Student-athlete scholarship procedures approved

Plain-English summary

A private foundation proposed at least two one-time annual scholarships for graduating student athletes at a specified high school, one boy and one girl. Applicants would need college acceptance and a short essay, while financial need and academic achievement would be considered but would not control the decision. A committee made up of the foundation's officers would select recipients, with relatives of insiders excluded. Funds would be paid directly to students, who would acknowledge spending restrictions and report how the money was used. The IRS approved the procedures under section 4945(g)(1), so grants made under the program as described will not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's student-athlete scholarship procedures satisfy the advance-approval requirements of section 4945(g)(1)?
• Outcome: Approved, subject to the described eligibility, selection, monitoring, recovery, and recordkeeping rules
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), 170(c)(2)(B), 4945(d)(3), and 4945(g)

Full text (IRS public release)

Department of the Treasury Date: 07/10/2023

Internal Revenue Service
Tax Exempt and Government Entities

Taxpayer ID number:

P.O. Box 2508
Cincinnati, OH 45201

Release Number: 202340023
Release Date: 10/6/2023

LEGEND

Person to contact:
Name:

ID number:
Telephone:

UIL: 4945.04.04

W = Name

X = Scholarship name
y dollars = $

Z = School

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 program called X.

The purpose of X is to award scholarships to graduating senior athletes of Z, one boy and one girl, in memory of
W.

You plan to award at least two scholarships per year in the amount of y dollars. Scholarships will be awarded to
students that plan to attend either public or private nonprofit universities. Scholarships will be awarded one time
and are not renewable.

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

You will publicize the scholarships through the guidance department of Z, in its annual local scholarship
handbook that is open to all graduating seniors, for them to apply to one or more scholarships provided. Students
will submit their application in to the guidance department. Applications will be turned over to your
organization with selections made in of each year.

To be eligible for a scholarship a student must be a graduating student athlete in any sport. Financial need and
academic achievement are considered, but not governing factors. Applicants will need to provide a letter of
acceptance from an accredited college or university that the applicant will attend. Applicants will also need to
prepare a short essay on selected topics.

The selection committee will read the essays to help determine who receives the scholarships. Their decision is
purely subjective and will be made on an objective and non-discriminatory basis.

The selection committee is composed of your officers. Relatives of the selection committee as well as your
officers/directors and substantial contributors or their relatives are not eligible to be considered or receive funds for
the scholarship.

You will disburse the scholarship funds directly to students once a year at an annual awards ceremony at the high
school. You will not supervise the scholarship. Recipients and their parents/guardian will be asked at the time of
the award to acknowledge the restrictions on how the funds can be spent and recipients will be asked to report
on how the funds were applied.

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).

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

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.

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