Community-leadership scholarship procedures approved

Plain-English summary

A private foundation proposed need-based scholarships for students attending colleges, universities, or trade programs in one state. Selection emphasized community involvement and financial need rather than academic or athletic performance, using stated weights for the application, need, and a special-quality factor. Awards would be renewable for up to four years if recipients remained enrolled, maintained the required grade average, and followed school rules. Funds would be paid directly to schools, and the foundation described annual reporting, diversion-recovery, supervision, and recordkeeping procedures. The IRS approved the procedures under section 4945(g)(1), so grants made as proposed would not be taxable expenditures.

Ruling snapshot

• Question: Did the need-based, community-focused scholarship program satisfy the private-foundation rules for grants to individuals?
• Outcome: Approved
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), 170(c)(2)(B), 4945(g)(1)

Full text (IRS public release)

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

Release Number: 201533017
Release Date: 8/14/2015
Date: May 22, 2015 Employer Identification Number:

Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04

B= Name

C= State

x = Number

y dollars= Amount

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 provided in Code section 117(c)).

Description of your request

Your letter indicates you will operate a scholarship program called B. Your program is
intended to facilitate the growth of promising leaders in the state of C by developing the
skills needed to flourish within their local communities. You will award x scholarships for y
dollars each academic year. Each scholarship is renewable up to four years. This is a
need-based scholarship with criteria focusing on an individual’s involvement in his or her
community, rather than academic or athletic performance. Your program will be
advertised through local media and on your website.

Letter 4792 (10-2012)
Catalog Number 58263T
To be eligible, applicants must:
• Attain a high school diploma or GED in C.
• Complete an application to at least one C collegiate program (university, college,
or trade program).
• Commit to attending a C university, college, or trade school.
• Complete standardized testing required for program admission (SAT or ACT).
• Provide proof of community involvements/volunteerism.

Individuals must complete and submit an application, attach a one-page personal essay
and two letters of recommendation. All supporting documents from the checklist must be
included with the application as a package. Incomplete applications will be disqualified.

The Scholarship Advisory Committee will select scholarship recipients and consists of
your board members, officers, and directors. If the individuals in those positions resign or
are replaced by you, the new individuals in those positions would assume the respective
position on the Scholarship Advisory Committee. The Scholarship Advisory Committee
will select the recipients based on the following:

• 45% Application
• 45% Financial Need
• 10% ‘Something Special’

Financial need is determined after considering the applicant’s total annual household
income (students and parent/guardians), the number of students in the household
attending college, the estimated tuition/room/board/books’ expenses, any estimated
grant/scholarship aid received to date, the estimated family contribution (student and
parent/guardian), and the amount of annual college expense unfunded (such as intending
to use student loans).

To receive a scholarship each year, recipients must meet and maintain the following
eligibility requirements:
• Be enrolled and complete a minimum of twelve units per semester at a university,
college or trade school in C.
• Maintain at least a 2.5 cumulative grade point average each semester.
• Abide by the school’s rules, policies and code of conduct regarding student safety,
behavior, and discipline

Each student will be responsible to send their final grades/transcripts to you for renewal
approval. Failure to abide by the above terms and conditions may result in revocation or
nonrenewal of the scholarship which is at the sole discretion of your Scholarship Advisory
Committee.

Scholarship funds are submitted directly to the student’s college of attendance.
Funding is never written to an individual but is only written to the student’s college of
choice.

Letter 4792 (10-2012)
Catalog Number 58263T

The school will only use the funds if the student is in good standing, which is defined as
maintaining a cumulative GPA of 2.5 during each semester. Funds are to be used strictly
for tuition, books, and subsequent fees at C accredited universities, colleges, or trade
programs.

You represent that you will complete the following: (1) arrange to receive and review
grantee reports annually and upon completion of the purpose for which the grant was
awarded, (2) investigate diversion of funds from their intended purposes, and (3) take all
reasonable and appropriate steps to recover the diverted funds, ensure other grant funds
held by a grantee are used for their intended purposes, and (4) 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 diversion from
occurring.

You represent that you will maintain the following: (1) all records relating to individual
grants including information obtained to evaluate grantees, (2) identify a grantee is a
disqualified person, (3) establish the amount and purpose of each grant, and (4) 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

Letter 4792 (10-2012)
Catalog Number 58263T

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.

We've sent a copy of this letter to your representative as indicated in your power of
attorney.

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