IRS approves a foundation's scholarship procedures for students

Plain-English summary

The private foundation requested advance approval for a scholarship program for students attending private high schools and accredited colleges or universities. Awards will support tuition for students pursuing a diploma or degree who demonstrate academic achievement, community involvement, personal character, and financial need. The IRS approved the procedures under IRC § 4945(g)(1), so payments made under them will not be taxable expenditures if the foundation follows the proposed procedures. The foundation must use objective and nondiscriminatory criteria, pay the educational institution directly, monitor enrollment and academic standing, and maintain records and oversight. Awards may be renewable, generally for no more than four years, if recipients continue to meet the stated conditions.

Ruling snapshot

• Question: Do the foundation's proposed scholarship procedures satisfy the advance-approval requirements of IRC § 4945(g)(1)?
• Outcome: Approved.
• Key authorities: IRC §§ 4945(d)(3), 4945(g)(1), 117(a), 117(b), 170(b)(1)(A)(ii), 170(c)(2)(B), and 6110.

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities

Date:
06/10/2026

Taxpayer ID number:

Person to contact:

Name:
ID number:
Telephone:
Release Number: 202636020
Release Date: 9/4/26
LEGEND UIL: 4945.04-04

x dollars = Dollars
y 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

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 to provide financial assistance to individuals attending private high schools and accredited colleges or universities to support the attainment of a high school diploma or college degree. The program's purpose is to reduce financial barriers, promote academic achievement, and support students demonstrating merit, community involvement, and financial need. You publicize the program through outreach to schools, including financial aid offices, community communications, and referrals to ensure a broad and fair applicant pool.

Scholarships generally range from x dollars to y dollars per year and cover tuition only. Awards may be made for one academic year and may be renewable, typically not exceeding four years, subject to continued

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

eligibility. The number of grants awarded annually varies based on applicant qualifications, demonstrated need, and available foundation resources, with flexibility to increase awards in strong applicant years.

To be eligible for a scholarship under your program, applicants must:

• Be seeking to attend or currently attending a private high school or an accredited college or university;
• Be working toward a high school diploma or college degree and
• Be in good academic standing, as defined by their educational institution.
• Demonstrate a combination of academic achievement, participation in extracurricular and community
  activities, and personal character.
• Show financial need

Recipients are selected based on objective and nondiscriminatory criteria that include a combination of academic performance, financial need, and overall merit. Academic achievement is evaluated through grades, transcripts, and school standing. Financial need is considered based on information provided in the application. You will also evaluate the applicant's extracurricular involvement, community service, leadership qualities, and personal character. Letters of recommendation from teachers or school officials and a required essay or interview are used to assess the applicant's motivation, goals, and potential. All applications are reviewed using consistent standards to ensure a fair and impartial selection process. You do not consider any relationship to officers, directors, or contributors in making your decisions.

You will appoint members of the selection committee based on their ability to exercise independent judgment and evaluate applicants fairly and objectively. Committee members are selected for their experience, integrity, and familiarity with educational achievement and community involvement. The committee may include your officers, directors, or other qualified individuals; however, efforts are made to include individuals who are independent and free from conflicts of interest. Committee members are required to review applications using established criteria and must recuse themselves from decisions where a potential conflict of interest exists. You may expand or modify the committee over time to ensure a balanced and unbiased selection process.

To obtain and maintain a grant, recipients are required to remain in good academic standing by maintaining at least a 3.0 GPA or equivalent standard as defined by the institution, remain continuously enrolled on at least a full-time basis, and comply with all school policies and your requirements.

For renewal, recipients must demonstrate continued academic progress, submit updated transcripts or school verification, and, if requested, provide a brief progress report confirming their educational advancement and appropriate use of funds. You reserve the right to discontinue or withhold funding if a recipient fails to meet these conditions, withdraws from the institution, or uses funds for non-approved purposes.

You will supervise all scholarship grants to ensure funds are used solely for educational purposes. Payments are made directly to the educational institution on behalf of the recipient, with instructions that funds be applied only to tuition for students who are enrolled and in good academic standing.

To monitor compliance, you may require verification of enrollment and academic standing, including transcripts or other documentation, particularly for renewal of awards. If a recipient is no longer enrolled, fails to maintain good academic standing, or funds are misused, you may withhold future payments, request additional documentation, or terminate the scholarship.

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.

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

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