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Nonprofit Law/Scholarship vs Endowment vs Temp Restricted Funds


We have a non-profit where a family would like to start an endowment or scholarship to provide funds to underprivileged women needing job training.  What is the best way to handle this and what are the 990 implications.  Should we do this with a scholarship/endowment/or temp restricted funds?  Thank you for your advice.

The donor might want some restrictions, but, as for the IRS regulations, you would not need to set up a separate account. The financial activity would be part of your Form 990, unless you want to establish a different organization.

The IRS only refers to Scholarships in the context of educational
purposes. In their Publication 970 the IRS has, "A scholarship is
generally an amount paid or allowed to, or for the benefit of, a
student at an educational institution to aid in the pursuit of
studies. The student may be either an undergraduate or a graduate."

From what you wrote it is not clear whether the job training would be considered under tax law as scholarships, but, if they are, then you can read that Publication 970.  Otherwise, you would need to treat the expenses as either grants or payments, depending where the funds are going. If they are going directly to the women, then  Revenue Ruling 56-304 has:
--- Start of Excerpt ---
Organizations privately established and funded as charitable
foundations which are organized and actively operated to carry on
one or more of the purposes specified in section 501(c)(3) of the
Internal Revenue Code of 1954, and which otherwise meet the
requirements for exemption from Federal income tax are not
precluded from making distributions of their funds to individuals,
provided such distributions are made on a true charitable basis in
furtherance of the purposes for which they are organized.

However, organizations of this character which make such
distributions should maintain adequate records and case histories
to show the name and address of each recipient of aid; the amount
distributed to each; the purpose for which the aid was given; the
manner in which the recipient was selected and the relationship,
if any, between the recipient and (1) members, officers, or
trustees of the organization, (2) a grantor or substantial
contributor to the organization or a member of the family of
either, and (3) a corporation controlled by a grantor or
substantial contributor, in order that any or all distributions
made to individuals can be substantiated upon request by the
Internal Revenue Service.
---End of Excerpt---
(cited with approval in IRS instructions for Form 1023 Application
for Exemption on pdf page 23 middle column) at:

I am assuming your organization is a public charity - 501(c)(3) organization. I have in my profile that this free forum is only for general questions relating to IRS federal exemption issues of 501(c)(3) organizations and not for accounting issues. But I will direct you. If you want to follow the recommendations of The Financial Accounting Standards Board (FASB), see their Statement 117 "Financial Statements of Not-for-Profit Organizations". That file
is hosted on my Google Drive account at

Then you can search for "endowment" or any other issue you have. is a good article,
"Special Issues Relating to Implementation of FASB Statements 116,
117, and 124"
--- Start of Excerpt ---
Under SFAS No. 116, recognition of contribution revenue is usually
triggered by the transfer of an economic benefit, the receipt of
either the contribution (cash or other economic benefit) or a
promise to make a contribution in the future, even if the donor
imposes restrictions on the use of the donated asset.
---End of Excerpt---
You can check at:
and specifically use their search box on the top right for searches
and you will then see 8 results which you can read.

Harvey Mechanic, Attorney at Law -

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.  

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Harvey Mechanic


DO NOT GIVE ME INFORMATION THAT YOU WANT KEPT CONFIDENTIAL. I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "" without the quotes and then add your search terms before hitting enter.


I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.


B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.

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