IRS approves educational exam-voucher grant procedures

Plain-English summary

A private foundation proposed an educational grant program that would issue exam vouchers and reimburse testing-center costs for learners who completed course content and met a stated score threshold. Enrollment was open without restrictions based on age, location, family income, nationality, or prior credits. The foundation represented that awards would be objective and nondiscriminatory, and that its operations team would review voucher and reimbursement requests. The IRS approved the procedures under section 4945(g)(3), so expenditures made under the program as described would not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's procedures for awarding educational exam vouchers qualify for advance approval?
• Outcome: approved
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), 170(c)(2)(B), and 4945(g)(3); Treas. Reg. § 53.4945-4(c)(1)

Full text (IRS public release)

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

Release Number:202010008
Release Date: 3/6/2020 Employer Identification Number:
Date: December 11, 2019

Contact person - ID number:

Contact telephone number:

LEGEND: UIL:

B= program 4945.04-04
C= grant

d= number

e = number

f dollars = amount
G = organization

Dear

You asked for advance approval of your educational grant procedures under Internal
Revenue Code Section 4945(g)(3). 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 educational grants. Based on the information
you submitted, and assuming you will conduct your program as proposed, we determined
that your procedures for awarding educational grants meet the requirements of Code
Section 4945(g)(3). As a result, expenditures you make under these procedures won't be
taxable.

Description of your request
You will operate a grant program, B, to allow students to earn up

. B allows users to
benefit from through C. C exams have been offered by G and the exams
cover d

Enrollment in courses are open to all people without age, location, family income,
nationality, prior credits or other factors. You make college more accessible and
affordable for high school students, college students and adult learners, including active
duty military personnel, their families and veterans, by colleges and universities accepting
credits through C.

All grants will be awarded on an objective and non-discriminatory basis. Learners are
required to submit a C voucher request form, upon completion of all course content. For
this reason you do not require reporting on each individual issued a grant.

Your operations team reviews requests and issues vouchers to individuals who answer e
percent or more of quiz and test questions correctly. Vouchers are issued for a fixed
amount of f dollars, the cost of the C exam. The operations team also reviews test center
reimbursement requests. Reimbursements are issued if the learner provides a valid
receipt from the testing center, as well as an official candidate score report from the G to

verify their score for review.

B is publicized with the help of a public relations firm. Publicity includes
speaking engagements at conferences, endorsement on the C website, social media,
emails to high school principal and guidance counselors and television interviews.

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 Section 117(a) and is to be used for
study at an educational organization described in Section 170(b)(1)(A)(ii); or

- A prize or award subject to the provisions of Section 74(b), if the recipient of
the prize or award is selected from the general public; or

- To achieve a specific objective; produce a report or similar product; or
improve or enhance a literary, artistic, musical, scientific, teaching, or other
similar skill or talent of the recipient.

To receive approval of its educational grant procedures, Treasury Regulations Section
53.4945-4(c)(1) requires that a private foundation show:

• The grant procedure includes an objective and nondiscriminatory selection
process.

• The grant procedure results in the recipients performing the activities the grants
were intended to finance.

• The foundation plans to obtain reports to determine whether the recipients have
performed the activities that the grants were intended to finance.

Other conditions that apply to this determination

Letter 4779 (10-2012)
Catalog Number 58222Y

• This determination covers only 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 precedent.

• You cannot rely on the conclusions in this letter if the facts you provided have
changed substantially. You must report any significant changes in 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 make 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 must
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 any questions, please contact the person listed at the top of this letter.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Letter 4779 (10-2012)
Catalog Number 58222Y