Approves ancestry-based scholarship procedures

Plain-English summary

A nonexempt charitable trust treated as a private foundation requested advance approval for a scholarship program serving students with one of two specified ancestries. Awards could cover tuition, fees, books, transportation, and basic living expenses, and a separate one-year program would support promising candidates not yet attending college. A trustee and volunteer committee drawn from schools, the relevant communities, and local religious leaders would consider financial need, academic promise, character, citizenship, work, study, loyalty, community service, integrity, and frugal living. Awards could be renewed if recipients maintained a full course load and met academic and reporting requirements. The IRS approved the procedures under section 4945(g)(1), subject to the foundation's supervision, recordkeeping, recovery, and other stated conditions.

Ruling snapshot

• Question: Did the proposed scholarship procedures satisfy section 4945(g)?
• Outcome: Approved, assuming the program is conducted as represented and subject to the listed conditions.
• Key authorities: IRC §§ 117(a), 117(b), 170(b)(1)(A)(ii), 170(c)(2)(B), 4945(g)(1), and 4947(a)(1)

Full text (IRS public release)

[Redaction note: the IRS release blanks the trust's identity, employer identification number, contact information, scholarship name, two ancestries, and school name.]

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

Number: 201833030 Employer Identification Number:

Release Date: 8/16/2018
Contact person - ID number:

Contact telephone number:

Date: May 24, 2018

LEGEND: UIL: 4945.04-04
B= scholarship

C= name

D= name

E= school

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 nonexempt charitable trust described in IRC 4947(a)(1) that is also a private
foundation 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. The purpose of B is to provide
educational opportunities to those with C and D ancestry. The scholarship is to be used
for tuition and fees, books, transportation costs and basic living expenses. B will be
publicized through local media such as newspapers and community outreach.

To be eligible for B a candidate must be of C or D ancestry and accepted at a higher
education institution that you have approved. You will also have a scholarship program

for candidates who show promise but are not yet attending college. This program will
provide one year of tuition to attend E.

Your trustee in consultation with your selection committee, comprised of volunteers from
local school staff, members of the C and D community and local religious leaders, will
select the recipients from the applicants.

Criteria used for selection of recipients will include:
• financial need

academic promise

moral character

community citizenship

history of hard work

dedication to study

loyalty

giving back to the community

integrity,

simple and frugal living.

Candidates will be selected irrespective of sex, gender or field of study. Scholarships
may be renewed if the student maintains a full load of coursework, and satisfies your
academic achievement and reporting requirements.

You represent that you will complete the following (1) arrange to receive and review
grantee reports annually and upon completion of the purpose for which B 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 funds held by a
recipient are used for their intended purposes, and withhold further payments until you
obtain assurances that future diversions will not occur and recipients will take
extraordinary precautions to prevent future diversions from occurring.

You represent you will maintain all records relating to B, including information obtained to
evaluate grantees, identify whether a recipient is a disqualified person, establish the
amount and purpose of each award, and establish you undertook supervision and
investigation of the awards 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.

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