The new school year is at hand and some of your employees or their kids are heading back to college. This is a good time to think about offering scholarships to some of these individuals or to your community.
1. A scholarship/grant is awarded from a foundation started by the business
2. A scholarship may be a tax write-off if approved by the IRS in advance
3. A scholarship must be used to advance the education of an individual
a. This does not require that a degree be earned
b. The scholarship funds may be used for travel, books, study, room, board, etc. as long as it is towards educational purposes
4. A scholarship is NOT allowed to be used for extra pay, employee incentive, or fringe benefits
a. If used in this manner, it will no longer be a tax write-off
b. In addition, the foundation administering the scholarship will not qualify for tax exemption because it is operated for a private benefit and may be liable for self-dealing
5. Preferential Treatment may be given to employees and their children
a. The preferential treatment must not go beyond an initial qualifier
b. Selection to be limited to factors unrelated to employment
c. The selection committee comprised of individuals who are independent of the foundation and company
d. Probability of receiving the scholarship is limited
Be sure that the grant has clear and precise terms. The IRS requires the procedure to award the scholarship to be on an objective and nondiscriminatory basis that is reasonably calculated to finance the grantee’s performance of the intended activity. Once the grantee has been chosen, they must be tracked to be sure that they are fulfilling the grant terms. Procedures must be in place to ensure the grantee is fulfilling the grant terms and that they are using the grant towards educational purposes and not straying from the proper use. The foundation must keep records of the amount and purpose of each grant. Finally, information must be obtained to evaluate potential grantees, their identification and their relationship to the corporation.