Scholarships for local student athletes are approved

Plain-English summary

A private foundation proposed tuition scholarships for public high school student athletes from a specified location who planned to attend accredited colleges or universities. Applicants would submit transcripts, references, and an essay, and a committee would rank them using an adopted point system. Recipients had to participate in collegiate athletics, submit semester grade reports, and maintain a 3.0 grade-point average to remain eligible for future awards. The foundation also committed to monitor grant use, investigate diversions, recover misused funds, and keep grant records. The IRS approved the procedures under section 4945(g)(1), so compliant awards would not be taxable expenditures and could be excluded by recipients when used for qualified expenses under section 117(b).

Ruling snapshot

• Question: Do the foundation's student-athlete scholarship procedures satisfy section 4945(g)(1)?
• Outcome: approved
• 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

Employer Identification Number:
Date: October 26, 2016

Contact person - ID number:
Number: 201703015

Release Date: 1/20/2016 Contact telephone number:
LEGEND UIL: 4945.04-04

X= Program Name

Y= Location

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 called X. The purpose of X is to award educational tuition scholarships for individuals who are public high school student athletes from Y who wish to attend an accredited college or university. You will promote X through contacts with high school guidance counselors and athletic directors.

Students with a high school diploma who have achieved both academic and athletic success during their high school career are eligible to apply. All candidates must submit your scholarship application along with references and certified transcripts of their high school record. In addition, candidates must write an essay explaining they want to attend college and how going to college will further their career goals. Furthermore, the essay

Letter 4792 (10-2012)
Catalog Number 58263T

should address their commitment to collegiate athletics and desire to continue their amateur athletic career.

A selection committee consisting of your board of directors will biannually award the scholarships. In order to serve on your selection committee, individuals must be a college graduate who was a student athlete in college and have an interest in furthering higher education for local students.

Your selection committee will use an adopted point system to rank the applications. Candidates’ references will be called and all key information on the application will also be verified. Grants are awarded up to a predetermined amount by your board. The exact amounts will be determined based upon cash flow and availability of funds.

Scholarships recipients are required to provide grade reports every semester, and they are required to participate in the college’s athletic program. They must also maintain an overall GPA of 3.0. Failure to meet these criteria will eliminate the recipient from consideration for any future scholarships. You may renew grants as you see fit.

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 diversion 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 (4) 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 represent that you will maintain the following: (1) all records relating to individual grants including information obtained to evaluate grantees, (2) identify whether a grantee is a disqualified person, (3) establish the amount and purpose of each grant, and (4) 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.

• 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).

Letter 4792 (10-2012)
Catalog Number 58263T

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.

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