Foundation receives advance approval for scholarships and educational grants

Plain-English summary

A private foundation proposed scholarships for higher-education students who lacked sufficient financial resources and educational grants for individuals pursuing artistic, intellectual, or other skill-building objectives. It planned to focus on historically marginalized communities and underrepresented artists while using objective, nondiscriminatory selection criteria. Insiders, their family members, and other disqualified persons could not receive awards. Scholarship funds generally would go directly to schools, other grants generally would go to recipients, and both programs required progress reports and oversight of fund use. The IRS approved the procedures under Sections 4945(g)(1) and 4945(g)(3), so grants made under them would not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's scholarship and educational grant procedures qualify for advance approval under Sections 4945(g)(1) and 4945(g)(3)?
• Outcome: Approved
• Key authorities: IRC §§ 74(b), 117, 170(b)(1)(A)(ii), 4945(g)(1) and (3), and 4946(a); Treas. Reg. § 53.4945-4(c)(1)

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities

IRS P.O. Box 2508

Cincinnati, OH 45201

Date: June 22, 2021

Taxpayer ID number:
Release Number: 202137012
Release Date: 9/17/2021 Person to contact:
Name:
ID Number:
Telephone:
LEGEND UIL: 4945.04-04
B = Adjective
C = Number

D =Range of Numbers
E = Adjective

Dear             :

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

This approval is required because IRC Section 4945 provides for the imposition of taxes on each taxable
expenditure of a private foundation. IRC Section 4945(d)(3) provides that the term "taxable expenditure"
includes any amount paid or incurred by a private foundation as a grant to an individual for travel, study, or
similar purposes by the individual, unless the grant satisfies the advance approval requirement of IRC Section
4945(g).

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.

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 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 award grants pursuant to IRC Sections 4945(g)(1) and 4945(g)(3).

Your purposes include providing financial support to charitable causes, including education, arts and culture, the
environment, health and healthcare, women’s causes, B causes, and social and human services. You will focus on

Letter 4792 (Rev. 4-2021)
Catalog Number 58263T

making grants to individuals from historically marginalized communities, such as E in the community.

Pursuant to IRC Section 4945(g)(1), you may award scholarships to students who plan to enroll or are enrolled at
an educational institution of higher learning described in Section 170(b)(1)(A)(ii). The purpose of these awards is
to improve access to tertiary education for deserving students lacking the financial resources to cover tuition and
other educational expenses. The scholarships will provide for tuition, fees, books, supplies, equipment required,
and for other expenses related to matriculation, such as housing and other related living expenses. You may award
up to C scholarships per year, with the amount awarded not to exceed a recipient’s annual qualified tuition
expenses at an educational institution.

Pursuant to IRC Section 4945(g)(3), you will award grants to qualifying individuals 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. The purpose of the grants under Section 4945(g)(3) is to
support achievements and/or objectives that are consistent with your exempt purpose, and to support deserving
individuals in their efforts to develop their skills or abilities. In addition, these grants will likely support artistic
endeavors intended to facilitate dialogue around topics related to building a more just, equitable, and connected
America and raise the profile of artists from underrepresented demographics. For example, you may support the
creation of public art installations in local communities. You may also provide funding for mid-career artists from
underrepresented minority groups or geographic areas, such as rural America as well as develop individual grant
programming to support emerging artists and intellectuals whose ages are in the range of D. The amount of each
award will be determined based on the resources required to support the specific objective of the individual grant.

To publicize the availability of all grants, you plan to use typical communication channels, including your website
and targeted communications to interested stakeholders and potential applicants

To be considered for a grant under IRC Section 4945(g)(1), the applicant must generally:

* Demonstrate strong academic performance or excellence

* Submit transcripts for all completed terms in any program of secondary or postsecondary education and
proof of enrollment or admission in the program for which funds are being sought
* Provide references
* Provide recommendations from instructors
* Demonstrate financial need by providing their current Free Application for Federal Student Aid (FAFSA)
* Provide information used to determine whether the applicant is a “disqualified person” within the
meaning of Section 4946(a)

* Provide letters of support and/or participate in a personal interview.

To be considered for a grant under IRC Section 4945(g)(3), the applicant must have either demonstrated
excellence in their applicable field or exhibit potential to achieve the specific purpose of the grant as well as
provide supporting documentation which may include the following:

* A short biographical statement

* Information regarding financial need

* A description of the specific objective, skill, or course of study for which the grant is being sought

* Information used to determine whether the applicant is a “disqualified person” within the meaning of

Section 4946(a)

* One or more letters of support and/or participate in a personal interview

All application materials will be reviewed by a Selection Committee. Further, you anticipate that the persons
responsible for selecting individual grant recipients will consist of (i) your directors and officers; (ii) your staff;
and/or (iii) external experts in fields relevant to the objective of the individual grant. Any such Selection
Committee will be subject to your Board’s ultimate direction and authority.

Letter 4792 (Rev. 4-2021)
Catalog Number 58263T

In selecting individual grant recipients from eligible applicants, the Selection Committee will use objective and
non-discriminatory criteria. The Selection Committee will not discriminate on the basis of race, gender, sexual
orientation, ethnicity, nationality, or religion. However, the Selection Committee may consider the
accomplishments of applicants who have overcome significant obstacles, including barriers presented by their
economic circumstances, physical disabilities, or membership in a minority group.

Objective criteria used by the Selection Committee to choose recipients may include:

* Financial need
* Prior academic performance, for scholarships pursuant to IRC Section 4945(g)(1)
* Demonstrated excellence or potential in their applicable fields, or demonstrated ability to achieve

the specific objective or develop a specific skill in a manner that furthers your desired objective for
grants pursuant to IRC Section 4945(g)(3)

* Recommendations from instructors for scholarships

* A written statement or personal interview which provides you with relevant information as to the
applicant's motivation, character, ability, achievement, potential, and plans for the future.

Further, persons not eligible to receive awards are (i) your past or present directors or officers; (ii) any family
members of such individuals; (iii) any person who is considered a “disqualified person” with respect to you
within the meaning of IRC Section 4946(a).

You anticipate notifying each recipient with an award letter indicating the amount and applicable terms and
conditions of the award. Standard terms and conditions will include the permitted purposes and use of the grant
funds and the recipient’s reporting obligations. You will require the recipient sign and return the award letter
indicating their acceptance of the terms and conditions.

Funds for grants under IRC Section 4945(g)(1) will generally be paid directly to the educational institution.
Recipients of grants pursuant to Section 4945(g)(1) will then be required to provide a copy of their transcripts
showing all courses taken in that academic year and the grades received. Each scholarship recipient will also be
required to provide a final report upon completion of their course of study for which the scholarship was awarded.

Funds for grants under IRC Section 4945(g)(3) will generally be paid to the recipient. The recipients of these
types of grants will be required to provide a report documenting their progress with respect to the grant’s objective
and an accounting for the use of grants funds within six months of the first disbursement of grant funds and every
six months thereafter including a final report after all grant funds have been used.

Concerning the renewal of grants, you anticipate that some of the individual grants may be renewable and you
will take steps to ensure that individual grant recipients are using the funds in a manner consistent with the
requirements of the awards before issuing any renewals. For example, for a scholarship, you will require a
recipient provide a copy of their transcript showing all courses taken in that academic year and the grades
received.

You represent that you will complete the following:

* Arrange to receive and review grantee reports annually and upon completion of the purpose for which the
grant was awarded,

* Investigate diversion of funds from their intended purposes,

* Take all reasonable and appropriate steps to recover the diverted funds and 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 also represent that you will:

Letter 4792 (Rev. 4-2021)
Catalog Number 58263T

* 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 grants described above.

Basis for our determination

IRC Section 4945 imposes excise taxes on the taxable expenditures of private foundations. 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 the following requirements of IRC Section 4945(g) is not a taxable expenditure.

IRC Section 4945(g)(1) Requirements:

* 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 IRC Section 117(a).

* The grant is to be used for study at an educational organization described in IRC Section 170(b)(1)(A)(ii).
IRC Section 4945(g)(3) Requirements:

* 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 IRC Section 170(b)(1)(A)(ii).

- A prize or award subject to the provisions of IRC Section 74(b), if the recipient of the prize or award
is selected from the general public.

- 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.

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, you can contact the person shown at the top of this letter.

Letter 4792 (Rev. 4-2021)
Catalog Number 58263T

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Letter 4792 (Rev. 4-2021)
Catalog Number 58263T