Foundation scholarship procedures received advance approval

Plain-English summary

A private foundation proposed scholarships for financially needy students committed to succeeding at colleges, trade schools, technical schools, or similar postsecondary institutions in the United States or abroad. A board selection committee would rank complete applications using financial need, commitment, and academic qualifications, with funds paid to schools or reimbursed against receipts. Recipients had to provide semester reports and transcripts, maintain a 2.5 grade point average, and document graduation, while the foundation retained termination and recovery rights for misuse. Foreign awards were also subject to equivalency review, pre-grant inquiries, sanctions screening, and any required expenditure responsibility. The IRS approved the procedures under section 4945(g), so compliant grants would not be taxable expenditures.

Ruling snapshot

• Question: Did the foundation's domestic and foreign scholarship procedures satisfy the advance-approval rules for grants to individuals?
• Outcome: approved (only for the described program and materially similar succeeding programs)
• Key authorities: IRC §§ 117(a) and (b), 170(b)(1)(A)(ii) and (c)(2)(B), and 4945(g) and (h)

Full text (IRS public release)

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

Number: 202017038
Release Date: 4/24/2020

Employer Identification Number:

Date: January 27, 2020
Contact person - ID number:

Contact telephone number:

UIL: 4945.04-04

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.

The purpose of your program will be to assist individuals in attending a two or four-year
college, trade school, technical school, or similar post high school educational institution
meeting the requirements of Code Section 170(b)(1)(A)(ii) or their foreign equivalent (in
which case you will exercise expenditure responsibility with the meaning of Code Section
4945(h) to the extent required). The recipient will be entitled to apply the award for both
undergraduate and graduate education and will be required to use the award for tuition
assistance, fees, course required books, supplies, and equipment and depending upon
the financial circumstances of the recipient and at your sole discretion with prior written
approval, room, board, and travel that are incidental to the purposes of the scholarship
award. An award will usually be for one academic year or two semesters, but you will
have the flexibility to award longer term educational assistance commitments. Moreover,

Letter 4792 (10-2012)
Catalog Number 58263T

you will determine the number of scholarships and the scholarship amounts on a case-
by-case basis depending upon your resources and funds allocated by the Board for such
purposes.

To promote the program, you have established a website describing the eligibility
requirements as well as the application process.

To be eligible for an award under your program, the individual must:

• Attend a qualified educational institution at the post-high school level on a full-time
(or, at your discretion) on a part-time basis depending upon their circumstances;
• Demonstrate both financial need, and a commitment to succeed.

To be considered for the award, an individual must submit to you the completed
application by a specific due date with the following attachments:

• A certified educational transcript detailing all high school or higher-level education
to date;

• Evidence of financial need, including their current financial statement and/or their
parents;

• Letters of recommendation;
• A written statement describing their goals as well as why they desire the award.

All applications will be initially reviewed by a Selection Committee consisting of your
Board or a Committee of the Board to eliminate those applicants who do not meet the
eligibility criteria or have submitted incomplete applications. The Selection Committee will
then evaluate and rank the applications based on the documented financial need, the
demonstrated commitment to succeed, and the academic qualifications. The Selection
Committee may also conduct personal interviews before selecting the recipients.

At your discretion, you will make payments of scholarship funds directly to the qualified
educational institution on behalf of the scholarship recipient or reimburse the recipient
upon presentment of adequate receipts.

Once the scholarships are awarded, the recipients must adhere to the following additional
requirements for the award:

• Submit written reports to you at least every academic semester detailing their
educational experiences and how the scholarship award has contributed to their
educational experience;

• Submit certified transcripts at the conclusion of each academic semester; and
• Immediately following graduation, provide you with copies of their final transcript
and copy of the diploma/certificate of completion from the educational institution.

The award will usually be for one academic year (two semesters), but you will have the
flexibility to award longer term educational assistance commitments as long as the

Letter 4792 (10-2012)
Catalog Number 58263T

recipient complies with all the reporting requirements as well as maintains a 2.5 GPA and
attends a qualified educational institution.

If the terms of the scholarship are violated or if the recipient has made any
misrepresentation to you, or misappropriated any funds, or if you determine the recipient
is unable to carry out the purposes of the scholarship, you have the right to terminate the
scholarship 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’ assurance 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 grants described above.

In the event the educational institution is not located in the United States, then the
applicant must provide you with such documentation that establishes to your reasonable
satisfaction that such educational institution is the foreign equivalent of an organization
described in Code Section 170(b)(1)(A)(ii). If you determine the applicable foreign
institution is a qualified educational institution, before disbursing any funds you will check
the OFAC List of Specially Designated Nationals and Blocked Persons for names of
individuals and entities with whom you are dealing to determine if they are included on
the list. Furthermore, to ensure that scholarships are not inadvertently used for purposes
unintended, you will conduct pre-grant inquiries of each potential recipient and
corresponding foreign educational institution. In your inquiry, you will request financial
information to include statements and corresponding tax returns, you will look into the
foreign institution’s tax exempt status, you will have them provide copies of their
governing instruments, list of board members and key officers, a copy of the foreign
institution’s annual report (if any) and any other information that you deem necessary to
reasonably assure the scholarship funds will be used as intended. Finally, you will
comply with all United States statutes, executive orders and regulations and if required
you will obtain the necessary licensures from OFAC.

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.

Letter 4792 (10-2012)
Catalog Number 58263T

• 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.

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.

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