A private foundation that makes a grant to an individual for travel, study, or other similar purposes makes a “taxable expenditure” that is subject to a penalty excise tax under Code Section 4945. However, if the grant is made on an objective and nondiscriminatory basis for a scholarship or fellowship to be used to study at qualified educational organizations, and the IRS approves the grant process and criteria, then that grant will not be a taxable expenditure.
What if scholarships are funded, but only for students meeting qualification criteria at a few named schools? Is this “nondiscriminatory” for this purpose?
In Private Letter Ruling 201548023 the IRS approved the taxpayer’s grant making procedures, even though the scholarships were limited to students attending three named schools. And in Private Letter Ruling 201548022, the IRS also approved procedures limiting scholarships to students attending one named school.