I am treasurer of a 501 c 3 football booster club. Based upon successful fundraising this year our board has requested that we set up a scholarship and/or grant for graduating senior players, possibly 2 scholarship/grant at $500 each. Are there any guidelines we must follow for setting up criteria. At the time we filed our 1023 we did not indicate that we had scholarships as we did not at the time. Would we have to amend the 1023. The board wants to grant this scholarship before for this graduating class, what needs to be done in order to facilitate this. Do you have any examples of scholarship criteria.
You would not need to amend your 1023 application unless your exemption determination is still pending with the IRS.
Revenue Ruling 56-304 has:
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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:
Specifically, as to scholarships, the IRS has published:
--- Start of Excerpt ---
Generally, distributions made to
individuals may advance educational
purposes if selection is made:
• In a non-discriminatory fashion in terms
of racial preference,
• Based on need and/or merit, and
• To a charitable class in terms of being
available to an open-ended group, rather
than to pre-selected individuals.
A scholarship or fellowship is tax free
to the recipient only if he or she is:
• A candidate for a degree at an eligible
educational institution; and
• Uses the scholarship or fellowship to
pay qualified education expenses.
Qualified education expenses include
tuition and fees; and course-related
expenses such as books, supplies, and
equipment. Room and board, travel,
research, clerical help, and non-required
equipment are not qualified education
expenses. See Publication 970, Tax
Benefits for Education, for additional
Selection of individuals using a lottery
system generally has not been approved
by the IRS.
--- End of Excerpt ---
From page 23 on instructions to Application for Exemption
www.irs.gov/pub/irs-pdf/i1023.pdf in middle column.
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.