Computer science scholarship procedures received approval

Plain-English summary

A private foundation proposed scholarships for underprivileged students enrolled full-time in a computer science bachelor's degree program at a specified school. Applicants had to meet a minimum high-school grade-point average, demonstrate financial need, submit academic and English-proficiency records, and write an essay. The foundation's board would select recipients using stated criteria, with conflict recusals and exclusions for insiders and their relatives. Grants would be paid directly to the school, monitored annually, supported by records, and subject to diversion-recovery and sanctions-compliance procedures. The IRS approved the program under Section 4945(g)(1), and stated that awards used for qualified tuition and related expenses would not be taxable to recipients under Section 117(b).

Ruling snapshot

• Question: Did the foundation's computer science scholarship procedures qualify for advance approval?
• Outcome: Approved.
• Key authorities: IRC §§ 117, 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: 201818019
Release Date: 5/4/2018 Employer Identification Number:

Date: February 5, 2018
Contact person - ID number:

Contact telephone number:

LEGEND

UIL: 4945.04-04

B= School

C= Grade

D= Currencies

E= Number

y dollars= Amount

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 that you will operate an educational grant program.

The purpose of the program is to provide scholarships to underprivileged students
majoring in computer science at B. To be eligible, candidates must be currently enrolled
full-time in a computer science bachelor’s degree program at B, have a minimum C grade
point average from high school and demonstrate financial need. You will promote the
scholarship through B who will post announcements on the school bulletin board and

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website, explaining the availability of the scholarship program and the eligibility criteria.
Your president will also interview B’s staff on potential candidates.

The total number of scholarships granted will generally be determined by the currency
exchange rate of D. You currently plan to select in the range of E students per year to
receive the scholarship for an amount approximately valued at y dollars.

Applicants must submit a registration form with such documents as an official high school
diploma and transcript, a copy of a certificate showing proficiency in English, recent
photographs and an essay. The essay must describe their concerns with issues in the
world today, why they deserve the scholarship, what motivates them, and if they are
interested in working at a non-governmental organization. Application packets are sent to
B and emailed to you.

A selection committee consisting of your Board of Directors will select the recipients from
eligible applicants after B has provided you the applications of those who have been
determined to be eligible. The selection committee will choose the recipients based on
their determination to succeed, future goals and plans to achieve these goals, financial
need and an interview.

If a member of the selection committee has a relationship with an applicant, then this
member will abstain from voting on whether to recommend the student for a scholarship.
Furthermore, you do not discriminate on the basis of race, religion, creed, color, sex, age,
physical or mental disabilities, sexual orientation, or national origin. The scholarships are
required to be awarded on an objective and nondiscriminatory basis.

Relatives of members of the selection committee, your officers, directors, or substantial
contributors are not eligible for your program. Furthermore, your officers, directors and
substantial contributors are not eligible for grants under your program.

You will pay the grants directly to B. In addition, you will meet with a school official and
the recipients at least once per year to review that the scholarship funds are used per the
agreement which recipients are required to sign. Any misuse of the scholarship funds will
be judged by the law.

You will retain all documents for each scholarship recipient, including a signed Student
Scholarship Agreement, and documentation verifying the Criteria for Application are met.

You represent that you will review grantee reports annually, investigate diversions of
funds from their intended purposes, and take all reasonable and appropriate steps to
recover diverted funds to ensure funds are used for their intended purposes. You will
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 all records relating to individual grants, including information obtained
to evaluate grantees, identify whether a grantee is a disqualified person, establish the

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amount and purpose of each grant, and establish that you undertook the supervision
and investigation of all grants.

You will check the U.S. Department of the Treasury’s Office of Foreign Assets ("OFAC")
list of SDN's for the names of individuals and entities with whom you are dealing with to
determine if they are included on the list, will check all federal agencies and comply with
all laws and regulations regarding foreign expenditures and to ensure grants are not
diverted to support terrorism or other non-charitable causes.

You will comply with all U.S. statutes, executive orders, and regulations that restrict or
prohibit U.S. persons from engaging in transactions and dealings with designated
countries, entities, or individuals, or otherwise engaging in activities in violation of
economic sanctions administered by OFAC and will acquire from OFAC the appropriate
license and registration where necessary.

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

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4

• 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

Letter 4792 (10-2012)
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