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Nonprofit Law/Hardship scholarships


We are a 501(c)(3) gymnastics booster club.  We have a parent asking for a hardship scholarship.  Would this be considered "inurement to the benefit of a private shareholder or individual?  If this is allowable, by what means is it determined who might "qualify" for such scholarship.

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."

So, in discussions such as this, where a 501(c)(3) booster organization is giving a grant for a youth to participate in gymnastics, we would not use the word "scholarship", but would, instead use a word such as "grant".  

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:

You specifically asked how the 501(c)(3) organization would determine who might qualify for such a grant.  Well, you would need to publicize the availability of the grant to all similarly situated gymnasts and require some evidence, for example copies of federal income tax returns, before the choice is made.

I am assuming that you are not precluding giving a grant to someone whose family is not a member of the booster organization. My summary of IRS regulations relating to 501c3 booster organizations is at and you may be interested to read that.

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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