Local academic scholarship procedures approved

Plain-English summary

A private foundation proposed up to five annual scholarships for high school seniors in a particular geographic area who planned to attend nonprofit colleges in the United States. The foundation would publicize the program broadly, use a diverse selection committee, and evaluate applicants on merit using factors such as academics, financial need, community contributions, and obstacles overcome. Awards generally would be paid directly to the educational institution, and recipients would have to document use of the funds. The IRS approved the procedures under IRC § 4945(g)(1). Grants made under those procedures would not be taxable expenditures, and qualifying educational expenses could be excluded from recipients' income under IRC § 117.

Ruling snapshot

• Question: Did the proposed local scholarship procedures qualify for advance approval under IRC § 4945(g)(1)?
• Outcome: approved
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), and 4945(d)(3), (g)(1)

Full text (IRS public release)

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

Number: 201729024 Employer Identification Number:

Release Date: 7/21/2017
Contact person - ID number:

Date: April 25, 2017 Contact telephone number:
LEGEND: UIL:
b dollars = dollar amount 4945.04-04

C = geographic region

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 provide academic scholarships to enable recipients to complete an
undergraduate education at a United States non-profit college of their choice. Funds will
be awarded to cover school fees, books, supplies, etc. You expect to award up to five
scholarships a year.

You will contact local guidance counselors and administrators, heads of other
organizations that students frequent, local newspapers and online media to publicize the
award. An application will also need to be completed by a potential recipient. Any high
school senior, who is a United States citizen, within the program will be eligible and have
an equal opportunity to submit an application for the scholarship program.

Letter 4792 (10-2012)
Catalog Number 58263T

Awards will be directed toward students attending schools in the C area. Grantees will be
selected on a merit basis in an objective and nondiscriminatory basis, but you may
reserve the right to impose additional, minor reasonable restrictions and/or requirements
as factors for consideration, such as:

• Academic performance

• Financial need

• Contribution to the local community
• Family and life obstacles overcome
• Social and educational environment
• First in the family to college
• Athletics

Your selection committee will be selected by your board and will include individuals of
diverse educational, professional and cultural backgrounds.

You expect to provide awards in the amount of b dollars annually to student recipients.
You will require proof of use of funds, including written statements from the recipient.
Unless otherwise provided in the fund agreement establishing the grant, each award shall
be paid by you directly to the educational institution for the use of the recipient.

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.

Letter 4792 (10-2012)
Catalog Number 58263T

• 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.

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,

Stephen A. Martin

Director, Exempt Organizations
Rulings and Agreements

Letter 4792 (10-2012)
Catalog Number 58263T