Scholarship procedures for graduating high school seniors approved

Plain-English summary

A private foundation proposed scholarships for graduating high school seniors in a specified state who plan to attend accredited colleges full time. Applicants must meet academic and enrollment requirements, and selection also considers test scores, community service, extracurricular activities, recommendations, financial need, and an essay. The foundation will rotate the high schools from which it solicits applications, use decision-makers without a private interest in the awards, pay schools directly, and monitor recipients and grant 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 scholarship procedures satisfy the advance-approval rules for grants to individuals?
• 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:
P.O. Box 2508
Cincinnati, OH 45201 Person to contact:
Name:
ID number:
Telephone:

LEGEND

B = State

C = Number Range

D = Number

F = Number

g dollars =
Amount

                                                            UIL: 4945.04-04

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 that you will operate a scholarship program in B. The purpose of your program is to aid
graduating high school seniors planning to enroll full-time at accredited institutions of higher education to
further their academic endeavors. You will award C scholarships each year. Recipients will initially receive a
grant in the amount of g dollars per academic year, subject to annual review based on available resources.

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

Eligibility criteria includes:

• Applicant must be in senior year at an accredited high school and on track to graduate at the end of the
current academic year.

• Applicant must have maintained a GPA of 3.0 on a 4.0 scale in the most recent academic year.

• Applicant must provide evidence of enrollment in a qualifying educational institution.

Recipients must use the scholarship funds within D months after the date of notification of winning the awards.
Scholarships are renewable generally for a total of F years if recipients maintain a minimum GPA of 3.0 on a
4.0 scale during their college career and submit an annual scholarship renewal application. Applications are
open from January 1 to mid-March of every year.

You will advertise your scholarship program through email campaigns, press releases, and collaborations with
community organizations that will share your program information through their networks. Each year, you will
solicit applications directly from a selection of B high schools. You will rotate annually the selection of high
schools from which you solicit applications.

The selection criteria will consider applicants’ academic achievement, standardized test scores, participation in
community service and other extracurricular activities, letters of recommendation, financial need, and an essay.
No student will be denied consideration because of race, gender, religion, or ethnic origin.

Your selection committee will review the applications and make recommendations for final selection to your
board of directors. Persons involved in the selection process will not be in a position to derive any direct or
indirect private benefit from the selection of scholarship grantees.

Scholarships will be paid directly to the recipients' institutions of higher education with specific instructions for
the use of funds for the scholarship purpose. You will not release scholarship funds until you receive evidence
of recipients’ enrollment at qualifying educational institutions.

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
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.

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

cc:

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