Theological doctoral scholarship procedures approved

Plain-English summary

A private foundation asked the IRS to pre-approve the procedures for a scholarship program that funds doctoral study in theology. Under section 4945, a private foundation's grants to individuals for study are "taxable expenditures" that trigger an excise tax unless the IRS approves the award procedures in advance under section 4945(g)(1). This foundation awards a set number of grants each year to college graduates pursuing a doctoral degree at a university, seminary, or bible college, favoring students with ministry experience whose dissertations advance the foundation's work. Grants can be renewed if the recipient keeps a 3.0 GPA, serves in a local church, and files quarterly reports; a selection committee of board members and one independent member picks the winners, and insiders' relatives are ineligible. Funds are paid to the schools where possible. The IRS approved the procedures, so grants made under them are not taxable expenditures as long as the program runs as described, and the awards are tax-free scholarships to recipients under section 117 when used for qualified expenses.

Ruling snapshot

• Question: Do the foundation's theological doctoral scholarship procedures satisfy IRC § 4945(g)(1) so the grants are not taxable expenditures?
• Outcome: Approved
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), and 4945(g)(1)

Full text (IRS public release)

Department of the Treasury Date: 08/10/2022
Internal Revenue Service

Tax Exempt and Government Entities Taxpayer ID number:
P.O. Box 2508
Cincinnati, OH 45201 Person to contact:
Name:
Number: 202244031 Telephone:
Release Date: 11/4/2022
LEGEND UIL: 4945.04-04

d dollars = Amount

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 for graduate students pursuing a doctoral degree in

a university, seminary, or bible college. The purpose of your program is to provide scholarships to encourage
and facilitate theological study and biblical research at the doctoral level.

The number and amount of grants will be determined by availability of your funds and number of qualified
applicants. You expect to award in the range of C scholarship grants annually and the scholarship amount will
be ranging from d dollars to each recipient. The amount for each recipient will depend on the cost of a particular

program of study, resources the recipient already has, and the amount of funds available. You may not offer
new scholarships each year if grant renewal happens.

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

Your scholarship program will be publicized on your website and in your newsletters.

To be eligible for a scholarship, the student must:

• Have distinguished themselves academically at the undergraduate level
• Be a college graduate pursuing a doctoral degree in theology or related field at a university, seminary,
  or bible college
• Have served extensively in an area of ministry, paid or volunteer
• Give evidence of a sense of calling to vocational ministry either in the academic field, a para-
  church ministry, or in and through the church
• Research and write their dissertation on an approved topic that informs, advances, and directly contributes
  to your work
  Recipients can qualify for renewal if the recipients make steady and consistent academic progress, maintain a
  grade point average of at least 3.0 on a 4.0 scale, connect and serve in local church (paid or volunteer), and
  maintain communication with you through quarterly reports and updates.

Your Executive Director will oversee the scholarship program and the funds will be paid to the educational
institutions where possible. Scholarships given to students through the academic institution will be distributed
only as the student remains enrolled and in good standing with the institution. Recipients will be required to
supply progress and grade reports at the end of each academic session. Failure to meet the conditions of each
scholarship will result in a probationary period of one academic session where the recipient will have
opportunity to meet clearly communicated expectations, followed by termination of the scholarship if
conditions remain unmet.

Your selection committee consists of your board members and one independent committee member.
Criteria for their selection is nomination and election by the larger board of trustees. Relatives of members of
the selection committee, or of your officers, directors, or substantial contributors, will not be eligible for awards
made under your program.
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.

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

• 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

• 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.
  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.

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

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