Foundation's robotics/STEM scholarship procedures approved under 4945(g)

Plain-English summary

A private foundation got advance IRS approval of the procedures it uses to award scholarships, which keeps the grants from being "taxable expenditures" that would trigger the Section 4945 excise tax. The foundation's scholarship (M in the legend) supports graduating high school seniors in a particular school district who pursued science, technology, engineering, and math through a competitive robotics team, and who have been accepted to a four-year accredited college. To be eligible, applicants must have been active, good-standing members of the robotics team for three of their four years and show character, leadership, community service, academic achievement, and participation in competitions and team fundraising. A selection committee (including a team mentor, a school advisor, and a team parent, none related to any applicant) reviews all applications; the foundation may award up to ten scholarships a year in varying amounts depending on available funds, paid directly to students who confirm continued enrollment and maintain a minimum GPA. The foundation committed to the standard oversight and recordkeeping duties and to not funding insiders or their relatives. Because the procedures are objective and nondiscriminatory and fund study at qualified educational institutions, the IRS approved them under Section 4945(g)(1), so the grants are not taxable expenditures and are tax-free scholarships under Section 117 when used for qualified expenses. The approval applies only to this foundation.

Ruling snapshot

• Question: Do the private foundation's scholarship grant procedures qualify for advance approval under Code Section 4945(g)(1) so the awards are not taxable expenditures?
• Outcome: approved (procedures meet § 4945(g)(1); grants are not taxable expenditures and are excludable scholarships/fellowships under § 117(a) if used for qualified expenses)
• Key authorities: IRC §§ 4945(g)(1), 117(a)-(b), 170(b)(1)(A)(ii), 170(c)(2)(B)

Full text (IRS public release)

Scanned document; transcription proofread from IRS OCR. OCR bullet markers rendered "e" were restored to bullets where used; wording is otherwise verbatim, and redacted legend placeholders appear as the IRS released them.

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

Number: 201911013 Employer Identification Number:

Release Date: 3/15/2019
Contact person - ID number:

Contact telephone number:
Date: December 19, 2018

LEGEND UIL: 4945.04-04
M = Scholarship
N = School district

O = School
P = Team
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 provided in Code Section 117(b)).

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

Your purpose is to support students within N who are engaged in the pursuits of science,
technology, engineering, and mathematics through competitive robotics activities.

The purpose of M is to provide scholarships to graduating high school seniors who attend
O and have been accepted and will pursue undergraduate studies at a four-year
accredited college or university. Candidates will be selected from applicants who have

Letter 4792 (10-2012)
Catalog Number 58263T

been members and are active participants in good standing of the P Robotics Team at N
for three of their four years.

You plan to award up to ten scholarships annually, for varying amounts, depending on
your net income after the robotics competition season. The number and amounts of
scholarships may change from year to year, depending on the availability of funds.

Scholarship recipients must:

Show positive character

Demonstrate leadership

Participate in community service relating to robotics and STEM

Possess academic achievement

Have active participation in robotics competitions and team building events, and
Have contributed to team fund raising activities.

All applications will be reviewed by your selection committee, which shall include at least
one team mentor, one school advisor, and one additional team parent of past or present
student participants, provided that no one is related in any way to any student applicant.

Awards will be paid directly to the students. The recipients will be required to
demonstrate they have met the conditions of the grant, including attendance and
maintaining a minimum GPA of 2.5 or greater.

You pay the scholarship during the second term of the school year. The recipient is
required to provide the scholarship committee with their first term grades and second
term schedule as confirmation they have and will continue to be enrolled in the college or
university noted on their application prior to the payment of the award.

You will maintain both paper and digital copies of information for all scholarship
applicants and recipients. Award letters for recipients will be kept on file and will include
the amount and the terms of the award.

You represent that you will (1) arrange to receive and review grantee reports annually
and upon completion of the purpose for which the grant was awarded, (2) investigate
diversions of funds from their intended purposes, and (3) take all reasonable and
appropriate steps to recover 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 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 the grants described above.

Letter 4792 (10-2012)
Catalog Number 58263T

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.

Please keep a copy of this letter in your records.

Letter 4792 (10-2012)
Catalog Number 58263T

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