Scholarship and educational grant procedures approved

Plain-English summary

A private foundation proposed two programs for United States citizens and legal residents. One program will fund undergraduate or graduate study, with payments made directly to educational institutions. The other will support individuals developing skills or talents, with payments made to recipients who must report on their progress and use of funds. The foundation will select recipients based on stated criteria, exclude disqualified persons, investigate diverted funds, and maintain grant records. The IRS approved the scholarship procedures under section 4945(g)(1) and the educational grant procedures under section 4945(g)(3). Grants made under the approved procedures will not be taxable expenditures if the foundation operates the programs as proposed.

Ruling snapshot

• Question: Do the foundation's scholarship and educational grant procedures satisfy the advance-approval requirements of section 4945(g)?
• Outcome: Approved
• Key authorities: IRC §§ 74(b), 117, 170, and 4945; Treas. Reg. § 53.4945-4(c)(1)

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 03/13/2025
Tax Exempt and Government Entities Taxpayer ID number:
IRS P.O. Box 2508
Cincinnati, OH 45201 Person to contact:

Release Number: 202523029
Release Date: 6/6/2025

LEGEND UIL: 4945.04-04
B = Program

C = Grant Program

D = State

E = Number

f dollars = Amount

G = Institution

Dear :

You asked for advance approval of your scholarship procedures under Internal Revenue Code (IRC) Section
4945(g)(1) and advance approval of your educational grant procedures under IRC Section 4945(g)(3).

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.

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)).

We also approved your procedures for awarding educational grant. Based on the information you submitted,
and assuming you will conduct your program as proposed, we determined that your procedures for awarding
educational grant meet the requirements of IRC Section 4945(g)(3). As a result, expenditures you make
under these procedures won't be taxable.

Description of your request

Your letter indicates you will operate B, described under IRC Section 4945(g)(1), and C, described under IRC
Section 4945(g)(3). These programs will provide financial assistance to individuals for the purpose of

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

improving the lives of D citizens, with a specific focus on relieving childhood hunger and supporting students
and teachers. You will publicize your programs through your website, social media posts, physical posters
placed in E locations, and communications with high school college counselors.

Program B

The purpose of B is to to improve access to tertiary education for deserving students lacking the financial
resources to cover tuition and other educational expenses. You anticipate awarding E scholarship and
fellowship grants annually in the amount of f dollars each. You do not intend for grants to be renewable but
may, in the future, choose to renew any particular grant, provided that the recipient is using the grant funds in a
manner consistent with the purpose of the grant before issuing any renewal.

Eligible applicants must be citizens or legal residents of the United States at the time of application, and
enrolled in an undergraduate or graduate program at an institution of higher education described in Section
170(b)(1)(A)(ii) or scheduled to enroll in such a program in the immediately following academic year.

Applicants must submit an application that includes:

• Information regarding financial need,

• A short biographical statement,

• Information allowing you to determine whether the applicant is a "disqualified person,"

• Transcripts for all completed terms in any program of secondary or post secondary education,

• Proof of enrollment or admission in the program for which funds are being sought,

• One or more letters of support, and

• Personal references.

Selection criteria will include the following:

• Membership with G,

• Financial Need,

• Prior academic performance,

• Recommendations from instructors,

• A written statement or personal interview which provides relevant information as to the applicant's motivation,
  character, ability, achievement, potential, and plans for the future.

Your board of directors, or a board committee appointed by your board of directors will review applications and
select those showing the greatest need for assistance and who show strong potential to succeed. You will
distribute grant funds directly to the educational institution at which the recipient is enrolled. The funds are to
be used exclusively to pay tuition, fees, books, supplies, equipment, board and lodging.

Program C

The purpose of C is to support deserving individuals in their efforts to develop their skills and talents, in
furtherance of your charitable purposes. The number of grants will be determined based on the amount of funds
available for disbursement and the relative needs of your programming at any given time. The number and
amount of grants is subject to change annually. You do not intend for grants to be renewable but may, in the
future, choose to renew any particular grants, provided that the recipient is using the grant funds in a manner
consistent with the purpose of the grant before issuing any renewal.

Eligible applicants must be citizens or legal residents of the United States at the time of application and must
have demonstrated excellence in their applicable field.

Applicants must submit an application that includes:

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

• Information regarding financial need,

• A short biographical statement,

• A description of the specific objective, skill, or course of study for which the award is being sought

• Information allowing you to determine whether the applicant is a "disqualified person".

• One or more letters of support, and

• Personal references.

Selection criteria will include the following:

• Membership with G,

• Financial Need,

• Demonstrated excellence in their applicable fields

• A written statement or personal interview which provides relevant information as to the applicant's motivation,
  character, ability, achievement, potential, and plans for the future.

Your board of directors, or a board committee appointed by your board of directors will review applications and
select those showing the greatest need for assistance, a demonstrated ability or potential to further your tax-
exempt purposes, and who show strong potential to succeed. Grants are paid directly to the recipient. Grant
funds are to be used exclusively for the purposes for which the grant was made. Grant recipients are required to
provide regular reports documenting their progress with respect to the grants objective and accounting for the
use of the grant funds.

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.

IRC Section 4945(g)(1) Requirements:

• 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

IRC Section 4945(g)(3) Requirements:

• 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) and is to be used for study at an educational
    organization described in IRC Section 170(b)(1)(A)(ii).

  • A prize or award subject to the provisions of IRC Section 74(b), if the recipient of the prize or award is
    selected from the general public.

  • To achieve a specific objective; produce a report or similar product; or improve or enhance a literary,
    artistic, musical, scientific, teaching, or other similar skill or talent of the recipient.

To receive approval of its educational grant procedures, Treasury Regulation Section 53.4945-4(c)(1) requires
that a private foundation show:

• The grant procedure includes an objective and nondiscriminatory selection process.

• The grant procedure results in the recipients performing the activities the grants were intended to finance.

• The foundation plans to obtain reports to determine whether the recipients have performed the activities that
  the grants were intended to finance.

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.

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