Scholarship grant procedures received advance approval

Plain-English summary

A nonexempt charitable trust that was also a private foundation requested advance approval of its scholarship procedures under section 4945(g). The program favored students of a redacted ancestry and limited means from mining towns in a redacted state, with moral character, academic ability, and economic need among the selection criteria. A committee ranked applicants, the trustee made final selections, and payments generally went directly to educational institutions with refund and reporting safeguards. The IRS approved the procedures under section 4945(g)(1), so compliant scholarship expenditures would not be taxable expenditures and qualifying awards used for tuition and related expenses would not be taxable to recipients.

Ruling snapshot

• Question: Did the scholarship selection and monitoring procedures satisfy section 4945(g)?
• Outcome: Approved
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), 4945(g), 4946, and 4947(a)(1)

Full text (IRS public release)

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

Release Number: 201525015
Release Date: 6/19/2015 Employer Identification Number:
Date: March 27, 2015

Contact person - ID number:

Contact telephone number:

LEGEND UIL

W = nationality 4945.04-04
Y = university

Z = state

x = date

Dear

You asked for advance approval of your scholarship grant procedures under
Internal Revenue Code section 4945(g). This approval is required because you a
nonexempt charitable trust (NECT) described in IRC 4947(a)(1) that is also a
private foundation. You requested approval of your scholarship program to fund the
education of certain qualifying students.

Our determination

We approved your procedures for awarding scholarships effective x; the effective
date of your request. 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

You provide scholarships for undergraduate and graduate students to study home
economics, nutrition and related curriculums. In the past you have provided up to four
awards annually, however, the number of scholarships that will be awarded each year
and the amount of each scholarship will vary depending on the amount of funds available
to be distributed. You publicize the scholarship program on Y’s website and through their

Letter 4792 (10-2012)
Catalog Number 58263T

financial aid office. First preference shall be given to girls of W ancestry and of limited
means from Z mining towns. Sound moral character, scholastic ability and economic
necessity will be considered as qualifying characteristics.

Each year your trustee advises your scholarship committee of the amount available for
scholarships and reminds the committee of the current scholarship criteria. The current
scholarship committee consists of faculty members from Y, faculty from local high
schools in Z and former scholarship recipients.

The members of the scholarship committee review the scholarship applications and rank
the applications based on the applicants’ moral character, scholastic ability and economic
necessity. The scholarship committee then submits their selection to the trustee. The
trustee reviews the recommendations from the committee to ensure that the students
meet the criteria and makes the final selection. 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.

The trustee pays the scholarship proceeds directly to the university/college. Students are
reimbursed directly for books, supplies, equipment and expenses required for their
course of study. The trustee provides a letter to each university/college specifying that
the acceptance of the funds constitutes their 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 the trustee if the scholarship recipient fails to meet any term or
condition of the scholarship. If the university/college will not agree to such terms, or if
funds are paid directly to the scholarship recipient the trustee will obtain the needed
reports and grade transcripts from the scholarship recipient.

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

Letter 4792 (10-2012)
Catalog Number 58263T

• 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.

If you have questions, please contact the person listed at the top of this letter.

Sincerely,

Director, Exempt Organizations

Enclosure:
Redacted letter
Notice 437

Letter 4792 (10-2012)
Catalog Number 58263T