Medical scholarship procedures received advance approval

Plain-English summary

A private foundation proposed scholarships for students pursuing premedical or medical studies at accredited colleges and universities and planning medical careers. Applicants would be evaluated on academic performance, financial need, community involvement, and extracurricular activities. Recipients had to remain in good standing, reapply each year, and receive payments through their medical schools. Two co-trustees served as the selection committee, with relatives, insiders, substantial contributors, and employees of a named financial institution excluded. The foundation also committed to annual reports, oversight of diverted funds, and detailed grant records. The IRS approved the procedures under section 4945(g)(1), making compliant expenditures non-taxable to the foundation and qualifying awards non-taxable to recipients when used for eligible expenses within section 117(b).

Ruling snapshot

• Question: Did the foundation's proposed medical scholarship procedures meet the advance-approval requirements for grants to individuals?
• Outcome: approved
• Key authorities: IRC §§ 117, 170, 4945(g); Treas. Reg. § 53.4945-4

Full text (IRS public release)

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

Number: 201737014
Release Date: 9/15/2017

Employer Identification Number:
Contact person - ID number:
Contact telephone number:
Date: June 22, 2017

LEGEND

B = Scholarship Program
C = State
D = Financial Institution
g = Number
h = Number
x dollars = Dollar amount
y dollars = Dollar amount
z dollars = Dollar amount

UIL: 4945.04-04
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)).

Description of your request
You will operate a scholarship program called B.

Letter 4792 (10-2012)
Catalog Number 58263T


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The purpose of B is to provide scholarships to students to defray the cost of tuition at
medical school or for premedical course studies. The trust will provide scholarships to
students taking a premedical or medical course of study in an accredited college or
university and who plan to practice medicine as a career.

Currently, scholarships are available for g and h year medical students in good academic
standing who need financial assistance for completion of their education.

Applications are disseminated to certain medical schools in C. The schools post the
application on their website. Your application requests the applicant to provide personal
information, educational background, financial need information, and character
information, including references, extracurricular activities, and community service. You
also request statements on why they should be granted the scholarship and intended
educational and career goals.

The criteria used to determine who is eligible for your program are academic
performance, financial need, community involvement, and extracurricular activities.

Trustees determine the number of grants that will be made annually. You determine the
amount of each grant to meet the private foundation distribution requirement. You
anticipate this will be around x dollars annually, with scholarships ranging from y dollars
to z dollars.

Scholarship recipients must be in good standing with the school to be eligible for the
scholarship. The scholarship is not renewable; all recipients must reapply each year.
Scholarships are paid directly to the medical schools for application to the student's
account.

Co-trustees of the trust, one a corporate fiduciary and one an individual, serve as the
selection committee members. Your trust agreement, as modified by court order,
provides procedures for appointing successor trustees, who would then serve as the
selection committee. Relatives of the selection committee, officers, directors, or
substantial contributors are not eligible for your scholarships. D employees are also not
eligible for your scholarship program.

You represent that 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, and 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 case histories showing recipients of your scholarships, fellowships,
including names, addresses, purposes of awards, amount of each grant, manner of
selection, and relationship (if any) to officers, trustees, or donors of funds.

Letter 4792 (10-2012)
Catalog Number 58263T

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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 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 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.

Letter 4792 (10-2012)
Catalog Number 58263T


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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

Letter 4792 (10-2012)
Catalog Number 58263T