Advance approval of an employer-related scholarship program under 4945(g)(1)

Plain-English summary

A private foundation runs a scholarship program for the employees of a
related company and their dependents, and it asked the IRS to bless its
selection procedures in advance. The IRS approved them. This advance sign-off
matters because IRC § 4945 taxes a private foundation's "taxable
expenditures," and a grant to an individual for study normally counts unless
the foundation's award procedures are approved ahead of time under § 4945(g).
Because these are employer-related scholarships, the IRS applied Rev. Proc.
76-47, which sets seven conditions and a percentage cap (no more than 25% or
10% of eligible employees' children can receive grants) to confirm the awards
are genuine scholarships rather than disguised compensation. With approval,
the foundation's payments are not taxable expenditures, and the scholarships
are tax-free to recipients used for qualified tuition under § 117. Foundations
that run company-tied scholarship funds seek exactly this letter before they
start writing checks.

Ruling snapshot

• Question: Do the foundation's employer-related scholarship award procedures qualify for advance approval so the grants are not taxable expenditures?
• Outcome: approved
• Key authorities: IRC § 4945(g)(1); IRC § 117(a); IRC § 170(b)(1)(A)(ii); Rev. Proc. 76-47; Rev. Proc. 85-51

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 02/20/2026
IRS Tax Exempt and Government Entities Taxpayer ID number:

Person to contact:

Name:
ID number:
Telephone:
Release Number: 202620008
Release Date: 5/15/26
LEGEND UIL: 4945.04-04
B = Program
C = Entity
D = Number

e dollars = Dollars
f dollars = Dollars

Dear

You asked for advance approval of your employer-related scholarship procedures under Internal Revenue Code
Section (IRC) 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 employer-related scholarships. Based on the information you
submitted, and assuming you will conduct your program as proposed, we determined that your procedures for
awarding employer-related 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 provided in IRC Section 117(b)).

Description of your request

Your letter indicates you will operate B, an employer-related scholarship program. B is intended to provide
financial assistance to a student with an interest in pursuing continuing education in any field. B is open to
employees and dependents of employees of C and is announced to employees through internal communications.

You anticipate awarding up to D annual scholarships, dependent upon the number of applications received,
payable to the recipients' educational institutions for tuition and will be awarded as follows:

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

• Up to e dollars per year for accredited community college or trade school
• Up to f dollars per year for accredited 4 year schools.

Students who meet the following criteria are eligible to be considered for B:

• Is an employee or dependent of an employee of C who has been employed for one year or more at C.

• Is a citizen of the United States of America

• Graduated high school, or received their GED with a minimum grade point average of 2.5, or is enrolled as a
  college student at the undergraduate level with a minimum grade point average of 2.5

You evaluate applicants based on current and previous academic performance, whether the applicant has
received academic awards, applicants' involvement in extracurricular activities, applicants' work and volunteer
experience, and community involvement. Applicants must also submit a one-page essay. The scholarship is
not renewable; applicants must apply each time the scholarship is offered. The same requirements apply each
time.

Scholarship funds will be paid directly to the school whereby the school applies the funds for enrolled
students in good standing. In the event that any terms were violated the school could apply the
remaining amount of the scholarship to amounts owed by the student (books, classes) and return any
remaining funds to you.

The selection committee is determined by choosing people who understand and are passionate about the
objectives of the scholarship program and can dedicate the necessary time to thoroughly review applications
and participate in selection discussions to evaluate applications objectively and fairly.

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 IRC Section 117(a).
  Letter 4792 (Rev. 1-2022)
  Catalog Number 58263T

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

Revenue Procedure (Rev. Proc.) 76-47, provides guidelines to determine whether grants a private foundation
makes under an employer-related program to employees or children of employees are scholarship or fellowship
grants subject to the provisions of IRC Section 117(a). If the program satisfies the seven conditions in sections
4.01 through 4.07 of Rev. Proc. 76-47 and meets the percentage tests described in Section 4.08 of Rev. Proc. 76-47,
we will assume the grants are subject to the provisions of IRC Section 117(a).

You represented that your grant program will meet the requirements of either the 25% or 10% percentage test in
Rev. Proc. 76-47. These tests require that:

• The number of grants awarded to employees' children in any year won't exceed 25% of the number of
  employees' children who were eligible for grants, were applicants for grants, and were considered by the
  selection committee for grants, or

• The number of grants awarded to employees' children in any year won't exceed 10% of the number of
  employees' children who were eligible for grants (whether or not they submitted an application), or

• The number of grants awarded to employees in any year won't exceed 10% of the number of employees
  who were eligible for grants, were applicants for grants, and were considered by the selection committee
  for grants.

You further represented that you will include only children who meet the eligibility standards described in
Rev. Proc. 85-51, when applying the 10% test to employees' children.

In determining how many employee children are eligible for a scholarship under the 10% test, a private
foundation may include only those children who submit a written statement or who meet the foundation's
eligibility requirements. They must also satisfy certain enrollment conditions.

You represented that your procedures for awarding grants under this program will meet the requirements of
Rev. Proc. 76-47. In particular:

• An independent selection committee whose members are separate from you, your creator, and the employer
  will select individual grant recipients.

• You will not use grants to recruit employees nor will you end a grant if the employee leaves the employer.

• You will not limit the recipient to a course of study that would particularly benefit you or the employer.

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 is in effect if your procedures comply with Sections 4.01 through 4.07 of Revenue
  Procedure 76-47 and either of the percentage tests of Section 4.08. If you establish another program
  covering the same individuals, that program must also meet the percentage test.

• 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

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

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 (Rev. 1-2022)
Catalog Number 58263T