A bill to amend the Internal Revenue Code of 1986 to clarify the treatment of educational grants by private foundations, and for other purposes.

SECTION 1. TAXABLE EXPENDITURES OF PRIVATE FOUNDATIONS NOT TO INCLUDE 
              CERTAIN EDUCATION GRANTS AND LOANS.

    (a) In General.--Section 4945 of the Internal Revenue Code of 1986 
is amended by redesignating subsection (i) as subsection (j) and by 
adding after subsection (h) the following new subsection:
    ``(i) Qualified Employer-Related Grant Programs.--
            ``(1) In general.--An individual grant shall be treated as 
        made on an objective and nondiscriminatory basis for purposes 
        of subsection (g)(1) if it is demonstrated to the satisfaction 
        of the Secretary that it was made pursuant to a qualified 
        employer-related grant program.
            ``(2) Qualified employer-related grant program.--For 
        purposes of this subsection, the term `qualified employer-
        related grant program' means any employer-related grant program 
        which--
                    ``(A) is not used to recruit employees of the 
                employer, or to induce employees to continue their 
                employment with the employer or otherwise follow a 
                course of action sought by the employer,
                    ``(B) selects grantees by a committee consisting 
                entirely of individuals who are not--
                            ``(i) in a position to directly or 
                        indirectly derive a private benefit if certain 
                        applicants are selected, or
                            ``(ii) current or former directors, 
                        officers, or employees of the employer or 
                        disqualified persons with respect to the 
                        private foundation,
                    ``(C) limits potential grantees to those who meet 
                the minimum standards for admission to an educational 
                institution (within the meaning of section 
                170(b)(1)(A)(ii)),
                    ``(D) selects grantees based upon objective 
                criteria which are--
                            ``(i) related to enabling grantees to 
                        obtain an education solely for their personal 
                        benefit, and
                            ``(ii) not related (aside from the initial 
                        qualification of the group of potential 
                        grantees) to the employment of the grantees or 
                        employees whose spouses or children are 
                        grantees or to the employer's line of business,
                    ``(E) does not fail to make grants, or does not 
                terminate or decline to renew grants previously made, 
                solely because of the failure of--
                            ``(i) employees who are grantees, or 
                        employees whose spouses or children are 
                        grantees, to remain employed by the employer 
                        for any length of time, or
                            ``(ii) grantees to agree to become employed 
                        by the employer at any time,
                    ``(F) does not limit the courses of study for which 
                the grants are available,
                    ``(G) is not established pursuant to an agreement 
                which the Secretary of Labor finds to be a collective 
                bargaining agreement between employee representatives 
                and the employer, if there is evidence that the program 
                was the subject of good faith bargaining between such 
                employee representatives and such employer, and
                    ``(H) excludes from among the potential grantees--
                            ``(i) disqualified persons with respect to 
                        the private foundation, and
                            ``(ii) highly compensated employees or 
                        spouses or children of highly compensated 
                        employees.
            ``(3) Definitions.--For purposes of this subsection--
                    ``(A) Employer-related grant program.--The term 
                `employer-related grant program' means any program of 
                making grants conducted by a private foundation that--
                            ``(i) treats employees (or spouses or 
                        children of employees) of an employer as a 
                        group from which grantees of all or a portion 
                        of the grants will be selected,
                            ``(ii) limits the potential grantees of all 
                        or a portion of the grants to employees (or 
                        spouses or children of employees) of an 
                        employer, or
                            ``(iii) otherwise gives employees (or 
                        spouses or children of employees) of an 
                        employer a preference or priority over other 
                        individuals in being selected as grantees of 
                        such grants.
                    ``(B) Highly compensated employee.--The term 
                `highly compensated employee' means a highly 
                compensated employee under subparagraph (A) or (B) of 
                section 414(q)(1), except that the $75,000 amount under 
                subparagraph (B) shall be adjusted at the same time and 
                in the same manner as under section 415(d).''
    (b) Effective Date.--The amendments made by this section shall 
apply to grants or loans made after the date of enactment of this Act.

Summary: Amends the Internal Revenue Code to exempt a private foundation making an employer-related grant from the excise tax on taxable expenditures when an individual scholarship or fellowship grant made by such a foundation is made on an objective and nondiscriminatory basis and is made pursuant to a qualified employer-related grant program.