Veterinary scholarship procedures receive advance approval

Plain-English summary

A private foundation operated a scholarship program for graduate students from specified counties who studied animal science and veterinary medicine at a university. A faculty committee ranked applicants on their ability to investigate problems affecting the health of sheep and cattle, then recommended recipients and award amounts to the trustee. The trustee made the final objective and nondiscriminatory selections, excluded disqualified persons, paid the university directly, and required reports, records, and recovery steps for diverted funds. The IRS approved the procedures under section 4945(g)(1). Awards made under the procedures would not be taxable expenditures, and qualifying amounts used for tuition and related expenses would not be taxable to recipients.

Ruling snapshot

• Question: Did the foundation's veterinary scholarship procedures satisfy the advance-approval requirements for grants to individuals?
• Outcome: Approved
• Key authorities: IRC §§ 117, 170, 4942, 4945(g)(1), and 4946

Full text (IRS public release)

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

Department of the Treasury

Release Number: 201511031
Release Date: 3/13/2015
Date: 12/16/2014

Employer Identification Number:

Contact person - ID number:

Contact telephone number:

LEGEND

UIL: 4945-04.04

X = County Names
Y = University

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 are operating a scholarship program for students who graduated from high schools
in the counties of X to attend Y. Your purpose is to engage in charitable activities by
enhancing access to higher education.

The number of scholarships that you award 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.

Letter 4792 (10-2012)
Catalog Number 58263T

2

The Head of the Department of Animal Science and Veterinary Medicine at Y announces
the scholarship availability to all qualified graduate students.

In order to apply, students must be from the counties of X and studying animal science
and veterinary medicine at Y. A scholarship advisory committee consisting of the faculty
of the Department of Animal Science and Veterinary Medicine at Y reviews and ranks the
applicants on demonstrated ability to explore into and seek solutions for whatever
problems beset livestock farmers relating to the health of sheep and cattle.

The scholarship advisory committee then makes a recommendation to the trustee
regarding who should be awarded the scholarship and the amount that should be
awarded; the trustee makes the final determination as to the recipient and the amount
awarded. All scholarships are awarded on an objective and non-discriminatory basis. No
scholarship may be awarded to any disqualified person as defined in Code Section 4946.
Applicants must reapply every year.

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

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 will maintain all records relating to individual grants, including information obtained to
evaluate grantees, identify whether a grantee 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

3

• 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 may report any significant changes to your program by
completing Form 8940 and sending it 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