IRS approves scholarship and enrichment grant procedures

Plain-English summary

A private foundation proposed a scholarship program for higher education and an enrichment grant program for scholars, faculty members, lecturers, and other distinguished scholars. Scholarship recipients would be selected using academic, leadership, and program-related criteria, while enrichment grants would support projects such as research, conferences, and written work. Both programs excluded disqualified persons and used selection committees without conflicts, board approval, recipient reporting, recovery procedures for diverted funds, and detailed records. The IRS approved the scholarship procedures under IRC § 4945(g)(1) and the enrichment procedures under § 4945(g)(3). Grants made consistently with the approved procedures would not be taxable expenditures.

Ruling snapshot

• Question: Did the foundation's scholarship and enrichment grant procedures satisfy the advance-approval rules of § 4945(g)?
• Outcome: Approved
• Key authorities: IRC §§ 74, 117, 170, 4945, and 4946; Treas. Reg. § 53.4945-4(c)(1)

Full text (IRS public release)

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

Employer Identification Number:

Date: November 10, 2020
Contact person - ID number:
Number: 202105015

Release Date: 2/5/2021
Contact telephone number:

LEGEND                                      UIL: 4945.04-04

B = Program (     )
C = Foreign University

D = Foreign Country

E = Individual Scholars

Dear

You asked for advance approval of your scholarship grant procedures under
Internal Revenue Code (IRC) Sections 4945(g)(1) and 4945(g)(3). 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. You also requested approval of your educational grant

program.

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)).

We also approved your procedures for awarding educational grants. Based on the
information you submitted, and assuming you will conduct your program as proposed, we
determined that your procedures for awarding educational grants meet the requirements
of (IRC) Section 4945(g)(3). As a result, expenditures you make under these procedures

won't be taxable.


Description of your request

Your letter indicates you will operate two programs. The first program is a scholarship
program under (IRC Section) 4945(g)(1). The second program is an enrichment grant
program underSection4945(g)(3).

Your purpose is to provide support to individuals pursuing programs of study at
institutions of higher learning.

The purpose of your two programs is to provide financial assistance for tuition and fees,
as well as reasonable and necessary living and other expenses associated with pursuing
the applicable program of study, such as room and board, books, academic supplies, and
travel expenses.

Program One.

Your scholarship program, called B, is currently implemented at C,

. You may also choose to provide scholarships to individuals studying at other
institutions of higher learning.

The amount of each grant will be driven by the relevant program of study costs, as you
reasonably determine.

The number of scholarship grants made annually will vary based upon several factors,
including the number of applications received. You do not plan to establish a minimum or
maximum number of annual grants; you may or may not exhaust available funding in any
particular year; and, you will not necessarily offer scholarship grants each year.

You will publicize the grant program through press releases, media campaigns, outreach
by and to schools and direct contact with possible grantees.

You will select qualified recipients of scholarship grants based upon scholastic ability and
achievement, educational experience, leadership ability, future goals and interests, and
consistency of the individual’s intended program of studies with your charitable and
educational purposes.

You may also elect to provide scholarship grants to all students pursuing a particular
program of study at a particular institution of higher learning. You may do this if you
determine that the entire class is exceptionally qualified to carry out the purposes of your
scholarship grant program, based upon the group’s overall scholastic ability and
achievement, educational experience, leadership ability, future goals and interests and
consistency of the group’s program of study with your charitable purposes, and that the
selection of the applicable group of students is calculated to effectuate the charitable
purpose of the scholarship grant program, rather than to benefit particular persons or a
particular class of persons. In such a case, if you determine that the relevant institution of
higher learning has conducted an admissions process based upon objective and non-
discriminatory criteria, which is substantially equivalent to your selection process, you


may elect to rely upon the process conducted by the institution of higher learning in
awarding scholarship grants to the entire group of eligible grantees.

Alternatively, scholarship grants programs will be administered by one or more selection
committees. Such committees would consist of your directors, officers, staff members,
and E, (individuals associated with B such as current and former scholars, faculty
members, lecturers and other distinguished scholars). The committee(s) will select
recipients based upon scholastic ability and achievement, educational experience,
leadership ability, future goals and interests, and consistency of the individual’s intended
program of studies with your charitable purposes.

No scholarship selection committee member will be in a position to derive a private
benefit, directly or indirectly, if certain potential grantees are selected over others. Your
Board of Directors will approve all grants.

You will select scholarship grant recipients based upon objective and nondiscriminatory
criteria without regard to race, gender, religion, national origin, sexual orientation or
ethnicity. In addition, no scholarship grant will be made to (i.) any substantial contributor
of yours; (ii.) any member of your Board of Directors; (iii.) any of your officers; (iv.) any
disqualified person with respect to you within the meaning IRC Section 4946; (v.) any
member of the applicable Scholarship Selection Committee, or (vi.) any family members
of the persons listed in (i.) through (v.) above.

You will review the results of the original scholarship before approving any renewal grant.
Recipients will be required to submit, at least annually, a report describing the use of the
scholarship funds and the progress the recipient has made toward achieving the
scholarship purposes and an accounting for the funds they have spent. In the event a
recipient fails to comply with the terms and conditions of the scholarship, you will conduct
an investigation and take all reasonable and appropriate steps to recover any funds the
recipient has used for an improper purpose, and the recipient will not be eligible for a
renewal grant.

Where a scholarship grant includes funds for tuition and fees, you expect to make
payment of that portion of the scholarship grant directly to the applicable institution of
higher learning under an agreement whereby the institution will apply the grant funds only
for enrolled students in good standing. Where a scholarship grant includes payment to
the scholarship grant recipients (including for program of study costs other than tuition
and fees), the recipient will be required to submit, at least annually, a report describing
the use of the grant funds and the progress the recipient has made toward achieving the
grant purposes and an accounting for the funds the recipient has spent. You may impose
other requirements on scholarship grant recipients, including to share their experiences
with other E individuals through written letters, mentoring activities, or similar events and
appearances.

If it appears that any scholarship grant recipient has diverted grant funds for an improper
purpose, you will take appropriate action, including requiring the recipient to return the
scholarship grant funds and withholding further payments. You will not resume making


payments on a scholarship grant until (i.) any diverted funds are recovered or restored;
(ii.) you have received the grant recipient's assurances that future diversions will not
occur; and (iii.) the grant recipient has taken extraordinary precautions to prevent future
diversions from occurring.

In all cases, you will maintain records relating to individual scholarship grants, including
information obtained to evaluate applicants, the identity of each grantee (including any
relationship to determine that the grantee is not a disqualified person of the foundation or
other ineligible recipient), the amount and purpose of each scholarship grant, and all
reports and other information related to the supervision, use and, if applicable,
investigation of scholarship grants.

You will maintain case histories showing recipients of your scholarships, including
names, addresses, purposes of awards, amount of each grant, manner of selection, and
relationship (if any) to officers, trustees, or donors of funds to you.

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 such grants.

Program Two.

Your enrichment grant program will offer grants to individuals who are associated with B,
including current and former recipients, faculty members, lecturers, and other
distinguished scholars. Members of this group are called E. Such enrichment grants will
allow grantees to achieve a specific objective, produce a report or other similar product,
or improve or enhance a literary, artistic, musical, scientific, teaching or other similar
capacity, skill, or talent. By way of example, such enrichment grants may be used for
projects (and associated travel) such as attendance of conferences or similar events;
conducting research; or producing written reports or similar work products.

Enrichment grants will be awarded to fund the costs associated with undertaking the
applicable project, which may include an individual grantee’s reasonable and necessary
living expenses and other expenses directly attributable to the completion of the project.

The amount of funding for each project will vary, based on the number of applications
received, each applicant’s specific needs, and the nature of each project.

The number of enrichment grants made annually will vary based upon several factors,
including the number of applications received. You do not plan to establish a minimum or
maximum number of annual grants; you may or may not exhaust available funding in any
particular year; and, you will not necessarily offer enrichment grants each year.

You will publicize the enrichment grants and solicit applications through promotional
materials sent to E, including online portals.


Eligible recipients of enrichment grants will consist of individuals who are E, seeking to
complete a specified enrichment project. To be considered for a grant, an eligible E
applicant will provide information on his or her prior work; explain his or her proposed
enrichment project; and, provide information regarding how the enrichment project will
allow him or her to achieve a specific objective, produce a report or other similar product,
or improve or enhance a literary, artistic, musical, scientific, teaching or other similar
capacity, skill, or talent.

You will select recipients of enrichment grants based upon the applicant’s ability and
achievement; educational experience; leadership ability; future goals and interests;
consistency of the applicant’s intended enrichment project with your charitable purposes
and program activities; projects or areas of your concern or focus; and, the project’s
priority in relation to other demands on your funds.

If you determine that one or several persons are exceptionally qualified to carry out the
purposes of a specific enrichment grant program, or it is otherwise evident that the
selection of a particular group of enrichment grant recipients is calculated to effectuate
the charitable purpose of the enrichment grant program, rather than to benefit particular
persons or a particular class of persons, you may impose reasonable restrictions on the
group of potential grantees.

Enrichment grant selection will be administered by one or more selection committees,
consisting of your directors, officers, staff members, and E. No enrichment selection
committee member will be in a position to derive a private benefit, directly or indirectly, if
certain potential grantees are selected over others. E who have served on an enrichment
selection committee will be ineligible for enrichment grants for three years after they have
served on the selection committee. The selection committee will select recipients based
upon the feasibility of the enrichment project and the potential to meaningfully achieve a
specific objective, produce a report or other similar product, or improve or enhance a
literary, artistic, musical, scientific, teaching or other similar capacity, skill, or talent. You
may impose specific criteria for enrichment grants, including restricting past enrichment
grant recipients from applying for additional enrichment grants. Your Board of Directors
will approve all grants.

Selection of recipients will be based upon objective and non-discriminatory criteria
without regard to race, gender, religion, national origin, sexual orientation or ethnicity. In
addition, no enrichment grant will be made to (i.) any substantial contributor of yours; (ii.)
any member of your Board of Directors; (iii.) your officers; (iv.) any disqualified person
with respect to you within the meaning of IRC Section 4946; (v.) any member of the
applicable enrichment selection committee; or (vi.) any family members of the persons
listed in (i.) through (v.) above.

You will review the results of the original grant before approving any renewal grant.
Recipients will be required to submit, at least annually, a report describing the use of the
grant funds and the progress the recipient has made toward achieving the grant purposes
and an accounting for the funds the recipient has spent. Recipients will be required to
submit to you a copy of any work product that has been produced with your support. In


the event a recipient fails to comply with the terms and conditions of the grant, you will
conduct an investigation and take all reasonable and appropriate steps to recover any
funds the recipient has used for an improper purpose, and the recipient will not be eligible
for a renewal grant.

You will require each enrichment grant recipient to submit an annual report (if the
enrichment project timeline is longer than one year) describing the progress of the
enrichment project, as well as a final report to confirm that the enrichment grant recipient
has performed the activities that the enrichment grant was intended to finance. The final
report will also summarize the enrichment project and will account for the grant funds
expended. You may impose other requirements on enrichment grant recipients, including
to share their experiences with other E through written letters, mentoring activities, or
similar events and appearances.

If it appears that any enrichment grant recipient has diverted grant funds for an improper
purpose, you will take appropriate action, including requiring the recipient to return the
enrichment grant funds and withholding further payments. You will not resume making
payments on a enrichment grant until (i.) any diverted funds are recovered or restored;
(ii.) you have received the grant recipient’s assurances that future diversions will not
occur; and (iii.) the grant recipient has taken extraordinary precautions to prevent future
diversions from occurring.

In all cases, you will maintain records relating to individual enrichment grants, including
information obtained to evaluate applicants, the identity of each grantee (including any
relationship to determine that the grantee is not a disqualified person of the foundation or
other ineligible recipient), the amount and purpose of each enrichment grant, and all
reports and other information related to the supervision, use and, if applicable,
investigation of enrichment grants.

You will maintain case histories showing recipients of your grants, including names,
addresses, purposes of awards, amount of each grant, manner of selection, and
relationship (if any) to officers, trustees, or donors of funds to you.

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 such 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 as a
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 IRC Section 117(a) and is to be used
for study at an educational organization described in Section
170(b)(1)(A)(ii); or

• A prize or award subject to the provisions of 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

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