Scholarships for youth-program participants approved

Plain-English summary

A private foundation requested advance approval for scholarships benefiting financially needy high school seniors or equivalent students who participated in selected youth programs. Candidates would be referred by program officers, submit an essay, and be evaluated by the board based on financial need and educational goals. Awards would not renew automatically, recipients would report after one year, and the foundation would seek recovery of funds used improperly. The IRS approved the procedures under section 4945(g)(1), so compliant awards would not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's scholarship procedures satisfy section 4945(g)(1)?
• Outcome: approved
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), 4945(g)(1)

Full text (IRS public release)

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

Employer Identification Number:

Date: September 30, 2016
Contact person - ID number:

Number: 201652025 Contact telephone number:
Release Date: 12/23/2016

UIL: 4945.04-04

LEGEND

M= Youth program
N= Youth program
O= Youth program
Z= Location

x= 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)).

Description of your request
Your letter indicates you will operate a scholarship program.

The purpose is to provide scholarship grants to students graduating from high school or a
high-school equivalent program who need assistance to obtain a higher education.

Letter 4792 (10-2012)
Catalog Number 58263T

The purpose of the grants would be to encourage the grantee to participate in
community-orientated youth programs and to provide financial assistance to those who
attend institutions of higher learning primarily located in Z and assist students who would
otherwise find it very difficult to obtain a higher education or overcome a financial
obstacle in order to achieve their goals.

The availability of grants will be publicized through public high schools primarily located in
Z and certain Section 501(c)(3) or quasi-governmental youth programs selected by your
board of directors. Current youth programs are M, N, and O. Persons eligible for
educational grants would be students referred by a youth program based on the
candidate’s financial need and who participated in a youth program selected by your
board of directors.

Candidates are presented by their program officers. A school teacher or administrator
from the candidate’s school may supplement the program officer's choice with a written
or verbal recommendation. Each candidate must be a high school senior or equivalent.

An essay is required that will include a general biography, educational goals, community
involvement, and how the candidate would use any awards.

Grant recipients would be determined by the board of directors based on
recommendations made by an advisory selection committee comprised of members of
your board of directors. Members of the committee would be chosen based on their
willingness to serve, availability to review essays, and availability to interview candidates.

The board of directors will select grant recipients based on their financial need and
educational goals. The number of grants recipients per year would depend on the
number of grant applicants and available resources. You estimate between two and four
grants each year. The amount of each grant is expected to be x dollars.

The decision of the selection committee is final and shall be recorded, including pertinent
comments and reasoning of each committee member as appropriate and the amount
awarded.

Grants will not be automatically renewed; rather grant recipients would be required to
apply for a new grant in subsequent years. Priority would be given to new applicants.

At the conclusion of one year following the provision of any grant, the grant recipient
would be required to submit a written report describing how the grant helped the recipient
in achieving his or her educational goal. If the board of directors determines that an
educational grant was used for improper purposes, you will take all reasonable and
appropriate steps to recover the grant funds and would not provide additional grant funds
to the grantee until you receive the grantee’s assurance that future diversions would not
occur.

Letter 4792 (10-2012)
Catalog Number 58263T

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

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.

Letter 4792 (10-2012)
Catalog Number 58263T

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