IRS pre-approves a foundation's multi-county academic scholarship procedures

Plain-English summary

A private foundation asked the IRS to approve, in advance, the procedures for an academic scholarship program serving students in several named counties across two areas. Under IRC Section 4945, a private foundation's grants to individuals for study are "taxable expenditures" that trigger excise tax unless the IRS pre-approves the grant-making procedures under Section 4945(g). Applicants must live in the covered counties, plan to attend a post-secondary vocational, trade, community-college or university program, and submit an application (essay, two recommendations, transcripts showing at least a 3.00 GPA, a syllabus, and a resume). Awards are based on demonstrated financial need and a reasonable chance of academic success, decided by a selection committee, and paid directly to the school (returned if the student leaves). Grants can be renewed for full-time students who keep a 3.00 GPA. The IRS found the procedures objective and nondiscriminatory and approved them under Section 4945(g)(1), so the grants are not taxable expenditures and are tax-free to recipients used for qualified tuition under Section 117(b). This routine advance-approval letter (Letter 4792) binds only this foundation.

Ruling snapshot

• Question: Do the foundation's multi-county academic scholarship procedures qualify for advance approval under IRC Section 4945(g)(1)?
• Outcome: Approved
• Key authorities: IRC § 4945(d)(3), (g)(1); § 117(a), (b); § 170(b)(1)(A)

Full text (IRS public release)

Department of the Treasury                     Date:
Internal Revenue Service                        10/24/2025
IRS Tax Exempt and Government Entities          Taxpayer ID number:

                                                Person to contact:
                                                Name:
                                                ID number:
                                                Telephone:

Release Number: 202603013
Release Date: 1/16/2026

LEGEND                                          UIL: 4945.04-04
B = Area
C = Area
D = County
E = County
F = County
G = County
H = Employer
N = Range
M = Range
P = Number
x dollars = Dollars
y dollars = Dollars
z dollars = Dollars

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 which will provide academic scholarship grants to
individuals residing in B and C.

You award approximately N scholarship grants of between y dollars and x dollars 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)([illegible]). You will award approximately z dollars in scholarship grants annually. You publicize your
scholarship program through social media, direct contact with local high schools and other advertising. You will
accept M applications annually.

To be eligible to apply for your scholarship, the applicant must:
a) Reside in a community of D or E counties in B or F or G counties in C
b) Plan to attend or is attending post-secondary vocational, trade school, community college or university

Applicants are expected to submit an application, including:
a) A personal introductory letter of 850 words maximum
b) Two Letters of Recommendation
c) An official copy of most recent academic transcripts showing at least a 3.00 GPA
d) A copy of course syllabus or program course catalog
e) A resume

Applicants are selected based on demonstrated financial need and a reasonable chance for academic success.
Applicants are expected to express their intent clearly and have established educational goals. Financial need is
determined by assessing a number of factors, including household size and the number of dependents, special
circumstances such as medical expenses, disabilities, or other exceptional situations, as well as the median low
to moderate household income thresholds as defined by the most recent census data. While demonstrated
financial need is an important consideration, it is not the only factor. Applicants are expected to show a
reasonable chance for academic success based on their official transcripts, course load, and other documents
submitted in their application. Applicants are also expected to show an interest in helping develop the economic
strength within D, E, F or G counties. Each application is considered as a whole and grants are awarded to the
individuals who best meet your goals.

Your scholarship selection committee will consist of a minimum of P individuals, which will include
representatives from your board of directors, independent community member(s), and H employee(s).
No members of the selection committee or their relatives will be eligible to apply for your scholarships.

Scholarship funds will be paid directly to the school after a verification process has been conducted by you.
Instructions will be provided to the school that if the student is no longer enrolled that the funds are to be
returned to you.

Scholarship grants may be renewed annually. To renew a scholarship grant the recipient must submit a new
application, be a full-time student with at least 12 credit hours each semester and maintain a minimum 3.00
GPA. The continuation of the scholarship grant is not guaranteed to the student each year.

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)(i).

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.

Enclosures:
Letter 437

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

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