Charitable trust's local scholarships receive approval

Plain-English summary

A non-exempt charitable trust treated as a private foundation proposed nonrenewable scholarships for graduates of a specified school in a local district. Applicants needed at least a 3.0 grade point average, plans to attend an accredited college or vocational school, essays, recommendations, transcripts, test scores, and financial information. A three-person committee including the local mayor and school superintendent would rank applicants using academics, activities, written materials, and financial need. Payments would go directly to colleges, and the trust would review reports, investigate diverted funds, recover misuse, and suspend later payments when needed. The IRS approved the procedures under IRC § 4945(g)(1).

Ruling snapshot

• Question: Did the charitable trust's procedures for local graduate scholarships qualify for advance approval?
• Outcome: Approved
• Key authorities: IRC §§ 117, 4945(g)(1), and 4947(a)(1)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

P.O. Box 2508
Cincinnati, OH 45201

Release Number: 201501017

Release Date: 1/2/2015
Date: October 11, 2014 Employer Identification Number:

Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04

B= School Name
C= Location
x=Number

y dollars= Amount

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 Non-Exempt Charitable Trust (NECT) described in Section 4947(a)(1) and also a
private foundation. 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(c)).

Description of your request

Your letter indicates you will operate a scholarship program. You engage in charitable
activities by enhancing access to higher education. Specifically, you provide scholarships
to graduating seniors of B in C who wish to attend college or vocational school at an
accredited institution. In the event the C school district is merged or goes out of
existence, scholarship funds will be made available, where possible, to high school
graduates living within the C school district geographic boundaries at that time.

Letter 4792 (10-2012)
Catalog Number 58263T

The number of scholarships that will be awarded each year and the amount of each
scholarship will vary depending on the amount of funds available to be distributed. You
are required to annually distribute the greater of the net income of the trust or the amount
that must be distributed to satisfy Code Section 4942. The approximate number of
scholarships available annually is in the range of x while the dollar amount a recipient
may receive annually is in the range of y dollars.

To be eligible, the applicant must have a minimum of a 3.0 grade point average after
seven semesters of high school, plans to attend an accredited college or vocational
school, and complete an application. Your application requires students to submit an
essay, two letters of recommendation, official transcripts with ACT test scores, and a
listing of extracurricular activities, work experience, and financial information. Completed
applications are submitted to the office of the superintendent of the C school district.
Your scholarship is advertised through publication on B’s website.

Your scholarship selection committee is made up of three members: the mayor of C, the
superintendent of the C school district, and one individual. In the event of a vacancy, the
remaining committee members shall appoint a new member so that at all times there are
three members on the committee.

Each year, your trustee advises the scholarship committee of the amount of funds
available to be awarded as scholarships. The members of the committee review the
applications and rank students based on grade point average, extracurricular activities,
essays and letters of recommendation, and financial need. Financial need is determined
after considering the student’s personal savings, family resources, college financial aid,
other employment and other scholarships. The committee makes the selection(s),
determines each recipient's amount and notifies your trustee.

You pay the award directly to the university/college the recipient(s) will attend. You
provide a letter to each university/college specifying acceptance of the funds constitutes
their agreement to (i) refund any unused portion of the scholarship if a recipient fails to
meet any terms or condition of the scholarship; and (ii) notify you if the recipient fails to
meet any term or condition of the scholarship. If the university/college will not agree to
such terms you will obtain the needed reports and grade transcripts from the scholarship
recipient(s). Your scholarships are not renewable.

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 investigate diversion of funds from their intended purposes, and (2) 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 (3) 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.

Letter 4792 (10-2012)
Catalog Number 58263T

4

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