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Abstract: 

Under IRC §4945, any grant by a private foundation to an individual for travel or study is a taxable expenditure unless the grant satisfies the requirements of IRC §4945(g). A program that awards scholarships only to employees—or children of employees—of a particular employer presents additional issues. This article examines the implications of such programs for charitable foundations, with particular emphasis on how to ensure that scholarships do not create unwanted IRS challenge by determining (1) whether the scholarships are consistent with the foundation’s tax-exempt purpose; (2) the deductibility of contributions to the foundation; and (3) meeting the requirements of IRC §117. Includes sample “Purposes” and “Scholarship Grant Policy” provisions that can be adapted for use by family foundations in their bylaws in order to comply with federal law and IRS regulations.

Keywords: IRC §4945; Scholarship grants as compensation or employment incentives

Affiliations:  1: Strasburger & Price, LLP.