Foundation's four-year college scholarship procedures approved

Plain-English summary

A private foundation proposed scholarships for graduating high school seniors from two states who planned to attend accredited four-year colleges or universities in one of three states. Applicants had to meet GPA and SAT standards, show community service and character, and have no specified family relationship to contributors, trustees, or officers. A selection committee would choose recipients without regard to protected characteristics, and the foundation would verify enrollment and pay schools directly. Awards initially would be one-time grants, but the foundation could later offer additional or multiyear support after annual review of academic performance, financial need, enrollment, and recipient reports. The IRS approved the objective selection, supervision, recovery, and recordkeeping procedures under section 4945(g)(1).

Ruling snapshot

• Question: Do the foundation's proposed college scholarship procedures satisfy the advance-approval requirements for grants to individuals?
• Outcome: approved, and grants made under the procedures will not be taxable expenditures
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), 170(c)(2)(B), and 4945(g)(1)

Full text (IRS public release)

Transcriber's note: this document is a scan. Obvious OCR errors in the legend, numbered and bulleted lists, headings, spacing, and punctuation were corrected by comparison with all five page images. Redacted identifying fields and the two redacted committee-size values are marked [redacted]. An unusual punctuation sequence in the multiyear-grant paragraph appears in the scan and is preserved. The wording is otherwise preserved verbatim.

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

Release Number: 202004019
Release Date: 1/24/2020 Employer Identification Number: [redacted]

Date: October 28, 2019
Contact person - ID number: [redacted]

Contact telephone number: [redacted]

LEGEND UIL: 4945.04-04

T= Name
U= State
V= State
W= State

x dollars = Amount
y = Number
z = Number

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 provided in Code Section 117(b)).

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

Letter 4792 (10-2012)
Catalog Number 58263T

2

The purpose of T is to further your educational purposes by providing grants to assist
graduating high school seniors to obtain a four-year college-level education in their
chosen field of study. Grant funds must be used to defray the cost of attendance at a
four-year college or university.

Initial grant amounts will be x dollars and intended to be non-recurring; in the future, you
may increase or vary the grant amounts, based on need, or make the grants multi-year
scholarships (i.e., lasting for the four years of each recipient’s undergraduate education).
In addition, the number of grants will be made based on your Trustees’ determination of
the importance of individual grants compared with other charitable grants in your
grantmaking budget for the year. In certain years, it is contemplated that no grants to
individuals may be made and consequently, there is no set minimum number of grants for
a particular year and no maximum, subject to the availability of funds.

To be eligible for consideration for a grant under T, applicants must:

1. Have (or reasonably expect to receive within this academic year) a high school
diploma (or equivalent) from a public or private high school located in the states of
U or V;

2. Have been accepted (or reasonably expect to be accepted in the immediate
future) as an undergraduate student at an accredited institution of higher
education (as defined in Section 170(b)(1)(A)(ii) of the Internal Revenue Code)
located in the states of U, V or W;

3. Be in good academic standing, defined as having at least a 3.00 GPA as well as
and a score of y on their College Board SAT test;

4. Have a commitment to community service;

5. Demonstrate good character, as evidenced in a one-page personal essay;

6. Not be a spouse, ancestor, descendant, or spouse of a descendant of any
contributor to or Trustee or officer of yours.

Applicants must also complete your scholarship application with all required documents
by a specific due date and agree, that they will forfeit the grant or scholarship if any part
of the application is untrue, inaccurate, or incomplete or grant funds are not used for their
stated purposes.

To select recipients of T, you intend to establish a Scholarship Selection Committee,
composed of between [redacted] and [redacted] individuals committed to your mission, including
your current trustee who may also appoint additional members of the Scholarship
Selection Committee and fill vacancies. Furthermore, your trustee will also ensure that
members of the Scholarship Selection Committee will not be in a position to receive
private benefit, directly or indirectly, if certain potential grantees are selected over others.

Furthermore, the Scholarship Selection Committee will review evaluate the information in
the application form, including the applicant’s academic record, demonstrated
commitment to the community, application essay, and letters of recommendation, if any.
Recipients will then be selected based on demonstrated or potential for academic

Letter 4792 (10-2012)
Catalog Number 58263T

3

excellence and dedication to the community and on an objective and non-discriminatory
basis, without regard to race, religion, gender, citizenship status, age, national origin,
disability, veteran status, sexual orientation or any other status protected by state or
federal law.

You will contact the educational institution identified by the recipient as their future
college or university to verify their enrollment. You will then pay the grants directly to the
college or university in which the recipient is (or expects to be) enrolled, for the recipient’s
benefit, upon confirmation from the educational institution that it will use the grant funds
to defray the recipient’s educational expenses.

Further, recipients must agree to provide, upon request, a final report on completion of
their first year of college (and, if relevant, each year thereafter). The recipient must also
authorize you to verify information they have submitted on how the grant funds were
used. When possible or deemed appropriate, reports will be obtained from the
educational institution. If, upon request, no report is filed, or if reports indicate that the
funds are not being used in furtherance of the scholarship purpose, you will investigate.
While conducting the investigation, you will take reasonable steps to recover funds until
you have determined that the funds are being used for their intended purpose.

Furthermore, you may permit grant recipients from a previous year to apply for an
additional non-recurring grant, after the successful completion of each year of college.
You will review each applicant’s application each year, in light of the other applications
received that year to determine the recipients.

If you decide to make the grants recurring or multiyear, you will (i) request a final report
on completion of each recipient’s first year of college (and for each relevant year
thereafter); (ii) require that each recipient remain enrolled in a four-year college or
university-level educational institution; and (iii) require that each recipient be in good
academic standing, defined as having a minimum of z out of a 4.0 grade point average. ),
you will require each applicant to submit an abbreviated form of the application and will
review each applicant’s prior academic performance and financial need on an annual
basis before paying the grant.

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 the grant was
awarded, (2) investigate diversion of funds from their intended purposes, and (3) take all
reasonable and appropriate steps to recover the diverted funds, ensure other grant funds
held by a grantee are used for their intended purposes, and (4) 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 the following: (1) all records relating to individual
grants including information to evaluate grantees, (2) identify a grantee is a disqualified

Letter 4792 (10-2012)
Catalog Number 58263T

4

person, (3) establish the amount and purpose of each grant, and (4) establish that you
undertook the 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.

We’ve sent a copy of this letter to your representative as indicated in your power of
attorney.

Letter 4792 (10-2012)
Catalog Number 58263T

5

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