Community college completion scholarship procedures receive approval

Plain-English summary

A private foundation proposed scholarships to help public community college students complete associate degrees and continue toward bachelor's degrees at four-year institutions. Eligibility depended on prior participation in a public charity's scholarship program, completed credit hours, financial need, academic standing, a declared major, work with an adviser, and continued good standing. Students moving to a four-year institution also had to complete the associate degree and enroll within stated time limits. The foundation would award scholarships to every eligible applicant other than employees and their family members, pay schools directly, monitor recipients, investigate diversions, recover misused funds, and keep grant records. The IRS approved the procedures under section 4945(g)(1), and stated that awards used for qualified tuition and related expenses would not be taxable to recipients, subject to section 117(b).

Ruling snapshot

• Question: Did the foundation's community college completion and transfer scholarship procedures meet the advance-approval rules?
• Outcome: Approved, assuming the program is conducted as proposed.
• 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

Release Number: 201521019
Release Date: 5/22/2015 Employer Identification Number:
Date: February 26, 2015

Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04
b = number
c = number
d = number
x = dollar amount
y = dollar amount
z = number
P = scholarship program of a public charity
Q = scholarship program
R = public educational institution
S = public educational institution
T = job title

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)).

Letter 4792 (10-2012)
Catalog Number 58263T

Description of your request
Your letter indicates you will operate a scholarship program called Q.

The purpose of Q is to help R students complete their education by providing financial
assistance to such students so they are able to obtain their degree at R and pursue a
bachelor’s degree at S, or other four-year colleges.

Qualifying students will receive scholarships of up to x dollars per academic year for their
second year at R and up to y dollars per academic year for students pursuing their
bachelor’s degrees at S, or other four-year colleges.

You will publicize the program at R and through the P.

Scholarships will be granted based upon the following procedures:

1. An application must be completed.

2. Scholarships to (a) second year community college students, and (b) community
   college graduates pursuing bachelor’s degrees at a four-year college or university
   are awarded according to the following criteria:

Eligibility for Year Two at R:

• P recipient during the first year at R
• Complete a minimum of b semester hours in the first year at R, including all
  developmental courses
• Demonstrate a financial need, as determined by FAFSA Expected Family
  Contribution
• Maintain a minimum d grade point average, cumulative (or recommendation
  from the T)
• Declare a major and take nine credit hours in that major
• Must work with a T to help reach educational goals
• Maintain good standing at R

Eligibility for Four-Year University:

• Complete associate degree at R within z months
• Demonstrate proof of acceptance to a four-year university, designated as
  an “enhancement college”
• Maintain a minimum of d grade point average, cumulative (or
  recommendation from the T)
• Demonstrate a financial need (based upon FAFSA Expected Family
  Contribution)

Letter 4792 (10-2012)
Catalog Number 58263T

• Enroll at an enhancement college within c months after completion of
  associate degree
• Must work with a T to help reach educational goals
• Maintain good standing at the university

Other Supporting Details:

• Recipients have z months to complete associate degree (may attend part-
  time if needed for a period of time, as long as associate degree is
  completed within the z month time frame)
• Recipients have z months from the date of enrollment in an enhancement
  college (four year college) to complete bachelor’s degree
• If recipients drop out, they are still eligible for the scholarship pending
  completion of associate/bachelor’s degree within z months
• Special consideration given for fifth year scholarship, based on academic
  program/major requirements
• Online application process (no face to face interviews, based on the scope
  of services provided by the Student Support Coordinator)
• Will send award letters pending completion of b hours at R (for year
  two at R) and proof of enrollment at enhancement college (four year
  college)

3. In the future, a written essay or recommendation from the T may also be required.

You will review applications and records to determine eligibility. Scholarships will be
granted to all students (other than your employees and their family members) who meet
the eligibility requirements.

You will obtain proof of compliance by the grantee while such grantees remain enrolled
and may obtain additional tracking information from grantees after they graduate. You will
communicate with the educational institutions and review student records.

No restrictions apply based upon race, sex, national origin, age, or employment status.
Payments of scholarships will be made directly to the educational institutions.

You represent that 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, 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.

Letter 4792 (10-2012)
Catalog Number 58263T

You also represent that 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 described above.

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).

Letter 4792 (10-2012)
Catalog Number 58263T

• 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