IRS approves a private foundation's health-care scholarship grant procedures

Plain-English summary

A private foundation that funds health-care education asked the IRS to approve
in advance the way it selects and awards scholarships. Under Code Section 4945,
grants a private foundation makes to individuals for study can trigger an excise
tax unless the IRS first blesses the award procedures. The foundation runs two
scholarship tracks: one helping students finance higher or continuing education
in health-care fields, and one helping people finance medical training for rural
practice. Awards are decided by a selection committee on objective factors like
scholastic achievement, activities, character, and leadership, with financial
need used only as a tiebreaker. The IRS determined the procedures meet Code
Section 4945(g)(1), so the foundation's grant payments will not be taxable
expenditures, and the scholarships will not be taxable income to recipients who
use them for qualified tuition and related expenses under Code Section 117(b).
This is a routine advance approval, valuable mainly to the foundation and its
scholarship recipients.

Ruling snapshot

• Question: Do the foundation's scholarship grant procedures qualify for advance approval under Code Section 4945(g)(1)?
• Outcome: Approved
• Key authorities: IRC § 4945(g); IRC § 117; IRC § 170(b)(1)(A)(ii), § 170(c)(2)(B)

Full text (IRS public release)

Internal Revenue Service
P.O. Box 2508
Cincinnati, OH 45201

Release Number: 201850024
Release Date: 12/14/2018
Date: September 18, 2018

LEGEND

B = State

C = Name
D = Name
E = Name
F = Name
G = Name
H = Name
J = Name

X = Award Name
Y = Award Name

u dollars = Amount
v dollars = Amount

Dear

Department of the Treasury

Employer Identification Number:
Contact person - ID number:
Contact telephone number:

UIL: 4945.04-04

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)).

Letter 4792 (10-2012)
Catalog Number 58263T

Description of your request
Your letter indicates you will operate a scholarship program.

Your purpose is to improve health and healthcare and to help communities in
northeastern B to help them identify, address and resolve chronic health issues.

Under your program, you will award scholarships consisting of X as well as Y. Under X,
you will help finance the cost of higher education or continuing education for studies in
health care related fields while under Y you will help individuals finance the cost of
medical training. You will publicize both X and Y on your web site, and through direct mail
and emails to participating/eligible schools and school districts.

Grants under both X and Y are career goal based awards that consider scholastic
achievement, extra-curricular activities, character, personality and leadership of the
applicant, if all else is relatively equal, then financial need will be considered. The
amount of each scholarship or grant awarded is expected to be u dollars awarded to
each recipient, to be paid out in v dollar installments for each of two years. Under X, a
recipient may re-apply for an additional two years of awards at the end of the first
scholarship award.

To be eligible for an award under X, applicants must:

Be a graduate of C school district and/or a resident of D.

Be enrolled at an accredited school of higher education which offers an Associate
of Science or of Arts degree in a health care field.

Have plans to pursue a career in a health care related field including but not
limited to pharmacology, health care administration, physical therapy, respiratory
therapy, medical social work and/or psychology.

Have maintained a certain grade point average in their field of study and a certain
grade point average in other required areas of study.

To be eligible for an award under Y, applicants must:

• Have been accepted to schools consisting of E, F, or G.

• Have the career goal of becoming a family practice physician, nurse practitioner or
registered nurse in a rural health care setting.

• Be a D, H, or J graduate and/or a D resident at the time of the application and the
award.

• Have maintained a certain grade point average in their field of study and a certain
grade point average in other required areas of study.

Applicants for both X and Y must complete and submit an application package in early
spring to you including descriptions of community and employment history, volunteer
activities as well as an essay.

Letter 4792 (10-2012)
Catalog Number 58263T

Recipients for awards under both X and Y will be selected by a selection committee
whose members must be affiliated with a C District School, be a practicing or retired
medical professional in D or J or serve as a member of your Board of Directors.
Selection committee members are recruited and nominated by current committee
members. Nominees are approved by your full selection committee.

Moreover, in spring you will send a packet to each committee member including all
applications and a scoring form to rank them. The selection committee will later meet and
will together review the applications, rank the applications and determine the recipients
based on their career goals, scholastic achievements, extra-curricular activities, and if all
else is relatively equal, then they will consider financial need. The selection committee
will also determine the number of grants and the grant amounts awarded each year. This
will be approved by your Board of Directors and will not generally change from year to
year. In the case of a tie, the committee is authorized to award an additional scholarship.

You will send letters to all applicants, indicating the outcome of their application. Awards
will generally be paid to the recipient. Furthermore, transcripts are required prior to the
awards being paid and if the recipient's grade point average is not achieved or
maintained, or if the field of study changes to a field outside of your program
requirements, an award will not made.

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).

Letter 4792 (10-2012)
Catalog Number 58263T

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.

The effective date of this ruling is February 12, 2018.

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