IRS approves a private foundation's nursing scholarships

Plain-English summary

A private foundation asked the IRS to approve scholarships for financially needy students entering their junior or senior year in a nursing program. Recipients would be selected based on financial need and their ability to complete the program, and scholarships could be renewed after a new application each year. The foundation would pay schools directly, require refunds of unused funds, monitor academic progress, investigate diversions, and maintain grant records. The IRS found that the procedures were objective and nondiscriminatory and met IRC Section 4945(g)(1). The scholarship payments would not be taxable expenditures, and recipients could exclude amounts used for qualified tuition and related expenses within Section 117(b)'s limits.

Ruling snapshot

• Question: Do the foundation's nursing-scholarship procedures qualify for advance approval under IRC § 4945(g)(1)?
• Outcome: approved
• Key authorities: IRC §§ 4945(g)(1), 117(a), 117(b), 170(b)(1)(A)(ii)

Full text (IRS public release)

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

Number: 201809014 Employer Identification Number:

Release Date: 3/2/2018
Contact person - ID number:

Contact telephone number:

Date: December 7, 2017

LEGEND UIL: 4945.04-04
X = University

Y = Hospital

Z = City, State

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 engage in charitable activities by providing scholarships for young persons training
to be nurses at X. Your program is publicized through X and Y. To be eligible, a student
must be entering their Junior or Senior year of school and demonstrate a financial need.

You will select recipients based on their demonstrated financial need and ability to
complete the nursing program. Awards vary year to year based on the funds you have
available and the number of qualifying nursing students at X that complete their training
at Y in Z. Scholarships are renewable each year. The student must reapply under the
same criteria each year they apply.

Letter 4792 (10-2012)
Catalog Number 58263T

Your scholarship selection committee consists of a representative of Y, two members of
X, and a representative of your Trustee. Your committee reviews all scholarship
applications provided by X and pares the applications down to those students that qualify
for the scholarship. You are responsible for choosing the final award recipients.

You pay the scholarship proceeds directly to the university/college the recipient attends
for the benefit of the recipient. You provide a letter to each university/college specifying
that the university/college’s acceptance of the funds constitutes an agreement to (i)
refund any unused portion of the scholarship if a scholarship recipient fails to meet any
term or condition of the scholarship; and (ii) notify the trustee if the scholarship recipient
fails to meet any term or condition of the scholarship. If the university/school will not
agree to such terms, you will obtain the needed reports and grade transcripts from the
scholarship recipient. The school follows the requirements, based on the criteria in their
handbook, to identify students eligible for the scholarships. Your selection committee
then oversees the selection of the scholarship recipients.

You represent that you will (1) arrange to receive and review grantee reports annually
and upon completion of the purpose for which the grant was awarded, (2) investigate
diversions of funds from their intended purposes, (3) 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 (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 all records related to the following: (1) individual
grants including information to evaluate grantees, (2) grantees which are identified as a
disqualified person, (3) how the amount and purpose of each grant was established, and
(4) how you established 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).

Letter 4792 (10-2012)
Catalog Number 58263T

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 September 12, 2017, 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.

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