Four scholarship programs receive advance approval

Plain-English summary

A private foundation proposed four scholarship programs for different groups of college and university students, including study-abroad participants and students at specified institutions. Outside organizations would publicize the programs, screen applicants, and verify enrollment, while the trustee's committee would select recipients based on factors such as financial need and academic achievement. Payments would go directly to schools, continued payments required good standing, and unused funds had to be returned. The IRS approved the procedures under IRC § 4945(g)(1), so qualifying awards would not be taxable expenditures.

Ruling snapshot

• Question: Did the foundation's procedures for four scholarship programs satisfy the advance-approval requirements for grants to individuals?
• Outcome: Approved, assuming the programs operate as proposed.
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), 4945(g), 4946.

Full text (IRS public release)

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

Number: 201638025
Release Date: 9/16/2016

Date: June 20, 2016

Employer Identification Number:
Contact person - ID number:

Contact telephone number:

LEGEND                                      UIL: 4945.04-04
N = Name of Bank

P = Application

Q = Form

R = Application

S = Foundation

T = Foundation

U = University
V = State

W = University
X = University

y dollars = Amount
z 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 provide in Code section 117(b)).

Letter 4792 (10-2012)
Catalog Number 58263T


Description of your request
Your purpose is to provide educational scholarships to individuals attending a college or
university.

You have four different types of scholarships. Three types of your scholarships are
publicized by S who you contract with to advertise the scholarships. S maintains a
centralized application portal for scholarships and promotes its portal on its website, local
television and radio news broadcasts, and print media. Your fourth type of scholarship is
advertised by T and X directly to their students.

The criteria for each of your four types of scholarships are as follows:

• Type 1 - An applicant must (1) be a current or incoming undergraduate or
graduate student, (2) be enrolled at U, (3) be a resident of V, and (4) have a
minimum GPA of 3.0.

• Type 2 - An applicant must (1) be a current junior, senior, or graduate student
enrolled at an accredited domestic college or university, (2) participate in a study
abroad program through the domestic college or university, and (3) have a
minimum GPA of 3.0.

• Type 3 - An applicant must (i) be African- American, (2) be enrolled in an
undergraduate or graduate degree program at an accredited college or university
in V, and (3) have a minimum GPA of 3.0.

• Type 4 - An applicant must (1) be a foreign student enrolled full-time in an
undergraduate or graduate degree program at the W or X, and (2) have a
minimum GPA of 3.0.

To apply for the first three types of scholarships, applicants must complete and submit an
application through the website portal of S by the date specified in the application.
Applicants must complete sections including application information, letters of
recommendation, academic history and plans, academic performance, financial need,
extracurricular activities and community service, affiliation questions, and a personal
statement. For the fourth type of scholarship, applicants should complete and submit the
R through the website of the W or the P and Q through the website of X by the date
specified. Applicants using the R must provide applicant information, letters of
recommendation, the Q, official transcripts, personal statements, and essays. The P asks
applicants to complete sections including applicant information, official transcripts,
extracurricular activities, academic performance, and parent/legal guardian information.

Scholarship recipients are selected by the Trustee’s Trust Administration Committee
which is comprised of individuals holding various positions at N. For the first three types
of scholarships S prepares a file for each applicant, conducts the preliminary screening
for eligibility criteria, and verifies the applicant’s enrollment and good standing at a

Letter 4792 (10-2012)
Catalog Number 58263T


college or university. W and X conduct the preliminary screening and verification of good
standing for the fourth type of scholarship. S, W, and X then provide the applicant files
and verifications of good standing to your Trustee and recipients are selected based on
criteria such as financial need, scholastic achievement, academic records, and letters of
recommendations. For all types of scholarships, you give preference to students pursuing
studies in the social sciences pertaining to international understanding and interracial
fellowship. Applicants that are disqualified persons with respect to you within the meaning
of Internal Revenue Code section 4946 are not eligible for scholarships.

The number of scholarship grants you make each year is determined annually by the
trustee based upon the number of qualified applicants and the estimated minimum
required distribution to avoid liability for the tax imposed by Internal Revenue Code
section 4942. You typically award between ten and fifteen scholarships each year in
amounts ranging from y dollars to z dollars. You make a scholarship payment for the
recipient's fall semester upon receiving proof that an incoming freshman recipient is
enrolled at an accredited domestic college or university or that a current student is in
good standing at an accredited domestic college or university. Payments are made
directly to the college or university. The recipient must be in good standing to maintain
the scholarship and receive the second payment for the spring semester. If a recipient
does not remain enrolled at the college or university then you require any unused
payments to be returned to you. A recipient may qualify for a renewal of the scholarship
but must reapply each year.

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 diversions 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 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 also represent that you will maintain all records relating to individual grants including
information obtained to evaluate grantees, identify a grantee is a disqualified person,
establish the amount and purpose of each grant, and 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.

Letter 4792 (10-2012)
Catalog Number 58263T


• 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

• 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

Letter 4792 (10-2012)
Catalog Number 58263T