Private foundation scholarship procedures approved

Plain-English summary

A private foundation proposed annual scholarships for qualifying high school graduates who planned to attend four-year colleges or universities in the United States. Applicants would submit academic records, recommendations, a personal statement, and financial information, and the selection process would weigh financial need heavily along with leadership, coursework, activities, and grades. Insiders and their relatives would be ineligible, and the foundation committed to maintaining records, reviewing reports, investigating diverted funds, and taking corrective action. The IRS approved the procedures as objective and nondiscriminatory under section 4945(g)(1). Scholarships awarded under the approved procedures would not be taxable expenditures to the foundation, and recipients could exclude them from income to the extent used for qualified tuition and related expenses under section 117(b).

Ruling snapshot

• Question: Do the foundation’s proposed scholarship procedures satisfy the advance-approval requirements of section 4945(g)(1)?
• Outcome: approved
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), 4945(d)(3), 4945(g)(1)

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 10/23/2023
Tax Exempt and Government Entities Taxpayer ID number:

IRS P.O. Box 2508
Cincinnati, OH 45201

Person to contact:

Release Number: 202403021
Release Date: 1/19/2024

LEGEND UIL: 4945.04-04
B = State

C = Adjective

D = Number

E = Location

y dollars = Amount

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 a scholarship program for the B high school students who are American

citizens of C descent. You expect to provide at least D scholarships for y dollars annually to high school
graduates who plan to attend college in the United States. You will publicize in newspapers that are known to
have a large C readership in the E area.

In order to apply for the scholarship awards, the applicants must:

Letter 4792 (Rev. 1-2022)

Catalog Number 58263T

• Be a student at a high school in B who plans to attend a four-year college or university with
at least a 3.0 grade point average,
• Submit a personal statement on why they wish to be considered for the scholarship,

• Submit a copy of their high school transcript,
• Submit two letters of recommendation from a teacher, administrator, or other person who knows the

applicant's abilities and character, and
• Submit a copy of their recent federal income tax return or FAFSA report.

In the future, you may open applications to students who are already in college with similar criteria.

The selection committee consists of your trustee who will evaluate each application to determine the applicant's
overall needs and qualifications. Relatives of members of tThe selection committee, or of your officers, directors,
or substantial contributors are not eligible for awards made under the programs.

Criteria tThe selection committee uses are:

• Financial need,

• Leadership which includes degree of responsibility in students and community offices and the amount of time
the office(s) required, classes taken in high school or college while in high school, career goals, and honors and
awards,

• Grade point average which includes the course level, number of courses taken, student involvement in
extracurricular school activities, and special circumstances if less than 3.0 grade point average, and

• Letters of recommendation.

A significant weight in the selection process shall be given to the applicants’ financial need. With all other
factors being equal, the applicants with the greatest financial need will receive priority in the final selection
process.

Currently, you don't plan to offer any scholarship renewals. In the future, if you choose to offer scholarship
renewals, each recipient must submit a written request either by letter or email along with the following:

• A statement requesting renewal within 60 days of the end of the academic year,
• A copy of their transcript for the immediate prior academic year that shows a minimum of a 3.0 grade point

average,
• A copy of their recent federal income tax return or FAFSA report to demonstrate financial need, and

• A copy of their college or university attendance cost for the upcoming academic year.

Scholarship awards will be paid directly to the recipients. Each recipient is required to provide proof of their
college or university enrollment, a copy of their receipt from the college or university, a copy of the college or
university attendance cost, a list of courses the recipient has enrolled in, and a copy of the college transcript for
the completed academic period.

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.

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

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.
• 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.

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