Scholarship procedures for students with disabilities received advance approval

Plain-English summary

A private foundation proposed scholarships for high school, college, and graduate students with intellectual or developmental disabilities who participated in a specified program. Recipients would be selected using financial need, academic performance, aptitude, recommendations, background, and the selection committee's assessment, with conflict-of-interest safeguards. Grants generally would be paid directly to educational institutions, with reporting, diversion investigation, recovery, and recordkeeping procedures. The IRS approved the award procedures under IRC § 4945(g)(1), so grants made as proposed would not be taxable expenditures. It also stated that recipients would not owe tax on awards used for qualified tuition and related expenses within IRC § 117(b).

Ruling snapshot

• Question: Did the foundation's proposed scholarship selection, payment, monitoring, and recordkeeping procedures satisfy IRC § 4945(g)(1)?
• Outcome: Approved
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), 4945(d)(3), and 4945(g)(1)

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:
04/07/2025

Taxpayer ID number:

Person to contact:
Name:
ID number:
Telephone:

Release Number: 202527023
Release Date: 7/3/2025

LEGEND UIL: 4945.04-04

B = Website

C = Program

D = Number

E = Number

y dollars = Dollar

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 which provides scholarships to individuals, including high
school, college and graduate school students. Your scholarship program seeks to enable people with intellectual
and/or developmental disabilities in pursuing education.

You award up to D scholarships annually to individuals for courses at schools or accepted for credit at schools
recognized under IRC Sections 509(a)(1) and 170(b)(1)(A)(ii). Grants awarded will be up to y dollars per
recipient. The scholarships will ordinarily be awarded for a one-year period and are renewable. Recipients

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

must submit a new application annually if they wish to renew their scholarship. You publicize your scholarship
program via your web site at B and also with email marketing. You anticipate that up to E eligible applicants will
apply annually. Your only eligibility requirement is that applicants must be a part of the C.

Your selection criteria will be based on the following:

a) Financial need - All recipients of scholarships must be enrolled in the C, thereby meeting
income/asset limits.

b) Prior academic performance
c) Performance of each applicant on tests designed to measure ability and aptitude for educational work

d) Recommendations from instructors of such applicant and any others who have knowledge of the
applicant’s capabilities

e) Additional biographical information regarding an applicant’s career, academic and other relevant
experiences

f) The grant selection committee’s conclusions as to the applicant’s motivation, character, ability, or
potential.

You will appoint all members of your selection committee charged with the evaluation of candidates for
scholarships. Every member of the selection committee must adhere to your relevant policies, as they may be
adopted and amended from time to time, including without limitation your conflict of interest and
confidentiality policy. Each member of your selection committee must disclose any personal knowledge of and
relationship with any potential recipient under consideration and refrain from participation in the award process
in a circumstance where he or she would derive, directly or indirectly, a private benefit if any potential
recipient(s) are selected over others.

You will pay scholarship grants directly to the educational institution for the use of the recipient. The
educational institution must agree in writing to use the grant funds to defray the recipient's expenses or to pay
the funds (or a portion thereof) to the recipient only if the recipient is enrolled at such educational institution
and his or her standing at such educational institution is consistent with the purposes and conditions of the
scholarship. The scholarship grant must be used only for qualified educational expenses. No part of the
scholarship grant shall be used as payment for teaching, research, or other services by the recipient. If for any
reason, a scholarship grant is paid directly to the recipient or anyone other than the educational institution, or if
the scholarship grant is used for expenses other than qualified educational expenses, you will require the
recipient to submit a progress report at least once each year. This report must include a summary of the use of
the funds awarded, the recipient's courses taken, and grades received in each academic period. This report must
be verified by the educational institution. A final report is also required.

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:

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

• 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 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.

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.

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

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Letter 437

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