Private foundation scholarship procedures were approved

Plain-English summary

A private foundation proposed scholarships for high school seniors attending four-year colleges or community colleges, initially within a specified geographic area. Recipients would be selected based on financial need, academic performance, and leadership potential, with relatives of insiders and selection-committee members excluded. Payments would go directly to the schools, and the foundation committed to monitor the grants, investigate diversions, recover misused funds, and keep detailed records. The IRS approved the procedures as objective and nondiscriminatory 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 not be taxable to recipients, subject to section 117(b).

Ruling snapshot

• Question: Do the foundation's proposed scholarship procedures satisfy the advance-approval requirements for grants to individuals?
• Outcome: approved
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), 4945(g)(1)

Full text (IRS public release)

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

Release Number: 201732036
Release Date: 8/11/2017 Employer Identification Number:
Date: May 19, 2017

Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04
V = Geographic Area

w = number

x dollars = dollar amount

y dollars = dollar amount

z dollars = dollar 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

You will operate a scholarship program. The purpose of your scholarships will be
to assist with the costs of post-secondary education, primarily undergraduate
school and community college.

Your program will be primarily publicized through high school guidance counselors.
Applicants for the scholarships must be high school seniors attending a four year
college or two year community college. You initially intend to focus the scholarship

Letter 4792 (10-2012)
Catalog Number 58263T

program on high school seniors in V, or the surrounding area, and who are
attending any four year college or the two year community college located in V.
However, you may broaden the scholarship program to surrounding counties or
states in future years. There will be no restrictions based on race, sex, and religion
or employment status. The number of grants to be made annually will be
determined by your Board based on the size and character of the applicant pool
and your assets.

Applicants will submit a completed application form with a copy of their transcripts,
listing of extracurricular activities and financial statements for the individual and
parents. Recipients will be selected based on their demonstrated need for financial
assistance, satisfactory scholastic record (at least a w GPA), and exhibited
leadership potential.

The selection committee shall be comprised of your Board of Directors or a
subcommittee of Board members. Relatives of your selection committee, officers,
directors, or substantial contributors are not eligible for awards under your program.

The amount of each grant will be determined based on whether the recipient will be
attending a four year college or community college, and the financial need of the
recipient. For students attending a four year college, the minimum scholarship
amount will be x dollars. For students attending community college, the minimum
scholarship amount will be y dollars. The maximum scholarship amount per year
will be z dollars. However, depending on available funding, your Board has the
discretion to increase or decrease the size of the scholarships.

Scholarship payments will be made directly to the educational institution for the
benefit of the scholarship recipient. The school will apply the funds to the student's
outstanding tuition balance. This process ensures that the scholarship funds are
only used for enrolled students in good standing at the college. In the event you
allow recipients to apply for a scholarship renewal, scholarship recipients will be
required to submit certified transcripts at the end of the school year to verify that
the student has maintained at least a w GPA.

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 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 diversion 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 is a disqualified person, (3) establish the amount and purpose of

Letter 4792 (10-2012)
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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.

• 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.

Letter 4792 (10-2012)
Catalog Number 58263T


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