Vocational scholarships for students overcoming obstacles approved

Plain-English summary

A private foundation proposed one-time scholarships for high school seniors who overcame significant educational obstacles and plan to attend accredited vocational or technical schools. Applicants must submit an essay, three teacher recommendations, and a transcript showing specified coursework in Navajo language, government, and history and at least a 2.00 GPA. They also must show extracurricular and community service participation, with preference for cultural revitalization or preservation. A committee of school faculty and staff and foundation directors will select recipients. Payments will go directly to recipients, who must provide receipts showing proper use. The IRS approved the procedures under section 4945(g)(1), so grants made as proposed will not be taxable expenditures. Awards used for qualified tuition and related expenses also may be excluded from recipients' income under section 117, subject to that section's limits.

Ruling snapshot

• Question: Do the foundation's vocational and technical scholarship procedures satisfy the advance-approval rules?
• Outcome: Approved, provided the program operates as described
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), 4945(d)(3), 4945(g)(1)

Full text (IRS public release)

Department of the Treasury Date: 08/19/2024
Internal Revenue Service

Tax Exempt and Government Entities Taxpayer ID number:
Person to contact:
Name:
ID number:
Release Number: 202446017 Telephone:
Release Date: 11/15/24

LEGEND UIL: 4945.04-04

B = Name

C = Name

D = City, State

E = Number

x dollars = Dollar Amount

y dollars = Dollar Amount

z dollars = Dollar 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 grant program called B with the purpose to recognize high school seniors
at C in D who have overcome significant obstacles in the pursuit of their education and plan to pursue
postsecondary education and training through accredited vocational and technical schools.

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

Each year, E grant recipients will be chosen to receive one-time grants of x dollars, y dollars, or z dollars. Grants
are not renewable. You will publicize your program by posting advertisements with a description of the
scholarship and its requirements at C. School counselors and teachers will also notify students of your program.

Interested students must submit a completed application by the annual deadline, along with a 500-word essay
describing how they overcame significant obstacles in the pursuit of their education, and three letters of
recommendation from teachers, one of which must come from a vocational-technical teacher. Applicants must
also submit an official academic transcript that shows successful completion of coursework in Navajo Language,
Government, and History, and a cumulative GPA of 2.00 on a scale of 4.00. They must also demonstrate
participation in extra-curricular and community service activities, with preference for emphasis on cultural
revitalization or preservation.

Your selection committee will consist of members of C’s faculty and staff, and of members of your board of
directors. Committee members unable to serve for any reason will be replaced within a reasonable timeframe by
replacements chosen by the remaining selection committee members.

Grants will be paid directly to grant recipients who must provide receipts verifying that the awards were used in
accordance with the purpose of 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.

• 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