Seminary scholarship procedures receive advance approval

Plain-English summary

A private foundation proposed scholarships for students pursuing Christian seminary studies and future missionary or ministry work. Applicants had to show academic ability, character, motivation, financial need, a church or seminary recommendation, and a detailed study and ministry plan. Trustees or an appointed committee would select recipients objectively, exclude insiders and their families, disclose conflicts, and pay awards directly to educational institutions. Recipients had to provide annual institution-verified progress and spending reports, while the foundation retained records and agreed to recover or stop diverted funds. The IRS approved the procedures under section 4945(g)(1), so compliant scholarship expenditures would not be taxable expenditures. Recipient exclusions under section 117 remained limited to qualified tuition and related expenses.

Ruling snapshot

• Question: Did the foundation's proposed seminary scholarship program satisfy the advance-approval requirements for grants to individuals?
• Outcome: approved
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), 170(c)(2)(B), 4945(g)(1)

Full text (IRS public release)

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

Release Number: 201748012
Release Date: 12/1/2017 Employer Identification Number:
Date: September 5, 2017

Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04

B= Name
C= Country

x dollars= Amount
y= 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 provided in Code section 117(b)).

Description of your request
Your letter indicates you will operate a scholarship program called B. Your mission is to
promote Christian missionary work with a special emphasis on missionary work in C.

The purpose of B is to provide financial support to students planning to study at Christian
seminaries who have a strong desire to pursue Christian missionary work. Your goal is
to help recipients become better equipped both academically and spiritually for future
services. Scholarships will be awarded for study at colleges, universities, theological

Letter 4792 (10-2012)
Catalog Number 58263T


seminaries, or other qualified educational institutions and will be made available on a
nondiscriminatory basis without regard to race, color, sex, sexual orientation, religion, or
ethnic or national origin. The scholarship can only be used for: (1) tuition and fees
required for the enrollment or attendance of the student at a qualifying institution; (2)
fees, books, supplies and equipment required for courses of instruction at such
educational institution; and (3) room and board. An additional condition is that no part of
the scholarship can be used as payment for teaching, research or other services by the
recipient as a condition for receiving the scholarship.

You anticipate you will typically award in the range of y scholarships per year, depending
on the funding available and the amounts requested by the students. The amount of the
scholarships will be in the range of x dollars depending on the tuition requirements and
the recipient's demonstrated need, fees, and necessary living expenses, as approved by
the educational institution. You will publicize B through your programs, informational
materials, and through appropriate educational institutions.

To be eligible, potential recipients must be born again Christians with a desire to pursue
seminary studies and training at a seminary in the United States, with the goal of serving
in Christian ministries. The potential recipients should be recommended by their church
or the seminary in which they plan to study. They must also demonstrate sufficient
academic ability, character, motivation, and financial need, and attend qualified
educational institutions.

You will require each applicant to complete your scholarship application form, as well as
submit a resume, transcripts from previous college studies, a recommendation letter from
their home church or recommendation from the seminary they will be attending and a
personal statement which includes the applicant's personal testimony, volunteer
work/ministry experience, goals in pursuing this education, reasons for selecting this
institution, intended coursework, and objectives for future ministry. Applicants must also
include the total amount of their scholarship request, detailing the amount of tuition and
fees per quarter or semester for the academic year, plus any necessary living expenses,
as approved by the seminary.

After receiving applications, your trustees (or a selection committee appointed by them)
will review the applications. They will select individual recipients and determine the
amount of the individual awards on an objective and nondiscriminatory basis without
regard to race, color, religion, sex, or sexual orientation.

Your trustees, members of the selection committee, and family members of the foregoing
will not be eligible to receive scholarships. Furthermore, your trustees are obligated to
disclose any personal knowledge of and relationships with any potential recipient under
consideration and to refrain from participation in the award process in a circumstance
where he or she would derive, directly or indirectly, a private benefit if any potential
recipients are selected over others.

Upon the acceptance of the scholarship, the recipient will agree to provide you on a
regular basis a progress report, including but not limited to their prayer newsletter,

Letter 4792 (10-2012)
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delineating course work status (as the primary focus), current ministry involvement, and
intentional prayer needs, annual progress report including course work completed, with
grades, along with comments as how these courses could be applied in future ministry
work. You require a progress report of each student grantee at least each academic year.
This report must include a summary of the use of the funds awarded, the recipient's
courses taken (if any), and grades received (if any) in each academic period. This report
must be verified by the educational institution.

Once the scholarship is granted and the recipient has accepted the terms, the entire
amount for the academic year will be paid directly to the college, university, theological
seminary, or other qualified educational institute the recipient has enrolled in or will be
attending. Each educational institution must agree in writing to use the grant funds to
defray the recipient’s expenses applicable for attending such educational institution or to
pay the funds (or a portion thereof) to the recipient only if the recipient is enrolled at such
educational institution and his or her standing at such educational institution is consistent
with the purposes and conditions of the scholarship. The educational institute will
administer the actual disbursement of the scholarship in installments at appropriate times
for the necessary expenditure.

At or close to the end of each academic year, if the recipient needs continued scholarship
support to complete the degree program as planned, a new application will be required.
The application will include an affirmation of the original study plan and/or any changes, if
applicable, to the original study plan, including reasons for the change, total funding
needs for continued study for the next academic year, and a recommendation letter from
the recipient’s academic advisor delineating his/her assessment of the recipient's study
status if continuing support is recommended for the next academic year.

If you learn that all or any part of a scholarship is not being used to further the purposes
of the scholarship, you will take all reasonable and appropriate steps to recover the
scholarship funds and/or ensure restoration of the diverted funds to the purposes of the
scholarship. If such a diversion occurs and the recipient has not previously diverted
scholarship funds to any use that does not further the purposes of the scholarship, you
will withhold any further payments to the recipient until it has received acceptable
assurances that future diversions will not occur and will require the recipient to take
extraordinary precautions to prevent future diversions from occurring.

You will retain complete records about all scholarships awarded. These records shall
include all information obtained by you to evaluate the qualifications of potential
recipients, the identification of recipients, the purpose and amount of each scholarship,
the terms of payment of each scholarship and any additional information you secured as
part of the scholarship administration process.

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

Letter 4792 (10-2012)
Catalog Number 58263T

meets all 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.

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.

Letter 4792 (10-2012)
Catalog Number 58263T


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