Scholarship procedures for heritage and faith communities approved

Plain-English summary

A private foundation proposed a scholarship program for students connected to specified heritage and faith communities who would study at qualifying schools in the United States or a redacted country. Community members would nominate candidates, and a three-member selection committee would choose recipients based on past academic achievement after confirming the submitted information. Insiders and their immediate families would be ineligible. The foundation would verify enrollment, generally pay schools directly, require documentation for direct payments, and recover misused funds. The IRS approved the procedures under section 4945(g)(1), so grants made as proposed would not be taxable expenditures, and qualifying tuition awards would be nontaxable to recipients within section 117(b)'s limits.

Ruling snapshot

• Question: Did the foundation's proposed scholarship procedures satisfy the advance-approval rules for grants to individuals?
• Outcome: Approved, assuming the program operates 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

Number: 201614039 Employer Identification Number:

Release Date: 4/1/2016
Contact person - ID number:

Date: January 5, 2016 Contact telephone number:

LEGEND UIL: 4945.04-04

B= Country
C= Name
D= Name
E= Name
F= Name
G= Name

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(b)).

Description of your request
Your letter indicates you will operate a scholarship program. You are dedicated to

supporting religious, humanitarian, and educational initiatives benefiting C and D
communities worldwide.

Letter 4792 (10-2012)
Catalog Number 58263T


achievements; it is designed to pay for subsequent study by the recipient. The awards
will fund the cost of attendance (limited to tuition and fees required for enrollment or
attendance at the educational institution, or for fees, books, supplies, and equipment
required for courses at the educational institution) for a period not to exceed three years
of study at an institution described in IRC § 170(b)(1)(A)(ii).

The requirements and recommendation procedures including solicitation materials for the
fellowship awards will be posted on your website. The program will also be promoted
through word of mouth by your directors.

Eligible students must be seeking to study at an educational organization which normally
maintains a regular faculty and curriculum and normally has a regularly enrolled body of
pupils or students in attendance at the place where its educational activities are regularly
carried on in either the United States or B. In addition, eligible students must be of C
decent (At least one parent must be of C heritage.) and/or be of a faith within one of the
D jurisdictions consisting of E, F, or G. Furthermore, your officers, directors, substantial
contributors, key employees and their immediate family members are not eligible for
awards.

Each year, between January and June, community members and other stakeholders will
nominate eligible students for the award by submitting letters of recommendation to you,
which details their past academic achievements and eligibility. No student prepares or
produces any material specifically for submission.

The recipients are chosen by a majority vote of a selection committee comprised of three
board members and will be selected based on their past academic achievement. In
addition, the selection committee will perform due diligence to confirm the information
submitted in the recommendation letters, including but not limited to, contacting academic
institutions, the recommended student, and/or the individual who recommended the
student. Awards will be made on an objective nondiscriminatory basis. Your staff will
prepare the approval correspondence and ask the selected student to provide the cost of
attendance (limited to tuition and fees required for enrollment or attendance at the
educational institution, or for fees, books, supplies, and equipment required for courses at
the educational institution) for the upcoming academic year.

The number of fellowship awards made annually will be determined by assessing the
status of your assets and the maximum amount of funds necessary to adequately provide
financial support for students. The determination of the amount of each fellowship will be
made by the majority vote of the selection committee.

Once approved and for each year students receive fellowship funds, the recipients must
provide proof of enrollment showing that they are a candidate for a degree at an eligible
educational institution described in IRC § 170(b)(1)(A)(ii). Written documents confirming
this evidence will be recorded and included in your records. If the recipient fails to provide
such proof of enrollment, you will revoke any remaining approved fellowship funds and
enact a permanent bar from participation in any of your future scholarship or fellowship
programs. Your procedures and remedies will be fully disclosed to the recipient and will

Letter 4792 (10-2012)
Catalog Number 58263T


be contained in an agreement which the recipient will be required to sign prior to receiving
the grant funds.

You will generally pay the proceeds directly to the universities /other educational
organizations for the benefit of the recipient. You may also pay the individual grants
directly to the recipient when a recipient is attending an educational institution outside of
the United States or has housing, book, fees, travel or other educational expenses within
the United States which cannot be processed through the educational institution. In these
situations, the individual grant recipient will be required to provide evidence that
payments received were in fact made to the educational institution and for tuition,
housing, book, fees, travel or other educational expenses.

If you determine that a student who receives an individual grant award misuses the award
for purposes other than the purposes provided for in the individual grant program, you will
prepare and serve a written demand seeking a return of the funds from the grant
recipient. If the grant recipient fails to return the grant funds, you will initiate legal action to
recover the grant funds.

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.

Letter 4792 (10-2012)
Catalog Number 58263T


• 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,

Jeffrey I. Cooper
Director, Exempt Organizations
Rulings and Agreements

Letter 4792 (10-2012)
Catalog Number 58263T