Foundation's church member scholarships receive approval

Plain-English summary

A private foundation proposed nonrenewable scholarships for qualifying church members attending divinity school, younger undergraduates, and high school seniors planning further education. Seminary students would receive priority, and a committee of church members and one non-parish member would rank applicants before a trustee made the final selections. No disqualified person could receive an award, and payments would go directly to the recipient's college or university. The foundation would review reports, investigate diverted funds, recover misuse, suspend later payments when needed, and keep grant records. 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 church member scholarships qualify for advance approval?
• Outcome: Approved
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), 4945(g)(1), and 4946

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

P.O. Box 2508
Cincinnati, OH 45201

Release Number: 201501021
Release Date: 1/2/2015

Date: October 10, 2014 Employer Identification Number:
Contact person - ID number:

Contact telephone number:

LEGEND: UIL:
B= church name 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 scholarships to students who are members of B. To be eligible, the

applicant must be:
• a church member in good standing who plans to attend, or are attending, a school

of divinity

• a church member in good standing who is an undergraduate under the age of
23 (at the time of the application deadline), who is attending an institution of higher

learning, or

Letter 4792 (10-2012)
Catalog Number 58263T

• a high school senior in good standing who has firm plans to attend an institution of
higher learning.

Members in good standing are those who have received Holy Communion in B at least
three times during the preceding year and have been faithful in corporate worship, unless
for good cause prevented, working, praying, and giving for the spread of the Kingdom of
God. If the applicant is unable to meet this requirement, parent(s) of the applicant must
be member(s) in good standing. Higher learning qualified schools includes vocation
schools, trade schools, universities, and colleges.

Your scholarship is advertised in the spring each year through announcements in the
weekly church bulletin insert and announcements from the pulpit. Applicants must submit
an application that contains the following information:

• The student's institution of higher learning and major course of study.
• The student’s goals and how your scholarship will help to achieve them.
• The student’s involvement with the church and how this shaped him/her as a
person

• A copy of the most recent academic transcript, manuscripts, or grade report.
Students on academic probation are not eligible.

• Two letters of recommendation; one from a recent teacher, counselor/student
advisor.

Your scholarship committee is made up of four church members and one non-parish
person. Each year your trustee advises the 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 good standing at the church, as well as their attendance at a
school of divinity. The committee then submits their recommendations, regarding
applicants selected and amount, to your trustee who makes the final selections and
determination. Seminary students are to be given priority. To ensure this provision is
met, there is no age limit for seminarians since a large number of individuals now attend
schools of divinity after the age of 22. All scholarships are awarded on an objective and
non-discriminatory bases. No scholarship may be awarded to any disqualified person as
defined in Code Section 4946.

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 notify you and refund any unused portion of the scholarship if a
recipient fails to meet any terms 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:

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

Letter 4792 (10-2012)
Catalog Number 58263T

• investigate diversion of funds from their intended purposes, and

• 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

• 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 will maintain all records relating to individual grants including information obtained to
evaluate grantees, identify if a grantee is a disqualified person, establish the amount and
purpose of each grant, and 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).

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.

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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

Enclosures
Form 872
Redacted copy

Letter 4792 (10-2012)
Catalog Number 58263T