Community-service scholarship procedures receive approval

Plain-English summary

A private foundation proposed one-time scholarships for ten high school juniors or seniors who combined strong academic performance with community service, volunteer work, or mentoring. Applicants had to meet citizenship or permanent-residence, grade-point-average, and college-attendance requirements. The foundation's staff would narrow the applications to twenty finalists, and its executive board would select recipients with assistance from an advisory board. Awards would be paid directly to accredited four-year colleges and universities for attendance costs, including tuition, housing, books, and other campus expenses. The foundation also committed to reporting, diversion-investigation, recovery, and recordkeeping procedures. The IRS approved the procedures under section 4945(g)(1), so expenditures made under them would not be taxable expenditures.

Ruling snapshot

• Question: Did the foundation's community-service scholarship procedures satisfy the advance-approval requirements of section 4945(g)(1)?
• Outcome: Approved
• Key authorities: IRC §§ 117, 170, and 4945(g)(1)

Full text (IRS public release)

Internal Revenue Service
P.O. Box 2508
Cincinnati, OH 45201

Department of the Treasury

Number: 201510049

Release Date: 3/6/2015

Employer Identification Number:

Contact person - ID number:

Contact telephone number:

Date: December 10, 2014

LEGEND

X = Scholarship Program
y = dollar amount
Z = Country

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 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 called X. The purpose of X is
to recognize youth who have demonstrated exceptional conduct through community
service efforts, volunteerism and mentorship activities in addition to outstanding
academic performance.

Letter 4792 (10-2012)
Catalog Number 58263T

You will award scholarships to ten high school juniors and/or seniors who have
demonstrated exceptional conduct through a variety of community service efforts while
also maintaining exemplary academic performance. The final decision on award
recipients will be announced following your board’s consideration and approval.

Each scholarship recipient will be awarded an academic scholarship of $y to be applied
to the cost of attendance including tuition, housing, books and other on-campus related
expenses at accredited, four-year colleges and universities in the Z.

The grant program will be publicized on your website, through social media, and a press
release.

Applicants must meet the following criteria to be eligible to apply for the grant:

• Be a high school junior or high school senior planning to attend an accredited four-
year college or university in the Z;
• Have a minimum 3.0 GPA;
• Have participated in community service, volunteerism or mentorship activities; and
• Be a Z citizen or legal permanent resident.

The selection criteria to select recipients are:

• Applicant’s general information;

• Community service description and sign off form;

• Letter of recommendation form;

• Description of personal statement required;

• List of applicants extracurricular activities, hobbies and interests;

• List of the colleges and/or universities the applicant has applied, or will apply to;
• Applicant's transcript displaying a 3.0 GPA or higher;

• Applicant's personal statement; and

• Description of financial need.

High school juniors and seniors are eligible to receive the grant. Grant winners must
enroll in accredited, four-year colleges and universities in the Z because the grants will be
paid directly to such institutions.

Grants will be a one-time award. You will pay grants directly to an educational institution
under an arrangement whereby the school will apply the grant funds only for an enrolled
student who is in good standing. The educational institution will provide you with a
confirmation letter after the funds were applied on behalf of the grantee confirming that
the grantee is an enrolled student who is in good standing.

Your staff will review all applications submitted and select the top 20 applicants to
present to your Executive Board. The Executive Board will act as the selection committee
for the awards made with the assistance of your Advisory Board.

Letter 4792 (10-2012)
Catalog Number 58263T

You represent that you will:

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

• Investigate diversions of funds from their intended purposes; and

• Take all reasonable and appropriate steps to recover 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 diversions from occurring.

You also agree to maintain records that include the following:

• Information used to evaluate the qualification of potential grantees;

• Identification of the grantees (including any relationship of any grantee to the
private foundation);

• The amount and purpose of each grant; and

• All grantee reports and other follow-up data obtained in administering the private
foundation’s grant program.

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:

Letter 4792 (10-2012)
Catalog Number 58263T

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.

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 questions, please contact the person listed at the top of this letter.

Sincerely,

Director, Exempt Organizations

Letter 4792 (10-2012)
Catalog Number 58263T