Scholarship procedures for women studying the arts approved

Plain-English summary

A private foundation proposed scholarships for female students pursuing music, drama, visual arts, and related fields at accredited institutions in a specified area. Applicants had to be U.S. citizens and full-time students, and awards would be based on scholastic ability with consideration of financial need. The foundation would pay the schools directly, limit awards to educational costs, monitor continued eligibility, and require unused funds to be returned. It also agreed to investigate diversions, recover misused funds, withhold further payments when appropriate, and keep detailed grant records. The IRS approved the procedures under section 4945(g)(1), so grants made under them would not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's scholarship procedures satisfy section 4945(g)(1)?
• Outcome: approved
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), 4945(g)(1)

Full text (IRS public release)

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

Number: 202015032
Release Date: 4/10/2020 Employer Identification Number:

Contact person - ID number:

Date: January 14, 2020
Contact telephone number:

LEGEND: UIL:

B=city 4945.04-04
c dollars= amount

d dollars = amount

e 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

You will operate a scholarship program for female students enrolled at accredited
universities engaged in the fields of study related to music, drama, visual arts, and
kindred arts.

Scholarships are available only to United States citizens, accepted in qualifying
educational institutions in and around the B area and accredited by a nationally
recognized accrediting agency that the Secretary of the United States Department of
Education determines to be a reliable authority as to the quality of education or training
provided by the institution, as long as they are engaged in a field of study related to

Letter 4792 (10-2012)
Catalog Number 58263T

music, drama, visual arts, and kindred arts on the full time basis. No restrictions or
limitations are applied in the selection procedure based upon race, national origin, age, or
employment status of applicants who are otherwise eligible as discussed above. You
publicize scholarships in your print materials, on your website and allows your partner
universities to promote their scholarship programming in these materials.

The number of scholarships awarded annually is based upon the number of applicants,
the quality of the applicant pool, and your requirement to satisfy Internal Revenue code
Section 4942. You intend to maintain consistency with past practices, which would result
in total scholarships of around each year of about c dollars.

The amount of each scholarship depends on the number of qualified applicants and the
amount of tuition for each recipient that is not covered by any other scholarship,
fellowship, grant, or the like. Generally, each scholarship ranges between d and e dollars.
The criteria for selection is based on scholastic ability with the consideration for financial
needs to junior and senior students in music, visual arts, music theater and drama, and
for women in music and visual arts master’s program. The exact selection criteria are
different depending on the field of study, but all persons wishing to be considered for a
scholarship must submit an application. The candidates selected for auditions, as a
second step of the application process, are notified of the audition requirements and
schedule.

Each scholarship is reviewed by your Board of Directors. Scholarships are awarded on a
yearly basis, applied over an academic year, and may be renewed at the discretion of
your directors. However, applicants must fully reapply to be considered in a later year
and there is no streamlined application for renewals.

Scholarships are awarded and paid in a lump sum; provided that if the amount of a
scholarship exceeds the recipient's cost of education (including tuition, books, supplies,
room, board, and travel expenses) for the current semester or quarter or term, then the
amount paid for such semester or quarter will be limited to the cost of the recipient's
education for such period. The funds are first used to pay tuition and related fees. If there
are any excess it may be used for other school-related expenses like books, supplies,
and equipment related to classes taken by recipient. If there is any excess after paying
tuition and school-related expenses, the institution must return the amounts to you.

Payments are made directly to the educational institution in which the recipient is enrolled
upon verification by the educational institution of the recipient's enrollment as a full-time
student. Upon request, the recipient must provide you with a transcript of his/her grades.
In the case of the unpaid portion of any scholarship, you reserve the right to discontinue
the recipient’s scholarship if they fail to continue to satisfy eligibility criteria. At the time
payments are made directly to the recipient’s educational institution, you obtain from the
institution its agreement to use funds to defray the recipient’s tuition and related
expenditures. You retain records relevant to the evaluation of potential scholarship
recipients, the identification of such recipients, and the amount of each scholarship
granted.

Letter 4792 (10-2012)
Catalog Number 58263T

At present, your selection committee is selected by the Board of Directors, who serve in
accordance with your Code of Regulations. Committee eligibility is reserved to individuals
who have an interest in your tax-exempt purposes. All such persons serve at the
pleasure of the Board of Directors and are volunteers. Committee members are similarly
replaced, by locating another individual with an interest in your tax-exempt purposes and
will serve as a volunteer.

You will retain the specific information with respect to all grants issued:

1. The information used to evaluate the qualifications of candidates;

2. The complete identification of each grantee;

3. The amount and purpose of each grant; and

4. All grantee reports and any other follow-up data obtained in administering your grant
programs annually and upon completion of the purpose for which the grant was
awarded.

You will:

1. Investigate diversions of funds from their intended purposes;

2. 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; and

3. Maintain all records relating to individual grants, including information obtained to
evaluate grantees, identify whether a grantee is a disqualified person, establish the
amount and purpose of each grant, and establish that you undertook the supervision
and investigation of grants described above.

The 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).

Letter 4792 (10-2012)
Catalog Number 58263T

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.

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