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Wednesday October 16, 2019

Private Letter Ruling

Trust's Scholarship Grants Approved

GiftLaw Note:
Trust requested approval of its existing grant procedures under Sec. 4945(g). Trust is a nonexempt charitable trust under Sec. 4947(a)(1). Trust provides grants to pay tuition for two or more students for college. The program is open to students attending high school in Trust's city. The selection committee is made up of principals and counselors from area high schools. Criteria for selection include scholarship, ability, need and any other grants received. Final approval of applicants is made by a committee comprised of the Superintendent of Schools and the President of Trust's trustees. The funds are paid directly by the trustee to the educational institution. The educational institutions maintain records related to all scholarship recipients. If the student does not attend, the trustee will recover unused tuition. Trust also requested approval under Sec. 4962 that the Service not assess taxes under Sec. 4945 for grant expenditures made prior to the letter's effective date.

Grants by private foundations to individuals for travel, study or other similar purposes are generally considered taxable expenditures under Sec. 4945(d)(3). However, under Sec. 4945(g), a grant will not be considered a taxable expenditure if the foundation awards the grant on an objective and nondiscriminatory basis, the IRS approves the grant procedure in advance, the grant is a scholarship or fellowship grant which is 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). Section 4962 allows for nonassessment of qualified first tier tax where it is established that a taxable event was due to reasonable cause rather than willful neglect and was corrected within a specified period of time. Under Reg. 53.4945-1(d)(3), if a private foundation's grants are taxable only because it failed to obtain advance approval, it may take corrective action by obtaining approval of its grant procedures and establishing to the satisfaction of the Commissioner that (1) no grant funds have been diverted to a use not in furtherance of the grant's purpose, (2) the grant procedure would have been approved if requested in advance and (3) if advance approval is subsequently required, approval will be requested. Here, the Service determined that Trust met the requirements of Sec. 4945(g) and 4962.
PLR 201940013 Trust's Scholarship Grants Approved


Dear * * *:

This is in reply to your letter of May 25, 2004, in which you requested a ruling concerning your grant procedures pursuant to section 4945(g) of the Internal Revenue Code.

You are a nonexempt charitable trust as described in section 4947(a)(1) of the Code. Therefore, you are subject to the provisions of chapter 42 of the Code, specifically as they relate to the advance approval of scholarship procedures.

Your grant-making program is formed for the purpose of providing and paying for the tuition of two or more students to a college institution of their choice. The grant-making program is structured as follows:

  • Scholarships are open to all students attending high school in your city. Applications are mailed to high school counselors of all high schools located in this area.
  • A selection committee, composed of the principals and high school counselors or all area high schools, selects scholarships winners and alternate recipients.
  • Selection criteria to be used by the committee are weighed equally upon scholarship, ability, need and other grants received by the applicants.
  • A committee made up of the Superintendent of Schools and the President of your trustee gives final approval to the recipients named by the selection committee
  • The trustee exercises supervision over the grants by paying the funds directly to the educational institution rather than to the individual grantee. Each educational institution receiving the funds must sign a letter acknowledging that the funds will be deposited for tuition only to the named students' accounts. These acknowledgements are retained in the trustee's permanent records.
  • If the trustee is notified that the student did not attend, the trustee will recover any funds not used for tuition from the educational institution and deposit the refunds into the scholarship account to be used for the next year's awards.
  • The trustee maintains permanent records relating to all scholarships, including the names of the primary and alternate recipients, their addresses, social security number, parents' names, the date and amount paid and the names and addresses of the educational institutions attended.
  • The selection committee retains all records relating to the selection process, including copies of all applications received and documentation of their evaluation thereof.
Sections 4945(a) and (b) of the Code impose certain excise taxes on "taxable expenditures" made by 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 subsection (g).

Section 4945(g) of the Code provides that section 4945(d)(3) shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance if it is demonstrated that:

(1) 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);

(2) The grant constitutes a prize or award which is subject to the provisions of section 74(b), if the recipient of such prize or award is selected from the general public, or

(3) The purpose of the grant is to achieve a specific objective, produce a report or similar product, or improve or enhance a literary, artistic, musical, scientific, teaching, or other similar capacity, skill, or talent of the grantee.

Section 53.4945-4(c)(1) of the Regulations provides that to secure approval, a private foundation must demonstrate that:

(i) Its grant procedure includes an objective and nondiscriminatory selection process;

(ii) Such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance; and

(iii) The foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance.

Based on the information submitted and assuming your award programs will be conducted as proposed with a view to provide objectivity and nondiscrimination in making the awards, we have determined that your procedures for granting the awards comply with the requirements contained in section 4945(g) of the Code and that awards granted in accordance with such procedures will not constitute "taxable expenditures" within the meaning of section 4945(d)(3).

In addition, we have determined that awards made under your procedures are excludable from the gross income of the recipients subject to the limitations provided by section 117 of the Code.

You have also requested, under Section 4962 that the Service not assess any initial taxes under Section 4945 for any expenditure of its grant making program covered by the determination letter that precedes its effective date.

Section 4962(a) provides that if it is established to the satisfaction of the Secretary that (1) a taxable event was due to reasonable cause and not to willful neglect, and (2) such event was corrected within the correction period for such event, then any qualified first tier tax imposed with respect to such event (including interest) shall not be assessed.

Regulations Section 53-4945-1(d)(3) provides that where an expenditure is taxable under Section 4945(d)(3) only because of a failure to obtain advance approval of procedures with respect to grants as required by Section 4945(g), correction may be accomplished by obtaining approval of the grant making procedures and establishing to the satisfaction of the Commissioner that:

(i) no grant funds have been diverted to any use not in furtherance of a purpose specified in the grant;

(ii) the grant making procedures instituted would have been approved if advance approval of such procedures had been property requested; and

(iii) where advance approval of grant making procedure is subsequently required, such approval will be properly requested.

You have provided sufficient information to show that it has met the above requirements. Specifically, you have shown that (1) the procedures described above do not permit the diversion of grant funds and have not been substantially changed in prior years; (2) Your grant-making procedures met all requirements of Section 4945(g) in all subsequent respects for all prior years except for the failure to obtain advance approval; and (3) You have now properly requested approval of grant making procedures.

Therefore, according to Section 4962, you are not subject to initial taxes under Section 4945 for any expenditure of its grant-making program covered by the determination letter that precedes its effective date.

This determination is conditioned on the understanding that there will be no material change in the facts upon which it is based. It is further conditioned on the premise that no grants will be awarded to foundation managers, or members of the selection committee, or for a purpose that is inconsistent with the purpose described in section 170(c)(2)(B) of the Code.

The approval of your award program procedures herein constitutes a one-time approval of your system standards and procedures designed to result in awards which meet the requirements of section 4945(g)(1) of the Code. This determination only covers the grant program described above. Thus, approval shall apply to subsequent award 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 must be made on a true charitable basis in furtherance of the purposes for which you are organized. Therefore, you should maintain adequate records and case histories so that any or all award distributions can be substantiated upon request by the Internal Revenue Service.

This determination 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 a precedent.

You must report any future changes in your grant making procedures. Please keep a copy of this letter in your permanent records.

We have sent a copy of this letter to your representative as indicated in your power of attorney.

If you have any questions, please contact the person whose name and telephone number are shown above.

Sincerely yours,

Lois G. Lerner
Director, Exempt Organizations
Rulings and Agreements

Published October 11, 2019
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Dr. Irving Auld and Dorothy
Roher Auld Scholarship

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Juliana E. Olsen-Valdez, 2018
Carroll Family Scholarship

"Lawrence University is a great place for students looking to embrace their multi-interested approach to learning. As a Geology major, I have spent many long hours in laboratories. But, I have also had the opportunity to organize and lead students on outdoor backpacking trips, help build a stronger community for International students, participate in dialogues on campus initiatives, attend dozens of musical events, and study abroad in a field-based geology program, all while taking classes in a variety of academic spheres on campus. Lawrence, as an institution and student body, creates a collective of learners, listeners, and leaders who are continuously evolving their understanding of the world around them. I am fortunate to have the support of the Carroll Family Scholarship, so that I can say I am a part of this exceptional community too!"

Weiqi "Vicky" Liang, 2019
Marian H. Cuff Endowed Scholarship

"Lawrence is a special institution with nice people around the campus. I better myself by trying out different things and using new ways to think critically. Even though I am a Philosophy major, I have successfully taken classes in Anthropology, Biology, Economics, and Government. In addition, I still find many great extracurricular opportunities to explore, such as singing with Viking Chorale, even though I am not a music major. While having the great experience of volunteering at the elderly center last year, I became an elder advocacy coordinator at the Volunteer Community Service Center. At Lawrence, I've learned to handle difficult academic problems while looking forward to exploring possible opportunities. I am very grateful to be awarded the Marian H. Cuff Endowed Scholarship for every year I have been here, and appreciate that the scholarship has provided this wonderful Lawrence experience to me."

Anthony Cardella, 2018
Ansorge Family Scholarship

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Milwaukee-Downer Scholarships and Professorships

Some of the many recipients of Milwaukee-Downer scholarships gather for a photo with Carolyn King Stephens M-D'62 and Marlene Crupi-Widen M-D'55 in January 2014 at the annual scholarship luncheon.

Rosamund Victoria Bille Adler Scholarship
Dr. Charles E. Albright Scholarship
Helen Daniels Bader Scholarship
James G. and Ethel M. Barber Scholarship
Catharine Beecher Endowed Fund for Downer Women
Bessie A. Bell Scholarship
Berk Scholarship
Frederick C. Best Scholarship
Beta Study Club Scholarship
Lynde Bradley Scholarship
Lucia R. Briggs-Alumnae Scholarship
Edith Lange Brooks Scholarship
Anne Barman Caldwell Scholarship
Alice Miller Chester Scholarship
City of Milwaukee Student Funds Scholarship
Milwaukee-Downer Class of 1940 Fund
Milwaukee-Downer Class of 1942 Fund
College Endowment Association Scholarship
Janet Cope Crawford Scholarship
Jessie Mabbott Daniels Scholarship
F. T. Day Scholarship
Rufus Dodge Scholarship
Julia P. Ely and Hannah R. Vedder Memorial Scholarship
General Endowed Scholarship - M-D College
Dr. Alfred W. and Mrs. Ada F. Gray Scholarship
Berenice E. Hess Scholarship Endowment
Lucille Ray Hibbard Scholarship
Belle Austin Jacobs Scholarship
Helen McDermott Jurack and Ronald J. Mason Scholarship
Marjorie S. Logan Scholarship
Nellie Maxwell Scholarship
S. Annabelle & Paul McGuire Scholarship
Memorial Scholarship Fund - Milwaukee-Downer
Milwaukee-Downer Class of 1953 Scholarship
Milwaukee-Downer Class of 1955 Scholarship
Milwaukee-Downer Class of 1956 Scholarship
Milwaukee-Downer Class of 1957 Scholarship
Milwaukee-Downer Class of 1958 and 1959 50th Reunion Scholarship
Milwaukee-Downer Club Scholarship
Milwaukee-Downer/Lawrence College Consolidation 50th Anniversary Scholarship
Francis Evelyn Kelley Morgan Memorial Scholarship
O'Neill-Anderson Family Scholarship Endowment
Elizabeth A. Olson Scholarship
Gilbert Haven Peirce, Sr. and Emma Elizabeth Manor Peirce Milwaukee-Downer Scholarship
Aleida J. Pieters Scholarship
Matilda Siefert Puelicher Scholarship
Elizabeth Ann Richardson Scholarship
William M. Ross Memorial Scholarship
Elizabeth Rossberg Scholarship
Charles Frederic Sammond Scholarship
Mildred L. Schroeder Scholarship
Sivyer Educational Fund for Women
Marion Merrill Smith Scholarship
Dr. Elizabeth A. Steffen Scholarship
W. Mead and Elizabeth McKone Stillman Scholarship
Strzelczyk Family Scholarship
Clare Scherf Sweetman Scholarship
Raymond H. and Jane K. Taylor Scholarship
Jerline E. Walfoort Memorial Scholarship
Barbara E. Wehr Fund
Harmony Weissbach Scholarship
Martha and Frances Wheelock Scholarship
James G. and Ethel M. Barber Professorship of Theatre and Drama
T. A. Chapman Professorship in Music
Alice G. Chapman Professorship in Physics
Alice G. Chapman Librarianship
Milwaukee-Downer College and College Endowment Association Professorship

Angela Small Fry Intia, 2019
Maurine Campbell Scholarship

"Thanks to the Maurine Campbell scholarship, I have been able to attend the amazing school that is Lawrence University. With the help from this scholarship, I have been able to pursue my dream career in chemistry working with the outstanding and extremely helpful faculty here. Even outside of chemistry I take the time for exploration into my interests and want to give back through my work as a resident life advisor, stock room assistant, and student supervisor at Bon Appetit. Everything I have learned here, academically or not has forever molded the person I am today."

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