IRS approves a four-year youth coaching and scholarship program

Plain-English summary

A private foundation and a co-funder designed a four-year program for high school students combining character development, individualized coaching, entrepreneurial problem-solving, career exposure, community service, and annual scholarship awards. Students would be selected through creative application materials, an essay, a recommendation, and interviews scored for traits such as accountability, curiosity, perseverance, and resilience. Scholarship amounts would increase each year of participation, remain available for six years after graduation, and be paid to a post-secondary school for tuition. The foundation would exclude insiders, monitor reports and diversion of funds, and maintain grant records. The IRS approved the procedures under section 4945(g)(1), so the awards would not be taxable expenditures.

Ruling snapshot

• Question: Do the selection, payment, monitoring, and recordkeeping procedures for the four-year youth scholarship program qualify for advance approval?
• Outcome: approved (scholarships made under the procedures would not be taxable expenditures)
• Key authorities: IRC §§ 117(a), 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

Employer Identification Number:

Date: February 20, 2020
Contact person - ID number:
Number: 202020023

Release Date: 5/15/2020
Contact telephone number:

LEGEND UIL: 4945.04-04
B = Project

C = Foundation

D = High School

E = School District

F = High School

G = University

H = Number

J = Number

K = Year

y dollars = Amount
z 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 and fellowship program called B that will
be co-funded by C. The purpose of B is to help students achieve their academic objectives
while fostering their personal character strength development.

The mission of B is to empower youth through possibility thinking and innovative problem-
solving for greater personal freedom, social mobility and the betterment of their community.
B provides high school students with the resources, innovative experiences and a network
of support to move toward post-secondary education and career options — all with a focus
on providing equal access to social mobility. Through individualized coaching and mentor
relationships, real-world career exposure and hands-on learning experiences, B fosters the
growth of key character traits while supporting entrepreneurial thinking that enables
students to achieve their educational and vocational goals.

You began piloting B at a local high school, D, and expanded to the nearby E school
district, beginning with F High School. At each school, your staff hosted informational
workshops with students, parents, guardians, and school officials to make students aware
of the B objectives, eligibility, and application process.

You initially selected H students from D and later selected J students from F High School
to participate in B. In the future, you plan to expand to other high schools, which will be
selected based on their level of administrative support, diversity of the student population,
and school district need. Informational workshops will be held each year at participating
schools similar to those already held at D and E school district. Additional students will be
selected to participate in B each year, culminating with high school students graduating
with the class of K.

Each student selected for B is expected to participate in the program for four years. For
each student's first two years in the program, the student will participate in monthly group
meetings and bi-weekly one-on-one coaching sessions with a program coach who will
guide them through their pursuit of a personalized educational and life goal attainment.
Students will learn about key character strengths and entrepreneurial mindset components
to assist them with goal-setting, problem-solving, and decision making. The last two years
of a student’s participation in B will involve exposure to career fields of interest and
participation in community service projects, in addition to quarterly group meetings and bi-
weekly one-on-one coaching sessions.

For each year of a student’s participation in B, they will be awarded scholarship funds that
will be deposited into a savings account that the student will have access to upon
graduating from high school. Each student will be awarded y dollars in scholarship funds
for completion of the first year of the program with annual increases of y dollars for each
additional year of participation so that the student may be awarded a total of z dollars if
they successfully complete four years of participation. The annual increases are intended
to induce students to continue participating in B as demands on their time and participation
in the program increases each year. Students will be notified by letter upon completion of
each year of participation regarding scholarship funds they have been awarded.


Upon graduating from high school, students can request that their scholarship funds be
distributed to the post-secondary school of their choice to be used toward tuition. Students
must use their scholarship funds within six years of graduating high school or the funds will
be forfeited. Any funds not used by the student will be donated to an endowment fund at G
that supports students seeking to further their post-secondary education.

Although each student selected to participate in the program is expected to participate for
the full four years of high school, you maintain the right to remove a student from B in
extraordinary circumstances, such as a failure of a student to maintain an adequate level of
participation. A student can also voluntarily remove themselves from the program. If a
student leaves the program, they will still have access to any scholarship funds already
awarded, as long as the funds are used toward post-secondary education or training within
six years of high school graduation.

Your selection committee selects students to participate in B based on their application
which includes a student describing themselves in a creative way (i.e., a video, comic strip,
poem, piece of artwork, etc.), a personal essay describing a specific experience or event in
their life, and a letter of recommendation. Individuals that exhibit determination and
perseverance to achieve academic objectives and the desire to identify post-secondary
educational options will be selected to participate in an interview with the selection
committee. The interview will include a rubric in which the students are scored on their
ability to demonstrate the following qualities: accountability, creativity, curiosity, gutsiness,
passion, and resilience.

Your selection committee is comprised of community and education-based professionals in
the fields of academia and youth development. Relatives of your selection committee,
officers, directors, and substantial contributors are not eligible to be selected.

You represent that 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, and (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 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 also represent that you will maintain the following: (1) all records relating to individual
grants including information to evaluate grantees, (2) identify a grantee is a disqualified
person, (3) establish the amount and purpose 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).

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