Private foundation's energy-industry scholarship procedures are approved

Plain-English summary

A private foundation sought advance approval for a scholarship program serving high school graduates in areas where an affiliated energy company operates. Applicants would pursue specified science, mathematics, or engineering degrees, and an independent committee would select recipients using academic performance, career interest, and recommendations. The awards would be paid directly to colleges over four years, subject to continuing enrollment, academic, conduct, and reporting requirements. The IRS approved the procedures as objective and nondiscriminatory under section 4945(g)(1), so compliant scholarship payments 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 procedures qualify for advance approval of individual scholarship grants?
• Outcome: approved
• Key authorities: IRC §§ 117(a), 117(b), 170(b)(1)(A)(ii), 170(c)(2)(B), 4945(g)(1)

Full text (IRS public release)

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

Number: 201747012 Employer Identification Number:

Release Date: 11/24/2017
Contact person - ID number:

Contact telephone number:
Date: AUGUST 31, 2017

LEGEND UIL: 4945-04.04
B = State

C = State

D = State

E = State

F = State

g = Number

h = Number

r dollars = Dollar Amount
s dollars = Dollar Amount
t dollars = Dollar Amount
X= Scholarship Program
Y= Company

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)).

Letter 4792 (10-2012)
Catalog Number 58263T


Description of your request
You will operate a scholarship program called X.

You want to support attendance at institutions of higher learning, increase interest in
areas of study that are important to a healthy energy industry (such as geoscience,
engineering, chemistry, physics or mathematics), and encourage individuals to consider
careers within the energy industry. X’s purpose is to assist graduates of local high
schools in the major operating areas of Y in attending four-year colleges or universities
and pursuing degrees and careers related to the energy industry.

Applicants must meet or agree to meet all the following initial eligibility criteria to apply for
a scholarship from you:

• Be a U.S. citizen and a resident of the state where the high school is located,

• Graduate from a high school within the service area of Y in the spring of the
current academic year,

• Enroll full-time (with a minimum of g credit hours) at an accredited four-year
college or university in the fall of the next academic year (such requirement will be
deferred if an applicant will participate in a religious mission or other activity that
will delay his or her enrollment in a college or university),

• Major in geoscience, engineering, chemistry, physics or mathematics at the four-
year college or university,

• Not have any convictions or fines for substance abuse, misdemeanors, or felonies,
and

• Agree to provide you with an academic progress report each semester while
attending the four-year college or university.

The number of scholarships made by you in any given year will be directly tied to specific
geographic areas identified by you. This is currently five states, B, C, D, E, and F,
although you reserve the right to identify additional states in the future. For each such
geographic area, you will award one four-year college scholarship worth r dollars to an
outstanding high school senior who attends a high school in such area. All scholarships
will be a four-year college scholarship worth r dollars, to be paid directly to the recipient's
higher education institution in eight installments of s dollars. In the future, you will
determine whether the amount of such scholarships will be increased or decreased. You
anticipate that all the scholarships awarded in a particular year will be for the same
amount.

You will provide free posters, informational materials, and other scholarship-related
information to guidance counselors or other personnel at each of the targeted high
schools in the major operating areas of Y. Such materials and information will indicate the
general availability of X, the basic eligibility criteria for X, and the application procedures
that can be used by students who are interested in X. You will also provide press
releases to local newspapers in these areas, announcing the availability of X and the
application due date.

Letter 4792 (10-2012)
Catalog Number 58263T


Qualified applicants are required to submit the following items as part of their application:

• Application form

• Cover Letter outlining qualifications, why the applicant wants/needs the
scholarship, and why the applicant is interested in working in the energy industry
• Resume that outlines academic success, extracurricular activities, community
service, and work experience

• High school transcript

• Copies of official ACT and/or SAT scores

• Two letters of recommendation (at least one must be from a teacher or staff
member of the applicant’s high school)

You will have a Scholarship Committee comprised of your personnel and/or Y employees
who are passionate about supporting education. It is anticipated that the Scholarship
Committee will have at least one member from each geographical area where a
scholarship will be awarded. Employees or directors of you, Y, and their
affiliates/subsidiaries, as well as the children and other family members of such
employees or directors, are not eligible to receive scholarships.

For each geographic area, and subject to the approval of the your Board of Directors, the
Scholarship Committee will select each Individual Scholarship recipient on a
nondiscriminatory, objective basis through an evaluation of each individual's academic
performance and potential, demonstrated interest in pursuing a career in the energy
industry (as evidenced from the individual's academic focus and course of study, work
and volunteer service, and extracurricular activities), and recommendations from
teachers, high school staff members, and others. Preferential consideration will be given
to individuals demonstrating a dedicated pursuit towards a career in the energy industry,
as evidenced by involvement in course of study, work and volunteer service or
extracurricular activities. Once the Scholarship Committee selects a scholarship recipient
for each geographic area, you will inform the recipient of X before his or her graduation.
The scholarships will be paid directly to the students' higher education institutions in eight
installments of s dollars.

You will provide the recipient with a scholarship of t dollars per year for four consecutive
years provided the following requirements are met:

• Continuous four-year enrollment as a full-time student at an accredited educational
institution,

• Continue to major in geoscience, chemistry, physics or mathematics, engineering
(petroleum, mechanical, chemical, geological or environmental engineering are
preferred),

• Continue intending to pursue a career in the energy industry after graduation,
• Maintain a minimum cumulative GPA of h on a 4.0 scale,

• Maintain good standing with the college or university,

• No convictions or fines for substance abuse, misdemeanors, or felonies, and

Letter 4792 (10-2012)
Catalog Number 58263T


• Recipient provides you with a transcript and brief progress report after each
semester.

You will request each Scholarship Recipient to review and sign a grant agreement
outlining their understanding of and their agreement to these conditions.

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, (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 all records related to the following: (1) individual
grants including information to evaluate grantees, (2) grantees which are identified as a
disqualified person, (3) how the amount and purpose of each grant was established, and
(4) how you established 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:

Letter 4792 (10-2012)
Catalog Number 58263T


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