Foundation's international scholarships and professional grants approved

Plain-English summary

A private foundation proposed two programs for adults in the United States and abroad, with preferences tied to a specified state, counties, and national descent. Its scholarship program would support undergraduate, graduate, vocational, or technical study at qualifying domestic or foreign institutions, including limited study-related travel, and could be renewed for up to three additional years if recipients maintained a 3.0 GPA. Its separate grant program would fund post-graduate lectures, papers, seminars, and conferences that developed professional skills or produced a specific work product. Both programs used documented selection criteria, conflict and disqualified-person restrictions, special blind review for certain employees' children, foreign-school equivalency review, recipient reporting, diversion recovery, and detailed records. The IRS approved the scholarship procedures under section 4945(g)(1) and the professional-development grant procedures under section 4945(g)(3).

Ruling snapshot

• Question: Do the foundation's proposed scholarship and professional-development grant procedures satisfy the advance-approval requirements for grants to individuals?
• Outcome: approved under sections 4945(g)(1) and 4945(g)(3), so grants made under the procedures will not be taxable expenditures
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), 170(c)(2)(B), and 4945(g)(1) and (3)

Full text (IRS public release)

Transcriber's note: this document is a scan. Obvious OCR errors in bullet symbols, Code citations, headings, spacing, and punctuation were corrected by comparison with all six page images. Redacted identifying fields, percentages, program counts, and an employment-duration value are marked [redacted]. The wording is otherwise preserved verbatim.

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

Release Number: 202004020
Release Date: 1/24/2020 Employer Identification Number: [redacted]
Date: October 29, 2019

Contact person - ID number: [redacted]

Contact telephone number: [redacted]

LEGEND: UIL:

U = company 4945.04-04
V = county

W = county

X= country

Y= state

z dollars = amount

Dear [redacted]:

You asked for advance approval of your scholarship and educational 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.

Our determination

We approved your procedures for awarding scholarships and educational grants.
Based on the information you submitted, and assuming you will conduct your
program as proposed, we determined that your procedures for awarding
scholarships and educational grants meet the requirements of Code Section
4945(g)(1) and 4945(g)(3), respectively. 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

4945(g)(1) Scholarship Program

You may award, annually, a limited number of scholarships to individuals over the age of
eighteen years who reside in the United States or abroad.

Letter 4792 (10-2012)
Catalog Number 58263T

2

Scholarships shall be granted to graduates of a United States high school or the
equivalent baccalaureate degree in non-United States countries. Students shall be
actively enrolled and attending an accredited two- or four-year public or private nonprofit
university or other institution of higher education or a post-secondary vocational or
technical program in the United States or abroad (especially in X) at the time of granting
of the scholarship. Scholarships will be awarded to those pursuing an undergraduate
associate or bachelor’s degree, a graduate degree or vocational or technical certification.
Scholarships shall be granted for the purposes of paying tuition and fees required for the
attendance at a university, college or other educational organization described in Section
170 (b)(1)(A)(ii) of the Internal Revenue Code and for fees, books, supplies and
equipment required for courses of instruction at educational organizations described in
Section 117(b) of the Internal Revenue Code. Scholarship funds may not be used for
dormitory or residential living expenses. Scholarships may also be awarded for travel
costs (but not commuting expenses) in connection with study at an accredited private or
public university or other institution of higher education in the United States or abroad.

Scholarships may range in size from a few hundred dollars (the cost in X currency) up to
[redacted]% of the cost of tuition at a public university or a private nonprofit university in the
United States or in X - which would qualify under an equivalency determination as a
Section 170(b)(1)(A)(ii) educational institution. You intend to award approximately [redacted]
scholarships per year, of which a majority are to be awarded to students attending
X universities. The remainder are scholarships to be awarded to students attending
United States public universities, private nonprofit universities or post-secondary
vocational or technical schools which are Section 170(b)(1)(A)(ii) educational institutions.
The scholarships may be renewed each year for up to three additional years of study as
long as the student applicant maintains a GPA of 3.0 or higher in the previous year and
continues to meet the other requirements of the scholarship.

The scholarships will be awarded on an objective and nondiscriminatory basis. Your
Board of Trustees has adopted very specific, detailed procedures and guidelines for your
program that an applicant must meet to be considered. Applicants will be considered
based on academic achievement, work experience, meritorious accomplishment,
performance on standardized tests, field of study, financial need, third party
recommendations and evidence of the individual’s motivation, character, ability and
potential drawn from these recommendations. A preference for the scholarship award will
be given to individuals resident in Y, with priority given to those from V and W Counties
and to individuals of X descent. Because scholarships will not exceed [redacted]% of the total
tuition costs, the applicant must provide evidence of other sources of funding to cover the
remaining tuition costs. Each scholarship will be paid directly to the college, university or
other institution of higher learning. If payment is made directly to the awardee, proof of
payment to the attending educational institution must be provided to you.

The successful applicant will be provided with a scholarship award letter, which shall
require the use of the scholarship for “qualified tuition and related expenses” under
Section 117(b) of the Internal Revenue Code, such as tuition and related expenses, or

Letter 4792 (10-2012)
Catalog Number 58263T

3

fees, books, supplies, and equipment, but not for dormitory or residential living expenses.
The scholarship award, however, may include travel expenses for which the applicant
demonstrates a need in order to arrive at the university or post-secondary educational
institution or to return home at the end of a term, but cannot be used to cover commuting
expenses. Such travel expenses will be paid by you to a third party vendor for the benefit
of the awardee. The award also requires that you receive a report from the high school or
baccalaureate-granting institution confirming attendance and a written and verified (and
sealed) Registrar’s Statement from the college, university or higher educational institution
concerning the courses taken and grades received for each academic period. If such
report is not provided by the scholarship applicant or if the scholarship award is used for
expenses other than qualified tuition and related expenses under Code Section 117, then
you reserve the right to terminate any scholarship award not yet paid, to not renew the
scholarship, and to use reasonable efforts to seek repayment of the amounts already
paid on behalf of the applicant.

If you suspect funds were not used for qualified tuition and related expenses, then you
will withhold further payments until you have been assured that funds have not been
used for an improper purpose. These assurances may include written assurances from
an awardee and/or an awardee’s supervising faculty or mentor that future diversions of
funds for an improper purpose shall not occur, as well as the awardee’s agreement to the
implementation of certain precautionary procedures to prevent any possible future
diversions.

The scholarship may be paid directly to the attending college, university or other
institutions of higher education or directly to the awardee. Payment shall only be made
upon presentation by the awardee of an invoice for qualified tuition and related expenses
as herein noted. The educational institution must agree to use the funds received from or
on behalf of the student to defray the qualified tuition and related expenses.

4945(g)(3) Grant Program

You have stated that you will also provide grants, the purpose of which is “to achieve a
specific objective, produce a report, or other similar product, or improve or enhance a
literary, artistic, medical, scientific, teaching or other similar capacity, skill or talent of the
grantee”. Grants will be made to post-graduate students in the United States or abroad,
residents in Y and/or of X descent, for the purpose of giving a lecture or presenting a
white paper at a university or attending a seminar or professional conference in their field
of study to improve their skills and knowledge base.

You anticipate that you may award up to [redacted] of these grants per year with the average
size of the grant ranging from a few hundred dollars up to a maximum of z dollars. Grants
may include attendance fees, travel and hotel expenses, if needed.

The grants will be awarded on an objective and nondiscriminatory basis. Applicants must
submit proposals with an Executive Summary, a Needs Statement, Short-term and Long-
term Goals, and a proposed Budget. Applicants will be considered based on academic

Letter 4792 (10-2012)
Catalog Number 58263T

4

achievement and/or work experience, financial need, third party recommendations and
evidence of the individual’s motivation, character, ability and potential drawn from these
recommendations. A preference for a grant award will be given to individuals resident in
Y, predominantly from V and W Counties, and to individuals of X descent.

You will require a final report from all grant recipients on the achievement of the intended
objective and on the expenditures of all grant funds. The grant award procedures will
allow you to recoup grant dollars if the grant agreement terms are breached. You will use
reasonable efforts to recoup grant dollars if they are not used as intended in the grant
award letter.

Applications for either program will be reviewed, approved and/or rejected by your Board
of Trustees, or by a Scholarship Committee or Grants Committee established by your
Board of Trustees. These committees will, at a minimum, include one of your Trustees
and shall be comprised of individuals who have an interest or expertise in the pursuit of
higher education by young persons in the X community.

Decisions will be made based upon the criteria documented by the procedures and
guidelines set forth. Among these procedures is the requirement that no person on the
Board of Trustees, the Scholarship Committee, or the Grants Committee deciding on
awards may participate in a review of, or in a vote on, a scholarship or grant application
of a family member or friend. The procedures also directly prohibit the making of any
scholarship or grant to any disqualified individual. In addition, although children of
employees working for at least [redacted] years for related companies, such as U, that are
controlled by one or more your Trustees, may also apply for these post-secondary
awards, the children of officers or directors of such companies will not be eligible. The
requirements for such applicants will be the same as any other applicant. However, the
applications of these individuals will be evaluated by an unrelated third party, consultant
or corporation solely for the purpose of evaluating these applications on a blind basis.
The recommendations of this third party evaluator will be recognized and accepted by the
Scholarship or Grants Committee.

You will exercise expenditure responsibility with respect to X universities or higher
education institutions to determine whether the university or higher education institution
abroad is the equivalent of a United States university under Section 170(b)(1)(A)(ii) in that
it maintains a regular faculty and has a regularly enrolled body of students in attendance
at the place where its educational activities are regularly carried on.

For your programs, you represent 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.

Letter 4792 (10-2012)
Catalog Number 58263T

5

You represent that you will (1) maintain 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 purposes of 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); or
• To achieve a specific objective; produce a report or similar product; or improve or
enhance a literary, artistic, medical, scientific, teaching, or other similar skill or
talent of the recipient.

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).

Letter 4792 (10-2012)
Catalog Number 58263T

6

• 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