IRS approves scholarships for students who lost a parent or guardian

Plain-English summary

A private foundation proposed scholarships for full-time college students and incoming students who had lost a parent, stepparent, or guardian. Applicants had to live in the specified area, maintain at least a 3.0 grade point average, and submit a transcript, personal statement, and recommendation. A conflict-screened selection committee would evaluate character, empathy, integrity, drive, academic excellence, and work ethic without discrimination based on race, sexual orientation, religion, or gender. The foundation expected to award no more than four grants per year, renewable for up to four years while recipients maintained the required academic standing. Funds would be paid directly to schools, with annual reporting, monitoring, recovery, and recordkeeping requirements. 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 proposed scholarship procedures for bereaved students satisfy the advance-approval requirements?
• Outcome: Approved.
• Key authorities: IRC §§ 117(a)-(b), 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

Number: 202120019
Release Date: 5/21/2021 Employer Identification Number:

Contact person - ID number:

Date: February 23, 2021 Contact telephone number:
LEGEND: UIL:

B= program name 4945.04-04

C= area

D= name locations
x dollars= amount 1
y dollars= amount 2
z dollars= amount 3

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 (B) to encourage and support, as well as provide
financial assistance, to students who have suffered the loss of a parent, step-parent, or
guardian, and who attend, or plan to attend, a college or university on a full-time basis.

You will publicize B through multiple channels, including your website and social media
platforms. You will also arrange for B to be included in the list of available scholarships
referenced by guidance offices in high schools in C; specifically, D counties. In addition,

Letter 4792 (10-2012)
Catalog Number 58263T

members of your selection committee will seek to identify and encourage potential
candidates to apply and generally promote the availability of B.

Potential recipients will submit an application form, an official transcript, a personal
statement, and at least one letter of recommendation from a teacher or employer.
Applicants related to your officers, directors, selection committee members, or substantial
contributors are not eligible for awards.

To be considered for B, an applicant must:
• Have suffered the death of a parent, step-parent, or guardian
• Be a resident of C (D County)
• Be either a graduating senior who has been accepted at a college or university, or
be currently enrolled in a college or university
• Have a minimum cumulative grade point average (“GPA”) of 3.0

You will form a selection committee, initially composed of a subset of your Board of
Directors. New members of the selection committee will be individuals who are
determined by your Board to possess the requisite knowledge, experience, and abilities to
serve on the selection committee. Each member of the selection committee must disclose
the existence of a relationship that they have with any potential grantee under
consideration. Further, a selection committee member will refrain from participation in the
award process if such member could derive, directly or indirectly, a tangible private
benefit from any potential grantee’s selection over that of other potential grantees.

The specific criteria the selection committee will use to select recipients are as follows:

• Character of the applicant, as showcased in their personal essay, letters of
recommendation, and the interview conducted by the selection committee. In
particular, you are looking for applicants who can demonstrate the following
qualities: empathy, integrity and drive to succeed

• Academic excellence as exhibited by the applicant's GPA

• A strong work ethic as evidenced by outside commitments, such as employment,
dedication to his or her community through volunteering in civic activities or
meeting other communal responsibilities.

Awards will not be made on the basis of race, sexual orientation, religion, or gender.

You expect to award a maximum of four grants per year. The amount of each scholarship
grant will be between x dollars and y dollars each year, up to a maximum of z dollars over
a four-year period. Grants may be used to cover the cost of tuition, room and board, and
living expenses.

Applicants are required to be (or become) enrolled in an educational institution on a full-
time basis. Grants may be renewed for up to four years, contingent on the grant recipient
maintaining a cumulative GPA of 3.0 or higher. In order to receive additional funds, the
student must submit a written request to renew the scholarship, and any related
information you may reasonably request. If a grant recipient is unable to remain in good

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standing with the educational institution, you may accommodate them if such poor status
is a result of extenuating circumstances. Such accommodation will be granted at the sole
discretion of your Board of Directors on a case-by-case basis.

You will disburse funds directly to the educational institutions at which recipients are
enrolled. You will require each institution to agree to use the grant funds for tuition and
related expenses or to apply the funds otherwise for the benefit of the recipient but only if
the recipient: (1) is enrolled at such educational institution and (2) remains in compliance
with the institution’s academic requirements necessary to obtain the desired educational
degree. If a grant recipient fails to enroll, drops out, or fails to remain in compliance with
the institution’s academic requirements, such institution will be required to return all
unused grant funds to you.

You will require each grant recipient to provide an annual narrative report describing their
experiences and accomplishments over the past academic year. Failure to submit the
required report, or where such report, or other information, indicates that all or part of the
grant is not being used for its intended purpose, you will withhold further payments, to the
extent possible, during the course of your investigation of the jeopardized grant. In the
case of misused funds, you will determine if the situation is a mistake and whether it can
be corrected. If you discover that grant funds have been misappropriated, all reasonable
steps will be taken to recover any diverted funds or to ensure that any unused portion is
either returned or used for the intended purpose of the grans. In any case where you
have determined that grant funds have been misused, you will refrain from making
additional disbursements and take further appropriate action as necessary.

You represent that you will 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 adequate supervision and investigation of diversion of grant funds.

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

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• 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