Expanded scholarships for students from military families are approved

Plain-English summary

A private foundation asked to expand and revise a scholarship program serving students at selected military high schools. The expansion would also cover college-bound public-school seniors in Junior ROTC programs in a state. Eligible students included children of fallen service members, veterans with substantial service-related disabilities, and active service members with multiple or extended deployments. Schools would nominate students, and a committee would consider financial need, academic performance, and school input while monitoring recipients' later performance and use of funds. 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 could also be excluded by recipients subject to section 117(b).

Ruling snapshot

• Question: Do the foundation's expanded military-family scholarship procedures satisfy section 4945(g)(1)?
• Outcome: approved
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), and 4945(g)(1)

Full text (IRS public release)

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

Release Number: 201704023
Release Date: 1/27/2017 Employer Identification Number:
Date: October 31, 2016

Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04

P = State
q dollars = Amount
r dollars = Amount

Dear

You asked for advance approval of changes in, and expansion of your scholarship
program under Internal Revenue Code section 4945(g)(1). This approval is
required because you are a private foundation that is exempt from federal income
tax.

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)).

Description of your request

Your letter indicates you are seeking advance approval to change and expand your
scholarship program. In addition to awarding scholarships to students enrolled at select
military high schools, you will provide college tuition scholarships for college-bound
seniors involved in Junior ROTC programs who are enrolled in public schools in P.

You are changing the criteria for selecting scholarship recipients. In addition to students
who are the children of fallen heroes and students who are the children of veterans with
100% service-related disability, you will include students whose parent or guardian is a
veteran with significant service-related disability (minimum 80%), as well as students with

Letter 4792 (10-2012)
Catalog Number 58263T

a parent or guardian who is an active service member with multiple or extended military
deployments. The meaning of “fallen hero” includes a parent or guardian who was killed
while on active military duty, as well as a parent or guardian who died as a result of a
service-related disability regardless of whether such parent was on active duty at the time
of death.

The amount of each scholarship will vary, but may be up to q dollars per recipient each
academic year. The amount for non-boarding students will be r dollars. While
scholarships are renewable, renewal is not guaranteed. You reserve the right to
discontinue a scholarship or the scholarship program for any reason.

Scholarship recipients will be selected based upon demonstrated financial need and
academic performance, as well as the input of school personnel. Scholarship recipients
are nominated by the schools and selected by your scholarship selection committee. The
scholarship selection committee is comprised of your directors and officers, and any
other individuals selected by your directors and officers.

The schools are required to monitor the academic and behavioral performance of
scholarship recipients and to report it at the end of each semester. Should a scholarship
recipient's academic and/or behavioral performance not satisfy your standards, it will be
placed on probation the following semester and if there is no improvement during the
probationary period, the scholarship will be terminated. An archive of scholarship
recipients will be maintained, including the names, addresses, purposes, awarded
amounts, and manner of selection of the scholarship.

You represent that you will complete the following: (1) arrange to receive and review
grantee reports annually and upon completion of the purpose for which the grant was
awarded, (2) investigate diversion of funds from their intended purposes, (3) take all
reasonable and appropriate steps to recover the diverted funds, ensure other grant funds
held by a grantee are used for their intended purposes, and (4) 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 represent that you will maintain the following: (1) all records relating to individual
grants including information obtained to evaluate grantees, (2) identify a grantee is a
disqualified person, (3) establish the amount and purpose of each grant, and (4) establish
that you undertook the supervision and investigation of grants described above.

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.

Letter 4792 (10-2012)
Catalog Number 58263T

• 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

• 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.

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, 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