Foundation's upper-level college scholarships approved

Plain-English summary

A private foundation proposed two-year scholarships for state residents entering their third or fourth college year, or the comparable years of a five-year degree. Applicants had to attend an accredited in-state school full time, maintain a 3.0 GPA, and demonstrate leadership, citizenship, community service, and scholarship. A committee would conduct interviews, review recommendations, and monitor transcripts and full-time status. The IRS approved the procedures under Section 4945(g)(1), making compliant grants nontaxable expenditures. Awards used for qualified tuition and related expenses also will not be taxable to recipients, subject to Section 117(b).

Ruling snapshot

• Question: Do the foundation's procedures for awarding renewable upper-level college scholarships 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: 202114025

Release Date: 4/9/2021
Employer Identification Number:

Date: January 12, 2021
Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04

W = Organization
X = Scholarship

Y = State

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 provide in Code Section 117(b)).

Description of your request

Your letter indicates you will operate a scholarship program called X. Your purpose is to
promote American ideals and values including leadership, scholarship, and citizenship.
The scholarship program is funded by W.

The purpose of X is to provide undergraduate scholarships to students entering their third
and fourth year of college or in the case of a 5-year degree, the fourth and fifth years.

Letter 4792 (10-2012)
Catalog Number 58263T

Numerous awards are made annually but vary in quantity. There is no set number of
awards granted each year. Scholarships are z dollars. The Board of Directors affirms the
level and number of scholarships awarded each year. Funding is provided for two years,
if eligible. The student must submit a scholarship renewal application to receive the
second year of funding and provide their transcript for the prior year.

X is publicized through your website, social media page, word-of-mouth, as well as
through colleges throughout the state of Y. Eligibility criteria includes the following:
• Attend an accredited college or university in Y state
• Full-time student entering third and fourth year of college
• Maintain a 3.0 GPA
• Resident of the state of Y
• U.S. citizen

Your website makes the online registration form available to anyone with internet access.
Every student that meets the general criteria is eligible to register. Successful registration
triggers an introductory email to a director to schedule a personal interview.

Your Vice President serves as the Chairman of the Education Committee and appoints
the members to the committee for one-year terms. Members are chosen from the group
of board members, alternate directors, associate directors and affiliated members. All
committee members are highly competent members of W.

Selection is based on noteworthy improvements, contributions or successes in the areas
of leadership, citizenship, school activity, service to the community, and scholarship.
Letters of recommendation represent a significant percentage of an applicant’s score.
Also, attributes such as honesty, cooperation, integrity, acceptance of responsibility,
positive attitude, initiative, compassion, and entrepreneurship are considered.

You require documentation of educational progress. Grade transcripts documenting full
time status and GPA are required.

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, (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 purposes, and 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 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 was established, and
(4) how you established supervision and investigation of the grants described above.

Letter 4792 (10-2012)
Catalog Number 58263T

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 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.

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.

Letter 4792 (10-2012)
Catalog Number 58263T

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