Advance approval of a private foundation's scholarship and vocational-grant procedures

Plain-English summary

A private foundation that makes grants to individuals must get the IRS to approve its grant procedures in advance. Otherwise, under Section 4945, the grant counts as a "taxable expenditure" and triggers an excise tax on the foundation. Here a foundation focused on educational access asked the IRS to bless two programs: college scholarships for graduates of its partner high schools, and grants for students in vocational and certification training (like dental hygiene or aircraft mechanics). The foundation described objective, nondiscriminatory selection criteria, financial-need requirements, recipient reporting, and safeguards against misuse and self-dealing. The IRS approved the scholarship procedures under § 4945(g)(1) and the educational-grant procedures under § 4945(g)(3), so expenditures made under them will not be taxable. Scholarship recipients also will not owe income tax on amounts used for qualified tuition and related expenses, within the limits of § 117. The approval covers only the described program and applies only to this foundation.

Ruling snapshot

• Question: Do the foundation's scholarship and educational-grant procedures qualify for advance approval so its grants are not taxable expenditures?
• Outcome: Approved (procedures meet IRC § 4945(g)(1) and § 4945(g)(3)).
• Key authorities: IRC § 4945(g)(1) and (g)(3); IRC §§ 117 and 170(b)(1)(A)(ii); Treas. Reg. § 53.4945-4(c)(1).

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 11/12/2025
IRS Tax Exempt and Government Entities Taxpayer ID number:

Person to contact:

Name:
ID number:
Telephone:
Release Number: 202606010
Release Date: 2/6/2026
LEGEND UIL: 4945.04-04
L = City, State
M = City, State
N = number

p dollars = dollar amount
q dollars = dollar amount
R = number

s dollars = dollar amount

Dear

You asked for advance approval of your scholarship procedures under Internal Revenue Code (IRC) Section
4945(g)(1) and advance approval of your educational grant procedures under IRC Section 4945(g)(3).

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.

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 provide in IRC Section 117(b)).

We also approved your procedures for awarding educational grants. Based on the information you submitted,
and assuming you will conduct your program as proposed, we determined that your procedures for awarding
educational grants meet the requirements of IRC Section 4945(g)(3). As a result, expenditures you make
under these procedures won't be taxable.

Description of your request
Your letter indicates you will operate a grantmaking program to further your mission of creating socioeconomic
mobility for people through quality educational opportunities. Previously, you made grants to high schools and

Letter 4792 (Rev. 1-2022)
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colleges in L and M for educational funding purposes, and now you are establishing your own grantmaking
program for awarding scholarships and educational grants to help students receive the best education possible.

You will award scholarships described under IRC Section 4945(g)(1) to provide funds for students to attend
traditional two-year or four-year institutions for higher education. You will also award individual grants
described under IRC Section 4945(g)(1) or IRC Section 4945(g)(3) for students to pursue vocational training
and study or internships to prepare them for the workforce.

Scholarships under IRC Section 4945(g)(1)

You will award approximately N scholarships annually, worth between p dollars to q dollars, to high school
students attending one of your 20 partner high schools, located in L or M, who intend to use the funds to pursue
post-secondary education at one of over [illegible] of your accredited partner colleges or universities located in the
same geographic areas. Your partner colleges and universities are traditional two- and four-year institutions of
higher learning described under IRC Sections 509(a)(1) and 170(b)(1)(A)(ii).

The specific number and amount of your scholarships awarded annually will vary based on your available
funding. In addition, the number of scholarships awarded is expected to increase over time. The exact amount of
each award will also depend upon the student's financial need or other relevant factors and may increase over
time due to inflation.

To be eligible for one of your scholarships, applicants must:

Graduate from one of your partner high schools with a minimum 3.0 cumulative GPA

Attend and live on campus at one of over ten of your partner colleges or universities

• Pursue one of the more than ten majors and/or courses of study listed on your website

Apply for financial aid and show objective financial need, such as qualifying for a federal Pell Grant

You will announce your scholarships on your website or through educational institutions with which you have
had a prior relationship or to which you previously provided educational grants. These approved partner high
schools and college/universities are listed on your website. Your announcements will specify how applications
must be submitted for your scholarships.

You will also accept scholarship nominations from your partner educational institutions, governments and
governmental agencies or instrumentalities, and/or persons with relevant professional experience. You will take
steps to ensure that persons engaged in the selection process are not in a position to derive any private benefit,
directly or indirectly, if certain potential grantees are selected over others. Selection of grantees shall be made
on an objective and nondiscriminatory basis.

All nominations or applications must be submitted in writing and will be subject to your review. Nominations
and applications that meet appropriate standards of quality and are relevant to your program interests will be
eligible for selection.

Your scholarships will be used to address typical gaps in financial aid as demonstrated by each grantee;
therefore, your awards will be based on financial need. However, you will also consider prior academic
performance and recommendations from a potential grantee's instructors and any others who have knowledge
of their capabilities.

Your scholarships are intended for educational costs, including tuition, books, room and board, or other
educational materials. Awards will be made as two- or four-year scholarships subject to the recipient

Letter 4792 (Rev. 1-2022)
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maintaining the conditions of the grant. You may extend the award beyond four years if circumstances warrant
it. Recipients are expected to:

• maintain a minimum cumulative grade point average of 2.0,
• remain in good academic and disciplinary standing, and
• attend an annual meeting with your trustees.

Selection of grantees will be based on the listed criteria and weighed on an objective and nondiscriminatory
basis. You have two executive directors; one located in L, and one located in M. Each executive director will be
responsible for reviewing and approving applications in their respective locale but can delegate this power.
Your president also has the authority to approve scholarships for students who may not meet your published
scholarship criteria, such as a student pursuing a career-oriented major which is not among the list of your more
than ten approved majors or courses of study on your website.

The terms and conditions of each grant will be contained in a letter sent to and countersigned by each recipient
of such grant. Terms and conditions will include the specific purpose of the grant, its duration, the total amount
of the grant, a budget, and requirements for narrative and financial reports, including due dates for such reports.

Generally, scholarships will be paid directly to the recipient's school or institution of higher education, under an
arrangement whereby the school may only apply those funds for enrolled students who are in good standing and
who meet your other specified criteria. Your scholarship recipients must be candidates for degrees at
educational institutions described in IRC Sections 509(a)(1) and 170(b)(1)(A)(ii). You will stop payment on any
scholarship if these criteria are not met, and you will seek the return of funds if circumstances warrant.

You will arrange to receive a report of the grantee's courses taken and grades received in each academic period.
Such a report will be obtained at least once a year. Upon completion of a grantee's study at an educational
institution, you will obtain a final report.

Grants under IRC Sections 4945(g)(1) and 4945(g)(3)

You will also award approximately R grants annually worth between p dollars and s dollars to students pursuing
certification and training programs in the vocational arts to enable them to successfully enter the workforce as
skilled labor. The specific number and amount of your vocational grants awarded annually will vary based on
your available funding. The number of your vocational grants awarded annually is also expected to increase
over time.

You anticipate most of your vocational grants will be awarded to students for study at educational institutions
which qualify for exemption under IRC Sections 509(a)(1) and 170(b)(1)(A)(ii); therefore, you are requesting
approval for your vocational grants under IRC Section 4945(g)(1). However, to ensure students otherwise
qualifying for your vocational grants may learn or improve a skill through vocational training opportunities,
even if such training is not provided by an educational institution which would qualify for exemption as a
school under Sections 509(a)(1) and 170(b)(1)(A)(ii), you are also requesting approval for your vocational
grants under IRC Section 4945(g)(3).

Your eligibility criteria will include enrollment in certain specified vocational programs where there is a
demand for skilled labor, such as radiation technology, dental hygiene, or aircraft mechanics. Other eligibility
criteria will include applicants demonstrating objective financial need and, to the extent applicable, the ability to
maintain minimum academic or similar requirements.

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Catalog Number 58263T

Your application process is described on your website. All applications must be submitted in a timely manner
and will be subject to your review. You will also accept nominations for grant recipients from your partner
educational institutions, governments and governmental agencies or instrumentalities, and/or persons with
relevant professional experience. You will take steps to ensure that persons engaged in the selection process are
not in a position to derive any private benefit, directly or indirectly, if you select certain potential grantees.

Applications and nominations that meet appropriate standards of quality and are relevant to your program
interests will be eligible for selection. Selection of grantees shall be made on an objective and
nondiscriminatory basis. Your directors will select the vocational grant recipients using the selection criteria set
by your board. Your president also has the authority to approve scholarships for students who may not meet
your published scholarship criteria, such as a student pursuing a career-oriented major which is not among the
list of your more than ten approved majors or courses of study on your website.

Other than the exempt status of the institutions under the Internal Revenue Code, there are no material
differences in your vocational grant program if awarded under IRC Sections 4945(g)(1) or 4945(g)(3).
Therefore, you are requesting approval under both sections only to ensure qualified candidates, who otherwise
meet all grant criteria, may obtain vocational training and certification at institutions which provide
opportunities for your grantees to enter the workforce as skilled labor, but may not be described under IRC
Sections 509(a)(1) and 170(b)(1)(A)(ii). You do not have separate eligibility or selection criteria, nor do you
have separate processes for accepting applications or nominations. You also will not have two distinct and
separate candidate pools from which your directors and/or president will consider awarding vocational grants.

The terms and conditions of each grant will be contained in a letter sent to and countersigned by each recipient
of such grant. Terms and conditions will include the specific purpose of the grant, its duration, the total amount
of the grant, a budget, and requirements for narrative and financial reports, including due dates for such reports.

You intend for this grant to support the recipients throughout their vocational training, which may mean certain
individuals will receive funding for multiple years. Any multi-year funding will be subject to maintaining the
conditions of the grant, including maintaining their enrollment in good standing within their programs and the
school, institution, or other similar entity. You will stop payment on any grant if these criteria are not met, and
you will seek the return of funds if circumstances warrant.

You will fund these grants directly to the colleges or institutions attended by the students. You will arrange to
receive a brief report on the progress of recipients from their educational institutions or similar entities at least
once a year. Such a report must be approved by the faculty member supervising the grantee or by another
appropriate official at the institution or entity. Upon completion of the undertaking for which the grant was
made, the grantee will be required to submit a final report describing the grantee's accomplishments with
respect to the grant and accounting for the funds received under such grant.

Records and Oversight

For all educational funding you provide under your program described above, you will maintain appropriate
records and monitor funds to ensure they are used only for their intended educational purpose or pursuit. Any
misuse of funds of which you become aware will call for cessation of future funding and reimbursement of the
inappropriately diverted funds. Your trustees and/or their relatives are not eligible for any of your educational
grants.

Letter 4792 (Rev. 1-2022)
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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.

IRC Section 4945(g)(1) Requirements:

• 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).
  IRC Section 4945(g)(3) Requirements:

• 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) and is to be used for study at an educational
  organization described in IRC Section 170(b)(1)(A)(ii).

• A prize or award subject to the provisions of IRC Section 74(b), if the recipient of the prize or award is
  selected from the general public.

• To achieve a specific objective; produce a report or similar product; or improve or enhance a literary,
  artistic, musical, scientific, teaching, or other similar skill or talent of the recipient.
  To receive approval of its educational grant procedures, Treasury Regulation Section 53.4945-4(c)(1) requires
  that a private foundation show:

• The grant procedure includes an objective and nondiscriminatory selection process.

• The grant procedure results in the recipients performing the activities the grants were intended to finance.

• The foundation plans to obtain reports to determine whether the recipients have performed the activities that
  the grants were intended to finance.

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 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 grants
  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.
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