Planned GivingTuesday May 14, 2024Private Letter RulingIRS Approves Scholarship Procedures
GiftLaw Note:
Foundation plans to operate a scholarship program that will provide scholarships to the students of high school B that are American citizens of a particular descent. The scholarships will provide annual scholarships to high school graduates who plan to attend college in the United States. Foundation will publicize the scholarship opportunity in newspapers in a specific area. To be eligible for the scholarships, students must have graduated from high school B with at least a 3.0 grade point average and plan to attend a four-year college or university. Students must also submit a personal statement, a copy of their high school transcript, two letters of recommendation and a copy of their recent federal income tax return or FAFSA report. A significant weight in the selection process will be given to the students with financial need. With all other factors being equal, students with the greatest financial need will receive priority in the final selection process. Foundation requested advance approval of its scholarship procedures under Sec. 4945(g). Under Sec. 4945, there is an excise tax on taxable expenditures of private foundations. A taxable expenditure is any amount paid to an individual for travel, study or other similar purposes. Under Sec. 4945(g), an expenditure is not taxable if it is awarded on an objective and nondiscriminatory basis, the IRS approves the grant procedures in advance, the grant is a scholarship or fellowship subject to Sec. 117(a) and the grant is to be used for study at an educational organization described in Sec. 170(b)(1)(A)(ii). Here, the Service determined that Foundation’s scholarship procedures met the requirements of Sec. 4945(g). Thus, the scholarship and grant programs will not be considered a taxable expenditure.
PLR 202403021 IRS Approves Scholarship Procedures
1/19/2024 (10/23/2023) 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 determinationWe 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)). Description of your requestYour letter indicates you will operate a scholarship program for the B high school students who are American citizens of C descent. You expect to provide at least D scholarships for y dollars annually to high school graduates who plan to attend college in the United States. You will publicize in newspapers that are known to have a large C readership in the E area. In order to apply for the scholarship awards, the applicants must:
Criteria the selection committee uses are:
Currently, you don't plan to offer any scholarship renewals. In the future, if you choose to offer scholarship renewals, each recipient must submit a written request either by letter or email along with the following:
You represent that you will complete the following:
Basis for our determinationIRC 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.
Other conditions that apply to this determination
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 Published February 2, 2024
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