IRS approves university scholarship procedures

Plain-English summary

A private foundation requested advance approval for several scholarship programs serving students who were active at a university student center. Award amounts depended on financial need and available resources, while some programs also required specified class standing, credits, grade-point averages, and fields of study. A selection committee would review applications, and a committee member related to an applicant would be expected to recuse. The scholarships were nonrenewable, although prior recipients could submit new applications, and the foundation would seek to rescind funds if scholarship terms were violated. The IRS approved the procedures under section 4945(g)(1), making grants under the described programs nontaxable expenditures and potentially excludable to recipients when used for qualified tuition and related expenses.

Ruling snapshot

• Question: Did the foundation's procedures for awarding and administering its university scholarships satisfy the advance-approval rules?
• Outcome: Approved, assuming the foundation conducts the programs as proposed.
• Key authorities: IRC §§ 117, 170, and 4945(g).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

P.O. Box 2508
Cincinnati, OH 45201

Release Number: 201641029
Release Date: 10/7/2016 Employer Identification Number:

Date: July 13, 2016
Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04

C = Scholarship Program
D = Scholarship Program
E = Scholarship Program
F = Scholarship Program
G = Scholarship Program
H = Scholarship Program
J = Scholarship Program
X = A Student Center

Y = A University

x = Amount

y = 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 won't 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)).

Letter 4792 (10-2012)
Catalog Number 58263T

Description of your request
Your letter indicates you will operate scholarship programs called C, D, E, F, G, H, and J.

You indicate that the purposes of C, D, E, F, G, H, and J are to provide an annual
scholarship to current students who are also active at X. All scholarship funds are to be
used for study at an educational institution, Y. Scholarship amounts range from x to y
depending on the applicant’s established need and your available resources. At least z
scholarship awards will be granted annually.

The applicant must meet the following criteria:

For C, D, E, F, and G; (a) must be a full-time Y student in good standing and (b) be active
at X.

For H, (a) must be a Junior or Senior full-time Y student, (b) be active at X, (c) receive at
least 30 credits from Y, (d) have a GPA of at least a 3.0, and (e) major in one of the
Natural Science.

For J, (a) must be a Junior or Senior full-time Y student, (b) be active at X, (c) receive at
least 30 credits from Y, (d) have a GPA of at least a 2.0, and (e) major in either Business
or one of the Sciences.

The application must be completed and emailed to you by April 1.

The application should include (a) personal information, (b) an involvement with X, (c)
college income and expenses, (d) how scholarship money will assist in his/her education.
In addition, the applicants are asked to attend a meeting with the scholarship committee
prior to being awarded a scholarship grant.

Only active voting members are eligible to serve on the selection committee. The
selection committee members are appointed by your president. Any student who is
active at X is eligible to apply. The announcement of the scholarships is published in the
Sunday X’s Bulletin for several weeks prior to the application deadline. The application
will be available through your email address. If an applicant is a relative of a Board
Member or substantial donor, the affected committed member would be expected to
recuse himself or herself from that application.

The scholarships are non-renewable. However, the previous recipients are eligible to
reapply, but must complete a new application and go through the same process again.

If the terms of the scholarship are violated, you will notify Y’s Financial Aid Office to have
any previously issued funds rescinded and to assist with any collection if any funds have
already been spent. The selection committee will use its discretion and may take one of
three actions as to the returned funds: (1) hold the funds until the next round of
scholarships and add to those funds, (2) distribute the fund proportionally to the
remaining awardees, or (3) select an alternate awardee from the applications already
submitted.

Letter 4792 (10-2012)
Catalog Number 58263T

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. The
effective date of our approval is December 23, 2015, 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 Cincinnati Office of Exempt Organizations at:

Internal Revenue Service

Exempt Organizations Determinations
P.O. Box 2508

Cincinnati, OH 45201

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.

Letter 4792 (10-2012)
Catalog Number 58263T

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