IRS approves a county-based scholarship program for graduating students

Plain-English summary

A private foundation requested advance approval for a scholarship program encouraging county high school graduates, including home-schooled students, to pursue university, college, vocational, or technical education. Applicants had to meet admission and full-time enrollment requirements and were evaluated on academic achievement, goals, essays, community service, work experience, financial need, character, citizenship, and leadership. Board members, close relatives, and other disqualified persons were ineligible. Awards could be one-time or renewable for up to four years, were paid directly to the school, and required continued full-time enrollment and a 3.0 GPA for renewal. The IRS approved the objective and nondiscriminatory procedures under Section 4945(g)(1), subject to the stated monitoring, recordkeeping, and program conditions.

Ruling snapshot

• Question: Did the foundation's scholarship procedures satisfy the advance-approval requirements for grants to individuals?
• Outcome: Approved.
• Key authorities: IRC §§ 117, 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: 202132011
Release Date: 8/13/2021
Employer Identification Number:

Contact person - ID number:
Date: May 20, 2021

Contact telephone number:

LEGEND:

UIL: 4945.04-04
B = program name
C = county name

D = schools
E = number
F = number

g dollars = amount
h 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

You will operate a scholarship program called B, the purpose of which is to encourage
students to seek and achieve continuing post-secondary education at a university,
college, vocational, or technical school.

You will provide application materials to C County high schools (D) and have the
materials available on your website. Students are generally made aware of the

Letter 4792 (10-2012)
Catalog Number 58263T

scholarships through their high school career counselors. Once students submit a written
application, your selection committee will review them and may require an interview.

To be eligible, the applicant must:

• Be a member of the current year’s graduating class from a C County high school,
including home-schooled students.

• Not be a member of your Board or a close relative of a Board member.

• Meet the admission requirements of the accredited post-secondary education
program they plan to attend.

• Plan to complete a program leading to a degree, a certificate or professionally
recognized program in a field of study.

• Plan to enroll in a qualified program on a full-time basis.

• Demonstrate the following qualities: character, citizenship, academic ability,
leadership and self reliance.

In some cases, you receive scholarship requests outside the normal high school
graduation cycle. For these, applicants must provide a cover letter indicating their
qualifications for scholarship, as well as evidence of (a) high school graduation or GED,
(b) evidence of high school (and post-secondary, if applicable) scholastic performance, (c)
letters of reference and (d) other information as specifically requested by you.

Award selections are based on a combination of criteria which may include, but are not
limited to, academic achievement, clarity of personal goals and objectives, responses to
essay questions, community service, work experience and financial need. You do not
discriminate on the basis of race, creed, color, national origin, age, sex, marital status or
the presence of a physical, sensory or mental handicap in making your selections.
Disqualified persons (including your directors and officers and their family members) are
not eligible to receive grant awards from you.

Your business manager will oversee the selection process and will serve as the selection

committee Chair. [redacted] of the [redacted] members of your Board will participate in the evaluation
and award process.

Award amounts will range from g to h dollars total per student. Awards may be one-time
or renewable annually for up to four years if students maintain a minimum GPA and full-
time enrollment status. You expect to award between E and F scholarships per year.

Before funds can be disbursed, recipients must complete and return an agreement stating
they understand and agree to the terms of the scholarship. Payments will be made
directly to the educational institution and can be used only for tuition and other institution-
approved educational expenses. Payments will be accompanied by a letter instructing the
institution as to how the funds are to be used and applied.

Any student postponing post-secondary school attendance due to personal
circumstances or military service may defer the award up to four years if they properly
notify you. Awards may also be held for adjustments to the financial aid package. If funds

Letter 4792 (10-2012)
Catalog Number 58263T

are not used within four years, and you have not been notified, the scholarship will be
forfeited.

To be eligible for a renewable scholarship award, the student must maintain a 3.0 GPA
and full-time student status. They must submit an unofficial transcript and proof of full-
time enrollment for the upcoming school year. If they don’t meet this requirement, they
must submit their explanation of extenuating circumstances in writing to you prior to or at
the time of renewal request. Your Board reserves the right to make exceptions to this
policy on a case-by-case basis.

You represent that you will (1) arrange to receive and review grantee reports annually and
upon completion of the purpose for which the grant was awarded, (2) investigate
diversions of funds from their intended purposes, and (3) take all reasonable and
appropriate steps to recover diverted funds, ensure other grant funds held by a 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 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 adequate supervision and investigation of diversion of grant funds.

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.

Letter 4792 (10-2012)
Catalog Number 58263T

• 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