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Giving Home > Professional Advisor Resources > Private Letter Ruling > Foundation's Scholarship Procedures Approved

Foundation's Scholarship Procedures Approved

Published June 19, 2026

GiftLaw Note: Foundation requested advanced approval of its scholarships procedures under Sec. 4945(g)(1). Foundation will provide scholarship grants to individuals to support formal educational programs. Grant funds will be limited to qualified educational expenses, including tuition, required fees and books, course materials and digital access codes. Applicants must be enrolled in or accepted into an eligible educational, professional, undergraduate, graduate, or accredited trade or vocational program. Eligibility is open to qualified individuals regardless of age and is based on merit and educational purpose. Prior grant receipt, arrest record, or employment status does not automatically disqualify an applicant. However, Directors, Officers, and their immediate family members are not eligible. Award amounts are determined by the Board based on merit and individual applications, with no set minimum or maximum. The program will be publicized on Foundation’s website. While Foundation has an annual budget for the scholarships, the full budget is not required to be disbursed each year.
 
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). In addition, the IRS will require that Foundation keep adequate records and case histories to substantiate its compliance with the grant distribution requirements. Here, the Service determined that Foundation’s grant procedures met the requirements of Sec. 4945(g). Thus, the grants will not be considered taxable expenditures.

PLR 202624010                                             Foundation’s Scholarship Procedures Approved

6/12/26 (3/17/26)

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 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 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 request

Your letter indicates you will operate X. X will provide scholarship grants to individuals to support formal educational opportunities, with funds restricted to qualified educational expenses, tuition fees and required books/course materials (including digital access codes). Funds are not available for non-educational expenses (housing, transportation, childcare, personal tech). You will award funds that support study at accredited professional schools, undergraduate colleges, graduate programs, and trade/vocational schools. You have no age requirement to receive the awards. Your Board of Directors determines award amounts based on merit and the particulars of each application, and there is no fixed maximum or minimum award. You will publicize your program on your official website, which serves as your primary information source. You will operate with an annual scholarship budget between y dollars but are not obligated to disburse the full annual budget.

Your applicants must be enrolled in or accepted into an eligible educational program, professional school, accredited undergraduate or graduate program, or certified trade vocational program. You allow any qualified person to apply regardless of age. Your eligibility is merit based and grounded in the applicant's educational goals and the purpose of the request. You do not automatically disqualify individuals based on prior receipt of a grant, arrest record, or employment status. Your Directors, Officers, and immediate family are ineligible to apply for the scholarship program.

Your awards are made on an objective, nondiscriminatory basis with a holistic review emphasizing:

a) Alignment with your eligible educational categories and mission,

b) The applicant's educational goals and demonstrated commitment to advancement,

c) The quality and completeness of supporting materials, and

d) The overall merit and purpose of the request.

Not all eligible applicants are guaranteed to receive a grant. You do not operate under a fixed annual or lifetime cap for individual awards. You will use a merit-based evaluation model which does not require applicants to submit a personal financial statement; however, applicants may describe circumstances relevant to their educational progress as part of their narrative. There is no fixed award amount, instead grants vary depending on the applicant's demonstrated need and the overall strength of their case.

Your award recipients must use funds solely for the purpose stated in the application (qualified tuition and required course materials). You may request documentation to confirm appropriate use, and misuse may affect future eligibility. Your awards are not renewable or recurring, and your recipients must submit a new application each school year they seek assistance. Your award recipients must remain enrolled or accepted in an eligible program during the funded period. Your award recipients are not required to return unused funds, but unspent funds must remain dedicated to the approved educational purpose.

You will maintain reasonable follow-up procedures designed to ensure performance and appropriate use of funds, including:

  • Pre-disbursement verification (proof of enrollment/acceptance).
  • Preferred payment to the institution or reimbursement against itemized invoices/receipts for books, materials.
  • Post award confirmations (e.g., student account statements or bookstore receipts) upon request.

You will contact a grantee and/or institution to address discrepancies, and noncompliance may preclude future funding.

Your Board of Directors will appoint the members of the selection committee. Your Board will appoint individuals who have relevant experience in education, nonprofit governance, or community service and who can apply your published eligibility and selection criteria objectively. Your appointees must disclose potential conflicts of interest and recuse themselves from reviewing any application where a personal, familial, or financial conflict exists. Your Directors, Officers, and their immediate family members are ineligible to receive awards, and no individual involved in the selection process may benefit from any grant decision.

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.

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 the provisions of 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).

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 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