Employer-related scholarship procedures received advance approval

Plain-English summary

A private foundation proposed nonrenewable scholarships for employees of a company group and their dependents who pursued undergraduate or graduate education. An independent committee would select recipients using academic achievement, financial need, community involvement, work ethic, and other stated qualities, and payments would go directly to schools. The foundation represented that the program would satisfy the employee and employee-child percentage limits in Rev. Proc. 76-47, would not be used for recruiting, and would not end awards when employment ended. The IRS approved the employer-related scholarship procedures under IRC § 4945(g)(1), conditioned on continued compliance with the revenue procedure and its percentage tests. Awards used for qualified tuition and related expenses would not be taxable to recipients within IRC § 117(b).

Ruling snapshot

• Question: Did the foundation's employer-related scholarship program meet IRC § 4945(g)(1) and the safeguards for grants to employees and their children?
• Outcome: Approved
• Key authorities: IRC §§ 117 and 4945(g)(1); Rev. Proc. 76-47; Rev. Proc. 85-51

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
P.O. Box 2508
Cincinnati, OH 45201

Date:
04/09/2025

Taxpayer ID number:

Person to contact:

Release Number: 202527020
Release Date: 7/3/2025

LEGEND UIL: 4945.04-04
B = Company

C = Place

D = Number

h dollars = Dollar Amount

Dear :

You asked for advance approval of your employer-related scholarship procedures under Internal Revenue Code
Section (IRC) 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 employer-related scholarships. Based on the information you

submitted, and assuming you will conduct your program as proposed, we determined that your procedures for
awarding employer-related scholarships meet the requirements of IRC Section 4945(g)(1). As a result,
expenditures you make under these procedures won't be taxable.

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 provide educational scholarships to the

employees and employees’ dependents of B and its subsidiaries who are pursuing undergraduate or graduate
studies at an institution of higher education.

Each year, you will award up to G scholarships worth h dollars each to be used for tuition expenses for a single
academic year. However, the actual number and amounts of your scholarships will be determined annually by
your board of directors based on your level of funding and charitable purposes. Your scholarships are not
renewable.

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

You will publicize your scholarships through website announcements, email campaigns, and social media
campaigns.

To be eligible to apply for a scholarship, applicants must be:

• full-time employees of any subsidiary of B or their dependent who is under the age of 25;

• continuously employed by company for a minimum of two years or, if dependents, their guardian (the
  employee) must meet this two-year employment requirement;

• legal residents or citizens of F; and

• 18 years of age or older at the time of application.

Eligible applications must submit a completed application that includes the following:

• Academic transcripts

• Proof of enrollment or acceptance at an accredited higher education institution

• Demonstrated financial need as part of their application

• A personal essay

• Two letters of recommendation from non-family members

Your independent selection committee will consider the following criteria when selecting scholarship
recipients: academic achievement, financial need, community involvement, work ethic, innovation, inspiration,
collaboration, and a commitment to improving the quality of life for all individuals.

You will pay your scholarships directly to your recipients’ educational institutions. To do so, your recipients
will be required to provide a fee statement from their enrolled educational institutions demonstrating financial
need. You will then send payment to the school with a copy of the fee statement and an explanatory letter that it
is in fulfillment of a scholarship for your recipient and should be applied to the amount due to the school.

Your selection committee will be appointed by your board of trustees based on their demonstrated commitment
to the organization's mission, their expertise in relevant fields, and their ability to objectively evaluate
scholarship applications. Your selection committee will play a crucial role in shaping the scholarship program
and making initial selection decisions; therefore, you attest your committee will consist wholly of individuals
totally independent and separate from the foundation and B (and all subsidiaries).

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 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).

Revenue Procedure (Rev. Proc.) 76-47, provides guidelines to determine whether grants a private foundation
makes under an employer-related program to employees or children of employees are scholarship or fellowship
grants subject to the provisions of IRC Section 117(a). If the program satisfies the seven conditions in sections
4.01 through 4.07 of Rev. Proc. 76-47 and meets the percentage tests described in Section 4.08 of Rev. Proc. 76-47,
we will assume the grants are subject to the provisions of IRC Section 117(a).

You represented that your grant program will meet the requirements of either the 25% or 10% percentage test in
Rev. Proc. 76-47. These tests require that:

• The number of grants awarded to employees’ children in any year won't exceed 25% of the number of
  employees’ children who were eligible for grants, were applicants for grants, and were considered by the
  selection committee for grants, or

• The number of grants awarded to employees’ children in any year won't exceed 10% of the number of
  employees’ children who were eligible for grants (whether or not they submitted an application), or

• The number of grants awarded to employees in any year won't exceed 10% of the number of employees
  who were eligible for grants, were applicants for grants, and were considered by the selection committee
  for grants.

You further represented that you will include only children who meet the eligibility standards described in
Rev. Proc. 85-51, when applying the 10% test to employees’ children.

In determining how many employee children are eligible for a scholarship under the 10% test, a private
foundation may include only those children who submit a written statement or who meet the foundation's
eligibility requirements. They must also satisfy certain enrollment conditions.

You represented that your procedures for awarding grants under this program will meet the requirements of
Rev. Proc. 76-47. In particular:

• An independent selection committee whose members are separate from you, your creator, and the employer
  will select individual grant recipients.

• You will not use grants to recruit employees nor will you end a grant if the employee leaves the employer.

• You will not limit the recipient to a course of study that would particularly benefit you or the employer.

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

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 is in effect if your procedures comply with Sections 4.01 through 4.07 of Revenue
  Procedure 76-47 and either of the percentage tests of Section 4.08. If you establish another program
  covering the same individuals, that program must also meet the percentage test.

• 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.

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