Scholarship procedures received advance approval

Plain-English summary

A private foundation proposed scholarships for qualifying high school seniors, including but not limited to children of employees of two companies. An independent committee would select recipients using academic achievement, service, financial need, and other stated criteria, while disqualified persons were excluded. Awards could continue for later semesters and years if recipients remained eligible and documented satisfactory progress. The IRS approved the procedures under section 4945(g)(1), so grants made as proposed would not be taxable expenditures. Scholarship amounts used for qualified tuition and related expenses would also be nontaxable to recipients within section 117(b)'s limits.

Ruling snapshot

• Question: Did the proposed scholarship selection and monitoring procedures satisfy the private-foundation grant rules?
• Outcome: Approved
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), 4945(g)

Full text (IRS public release)

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

Employer Identification Number:

Number: 201534019
Release Date: 8/21/2015 Contact person - ID number:

Contact telephone number:

Date: May 29, 2015

LEGEND: UIL:

T= school district 4945.04-04
U= high school

V= county

W=individual

X= company 1

Y= company 2

Z= newspaper

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

You will operate a program to award scholarships to graduating high school students
meeting established criteria to be used for qualified expenses at educational institutions
described in Section 170(b)(1)(A)(ii).

Letter 4792 (10-2012)
Catalog Number 58263T

Scholarships will be awarded to selected eligible applicants who are seniors at U or to
select eligible applicants who are seniors at any high school located in V, and who are
children of employees of X or Y. “Disqualified persons’ are ineligible from receiving
scholarship awards.

Your Board of Directors will appoint an independent selection committee, which will be
responsible for the administration of the scholarship program. The selection committee
shall consist of individuals who occupy the following type of positions within the T: School
District Superintendent, a high school Principal, a Guidance Counselor or community
leader. It is anticipated that the committee will consist of three members. Members of the
selection committee shall be totally independent (except for participation on the
Committee) and separate from you, W and his family members, and X and Y. If any of
your employees or the above employers or their spouses hold a position in a School
District, such individuals shall not be appointed to the scholarship selection committee.

Notices regarding the availability of scholarship applications will appear in the Z. In
addition, notices will be sent to the Guidance Office of U and to the employees of X and Y
living in V.

The selection committee will receive and review applications and award the scholarship
to a high school senior considering the following qualifications and selection criteria:

1. Applicants shall be seniors in high school at T (or if the applicant is a child of
   an employee of X or Y, the eligible applicants shall include seniors at any high
   school located in W).

2. Applicants must be accepted for post-secondary education — business,
   technical, trade, or nursing school, junior or community college or 4-year institution
   or university (all of which must be an educational organization as described in
   Section 170(b)(1)(A)(ii) of the IRC).

3. Applicants must have at the time of the application a cumulative 2.6 GPA through
   high school.

4. Recipients must maintain a 2.0 GPA in their post-secondary school in order for the
   scholarship to be renewed for later semesters and years.

5. Applicants’ participation in high school and/or community service activities shall be
   given consideration.

6. Consideration may be given to children of current employees of X and Y who

also meet the other qualifications described here. Recipients are not limited to
children of employees and continued employment of a recipients’ parent will not
affect scholarships granted.

7. The income and assets of the applicants’ parents and of the applicant shall
   be taken into consideration.

8. The number of siblings and the current or future anticipated financial requirements
   for the education of the siblings may be taken into consideration.

9. The unmet financial need of the applicants for the educational institution selected

by the applicants shall be considered and is an important criteria (this means the
difference between tuition and room and board costs and any scholarships or

Letter 4792 (10-2012)
Catalog Number 58263T

grants awarded or likely to be awarded to the applicant by the institution or other
sources). The ability of the parents to contribute to the applicants’ education costs
and other scholarships or grants awarded or anticipated to be awarded shall be
taken into consideration.

The application process is as follows:

1. Applicants must complete the scholarship application.

2. Completed applications must include a two-paragraph essay detailing the
   applicants’ career goals and why they are a worthy candidate for this scholarship.

3. Applicants must submit evaluations from two teachers. It is the applicant's

responsibility to collect and return evaluations in sealed envelopes to the
Guidance Office with the completed application on or before the deadline
established.

4. A copy of a current federal Income tax return of both parents must be submitted
   with the application. If not available at time of submission, a copy of the prior year
   return can be substituted until the current year return is available. When available,
   the current year return shall be submitted.

5. A personal interview may be required at the discretion of the scholarship
   selection committee in the event of a tie or other reasons determined by the
   committee to evaluate motivation, character or financial need.

6. Completed applications are due to the Guidance Office by the due date.

7. The recipients shall be selected by the scholarship selection committee by
   majority vote of the members of the committee after review of the applications and
   application of the above guidelines.

8. The recipients shall be required to submit ongoing documentation of eligibility such
   as transcript, proof of use of funds and maintenance of full time student status.

You anticipate making one award of at least $10,000 annually for a four-year period, with
the possibility of awarding one more scholarship of a similar amount in the future.

Eligible applicants will include students whose parents are employees and students
whose parents are not employees. In the event an award is given to a child of an
employee, scholarships will be awarded based upon facts and circumstances that
demonstrate that the scholarships will not be considered compensation for past, present
or future services or otherwise provide a specific benefit to the employer.

The scholarship will be paid directly to the student or to the educational organization and
divided equally between the number of semesters in each academic year at the student’s
educational organization. The recipient will be required to submit a transcript of his or her
academic record, verified by the educational institution each year. If the student fails to
continue as a full-time student, make satisfactory progress towards a degree or fails to
maintain the 2.0 GPA, the student will be required to return the unused portion of the
scholarship applicable to that semester, and forfeit the remainder of the scholarship
award for subsequent semesters and years. If the student continues to meet the eligibility
criteria and provide the required documentation on a timely basis, the scholarship will

Letter 4792 (10-2012)
Catalog Number 58263T

continue for subsequent semesters and years without the need for submission of new
applications. If permitted by the educational organization, you may pay the scholarship
directly to the educational institution.

Each recipient will be required to submit a transcript of his or her academic record for
each semester and confirm his continued enrollment as a full-time student (except when
on externships or other school sponsored semesters that might be less than full-time
credit). The purpose of these requirements is to confirm that the recipient is progressing
towards the selected degree and is maintaining the required grade point average. If the
transcript reveals that the recipient has failed to make satisfactory progress towards the
selected degree and cumulative grade point average in a given academic year, the
recipient will forfeit the scholarship for subsequent semesters and years.

You will maintain records of the recipients of the scholarships, including the names,
addresses, year of award, amount of each scholarship.

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

Letter 4792 (10-2012)
Catalog Number 58263T

• 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