! you’re subject to the rules under

CAUTION section 4945 and may incur an

excise tax if you make grants for the purpose described above without seeking advance approval of your grant-making procedures (see Schedule H–Section II).

A scholarship or fellowship is tax free to the recipient only if they are 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 aren’t qualified education expenses. See Pub. 970, Tax Benefits for Education, for additional information.

Selection of individuals using a lottery system generally hasn’t been approved by the IRS.

Specific Line Items

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.

Section I

Line 1. If you conduct more than one grant program, describe each program separately.

If you make educational loans, describe the terms of the loan (for example, the factors you consider in selecting or approving loan recipients, interest rate, duration, forgiveness provision, etc.). Also, describe whether any financial institutions or other lenders are involved in your program.

Explain how you will publicize your program and whether you publicize to the general public or to another group of possible recipients. Include specific information about the geographic area in which your program will be publicized and the means you will use, such as through newspaper advertisements, school district announcements, or community groups.

Line 2. Organizations that make grants to individuals must maintain adequate records and case histories showing the name and address of each recipient, pursuant Rev. Rul. 56-304, 1956-2 C.B. 306 but don’t provide this information as part of your application.

Section II

If you requested public charity classification in Part VII, line 1, don’t complete Schedule H – Section II.

Line 1. Answer “Yes,” if you’re a private foundation and you’re requesting advance approval of your grant-making procedures under section 4945(g). Answer “No,” if you’re a private foundation but don’t wish to request advance approval of your grant-making procedures under section 4945(g). If you answer “No,” the amounts you distribute as educational grants provided to individuals may be considered taxable expenditures under section 4945.

For more information about advance approval of grant-making procedures of a private foundation, go to IRS.gov/charities- non-profit/private-foundations/advance- approval-of-grant-making-procedures .

Line 1a. Check the box for section “4945(g)(1)” if your award qualifies as a scholarship or fellowship grant that’s awarded on an objective and nondiscriminatory basis and is used for study at a school (see Schedule B for what is considered a school).

Check the box for “4945(g)(3)” if the purpose of your award is to achieve a specific objective, produce a report or other similar product, or improve or enhance a literary, artistic, musical, scientific, teaching, or other similar capacity, skill, or talent of the recipient.

You should consider this schedule as a successor organization if any of the following situations pertain to you.

You took or will take over activities previously conducted by another organization.
You took or will take over 25% or more of the fair market value of the net assets of another organization.
You were established upon the conversion of an organization from for-profit to non-profit status.

The other organization is the predecessor organization. You should complete this schedule regardless of whether the predecessor (other organization) was exempt or not exempt from federal income tax.

Include your educational loan program under this section.

You may check more than one box.

If your award qualifies as a prize or

TIP award that is subject to the

provisions of section 74(b) and your recipient is selected from the general public, you don’t have to request advance approval of your grant-making procedures

since a prize or award isn’t subject to the advance approval procedure requirements because it isn’t a grant for travel, study, or other similar purposes. See Rev. Ruls. 77-380, 1977-2 C.B. 419; 76-460, 1976-2 C.B. 371; and 75-393, 1975-2 C.B. 451.

Line 4. Answer “Yes,” if you award scholarships on a preferential basis

because you require, as an initial qualification, that the individual be an employee or be related to an employee of a particular employer.

Line 7. For purposes of this schedule, a program for children of employees of a particular employer includes children and family members of employees.

24 Instructions for Form 1023

Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax.

You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103. However, certain returns and return information of tax exempt organizations and trusts are subject to public disclosure and inspection, as provided by section 6104.

The time needed to complete and file this form will vary depending on individual circumstances. The estimated burden for tax exempt organizations filing this form is approved under OMB control number 1545-0047 and is included in the estimates shown in the instructions for their information return.

Comments and suggestions. If you have comments concerning the accuracy of this time estimate or suggestions for making this form simpler, we would be happy to hear from you. You can send us comments from IRS.gov/FormComments. Or you can write to:

Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. NW, IR-6526 Washington, DC 20224

Instructions for Form 1023 25