Employer-related STEM scholarship procedures approved

Plain-English summary

A private foundation proposed scholarships for children of a company's full-time and part-time employees who pursue four-year undergraduate degrees in science, technology, engineering, or math. An independent committee will evaluate applicants using grades, financial need, interest in STEM, teacher recommendations, and educational and career goals. Awards will not depend on a parent's position or continued employment, and recipients must document enrollment, academic progress, and proper use of the funds. The foundation also represented that the program will satisfy the percentage limits and other safeguards for employer-related scholarships in Revenue Procedure 76-47. 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 procedures for employer-related STEM scholarships 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); Rev. Proc. 76-47; Rev. Proc. 85-51

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: 202446021 Telephone:
Release Date: 11/15/24

LEGEND UIL: 4945.04-04

B = Program Name

C = Business Name

W = Number

X = Number Range

Z = Number Range

y dollars = Dollar Amount

Dear :

You asked for advance approval of your employer-related scholarship procedures under Internal Revenue Code
Section (IRC) 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 employer-related scholarships. Based on the information you
submitted, and assuming you will conduct your program as proposed, we determined that your procedures for
awarding employer-related scholarships meet the requirements of IRC Section 4945(g)(1). As a result,
expenditures you make under these procedures won't be taxable.

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 B which provides scholarships to children of part-time and full-time
employees of C. Candidates are high school seniors or graduates, or current postsecondary undergraduates,
enrolled full-time at an accredited four-year college or university in pursuit of a four-year degree in science,
technology, engineering, or math (“STEM”) fields.

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

The purpose of your scholarship program is to provide access to STEM education and encourage the professional
development of the children of C’s employees. You will award between X new scholarship recipients annual
grants of y dollars. Grant awards may be used only for tuition, fees, books, and required supplies. Your grants are
renewable for up to W years.

You will publicize the program through email announcements to employees and postings on C’s intranet.

Eligibility criteria includes:

• The student’s parent(s) must be a full-time or part-time employee of C. There is no minimum period of
employment, position, duties, or type of employment services required.

• The dependent child must have been accepted to a full-time undergraduate study program at an accredited
four-year college or university, in pursuit of a four-year degree in STEM fields.

The application process includes submission of a complete transcript of grades, the student’s FAFSA application,
at least one recommendation letter from a teacher, a statement of their experience thus far in STEM and any
accomplishments earned in STEM fields, and a statement of their educational and career goals.

Grants will be awarded using the following criteria, in the order of importance:

• GPA

• Financial needs based on FAFSA’s estimated family contribution

• Demonstrated interest in STEM education

• Teacher recommendations

• Educational and career goals and objectives

You will maintain, at all times, an independent selection committee composed of W individuals with post-
secondary degrees and professional experience in STEM fields.

The selection of recipients will be based solely upon objective standards unrelated to the employment of the
applicant’s parent(s) and to D’s line of business. Recipients are not required to perform any services after
receiving the award. There is no condition for the recipient’s parent(s) to render future employment services to
the company, at the time a scholarship is awarded. Once awarded, the scholarship will not be terminated if the
recipient's parent(s) terminates employment.

You will disburse scholarship funds directly to students. Each grant recipient signs an acceptance letter which
outlines the conditions of the grant before the first grant check is mailed. Grants are renewable at the end of each
academic year for up to W years. Renewal is conditioned on recipient’s maintaining a minimum 3.0 GPA, and
full-time enrollment in pursuit of a four-year degree in a STEM field. You estimate you will have between Z
applicants who are eligible to apply for initial grant every year.

At the end of each academic period, each recipient will be required to submit an official transcript verified by the
educational institution and documentation substantiating the use of the grant funds, including receipt from the
educational institution’s bursar’s office and receipts for purchases of books, supplies, and equipment required for
courses. Upon completion of the recipient’s course of study, a final written report describing the grantee’s
accomplishments with respect to the grant and accounting for funds received under such grant will be required.

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 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).

Revenue Procedure (Rev. Proc.) 76-47, provides guidelines to determine whether grants a private foundation
makes under an employer-related program to employees or children of employees are scholarship or fellowship
grants subject to the provisions of IRC Section 117(a). If the program satisfies the seven conditions in sections
4.01 through 4.07 of Rev. Proc. 76-47 and meets the percentage tests described in Section 4.08 of Rev. Proc. 76-47,
we will assume the grants are subject to the provisions of IRC Section 117(a).

You represented that your grant program will meet the requirements of either the 25% or 10% percentage test in
Rev. Proc. 76-47. These tests require that:

• The number of grants awarded to employees’ children in any year won't exceed 25% of the number of
employees’ children who were eligible for grants, were applicants for grants, and were considered by the
selection committee for grants, or

• The number of grants awarded to employees' children in any year won't exceed 10% of the number of
employees' children who were eligible for grants (whether or not they submitted an application), or

• The number of grants awarded to employees in any year won't exceed 10% of the number of employees
who were eligible for grants, were applicants for grants, and were considered by the selection committee
for grants.

You further represented that you will include only children who meet the eligibility standards described in
Rev. Proc. 85-51, when applying the 10% test to employees' children.

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

In determining how many employee children are eligible for a scholarship under the 10% test, a private
foundation may include only those children who submit a written statement or who meet the foundation's
eligibility requirements. They must also satisfy certain enrollment conditions.

You represented that your procedures for awarding grants under this program will meet the requirements of
Rev. Proc. 76-47. In particular:

• An independent selection committee whose members are separate from you, your creator, and the employer
will select individual grant recipients.

• You will not use grants to recruit employees, nor will you end a grant if the employee leaves the employer.

• You will not limit the recipient to a course of study that would particularly benefit you or the employer.

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 is in effect if your procedures comply with Sections 4.01 through 4.07 of Revenue
Procedure 76-47 and either of the percentage tests of Section 4.08. If you establish another program
covering the same individuals, that program must also meet the percentage test.

• 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