Foundation's local high school scholarships receive approval

Plain-English summary

A private foundation proposed scholarships for seniors at a specified high school who had lived in the local district for at least one school year and were accepted to college, university, or trade school. An administrative committee appointed through local public officials and advised by community members would rank applicants on merit and consider education costs and other aid. Awards would go directly to schools, and multi-semester recipients would need satisfactory transcripts before renewal. The foundation would exclude disqualified persons, investigate misuse, require assurances against future diversion, and keep case histories. The IRS approved the procedures under IRC § 4945(g)(1), so grants made under them would not be taxable expenditures.

Ruling snapshot

• Question: Did the foundation's procedures for local high school scholarships qualify for advance approval?
• Outcome: Approved
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), 4942, 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: 201501018 Employer Identification Number:

Release Date: 1/2/2015

Date: October 10, 2014 Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04

V= High School Name
W= School District

X= County

Y= City

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(c)).

Description of your request
You are operating a scholarship program to worthy recipients for post-secondary

education whom have or are graduating from V and have been accepted to an accredited

college, university or trade school. The scholarship award may be used to help pay for
tuition, books and room and board.

The eligibility criteria for scholarship awards shall be the following:

Letter 4792 (10-2012)

Catalog Number 58263T

1. Applicants must be a current high school senior attending V and accepted to an
   accredited college, university or trade school.

2. Applicants must have a cumulative grade point average of at least 2.0.

3. Student and parent(s)/guardian(s) must be residents of W for at least one full
   school calendar year prior to the application for the scholarship. When a
   scholarship is awarded, the recipient and his/her parent(s)/guardian(s) must
   remain residents of W for the duration of the scholarship.

Applicants must complete your application, attach the letter of acceptance from the
college they will attend and mail it to your administrative committee. Information
requested on the application includes personal data, college and career goals, other
scholarships, work history and a narrative on how the degree will be used. Your
scholarship program will be publicized via the guidance counselor at V and by
advertisements in local newspapers.

The dollar range of awards will reflect the number of successful applicants in a given year
as well as the amount of funds determined to be available for scholarships. The amount
of funds available for scholarships each year will be equal to 50% of the amount received
in the prior calendar year in the course of your oil and management activities. During a
year where no income is received from oil and gas management activities in the prior
year and as a result no scholarship funds are available under this formula, your
administrative committee in its discretion, may allocate any portion of that year’s
minimum investment return determined in accordance with Internal Revenue Code
Section 4942.

The selection committee for scholarships is your administrative committee, the members
of which are selected as set forth in your charitable trust and foundation agreement. One
member is appointed by the president/judge of X, one is appointed by the mayor of Y and
the third one is appointed by the other two members of your administrative committee. In
addition, your administrative committee is advised by a four member advisory committee
whose members are appointed by the administrative committee. The current four
members are active on a number of community boards.

Applications are ranked on merit. In addition as part of the application review process,
your administrative committee will consider a successful applicant's post-secondary
education costs and other available grants, scholarships and loans to determine that the
total award will not exceed the applicant's total cost. Scholarships will not be awarded to
disqualified persons.

Payments of awards will be made directly to the educational institution, not to the student,
under an arrangement ensuring the institution will apply the grant funds only for an
enrolled student who is in good academic standing. In addition, when an award is made
for two or more semesters, the award will be distributed in semester installments; you will
require academic transcripts each semester before committing to renew for an ensuing
semester. The transcripts will need to reflect a satisfactory academic standing of 3.0 or

Letter 4792 (10-2012)
Catalog Number 58263T

higher. If the terms of an award are materially violated without a sufficient reason (e.g.
sickness) the scholarship award will be reduced or withdrawn.

You will investigate all misuse of funds. In the event a diversion does occur, you will
require (a) that the grantee provide written assurance that future diversions will not occur
and (b) require the grantee to take extraordinary precaution to prevent future diversions
from occurring.

You will maintain case histories showing recipients of your scholarships including names,
addresses, purposes of award, amount of each award, manner of selection and
relationship (if any) to officers, trustees, or donors of funds to you.

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 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

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

Letter 4792 (10-2012)
Catalog Number 58263T

• 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