Scholarship and career-experience grant procedures approved

Plain-English summary

A private foundation proposed two programs for high school students. One would help graduating seniors buy computers, textbooks, or other post-secondary educational materials, while the other would fund career-exploration experiences for juniors at camps, schools, workplaces, and similar facilities. Applicants would be ranked under stated criteria, selection committee members would recuse themselves for related applicants, and recipients would have reporting or repayment obligations. The foundation would generally pay schools, vendors, or travel costs directly and require documentation for reimbursements. The IRS approved the first program under section 4945(g)(1) and the second under section 4945(g)(3), so grants made under the approved procedures would not be taxable expenditures.

Ruling snapshot

• Question: Did the scholarship and career-experience grant procedures satisfy the advance-approval rules?
• Outcome: Both programs approved
• Key authorities: IRC §§ 117, 170, and 4945(g)(1) and (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: 201623014
Release Date: 6/3/2016 Employer Identification Number:

Date: March 10, 2016
Contact person - ID number:

Contact telephone number:

LEGEND:

B= scholarship 1
C= scholarship 2

D= school

f = dollar amount
g= dollar amount
h= dollar amount

UIL:

4945.04-04

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 programs to fund the education of certain qualifying students.

Our determination

We approved your procedures for awarding scholarships and educational grants.
Based on the information you submitted, and assuming you will conduct your
programs as proposed, we determined that your procedures for awarding
scholarships meet the requirements of Code section 4945(g)(1) and 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.

Also, for 4945(g)(1), 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 that you will operate two programs; one, the B, a scholarship
program for graduating students and two, the C, a program funding hands on
experiences in work fields of interest to high school students. B will be a program
qualified under IRC section 4945(g)(1), and C qualified under 4945(g)(3). Both are
described separately as follows.

Program for B:

The purpose of B is to provide graduating college bound or trade school bound seniors at
D with financial assistance to purchase a computer or to pay for text books at their
attending university. The scholarships are publicized through the “Local Scholarship
booklet”, which is provided to all seniors through the guidance/career services offices at
D.

All D seniors who are your members are eligible to apply for B. A senior who is not
currently a member may join prior to submitting the application. Your membership is open
to any student who agrees to join and pledge to remain drug free. At the time of this
request, over 75% of the students at D had joined.

To be considered for B a student must submit an application, a cover letter, a goal
statement, a financial aid statement, two letters of recommendation, a current high school
transcript, a resume, and an essay which explains how being one of your members has
positively impacted his or her high school experience. After receipt of the application
materials they are scored and ranked by selection committee members and the
scholarships are then awarded to the applicants with the highest scores.

You expect to make between two and six awards annually, of up to f dollars per award.
The scholarships are to be a one-time benefit with no renewals possible and no
educational loans are to be provided.

Award amounts are delivered by check to recipients after proof is provided that a
computer/books/materials were purchased for post-secondary educational use. In
addition; at the end of the first term the recipient must submit a written report (certified by
the school’s registrar) showing the courses taken and completed by the recipient.

If the report is not submitted within 90 days after the end of the first term, the recipient
must, pursuant to the terms of a written agreement, refund the scholarship.

If the recipient receives the scholarship and does not attend school, pursuant to the terms
of a written agreement, the recipient must refund the scholarship.

Should a scholarship recipient elect not to use the scholarship monies to purchase a
computer for post-secondary educational use then funds are sent to the school that the
recipient will attend to be applied to the recipient's educational expenses. If the recipient
does not attend the school, pursuant to the agreement between the organization and the
school, the funds are to be returned.

The selection committee is to consist of the three adult members of your Board of
Directors and two members of the guidance department staff of D. The members of the
selection committee are required to identify any students with whom they have a
relationship. If an applicant is related to a member of the selection committee, that
member would be removed from the selection committee and replaced by another person
for that year.

Program for C:

C will provide students with the opportunity to have hands-on experiences in the fields of
their choice at various summer camps, schools, work places and facilities. As an
example, aspiring doctors visit training hospitals, future biologists get behind-the-scenes
access at national zoos, a student interested in a career in engineering, film making, and
costume design attends a camp with a corresponding focus. The goal is for the student
to experience firsthand what the career they dream about is actually like, amplifying their
motivation and cementing a path of positive choices and productive citizenship. You
provide funds to cover travel, housing, meals, camp costs and entry into museums and
events.

The amounts of these scholarships will vary, depending on the costs associated with a
particular experience. C will pay 80%-95% of a recipient's total costs associated with
participating in the opportunity. Total costs average approximately g dollars per recipient.
The recipient is responsible for the remaining 5%-20% of the cost, based on household
financial information.

C is advertised and promoted to all D juniors in the fall of their junior year through
advertisements in the school newspaper, in posters placed throughout D, during intercom
announcements made by the D office staff, in presentations made by your members at
informational lunches held for interested students, and by sending letters to parents and
school staff.

All D juniors who are your members are eligible to apply for C. As with B, junior who is
not currently a member may join prior to submitting the application.

Interested students must submit an application, two essays, a written recommendation
from a teacher, a written recommendation from a member of the community, a current
high school transcript, a resume, evidence that the student has explored the particular
career path for which he or she seeks a scholarship experience, a statement of financial
need, and a plan for sharing his or her scholarship experience with other students. These
submissions are evaluated by your scholarship selection committee.

The selection committee scores and ranks all applicants. The scores of applicants for the
same experience are combined and averaged and that group of applicants is then treated
as one applicant. Scholarships are awarded to the applicants with the highest scores.
The members of the selection committee are required to identify any students with whom
they have a relationship. If an applicant is related to a member of the selection
committee, that member would be removed from the selection committee and replaced
by another person for that year.

You expect to make four to ten grants annually up to a total of approximately h dollars
(including the cost of chaperones) per year. The amount of each grant depends on the
actual cost of a particular experience. C is a one-time experience and no additional
benefits are possible. In addition; no educational loans are to be provided.


All scholarship recipients are to be chaperoned by one of your employees or a member of
your Board of Directors, or an employee of the School District with the exception of
students traveling to attend a structured camp. In those cases, students may travel alone
or with a parent. No funds are to be delivered to a student or chaperone. Transportation
expenses, accommodation expenses, and camp fees are paid directly by you. If the
chaperone is your employee, that employee pays for his or her own meals, museum
entry fees, etc. If the student is traveling alone to a camp or with a parent, he or she must
submit meal expense receipts to you in order to receive reimbursement for those
expenses. If a student is involved in illegal or illicit activity during a trip, he or she will be
sent home immediately as per D trip rules.

Each scholarship recipient is required to submit a report to you after each experience has
been completed.

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 covers only 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 precedent.

• You cannot rely on the conclusions in this letter if the facts you provided have
changed substantially. You must report any significant changes in 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 make 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 must
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 grants distributions with the IRS if necessary.

Please keep a copy of this letter in your records.

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

Sincerely,

Jeffrey I. Cooper
Director, Exempt Organizations
Rulings and Agreements