Two local scholarship programs receive advance approval

Plain-English summary

A private foundation proposed two scholarship programs for students with ties to its local area. One program would support seniors from a specified public high school who had at least a 3.0 grade point average, financial need, and plans to attend a state-funded school. The other would support local high school graduates attending an area community college or four-year college, with award amounts based on the student's program and financial need. Payments would go directly to educational institutions, recipients had to maintain academic progress, and relatives of foundation insiders or committee members were excluded. The IRS approved both programs under section 4945(g)(1), so grants made under the procedures would not be taxable expenditures.

Ruling snapshot

• Question: Did the foundation's procedures for its two local scholarship programs satisfy the advance-approval requirements?
• 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: 201516076 Employer Identification Number:
Release Date: 4/17/2015
Contact person - ID number:

Contact telephone number:

Date: 1/20/15

LEGEND UIL: 4945.04-04

X =
Y =
B =
K =
C =
n =
p =
q =

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 provide in Code section 117(b)).

Letter 4792 (10-2012)
Catalog Number 58263T

Description of your request
Your letter indicates that you will operate two scholarship programs. They are X program
and the Y Program

Your purpose is to offer scholarships to B Seniors, a public high school in C. The
scholarships are for a maximum of n dollars per semester, p dollars per academic year
for up to four years, q dollars in total. The scholarship monies are paid directly to the
educational institutions.

To be eligible for the X program, students must have at least a 3.0 grade point average
and need economic aid in order to attend college. In addition, the applicants must:
• be a B Senior in good academic standing,
• attend a state funded K School (only available for four year state funded K
Schools), and
• not be related to any officer, director, substantial contributor, trustee or current
or future scholarship committee member.

The candidates must submit a resume and then be interviewed by the scholarship
committee. In order to maintain the scholarship under the X Program, the recipient must:
• maintain a 2.5 grade point average (GPA),
• be a full time student, and
• submit a transcript to the education liaison at the end of each semester
showing the maintenance of the required 2.5 GPA and full time status.

The Y program is designed for any high school graduate with local ties that are attending
any local community or four year college. The amount of scholarship depends on the
candidate’s education program and financial need.

To qualify for the Y Program, applicants must:
• be a high school graduate with local ties to the area,
• be attending an area community or four year college, and
• not be related to any officer, director, substantial contributor, trustee or
current or future scholarship committee member.

The candidates must submit a request and then be interviewed by the scholarship
committee. In order to maintain the scholarship under the Y Program, the recipient must:
• maintain a 2.5 grade point average,
• submit a transcript to the education liaison at the end of each semester
showing the maintenance of the required 2.5 GPA, and
• be making progress towards a goal of completion of a program.

Your scholarship committee is made up of your trustees. The scholarship committee
works with the college counselors and principals at B to identify candidates.

Letter 4792 (10-2012)
Catalog Number 58263T

You will investigate any possible misuse of funds by the recipient, withhold further funds
during the investigation if a misuse of funds is discovered, and seek recovery of misused
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.

• 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.

Letter 4792 (10-2012)
Catalog Number 58263T

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