International student grant procedures received advance approval

Plain-English summary

A private foundation proposed scholarships for highly capable students at an institution in another country to pursue post-secondary education or training in the United States or, in some cases, their home country. The grants could cover tuition, books, school fees, living and travel costs, and a small weekly allowance. A seven-person committee would review English ability, character, examinations, and other available aid. The foundation would use written grant agreements, direct payments or supervised local administration, frequent reports, receipts, academic monitoring, and sanctions screening. The IRS approved the procedures under sections 4945(g)(1) and 4945(g)(3), so grants made as proposed would not be taxable expenditures.

Ruling snapshot

• Question: Did the international scholarship program satisfy the private-foundation grant rules for both scholarships and specific-objective grants?
• Outcome: approved, assuming the program is conducted as represented
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), 4945(g)(1), 4945(g)(3); Treas. Reg. § 53.4945-4(c)(1)

Full text (IRS public release)

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

Employer Identification Number:

Release Number: 201920012 Contact person - ID number: Release
Release Date: 5/17/2019
Date: February 22, 2019 Contact telephone number:

LEGEND UIL: 4945.04-04
X =Name

Y =Country

Z =Name

b 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 Sections 4945(g)(1) and 4945(g)(3). As a result, expenditures you make
under these procedures won't be taxable.

Also, awards made under the Section 4945(g)(1) 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 you will operate a scholarship program.

The purpose of your scholarship program is to provide highly capable students of X
located in Y the opportunity to receive post-secondary school education and training in
the United States and in some instances in Y. You expect to provide scholarships for one
to two students each year from X which is sustained by Z, a United States organization
exempt from federal income tax under IRC Section 501(c)(3).


The scholarship will fund expenses that are described in both Internal Revenue Code
Sections 4945(g)(1) and 4945(g)(3). Expenses under Code Section 4945(g)(1) will
include tuition, books and school fees to attend a qualified educational institution under
Section 170(b)(1)(A)(ii). Expenses under Code Section 4945(g)(3) will generally consist
of living and travel expenses as well as a small weekly allowance for miscellaneous
items. Furthermore, the amount of the grants will vary depending on the tuition expense
of the qualifying institution and the living situation of the particular student. In some
instances, donors may make living arrangements available to the recipients within their
homes for a period of time.

You will promote the program directly to X and Z. To be eligible to receive a scholarship,
the applicant must:

• Bea student of X located in Y;
• Demonstrate the ability to read and write the English language;

• Meet criteria to obtain a United States Student Visa (for those students planning to
study in the United States);

• Be preapproved and accepted by a community college, university or other
accredited educational or training institution.

A seven-member selection committee consisting of your officers, donors and the director
of X or the director of X’s transitional program will evaluate the candidates. This will
consist of:

• Interviewing the candidates to evaluate their understanding of the English
language, as well as evaluate their ability to adapt into American culture;
• Consulting with the director of X for an evaluation of their character and attitude;
• Reviewing the results of each candidate’s TOEFL examination;

• Reviewing the results of national examinations;

• Reviewing other scholarships available to students which may defray a portion of
their educational expenses.

You will require a written grant agreement and will primarily provide the funds directly to
the educational institution for those students who will study in the United States. For
students who remain in Y, you will provide the funds to Z to manage the funds.

You will require a periodic accounting and receipts, checks, bills, sales slips or other
documentation for items of expense in excess of b dollars. You will require transcripts
and use other methods to ensure that grantees are maintaining the conditions of
attendance, grades, grade point averages, enrollment and other documents. Any student
who fails to meet or maintain your criteria and requirements is required to return to Y at
your expense.

To renew the grant, the recipient must conform to all governmental requirements to
maintain a student visa, meet at least the minimum academic standards of the institution


and obtain a passing grade in all classes, observe and comply with the law including the
laws relating to use of illicit drugs.

You will review reports monthly but in no event less than quarterly. You will investigate
any perceived diversion of funds. If funds are diverted, you will take steps to ensure it
doesn’t happen again or return the grantee to Y.

You will check the OFAC List of Specially Designated Nationals and Blocked Persons for
names of individuals and entities with whom you are dealing to determine if they are
included on the list. You will comply with all statutes, executive orders, and regulations
that restrict or prohibit 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. You 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 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 Section 117(a) and is to be used
for study at an educational organization described in Section
170(b)(1)(A)(ii); or

◦ A prize or award subject to the provisions of Section 74(b), if the
recipient of the prize or award is selected from the general public; or

◦ To achieve a specific objective; produce a report or similar product; or
improve or enhance a literary, artistic, musical, scientific, teaching, or
other similar skill or talent of the recipient.

To receive approval of its educational grant procedures, Treasury Regulations Section
53.4945-4(c)(1) requires that a private foundation show:

• The grant procedure includes an objective and nondiscriminatory selection
process.

• The grant procedure results in the recipients performing the activities the grants
were intended to finance.

• The foundation plans to obtain reports to determine whether the recipients have
performed the activities that the grants were intended to finance.

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