Student scholarship and career grants approved

Plain-English summary

A private foundation proposed one-time grants to high school seniors who completed and remained in good standing with its multiyear youth leadership program. Recipients could use the grants for post-secondary tuition and related expenses or for transportation, equipment, and other career-development needs. Applicants had to submit a short written proposal and video explaining the intended use and how it would support their success. The foundation generally would pay schools or vendors directly, require documentation, monitor use, investigate diversions, and recover misused funds. The IRS approved both the scholarship procedures under section 4945(g)(1) and the broader educational grant procedures under section 4945(g)(3).

Ruling snapshot

• Question: Do the foundation's procedures for one-time scholarships and career-development grants satisfy the advance-approval rules?
• Outcome: Approved, provided the programs operate as described
• Key authorities: IRC §§ 74(b), 117, 170(b)(1)(A)(ii), 4945(g)(1), 4945(g)(3); Treas. Reg. § 53.4945-4(c)

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 05/16/2024
Tax Exempt and Government Entities

Taxpayer ID number:

Person to contact:

Release Number: 202432021
Release Date: 8/9/2024

LEGEND UIL: 4945.04.04
D = Name
y dollars = Amount

Dear

You asked for advance approval of your scholarship procedures under Internal Revenue Code (IRC) Section
4945(g)(1) and advance approval of your educational grant procedures under IRC Section 4945(g)(3).

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.

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)).

We also approved your procedures for awarding educational grants. Based on the information you submitted,
and assuming you will conduct your program as proposed, we determined that your procedures for awarding
educational grants meet the requirements of IRC Section 4945(g)(3). As a result, expenditures you make
under these procedures won't be taxable.

Description of your request

Your letter indicates you will operate a grantmaking program for high school senior age students who complete
and are in good standing with D. to be used for their post-secondary educational endeavors whether it be a
secondary school, trade school, or for workforce preparation and participation. Your mission is to promote the
limitless potential in young leaders through extraordinary experiences and nurturing relationships. Your grants
allow the recipients the opportunity by providing resources to take the next step in their personal professional
development. Funds can be used for items such as tuition, related expenses to attend a qualified educational
institution and other expenses such as transportation expenses and equipment to help the recipients in their post-

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

secondary professional endeavors. Tuition and related educated expenses are typically described under IRC
Section 4945(g)(1) while expenses for other post-secondary professional endeavors are typically described
under IRC Section 4945(g)(3). All awards are made a one time basis, are not renewable, and are for y dollars.

Individuals who complete D and are in good standing in D, in which students start in their freshman year of
high school, are eligible for the grant. D is a program in which the vast majority of participants come from very
disadvantaged backgrounds, who could not otherwise access high quality enrichment and leadership
development programs. Good standing means the participant has attended and participated in the minimum
number of events and projects over their four years of high school. These consist of multiple leadership courses
that have numerous after school sessions. There are also several monthly youth leadership sessions on weekends
that participants must attend.

To receive a grant, a qualifying participant from D would have to submit a proposal. The proposal must include
a minimum of 2 paragraphs and explain what the participant plans to use the grant for, explain how this will
help them in their post-secondary success and a 15-minute video.

Individuals who successfully complete D and complete the application process will receive a grant. A
committee consisting of members of your governing body affiliated with D will administer the program.

In the case where the funds are to be used for matriculation, the scholarship grants will be paid directly to the
institution or vendor on behalf of the recipient. The only exception would be in the case where the recipient has
already paid for the higher learning, in which case, the recipient would be reimbursed for actual costs as allotted
by the grant.

For other uses of the funds, such as an item or service that will be used for their career endeavors, you will pay
for the item directly. However, you may have to give funds directly to the recipient in cases where it is not
practical to pay a vendor or educational institution after receiving proper documentation.

Your employees’ relatives are eligible for the program and must meet the same requirements and commitment
to D. Due to the vigorous documentation required to meet the prerequisites and standards of completion of D
there is no bias. Files and records are kept ensuring that the proposed use of the funds meets the program
guidelines. Since this is a one-time grant, not renewable and generally paid out directly by you for the intended
purpose and not to the recipient, there is virtually no way for funds to be misused.

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.

IRC Section 4945(g)(1) Requirements:

• 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).
IRC Section 4945(g)(3) Requirements:

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

• A prize or award subject to the provisions of IRC Section 74(b), if the recipient of the prize or award is
  selected from the general public.

• To achieve a specific objective; produce a report or similar product; or improve or enhance a literary,
  artistic, musical, scientific, teaching, or other similar skill or talent of the recipient.

To receive approval of its educational grant procedures, Treasury Regulation Section 53.4945-4(c)(1) requires
that a private foundation show:

• The grant procedure includes an objective and nondiscriminatory selection process.
• The grant procedure results in the recipients performing the activities the grants were intended to finance.

• The foundation plans to obtain reports to determine whether the recipients have performed the activities that
the grants were intended to finance.

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.

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

• 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.

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