IRS approves a foundation's scholarship procedures for medical students

Plain-English summary

The private foundation requested advance approval for a scholarship program for third- and fourth-year medical students with financial need. The scholarships will support students at qualifying educational institutions in a specified state who are pursuing primary care or generalized medicine fields. 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 program. The IRS also said the awards are scholarship or fellowship grants that are not taxable to recipients when used for qualified tuition and related expenses, subject to IRC § 117(b). The approval depends on objective and nondiscriminatory selection, qualifying educational institutions, recordkeeping, oversight, and the other conditions described in the letter.

Ruling snapshot

• Question: Do the foundation's proposed medical 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:
06/09/2026

Taxpayer ID number:

Person to contact:

Name:
ID number:
Telephone:

Release Number: 202636022
Release Date: 9/4/26
LEGEND UIL: 4945.04-04
B = State
X = Number

y dollars = dollar 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 to alleviate the financial burden of medical school

for students pursuing careers as medical practitioners in primary care or generalized medicine fields, such as family medicine, internal medicine, pediatrics, and emergency medicine.

Your scholarships will be available to third- and fourth-year medical students who demonstrate financial need and attend qualifying educational institutions located in the State of B. These institutions must be described under IRC Section 170(b)(1)(A)(ii).

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

On average, you will offer X scholarships each academic year, worth approximately y dollars per recipient. Scholarships will be provided for one academic year; however, students who receive scholarships in their third year of study may reapply for their fourth year, provided they remain otherwise eligible. In the future, you may limit your scholarships to students in their fourth year of medical studies. In addition, students who do not anticipate completing their medical degree in four years may apply; however, they must submit additional information explaining the circumstances and their educational curriculum for the upcoming academic year.

Your scholarships will be publicized primarily through qualifying educational institutions in the State of B. These institutions will be responsible for accepting scholarship applications. Applications will request information concerning estimated available funds and assets to pay for education, other scholarships and financial aid received, expenses, and current creditors and debt (including educational debt) to ensure your scholarships are awarded to medical students of limited financial means who anticipate graduating medical school with a significant debt burden. Financial aid representatives will then review applications for accuracy and completeness. If there are any apparent errors, applications may be returned to students for corrections.

After this initial review, approved applications are then forwarded to you. Your scholarship committee, comprised of your trustees, will review all applications and may reject some for reasons such as a lack of demonstrated financial need or other required criteria. Relatives of members of the selection committee, or of your officers, directors, or substantial contributors are not eligible for scholarships made under your program.

After your committee approves the applications, you will finalize the number and amount of scholarships and disburse the funds directly to each school. These institutions will be responsible for distributing the funds to enrolled students in good standing, as well as supervising scholarship recipients and taking action if the terms of your scholarship program are violated in any manner.

Your scholarships are to be used exclusively to support the medical education of qualifying students; therefore, each institution will confirm that the funds were used in accordance with their intended purposes and be required to provide you with reports on your scholarship recipients. These reports will show whether recipients performed the activities that the scholarships are intended to finance and provide information on the success of the program by (1) confirming recipients’ graduation from medical school and (2) providing information as to the nature of the recipients’ residencies. 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 if 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.

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

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.

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

• 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.

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

CC.

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