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Setting up a Foundation?


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?


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:

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:

Published: July 15, 2013

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Matt Tarkenton

Matt Tarkenton is Executive Vice President at Tarkenton Companies. He was part of a group that started Renova Partners, a boutique investment bank, and was recognized as a “40 Under 40: Up and Comer” by the Atlanta Business Chronicle in 2009. Matt performs business planning and marketing training for hundreds of professionals across the country, and co-hosts a weekly coaching program on entrepreneurial education. Matt graduated from Princeton University, where he was a member of the 1989 Ivy League Championship Football Team, and received an MBA from Harvard Business School.

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