Approves graduate STEM scholarship for young women

Plain-English summary

A private foundation proposed a merit scholarship for a female high school junior or senior from either of two states who intended to pursue graduate study in science, technology, engineering, or mathematics. The winner would receive an annual award for three years while enrolled in a graduate STEM program. Selection would consider essays, grades, test scores, recommendations, and an interview by foundation staff and female scientists. The recipient would document educational expenses and continued enrollment, while the foundation would monitor reports, investigate diverted funds, and maintain grant records. The IRS approved the procedures under section 4945(g)(1), so qualifying awards would not be taxable expenditures.

Ruling snapshot

• Question: Did the foundation's procedures for a merit-based graduate STEM scholarship qualify for advance approval under section 4945(g)(1)?
• Outcome: Approved.
• Key authorities: IRC §§ 117(a), 117(b), 170(b)(1)(A)(ii), 170(c)(2)(B), 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: 201814013
Release Date: 4/6/2018
Date: January 8, 2018

Employer Identification Number: [redacted]
Contact person - ID number: [redacted]
Contact telephone number: [redacted]

LEGEND

B = Award
C = State
D = State
e dollars = Amount

UIL: 4945.04-04

Dear [redacted]:

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

Your letter indicates you will operate a scholarship program called B. The purpose of B is
to promote young female scientists in the fields of science, technology, engineering and
mathematics (STEM).

B is a merit-based award which will be granted to the top female STEM scholar who
applies and aspires to continue her dreams in STEM after receiving an undergraduate
degree. B is an investment in the future of young female scientists. The winner will
receive e dollars of funding for each of three years that she remains in a graduate level
program to obtain a degree in a STEM field.

To be eligible for the award the recipient must be a female student in her junior or senior
year of high school located in the states of C or D. In the future, you hope to expand your
program to include students from the entire United States.

Your selection of the winner will be based on the following:

• An essay describing the applicant’s most significant STEM research experience

• An essay on the role of STEM in the future

• School grades

• ACT/SAT scores

• Recommendations

• Interview with the selection committee

The selection committee is comprised of your staff and female scientists from renowned
research institutes. They will review the applications, interview the applicants and
determine the winner.

The scholarship will be paid to the student once she is in graduate school for educational
expenses including tuition, room, board, supplies or transportation, etc. The recipient will
be required to show documentation of these educational expenses. In addition, they will
be required to show proof they are still enrolled in their post-graduate program.

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, and (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 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).

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.

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