IRS pre-approves a foundation's scholarship procedures for graduating seniors in one county

Plain-English summary

A private foundation runs a scholarship for graduating high school seniors from a particular county who are entering college. It asked the IRS to approve its award procedures in advance under IRC Section 4945(g)(1). Section 4945 taxes a private foundation's grants to individuals for study as "taxable expenditures" unless the IRS pre-approves the grant-making procedures. The foundation selects on academic aptitude and financial need, requires applicants to be under 22, live in the county, and have at least an ACT of 16 or SAT of 675, and pays awards directly to the college in two semester installments (with unused funds returned if the student does not attend). The selection committee is the regional school superintendent, the county bar association president, and the local chief judge. 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 is a routine advance-approval letter (Letter 4792) that binds only this foundation.

Ruling snapshot

• Question: Do the foundation's procedures for its county high-school scholarship 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)(ii)

Full text (IRS public release)

Department of the Treasury                     Date:
Internal Revenue Service                        11/03/2025
IRS Tax Exempt and Government Entities          Taxpayer ID number:

                                                Person to contact:

Release Number: 202605001
Release Date: 1/30/2026

LEGEND                                          UIL: 4945.04-04
B = County
C = State
D = Circuit Court
E = Number

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 for graduating high school seniors entering college
from B, C. Your scholarships are awarded on an objective and nondiscriminatory basis based on the criteria of
academic aptitude and financial need.

To be eligible for your scholarship, the student must:
• Be less than 22 years of age.
• Be a resident of B, C.
• Be a graduating high school student interested in attending a 2-year community college or a 4-year university.
• Have an ACT score of at least 16 or an SAT score of 675.

You will rate the applicants based on the following criteria:
• Grade Point Average
• Scholastic Aptitude
• Financial need

You will promote your scholarships and provide application information through the high schools of B, C and
the internet. Your selection committee is composed of the Regional Superintendent of schools of B, C, the
President of the County Bar Association, and the Chief Judge of the D.

The dollar amount of each scholarship awarded will be determined by the previous years' tax filing and you
intend to award E scholarships per school year. Your scholarships are given only for the first year of attendance
and are not renewed.

Your scholarships are paid in two segments, for the Fall and Spring semesters, directly to the college or
university. If the student does not attend, funds are returned. Your representatives will follow up with the
applicable institutions to ensure the scholarship recipients are enrolled and that they are in good standing.

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)(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.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Letter 437, Letter 4792

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