Scholarships rewarding local historical-site knowledge approved

Plain-English summary

A private foundation proposed one-time scholarships for graduates of local high schools who showed interest in and knowledge of a historic site. Applicants needed a good academic record, a passion for learning and exploration, and a written or video essay analyzing social, economic, or historical influences on the site. A selection committee of at least two people, including one director, would choose recipients, and relatives of insiders and substantial contributors were ineligible. Scholarship payments would go directly to the recipient's college or university, while the board would set the number and amount of awards each year. The IRS approved the procedures under section 4945(g)(1), so compliant awards would not be taxable expenditures and could be tax-free when used for qualified tuition and related expenses.

Ruling snapshot

• Question: Do the foundation's history-focused scholarship procedures qualify for advance approval under section 4945(g)(1)?
• Outcome: approved, compliant scholarship payments will not be taxable expenditures
• Key authorities: IRC §§ 117(a) and (b), 170(b)(1)(A)(ii), 170(c)(2)(B), and 4945(g)(1)

Full text (IRS public release)

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

Release Number: 201942012
Release Date: 10/18/2019 Employer Identification Number:
Date: July 24, 2019

Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04
B = Place

C = High School

D = High School

E = High School

f dollars = Amount
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. The scholarships will make
education more affordable for local students who are interested in, and display
knowledge of, a historical site known as B.

You will provide one-time scholarships to graduates of a local high school, C, in the first
year, and to graduates of two other local high schools, D and E, in the future. The
scholarship amounts will range from f dollars to g dollars per student.

Letter 4792 (10-2012)
Catalog Number 58263T

The applicant should have a good academic record, show a passion for learning and

exploring, and submit a short essay about B. There are no requirements for the applicant
to be considering a major in American history in college; however, he/she should be
ready to explain how their interest in history could contribute to their career or life after
college.

You require an essay as part of the application process. The essay may be a written
paper or a video essay. The applicant must demonstrate a sense of observation about B
and reflect on the social, economic, and/or historical influences that were in play at any
time during the history of the site.

The one-time scholarship payment will be made directly to each recipient’s college or
university. You will publicize the scholarships through guidance and career counseling
offices and history departments of the local high schools. Each year, prior to providing
information about the scholarships to the guidance and career counselors, your board will
review the prior year’s expenses and determine the number of scholarships to be offered
and the amount of each scholarship.

You will appoint the selection committee, which will consist of at least two committee
members (one of whom must be a director). Relatives of the selection committee,
officers, directors, and substantial contributors are not eligible to receive a scholarship.

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.

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).

Letter 4792 (10-2012)
Catalog Number 58263T

• 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.

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