I would like to set up a foundation into which I will allocate either a percentage of earnings or revenue such that the entity can provide some kind of scholarship for college students. What is the correct way to set it up?
Answer:
Scholarship programs. There are different approaches to establishing scholarship programs which range from an annual scholarship awarded by a business to a nonprofit foundation that may fund many scholarships. We do not know how much money your business plans to spend on scholarship awards or if you plan to operate a nonprofit organization to raise money for scholarships, but establishing a scholarship program with preferential tax treatment for donations involves the creation of a nonprofit charitable entity. IRS rules are designed to make sure that scholarship programs benefit a broad charitable class of beneficiaries and that the process is nondiscriminatory. For example, you cannot set up a scholarship fund to award a family member or restrict your eligibility requirements so that only your favorite neighborhood student qualifies. You can review general legal, regulatory, tax and other information on establishing a scholarship fund at the following websites:
- Resources Available for Setting Up a Scholarship Fund
- Scholarship & Management: finaid.org
- Setting up Scholarship Funds: foundationnews.org
- Private Foundations: irs.gov
- Tax Information for Private Foundations: irs.gov
Example programs of nonprofit organizations founded by for-profit corporations like Target and McDonalds can be reviewed at websites like the following:
Should you decide to form a nonprofit organization for your scholarship program, we recommend that you review Federal Package 1023 to understand the nonprofit requirements and to determine whether your plans will meet the requirements for a nonprofit. The Instructions for Filing an Application for Exemption from Income Tax, IRS Publication 557 Tax-Exempt Status for Your Organization, and other nonprofit considerations at the following websites:
Some high schools and many colleges and universities have in place the process for establishing a scholarship fund that you can form. You can locate additional discussions and information on establishing a scholarship program and references to third parties that can administer the program at websites like following examples:
Setting up a scholarship program, particularly one that involves forming a nonprofit organization, can be a complex project and not a task that most people should tackle without the assistance of a lawyer and a CPA.
Employee educational assistance programs: If the college students you want to provide scholarships to are or will be employees of your business, rather than establishing a scholarship program to provide employees with educational assistance grants, you may want to consider establishing an employee education assistance program that complies with IRS rules. Under a qualified educational assistance program, an employer can exclude up to $5,250 annually in educational assistance benefits from an employee’s taxable wages. For review and discussion with your tax advisor or CPA, the following is IRS information on employer-provided educational assistance benefits and education-related tax benefits in general:
- Employer’s Tax Guide to Fringe Benefits: irs.gov (see Educational Assistance in Chapter 2. Fringe Benefit Exclusion Rules)
- Employer-Provided Educational Assistance: irs.gov
- Tax Benefits for Education: irs.gov
- Tax Benefits for Education: Information Center
- Resources Available for Setting Up a Scholarship Fund
- Scholarship & Management: finaid.org
- Setting up Scholarship Funds: foundationnews.org
- Private Foundations: irs.gov
- Tax Information for Private Foundations: irs.gov
Example programs of nonprofit organizations founded by for-profit corporations like Target and McDonalds can be reviewed at websites like the following:
Should you decide to form a nonprofit organization for your scholarship program, we recommend that you review Federal Package 1023 to understand the nonprofit requirements and to determine whether your plans will meet the requirements for a nonprofit. The Instructions for Filing an Application for Exemption from Income Tax, IRS Publication 557 Tax-Exempt Status for Your Organization, and other nonprofit considerations at the following websites:
Employee educational assistance programs: If the college students you want to provide scholarships to are or will be employees of your business, rather than establishing a scholarship program to provide employees with educational assistance grants, you may want to consider establishing an employee education assistance program that complies with IRS rules. Under a qualified educational assistance program, an employer can exclude up to $5,250 annually in educational assistance benefits from an employee’s taxable wages. For review and discussion with your tax advisor or CPA, the following is IRS information on employer-provided educational assistance benefits and education-related tax benefits in general:
- Employer’s Tax Guide to Fringe Benefits: irs.gov (see Educational Assistance in Chapter 2. Fringe Benefit Exclusion Rules)
- Employer-Provided Educational Assistance: irs.gov
- Tax Benefits for Education: irs.gov
- Tax Benefits for Education: Information Center
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