Private foundation scholarship procedures approved

Plain-English summary

A private foundation requested advance approval for a scholarship program serving graduating high school seniors from specified school districts. Recipients would be selected using financial need, academic achievement, future plans, extracurricular activities, an essay, and an interview. Awards would be paid in semester installments directly to the college or university, with later payments conditioned on schedules, grades, and continued compliance. The IRS approved the procedures under section 4945(g)(1), so grants made as proposed will not be taxable expenditures. The approval applies only while later programs use standards and procedures that do not differ significantly from those described.

Ruling snapshot

• Question: Do the foundation's scholarship selection, monitoring, and payment procedures satisfy the advance-approval rules for grants to individuals?
• Outcome: Approved
• Key authorities: IRC §§ 117, 170(b)(1)(A)(ii), and 4945(d)(3) and (g)(1)

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
P.O. Box 2508
Cincinnati, OH 45201

Date:
02/27/2025

Taxpayer ID number:

Person to contact:
Name:
ID number:
Telephone:

Release Number: 202521031
Release Date: 5/23/2025

LEGEND UIL: 4945.04.04
B = Minimum Number of Scholarship
C = School Districts
D = Colleges and Universities
E = Scholarship Program
F = Range of Eligibility
G = Number Eligible
J = Test
y dollars= Total Amount
z dollars = Increment Amount

Dear

You asked for advance approval of your scholarship procedures under Internal Revenue Code (IRC) Section
4945(g)(l ). 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 tem1 "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 ofIRC Section
4945(g).

Our determination

We approved your procedures for awarding scholarships. Based on the infonnation 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 which will award at minimum, B financial

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

scholarship of y dollars to a graduating high school senior attending one of C school districts and intends to
pursue a baccalaureate degree as a full-time student from one of the following institutions: D or local affiliate
campus. The scholarship will be distributed in increments of z dollars per semester, up to four years, and
contingent on the fulfillment of specific ongoing requirements.

The name of the program is E. The purpose of Eis to provide meaningful financial and mentoring support to
graduating high school seniors. The number of graduating seniors in the applicable high schools would range
from F students. Thus, we estimate the number of eligible applicants to be G students.

The application will be published on your website and provided to local high school counselors. Participants will
need to submit a completed application, including all required supporting documentation, and must be postmarked
on or before a predetennine date. A complete application package would include:

1. Application form
2. Essay response of 500-600 words explaining how you think the J applies to you as a student and how it will
   apply to you as a future leader.
3. All information is to be typed written in Times New Roman 12-point font and double spaced.
4. The applicant's high school transcript with fall semester final grades and current class ranking.

Finalists will be required to participate in an in-person interview with the E committee to be considered for
selection. You will consider the following criteria in selecting recipients: future plans and career goals, financial
need, academic achievement, previous awards, extracurricular activities and an essay submitted by the applicant.
The recipients are selected by a committee consisting of members ofE. The committee reviews all applications
and narrows the field to finalists.

Your scholarship program will be conducted and publicized under your direction. Your scholarship committee
comprised of member within your local committee will award decisions. No members of your board now serve or
will serve on the scholarship committee.

All scholarship recipient(s) will be notified by the scholarship committee chair. Scholarships will be formally
presented to the studcnt(s) and family at a banquet and during the banquet, one of your members will be
assigned as a mentor.

Prior to receiving the first installment, the recipient(s) must present a first semester class schedule. Thereafter,
proof of grade perfom1ance including GPA and class schedule for the following semester must be submitted to
receive additional installments. You will keep records of the recipient's grades for each covered semester, dates
of function attendance and contacts with mentors. Further, the primary safeguard is that the payments are made
directly to the applicable college or university for credit to the recipient's account. The funds are never handled
by the student/recipient. This safeguard is in place to ensure that the funds will not be misused.

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 ofIRC Section 117(a).

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

• 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 3 lA 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 detennination letter available for public inspection after deleting personally identifiable
information, as required by IRC Section 6110. We've enclosed Letter 437, Notice oflntention 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