IRS grants advance approval of a foundation's scholarship program for parents and caregivers pursuing post-secondary education

Plain-English summary

A private foundation runs a scholarship program to help parents and caregivers in a particular area access post-secondary education (2- to 4-year colleges, trade, vocational, and certificate programs) and advance professionally. Grants to individuals can trigger an excise tax on a private foundation under IRC § 4945 unless the IRS approves the award procedures in advance. The foundation sought approval under IRC § 4945(g)(1). The IRS found the selection objective and nondiscriminatory (weighing opportunity for advancement, character, perseverance, and financial need) with adequate reporting and oversight, so the procedures qualify. Grants made under these procedures will not be taxable expenditures, and awards used for qualified tuition and related expenses are not taxable to recipients (subject to IRC § 117(b)). The approval is limited to this foundation and this program as described.

Ruling snapshot

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

Full text (IRS public release)

Department of the Treasury Date: 02/15/2022
Internal Revenue Service
Tax Exempt and Government Entities Taxpayer ID number:
P.O. Box 2508
Cincinnati, OH 45201 Person to contact:
Name:
ID number:
Telephone:

Number: 202219019
Release Date: 5/13/2022

UIL: 4945.04-04
LEGEND
B = Program
C = Area
D = Company
e dollars = Amount
f = Number
g = Number

Dear

You asked for advance approval of your scholarship procedures under Internal Revenue Code (IRC) Section
4945(g)(1). You requested approval of your scholarship program to fund the education of certain qualifying
students.

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.

Additionally, 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)).

Description of your request

Your letter indicates you will operate a scholarship program called B. The purpose of B is to provide access to
education and encourage professional development of parents and caregivers in C. You will provide
scholarships to post-secondary education, including 2 to 4 year colleges, trade, vocational and certificate.

You will publicize your program by partnering with a number of local organizations, including community
centers in C, trauma centers, and day cares. You also plan to advertise in local newspapers. The deadline for

Letter 4792 (Rev. 1-2022)
Catalog Number 58263T

scholarship applications will be mid- each year and the grants will be awarded in mid- .
Applicants will be required to submit a personal statement and to provide a letter of recommendation from a
teacher, counselor, coach, employer, or other community leader. Initially, you expect to receive approximately g
applications each year and the number of applications will increase as B is more widely publicized.

The number of grants you award annually may vary from year to year and it will determine by your board.
Initially, you plan to award f grants each year of approximately e dollars each. The exact amount of each grant
will be determined by the recipient's course of study, the cost of tuition and related expenses, and level of need.

The scholarships are not renewable. However, there are no restrictions as to the number of times an individual,
including past applicants and grant recipients may apply. No preference will be given to past grant recipients.

Prior to awarding a grant, you will check the recipient name against the OFAC list of Specially Designated
Nationals and Blocked Persons. You will pay scholarship awards directly to the educational institution
whenever possible. You will require each institution to agree on using the funds to defray the tuition and
related expenses and if the recipient fails to enroll, drops out, fails to remain in compliance with the
institution's academic requirements, the institution will be required to return all unused funds. If funds are
paid directly to the grant recipient, you will have each recipient to sign an acceptance letter, which will
outline the requirements and conditions of the grant. If applicable, you will require the grant recipients to
provide an official transcript for each academic period and submit documentation substantiating the use of
the funds.

To be eligible for a grant, the applicant must be:

• A resident of C
• A parent or caregiver of a child (or children) 18 years old or younger
• Currently employed and/or enrolled in school

Your officers, directors, substantial contributors, selection committee members, and the children and other close
relatives of such persons are not eligible to apply. In addition, employees of your sole member, D and children
of such employees are not eligible to apply.

There will be no discrimination on the basis of race, gender, national origin, sexual orientation, or religion.
Your selection committee will use the following specific criteria to select grant recipients:

• Greatest opportunity for advancement or improved circumstances for the applicant and their family
  members as a result of training or education

• Character of the applicant such as integrity, honesty, and commitment, as demonstrated through a
  personal statement and/or letters of reference.

• Ability to persevere in challenging situations and/or overcome adversity, as demonstrated through
  the applicant's personal statement.

• Financial need

Your selection committee will be composed of between five and nine members. You will choose individuals
that have been employed by D for at least one year. The one-year employment requirement will be waived for
individuals who have previous experience serving on a private foundation and/or reviewing scholarship
applications. The selection committee is obligated to disclose existence of any relationship that they have
with any potential grantee. In addition, the selection committee will refrain from participation in the review
process if the member could derive direct or indirect tangible benefit from the selection. The selection
committee will review all applications and recommend candidates to your board for final approval.

Letter 4792 (Rev. 1-2022)
Catalog Number 58263T

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 diversion from occurring.

You also represent that you will:

• Maintain all records relating to individual grants including information obtained to evaluate grantees,
• Identify 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.

• 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).

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 IRS at:
  Internal Revenue Service
  Exempt Organizations Determinations
  TE/GE Stop 31A Team 105
  P.O. Box 12192
  Covington, KY 41012-0192

• You can't 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.

Letter 4792 (Rev. 1-2022)
Catalog Number 58263T

We'll make this determination letter available for public inspection after deleting personally identifiable
information, as required by IRC Section 6110. We've enclosed Letter 437, Notice of Intention to Disclose -
Rulings, and a copy of the letter that shows our proposed deletions.

• If you disagree with our proposed deletions, follow the instructions in the Letter 437 on how to notify us.
• If you agree with our deletions, you don't need to take any further action.

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.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Letter 437

cc:

Letter 4792 (Rev. 1-2022)
Catalog Number 58263T