Q. Can my company legally set up a scholarship program rewarding my kids? M.A., Anchorage, Alaska
A. Yes. A company can establish a program that provides scholarships to employees and/or children of employees. But to preserve the tax-exempt status of scholarships, the plan must meet certain nondiscrimination standards. For example, you must use an independent selection committee, so the system can’t be rigged to give the benefits to your children. The IRS spelled out all the details years ago in Revenue Procedure 76-47 (modified by Revenue Procedure 85-51).
Tip: The grants awarded in any year can’t exceed 25% of the number of applicants considered or 10% of the total number of eligible applicants.