IRS pre-approves a foundation's statewide academic scholarship procedures

Plain-English summary

A private foundation asked the IRS to approve, in advance, the procedures for
an academic scholarship program for students in a single state. 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 be state
residents and U.S. citizens, be within 30 hours of finishing a bachelor's
degree, carry at least a 2.5 GPA, enroll full-time in courses toward their
declared major, and not have attended any postsecondary institution for at
least a year before the award. A selection committee at each participating
school picks the recipients, and funds are paid directly to the schools.
Awards can renew for the spring term if the student stays eligible. 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 when 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 statewide 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                        01/15/2026
IRS Tax Exempt and Government Entities          Taxpayer ID number:

                                                Person to contact:
                                                Name:
                                                ID number:
                                                Telephone:

Release Number: 202614038
Release Date: 4/3/2026

LEGEND                                          UIL: 4945.04-04
B = State
N = Number
x 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 residmg in B. You award N scholarship grants annually up to x dollars per scholarship annually for
courses at schools or accepted for credit at participating schools recognized under IRC Sections 509(a)(1) and
170(b)(1)(A)([illegible]).. Each participating school will sign a scholarship agreement outlining the mutually agreed
terms and conditions for the administration of the scholarship program. You publicize your scholarship program
through the financial aid offices of participating schools. There is no set limit on the number of eligible students
who can apply for the scholarship program annually.

Letter 4792 (Rev. 1-2022)
Catalog Number 56263T

To be eligible for your program, applicants must:

Be a resident and domiciliary of the State of B and be a United States citizen.

Be within 30 hours of their baccalaureate degree completion.

Be enrolled in courses that count towards a degree in their declared major.

Be enrolled full-time, which shall be determined according to the school's definition of full-time;
except that if a degree can be completed with less than full-time attendance, and with express prior
written permission by you, the applicant may take less than a full course load. In such a case, the
scholarship will be discounted from the maximum award by a fraction, the denominator of the
fraction being the number of hours necessary for a full-time course load and the numerator being the
applicant's actual course load.

Have at least a 2.5 grade point average or its equivalent.

Not have been enrolled and attending classes at any postsecondary institution for at least one year
immediately prior to the awarding of the scholarship.

• Have declared a major in an area of study offered by the school they are attending.

The scholarship selection committee will be determined by the financial aid director of the participating school
the award recipient will be attending. The selection committee will include the financial aid director, a person
appointed by the financial aid director from academic affairs, and a person appointed by the financial aid
director from the school's scholarship office. The selection committee at each participating school establishes
the selection criteria based on the eligibility criteria and selects the recipients, so long as the committee's
selection complies with the conditions of your scholarship agreement.

If a student awarded a scholarship for the fall academic term who during such term completes a full-time course
of study, continues to meet the eligibility requirements, is otherwise in compliance with all requirements of the
agreement and the scholarship procedures, the scholarship will be renewed for the spring academic term, or the
equivalent, so long as the amount awarded is necessary for the expenses.

Prior to disbursement of scholarship funds, a recipient must provide you with a copy of their most current
transcript, and the most current forms required by the school. Funds shall be paid to participating schools
directly. You must receive a report on the progress of the recipient at least once each year. The report must
include a summary of the use of the funds awarded and the recipients courses taken and grades received in each
academic period, and the report must be verified by the individual school. If you learn by reviewing reports
submitted or other information, including the failure to submit reports, that indicate that all or any part of the
scholarship is not being used in furtherance of the purposes of such scholarship, you will investigate. While
conducting the investigation, you will withhold further payments.

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,

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

• 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.
• The effective date of our approval is , which is the date your request was submitted.
• 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