Setting up a Foundation?

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:
 

• Target Corporation
• Ronald McDonald House:
• Arby’s Foundation:

 
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:
 

• Instructions for Form 1023: irs.gov
• IRS Publication 557 Tax-Exempt Status For Your Organization: irs.gov
• Starting a Non-Profit: grantspace.org
• Non-Profits Overview: nolo.com

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:

• Financial and Legal Professionals: vsac.org
• Educational Administration Scholarships: collegescholarships.org
• The Center for Scholarship Administration: scholarshipprograms.org
• Scholarship Management Services: scholarshipmanagement.org

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