Schedule H of the form 1023 is for organizations that provide scholarships, educational loans and educational grants. Complete this schedule if you provide scholarships, fellowships, grants, loans, or other distributions to individuals for educational purposes.
When answering the questions on this schedule, you should demonstrate how these distributions further your exempt purposes.
If you're a private foundation, you're subject to the rules under 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).
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.
Form 1023 Schedule H Table of Contents
- Form 1023 Schedule H: Tax Treatment of Scholarships and Fellowships
- Form 1023 Schedule H: Description of Grant and Loan Programs
- Form 1023 Schedule H: Recordkeeping Requirements
- Form 1023 Schedule H: Private Foundations and Section 4945 Compliance
- Form 1023 Schedule H: Preferential Awards Related to Employment
Form 1023 Schedule H: Tax Treatment of Scholarships and Fellowships
A scholarship or fellowship is tax-free to the recipient only if the recipient is a candidate for a degree at an eligible educational institution and uses the funds for qualified education expenses.
- Qualified education expenses include tuition and fees, as well as course-related expenses such as books, supplies, and required equipment.
- Qualified education expenses do not include room and board, travel, research, clerical assistance, or non-required equipment.
Additional guidance is provided in Publication 970, Tax Benefits for Education. Selection of individuals using a lottery system generally hasn't been approved by the IRS.
Form 1023 Schedule H: Description of Grant and Loan Programs
If the organization conducts more than one grant program, each program must be described separately.
If the organization makes educational loans, it must describe the terms of the loan, including:
- The criteria used to select or approve recipients
- Interest rate
- Duration
- Forgiveness provisions
- Whether any financial institutions or other lenders are involved
The organization must explain how the program will be publicized, whether to the general public or a defined group of potential recipients. This includes the geographic area covered and the means of publicity, such as newspaper advertisements, school district announcements, or community organizations.
Form 1023 Schedule H: Recordkeeping Requirements
Organizations that make grants to individuals must maintain adequate records and case histories showing the name and address of each recipient, consistent with Rev. Rul. 56-304, 1956-2 C.B. 306.
These records must be maintained internally and should not be submitted as part of the application.
Form 1023 Schedule H: Private Foundations and Section 4945 Compliance
Private foundations are subject to section 4945 and may incur excise taxes if they make educational grants to individuals without complying with the applicable requirements.
Educational grants made by private foundations must fall within one or more of the following categories:
- Scholarships or fellowships awarded on an objective and nondiscriminatory basis and used for study at a school
- Grants to achieve a specific objective, produce a report or similar product, or improve or enhance a literary, artistic, musical, scientific, teaching, or similar capacity or skill of the recipient
Educational loan programs fall within the second category.
An organization may operate more than one type of qualifying program.
Prizes or awards subject to section 74(b), where recipients are selected from the general public, are not treated as educational grants for travel, study, or similar purposes and therefore are not subject to section 4945 grant restrictions. Relevant guidance includes Rev. Ruls. 77-380, 76-460, and 75-393.
Form 1023 Schedule H: Preferential Awards Related to Employment
The organization must disclose whether scholarships are awarded on a preferential basis because eligibility requires that the recipient be an employee or related to an employee of a particular employer.
For purposes of this schedule, programs for children of employees include children and other family members of employees.