IRS approves two county college scholarship programs

Plain-English summary

A private foundation sought approval for two scholarship programs administered with another foundation for residents of a specified county. One program served graduating high school seniors attending local accredited colleges, while the other supported students already enrolled in local colleges. Both programs used grade ranges, financial need, community involvement, and citizenship or permanent-residency requirements. The administering foundation would publicize the awards, recommend recipients, pay schools directly, maintain case histories, collect reports, and recover diverted funds. The IRS approved the procedures under § 4945(g)(1), so compliant awards would not be taxable expenditures.

Ruling snapshot

• Question: Did the two local scholarship programs use objective selection and adequate supervision to satisfy § 4945(g)(1)?
• Outcome: Approved
• Key authorities: IRC §§ 117, 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

Number: 201448030 Employer Identification Number:

Release Date: 11/28/2014
Contact person - ID number:

Contact telephone number:
Date: September 3, 2014

LEGEND:
B = city
C = foundation

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 provide in Code section 117(b)).

Description of your request

You will provide funds for two types of scholarships for residents of B County. You
operate with the C in administering the awards. C publicizes the scholarships, maintains
information and documentation on awards, and makes recommendations per their
selection committee on potential recipients. C pays the scholarship proceeds to the
university/college the recipient attends. C also makes contact with the college or
university of choice ensuring acceptance of the scholarship payment requires notification
of any abuse and/or refunding unused portions if a recipient fails to meet award
conditions.

The first type of scholarship will be for graduating high school seniors that attending an
accredited college or university in B County. Applicants must have a GPA between 2.25

Letter 4792 (10-2012)
Catalog Number 58263T

to 3.50, have a demonstrated financial need, have a demonstrated active involvement in
serving their community, and be US citizens or permanent residents.

The second will be for students already attending a college or university in B County to
continue their education. These recipients must have a GPA between 2.75 to 3.75,
demonstrate financial need, demonstrate involvement in their community such as through
extra-curricular activities, community or church service or work experience, and be US
citizens or permanent residents.

C will maintain case histories showing recipients of the scholarship, including names,
addresses, purpose of the scholarships, the amount of each scholarship, and manner of
selection. Amounts for each award are determined based on the need of that particular
applicant and contingent on available funds.

C will arrange to receive and review grantee reports annually and upon completion of the
purpose for which the grant was awarded; to investigate diversions of funds from their
intended purposes; and take all reasonable and appropriate steps to recover diverted
funds, ensure other grants funds held by the grantee are used for their intended
purposes, and withhold further payments to grantee until you obtain grantees assurances
that future diversions will not occur and the grantees will take extraordinary precautions
to prevent future diversions from occurring.

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

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.

Letter 4792 (10-2012)
Catalog Number 58263T

• 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.
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