One-time community service scholarship procedures are approved

Plain-English summary

A private foundation proposed one-time scholarships for members of an affiliated company who were entering or continuing full-time undergraduate study. Independent community judges would evaluate applicants based on community involvement, academic performance, an essay, leadership potential, and overall commitment to service. Relatives of company insiders, selection committee members, and program administrators were ineligible, and awards would be paid directly to the schools. The foundation also committed to monitoring grants, recovering diverted funds, and keeping detailed records. The IRS approved the procedures under section 4945(g)(1), so grants made under them would not be taxable expenditures.

Ruling snapshot

• Question: Did the foundation's one-time scholarship procedures satisfy the advance-approval rules for grants to individuals?
• Outcome: approved
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), 170(c)(2)(B), 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: November 22, 2016
                                                Contact person - ID number:

Number: 201707013                               Contact telephone number:
Release Date: 2/17/2017

LEGEND:                                        UIL:

B= scholarship                                 4945.04-04
c dollars= scholarship amount
D= company

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

You will operate a program called B to provide scholarships, of c dollars, to high school
seniors and continuing full-time students pursuing an undergraduate degree at a qualified
institution of higher education. B will be available to high school seniors planning to
attend college or current college students planning to return to college.

B is publicized in the following ways:

•   displayed on the D website

•   direct contact with approximately 80 local charitable organizations encouraging the
    organizations to make their student volunteers aware of the scholarship program

Letter 4792 (10-2012)
Catalog Number 58263T


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•   direct contact with all high schools within the five counties making up your market
    area direct contact with colleges and universities in the state

The number of scholarships awarded is determined by dividing the annual budgeted
amount by c dollars.

The applicant must be a member of D and be the primary account holder at the time of
application. The applicant must be an incoming freshman or a continuing full-time
student pursuing an undergraduate degree at a qualified institution of higher education.
Scholarships are not available to graduate level students. The applicant must have a
cumulative GPA of 3.0 or greater, and attend a fully accredited two-year or four-year
college/university in the United States.

A panel of independent judges will evaluate each applicant on the basis of community
involvement & academic performance, written essay, and an overall applicant
assessment. Community involvement is evaluated based on the number of hours per
week each applicant reports, and academic performance is based on GPA which is
verified. Essays will be evaluated based on the applicant’s use of details and examples,
use of proper grammar, punctuation, spelling, etc., and the applicant’s ability to
demonstrate an understanding of the value and purpose of service work. The overall
applicant assessment will be evaluated based on the applicant’s demonstrated
commitment to community service, leadership potential, and enthusiasm for making a
positive impact on the community. In addition, the overall assessment will take into
consideration the extent to which each candidate engages in challenging classes and/or
activities.

Selection committee members are made up of prominent members of your community
who are active in either local business, government, education, non-profit, health care,
law enforcement, sports, law, military, or various other activities, and who are willing to
devote a full day and evening to the candidate evaluation process. The applicant may not
be an immediate family member of D Board of Directors, D Supervisory Committee, D
Executive Management Team, the selection committee, or employee administering the
scholarship program.

Each scholarship is a one-time award based on specific eligibility requirements and
based on evaluations of a panel of judges. Students will be allowed to apply for future
scholarships, but are not guaranteed an additional scholarship as there are no renewal
options.

Awards will be paid directly to the school for the benefit of the recipient assuming the
recipient is enrolled and in good standing. Awards will not be granted if the student fails
to enroll or at the time of the award is no longer in good standing.

You will maintain case histories showing recipients of your scholarships, including
names, addresses, purposes of awards, amount of each grant, manner of selection, and
relationship (if any) to officers, trustees, or donors of funds to you.

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Catalog Number 58263T


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You will (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 stops to recover
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 diversions from occurring.

You will maintain all records relating to individual grants, including information obtained to
evaluate grantees, identify whether 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.

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.

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•   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