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EFTA01090583 | EFTA01090584 Page 2 of 5 which members of the group serve as the advisory board will also be considered donor-advised funds. Funds established by corporations with advisory boards consisting of corporate employees may also be deemed donor-advised funds. Does this mean that none of these kinds of funds can make scholarship grants? Fortunately, the law includes a provision under which these groups may award scholarships, but they will most likely have to atter their procedures to take advantage of the rule. How to continue to award scholarships The PPA does not consider a scholarship fund to be a donor-advised fund, even if a donor or fund advisor is a member of the selection committee, if all of the following are true: • The sponsoring organization (the community foundation) appoints all of the members of the committee and the donors advice is given solely as a member of the committee • Neither the donor nor the parties related to the donor control the committee directly or indirectly • All grants are awarded on an objective and nondiscriminatory basis using a procedure that has been approved in advance by the board of directors of the sponsoring organization and that has been designed to ensure that all such grants meet the requirements of paragraphs (1), (2), or (3) of section 4945(g). Let's take these requirements in order and see how they will affect some of the most common scholarship fund arrangements. Remember that a donor can be a living, breathing person, a deceased person, a charity or other nonprofit, or a corporation or other type of business. Community foundation appointment of selection committee members The community foundation must appoint the members of the selection committee. While an advisor may certainly suggest some members of the committee, the community foundation must have the power to accept or reject any suggestions. Community foundations will probably have to review and approve annually the members of all selection committees subject to this rule. No donor control of committee The donor and related parties may sit on a selection committee, but they may not make up a majority of the committee. The majority of the committee must be made up of individuals who are not related parties and who are not designated or appointed by the donor. Related parties include relatives and employees of the donor. The donor's attorney will generally be considered a related party. The donor may recommend for membership on the committee someone who is not a related party. If the recommendation is based on objective criteria related to the expertise of the person recommended that person will not be considered designated or appointed by the donor. The legislative history of the PPA provides an example: if a donor recommends the heads of the science departments at local secondary schools to be on a committee to award grants for the advancement of sciences at those schools, the persons so recommended will not be considered to be designated or appointed by the donor. This provision clearly bars the board of a professional or alumni group, church, or other public charity that has established a scholarship fund from serving as the entire selection committee. Members of the board may serve on the committee but the majority of the committee must be made up of other individuals who are not related parties (such as school officials, other educators, or community foundation representatives). Similarly, a fund donor's family cannot constitute the entire selection committee or even a majority of the group. This is also the case if the fund is a memorial fund. The legislative history of the PPA takes the position that since contributions to such a fund are identified with reference to the deceased, family members of the deceased will be considered related parties and may not make up the majority of the selection committee. Where a scholarship fund is established by a corporation, corporate employees may be considered related parties and should not form a majority of the selection committee. Indeed, the Council recommends that no corporate employees serve on the selection committee. This will http://wvnv.cororg/Action/content.cfm?printerfriendly=no&naviteinnumber=5276&itemn. . 9/16/2008 EFTA01090584
May 9, 2026 at 3:35 AM