Multiyear college scholarship procedures were approved

Plain-English summary

A private foundation proposed scholarships for graduating high school seniors entering college. Applicants needed at least a 3.0 GPA and would submit a resume and essay, with finalists selected through in-person interviews. Awards could continue for up to four undergraduate years if recipients completed the required credit hours and maintained the required GPA, and payments would go directly to their colleges or universities. The foundation also agreed to monitor grants, investigate and recover diverted funds, withhold further payments when necessary, and maintain grant 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 proposed scholarship procedures satisfy the advance-approval requirements?
• Outcome: approved, so expenditures under the described procedures will not be taxable
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), 4945(g)(1), 4946

Full text (IRS public release)

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

Employer Identification Number:

Number: 201731018
Release Date: 8/4/2017 Contact person - ID number:

Current contact telephone number:

Date: May 11, 2017 Telephone number after May 18, 2017:
LEGEND UIL: 4945.04-04

B = Program

C = School district

D = School

E = Number

F = Number

g dollars = 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 provide in Code section 117(b)).

Description of your request
Your letter indicates you will operate a scholarship program called B.

The purpose of B is to provide scholarship grants to high school seniors attending college
the following year. Scholarship funds will be used to offset the cost of recipients’ college
tuition and related educational expenses. Recipients are eligible to receive up to g dollars
per year. You will pay one-half of the annual award in each of the two academic

Letter 4792 (10-2012)
Catalog Number 58263T


semesters for up to four years, as long as the recipient meets the renewal criteria. Your
selection committee will determine the exact amount to be awarded to each recipient, in
each case taking into account the cost of tuition and related expenses at the recipient's
college or university.

Scholarships will be made available to seniors enrolled in C School District. You expect
to expand the program to other high schools, particularly D, and may expand the program
to include other private, public, and parochial schools.

You expect to select up to E scholarship recipients each year. The number of
scholarships awarded each year may vary depending on your resources, the number of
qualified candidates, and the number of applications received.

You will publicize the program by informing high school guidance counselors within the
related area about the program. You expect to send letters to the guidance counselors
informing them of the scholarship and setting out application criteria and deadlines so the
information can be shared with eligible students.

Students will apply for the scholarship by submitting a resume and essay on a topic
chosen by your scholarship selection committee.

In order to be eligible for a scholarship, a student must be a graduating high school
senior who will be attending an institution of higher education described in Section
170(b)(1)(A)(ii) of the Code. The student must also have a 3.0 GPA (“B” average) or
better in high school. Higher grades will not receive additional weight in the selection
process.

The criteria you will use are intended to identify hard-working, motivated students for
whom an undergraduate program likely lead to substantial student debt.

Disqualified persons, as defined under Section 4946 of Code, are not eligible to apply for
a scholarship.

Your scholarship selection committee will review all resumes and essays submitted. You
will conduct in-person interviews of certain applicants. The number of applicants selected
for in-person interviews will be based on the number of scholarships to be awarded and
the number of applicants satisfying the scholarship criteria. The selection committee will
choose scholarship recipients from applicants who participated in in-person interviews.

Currently, your selection committee is comprised of your founder, his son and his son’s
wife. Your Board of Directors will replace committee members as needed. The only
criteria for committee membership are the desire to serve and the ability to impartially
select qualified recipients.

In order to receive funding for the second semester, and for subsequent years, a student
must complete F credit hours per semester (not including athletics or physical education
courses) and must maintain at least a 3.0 GPA (“B” average) each semester. The
recipient must provide you with a certified copy of his or her college transcript verifying

Letter 4792 (10-2012)
Catalog Number 58263T


course load and GPA for the prior semester. If a recipient does not satisfy these
requirements, the recipient’s scholarship will terminate and cannot be reinstated.

You will consider extending a recipient’s scholarship for graduate school. A decision to
extend a scholarship through graduate school will be based on a discussion between
your scholarship selection committee and the recipient, following the recipient's
completion of an undergraduate program.

Scholarship payments will be made directly to the recipients’ college or university, to be
used for the recipients’ tuition and other related costs. Recipients must be enrolled and in
good-standing. In the event a student withdraws from school, to the extent tuition is
refundable, scholarship funds will be returned to you. A student who does not comply
with the renewal criteria will not be eligible for scholarship funds in future years.

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 diversions from
occurring.

You represent that you will maintain the following: (1) all records relating to individual
grants including information to evaluate grantees, (2) identify 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).

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.

Letter 4792 (10-2012)
Catalog Number 58263T


• 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.

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