Advance approval of a private foundation's last-dollar scholarship procedures under section 4945(g)(1)

Plain-English summary

A private foundation that gives money to individuals for study risks an excise
tax on that payment, unless the IRS approves its grant-making procedures in
advance. Here, a foundation runs a scholarship program for graduating high
school seniors in a particular county entering post-secondary school. The
scholarships are "last-dollar" grants (the amount is set after other financial
aid and scholarships are applied), can be renewed for up to four years total,
and are awarded by a scoring rubric covering financial need, academics, test
scores, community service, and more. The foundation asked the IRS to approve
these procedures. The IRS approved them under IRC Section 4945(g)(1), so the
scholarship payments will not be treated as taxable expenditures. The letter
also notes the awards are scholarship or fellowship grants that are not taxable
to the students if used for qualified tuition and related expenses within the
limits of IRC Section 117(b). Approval assumes the program runs as described,
with objective selection, transcripts and receipts, and no grants to insiders.

Ruling snapshot

• Question: Do the foundation's scholarship-award procedures qualify for
  advance approval so that grants are not taxable expenditures?
• Outcome: Approved.
• Key authorities: IRC § 4945(g)(1); IRC § 4945(d)(3); IRC § 117(a)-(b);
  IRC § 170(b)(1)(A)(ii).

Full text (IRS public release)

Department of the Treasury                       Date:
Internal Revenue Service                         12/18/2025
IRS Tax Exempt and Government Entities            Taxpayer ID number:
                                                 Person to contact:
                                                 Name:
                                                 ID number:
                                                 Telephone:
Release Number: 202611019
Release Date: 3/13/26

LEGEND                                           UIL: 4945.04-04

b dollars = Dollars
C = Number
D = County
E = State
F = High School
G = College

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 post-
secondary educational institution. You intend to award a minimum of b dollars per year to at least C recipients.
Your scholarships may be renewed annually for up to 3 additional years for a total of 4 years of scholarship
eligibility. Your scholarships are designed to be last-dollar grants, meaning that the amount for which recipients
are eligible is calculated after application of financial aid and other scholarships. You will publicize your
scholarships through high schools and local organizations.

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

To be eligible for your scholarship, the student must be:
• Pursuing post-secondary education at an accredited institution in the U.S
• A resident of D, E, with a focus on students graduating from F and G.

Applicants will be scored by your selection committee using a scoring rubric based on the established selection
criteria. Recommendations will be made to your Board of Directors, along with alternate selections in case any
chosen candidates refuse the scholarship or are deemed ineligible. The selection criteria used to rate applicants
will include:

• Financial need
• Academic performance,
• Performance on entrance exams
• Community service
• Work experience,
• Recommendations
• Optional written essays.

Your selection committee members are selected by your Board of Directors. Preference is given to selection
committee members who are residents of D, E. You generally have at least one member of your Board of
Directors on the selection committee. Your selection committee members generally serve up to 3 years and are
then replaced.

Students must have the registrar of their school provide you with official transcripts in order to demonstrate that
the students are in good standing. Qualified educational expenses are reimbursed only if receipts are provided.
Scholarships will be renewed as long as the student maintains satisfactory academic progress as defined by the
college/university in which the student is enrolled.

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.

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

• 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

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