Skilled-trade scholarships for support-program students approved

Plain-English summary

A private foundation proposed scholarships for high school seniors who participated in a school elective that helps students address issues affecting their educational outcomes. Applicants must plan to pursue a two-year degree or skilled-trade certificate and must complete the FAFSA. The foundation's board will select recipients based on unmet financial need, and awards will be paid directly to schools. Scholarships may be renewed while recipients remain enrolled and in good standing. Recipients also will meet quarterly with the foundation's executive director or a board member to review continuing need and receive nonfinancial support. The IRS approved the procedures under section 4945(g)(1), so grants made as proposed will not be taxable expenditures. Awards used for qualified tuition and related expenses also may be excluded from recipients' income under section 117, subject to that section's limits.

Ruling snapshot

• Question: Do the foundation's scholarships for students pursuing skilled trades 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: 08/19/2024
Internal Revenue Service
Tax Exempt and Government Entities Taxpayer ID number:

                                                            Person to contact:
                                                            Name:
                                                            ID number:

Release Number: 202446015 Telephone:
Release Date: 11/15/24

LEGEND UIL: 4945.04-04

B = Organization

C = City, State

D = Program Name

E = Number

x dollars = Dollar Range

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 to recognize high school seniors at B in C, who
have successfully participated in the school’s D program and intend to pursue a two-year postsecondary degree
or certificate of completion in a skilled trade at accredited institutions of higher education.

D is an elective course at B. It provides students with accessible assistance for a broad spectrum of issues that
may adversely affect their educational outcomes.

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

Eligible applicants for your scholarship program must be currently enrolled in the D program at B, must be
interested in pursuing a two-year degree or a certificate in a skilled trade, and have completed the FAFSA.

Scholarships are renewable for recipients that are enrolled and in good standing at the school. Awards will be
paid directly to the school, that should apply funds only for students who are enrolled and in good standing.
You will cancel scholarship if violations are verified.

Your selection committee will consist of your board of directors. You will publicize your scholarship program
directly through the D program. Initially, you anticipate awarding scholarships of x dollars to E recipients. The
number and amount of scholarships awarded annually will vary based on available funds. The selection criteria
will include the unmet financial needs demonstrated through the FAFSA.

Recipients with meet with your executive director or a board member on a quarterly basis to determine
continued financial need, as well as to provide nonfinancial support to assist the recipients with achieving their
educational goals.

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 scholarship 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 scholarships 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 scholarship
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