Environmental leadership scholarship procedures receive advance approval

Plain-English summary

A private foundation proposed a one-time annual scholarship for a high school junior or senior who showed leadership and initiative through a conservation, preservation, restoration, or environmental education activity. The foundation would publicize the opportunity broadly and select a recipient based on the project, a recommendation, and a personal interview. Employees, trustees, committee members, and their families could not apply. The award would support study at a qualifying educational institution, and the foundation would require a verified report of the recipient's courses and grades and pursue recovery or restoration if funds were misused. The IRS approved the procedures under section 4945(g)(1), so payments made under them would not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's environmental leadership scholarship procedures qualify for advance approval under section 4945(g)(1)?
• 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:201742029
Release Date:10/20/2017

Date: July 25, 2017
Employer Identification Number:

Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04
X= Name of scholarship
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 that you will operate an educational scholarship program called the
X.

Letter 4792 (10-2012)
Catalog Number 58263T


Your scholarship recognizes a high school junior or senior for participation in a program,
project, or activity that benefits conservation, preservation, restoration or environmental
education. One scholarship is awarded each year to a student who demonstrates
leadership and initiative and will be presented at the recipient’s school awards ceremony.

The scholarship is not renewable. It is a one-time $[illegible] award to be made to a different
student each year. You will not provide educational loans.

You will publicize the scholarship on your website, distribute a notice to area high school
guidance offices, publish an announcement in local newspapers, and spread word of the
scholarship opportunity through science and environmental educators, conservationists,
and naturalists.

Members of the selection committee include your Directors, Environmental Professionals,
Civic Planners, and Education Professionals from your service area. Upon a member's
retirement from the committee, your Governance Committee recruits and selects
candidates for membership based on experience with the mission, vision, and values of
your organization, academic experience, and knowledge of the your service area.

Selection of scholarship recipients will be made on the basis of the credentials of the
applicant, including:

• Demonstrated leadership and initiative in promoting conservation, preservation,
restoration, or environmental education
• Successful participation in a program, project, or activity to benefit conservation,
preservation, restoration, or environmental education
• The written recommendation of a teacher or someone familiar with the candidate’s
program, project, or activity
• A personal interview to determine applicant’s knowledge of the program, project or
activity, motivation, character, and potential.

Scholarship funds are to be used to support study at an educational institution described
in section 170(b)(1)(A)(ii) of the Code, and may be used for tuition, books, room and
board, or supplies.

Your employees, trustees, and committee members and their family members are not
eligible to apply.

You will pay funds directly to the student. You will receive a report of the recipient's
courses and grades at the completion of the first academic period. You will verify the
information provided in the report with the educational institution. You will send each
recipient a letter clearly stating the total amount of the scholarship, requirements and due
dates for the report, and requiring the recipient to accept the terms and conditions of the
grant.

Letter 4792 (10-2012)
Catalog Number 58263T


If it is determined that a student has violated the terms of the scholarship or that any part
of the Scholarship has been used for improper purposes, you will take all reasonable and
appropriate steps to recover diverted funds or insure the restoration of diverted funds.

You will maintain all records relating to individual scholarships, including information
obtained to evaluate all scholarship grantees, identify whether a scholarship grantee is a
disqualified person, establish the amount and purposes of each scholarship grant, and
establish that you undertook the supervision and investigation of scholarship grants
previously described.

You will retain all records relating to individual scholarships, including information
obtained to evaluate scholarship applicants who did not receive a scholarship. It is your
policy to retain all documentation regarding any application for a grant or scholarship.

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
scholarship grant to an individual for travel, study, or other similar purposes. However, a
scholarship grant that meets all of the following requirements of Code section 4945(g) is
not a taxable expenditure.

• The foundation awards the scholarship grant on an objective and
nondiscriminatory basis.
• The IRS approves in advance the procedure for awarding the scholarship grant.
• The grant is a scholarship or fellowship subject to the provisions of Code section
117(a).
• The scholarship 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 scholarship program described above. This
approval will apply to succeeding scholarship 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 scholarship 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 scholarship 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 scholarship 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