Corporate foundations often award scholarships to effect positive change and further their charitable missions. This ability is one of the unique advantages conferred by a corporate foundation, enabling the company to fund potential talent in key areas of interest. Under certain circumstances, a corporate foundation can also be used to award scholarships to the company’s own employees and their children. These “employer-related scholarship programs” are distinct from scholarships awarded to the general public in that they:
[callout]The ability to award scholarships is one of the unique advantages conferred by a corporate foundation.[/callout]
Because employer-related scholarships could be abused as a tax-free perk to recruit employees (or dissuade them from leaving), enrich corporate executives and shareholders, or to reward employee performance, they are subject to regulations that ensure their charitable purpose. When offering employer-related scholarships through a corporate foundation, the benefits to the company should be indirect (e.g., visibility, branding, and community goodwill), and the scholarships cannot be the functional equivalent of extra pay, an employment incentive, or an employee beneﬁt. The use of a scholarship program for any of these purposes could result in a self-dealing violation, which could incur stiff penalties owed by the company. Therefore, before launching an employer-related scholarship program, a corporate foundation needs to apply to the IRS for advance approval, and in so doing, describe the program’s structure, selection criteria, and decision-making process.