SCHOLARSHIP GRANTS AREN'T TAXABLE EXPENDITURES.

UIL Number: 4945.04-04

This is in response to your requesting advance approval of your scholarship program pursuant to section 4945(g) of the Internal Revenue Code.

You are exempt from federal income tax under section 501(c)(3) of the Code and you are a private foundation within the meaning of section 509(a). The scholarship program is for the benefit of public high school seniors and students who are already enrolled in a full-time undergraduate course at college or vocational-technical school throughout the USA. The scholarships will be administered and supervised by A, (formerly known as B), a publicly supported charity. The name of your program is C. Under the program, you will make an annual contribution to C to fund scholarships to be awarded by A to eligible students. A will prepare and furnish application forms, receive all applications, determine the recipients and amount to be awarded, notify the recipients of the award, and make payment of the award. A will prepare management reports summarizing program activity and results.

You have agreed to ensure compliance with the appropriate percentage test set forth in Revenue Procedure 76-47, 1976-2 C.B. 670, in the aggregate with respect to all the foundation scholarship programs that are available to the same individuals. You will not require A to consider financial need in the selection of your scholarship recipients.

Section 4945 of the Code provides for the imposition of taxes on each taxable expenditure of a private foundation.

Section 4945(d)(3) of the Code provides that the term "taxable expenditure" means any amount paid or incurred by a private foundation as a grant to an individual for travel, study, or other similar purposes by such individual, unless such grant satisfies the requirements of section 4945(g).

Section 4945(g)(1) of the Code provides that section 4945(d)(3) shall not apply to an individual grant awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance by the Secretary, if it is demonstrated to the satisfaction of the Secretary that the grant constitutes a scholarship or fellowship grant which is subject to the provisions of section 117(a) and is to be used for study at an educational organization described in section 170(b)(1)(A)(ii). Rev. Proc. 76-47, 1976-2 C.B. 670, provides guidelines to be used in determining whether a grant made by a private foundation under an employer-related grant program to an employee or to a child of an employee of the particular employer to which the program relates is a scholarship or fellowship grant subject to the provisions of section 117(a) of the Code.

The information submitted shows that the A will meet the requirements of Rev. Proc. 76-47.

Based on the information submitted and assuming your scholarship program will be conducted as proposed with a view to providing objectivity and nondiscrimination in the awarding of grants, we rule that your grants of scholarships under A comply with the requirements of section 4945(g)(1) of the Code. Thus, such expenditures made in accordance with those procedures will not constitute "taxable expenditures" within the meaning of section 4945(d)(3). In addition, we rule that grants made under the program are excludable from the gross income of recipients subject to the limitations provided by section 117(b).

The approval of your grant-making procedures under A herein constitutes a one-time approval of your system of standards and procedures designed to result in grants that meet the requirements of section 4945(g)(1) of the Code. Thus, approval shall apply to subsequent grant programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request.

Any funds you distribute to individuals under A must be made on a true charitable basis in furtherance of the purposes for which you are organized. Therefore, you shall maintain adequate records and case histories so that any or all grant distributions can be substantiated upon request by the Internal Revenue Service.

This ruling is based on the understanding that there will be no material changes in the facts upon which it is based. Any changes that may have a bearing upon the Foundation's tax status should be reported to the Ohio Tax Exempt and Government Entities (TE/GE) Customer Service Office, which deals with exempt organizations matters. The mailing address is: Internal Revenue Service, TE/GE Customer Service, P.O. Box 2508, Cincinnati, OH 45201.

This ruling is directed only to the organization that requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

This ruling will be made available for public inspection under section 6110 of the Code after certain deletions of identifying information are made. For details, see enclosed Notice 437, Notice of Intention to Disclose. A copy of this ruling with deletions that we intend to make available for public inspection is attached to Notice 437. If you disagree with our proposed deletions, you should follow the instructions in Notice 437.

Thank you for your cooperation.