IRS grants advance approval of a foundation's tiered scholarship-award procedures under 4945(g)(1)

Plain-English summary

When a private foundation makes grants directly to individuals for study, those
payments are "taxable expenditures" subject to an excise tax under Section 4945 unless
the IRS approves the foundation's award procedures in advance. Here, a foundation asked
for advance approval of a layered set of scholarship programs that help students with
demonstrated financial need attend college and, in some cases, graduate school. The
programs build on one another: an initial award, then additional awards that fill in
more of a student's costs (up to a set percentage), plus separate awards for study
abroad and for graduate study. Applicants must meet an educational institution's
admission standards, show financial need through the FAFSA, and keep a minimum GPA to
renew; awards are generally paid directly to the school. The foundation represented
that it selects recipients objectively and nondiscriminatorily, excludes board and
selection-committee members' relatives, requires conflict-of-interest recusals,
collects progress reports, and will investigate and recover misused funds. The IRS
approved the procedures under Section 4945(g)(1), so grants made under them are not
taxable expenditures, and awards are not taxable to recipients when used for qualified
tuition and related expenses under Section 117. The approval is effective as of the
date the request was submitted and covers only this program as described.

Ruling snapshot

• Question: Will the IRS approve in advance a foundation's tiered scholarship-award procedures so its grants to individuals are not taxable expenditures?
• Outcome: Approved (advance approval under § 4945(g)(1))
• Key authorities: IRC § 4945(d)(3), (g)(1); § 117(a), (b); § 170(b)(1)(A)(ii); § 170(c)(2)(B)

Full text (IRS public release)

         Department of the Treasury                                            Date:
         Internal Revenue Service                                               09/16/2025
         Tax Exempt and Government Entities                                    Taxpayer ID number:


                                                                               Person to contact:




Release Number: 202550036
Release Date: 12/12/2025




LEGEND                                                                         UIL: 4945.04-04
B = State
C = College
D = Name
E = Name
F = Name
G = Name
H = Name
w percent = percentage amount
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)).

                                                                                             Letter 4792 (Rev. 1-2022)
                                                                                             Catalog Number 58263T
Description of your request
Your letter indicates you will operate various scholarship programs to provide financial assistance to students in
B. Your programs support students who seek to improve their lives through educational opportunities while
benefiting society and the workforce by increasing their skills. You will publicize your programs at select high
schools in B, additional secondary schools and relevant institutions. You may utilize education counselors to
assist in encouraging the student population to apply.

Overall, to be eligible for each of your programs, each applicant must meet the following requirements:
 • Meet the minimum admissions standards of, and expect to attend, an educational institution that meets the
  standards of education as defined in IRC Section 170(b)(1)(A)(ii)
 • Demonstrate financial need
 • Graduated from a high school in B
 • Will, or currently, attend C

Other eligibility requirements are specific to each of your programs as described below:

D Program
Your initial award, the D Program, is the foundation for all your programs. Each additional program
subsequently builds from this program until the recipient has reached the percentage of their total cost
(including qualifying expenses) you will cover.

Students will complete an application packet that includes the following:
  • Complete application
  • Resume
  • High school transcript
  • Free Application For Student Aid (FAFSA)
  • At least one letter of recommendation

Your Selection Committee will evaluate and select recipients based on the following:
 • Academic commitment
 • Demonstrated financial need
 • Recommendations
 • Demonstration of leadership qualities and a potential for persistence and success
 • An interview, either in-person or over the phone, with one or more selection committee members

Your Selection Committee may also give preference to first generation college students and siblings of prior
recipients. Siblings of a prior recipient may be given preference over an equally qualifying applicant, but not
over a less qualified applicant. The need for the sibling is believed to be more so since the family, who has
demonstrated financial need, is supporting another child in college. Older siblings are seen as invaluable
mentors and resources to help guide the younger sibling through college and be more likely to succeed at
navigating college rigors.

For each of your programs, with your graduate program being an exception, your selection committee will
evaluate each applicant’s FAFSA and consider their student aid index (SAI). The applicant(s) with less than w
percent of their total cost to be met is considered to have demonstrated significant financial need. In total, you
will only fund up to w percent of total tuition (including additional qualifying expenses) costs and you expect
the student’s family to fund the remainder. You strongly encourage summer employment, if not enrolled as a
full-time student.
                                                                                          Letter 4792 (Rev. 1-2022)
                                                                                          Catalog Number 58263T
Your approximate grant amount is expected to be x dollars per semester for eight academic semesters. It may be
increased up to an additional four academic semesters following completion of the first eight. At your
committee’s discretion, this amount is subject to change and any unused portion in that semester may be carried
over to future semesters. In this scenario, only the remaining balance to complete the full initial amount of the
award per semester would be granted.

Recipients will be invited to participate in events you will host which include community activities and formal
dinners with your officers and directors. Attendance is voluntary and not required. The goal for such
participation is to offer comprehensive ongoing support and provide resources by giving the students
opportunities to engage with each other and build a network of peer support. This also gives you the opportunity
to engage with students and identify any other potential areas of need where you may be able to provide non-
financial support, such as mentoring.

In order to maintain their award, students must demonstrate annual progress toward an undergraduate degree
and have a minimum grade point average (GPA) of 2.5. Should this requirement not be met, the award may be
terminated going forward along with any unused portions from prior years that have yet to be used.

E Program
Your secondary scholarship, E Program, is only available to recipients of your initial award. It is designed to
help cover cost where the student has yet to receive w percent of their total costs covered and won’t have to take
out any loans, or if so, a very low amount, should they receive this award. However, the applicant must agree to
not borrow more than y dollars in student loans of any kind during their undergraduate period. The applicant
parameters, amounts awarded, and stipulations to maintain the award are the same as described in your initial
award.

F Program
All recipients who received your initial and secondary award are invited to apply for an additional award under
this program. Financial need is based on the total financial aid, including awards already received under another
one of your programs, that is less than w percent of their total cost along with additional considerations and
commitments. For example, participation in extra-curricular activities, employment, unpaid activities related to
their academic program, “in-kind” employment at the institution, athletic team participant or other NCAA
sanctioned sport, or other extenuating circumstances. Each recipient may receive an amount to help them reach
having w percent of their total costs covered. All financial aid the recipient will have already received is
considered in determining the amount to be awarded.

G Program
Students already receiving one of your awards and enrolls to study abroad or complete a semester at sea for
credit to complete their degree, are eligible to apply for funds to aid in covering their cost under this program.
Incremental costs not covered by other sources of financial aid must be demonstrated to show a significant
unmet financial need. The cost for this program is in addition to the cost of regular tuition. You will fund up to z
dollars to cover documented expenses. The amount may be adjusted as determined by your board for inflation
and other cost increases.

H Program
Your graduate program award is for students who were recipients of your undergraduate award(s), graduated
with an undergraduate degree, and are pursuing a post-graduate degree. The applicant must provide details of
the graduate program, including an estimated budget, dates, and a description of the program. The applicant is
presumed to have met financial need since their financial situation is evaluated and confirmed each semester
during their undergraduate program. You will review any financial aid awarded from the graduate school to
                                                                                          Letter 4792 (Rev. 1-2022)
                                                                                          Catalog Number 58263T
determine the applicant’s net cost to attend. A maximum amount of x dollars per semester will be awarded. Any
student who maintained the qualifications under your undergraduate scholarship programs will be deemed to
have actively participated and eligible. No additional participation will be required. In order to maintain or
renew the award, the recipient must demonstrate annual progress toward a graduate degree and maintain a
minimum 2.5 GPA. If this requirement is not met, the award will be terminated going forward.

Other Programs
In additional to the programs described above, you may implement scholarship programs at other institutions.
The terms, parameters and oversight will substantially be the same. The number of awards, amounts and
application process may vary as determined by your Board of Directors.

Over all your programs, the number of grants awarded will be determined by your Selection Committee and
will vary depending on your available funds and other ongoing projects. Your Selection Committee will be
appointed by your Board of Directors. Your board will identify and select individuals who (i) demonstrate
passion and dedication to helping deserving students successfully complete college, (ii) have sound judgement
in assessing an applicant’s commitment to pursuing and obtaining a degree, and (iii) possess a high degree of
organizational and personal skills to be able to track and engage the recipient throughout their college journey.

All scholarships shall be awarded on an objective and non-discriminatory basis. Scholarships will not be limited
to any particular course of study. Relatives of board members or selection committee members are not eligible
to apply. Members of your board do have a relationship with a limited liability company (LLC) and its
affiliates. The children of employees of the LLC and affiliates are eligible to apply, but it is not a condition, and
no preference is given to such applicants. To further ensure a conflict of interest does not exist, any committee
member, which may include a board member, who has a business relationship with the LLC or affiliates, will
recuse themselves from being involved in selecting recipients should one of their employee’s children apply.

You will make payments directly to the selected educational institution, including private or public universities
or colleges. Such distributions will be made to the educational institution under the condition that the
educational institution agrees to use the scholarship funds to (i) defray the recipient’s educational expenses or
(ii) to pay the funds (or a portion thereof) to the recipient only if the recipient is currently enrolled and his or her
standing is consistent with the purposes and conditions of the award. Where a distribution directly to the
selected educational institution would not result in a defrayment of the recipient’s educational expenses, you
may make disbursements of award payments to an education fund for the benefit of the recipient, to a third
party to pay educational expenses directly on the recipient’s behalf, or to the recipient directly upon proof of
recipient’s payment of educational expenses, so long as such disbursement is for actual expenses and does not
result in a private benefit.

As a condition of receiving an award, you require that the recipient file a report with the Selection Committee at
the end of each scholastic period that outlines the recipient’s progress and includes the recipient’s latest
transcript, tuition bill, and annual budget worksheet. If the recipient fails to submit a report within sixty (60)
days after the end of a reporting period or, if the Selection Committee concludes (after review of such a report)
that a recipient has not attended an educational institution, the Selection Committee will take appropriate action
to seek a refund of the recipient’s scholarship award.




                                                                                             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 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.
 • The effective date of our approval is Date, which is the date your request was submitted.
 • 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.


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




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