Scholarships for inner-city students and veterans' children approved

Plain-English summary

A private foundation proposed scholarships to help inner-city children and children of veterans with financial need and a strong showing of faith attend high school or college. Applicants must live in one of two specified areas and either attend an area high school or be a high school senior accepted into a bachelor's degree program. The selection process will consider academic achievement, financial need, attendance, commitment to the foundation's charitable purposes, essays, transcripts, and FAFSA information. A committee of trustees and appointed non-trustees will recommend recipients, and payments will go directly to the school or institution. 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 scholarship procedures for inner-city students and children of veterans 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), 509(a)(1)

Full text (IRS public release)

Department of the Treasury Date: 08/19/2024
Internal Revenue Service
IRS Tax Exempt and Government Entities Taxpayer ID number:

                                                            Person to contact:
                                                            Name:

Release Number: 202446019 ID number:
Release Date: 11/15/24 Telephone:

LEGEND

B = City, State

C = Area, State

D = Number Range UIL: 4945.04-04

G = Number

y dollars = Dollar
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 program to award educational scholarships designed to help defray the
costs of attending high school and college, as described in IRC Sections 509(a)(1) and 170(b)(1) (a)(ii). The
purpose of your scholarship program is to support inner city children and children of veterans with a
demonstrated financial need and a strong showing of faith.

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

You expect to award D scholarships annually in the amount of y dollars, based on availability of funds.
Scholarships may be renewable, based on recipient’s academic records and a written report of their experience in
college.

Eligible applicants are legal residents of B or C attending an area high school or that are a high school senior
who have been accepted as a full-time student at any accredited college or university, and matriculated on a
course of study leading to a bachelor’s degree. You estimate there are G individuals eligible to apply annually.

Your selection criteria will focus on academic achievement, financial need, attendance, and commitment to
your charitable purposes. The application process contains a written application with answers to short essay
questions, and a copy of school transcript. An interview may be required for applicants to explain their
financial hardships. Candidates are required to have their parent or legal guardian sign-off on their application.
The FAFSA report will also be reviewed to determine applicants’ financial needs.

You will publicize your scholarships program online and by discussions with counselors at area schools.

Your selection committee will be comprised of your trustees, and non-trustee individuals, appointed by your
trustees. Members of the selection committee, as well as their family members, shall not receive private
benefit, directly or indirectly, if certain potential grantees are selected over others. You will distribute the
scholarship grant awards directly to the school or institution, after receiving recommendations from your
selection committee.

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

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

• 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