IRS approves agricultural scholarships for women from farmworker families

Plain-English summary

A private foundation proposed scholarships for daughters or transgender females from families working in agriculture who would enter a two-year agriculture and natural-resources degree program at a specified college. Awards would cover eligible non-tuition educational expenses through the college's foundation, could continue after transfer to a four-year institution, and would depend on academic standing and financial need. Applicants also had to complete financial-aid forms and would be evaluated on academic performance, career interests, plans to live and work in the area, essays, and recommendations. The foundation would maintain mentoring relationships, review grantee reports, investigate diversion of funds, and exclude insiders' relatives. The IRS approved the procedures under section 4945(g)(1), so the awards would not be taxable expenditures, while recipient tax treatment under section 117 would depend on use for qualified tuition and related expenses.

Ruling snapshot

• Question: Did the foundation's agricultural scholarship selection and oversight procedures qualify for advance approval?
• Outcome: approved (scholarships made under the procedures would not be taxable expenditures)
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), 170(c)(2)(B), 4945(g)(1)

Full text (IRS public release)

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

Number: 202026003
Release Date: 6/26/2020
                                                Employer Identification Number:
Date: April 2, 2020
                                                Contact person - ID number:

                                                Contact telephone number:



LEGEND                                          UIL: 4945.04-04
T = Scholarship
U = County, State
V = College
W = Scholarship
x 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 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 called T.

The purpose of T is to create educational paths for the daughters of agricultural workers
in U. Scholarships will be awarded to young women entering a two-year degree program
at V to study agriculture and natural resources. Approximately five scholarships in the
amount of x dollars each will be awarded annually. Amounts are based on your budget
and V’s estimated cost of attendance. Amounts awarded will cover eligible, non-tuition
educational expenses at V and will be deposited in the V Foundation and distributed to
                                              2


students as part of their financial aid package. If graduates of V are accepted to a four-
year institution, T will continue to provide financial support, but the amount of the
scholarship may vary based on total financial need and other sources of aid received.
You will publicize T via emails and announcements in partnership with V, high schools in
U, local nonprofit organizations, trade associations, and other organizations with a focus
on agriculture and natural resources.

Those eligible to apply are daughters or transgender females whose families work in the
agricultural industry. Applicants must submit the T application, two recommendation
forms, enroll at V and register to study agriculture and natural resources, and apply for
the W and other financial aid by completing the FAFSA (Free Application for Federal Aid)
form.

Scholarships will be awarded on an objective and nondiscriminatory basis. The
selection criteria will include, but not be limited to, academic performance, financial need,
interest in specific agricultural careers, interest in working and living in U, personal essay
questions, and teacher recommendations. The selection committee will be composed of
selected members of your board of directors and staff and professionals working with
youth in U. Relatives of members of the selection committee, or of your officers, directors,
or substantial contributors are not eligible for awards made under your program.

Scholarships will be distributed and renewed provided the student is in good academic
standing. V’s scholarship office distributes scholarship awards directly to students in good
academic standing. T will maintain one-one-one mentoring relationships with students.
Awards will be curtailed if student withdraws or is no longer in good academic standing.

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 obtained to evaluate grantees, (2) identify whether a grantee
is a disqualified person, (3) establish the amount and purposes 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.
                                              3



   •   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.

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