IRS ANNOUNCES ROUNDING CONVENTION FOR EMPLOYER-RELATED GRANT AND LOAN PROGRAMS.

Rev. Proc. 94-78

SECTION 1. PURPOSE

This Revenue Procedure sets forth a rounding convention that may be used in connection with the percentage tests of section 4.08 of Rev. Proc. 76-47, 1976-2 C.B. 670, with respect to employer-related scholarship programs and with the percentage tests of section 4.10 of Rev. Proc. 80-39, 1980-2 C.B. 772, with respect to employer-related loan programs.

SECTION 2. BACKGROUND

.01 Section 2 of Rev. Proc. 76-47 defines an employer-related scholarship program as a program that (i) treats some or all of the employees, or children of some or all of the employees, of a particular employer as a group from which grantees of some or all of the foundation's educational grants will be selected; (ii) limits the potential grantees for some or all of the foundation's grants to individuals who are employees, or children of employees, of a particular employer; (iii) or otherwise gives such individuals a preference or priority over others in being selected as grantees of such grants.

.02 Section 4.08 of Rev. Proc. 76-47 provides that, in the case of a program that awards grants to children of employees of a particular employer, the program meets the percentage test if the number of grants awarded under that program in any year to such children does not exceed 25 percent of the number of employees' children who, (i) were eligible, (ii) were applicants for such grants, and (iii) were considered by the selection committee in selecting the recipients of grants in that year, or 10 percent of the number of employees' children who can be shown to be eligible for grants (whether or not they submitted an application) in that year.

.03 Section 4.08 of Rev. Proc. 76-47 provides also that, in the case of a program that awards grants to employees of a particular employer, the program meets the percentage test if the number of grants awarded under that program in any year to such employees does not exceed 10 percent of the number of employees who, (i) were eligible, (ii) were applicants for such grants, and (iii) were considered by the selection committee in selecting the recipients of grants in that year.

.04 Application of the 25 percent or the 10 percent test may lead to a mixed number (a whole number and a fraction) of allowable grants. For example, if, under a program that awards grants to children of employees, 18 eligible applications were received, the maximum number of allowable grants would be 4.5 (25% of 18). In order to avoid mixed number results, the Service will allow the use of the rounding convention described below.

.05 Section 4.10 of Rev. Proc. 80-39 sets forth a similar percentage test for employer-related loan programs.

SECTION 3. ROUNDING CONVENTION

.01 If, in applying any of the percentage tests of section 4.08 of Rev. Proc. 76-47, an organization determines that the maximum number of allowable grants is a mixed number with a fraction of 1/2 or greater, the organization may round upward the number of allowable grants to the nearest whole number, which whole number shall constitute the maximum number of grants that may be awarded that year to employees and/or their children.

.02 In applying any of the percentage tests of section 4.08 of Rev. Proc. 76-47, the rounding convention in 3.01 above may be used only in any year during which the maximum number of allowable grants, as determined under the percentage tests, is at least four without the benefit of the rounding convention.

.03 In applying any of the percentage tests of section 4.10 of Rev. Proc. 80-39, the rounding convention in 3.01 above may be used subject to the restriction established in 3.02 above.

SECTION 4. EFFECT ON OTHER REVENUE PROCEDURES

Rev. Proc. 76-47 and Rev. Proc. 80-39 are amplified.

DRAFTING INFORMATION

The principal author of this revenue procedure is Virginia G. Richardson of the Exempt Organizations Division. For further information regarding this revenue procedure contact Ms. Richardson on (202) 622-7565 (not a toll-free call).