IRS approves architecture and preservation scholarships

Plain-English summary

A private foundation proposed annual scholarships for high school seniors in an architecture mentoring program and undergraduates studying architecture, historic preservation, or urban design. Applicants had to meet citizenship or residency, financial-aid, academic, enrollment, recommendation, and interview requirements. A committee of board members with relevant professional backgrounds would evaluate academic performance, character, citizenship, and financial need, with the board making final decisions and insiders and their relatives excluded. Renewals required a higher grade-point average, continued financial need, and completion of internship and community-service requirements. The IRS approved the procedures under Section 4945(g)(1), so grants made as proposed would not be taxable expenditures.

Ruling snapshot

• Question: Did the foundation's scholarship procedures for architecture and related fields satisfy the advance-approval rules?
• Outcome: Approved.
• Key authorities: IRC §§ 117(a)-(b), 170(b)(1)(A)(ii), 4945(g)(1), and 509(a)(1)

Full text (IRS public release)

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

Number: 202126026
Release Date: 7/2/2021

Employer Identification Number:

Contact person - ID number:

Date: April 5, 2021

Contact telephone number:

LEGEND

B = Name
C = Name
D = Number
E = Name
w dollars = Amount
x dollars = Amount

UIL: 4945.04-04

Dear [redacted]:

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 called the B. The purpose of
B is to award annual scholarships to qualifying high school seniors enrolled in C or a
comparable high school program for future architects, as well as to undergraduate
students across the United States that are pursuing a bachelor’s degree in the fields of
architecture, historic preservation, or urban design at accredited colleges and universities
that qualify under IRC Sections 509(a)(1) and 170(b)(1)(A)(ii).

Letter 4792 (10-2012)
Catalog Number 58263T

2

Under B, you will award up to D scholarships annually for an average amount of w dollars
each, with no one scholarship exceeding x dollars. Further, the scholarship amounts will
be based on the tuition, fees, books, supplies, equipment, and/or room and board costs
associated with attending an approved academic program at a qualifying college or
university and may vary among the recipients.

You will promote B on the websites of high schools and accredited colleges, and via
distribution of materials to counselors and administrators at high schools and
colleges/universities. Further, you will advertise the availability of the scholarships
through C.

To be eligible for a scholarship under B, an applicant:

• Must be a citizen or legal permanent resident of the United States;

• Must complete the FAFSA (Free Application for Federal Student Aid) application
  and submit a SAR (Student Aid Report);

• Must demonstrate a grade point average of at least 3.00;

• If a high school student, must show enrollment in C or an equivalent mentoring
  program;

• Must be accepted into a full-time, accredited college or university program in the
  aforementioned fields of study; and

• Must provide a completed scholarship application, two letters of recommendation,
  and attend an interview

All completed applications will be reviewed by your Scholarship Selection Committee,
who is responsible for the initial selection of potential scholarship recipients, as well as be
responsible for recommendations for the subsequent renewal of scholarships. The
committee is composed of members of your board of directors, of whom are generally
licensed architects and community planners from E. Any new, additional, or replacement
members may be appointed by a unanimous vote of your board of directors and may
include architects, urban designers, preservationists, and/or educators in these fields.

The selection criteria used by the Scholarship Selection Committee will include, but not
be limited to, the applicant’s prior academic performance, their character, good
citizenship, and demonstrated economic necessity. Your board of directors will make final
decisions regarding all scholarship awards based on the recommendations from your
Scholarship Selection Committee. Relatives of members of the selection committee or
officers or directors or any disqualified person(s) in relation to you will not be eligible to
apply for a scholarship.

Letter 4792 (10-2012)
Catalog Number 58263T

3

To renew a scholarship, the recipient must maintain a minimum grade point average of
3.50 and show financial need as well as fulfill your internship and community service
requirements.

Relatives of the members of the selection committees, as well as your officers, directors,
and substantial contributors, are not eligible for your scholarships.

You represent that you will complete the following: (1) arrange to receive and review
grantee reports at least annually and upon completion of the purpose for which the grant
was awarded, (2) investigate diversion of funds from their intended purposes, (3) take all
reasonable and appropriate steps to recover the diverted funds and ensure other grant
funds held by a grantee are used for their intended purposes, and (4) withhold further
payments to grantees until you obtain grantees’ assurances that future diversions will not
occur and grantees will take extraordinary precautions to prevent future diversions from
occurring.

You represent that you will maintain the following: (1) all records relating to individual
grants including information to evaluate grantees, (2) identify whether 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:

Letter 4792 (10-2012)
Catalog Number 58263T

4

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