Private foundation's renewable scholarship procedures received advance approval

Plain-English summary

A private foundation proposed renewable scholarships for first-time undergraduate or vocational students from specified counties. Applicants needed at least a 2.5 grade point average, and selection considered financial need, academic performance, leadership, community activity, goals, and personal circumstances. An outside administrator would select recipients, employees and their families were ineligible, checks would be payable to the school, and the foundation committed to annual reporting and diversion safeguards. The IRS approved the procedures under section 4945(g)(1), so grants made as proposed would not be taxable expenditures. Awards used for qualified tuition and related expenses also would not be taxable to recipients under section 117(b).

Ruling snapshot

• Question: Did the foundation's scholarship selection and supervision procedures satisfy section 4945(g)(1)?
• Outcome: Approved
• Key authorities: IRC §§ 117, 170, and 4945(g)(1)

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 10/17/2022
Tax Exempt and Government Entities Taxpayer ID number:

IRS P.O. Box 2508

Cincinnati, OH 45201 Person to contact:
Number: 202302015
Release Date: 1/13/2023

LEGEND UIL: 4945.04-04
W = number

X = company 1

Y = counties

Z = company 2

b dollars = amount

Dear [redacted]:

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 to provide up to W scholarships to high school
seniors, graduates or GED recipients who plan to enroll in part-time or full-time undergraduate study for the
first time at an accredited two- or four- year college/university or vocational/technical school. The amount of
each scholarship will be b dollars per year, renewable up to a maximum of three years or until a bachelor's
degree is earned, whichever occurs first. Fewer scholarships than the number contemplated, or no scholarships,
may be awarded in a particular year due to available funds, a lack of qualified applicants, or other factors.

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

The program will publicized through multiple channels, including X's website and social media pages, press
releases, fliers and outreach to guidance counselors in your geographic area. Applicants must have a minimum
grade point average of 2.5 on a 4.0 scale (or its equivalent) and reside in Y.

You represent that you will maintain case histories showing the recipients of the scholarships, including names,
addresses and purposes of awards, the amount of each grant, the manner of selection, and certification that there
is no relationship between your officer, trustees, or donors of funds.

The specific criteria for the selection of scholarship recipients includes financial need, academic performance,
demonstrated leadership and participation in school and community activities, a statement of career and
educational goals and objectives and unusual personal or family circumstances. A preference may be made for
students who come from a single parent/head of household family. Provided there are eligible recipients, your
intent will be to award scholarships to at least one recipient from each of Y.

To maintain scholarships and be eligible for renewal, recipients must maintain satisfactory academic
performance, defined as maintaining a cumulative grade point average of 2.5 on a 4.0 scale (or its equivalent),
continue full- or part-time enrollment and be in good standing with their institution/program.

Regarding you procedures for supervising scholarships, recipients are required to upload transcripts as part of
their initial or renewal application.

Recipients are instructed to provide their scholarship award letter to the college/university/program. The
scholarship check is sent to the recipient, made payable to the college/university/program that the student is
attending. If the college/university/program has any questions regarding how the funds should be applied, they
are directed to contact Z. If the student doesn't matriculate, the college/university/program will not accept the
check. If the student drops out, the college/university/program will send Z a refund to be applied to your
account.

You will utilize Z to administer the program, including selecting recipients to ensure unbiased selections. Your
employees and their family members are ineligible for the scholarship.

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.

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

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.

• The effective date of our approval is , which is the date your request was submitted.

• 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.

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.

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

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