Advance approval of a foundation's scholarship procedures under § 4945(g)(1)

Plain-English summary

Private foundations owe an excise tax on "taxable expenditures," and a grant to an individual for study or travel is a taxable expenditure unless the IRS approves the foundation's grant-making procedures in advance. Here a foundation asked the IRS to pre-approve the procedures for a scholarship program tied to the insurance industry in one state, open to people working in that industry, their immediate family members, and members of a particular trade group. The IRS reviewed the selection process (objective criteria based on academic performance, an independent three-judge committee, signed grant agreements, and follow-up to confirm funds are used for education) and approved it under § 4945(g)(1). As a result, grants made under these procedures are not taxable expenditures for the foundation, and the scholarships are tax-free to recipients who use them for qualified tuition and related expenses under § 117. The approval is conditioned on the foundation actually running the program as described and keeping proper records.

Ruling snapshot

• Question: Do the foundation's scholarship-award procedures qualify for advance approval under § 4945(g)(1)?
• Outcome: Approved
• Key authorities: IRC § 4945(g)(1); IRC § 4945(d)(3); IRC § 117(a); IRC § 170(b)(1)(A)(i)

Full text (IRS public release)

Department of the Treasury                    Date: 03/02/2026
Internal Revenue Service
IRS Tax Exempt and Government Entities         Taxpayer ID number:

                                               Person to contact:
                                               Name:
                                               ID number:
                                               Telephone:

Release Number: 202622013
Release Date: 5/29/26
UIL: 4945.04.04

LEGEND
B = Organization
C = State
D = Industry
F = Number
G = Number range
y dollars = Amount
z dollars = Amount

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 that advances your educational purposes, including
funding for qualified tuition and other related educational expenses for individuals pursuing education at
accredited two-year and four-year colleges or universities.

Your scholarship grants are primarily based upon prior academic performance will be awarded to individuals
working in the D industry, C residents employed elsewhere in the insurance industry, and the immediate family
members of these employees.

You anticipate many individuals will be eligible to apply for your scholarships annually. You expect to receive
G applications per year. The number may increase over time and will be determined at the discretion of your
board depending on funding available in your annual budget. You plan to grant F scholarships this year. The
scholarships will be between y dollars and z dollars, although this number may increase over time based on
funding available. Your scholarships are not renewable.

To be eligible for your scholarship, applicants must either work in the insurance industry in C, be an immediate
family member of an employee (spouse, child, parent, grandparent, grandchild, or stepchild) working in the
insurance industry in C, or be a resident of C working in the insurance industry, or be an active member of D.
The applicant must also provide SAT Scores, a completed application, school/college transcripts, and a letter of
recommendation. The applicant is ineligible if they have received this scholarship in the past.

You publicize your scholarships through human resource departments within insurance companies to notify all
of their employees of the grant opportunity and submission deadline. Also, you anticipate coordinating with the
independent agents of C to notify all of their members of the grant opportunity.

Your scholarship selection committee consists of three independent judges; an individual from academia, an
independent agent in C, and an individual from an insurance company in C. By choosing these specific judges,
your selection committee has the necessary expertise in relevant fields to objectively evaluate academic
performance, achieve comprehensive exposure across the entire industry, and ensure a diverse perspective is
maintained throughout your selection process.

You will pay your scholarships directly to the recipient's account after confirmation of enrollment in an
accredited two-year or 4-year college or university. All recipients must sign a grant agreement stating that the
recipient will comply with all terms and conditions of the scholarship grants. You will contact each recipient
after the scholarship grant has been awarded to confirm that the scholarship funds have been used for educational
purposes only. If the terms of the award are violated, the recipient will become ineligible for the scholarship and
will be responsible for repaying any disbursed funds.

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

* 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

Enclosures:
Letter 437
Redacted Letter 4792

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