Graduate loan scholarship procedures receive approval

Plain-English summary

A private foundation proposed making up to five interest-bearing educational loan scholarships each year to students pursuing graduate degrees in a foreign country. Applicants must show academic excellence, admission to an accredited university, necessary immigration papers, other funding arrangements, and a need for supplemental funds. A committee of board members selects recipients using academic records, references, funding plans, an interview, and other documentation, while the foundation pays recipients directly and maintains scholarship records. The IRS approved the procedures under IRC § 4945(g)(1). Qualifying expenditures will not be taxable to the foundation, and awards used for qualified tuition and related expenses may be excluded from recipients' income under IRC § 117.

Ruling snapshot

• Question: Do the foundation's procedures for graduate educational loan scholarships satisfy the advance-approval requirements?
• 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: 201506012 Employer Identification Number:
Release Date: 2/6/2015
Contact person - ID number:

Date: 11/12/14 ID #
Contact telephone number:

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LEGEND UIL:
4945.04-04

x = Dollar amount of scholarship
y = Percentage amount
Z = Country of operation

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 letter indicates you will operate a scholarship program.

You annually award up to five educational loan scholarships of x dollars at y% interest to
students pursuing graduate degrees in the Z. There is no security required for the
scholarship. The recipients repay the scholarships when able, after the completion of
their studies, in a payment schedule arranged with you. The recipients must start
payments within two years after the completion of their studies.

Letter 4792 (10-2012)
Catalog Number 58263T

2

The conditions for granting scholarships are as follows:

• Applicants must have proved their academic excellence through their scholastic
record

• Applicants must have completed their bachelor’s degree and pursuing a graduate
degree

• Applicants must have secured admission at an accredited university in the Z

• Applicants must have secured any necessary Visa or other immigration papers

• Applicants must have arranged for the necessary funds but have a need for
supplemental funds

The selection committee will be composed of your board members. You have
represented that the availability of the scholarships is publicly announced on your
website. Scholarship recipients are selected according to the following criteria:

• Application

• Academic records

• Recommendations and references

• Admission letter from the university with the start date, academic unit requirement,
and a list of imposed conditions, if any

• Proof of secured Visa or immigration papers if needed

• Plan for total funds needed and personal or other funds arranged to date

• Accepted and signed y% loan agreement

• Interview with one member of the selection committee

• Review by the selection committee and final selection

You will pay the scholarships directly to the recipients. You represent that you (1) review
certified transcripts provided by the recipients, (2) review bio-data and do checks as
needed, and (3) review admission letters and Visa grant letters provided by the
recipients.

You further represent that you maintain all records relating to the scholarships, including
forms and loan agreements.

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.

Letter 4792 (10-2012)
Catalog Number 58263T

3

• 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.

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