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Taxable Expenditures by Private Foundations: Percentage test - employer-related educational loans to children of employees

For a program that awards loans to children of employees of a particular
employer, the program meets the percentage test if the number of children receiving  loans under that program in any year is not more than:

1.   25 percent of the number of employees' children who--

a.  Were eligible,
b.  Were applicants for such loans, and
c.  Were considered by the selection committee in selecting the recipients of loans in that year, or

   2.   10 percent of the number of employees' children who can be shown to be eligible for loans (whether or not they submitted an application) in that year.  For purposes of determining how many children are eligible for a loan under this 10 percent test, a private foundation may include as eligible only children who submit a written statement (or on behalf of whom a statement is submitted by an authorized representative), or for whom sufficient information is maintained to demonstrate that:

a.  The child meets the foundation's eligibility requirements; and
b.  The child has enrolled in or has completed a course of study to prepare for admission to an educational institution at the level for which loans are available and has applied, or intends to apply, to such an institution for enrollment in the immediately succeeding academic year with the expectation, if accepted by the institution, of attending the institution; or
c.   In lieu of b) above, the child is currently enrolled in an educational institution for which loans are available and is not in the final year for which awards may be made.

In applying either percentage test, a private foundation may consider as eligible only individuals that meet all eligibility requirements imposed by the program, including any requirement that an individual meet the minimum standards for admission to an educational institution for which the loans are available. 

Renewals of loans awarded in earlier years will not be considered in determining the number of loans awarded in a current year.  Loans awarded to children of employees and those awarded to employees will be considered as having been awarded under separate programs whether or not they are awarded under separately administered programs.

If a private foundation's employer-related program includes educational loans and scholarship or fellowship grants to the same group of eligible employees' children, the percentage tests apply to the total number of individuals receiving combined grants of scholarships, fellowships, and educational loans.

If the loan program satisfies the seven conditions, but does not meet the percentage test, all relevant facts and circumstances will be considered in determining the primary purpose of the program.

If your private foundation holds a ruling letter issued before September 29, 1980, you may continue to rely on that ruling letter if the loan program fully complies with the seven conditions and the percentage tests continuously from the date on which the ruling letter was issued.  Upon written request, the Service will issue a current ruling letter affirming the qualification of the loan program under these requirements.


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Page Last Reviewed or Updated: 23-Aug-2016