Religious studies scholarship procedures receive approval

Plain-English summary

A private foundation requested advance approval for scholarships supporting students engaged in religious studies at seminaries or accredited colleges and universities. Eligible applicants included upper-level and graduate seminary students and religious studies majors with at least a 3.25 grade point average, while the named entity's employees, officers, and directors were excluded. An independent voting committee would select recipients based on academic achievement and an essay. Payments would go directly to educational institutions, with enrollment checks, grade reporting, recovery procedures for diverted funds, and detailed grant records. The IRS approved the procedures under IRC § 4945(g)(1), so awards made as proposed would not be taxable expenditures and could be excluded from recipients' income when used for qualified tuition and related expenses within section 117(b).

Ruling snapshot

• Question: Did the foundation's selection, payment, monitoring, and recordkeeping procedures qualify for advance approval?
• 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: 201508020 Employer Identification Number:

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

Contact telephone number:
Date: 11/25/2014

UIL: 4945.04-04
LEGEND

X= Name of Entity
m = Number
t dollars = Amount

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 provided in Code section 117(b)).

Description of your request
Your letter indicates you will operate a scholarship program.

Your purpose is to support charitable and civic activities in the community where X is
located and support charitable causes that are also supported by X’s customers. The
purpose of the scholarship program is to sponsor students engaged in religious studies at
seminaries or accredited colleges and universities.

You will award m scholarships per year in the amount of $t each. Funds may be used to
pay for tuition and fees required for enrollment as well as for fees, books, supplies, and
equipment required by the institution.

Letter 4792 (10-2012)
Catalog Number 58263T

Eligible recipients include juniors, seniors and graduate students enrolled at accredited
seminaries and students with declared religious studies majors at accredited colleges or
universities who have a cumulative grade point average of at least 3.25. Recipients will
be selected based on academic achievement and an essay. You represented that
employees, officers, and directors of X are not eligible for scholarships.

You will publicize the program on X’s website, via social media, through the insurance
agents that produce church insurance business, through the periodic publications that X
sends to its customers, and by news releases to media outlets that serve the religious
community.

The scholarship selection committee will consist of a non-voting chairperson who
represents you and four voting members who are not affiliated with you or X. You will
actively seek the participation of educators and pastors.

You will pay scholarship funds directly to the recipient's educational institution. You will
request the school to verify that the recipient has enrolled for the semester and also to
notify you if the recipient withdraws from the school. In the event of a withdrawal, any
tuition refund will be returned to you. You will request a grade report from the school at
the end of the semester.

You represented that you will investigate diversions of funds from their intended
purposes, take all reasonable and appropriate steps to recover diverted funds, 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 recipients will take extraordinary precautions to prevent

future diversions from occurring.
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
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).

Letter 4792 (10-2012)
Catalog Number 58263T

• 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