Scholarship Awards Not Taxable

Contact person: * * *, ID number: * * *
Contact telephone number: * * *

UIL: 4945.04-04
Release Date: 5/10/2019

Date: February 12, 2019

Employer Identification Number: * * *

LEGEND:

b dollars = amount
c = number
D = association

Dear * * *:

You asked for advance approval of your scholarship grant procedures under Internal Revenue Code Section 4945(g). This approval is required because you are a private foundation that is exempt from federal income tax. You requested approval of your scholarship program to fund the education of certain qualifying students.

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 Code Section 4945(g)(1). As a result, expenditures you make under these procedures won't be taxable.

Also, 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 Code Section 117(b)).

Description of your request

You will operate a program providing scholarships to the children and grandchildren of members of D. You expect to provide c scholarships of b dollars.

The specific criteria you use to determine who is eligible for your program are:

Individuals meeting the above criteria must submit an application meeting the following specifications:

A scholarship committee to select winners will consist of three members from your board of directors. Winning applicants will be notified of the amount of scholarship by mail.

Scholarships are advertised in the membership newsletter, and copies of the application and announcement materials can be found on your website. Relatives of members of your selection committee, or of your officers, directors, or substantial contributors are not eligible for awards made under your program.

You will maintain case histories showing recipient names and addresses, purpose of award, amount, and manner of selection. All successful candidates must provide verification of their expenditures within 180 days of receiving their scholarship. The scholarship committee will evaluate and confirm whether funds have been used appropriately and specifically for educational purposes. Should the recipient fail to provide verification of expenses and/or if the committee deems funds were misused, the recipient and/or the sponsoring parent or grandparent will be responsible to reimburse those funds within thirty days of such notification.

You represent that you will complete the following:

You represent that you will maintain all records related to the following:

Basis for our determination

The law imposes certain excise taxes on the taxable expenditures of private foundations (Code Section 4945). 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 Code 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 Code Section 117(a).

• The grant is to be used for study at an educational organization described in Code 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 Cincinnati Office of Exempt Organizations at:

  Internal Revenue Service
  Exempt Organizations Determinations
  P.O. Box 2508
  Cincinnati, OH 45201

• You cannot 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 Code 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.

Please keep a copy of this letter in your records.

If you have questions, please contact the person listed at the top of this letter.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements