Scholarship and internship grant procedures approved

Plain-English summary

A private foundation proposed three scholarship programs and a supplemental internship grant program. The scholarships would support low-income private-school students, college students with financial need and strong academics, and nontraditional vocational students seeking rehabilitation and job skills. The internship grants would help existing college scholarship recipients cover basic living expenses during unpaid or underpaid summer internships. The foundation described selection criteria, insider exclusions, progress reports, recordkeeping, investigation of diverted funds, and recovery or withholding procedures. The IRS approved the procedures under sections 4945(g)(1) and 4945(g)(3), so grants made as proposed would not be taxable expenditures, and scholarships used for qualified tuition and related expenses would not be taxable to recipients within section 117(b)'s limits.

Ruling snapshot

• Question: Did the foundation's scholarship and internship grant procedures satisfy the advance-approval rules for grants to individuals?
• Outcome: approved
• Key authorities: IRC §§ 74(b), 117, 170, 4945(g)(1), 4945(g)(3); Treas. Reg. § 53.4945-4(c)(1)

Full text (IRS public release)

Transcriber's note: this document is a scan. Obvious OCR errors in bullet symbols, spacing, and page-order layout were corrected by comparison with all six page images. Grammatical irregularities visible in the scan are preserved. The wording is otherwise reproduced verbatim.

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

Release Number: 201734011
Release Date: 8/25/2017 Employer Identification Number:

Date: June 1, 2017
Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04
B = Program

C = City

D = Program

E = Program

m dollars = Amount
n dollars = Amount
p dollars = Amount

Dear

You asked for advance approval of your scholarship and educational grant procedures
under Internal Revenue Code section 4945(g)(1) and 4945(g)(3). 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 and educational grants. Based
on the information you submitted, and assuming you will conduct your program as
proposed, we determined that your procedures for awarding scholarships and
educational grants meet the requirements of Code section 4945(g)(1) and 4945(g)(3). 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

4945(g)(1) Scholarship Programs

Your letter indicates you will operate three scholarship programs. The first program is
called B. The purpose of B is to provide grants to individuals in elementary and high
school from low socio economic households in the city of C.

To be eligible for consideration the applicant must meet the following minimum criteria:

• Current or potential applicants to the private schools participating

• Reside in a low socio-economic C neighborhood as evidenced by proof of
residence

• Have a demonstrated financial need as determined by such participating schools
• Are nominated by the schools participating in B, and

• Have demonstrated personal motivation, and academic potential.

Participating schools will nominate five to ten candidates from the applicants to your
board who will ultimately decide the recipients. Selection of recipients will be based on
the following criteria by the selection committee and the participating schools:

• Demonstrated financial need as determined by the participating schools
• Standardized and academic test scores, and
• Recommendation from teachers or community members.

Each grant will be approximately m dollars per person per year. Initially you will provide
one to three grants per year depending on available resources. Grants will not be eligible
to be automatically renewed. However, prior applicants can apply again as long as they
meet the eligibility criteria. Scholarships will be distributed directly to the educational
institution. If a student leaves the school the school will be required to return the funds to you.

You also indicated you will operate a scholarship program called D. The purpose of D is
to provide financial assistance to students enrolled in a four-year degree-granting college
or university.

Potential recipients will submit an application found at your website along with school
transcripts, ACT/SAT test scores, a resume, biography and written statement. To be
eligible for consideration the applicant must meet the following minimum criteria:

• Admitted or enrolled at a participating college or university on a full-time basis
• Have a demonstrated financial need, and
• Have a history of exemplary academic achievements.

A screening committee, comprised of your officers, school representatives of professors,
business associates and community leaders, will make recommendations of the
applicants to your board, which will ultimately choose the recipients. Selection of
recipients will be based on the following criteria:

• Demonstrated academic achievements and financial need
• Leadership abilities

• Potential to make a difference in the world, and

• Approach to academic, social and spiritual education.

Each grant will be will approximately n dollars per person per year. Grants will be
renewed unless the recipient drops out of school, low academic performance, suspension
or engaging in illegal activity. In addition the recipient must submit a written narrative
progress report, transcripts and confirmation there has been no significant change in their
financial situation.

You will also operate a third scholarship program called E. The purpose of E is to provide
scholarships to individuals enrolled in vocational schools or educational certification
programs. The program is for non-traditional students such as ex-offenders, previous
drug or alcohol addicts or others looking to have a serious and positive life.

To be eligible for the scholarship applicants must have:
• A demonstrated financial need
• Been nominated by a participating charitable organization
• Demonstrated personal motivation, and
• Demonstrated a desire to rehabilitate their live as determined by the participating
charitable organization.

Selection of recipients will be determined by your board based on the following criteria:
• Financial need
• Nomination by participating charitable organization
• Personal motivation, and
• Potential to benefit from the job training and improve their lives and community.

You estimate providing one or two scholarships each year worth approximately p dollars
per person per year. The number of scholarships may change depending on available
resources. Grants will be renewed each school year as long as the recipient meets the
following:

• Enrolled in the school or program

• Submit a written progress report

• Submit transcripts, and

• Confirmation there has been no significant changes in their financial position.

4945(g)(3) Internship Program

Your letter indicates that you will operate an educational grant program that supplements
your program called D, described above. The purpose of this program is to provide
individuals already receiving the D scholarship a monetary supplement for basic living
expenses while the recipient is working an internship. The grants are intended to foster
and enhance the recipient’s leadership skills, confidence, judgement, problem solving
skills, etiquette and professional development while at the internship.

Potential recipients will submit an application found at your website. To be eligible for
consideration the applicant must meet the following minimum criteria:
• Admitted or enrolled at a participating college or university on a full-time basis
• Have a demonstrated financial need
• Have a history of exemplary academic achievements, and
• Have a summer internship that either pays no compensation or does not pay
sufficient compensation for basic living expenses.

A screening committee, comprised of your officers, school representatives of professors,
business associates and community leaders, will make recommendations of the

applicants to your board, which will ultimately choose the recipients. Selection of
recipients will be based on the following criteria:

• Demonstrated academic achievements and financial need

• Leadership abilities

• Potential to make a difference in the world, and

• Approach to academic, social and spiritual education.

Children or relatives of your officers, directors, substantial contributors or selection
committee members are not eligible for your scholarships.

Each grant will be will approximately n dollars per person per year. Grants will be
renewed unless the recipient drops out of school, has low academic performance, is
suspended or engaged in illegal activity. In addition, the recipient must submit a written
narrative progress report, transcripts and confirmation there has been no significant
change in their financial situation.

Children or relatives of your officers, directors, substantial contributors or selection
committee members are not eligible for your scholarships or supplemental awards.

For all of your programs, you represent 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, and (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 diversions 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 whether a grantee
is a disqualified person, (3) establish the amount and purposes 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.
• The IRS approves in advance the procedure for awarding the grant.
• The grant is:

- Ascholarship or fellowship subject to section 117(a) and is to be used for
study at an educational organization described in section 170(b)(1)(A)(ii); or

- A prize or award subject to the provisions of section 74(b), if the recipient of
the prize or award is selected from the general public; or

- To achieve a specific objective; produce a report or similar product; or
improve or enhance a literary, artistic, musical, scientific, teaching, or other
similar skill or talent of the recipient.

To receive approval of its educational grant procedures, Treasury Regulations section
53.4945-4(c)(1) requires that a private foundation show:

• The grant procedure includes an objective and nondiscriminatory selection
process.

• The grant procedure results in the recipients performing the activities the grants
were intended to finance.

• The foundation plans to obtain reports to determine whether the recipients have
performed the activities that the grants were intended to finance.

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,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements