Scholarship and educational grant procedures approved

Plain-English summary

A private foundation requested advance approval for three need-based scholarship programs and a broader educational grant program. The scholarships covered college, advanced-degree, or specialized primary-school costs, while the educational grants supported research, writing, or arts projects with demonstrated public benefit. A screening board considered financial need, achievement, proposed use, references, and publications, and relatives of insiders were ineligible. Grantees generally had to provide progress, spending, and final work-product reports, with investigation, payment suspension, and recovery procedures for diverted funds. The IRS approved the scholarship procedures under section 4945(g)(1) and the educational grant procedures under section 4945(g)(3).

Ruling snapshot

• Question: Did the foundation's scholarship and project-grant procedures satisfy the advance-approval standards for grants to individuals?
• Outcome: approved (the programs remained subject to the stated selection, oversight, reporting, and recordkeeping conditions)
• Key authorities: IRC §§ 74(b), 117, 170, and 4945(g)(1) and (3); Treas. Reg. § 53.4945-4(c)(1); Rev. Rul. 75-393

Full text (IRS public release)

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

Number: 202017033
Release Date: 4/24/2020
Employer Identification Number:

Date: January 30, 2020
Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04
B = Name

C = Name

D = Name

F = Name

Dear

You asked for advance approval of your scholarship grant procedures under
Internal Revenue Code (IRC) Section 4945(g)(1) and for advance approval of your
educational grant procedures under IRC Section 4945(g)(3). This approval is
required because you are a private foundation that is exempt from federal income
tax.

Our determination

We approved your procedures for awarding scholarship grants under IRC Section
4945(g)(1). We also determined that your procedures for awarding educational
grants meet the requirements of IRC Section 4945(g)(3). Based on the information
you submitted, and assuming you will conduct your program as proposed, we
determined that your procedures for awarding scholarship and educational grants
meet the requirements of IRC Sections 4945(g)(1) and 4945(g)(3), respectively. As
a result, expenditures you make under these procedures won't be taxable.

Also, awards made under IRC Section 4945(g)(1) 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
Purpose and criteria:

The purpose of scholarship B is to fund, in whole or in part, the tuition and board costs for
attendance at a college or university by qualified students who would not otherwise be
able to afford such attendance. The criteria for the scholarship will be financial need,

Letter 4792 (10-2012)
Catalog Number 58263T

demonstrated by the tax returns of the student and/or his/her family, and demonstrated
academic ability and effort, based on the student’s grades, test scores, and faculty
recommendations.

The purpose of scholarship C is to fund, in whole or in part, the tuition and board coasts
for a master’s, doctorate, or other advanced degree from a college or university by
qualified students who would not otherwise be able to afford such attendance. The
criteria for the scholarship will be financial need, demonstrated by the tax returns of the
student or their family, and demonstrated academic ability and effort, based on the
student's grades, test scores, and faculty recommendations.

The purpose of scholarship D is to fund, in whole or in part, the tuition costs for
attendance at a specialized primary school (e.g., a school for students with autism or
other learning disabilities) by qualified students who would not otherwise be able to afford
such attendance. The criteria for the scholarship will be financial need, demonstrated by
the tax returns of the student or their family, and demonstrated need, based on a
professional diagnosis of the student’s learning needs.

The purpose of grant F is to fund the costs and expenses of an individual, entity, or
organization pursuing a project in research, writing, or the arts. The criteria for the grant
will be financial need, demonstrated by the tax returns of the applicant, and demonstrated
public benefit of the proposal, based on a full description of the project submitted by the
applicant.

Publication:

Applicants may be solicited through e-mail, internet, or postings at colleges, universities,
research institutions, hospitals, think tanks, research libraries, conservatories, and other
similar institutions affiliated with advancements in law, economics, medicine, history,
literature, science, or the arts.

Selection procedures:

In addition to financial need, you consider academic and professional achievements,
plans for the use of the scholarship or grant, reference letters, and lists of publications.
Recipients are selected by your screening board, which may be your full board of
directors or a committee comprising individuals appointed by your board of directors.
Relatives of selection committee members, or of your officers, directors or substantial
contributors, are not eligible for awards under your programs.

Oversight:

Each grantee is required to provide periodic reports to you showing their progress toward
the original goal of the grant and accounting for the use of grant funds. Upon completion,
the grantee must provide a final report, including a copy of the grantee’s final work
product. Where reports or other information indicate that all or any part of the grant funds

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are not being used for the purposes of such grant, you will initiate an investigation and
withhold further payment. You will take all reasonable and appropriate steps to recover
diverted grant funds or to ensure the restoration of diverted funds. You may choose not to
require reports when (1) the grant is a scholarship or fellowship subject to the provisions
of IRC Section 117(a) and is to be used for study at an educational institution which
normally maintains a regular faculty and curriculum and normally has a regularly
organized body of students in attendance at the place where the educational activities
are carried on, (2) you pay the scholarship or fellowship to the educational institution, and
(3) the educational institution agrees to use grant funds to defray the recipient's expenses
or pay funds to the recipient only if the recipient is enrolled at the educational institution
and the recipient’s standing at such institution is consistent with the purposes and
conditions of the grant. You will not require reports if the grant is an award or prize
granted in recognition of past achievements and not tied to any future study, work, travel
or other commitment, within the meaning of Rev. Rul. 75-393, 1975-2 C.B. 451.

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 as a
grant to an individual for travel, study, or other similar purposes. However, a grant that
meets all of the following requirements of IRC 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 IRS Section
117(a).

• The grant is to be used for study at an educational organization described in IRS
Section 170(b)(1)(A)(ii).

• A prize or award subject to the provisions of IRC 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 Regulation 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

Letter 4792 (10-2012)
Catalog Number 58263T

• 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 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.

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

Letter 4792 (10-2012)
Catalog Number 58263T