Foundation's renewable college scholarship procedures are approved

Plain-English summary

A private foundation proposed renewable scholarships for residents of a state who were enrolled or planning to enroll at a qualifying college or university. Applicants would submit an essay, transcripts, recommendations, and financial-aid information, and recipients would be chosen using financial need, academic merit, community contributions, and the essay. The foundation would pay awards directly to the educational institution for tuition and related expenses and require transcripts showing satisfactory progress for renewals of up to four years. The IRS approved the procedures under section 4945(g)(1), so grants made as proposed would not be taxable expenditures. Awards used for qualified tuition and related expenses also would be excludable to recipients within section 117(b)'s limits.

Ruling snapshot

• Question: Do the foundation's procedures for renewable college scholarships to state residents satisfy the advance-approval rules for grants to individuals?
• Outcome: approved
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), and 4945(g)

Full text (IRS public release)

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

Release Number: 201726017
Release Date: 6/30/2017 Employer Identification Number:
Date: April 3, 2017

Contact person - ID number:

Contact telephone number:

LEGEND: UIL:
X= scholarship 4945.04-04
Y= state

z dollars = award 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 provided in Code section 117(b)).

Description of your request
You will operate a scholarship program called X to provide support for Y students who might not
otherwise continue their post-secondary education without financial assistance.

You will award scholarships each year according to the funds available and the number of
qualified applicants. In 2017, it is estimated that a total of ten z dollars scholarships will be
awarded to eligible students. Scholarships will be renewable for up to four years.

You will disseminate information about X through social media, print, emails, your website, other
educational websites, press releases and college fairs. Print materials will be mailed directly to

every high school guidance office in Y. You will use these means to detail the purposes for which
X is awarded, eligibility requirements, selection criteria, and your application deadline. Applicants

Letter 4792 (10-2012)
Catalog Number 58263T

will complete an online scholarship application which will be available on your website. Print
applications will also be available upon the applicant’s request.

Eligibility to receive a scholarship is currently restricted to residents of Y enrolled or intending to
enroll at a college or university, wherever located and described in Section 170(b)(1)(A)(ii) of the
Code. In addition to the application, students will also submit an essay, transcripts,
recommendations and a demonstration of financial need as reported in their Federal Student Aid
Report. Selection for a scholarship is based on a combination of financial need and academic
merit. Scholarships will be awarded after your board meets in May.

Awards are given on academic excellence, contributions to the community, need, and an essay.

Scholarships will be paid directly to the educational institution and must be used for tuition or
related expenses within the meaning of Code section 117(b)(2). Also students are required to
submit academic transcripts to demonstrate that they are meeting the satisfactory progress
requirements for renewal of awards. Recipients may renew X for up to four years.

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

Letter 4792 (10-2012)
Catalog Number 58263T

• 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