Local merit-and-need scholarship procedures approved

Plain-English summary

A private foundation proposed renewable scholarships for graduating seniors from specified local high schools. Awards would be based primarily on academic performance and financial need, with recommendations, interviews, and applicants' written accounts of their goals and accomplishments also considered. The foundation's directors would select recipients, while directors, officers, substantial contributors, and their family members would be ineligible. Payments would go directly to colleges or universities, and recipients could renew for up to three additional years by remaining enrolled, meeting grade requirements, and submitting transcripts and progress reports. The foundation also agreed to investigate misuse and seek recovery of diverted funds. The IRS approved the procedures under § 4945(g)(1), so grants made as proposed would not be taxable expenditures, and qualified educational use may be excluded from recipients' income under § 117.

Ruling snapshot

• Question: Do the foundation's local merit-and-need scholarship procedures satisfy IRC § 4945(g)(1)?
• Outcome: Approved, subject to operating and monitoring the program as described.
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), 4945(d)(3), 4945(g)(1).

Full text (IRS public release)

                                                                            Date:
      Department of the Treasury

fdJ Internal Revenue Service 1/30/2025
Taxpayer ID number:
Tax Exempt and Government Entities
JRS P.O. Box 2508 Person to contact:
Name:
" Cincinnati, OH 45201
ID number:
Telephone:
Release Number: 202517023
Release Date: 4/25/2025

LEGEND UIL: 4945.04-04
B = City, State
C = Schools
D = number
G = minimum GPA
H = maximum GPA
J = minimum GPA
y =$amount
Dear
You asked for advance approval of your scholarship procedures under Internal Revenue Code (IRC) Section
4945(g)(l ). 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 detennined 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 l 17(b)).
Description of your request
Your letter indicates you will operate a scholarship program under IRC Section 4945(g)( 1). You will award

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

scholarships to high school seniors from the B area based on both merit and financial need. The purpose of the
scholarships is to assist students with college or university tuition payments and related student fees. Any
surplus may be used for room, board, and living expenses. Applicants from the following high schools are
eligible for consideration: C. You may expand the pool of eligible local high schools if more are opened in the
B area in the future.

You will award no more than D new scholarships per year. The value of each scholarship awarded will range
from y. The scholarship payments will be paid directly to the college or university attended by the recipient. To
promote your scholarship program, you will distribute applications and brochures to the local high schools
identified above.

To be eligible for your scholarship, an individual must:

•Bea graduating high school senior from one of the B area high schools listed above who intends to pursue a
degree at an accredited college or university in the United States
• Complete your scholarship application demonstrating prior academic performance and financial need
• Submit the application with all necessary supporting documentation within the required timeframe

You cmTently consider up to two nominations per year from each of the B area high schools listed above. In
the future, you may consider more nominations per school. You will select recipients primarily based on prior
academic performance and financial need. Additionally, you will conduct an evaluation of an applicant's
likelihood of academic success as evaluated via a letter of recommendation from a teacher, mentor, or high
school counselor, an interview with members of your Board of Directors, and a written letter from the applicant
explaining their future goals and past accomplishments. All scholarships will be awarded on an objective and
non-discriminatory basis.

Your directors will serve as the selection committee, and members of the committee will serve concurrent with
their service on your Board of Directors. Your directors and officers, your substantial contributors, and family
members of such individuals are not eligible for your scholarship program.
Your scholarships are eligible to be renewed. The renewals will be for the duration of the recipient's time in
college or university, for a total of up to three additional years. To be eligible for renewal, a recipient must:

• Remain enrolled and in good standing at their school
• Maintain a cumulative grade point average of at least G on a H scale during the first academic year and at least
a J on a H scale for each year thereafter
• Submit an official transcript from the college or university attended
• Submit a written letter explaining their progress to date and future goals
• Complete your renewal application and submit it within the required timeframe

You will supervise and monitor the recipients' use of the funds through reports received from the individual
scholarship recipients. Report should include a copy of the recipients' official transcript at the end of each
semester. If you receive any information indicating that any part of the grant is not being used for its intended
purposes, you will investigate and take all reasonable and appropriate steps to recover the funds.

                                                                                        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 ofIRC 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 l 70(b )(1 )(A)(ii).
Other conditions that apply to this determination
This detem1ination 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 Detenninations
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 oflntention 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 43 7 on how to notify us.
• If you agree with our deletions, you don't need to take any further action.

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

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