Local college scholarship procedures approved

Plain-English summary

A private foundation proposed a scholarship program for residents of a specified county and state pursuing undergraduate, graduate, or vocational education. An outside administrator will publicize the program, collect and rank applications using academic performance, leadership, work experience, goals, recommendations, and personal circumstances. A trustee and its administrative review committee will approve recipients, and payments will go directly to the colleges. Awards are not renewable, but students may reapply in later years, and insiders and their relatives are ineligible. The IRS approved the objective and nondiscriminatory procedures under section 4945(g)(1), so grants made as described will not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's procedures for local college and vocational scholarships satisfy the advance-approval rules?
• Outcome: Approved, provided the program operates as described
• 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 06/03/2024
Tax Exempt and Government Entities Taxpayer ID number:

IRS P.O. Box 2508
Cincinnati, OH 45201

Person to contact:

Release Number: 202435017
Release Date: 8/30/2024

LEGEND UIL: 4945.04-04
T = Name

V = County and State

W = Number Range

X = Name

y dollars = dollar range

Z = Name

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 program called T.

The purpose of your program is to provide payments for students who are residents of V to complete a college
education, either undergraduate, post-graduate, or both.
You plan to award between W scholarships annually in the amount of y dollars. Scholarships will be awarded

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

one time and are not renewable, but the students are permitted to re-apply for grants in following academic
school years if they qualify.

You will publicize the scholarships through engaging with X to administer and promote your scholarships
program in order to reach a large number of applicants. X publicizes the scholarship through the T flyer to
students in V.

To be eligible for a scholarship a student must meet all the following criteria:

• Be high school seniors or graduates, or current undergraduates, or graduate level students

• Have a permanent address in V

• Plan to enroll fulltime in an undergraduate or graduate study at an accredited two-or-four-year college,
  university, or vocational-technical school for the entire upcoming academic year

Selection criteria will be based on X selection criteria including:

• Academic performance

• Demonstrated leadership and participation in school and community activities

• Work experience

• A statement of career and educational goals and objectives

• Unusual personal or family circumstances

• Online recommendations

X will collect applications and rank them based on the scholarship eligibility criteria. The trustee for the
scholarship, Z, reviews the ranked applications and makes its recommendations, which require additional
approval from the Z Administrative Review Committee. Upon final selection of the grant recipients, Z will
submit payment to X, then X makes the scholarship payments directly to the colleges to cover part of the cost of
the recipient students’ tuition.

In the event a selected scholarship recipient would not accept his/her award, his or her funds will be distributed
evenly to the other scholarship recipients with need. Relatives of the selection committee as well as your
officers/directors and substantial contributors or their relatives are not eligible to be considered or receive funds
for the scholarship.

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.

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

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.
  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