Scholarship procedures for underrepresented students approved

Plain-English summary

A private foundation proposed scholarships for historically underrepresented students in a metropolitan area who demonstrate academic excellence, community commitment, and plans to pursue four-year undergraduate degrees. Awards may cover tuition, fees, books, supplies, and required equipment and may be renewed for up to four academic years if recipients maintain a 3.0 grade point average and submit annual reports. Selection considers academics, school and community service, recommendations, extracurricular activities, and an essay, with committee members required to recuse themselves for family or business relationships. The foundation will monitor academic progress, seek refunds when required, investigate diverted funds, and maintain grant records. The IRS approved the procedures under IRC § 4945(g)(1), so awards made as proposed will not be taxable expenditures.

Ruling snapshot

• Question: Do the scholarship procedures satisfy the advance-approval requirements of section 4945(g)(1)?
• Outcome: Approved
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), and 4945(g)(1)

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 02/06/2025
Tax Exempt and Government Entities

P.O. Box 2508

Cincinnati, OH 45201

Taxpayer ID number:

Person to contact:

Name:

ID number:
Release Number: 202518018 Telephone:
Release Date: 5/2/2025
LEGEND UIL: 4945.04-04

B = City, State

C = Scholarship Number

D = Fraternity

x dollars = Scholarship 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 scholarship program to advance the educations of historically
underrepresented students in the B metropolitan area who demonstrate academic excellence, a commitment to
their community, and plan to pursue undergraduate (four-year) degrees at accredited universities. Scholarships
are not limited to any particular course of study and may be used to defray the costs of tuition and/or fees,
books, supplies, or other equipment required for courses of instruction.

You will publicize your scholarship program through both your website and high schools in the B metropolitan

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

area, and may consider publicizing through secondary schools and other related institutions in the future.

You anticipate awarding scholarships in the amount of x dollars to C recipients per year, but the actual number
and amount of your scholarships awarded annually will vary based on your available funds and application
pool. Your scholarships are renewable for a period of up to four academic years for recipients that maintain a
minimum 3.0 GPA on a four-point scale and provide a required report at the end of each academic year to your
scholarship selection committee.

Eligible applicants in the B metropolitan area must apply via a two-page written application submitted through
regular mail. Completed applications must also include the following: a minimum of two letters of
recommendation (one from a faculty member and one from a community member); transcripts demonstrating a
minimum 3.0 GPA on a four-point scale; and an essay on the applicant's commitment to their community.

Selection criteria will include academic achievement; demonstrated service to school and/or community; letters
of recommendation; participation in extracurricular activities; and responses to the required essay that
demonstrate a commitment to the betterment of the applicant's community.

Your board of directors will appoint a scholarship selection committee that will be responsible for selecting
your scholarship recipients. Your committee will include at least one member who is knowledgeable in the
field of education; otherwise, your committee will be composed of members of the D. Any committee members
with a family or business relationship to a scholarship applicant will recuse themselves from any such
discussions or decisions regarding your scholarships.

At the end of each academic year, your recipients must file a report with your selection committee that includes
a copy of their most recent transcript and an outline of their academic progress. If any recipient fails to provide
this report within sixty days of the required reporting period, or if your committee concludes that a recipient has
not attended an educational institution upon review of such a report, you will take appropriate actions to seek a
refund of the recipient's scholarship award,

You will pay scholarships directly to educational institutions. Scholarships should be applied to the accounts of
students in good standing or paid directly to students in good standing to pay for allowable educational
expenses. You may also make disbursements of scholarship payments to an education fund for the benefit of
the recipient, or directly to a recipient upon proof of payment of allowable educational expenses.

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.

• 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.

• 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.

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

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

cc:

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