College scholarship procedures receive advance approval

Plain-English summary

A non-exempt charitable trust that was also a private foundation requested advance approval for a college scholarship program. Eligible students had to complete two years in specified science or engineering fields, continue that major at an accredited four-year institution, and have at least a 3.0 grade-point average. A committee ranked applicants by grades, the trustee selected the awards, and payments went directly to the recipient's college or university. The IRS approved the procedures under section 4945(g)(1), making compliant scholarship expenditures nontaxable to the trust. Awards used for qualified tuition and related expenses also would not be taxable to recipients, subject to section 117(b).

Ruling snapshot

• Question: Did the trust's scholarship procedures qualify for advance approval under section 4945(g)?
• Outcome: Approved
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), 4945(g)(1), and 4947(a)(1)

Full text (IRS public release)

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

Number: 201512005 Employer Identification Number:

Release Date: 3/20/2015
Contact person - ID number:

Contact telephone number:
Date: December 22, 2014

LEGEND: UIL:
X= college 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 Non-Exempt Charitable Trust (NECT) described in Section 4947(a)(1) and also 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)).

Our ruling is effective beginning August 20, 2013, the date you submitted your request for
advance approval.

Description of your request

You provide scholarships to students from X to continue their major at a four-year
accredited college or university. The scholarship will be publicized at X’s website. In order
to be eligible for this scholarship, applicants must complete two years in chemistry,
geology, physics, or engineering, plan to continue their major at a four-year accredited
college or university and have a minimum of a 3.0 GPA. A scholarship application must
also be completed.

The number and amount of scholarships awarded each year will vary depending on the
amount of funds available to be distributed. Each year your trustee advises the

Letter 4792 (10-2012)
Catalog Number 58263T

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scholarship advisory committee, made up of members from X, of the amount of funds
available to be awarded. The committee ranks the applicants based on GPA and submits
the selections to your trustee.

You pay the scholarship directly to the college or university the recipient attends. The
recipient college/university will be required to notify you or refund any unused portions of
the scholarship if the recipient fails to meet the award’s terms or conditions. Otherwise,
the recipient will be required to submit reports and grade transcripts. The scholarship is
not renewable.

Relatives of the selection committee are not eligible for any scholarships. If you
determine that funds have been diverted, you will take all reasonable and appropriate
steps to recover the diverted funds.

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:

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.

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• 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

Enclosures:
Notice 437
Redacted letter

Letter 4792 (10-2012)
Catalog Number 58263T