IRS approves an employer-related scholarship program for employees' dependents

Plain-English summary

A private foundation asked the IRS to approve scholarships for children and legal dependents of employees of affiliated companies. Applicants must be graduating high school seniors or current college or technical-school students, and awards will be based on academic achievement, leadership, community service, and financial need. An independent committee with no company employees or related parties will select recipients without regard to employment or future employment. Scholarships may be renewed for up to four years, and the foundation will limit awards to satisfy the percentage tests for employer-related programs in Revenue Procedure 76-47. The IRS concluded that the procedures satisfy IRC § 4945(g)(1), so grants made under them will not be taxable expenditures. The approval remains effective only while the program complies with Revenue Procedure 76-47 and its applicable percentage test.

Ruling snapshot

• Question: Do the foundation's employer-related scholarship procedures qualify for advance approval under IRC § 4945(g)(1)?
• Outcome: Approved
• Key authorities: IRC §§ 4945(d)(3), 4945(g)(1), 117(a), 117(b), and 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 05/11/2026
IRS Tax Exempt and Government Entities Taxpayer ID number:

Person to contact:

Name:
ID number:
Telephone:
Release Number: 202632024
Release Date: 8/7/26
LEGEND UIL: 4945.04-04

B = Program
C = Companies
e dollars = dollar amount

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 an employer-related scholarship program called the B. The purpose of the
B is to invest in the future of your employees’ families by awarding scholarships to the children or legal
dependents of current C employees. Scholarships must be used to pursue higher education at accredited post-
secondary educational institutions or technical programs.

Eligible applicants must be graduating high school seniors or students currently enrolled in an accredited
college, university, or technical school, and intend to pursue higher education at accredited post-secondary
educational institutions or technical programs.

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

You will broadly publicize the B to all eligible applicants (i.e., children of employees of affiliated C companies)
through multiple communication channels to encourage robust participation.

Your scholarships will be awarded annually in the amount of e dollars. The number of available scholarships
will vary from year to year as you anticipate that the number of applicants will significantly exceed the number
of scholarships each year. Therefore, you will adjust the number of scholarships awarded in any given year to
ensure that the awards do not exceed 25% of the total number of qualified applicants to comply with the
requirements of IRS Revenue Procedure 76-47.

Scholarships are renewable for up to four years for qualifying recipients who provide proof of satisfactory
academic performance while in school.

Eligible applicants must submit completed applications to you that include information such as personal data,
relationship to a C employee, GPA, progress toward degree (if the applicant is enrolled in a post-secondary
institution or technical program), extracurricular activities, and academic awards (if applicable).

Selection criteria will include academic achievement, leadership, community service, and financial need. Your
eligibility criteria will be designed to ensure a sufficiently broad applicant pool, and the program will not be
limited to a narrow subset of employees or their eligible dependents.

Scholarships will be awarded through an objective and nondiscriminatory selection process administered by
your independent selection committee that will not include members or trustees of the C board of directors,
company employees, or other parties related to C. Further, your scholarships will be awarded based on objective
and nondiscriminatory standards unrelated to the employment or future employment of your scholarship
recipients or their parents or legal guardians. There are no requirements or limitations placed on your
scholarship recipients’ fields of study in accredited institutions of higher learning or technical programs.

Scholarships will be paid directly to parents or legal guardians with the agreement that the funds be used for
qualifying educational expenses. Before funds are paid, scholarship recipients will need to provide proof of
acceptance and/or enrollment in a qualifying school or program.

Scholarship recipients must maintain regular contact with representatives of C about their educational progress,
plans, and interests to continue to receive scholarship awards. Recipients must also periodically provide grade
transcripts for your scholarship committee's continued assessment of their performance and progress in school.
The recipients must demonstrate continued advancement in their area of study that will eventually lead to the
recipient obtaining a degree.

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.

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

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).

• 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.

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

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
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.

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
Redacted Letter 4792

cc;

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