Need-based education grant procedures receive approval

Plain-English summary

A private foundation sought advance approval for education grants serving financially distressed single parents, veterans, and students studying mathematics or engineering. Applicants had to submit a proposed research or study plan, budget, financial-need information, and references when possible. Selection considered scholastic achievement, educational experience, leadership, goals, interests, and financial need, and grants could cover tuition, housing, computers, and books. Disqualified persons and their family members were excluded, while renewals depended on recipient reports. The foundation would review reports, investigate diversions, recover funds, withhold later payments, and maintain grant records. The IRS approved the procedures under IRC §§ 4945(g)(1) and 4945(g)(3), so expenditures made as proposed would not be taxable.

Ruling snapshot

• Question: Did the foundation's need-based selection, renewal, supervision, recovery, and recordkeeping procedures qualify for advance approval?
• Outcome: Approved under sections 4945(g)(1) and 4945(g)(3)
• Key authorities: IRC §§ 74, 117, 170(b)(1)(A)(ii), 4945(g), and 4946; Treas. Reg. § 53.4945-4(c)(1)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
P.O. Box 2508
Cincinnati, OH 45201

Number: 201508013 Employer Identification Number:

Release Date: 2/20/2015
Contact person - ID number:

Contact telephone number:
Date: November 25, 2014

LEGEND:
x = dollar amount
y = dollar amount

UIL:
4945.04-04

Dear :

You asked for advance approval of your educational 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.

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 sections
4945(g)(1) and 4945(g)(3). As a result, expenditures you make under these procedures
will not be taxable.

Description of your request

You will award scholarships to scholars and other individuals of recognized merit and
qualification who require financial assistance to meet their educational goals. You will
publicize your program through your website, press releases, media campaigns, outreach
by schools, and direct contact with possible grantees. You consider applications from any
single parent, veteran, or student studying math and/or engineering that are currently
facing serious financial difficulties. The approximate number of eligible individuals is
therefore effectively unlimited. However, you expect awards to range between x and y
dollars.

You require a proposal be sent from each applicant. Each proposal will include:

(i) A statement setting forth the proposed use of the grant for research and/or study
and outlining the research/study objectives and methods
(ii) A description setting forth the way in which the grant will allow the applicant to
start

Letter 4792 (10-2012)
Catalog Number 58263T

down a path to a more secure future;
(iii) A proposed budget for the research and/or study, and the financial need
(iv) References from persons able to evaluate the applicant if possible

Recipients are selected based on scholastic ability and achievement, educational
experience, leadership ability, goals and interests and financial need. Selections will be
made based on how funds are likely to enrich and support the recipient. Funds will
generally cover tuition, housing, computers and books.

You require applicants to explain their financial need and to describe the emergency that
has led to the financial need. Based on this information, you request additional
information relevant to the determination of financial need, including employment status,
income, savings, other assets, whether the applicant rents or owns his or her home, and
any other potential sources of assistance. Your application also asks for references
validating the applicant’s request, and you will consider these references when
determining financial need. Although no specific level or amount of need is required, the
applicant must be struggling to meet basic needs. Your application also requires the
applicant to describe how a grant from you would help them meet their need and position
them for future financial security.

Your board serves as your selection committee. No grants will be made to:

• Your substantial contributors

• Members of your Board of Directors

• Your officers

• Any disqualified person with respect to your organization within the
meaning of Section 4946 of the Code

• Any family members of these individuals.

All grants will be made on an objective and nondiscriminatory basis and without regard to
race, gender, religion, national origin, sexual orientation or ethnicity. Grants may be
renewed upon request from the recipient and based on reports submitted.

You will (1) arrange to receive and review grantee reports annually and upon completion
of the purpose for which the grant was awarded, (2) investigate diversions of funds from
their intended purposes, and (3) take all reasonable and appropriate steps to recover
diverted funds.

You 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 the grantees will take extraordinary precautions to
prevent future diversions.

You will maintain all records relating to individual grants, including information obtained to
evaluate grantees, identify whether a grantee is a disqualified person, establish the

Letter 4792 (10-2012)
Catalog Number 58263T

amount and purpose of each grant, and establish that you undertook 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 section 117(a) and is to be used for
  study at an educational organization described in section 170(b)(1)(A)(ii); or

• A prize or award subject to the provisions of section 74(b), if the recipient of
  the prize or award is selected from the general public; or

• To achieve a specific objective; produce a report or similar product; or
  improve or enhance a literary, artistic, musical, scientific, teaching, or other
  similar skill or talent of the recipient.

To receive approval of its educational grant procedures, Treasury Regulations section
53.4945-4(c) (1) requires that a private foundation show:

• The grant procedure includes an objective and nondiscriminatory selection
process.

• The grant procedure results in the recipients performing the activities the grants
were intended to finance.

• The foundation plans to obtain reports to determine whether the recipients have
performed the activities that the grants were intended to finance.

Other conditions that apply to this determination
• This determination covers only 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 precedent.

• You cannot rely on the conclusions in this letter if the facts you provided have
changed substantially. You must report any significant changes in your program to
the Cincinnati Office of Exempt Organizations at:

Letter 4792 (10-2012)
Catalog Number 58263T

Internal Revenue Service

Exempt Organizations Determinations
P.O. Box 2508

Cincinnati, OH 45201

• You cannot make 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 must
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.

We've sent a copy of this letter to your representative as indicated in your power of
attorney.

Please keep a copy of this letter in your records.

If you have any questions, please contact the person listed at the top of this letter.

Sincerely,

Director, Exempt Organizations

Enclosures:
Notice 437
Redacted letter

Letter 4792 (10-2012)
Catalog Number 58263T