IRS pre-approves a foundation's three scholarship programs

Plain-English summary

A private foundation asked the IRS to approve, in advance, how it will award
scholarships under three separate programs. This step matters because grants a
private foundation makes to individuals for study are normally "taxable
expenditures" that trigger an excise tax under section 4945, unless the IRS has
approved the procedures ahead of time under section 4945(g). The first program
funds several scholarships a year for high school seniors in a specific area,
paid out over four years. The second awards up to 5% of a dedicated fund's
corpus each year to a college or post-college student committed to public
service in a particular county. The third gives a single award to an individual
who shows exceptional community leadership. In all three, awards are
non-renewable, are paid directly to the school, are limited to tuition and
related costs, and screen out relatives of the selection committee. The IRS
reviewed the selection criteria and the foundation's oversight and record-keeping
commitments and approved the procedures under section 4945(g)(1), so the
expenditures will not be taxable. The awards are also tax-free to recipients
under section 117 to the extent used for qualified tuition and related expenses.

Ruling snapshot

• Question: Do the foundation's procedures for awarding its three scholarship programs qualify for advance approval under section 4945(g)(1)?
• Outcome: Approved
• Key authorities: IRC § 4945(g)(1); IRC § 4945(d)(3); IRC § 117; IRC § 170(b)(1)(A)(ii)

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 04/20/2026

Tax Exempt and Government Entities Taxpayer ID number:

Person to contact:

Name:
ID number:
Telephone:
Release Number: 202629027
Release Date: 7/17/26

LEGEND UIL: 4945.04-04

B = Scholarship
C = Scholarship
D = Scholarship

E = City, State

F = Area

G = County

H = Entity

M = Number

N = Number Range

P = Number

Q = Number Range

w dollars = Dollars
x dollars = Dollars
y dollars = Dollars
z 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

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

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 three scholarship programs, the B, the C and the D, which will all
prioritize support, development, and education of students and community leaders.

The B

You award M scholarships annually in the amount of w dollars to high school seniors residing in E and F for
courses at schools recognized under IRC Sections 509(a)(1) and 170(b)(1)(A)(ii). Individual scholarships will
be paid out over a four-year period. The number of scholarships and amount of each scholarship may vary from
year to year and will be determined annually by your board of directors. Scholarships are not renewable. You
publicize the B through local media, social media, and through coordination with each local high school. The
number of individuals eligible to apply annually is approximately N.

Eligibility criteria will be based on the following:

* The applicant must be a resident of E or F

* The applicant is a graduating student from a local high school, public or private, or has completed the
requirements for home-schooling.

Your selection criteria will be based on the following:

* Merit
* Personal statement
* Recommendations
* Community involvement
* Financial need
* Future goals

Recipients of scholarship awards will be required to provide proof of enrollment in a college or other institution
of higher education for the first-year award. For subsequent years, recipients' will be required to provide proof
of enrollment and a transcript to demonstrate a minimum GPA, as required by the scholarship description.
Recipients' will be required to remain in contact with the community engagement director, who will ensure that
recipients maintain ongoing eligibility for the award granted.

The C

You award P scholarship annually in the amount of 5% of your current corpus for the C, which has its own
separate investment account under your umbrella, to a collegiate or post-collegiate student in an accredited
program who has a demonstrated interest and a commitment to public service. For 2025, you intend to award a
total of y dollars. For 2026, you intend to award a total of z dollars. The C fund does not include an upper limit,
but you review the fund balances each year and will award a maximum of 5% of the current corpus for the C.
You require the recipient to submit a tuition bill, to ensure the amount awarded does not overfund their tuition
account. If the award is more than is due for one semester, you require a tuition bill to be submitted for each
subsequent semester until the award is exhausted.

Scholarships are not renewable; however, previous recipients of funds may apply for funding in a subsequent
academic year by completing a new full application. The new application will be considered separately on its
own merit and will receive no additional weight against others. You publicize your scholarship program through

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local and social media, several large community focused employers and a nonprofit collaborative. The number
of individuals eligible to apply annually is approximately Q.

Eligibility criteria will be based on the following:

* The applicant must be currently enrolled or about to be enrolled in an accredited program of post-
secondary or post-graduate education.

* The applicant must be a current, past or future resident of G who is planning to return to G after
completion of their educational program.

Selection criteria will be heavily weighted toward an applicant who can demonstrate a history of community
involvement through recommendations, a resume, volunteerism, and community awards or recognition. The
selection criteria of financial need, academic merit, extracurricular activities and employment history are
evaluated on a scoring rubric which evaluates each criterion separately.

The D

You award P scholarship annually in the amount of x dollars to an individual who demonstrates exceptional
leadership potential and a commitment to community betterment. Scholarships are not renewable, however,
previous recipients of funds may apply for funding in a subsequent academic year by completing a new full
application. The new application will be considered separately on its own merit and will receive no additional
weight against others. You publicize your scholarship program through local and social media, several large
community focused employers and a nonprofit collaborative. The number of individuals eligible to apply
annually is approximately Q.

Eligibility criteria will be based on the following:

* The applicant must be currently enrolled or about to be enrolled in an accredited program of post-
secondary or post-graduate education,

* The applicant must be a current, past or future resident of G.

Selection criteria will be heavily weighted toward an applicant who can demonstrate a history of community
leadership, volunteerism, and dedication to community improvement. There will be a competitive selection
process based on a holistic assessment of leadership and character. Strong preference will be given for
applicants with experience that reflects a dedication to community improvement. Selection criteria will include
financial need, academic merit, extracurricular activities and employment history evaluated on a scoring rubric.

All Three Programs

Your scholarship selection committee will consist of the community engagement director and three members of
your donations committee, which is comprised of a representative selection of employees of H who follow your
stated and approved guiding principles. Appointments to the donations and scholarship committees will be
overseen by your board of trustees.

Scholarship funds will be paid directly to the recipient's college or other institution of higher education and will
only be paid on behalf of the recipient if they are enrolled and in good standing at such institution. Funds may
only be used for tuition and fees (including books and supplies) at a post-secondary educational institution that
is an accredited institution or non-U.S. equivalent. Funds must be used within six years of graduation from
secondary school and are not assignable to any other student in whole or in part. Any unused portion of the
awarded funds will be returned to the you. Any recipient who fails to maintain their academic good standing
would be ineligible to receive grant funds for the subsequent year. You will obtain proof of enrollment in

Letter 4792 (Rev. 1-2022)
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advance of each scholarship payment. These requirements will be stated in the student award letter as well as in
the letter to the college or university that accompanies all scholarship 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,
* 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)(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.

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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