Can a Corporation Write Off the Scholarships It Awarded?

There are many scholarships that are created by corporations. These scholarships are typically administered by company-created private foundations. A corporation can write off a scholarship as a business expense if the scholarship is established as a grant program that meets the requirements for Individual grants, and the private foundation procedures to award and administer the scholarship are approved by the IRS in advance.

A company may write off scholarships granted to individuals for travel, study or other similar purposes. This includes scholarships for study at qualified educational institutions; or to achieve a specific objective, such as produce a report or improve or enhance the literary, artistic, musical, scientific, teaching or similar ability of the grantee. The IRS does not require the grant objective to be limited to obtaining a degree. Moreover, the scholarship funds can be used for tuition, fees, textbooks, room, board, travel, research, clerical help or equipment.

To qualify, the scholarship must be awarded for the main purpose of furthering the recipient's education. If the purpose is to compensate company employees such as to provide extra pay, or act as an employment incentive or as an employee fringe benefit, the scholarship will not qualify for a tax write-off. In addition, the foundation administering the scholarship will not qualify for tax exemption because it is operated for a private benefit and may be liable for self-dealing.

In awarding a scholarship, the private foundation may give limited preferential treatment to employees, or the children or relatives of employees or of deceased or retired employees of the company or related companies. The IRS requires that the procedures for preferential treatment not go beyond an initial qualifier; the selection be limited to factors unrelated to employment; the selection committee comprise individuals who are independent of the foundation and company; and the probability that such persons will receive the scholarship be limited.

For a corporate scholarship to qualify as a tax write-off, the IRS must approve the grant-making procedures in advance. The IRS requires the procedure to award the scholarship to be on an objective and nondiscriminatory basis that is reasonably calculated to finance the grantee’s performance of the intended activity.

Per the IRS, the grantee must be supervised in fulfilling the grant terms. Proper follow-up procedures are required to determine if the grantee has performed the activities the grants are intended to finance and has not diverted the funds away from the original purpose. Such procedures require that the foundation keep records of the amount and purpose of each grant, and that information be obtained to evaluate potential grantees, their identification and their relationship to the corporation.