Employer-related scholarships expanded to employees' children abroad

Plain-English summary

A private foundation had prior approval for an employer-related scholarship program and asked to expand it to dependent children of employees at affiliated companies outside the United States. International awards would be adjusted for local educational costs, and the foundation would screen the parties through a verification program before payment. Eligible students had to be full-time, document dependency, enrollment, grades, and progress toward a degree or diploma, and generally maintain at least a 2.5 grade point average. An independent committee would select recipients using academic criteria, and the program would observe the employee-scholarship percentage limits in Revenue Procedure 76-47. The IRS approved the expanded procedures under section 4945(g)(1), so awards made as proposed would not be taxable expenditures.

Ruling snapshot

• Question: Did the expanded employer-related scholarship program for employees' children outside the United States satisfy the advance-approval rules?
• Outcome: approved
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), and 4945(g)(1); Rev. Proc. 76-47; Rev. Proc. 85-51

Full text (IRS public release)

Department of the Treasury Date:

Internal Revenue Service 09/19/2022

Tax Exempt and Government Entities Taxpayer ID number:
IRS P.O. Box 2508

Cincinnati, OH 45201

Person to contact:

Number: 202250016
Release Date: 12/16/2022

LEGEND UIL: 4945.04-04
B = Name of Program

C = Company Names

D = Company Locations

F = Verification Program

G = Site of Program Posting

y dollars = Scholarship Amount

Dear [redacted]:

You asked for advance approval of your employer-related scholarship procedures under Internal Revenue Code
Section (IRC) 4945(g)(1). You requested approval of your scholarship program to fund the education of certain
qualifying students.

This approval is required because IRC Section 4945 provides for the imposition of taxes on each taxable
expenditure of a private foundation. IRC Section 4945(d)(3) provides that the term "taxable expenditure"
includes any amount paid or incurred by a private foundation as a grant to an individual for travel, study, or
similar purposes by the individual, unless the grant satisfies the advance approval requirement of IRC Section
4945(g).

Our determination
We approved your procedures for awarding employer-related scholarships. Based on the information you

submitted, and assuming you will conduct your program as proposed, we determined that your procedures for
awarding employer-related scholarships meet the requirements of IRC Section 4945(g)(1). As a result,
expenditures you make under these procedures won't be taxable.

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 IRC Section 117(b)).

Description of your request

Your letter indicates you will operate an employer-related B, the procedures of which you have previously
obtained advance approval. B will continue to operate as originally approved, but will be expanded to include
children of employees of companies located outside of the United States. Specifically, you will provide tuition
assistance to students of C companies who reside in the countries of D. Additional companies may be added in
the future, but all children of all employees will be subject to the same requirements as are the children of
employees of C companies.

Letter 4792 (Rev. 1-2022)
Catalog Number 58263T

Scholarship amounts for international students will be adjusted, almost universally downward, to reflect the
lower educational costs in countries other than the United States. Prior to payment of international awards, all
parties will be verified with F to confirm that none of the individuals or entities involved have been identified as
supporting or engaging in terrorist activities.

B is designed to assist students of promise with financial aid to receive an education of their choice. Dependent
children whose parents are active employees who have a minimum of [redacted] continuous service as of the
grant application due date are eligible. Dependent children who are eligible include children, stepchildren,
legally adopted children, or children under the legal guardianship of the employee.

You publicize B through written and posted announcements to employees, emails and a website at G. To apply,
an individual provides proof of dependency, evidence of full-time enrollment, and grades from previous
semester. Recipients are selected based on their academic performance.

A maximum annual award of y dollars will be granted. This may be increased in the future as costs increase.
The number of grants will be limited by Revenue Procedure 76-47. Awards will be granted with first preference
to undergraduate students enrolled at an accredited trade school, college, or university based on academic
standings (GPA). If additional grants are available, the selection committee will consider first students pursuing
post-graduate studies and then students beginning in Grade 12 or Secondary descending to Pre-Kindergarten or
Primary. All grants awarded will be based on objectively determined academic criteria and the student must
document progress toward a degree or diploma to be eligible for future grants.

The grant recipient must be enrolled full-time, and the classes selected must enable the recipient to work
towards a degree or diploma. There is no restriction or requirement on the subject matter of the degree. Students
must provide evidence of enrollment in an accredited trade school, college or university. Higher education
recipients must include evidence of full-time status as it is defined by the individual school. Documents from
the education institution must be provided reflecting the number of credit hours and academic standing.
Students will be placed on probation if they do not complete the prior semester’s full-time courses with a
minimum 2.5 GPA. Students will not be eligible for a subsequent semester’s funding until such time as they
complete a semester with full-time status and the minimum GPA. All payments will be made jointly to the grant
recipient and the school. You will seek to recover funds improperly utilized.

Members of the scholarship selection committee are persons totally independent from you and the C companies
and have demonstrated expertise in academic affairs. Under the enabling resolution adopted by your board, in
the event of vacancies on the selection committee, by reason of the death, resignation or incapacity of a member
of the selection committee, the remaining selection committee members shall nominate for approval by your
board one or more persons possessing the qualifications set forth above to fill such vacancy. Individuals eligible
include persons knowledgeable in the education field by reason of background, professional training, advanced
degree, and otherwise. Members of your board, shareholders of the C companies and its board and employees or
former employees of either you or the C companies are ineligible for membership on the selection committee.

You represent that B satisfies the seven conditions in sections 4.01 through 4.07 of Rev. Proc. 76-47 and meets
the percentage tests described in Section 4.08 of Rev. Proc. 76-47.

Letter 4792 (Rev. 1-2022)
Catalog Number 58263T

You represent that you will complete the following:
• Arrange to receive and review grantee reports annually and upon completion of the purpose for which the
grant was awarded,
• Investigate diversion of funds from their intended purposes,

• 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

• 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 diversion from occurring.

You also represent that you will:
• Maintain all records relating to individual grants including information obtained to evaluate grantees,

• Identify 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.

Basis for our determination
IRC Section 4945 imposes excise taxes on the taxable expenditures of private foundations. 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 the following requirements of IRC 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 IRC Section 117(a).

• The grant is to be used for study at an educational organization described in IRC Section 170(b)(1)(A)(ii).

Revenue Procedure (Rev. Proc.) 76-47, provides guidelines to determine whether grants a private foundation
makes under an employer-related program to employees or children of employees are scholarship or fellowship
grants subject to the provisions of IRC Section 117(a). If the program satisfies the seven conditions in sections
4.01 through 4.07 of Rev. Proc. 76-47 and meets the percentage tests described in Section 4.08 of Rev. Proc. 76-47,
we will assume the grants are subject to the provisions of IRC Section 117(a).

You represented that your grant program will meet the requirements of either the 25% or 10% percentage test in
Rev. Proc. 76-47. These tests require that:
• The number of grants awarded to employees’ children in any year won't exceed 25% of the number of
employees’ children who were eligible for grants, were applicants for grants, and were considered by the
selection committee for grants, or

• The number of grants awarded to employees’ children in any year won't exceed 10% of the number of
employees’ children who were eligible for grants (whether or not they submitted an application), or

• The number of grants awarded to employees in any year won't exceed 10% of the number of employees
who were eligible for grants, were applicants for grants, and were considered by the selection committee
for grants.

You further represented that you will include only children who meet the eligibility standards described in
Rev. Proc. 85-51, when applying the 10% test to employees’ children.

Letter 4792 (Rev. 1-2022)
Catalog Number 58263T

In determining how many employee children are eligible for a scholarship under the 10% test, a private
foundation may include only those children who submit a written statement or who meet the foundation's
eligibility requirements. They must also satisfy certain enrollment conditions.

You represented that your procedures for awarding grants under this program will meet the requirements of
Rev. Proc. 76-47. In particular:
• An independent selection committee whose members are separate from you, your creator, and the employer
will select individual grant recipients.

• You will not use grants to recruit employees nor will you end a grant if the employee leaves the employer.

• You will not limit the recipient to a course of study that would particularly benefit you or the employer.

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 is in effect if your procedures comply with Sections 4.01 through 4.07 of Revenue
Procedure 76-47 and either of the percentage tests of Section 4.08. If you establish another program
covering the same individuals, that program must also meet the percentage test.

• 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 IRS at:
Internal Revenue Service
Exempt Organizations Determinations
TE/GE Stop 31A Team 105
P.O. Box 12192
Covington, KY 41012-0192
• You can't 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 IRC 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'll make this determination letter available for public inspection after deleting personally identifiable
information, as required by IRC Section 6110. We've enclosed Letter 437, Notice of Intention to Disclose -
Rulings, and a copy of the letter that shows our proposed deletions.

• If you disagree with our proposed deletions, follow the instructions in the Letter 437 on how to notify us.
• If you agree with our deletions, you don't need to take any further action.

Letter 4792 (Rev. 1-2022)
Catalog Number 58263T

Please keep a copy of this letter in your records.
If you have questions, you can contact the person shown at the top of this letter.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Letter 437

Letter 4792 (Rev. 1-2022)
Catalog Number 58263T