IRS approves a private foundation's scholarship procedures

Plain-English summary

A private foundation asked the IRS to approve its procedures for awarding scholarships to students pursuing further education. It proposed selecting applicants using academic performance, character, ability to match the award, extracurricular work, and recommendations, with awards paid directly to educational organizations. The IRS approved the procedures under IRC § 4945(g)(1), assuming the foundation operates the program as described, so payments made under those procedures will not be taxable expenditures. The letter also says recipients are not taxed on awards used for qualified tuition and related expenses, subject to IRC § 117(b)'s limits.

Ruling snapshot

• Question: Do the foundation's scholarship procedures qualify for advance approval under IRC § 4945(g)(1)?
• Outcome: Approved.
• Key authorities: IRC §§ 4945(g)(1), 117, 170(b)(1)(A)(ii).

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 07/01/2026

Tax Exempt and Government Entities Taxpayer ID number:
Person to contact:
Name:
ID number:
Release Number: 202639014 Telephone:
Release Date: 9/25/26
LEGEND UIL: 4945.04-04

B = Number of Scholarships
C = Number of Scholarships
d dollars = Amount

e dollars = Amount

F = State

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 program which provides scholarships to individuals pursuing further education. The purpose of your program is to provide financial assistance and relief to young adults pursuing higher education.

You generally anticipate awarding between B and C scholarships annually, with award amounts ranging between d dollars and e dollars. The amounts awarded depend on the type and cost of the program the recipient

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

is enrolled in, the recipient's ability to match the award amount, and whether the recipient has received prior awards.

You will publicize the program by sharing information on your website and sending letters about the program to high school guidance counselors in F.

Your scholarship is open to students attending a school in the continental United States between the 7th grade and their 4th year in college.

Recipients will be selected based on the following:
• Academic proficiency

• Determination of character/competency

• Ability to match the award amount

The factors you will use to determine merit include:

• GPA

• Extracurriculars, volunteer work, and community involvement
• Letter(s) of recommendation

Your selection committee consists of all members of the board of trustees. Your original board of trustees was selected based on expertise in education, and any future replacement trustees will be elected by the remaining trustees. The selection committee and their relatives are not eligible to apply.

Awards will be paid directly to the educational organization.

Awards will be made on a one-time basis, but recipients are eligible to apply for future scholarships. To be eligible for renewal, the recipient must submit another application. Renewals will generally be in lower amounts than prior awards to accommodate more first-time recipients.

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.

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

• 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. 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