IRS approves an employer-related scholarship program

Plain-English summary

A private foundation asked the IRS to approve a scholarship program for
dependents of employees of a related employer. The program will make
non-renewable awards to graduating high school seniors pursuing STEM or trade
studies at qualifying two-year or four-year schools. An outside organization
will verify eligibility, select recipients, and pay funds directly to their
schools, with no participation by the foundation's or employer's board members
or employees. The foundation represented that the program will satisfy the
independence and percentage limits in Revenue Procedure 76-47. The IRS approved
the procedures under section 4945(g)(1), so qualifying grants will not be
taxable expenditures. Awards used for qualified tuition and related expenses
may also be excluded from recipients' income under section 117.

Ruling snapshot

• Question: Do the employer-related scholarship procedures qualify for advance approval under section 4945(g)(1)?
• Outcome: Approved
• Key authorities: IRC § 4945(d)(3); IRC § 4945(g)(1); IRC § 117; IRC § 170(b)(1)(A)(ii); Rev. Proc. 76-47; Rev. Proc. 85-51

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 05/01/2026
Tax Exempt and Government Entities Taxpayer ID number:

Person to contact:
Name:

ID number:
Telephone:

Release Number: 202630024
Release Date: 7/24/26

LEGEND UIL: 4945.04-04
B = Entity

C = Number

d dollars = Dollars

E = Entity

F = Range

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 a competitive scholarship program for dependents of eligible B employees
for the purpose of pursing undergraduate studies at an institution of higher education. Scholarships will be
awarded annually to graduating high school seniors to attend any 2-year or 4-year qualified postsecondary
schools in the United States. Your scholarships will be managed entirely by E, through its statewide application
process, which provides access to hundreds of scholarships offered by various organizations. You review B
human resource data and contact employees with eligible dependents via email to notify them of their
dependents eligibility and the application process.

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

To be eligible to apply for scholarship, applicants must be:
• A dependent of an employee of B who has been employed for at least one year.
• A high school graduating senior with a minimum 2.0 grade point average.

• Planning to attend a 2-year postsecondary school in one of your residency states or any 4-year
postsecondary school in the United States.

• Pursuing a major in STEM or a course of study in the trades.

Eligible applicants must submit a completed application through E. E verifies applicant eligibility as a
dependent of a B employee prior to application review. Recipient selection will be based on high school
performance as demonstrated by an official high school transcript and an assessment. Financial need may also
be considered. The assessment will be based on the following:

• How the student deals with obstacles or challenges.
• Academic and non-academic strengths and skills.
• Community service or leadership contributions.

• Commitment to achieving goals and tasks, as demonstrated in the applicant's responses to personal
statement questions.

You will award approximately C scholarships of d dollars annually to graduating high school students. You
anticipate that approximately F students are eligible to apply annually. Your scholarships are non-renewable.

Your application review, selection process, and disbursements of scholarships will be totally managed by E.
None of your board members, nor board members of B or its employees will participate in the selection process
of the recipients. E will distribute scholarship funds directly to recipient's institution of enrollment, which is
notified of recipient enrollment level requirements. You will require the institution to verify that the recipient is
maintaining satisfactory academic process according to the institution's policies for Title IV federal financial aid
and meets the required full-time enrollment prior to disbursing any funds to the recipient's account. If the
scholarship recipient is not enrolled, is not maintaining satisfactory academic progress, or isn't meeting the
required enrollment level, the institution must return the scholarship funds to E.

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.

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

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.

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.

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

• 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.

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