Scholarship and educational grant procedures receive advance approval

Plain-English summary

A private foundation proposed scholarships for students attending qualifying educational programs and grants for young people developing career-related skills or talents. Applicants would be evaluated under objective criteria emphasizing achievement or talent and financial need, with insiders, their families, and other disqualified persons excluded. Schools would supervise scholarship funds, while individual grant recipients would report how funds were used and return unused amounts. The foundation also promised annual reporting, investigation of misuse, corrective action, and recordkeeping. The IRS approved the scholarship procedures under section 4945(g)(1) and the educational grant procedures under section 4945(g)(3), so awards made as proposed would not be taxable expenditures.

Ruling snapshot

• Question: Did the foundation's proposed scholarship and educational grant procedures satisfy the advance-approval rules for grants to individuals?
• Outcome: Approved, assuming both programs operate as proposed.
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), and 4945(g)(1), (3); Treas. Reg. § 53.4945-4(c)(1)

Full text (IRS public release)

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

Release Number: 201613017
Release Date: 3/25/2016 Employer Identification Number:

Date: December 30, 2015
Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04
B = Location

C = Number

D = Number

G = Number

x dollars = Amount

y dollars = Amount

z dollars = Amount

Dear

You asked for advance approval of your scholarship procedures under Internal
Revenue Code section 4945(g)(1) and your grant procedures under Internal
Revenue Code section 4945(g)(3). This approval is required because you are a
private foundation that is exempt from federal income tax.

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)).

We also approved your procedures for awarding educational grants. Based on the
information you submitted, and assuming you will conduct your program as proposed, we
determined that your procedures for awarding educational grants meet the requirements
of Code section 4945(g)(3). As a result, expenditures you make under these procedures
won't be taxable.

Letter 4792 (10-2012)
Catalog Number 58263T

Description of your request

You were formed to help provide opportunities for underprivileged youth and young

adults to give them a chance for success and to strengthen communities. In order to
further this goal, you will provide scholarships for students to attend a United States
university, technical college, or other qualified program.

You will provide grants for individuals to improve or enhance their capacity, skill, or talent
in the fields of, with the objective of actuating a career in, science, art, sports, academia,
or other similar fields.

Your scholarships are designed to assist students who demonstrate academic excellence
and/or financial need. Scholarships will be restricted to students attending accredited
schools or educational institutions that qualify under sections 509(a)(1) and
170(b)(1)(A)(ii) of the Code and scholarship funds will be used by recipients for tuition,
books, or living expenses while attending school. The amount of each scholarship will be
in the range of x dollars to y dollars annually.

Your grants are designed to assist youth and young adults who demonstrate talent,
potential, and perseverance in their chosen fields of interest and financial need. Grant
amounts will be used by recipients for travel, training, equipment, registration fees, living
and other expenses related to the pursuit of a career in the recipient's field of interest.
Grants must be used to achieve a specific objective, produce a report or other similar
product, or improve or enhance a literary, artistic, musical, scientific, teaching, athletic, or
other similar capacity, skill, or talent. Grant recipients will be limited to youth and young
adults between the ages of C and D. The amount of each grant will be in the range of x
dollars to z dollars.

You will make scholarship and grant information available through your website which is
currently under construction. Applications will be accepted throughout the year either by
mail, electronically, or by personal delivery. There is no limit on the potential number of
individuals who are eligible to apply and no limit on the number of potential applicants.
The following individuals will not be eligible to apply for or receive a scholarship or grant
award: (a) any of your employees as well as any family member of such an individual, (b)
any of your executives, officers, or directors, as well as any family member of such an
individual, and (c) any otherwise disqualified person with respect to you as defined by
section 4946 of the Code, as well as any family member of such an individual.

You will evaluate scholarship and grant applications based on an objective rubric. For
scholarships, the greatest weight will be placed on an applicant’s past academic
performance and financial need with lesser weight on recommendations from instructors
and personal qualities. For grants, the greatest weight will be placed on an applicant’s
past performance in his or her chosen field of interest and financial need with lesser
weight on personal recommendations and personal qualities. Your financial need criterion
will be based upon a review of a financial needs assessment and consideration of any
other financial aid or income the applicant expects to receive. Individuals attending
schools, living, or planning to work in B may receive preference. You will at no time


discriminate against any applicant on the basis of race, religion, creed, color, sex, age,
physical or mental disabilities, sexual orientation, or national origin. Your website will
include an appropriate nondiscrimination statement.

Recipients of your scholarship and grant awards will be selected by your Board of
Directors with the assistance of your officers and/or employees assigned to assist the
Board with the operation of your program. The number and amounts of awards made
each year will be determined by the Board of Directors based on available funds and
other appropriate factors. Individual scholarship amounts will be determined by the cost
of tuition at each educational institution and the student's financial need. Individual grant
amounts will be determined by the recipient's proposed budget and financial need. Other
financial aid and income will also be considered when determining specific scholarship
and grant amounts. No funds will be used to compensate recipients for performing
particular services

You will pay scholarship funds to the accredited educational institution where the
recipient is enrolled and only if the institution agrees to supervise the use of the
scholarship. The scholarship recipient must be enrolled in an eligible educational
institution, must maintain at least a G grade point average (or equivalent), and the
scholarship funds must be used to cover the cost of the recipient's tuition, fees, books,
room and board, research, fees, and other expenses associated with the completion of
the recipient’s degree. You will require an annual report from each educational institution
to confirm each recipient’s enrollment and academic performance. Any unused funds will
be transferred from the educational institution back to you.

You will pay all grant funds directly to the recipient. Grant funds must be used to cover
the cost of the recipient's travel, training, equipment, registration fees, living and other
expenses related to improving or enhancing his or her capacity, skill, or talent in the fields
of, with the objective of, pursuing a career in science, art, sports, academia, or other
similar fields. You will require an annual report from each recipient describing the use of
funds along with the objectives achieved, work produced, and/or any other improvement
to the recipient’s capacity, skill, or talent in his or her chosen field of interest. The
recipient shall return any unused funds to you.

If you learn that an award has not been used for its intended purpose you will investigate
and take corrective action which may consist of any action up to and including legal
action. You will withhold any further payments during an investigation. You may renew an
award as long as you have not received information on misuse of the award, all required
reports concerning the recipient have been received, and the recipient continues to
satisfy the conditions of the award and remains eligible to receive the award.

You will maintain any applications received for a minimum of five years beyond the date
of application or completion of the award, whichever is greater. The information

maintained will include the identity of each grantee, information to verify that no grantee
is related to a member of the selection committee or a disqualified person in relation to
you, copies of award letters, transcripts, annual reports, and any other correspondence


between the applicant and you. You will also maintain records of the amount and purpose
of each award granted.

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 section 117(a) and is to be used for
study at an educational organization described in section 170(b)(1)(A)(ii); or

- A prize or award subject to the provisions of section 74(b), if the recipient of
the prize or award is selected from the general public; or

- To achieve a specific objective; produce a report or similar product; or
improve or enhance a literary, artistic, musical, scientific, teaching, or other
similar skill or talent of the recipient.

To receive approval of its educational grant procedures, Treasury Regulations section
53.4945-4(c)(1) requires that a private foundation show:

• The grant procedure includes an objective and nondiscriminatory selection
process.

• The grant procedure results in the recipients performing the activities the grants
were intended to finance.

• The foundation plans to obtain reports to determine whether the recipients have
performed the activities that the grants were intended to finance.

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).

• 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,

Jeffrey I. Cooper
Director, Exempt Organizations
Rulings and Agreements