Advance approval of need-based supplemental educational grant procedures under § 4945(g)(3)

Plain-English summary

A private foundation that already runs a tuition scholarship program asked the IRS to pre-approve a new grant program that gives its scholarship recipients supplemental, need-based help so they can actually get to college. The extra grants cover things like car repairs, car seats, and computers for students who qualify for the tuition scholarship but face financial barriers to attending. Private foundations owe an excise tax on grants to individuals for study unless the IRS approves their selection procedures in advance under section 4945(g). Because these are educational grants, the foundation had to show an objective and nondiscriminatory selection process, that recipients use the grants as intended, and that it will collect reports to check on that, as required by Treasury Regulation § 53.4945-4(c)(1). Grants go to students with demonstrated financial need (for example, free-or-reduced lunch, foster care, or Pell eligibility), are usually paid directly to vendors, and are capped per recipient over a lifetime. The IRS approved the procedures, so grants made under them are not taxable expenditures.

Ruling snapshot

• Question: Do the foundation's need-based supplemental educational grant procedures qualify for advance approval under section 4945(g)(3)?
• Outcome: approved
• Key authorities: IRC §§ 4945(g)(3), 4945(d)(3), 117(a), 74(b), 170(b)(1)(A)(ii); Treas. Reg. § 53.4945-4(c)(1)

Full text (IRS public release)

Department of the Treasury                     Date: 02/24/2026
Internal Revenue Service
IRS Tax Exempt and Government Entities         Taxpayer ID number:

                                               Person to contact:
                                               Name:
                                               ID number:
                                               Telephone:

Release Number: 202621012
Release Date: 5/22/26

LEGEND
B = Program                                    UIL: 4945.04-04
C = Number
D = Program
E = Schools
F = Number Range
G = Number Range
x dollar = Dollar Range
y dollars = Dollar Range
z dollars = Dollars

Dear

You asked for advance approval of your educational grant procedures under Internal Revenue Code (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 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 the B. For over C years you have operated the D, a scholarship program to
provide free college, community college, or trade school tuition to eligible graduates of E. You have observed
individuals who were eligible for D but were unable to attend due to financial hardships that prevented them
from going to college, even though the education portion of attending was covered. You intend for the B to
provide supplemental grants to D recipients to alleviate the barriers that exist to allow them to utilize their
scholarship and receive post-secondary education. Grants will be offered for various need-based expenses such

as car repairs, car seats, and computer expenses.

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

Initially you anticipate providing F grants, growing to G grants annually in five years. You anticipate your total
annual expenditure for the B to be x dollars, with each grant totaling approximately y dollars. You will
publicize the B through your website and social media accounts.

To be eligible to apply for the B, applicants must meet the following criteria:
* Must be enrolled or in the process of enrolling in post-secondary education that is covered the B
* Demonstrate financial need
* Must be working with a B advocate

Grants are awarded based on demonstrated financial hardship, including but not limited to:
* Free or reduced lunch while in high school,
* Tuition incentive program,
* McKinney-Vento status,
* Foster care status,
* Federal PELL eligibility,
* Federal Supplemental Educational Opportunity Grant,
* Unemployment status,
* Need base government assistance,
* ALICE threshold reflected through W2 and/or taxes to show need, and
* Community partner referral.

Your Chief Executive Officer will appoint three of your employees to sit on the selection committee. The
employees will be selected as follows: 1) One employee from the Operations team 2) One employee from the
Scholarship Engagement team and 3) One employee from the High School team.

Your grants are one-time grants for the specific purpose requested. Recipients will be eligible to receive multiple
grants, and each application will be evaluated and processed as if it were a new grant. Recipients will not be able
to receive more than z dollars through this program in their lifetime.

Whenever possible, you will pay your grants directly to service providers or vendors. If a recipient must pay for
a service or item, reimbursement to the recipient will require a receipt or other supporting documentation for the
service or item to verify the funds were used for the intended purpose.

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

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

* 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 grants 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); or

- 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; or

- 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.

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

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

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