Entrepreneurship scholarship procedures approved

Plain-English summary

A private foundation requested advance approval for a scholarship and summer internship program for high school juniors and seniors interested in entrepreneurship. Participants would work with local business leaders, receive compensation and a scholarship, and take part in mentoring, education, networking, and development training. An independent committee would select interns placed with a business led by one foundation director, and that director would not participate in selection. Scholarships would be nonrenewable, generally paid to universities, and monitored through enrollment confirmations, reports, and transcripts. The IRS approved the procedures under section 4945(g)(1), so grants made under the described program would not be taxable expenditures if the foundation followed its representations.

Ruling snapshot

• Question: Did the foundation's entrepreneurship scholarship procedures satisfy section 4945(g)(1)?
• Outcome: Approved
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), and 4945(g)(1)

Full text (IRS public release)

Department of the Treasury Date:

Internal Revenue Service

Tax Exempt and Government Entities 03/13/2023
P.O. Box 2508

Cincinnati, OH 45201

Taxpayer ID number:

Person to contact:

Release Number: 202323016
Release Date: 6/9/2023

LEGEND UIL: 4945.04.04
B = Scholarship Program

C = City

D = Name

E = Business

x dollars = $

y = Number

Dear

You asked for advance approval of your scholarship procedures under Internal Revenue Code (IRC) Section
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 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 IRC Section 4945(g)(1). As a result, expenditures you make under these
procedures won't be taxable.

Additionally, 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 educational scholarship and internship program called B. Your purpose
is to provide scholarships to students who have the desire to become entrepreneurs. In addition to the

educational scholarships, B’s goal is to pool talented young entrepreneurs in the C area with the hopes of them
contributing to the growth of the community.

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

B is a hands-on summer internship program for high school students. As part of B, students will be paired with

local business leaders and will receive compensation for participating and an educational scholarship in the
amount of x dollars. The intent of B is to provide young talented individuals in the C area with skill
development opportunities and expand their potential as entrepreneurs. Some of the students may be in homes
that are at an economic disadvantage. Some of the opportunities of B will include:

a. Internships with C's most entrepreneurial companies

b. Access to and connection with CEO's and executive teams

c. Mentors’ programs

d. Education and support from resources of B

e. Networking and development training

D, one of your board members is the CEO of E, one of the business participants of the internship program.
or candidates may be selected and placed at E as interns. The interns will be selected by an independent
selection committee. D will not participate in the selection process.

There is no limit on the number of applicants that are eligible to apply. However, the Foundation anticipates
receiving up to x applications as the program is further developed.

The selection committee is comprised of the foundation's trustees, company partners, and B alumni. After
recommendations from the scholarship committee, your trustees will make the final selection of scholarship and
award recipients.

To be eligible to apply applicants must be a current high school junior or senior, and not a dependent of any
disqualified person with respect to the Foundation.

Approximately ten to twenty awards will be given annually. The dollar amount will be determined by the funds
available and the total number of qualified students. Most scholarships are paid directly to the university for
tuition, however, is some cases, scholarships may be awarded directly to selected recipients. In such cases, the
recipients will be required to provide documentation to support qualifying expenditures.

You will publicize your program by visiting high school classrooms. In addition, the awards will also be
publicized at community events, on social media, and through your partner organization.

No services are required after receiving the scholarship. Scholarships are to be used for educational purposes
and are not renewable.

The eligibility criteria for the foundational scholarship are as follows:
a. Current high school junior or senior

b. Not a dependent of any disqualified person

c. Students must complete and submit an application

d. Students must be legally authorized to work in the United States

e. Students will be judged on leadership qualities

f. Academic performance

g. Motivation to excel as demonstrated through the application process
h. Letter of recommendation from teacher or school administrator

Scholarships are not renewable. You will monitor the scholarships by obtaining reports and grade transcripts
from the student(s) and you will pay scholarships to the universities under an arrangement whereby the
universities will apply the funds only for enrolled students who are in good standing.

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

You may also disburse scholarships directly to the student. If you pay the scholarship directly to the student,
you will require a confirmation from the university that the student is enrolled and in good standing at the
university prior to disbursing the funds. You will require the student to provide documentation that the funds
were expended for the scholarship program's purposes.

If you found out if any part of the scholarship is not being used to further the purposes of the scholarship you
will take all reasonable and appropriate steps recover the scholarship as is practical.
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 the provisions of 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).

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 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.

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

• 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.

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, you can contact the person shown at the top of this letter.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

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