Scholarship Administration: Senior VP & General Counsel

1. Scholarship Administration Senior Vice President and General Counsel

2. What’s a Scholarship? • A grant that helps a person pursue an education, achieve an objective, or develop a skill • Can be education at any level • Elementary and secondary schools • After-school programs • Trade schools, including for-profit schools • May include some prizes and awards

3. The Basics -- All Scholarships • Must serve a charitable class • Selection criteria must be objective and nondiscriminatory – for example, • Economic need • Merit • From a particular school • Live in a particular community • Reasonable publicity about availability

4. Charitable Class • Large group or open-ended • Generally – criteria not so narrow that one can predict the recipient • Monitor scholarships that regularly draw only a few applications • Varying the terms of a scholarship • Donor consent to release or modification • Variance power • Membership organizations

5. Some Eligibility Issues • Limit to members of a disadvantaged racial or ethnic group • Limit to US citizens and permanent residents • Limit to undocumented students • Limit to descendents of persons from a country in Europe • Limit to members or dependents of members of a membership organization • Limit to males or females

6. Donor Participation • Donor may participate only as a member of a committee • Committee may not be controlled by donor • CF must appoint all members of committee • Committee must follow process that was approved, in advance, by the CF’s board

7. Company Scholarships • Definition – scholarships restricted to employees of an employer or their dependents or those persons given a preference • Scholarships may not be used as an inducement to employment • Selection committees must be entirely independent – no company employees or retirees

8. Company Scholarships • Limits on number of awards to dependents • One scholarship for every four qualified applicants considered by committee • Alternative – one grant for every 10 qualified persons • Facts and circumstances • Limits on number of awards to employees • One in ten eligible applicants considered by committee • Renewals of prior grants do not count against current year limit

9. Company Scholarships • Ten percent test for dependents • Option one -- a written statement from the student or an authorized representative that he/she would be eligible • Option two -- Information showing the number of dependents that: • Meet the eligibility requirements • Are enrolled in or have completed a course of studies that qualifies them for admission at appropriate level • If accepted will attend or are currently enrolled • May not use statistical or sampling techniques

10. Company Scholarships • If funded by company private foundation, must have IRS advance approval of process

11. Company Scholarships • Permissible restrictions • Objective criteria – need, etc. • Minimum employment – not more than three years • Impermissible restrictions • Course of study that benefits employer • Continued employment • Grant may not be terminated • Renewals not conditioned on employment even if a new application is required

12. Recordkeeping • All information used in evaluating applicants • Identity of grantees selected, including any relationships with CF’s “substantial influence” persons or with members of selection committee • Amount and purpose of grant • Any follow-up information • Must maintain files for rejected applicants • Keep at least three years

13. Increasing Awards • Allowable – before selection begins • Not allowable – selection has been made • Donor wants to give more support to those selected • Donor wants to give awards to some not selected

14. Monitoring • Payment to school – monitoring not required if: • School agrees to use payment only to defray student’s expenses • Student is enrolled and standing is consistent with scholarship’s requirements • Payment to student – monitoring required • Verified report of student’s work each semester • Final verified report upon completion • Non-degree – progress reports verified by university

15. Monitoring • Duty to investigate • Applies to grants for which monitoring is required • Withhold further payments pending receipt of delinquent report • If a diversion has occurred: • Take reasonable and appropriate steps to recover grant • Withhold further payments pending: • Recovery of diverted funds and • Student’s assurance re no future diversions including compliance with required “extraordinary precautions”

16. Taxation of Scholarships • Grants excludable from income – who’s eligible? • Primary or secondary school student • Degree candidates at educational institutions • Enrolled in a training program in a recognized occupation, if • Institution attended is authorized to provide the program and • National accreditation

17. Taxation of Scholarships • Exclusion from income – what’s eligible? • Tuition and required fees • Course-related expenses – fees, books, supplies, equipment • Laptops generally not eligible • Taxable • Room and board • Travel expenses • Child care • 1099s not required • Recipient must provide services

18. Prizes and Awards • Generally achievement awards – honors literary, artistic, educational, civic or similar achievements • Awards generally taxable to recipient • 1099s required for awards of $600 or more • Exception • Recipient didn’t apply • Recipient doesn’t have to perform services AND • Designates transfer to (c)(3) or governmental entity

19. Form 990 • Report scholarships on Schedule I if total is $5,000 or more • Use Schedule F for awards to persons outside the U.S.