Foundation scholarship procedures received advance approval

Plain-English summary

A private foundation proposed scholarships for financially needy international students graduating from high schools in a specified city and attending college in the United States. Applicants would be evaluated for financial need, academic record, English proficiency, recommendations, and other relevant criteria by the foundation's board. Scholarship funds would be paid directly to schools for tuition, fees, books, supplies, and required equipment, with continued awards monitored through academic records and school communications. The IRS approved the award procedures in advance under section 4945(g)(1), so grants made under those procedures would not be taxable expenditures. Recipients also would not owe tax on awards used for qualified tuition and related expenses within section 117(b), and the approval remained subject to the stated supervision, recordkeeping, charitable-purpose, and conflict restrictions.

Ruling snapshot

• Question: Did the foundation's procedures satisfy the advance-approval rules for individual scholarship grants?
• Outcome: approved (only for the described program and materially similar succeeding programs)
• Key authorities: IRC §§ 117(a) and (b), 170(b)(1)(A)(ii) and (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: 202018007
Release Date: 5/1/2020

Employer Identification Number:

Date: February 6, 2020
Contact person - ID number:

Contact telephone number:

UIL: 4945.04-04
LEGEND
X = City
Y = State

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 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 Code Section 117(b)).

Description of your request

Your letter indicates you will operate a scholarship program. The purpose of your
program is to provide educational funding for needy international students who graduate
from a high school in the city of X in the state of Y to attend a college or university in the
United States.

You will provide educational grants to eligible recipients to pay for expenses related to
attending an educational institution in the United States. Eligible expenses include tuition
and fees, course related expenses, books, supplies, and equipment. Room and board,

Letter 4792 (10-2012)
Catalog Number 58263T
travel, research, clerical help, and non-required equipment are not included in the
educational grants.

The amount of the scholarship will vary depending on the selected student’s financial
need, the amount funds available, and the number of applicants. The scholarships will be
announced by advising the administration and parties in charge of the international
student organizations at the two high schools located in X.

The applicants must fill out an application, submit a one-page document where they tell
their story, and have an interview with the selection committee. You require that the
applicant must be a needy international student who attends a high school in X and will
attend college in the United States. The criteria used to determine who receives a grant
includes the individual's inability to pay, the strength of their academic history, proficiency
in English, recommendation from a current or prior academic advisor, and other relevant
criteria.

Your Board of Directors will be the selection committee. The criteria for board
membership are to have a genuine interest in furthering the education of international
students who have a history of academic excellence and a proven desire to do well in a
United States educational institution after high school.

You will be in close contact with the college or university that the recipient attends.
Eligible recipients will be required to maintain an acceptable grade point average. They
will also be subject to the school’s opinion that the recipient will benefit and/or is
benefitting from the educational opportunities the school provides and is making
reasonable advances and progress in learning. All funds will be closely monitored, and
detailed records will be kept.

Supervision of the grant is done by reviewing the grades and tests scores and
communication with the academic office of the educational institution attended by the
recipient. Each semester the grades of the recipient are reviewed by the board. If the
eligible recipient is preforming poorly or contrary to the expectations of the educational
institution, the grant would be terminated.

All scholarships will be directly paid the college or university to avoid any mishandling of
funds. There will be a written agreement that such funds are to be applied to the tuition
and fees, and course related expenses such as books, supplies, and equipment. If the
school admits the recipient to attend but does not apply the scholarship funds to the
student’s expenses, you will refer them to the Y Attorney General.

You represent that you will complete the following: (1) arrange to receive and review the
grantee reports annually and upon Completion of the purpose for which the grant was
awarded, (2) investigate diversion of funds from their intended purpose, (3) take all
reasonable and appropriate steps to recover the diverted funds, ensure other grant funds
held by the grantee are used for their intended purpose, and withhold further payments to
grantees until you obtain grantees’ assurances that future diversions will not occur and

Letter 4792 (10-2012)
Catalog Number 58263T

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 established, and (4)
how you established supervision and investigation of the 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 letter
supersedes our letter dated July 11, 2019.

• 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).

Letter 4792 (10-2012)
Catalog Number 58263T

• 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