Foundation's community scholarship procedures approved

Plain-English summary

A private foundation proposed generally one-year scholarships for foreign-born high school athletes attending a private school in a particular area. Applicants had to maintain at least a 2.0 GPA, demonstrate community involvement, complete service hours, and have no relationship with foundation directors or staff. A selection committee would review applications and recommendations, with the board making final decisions. The foundation would verify enrollment, direct checks to schools, monitor use, recover diverted funds when appropriate, and keep application and conflict records. The IRS approved the procedures under Section 4945(g)(1).

Ruling snapshot

• Question: Do the foundation's scholarship procedures satisfy the advance-approval rules?
• Outcome: Approved. Grants made under the described procedures will not be taxable expenditures.
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), and 4945(g)

Full text (IRS public release)

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

Number: 202113010
Release Date: 4/2/2021
Employer Identification Number:

Date: January 5, 2021
Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04
Y= Name
z 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 provided in Code Section 117(b)).

Description of your request
Your letter indicates you will operate a scholarship program.

The purpose of the scholarship to award funds to a deserving, high school student
intending to pursue an education at a qualified educational institute including a private or
vocational school as long as a curriculum can be established. Another goal of the
scholarship program is to provide opportunities for students and a better-educated

workforce for the community.

Letter 4792 (10-2012)
Catalog Number 58263T

Scholarships will generally be less than z dollars and are generally for one year, but
multi-year scholarships may be awarded based on the discretion of your Board. The
scholarships are to be used for attending a qualified educational institution as well as for
related expenses and equipment associated with the student’s course work.

To be eligible for a scholarship, the applicant must:

• Attend a private school in Y;

• Be a foreign-born individual;

• Be pursuing high school athletics;

• Have at least a 2.0 Grade Point Average (GPA);

• Demonstrate community involvement;

• Complete a minimum of 25 hours of community service;

• Not have a relationship with any board director or staff member.

To promote your scholarship, you will use your own communications and your website,
and advertise through several social media platforms as well as through local schools.
Further, you are committed to publicize the scholarship program to underserved
populations and will strive to eliminate barriers in the application process.

To apply for the scholarship, the applicant must submit an application package including
your application form, two letters of recommendation, an official high school transcript
and a personal essay generally by a specific date. All application packages are reviewed
and evaluated by your Selection Committee whose members are appointed by your
Directors. Once reviewed and evaluated, the Selection Committee will present final
recommendations to the Directors, who will make the final decision.

Once approved, the recipient is notified of the amount of the scholarship, the purpose for
which it should be used, and requirements (if any) that should be met to receive the
scholarship. The recipient then is required to agree to the terms of the scholarship in
writing as well as agree to provide you with contact information during the academic year.
The recipient must also provide you evidence of registration at a qualified educational
institution before any funds are disbursed.

You will generally write scholarship checks to the scholarship recipient and will make
them payable to the school with the recipient’s name included in the correspondence so
that the correct student account is credited. Scholarships are only for the benefit of the
specific recipient and schools may not use the scholarship for other purposes, or the
school must return the scholarship to you.

Circumstances may occur in which recipients are not able to complete the terms of the
scholarship. If the recipient does not complete the term or withdraws from school, the
recipient must notify you in writing with the reasons and their future intentions. You
reserve the right to request restitution of monies expended for the term or period of
withdrawal.

Letter 4792 (10-2012)
Catalog Number 58263T

If you learn that all or any part of the scholarship is not being used for the intended
purposes, you will take all reasonable and appropriate steps to recover the scholarship
monies and/or ensure restoration of the diverted funds to the purposes of the scholarship.
If such a diversion occurs and the school has not previously diverted scholarship funds,
you will withhold any further payments to the school until you have received the school’s
assurance that future diversions will not occur. You may also require the school to take
extraordinary precautions to prevent future diversions from occurring.

Where a school has previously diverted funds received from you and you determine that
any part of a scholarship has again been used for improper purposes, you will take all
reasonable and appropriate steps to recover the scholarship monies and/or ensure
restoration of the diverted funds for the purposes of the scholarship. In such case, you
will withhold further payments until: (1) the diverted funds are in fact recovered or
restored to the student’s account; (2) you have received the school’s assurances that
future diversions will not occur; and (3) you require the school to take extraordinary
precautions to prevent future diversions from occurring. The phrase “all reasonable and
appropriate steps” as used above, shall include legal action where appropriate, but need
not include legal action if such action would in all probability not result in the satisfaction

of execution on a judgment.

You will maintain the following records regarding scholarship information in
keeping with your document retention and confidentiality policies including:

• Electronic copies of all scholarship applications, both awarded and denied:
• Records on all recipients and their respective scholarships;
• Conflict of Interest documentation.

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.

Letter 4792 (10-2012)
Catalog Number 58263T

• 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

Letter 4792 (10-2012)
Catalog Number 58263T