Community-focused scholarship procedures approved

Plain-English summary

A private foundation proposed scholarships for students in a specified location who attended schools it supported or demonstrated service to the local community and people in poverty. Eligible applicants include students finishing secondary school and college students seeking graduate education. The foundation considers academic achievement and future goals, publicizes the program through local schools, and excludes relatives of its officer selection committee. Tuition payments go directly to schools, living-expense payments go to recipients, and students submit grade transcripts twice a year. The foundation also maintains grant records, reviews reports, investigates diversions, recovers misused funds, and withholds later payments when necessary. The IRS approved the procedures under section 4945(g)(1), effective from the date the request was submitted.

Ruling snapshot

• Question: Do the foundation's community-focused scholarship procedures satisfy section 4945(g)(1)?
• Outcome: Approved.
• Key authorities: IRC §§ 117(a), 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

Release Number: 201517022 Employer Identification Number:
Release Date: 4/24/2015
Date: 1/27/2015 Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04

Y= Location

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 purpose is to assist youth by providing scholarships to deserving individuals who
otherwise would not be afforded the opportunities provided by higher education. The
purpose of your scholarship is to help students to change the course of their lives, their
community, and their country.

You will provide scholarships to students who live in Y. Students who have attended
schools that receive financial assistance from you or who have demonstrated a
commitment to serving the local community and the poor are eligible for scholarships.
Candidates for scholarships are students who are either finishing the equivalent of high
school and would like to go to college or who are in college and would like to go on to
pursue a graduate degree. You will use criteria such as grade point average, academic

Letter 4792 (10-2012)
Catalog Number 58263T

achievement and future goals to select recipients. The number of scholarships that will be
awarded each year will vary depending on the amount of funds available to be
distributed. Selected students will further their education at an educational organization
described in section 170(b)(1)(A)(ii) of the Code. The amount of scholarships will vary
depending on the cost of tuition of the university or college chosen by the recipients as
well as the estimated cost of living for the applicable region.

Scholarship brochures will be available at local country schools within the boundaries of
Y and teachers at these schools will make periodic announcements. You will also visit,
make announcements, and pass out brochures approximately twice per year.

The Scholarship Selection Committee is comprised of your officers. Relatives of the
selection committee are not eligible for any scholarships.

You will pay the scholarship directly to the college or university the recipient attends.
Living expenses will be sent directly to the recipients. You will monitor the selected
students by requiring them to submit their semi-annual grade transcripts. You may
consider non-renewal of a scholarship if a recipient did not maintain an appropriate GPA.
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. You will also arrange to receive and review grantee reports
annually and upon completion of the purpose for which the grant was awarded,
investigate any diversions of funds from their intended purposes, and take all reasonable
and appropriate steps to recover diverted funds, ensure that 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.

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. The

Letter 4792 (10-2012)
Catalog Number 58263T

effective date of our approval is March 24, 2014, which is the date your request
was submitted.

• 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