County high school graduate scholarships receive approval

Plain-English summary

A private foundation requested advance approval for scholarships benefiting graduates of high schools in a named county whose families could not afford to support further education. Applicants had to attend a county high school for at least four years, earn a 3.0 grade point average, demonstrate financial need and community involvement, and enroll full time at a qualifying school in the state. The committee ranked applications using grades, financial need, and an essay, and awards could renew if recipients maintained a 3.0 average. Funds would be paid directly to schools, with annual reports, refund requirements, investigation of diversions, recovery procedures, and detailed records. The IRS approved the procedures under IRC § 4945(g)(1), effective from the date the foundation submitted its request.

Ruling snapshot

• Question: Did the foundation's eligibility, selection, renewal, payment, monitoring, and recovery procedures qualify for advance approval?
• Outcome: Approved, effective August 16, 2013
• 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

Employer Identification Number:

Number: 201508014
Release Date: 2/20/2015 Contact person - ID number:

Contact telephone number:

Date: 11/25/2014

LEGEND

X= County
Y= State

UIL: 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 will not 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 provided in Code section 117(b)).

Description of your request

You engage in charitable activities by enhancing access to higher education for graduates of X high schools in Y. You provide scholarships to students whose parent or parents or guardians is or are unable financially to assist the student or students to pursue their studies in advanced school, university or college.

To be eligible for the scholarship program, the student must have attended a high school in X for at least four years and have graduated or qualified for graduation from the high school so attended. The student must have a 3.0 grade point average (GPA), have financial need, be involved in community activities and plan to attend full time (12 or more

Letter 4792 (10-2012)
Catalog Number 58263T

units) at a public or private school of advanced learning, college or university in Y. Members of your scholarship committee, your officers, directors, or substantial contributors and their relatives are not eligible for awards made under your program.

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.

You publicize your scholarship by providing the scholarship information to guidance counselors in the high schools in the county you award scholarships. The students are made aware of the scholarships from the counselors at the high schools.

The members of the scholarship committee review the scholarship applications and rank the applications based on GPA, financial need and an essay. The committee then submits its selections to you. The scholarships are renewable if the applicant maintains a 3.0 GPA.

You pay the scholarship proceeds directly to the university/college the recipient attends for the benefit of the recipient. You provide a letter to each university/college specifying that the university/college’s acceptance of the funds constitutes the university/college’s agreement to (1) refund any unused portion of the scholarship if a scholarship recipient fails to meet any term or condition of the scholarship, and (2) notify you if the scholarship recipient fails to meet any term or condition of the scholarship. If the university/school will not agree to such terms you will obtain the needed reports and grade transcripts from the scholarship recipient.

You represent that you will (1) arrange to receive and review recipient 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 will also ensure other grant funds held by a recipient are used for their intended purposes, and withhold further payments to recipients until you obtain recipients’ assurances that future diversions will not occur and that the recipients will take extraordinary precautions to prevent future diversions.

You represented that you will maintain all records relating to individual grants, including information obtained to evaluate recipients, identify whether a recipient is a disqualified person, establish the 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

Letter 4792 (10-2012)
Catalog Number 58263T

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. The effective date of our approval is August 16, 2013, which is the date your request was submitted.

• 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