Long-term care scholarship procedures receive advance approval

Plain-English summary

A private foundation proposed scholarships for employees of long-term care facilities who were accepted into nursing or related education programs. An independent selection committee would evaluate applicants, insiders and their relatives were ineligible, and the foundation would verify enrollment, monitor use of funds, investigate diversions, and maintain grant records. The IRS approved the procedures under section 4945(g)(1), so grants made under them would not be taxable expenditures. Awards used for qualified tuition and related expenses also would not be taxable to recipients, subject to section 117(b).

Ruling snapshot

• Question: Do the foundation's long-term care scholarship procedures satisfy IRC § 4945(g)(1)?
• Outcome: Approved
• Key authorities: IRC §§ 117, 170, 4945(g)

Full text (IRS public release)

Internal Revenue Service                         Department of the Treasury
P.O. Box 2508
Cincinnati, OH 45201

Release Number: 201615020
Release Date: 4/8/2016
Date: January 13, 2016

Employer Identification Number:

Contact person - ID number:

Contact telephone number:

LEGEND                                   UIL: 4945.04-04
B = scholarship program
D = name of state
G = organization name
x = dollar amount
z = number

Dear                 :

You asked for advance approval of your scholarship grant procedures under
Internal Revenue Code section 4945(g). This approval is required because you are
a private foundation that is exempt from federal income tax. You requested
approval of your scholarship program to fund the education of certain qualifying
students.

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 Code section 4945(g)(1). As a result, expenditures you make under these
procedures will not be taxable.

Also, 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 provide in Code section 117(b)).

Description of your request

Your letter indicates you will operate a scholarship program called B.

Your purpose is to raise funds for this scholarship.

The purpose of B is to assist with educational costs of persons whose professions will
enhance the provisions of long-term care in the state of D. All scholarships would be
made for education in the field of nursing, including any area or study directly applicable

Letter 4792 (10-2012)
Catalog Number 58263T

2

to the provision of long-term care, such as nursing, physical and/or occupational therapy,
dietetics, etc.

You anticipate the amount of the scholarship will be $x per person. The amount would
depend on the amount raised by your volunteers and the scholarship will not be
renewable.

Advertising of the scholarships would be done by mailings to all members of the G which
will include assisted living, basic care, and nursing facilities in D. Information would also
be distributed to other nursing organizations, long-term care facilities in D, parents, high
school guidance counselors, and on your website.

Applicants must meet the following qualifications:

a. Applicant is employed by one of G’s facilities at the date of application and is
   recommended by the facility;

b. Applicant demonstrates proof of acceptance into a nursing education program
   approved by the Board;

c. Two letters of recommendation are required. One must be completed by the
   Director of Nursing or Administrator of the referring facility; and

d. All forms must be typed and postmarked by September 1 of the year in which
   scholarship is requested.

While the scholarship recipients must be employees of the member organizations of G at
the date of the application, there is no future service requirement for scholarship
recipients.

You will select scholarship recipients based on the applicant’s desire and commitment to
work in the long-term care nursing field. You anticipate only selecting recipients who
verbalize the desire and commitment to work in a long-term care facility.

The Selection Committee will be a z-member committee consisting of individuals
employed by z different nursing schools. If an applicant is related to a member of the
Selection Committee, that committee member will be prevented from participating in that
year’s selection. Your substantial contributors, officers, directors, trustees, or any other
individuals who have similar powers or responsibilities, and any of their ancestors,
spouses, children, grandchildren, great-grandchildren, and the spouses of children,
grandchildren, and great grand-children are not eligible to receive this scholarship.

The scholarship funds will be paid directly to the individuals.

You will verify acceptance and enrollment at an educational institution for the succeeding
school term. You will make an inquiry with the applicant should you receive a report that
a recipient has not completed his or her education. If the recipient does not intend to
complete the education you will request that the funds be returned.

Letter 4792 (10-2012)
Catalog Number 58263T

3

You will maintain case histories showing recipients of your scholarships, including
names, addresses, purposes of awards, amount of each grant, and manner of selection.

You will arrange to receive and review grantee reports annually and upon completion of
the purpose for which the grant was awarded, you will investigate diversions of funds
from their intended purposes. You will take all reasonable and appropriate steps to
recover diverted funds, 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 diversions from occurring.

You will maintain all records relating to individual grants, including information obtained to
evaluate grantees, identify whether a grantee is a disqualified person, establish the
amount and purpose of each grant, and establish that you undertook supervision and
investigation of grants.

Basis for our determination

The law imposes certain excise taxes on the taxable expenditures of private foundations
(Code section 4945). 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 of the following requirements of Code 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 Code section
  117(a).

• The grant is to be used for study at an educational organization described in Code
  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 Cincinnati Office of Exempt Organizations at:

Internal Revenue Service
Exempt Organizations Determinations
P.O. Box 2508
Cincinnati, OH 45201

Letter 4792 (10-2012)
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• You cannot 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 Code 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.

Please keep a copy of this letter in your records.

If you have questions, please contact the person listed at the top of this letter.

Sincerely,

Jeffrey I. Cooper
Director, Exempt Organizations
Rulings and Agreements

Letter 4792 (10-2012)
Catalog Number 58263T