Scholarship procedures for children of fallen or disabled public safety officers are approved

Plain-English summary

A private foundation proposed scholarships for post-secondary or vocational education for children of city police officers and firefighters killed or disabled in the line of duty. A committee would select recipients based on scholarship, character, and service, and renewals required satisfactory academic performance. The foundation also committed to monitoring grants, investigating diverted funds, taking recovery steps, and keeping detailed records. The IRS approved the procedures as objective and nondiscriminatory under section 4945(g)(1), so grants made under them would not be taxable expenditures. Awards used for qualified tuition and related expenses would also be tax-free to recipients within the limits of section 117(b).

Ruling snapshot

• Question: Did the foundation's proposed 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

Release Number: 201708002                        Employer Identification Number:
Release Date: 2/24/2017
Date: November 29, 2016                          Contact person - ID number:

                                                Contact telephone number:


LEGEND                                          UIL: 4945.04-04

B= Program Name
C= City
D= Number

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 that you will operate an educational scholarship program called B.
The purpose of B is to award full or partial scholarships for post-secondary education to a
child (natural or legally adopted) of a police officer or firefighter employed by the city of C
and who has been killed or disabled in the line of duty. Scholarships are not granted for
more than a total of four years of undergraduate study at an accredited college,
university, or equivalent institution. In addition, scholarships may also be awarded for not
more than a total of four years of study at a vocational or trade school approved by you.

Letter 4792 (10-2012)
Catalog Number 58263T


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The scholarship covers tuition as well as books and equipment required by the
educational institution for academic purposes.

The number of scholarships depends on the number of eligible recipients and the
availability of sufficient funds. The amount of the scholarship is determined by the tuition
and fees imposed by the recipient’s educational institution as well as by the death or
parent’s disability status of the applicant’s parent. In the case of the parent’s disability,
the parent’s disability must be ongoing and the parent’s income must not exceed a
prescribed dollar amount. Scholarships from other sources offset any amount that you
would otherwise award. Applicants and recipients are required to notify you of other
scholarships.

B is publicized through your website and by word of mouth. To be eligible for B, the
applicant must be a high school graduate and a child (natural or legally adopted) of a
police officer or firefighter employed by C and who has been killed or disabled in the line
of duty. Qualified candidates must submit an application found on your website and
required financial information documents.

Recipients are chosen by your Scholarship Award Committee and will generally consist
of your President, Vice President, Treasurer and Secretary as well as the Commissioners
of the C Police and Fire Departments. The President may appoint additional members of
the Committee, but the total number of committee members cannot be more than D. The
Committee will consider the factors of scholarship, character and service when making
their selections.

Scholarship proceeds may be paid to the education institution or directly to the recipient.
To continue to receive the scholarship, the recipients must demonstrate satisfactory
scholastic performance and maintain a minimum grade point average of 2.0. The
recipients must submit semester grade reports promptly to you at the end of each
semester. Failure to submit the reports may result in the withholding of the tuition for the
following semester and is grounds for termination. If a recipient is dropped by the
institution for academic failure or other legitimate reasons, or if the recipient fails to
maintain at least a 2.0 grade point average, you may terminate the scholarship in your
sole and absolute discretion.

You represent that you will complete the following: (1) arrange to receive and review
grantee reports annually and upon completion of the period 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 diversions 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

Letter 4792 (10-2012)
Catalog Number 58263T


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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).

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.

•   The effective date of our approval is December 30, 2015, which is the date your
    request was submitted.

•   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.

Letter 4792 (10-2012)
Catalog Number 58263T


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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