Desired field of study
6. Financial need

The number of educational scholarships/grants made annually will vary each year
depending on the number of applicants, and available funds. There will be a set
amount of scholarship which will be re-evaluated every year to determine your
ability to meet or exceed the prior year’s scholarship amounts. The number of
scholarships awarded will be based on the number of qualified applicants that you

Letter 4792 (10-2012)
Catalog Number 58263T

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would like to provide scholarships for. You expect this number to change each
year.

The amount of educational scholarships/grants you make annually will vary each
year based on the number of applicant, and the amount of available funds. For
each scholarship year there will be a set amount, with the amount to be
reevaluated the following year to determine whether you need to decrease/remain
the same/increase the amount of scholarship funding.

Each individual who applies for an educational scholarship renewal will be given
priority over other candidates, provided the individual maintains a 2.5 GPA in the
program of choice, is in good standing with the school and is still enrolled in a two
or four-year program. The individual will be required to provide copies of
transcripts to you and will be required to fill out a new application for each year
they wish to renew the grant. No grant renewal will be given to a student who
does not provide transcripts of his/her coursework.

You will apply the scholars hip/grant funds directly to the educational institution
chosen on behalf of the student. Individuals who do not maintain a 2.5 GPA or
better, will not be eligible to apply for a grant renewal.

The educational scholarship selection committee is comprised of two X employees
and the head of a local high school.

The committees were selected based on their ability to be objective in respect to
reviewing and selecting scholarship/grant recipients. Replacing members
(including nomination and selection) of the selection committee will require a
majority vote. You will not award any funds whatsoever to any past, present or
future an employee, or business partner, or family member of your organization.

You will maintain all records relating to individual grants, including information obtained to
evaluate grantee, identify whether a grantee is a disqualified person, establish the
amount and purpose of each grant, and establish that you undertook the supervision and
investigations of grants.

You will;

(1) arrange to receive and review grantee reports annually and upon completion of
the purpose for which the grant was awarded,

(2) investigate diversions of funds from their intended purposes, and

(3) take all reasonable and appropriate steps to recover diverted funds, ensure
other grant funds held by a grantee are used for their intended purposes, and 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
diversions from occurring.

Letter 4792 (10-2012)
Catalog Number 58263T

5

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).

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 must report any significant changes to your program 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.

Please keep a copy of this letter in your records.

Letter 4792 (10-2012)
Catalog Number 58263T

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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