IRS approves college scholarships for music-program students

Plain-English summary

A private foundation proposed college scholarships for high-need students who had participated for at least three years in nonprofit music education programs supported by the foundation. Students had to be nominated by an eligible grantee program, be accepted by a higher education institution, demonstrate financial need, and submit recommendations, a transcript, and an interview. Recipients could receive support for tuition, books, supplies, and equipment for up to four years without majoring in music. They had to maintain enrollment and a stated grade-point average and were encouraged to mentor students in their local music programs. The IRS approved the procedures under section 4945(g)(1), so expenditures under the program would not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's procedures for awarding college scholarships to students from supported music programs qualify for advance approval?
• Outcome: approved
• Key authorities: IRC §§ 117(a), 117(b), 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

Number: 202009029 Employer Identification Number:

Release Date: 2/28/2020
Contact person - ID number:

Date: December 4, 2019
Contact telephone number:

LEGEND UIL
x dollars = amount 4945.04-04
Dear

You asked for advance approval of your scholarship grant procedures under
Internal Revenue Code (IRC) 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 IRC 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 IRC Section 117(b)).

Description of your request

Your purpose is to nurture the educational and social development of underserved
children through robust, socially responsible music education programs. Your letter
indicates that you will operate a program that provides college assistance scholarships to
student participants in the over 200 non-profit programs you support on an annual basis.

The scholarship, which will cover expenses associated with college attendance such as
tuition, books, supplies, and equipment, is designed to encourage high-need students
who participate in the non-profit music education programs you support to attend college.

To qualify, an eligible student must be nominated by one of the grantee music programs
that you support. A grantee music program wishing to nominate a student must be a

Letter 4792 (10-2012)
Catalog Number 58263T

2

community non-profit that has been in operation for at least four years and provides
music instruction at least twice per week to needy students for at least 30 weeks per year
for free or at an affordable rate. They must also have been one of your grantees for at
least two years.

To be eligible for nomination by a grantee music program, a student must be actively
enrolled in that program for at least three years, be in good standing (i.e., no attendance
or behavioral issues), and must apply to and be accepted to a higher learning institution.
In addition, a student must have a strong financial need which can be demonstrated by
being enrolled in a free or reduced lunch program at their school.

You will invite eligible nominated students to apply. Final selection of award recipients is
based on an application, letters of recommendation from instructors, a school transcript,
and an interview conducted by your selection committee, which will prioritize highly
motivated students with a strong financial need and a desire to mentor and give back to
the community.

Your selection committee consists of        of your officers and        members of your board
of trustees. Committee members are selected based on interest and past and direct
experience dealing with non-profit music education programs and music education
Students. Each year at your annual board meeting, committee members have the
opportunity to either re-commit or step down and be replaced if they are unable to
continue to serve.

You will publicize the program through your website and social media accounts. In
addition, you will communicate via email and phone on a regular basis with your grantee
organizations to identify potential applicants.

Scholarship recipients will receive x dollars per semester for four years (or the length of
their college tenure) and do not have to declare music as a major or minor. The number
of scholarships made annually will be determined by your board of directors based on the
value of the investment fund dedicated to the program with a goal of 10 scholarships per
year.

Recipients are required to show proof of enrollment in the higher institution that they have
chosen to attend, complete at least 12 units each semester/quarter, maintain a 2.5 grade
point average, and commit to giving back to their local community program when possible
as a student mentor.

Your scholarship recipient coordinator will be responsible for communicating with
recipients and their families to ensure that all requirements are met, monitoring progress
of current award recipients, and maintaining detailed case histories on each recipient.
The coordinator will remind recipients to submit all necessary information on time and will
work through any issues the recipient has. If issues with a recipient cannot be resolved or
the recipient violates the terms of the scholarship, the scholarship will be terminated.

Letter 4792 (10-2012)
Catalog Number 58263T

You represented that you will:

• arrange to receive and review grantee reports annually and upon completion of the
purpose for which the grant was awarded:

• investigate diversions of funds from their intended purposes; and

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

Basis for our determination

The law imposes certain excise taxes on the taxable expenditures of private foundations
(IRC Section 4945). A taxable expenditure is any amount a private foundation pays asa
grant to an individual for travel, study, or other similar purposes. However, a grant that
meets all of the following requirements of 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 IRC Section
117(a).

• The grant is to be used for study at an educational organization described in IRC
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

Letter 4792 (10-2012)
Catalog Number 58263T

• 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 IRC 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

Letter 4792 (10-2012)
Catalog Number 58263T