Large youth-program grant qualifies as an unusual grant

Plain-English summary

A public charity expected a large grant from an independent private trust to build a youth science, technology, and health center and support related operations. The charity had an active history of science and technology programs, previously met the one-third public-support test without unusual-grant exclusions, and expected continued public support. The grantor had no prior affiliation, management role, or control over the charity, and imposed no condition other than asking the charity to consider the grant's effect on its public-charity status. Because the grant was unusually large and would otherwise distort the charity's public-support calculation, the IRS concluded that it qualified as an unusual grant under the regulations.

Ruling snapshot

• Question: May the charity exclude the large capital and operating grant as an unusual grant when measuring public support?
• Outcome: Yes.
• Key authorities: IRC §§ 170(b)(1)(A)(vi), 509(a)(1), and 4946; Treas. Reg. §§ 1.170A-9(f)(6)(ii), 1.509(a)-3(c)(4), and 1.507-2(a)(7)

Full text (IRS public release)

Internal Revenue Service                         Department of the Treasury
P. O. Box 2508
Cincinnati, OH 45201

Number: 201608016                                Employer Identification Number:

Release Date: 2/19/2016
                                                  Person to Contact - ID#:

Date: November 24, 2015
                                                  Contact Telephone Numbers:

                                                  UIL: 501.03-00; 501.03-08

LEGEND:

B = Organization
C = County

D = State

x dollars = Amount
y dollars = Amount
z dollars = Amount

Dear [illegible]:

We have considered your October 2, 2015, request for recognition of an unusual grant under
Treasury Regulations section 1.170A-9(f)(6)(ii) and related provisions.

Based on the information provided, we have concluded that the proposed grant constitutes an
unusual grant under section 1.170A-9(f)(6)(ii) and related provisions of the regulations. The
basis for our conclusion is set forth below.

Facts:

You are a public charity described in Internal Revenue Code section 509(a)(1) and
170(b)(1)(A)(vi) and you are actively engaged in a program of activities in furtherance of your
exempt purpose. Your mission is to improve the relationship, trust, and communication between
law enforcement officials, at-risk youth of all gender, ethnic, and religious backgrounds, and the
community while interacting with other community service organizations that work with youth to
leverage resources. Your mission has been achieved by creating and implementing a variety of
science and technology summer camps and afterschool programs. The programs have been
conducted at various facilities that have been rented you or donated by a municipal entity.
Television, media, and newspaper documents show that you have been actively engaged in
these programs.

Your Board of Directors includes the school superintendent, university level educators, aviation,
science, and boating professionals, the Housing Authority Executive Director, federal and local
law enforcement personnel, and banking officials. You have a highly experienced management
team with transparent policies and internal checks and balances to oversee policies and
procedures. No one in your organization is affiliated with B.

Letter 4787 (2-2012)
Catalog Number 58230Y


You are located in the fifth largest county in D, C. However, it is an extremely poor region which
makes raising funds difficult. Your funding has historically come from a variety of private,
corporate, and municipal funding sources. You have solicited for public support in the past and
have previously met the one-third support test without the exclusion of any unusual grants. A
significant amount of support has come from the government and public sector. You expect to
continue to attract a significant amount of public support after receipt of the grant.

You submitted two grant applications to B. One grant application submitted by you to B was for
a capital grant for x dollars to construct a youth science, technology, and health center and
purchase outdoor playground equipment. The other grant application was for a y dollar
operating expense budget and material acquisition. B will consolidate the two grant applications
into one grant request totaling z dollars because of the unusual multi-faceted purposes of the
grant requests from one organization. The grant will be in the form a check payable to you to be
used to purchase building materials, services, and supplies that will allow you to construct a
facility and develop and enhance programs and services for the underrepresented youth in C. B
has not imposed any conditions on you that must be satisfied prior to receiving the grant other
than requesting that you consider the ramifications of a large grant on your public charity status.

B is currently one of the largest private trusts in D and B’s mission is to “improve the quality of
life and quality of health for the financially needy of D.” C is one of the five especially poor
counties that B has designated as priority regions to focus on funding health related initiatives. B
was informed about your mission and programs by members of the C educational system,
municipal government, media, representatives of other private community based programs, and
citizens of the community. B has no prior affiliation with you and B has no one in a position of
authority on your staff or Board of Directors. You submitted a detailed online proposal to B on
how you plan to use the grant funds relative to a healthy living/fitness program. An external and
impartial B Advisory Board of professionals reviewed the current funding cycle grant
applications. The Advisory Board then made recommendations to the funding committee as to
what applications/amount should be considered for funding.

Law:

Treasury Regulations sections 1.170A-9(f)(6)(ii) and 1.509(a)-3(c)(4) set forth the criteria for an
unusual grant.

Treasury Regulations section 1.170A-9(f)(6)(ii) states that, for purposes of applying the 2-percent
limitation to determine whether the 33 1/3 percent-of-support test is satisfied, one or more
contributions may be excluded from both the numerator and the denominator of the applicable
percent-of-support fraction. The exclusion is generally intended to apply to substantial contributions
or bequests from disinterested parties which:

• are attracted by reason of the publicly supported nature of the organization;

• are unusual or unexpected with respect to the amount thereof; and

• would, by reason of their size, adversely affect the status of the organization as
  normally being publicly supported.

Treasury Regulations section 1.509(a)-3(c)(4) states that all pertinent facts and circumstances
will be taken into consideration to determine whether a particular contribution may be excluded.
No single factor will necessarily be determinative. Such factors may include:

Letter 4787 (2-2012)
Catalog Number 58230Y


• Whether the contribution was made by a person who

  a. created the organization

  b. previously contributed a substantial part of its support or endowment

  c. stood in a position of authority with respect to the organization, such as a
     foundation manager within the meaning of section 4946(b)

  d. directly or indirectly exercised control over the organization, or

  e. was in a relationship described in Internal Revenue Code section 4946(a)(1)(C)
     through 4946(a)(1) (G) with someone listed in bullets a, b, c, or d above.

     A contribution made by a person described in a. - e. is ordinarily
     given less favorable consideration than a contribution made by
     others not described above.

• Whether the contribution was a bequest or an inter vivos transfer. A bequest will
  ordinarily be given more favorable consideration than an inter vivos transfer.

• Whether the contribution was in the form of cash, readily marketable securities, or
  assets which further the exempt purposes of the organization, such as a gift of a
  painting to a museum.

• Whether (except in the case of a new organization) prior to the receipt of the
  particular contribution, the organization (a) has carried on an actual program of
  public solicitation and exempt activities and (b) has been able to attract a significant
  amount of public support.

• Whether the organization may reasonably be expected to attract a significant amount
  of public support after the particular contribution. Continued reliance on unusual
  grants to fund an organization's current operating expenses (as opposed to providing
  new endowment funds) may be evidence that the organization cannot reasonably be
  expected to attract future public support.

• Whether, prior to the year in which the particular contribution was received,. the
  organization met the one-third support test described in section 1.509(a)-3(a)(2)
  without the benefit of any exclusions of unusual grants pursuant to section 1.509-
  3(c)(3);

• Whether the organization has a representative governing body as described in
  Treasury Regulations section 1.509(a)-3(d)(3)(i); and

• Whether material restrictions or conditions within the meaning of Treasury
  Regulations section 1.507-2(a)(7) have been imposed by the transferor upon the
  transferee in connection with such transfer.

Application of Law:

You successfully meet the criteria set forth in Treasury Regulations section 1.170A-9(f)(6)(iii).
B, the grantor, was informed about your mission and programs by members of the C
educational system, municipal government, media, representatives of other private community
based programs, and citizens within the community. The anticipated grant amount is unusual

Letter 4787 (2-2012)
Catalog Number 58230Y


based on the funding amounts you typically receive. The grant will consist of two components:
(1) capital grant: x dollars to construct a facility, and (2) operating expense funding of y dollars.
The large size of the grant from B would adversely impact your public charity status.

Pursuant to Treasury Regulations section 1.509(a)-3(c)(4), all pertinent facts and circumstances
have been considered and analyzed in determining whether the grant or contribution is an
unusual grant as follows:

• B as the grantor is a disinterested party with respect to you in the sense that the
  donation is made solely because of the publicly supported nature of the organization. B
  is an independent charitable trust with which you have no prior or current affiliation with.

• B has no one in a position of authority on your staff or on your Board of Directors. No
  one in your organization is affiliated with B.

• The anticipated grant will be in the form of a check payable to you that will be used to
  purchase building materials, services, and supplies that will allow you to construct a
  facility and develop and enhance programs and services for the underrepresented youth
  in C which fulfills your charitable mission.

• You are a public charity described in Internal Revenue Code section 509(a)(1) and
  170(b)(1)(A)(vi) and you are actively engaged in a program of activities in furtherance of
  your exempt purpose. You have conducted a variety of science and technology summer
  camps and afterschool programs since formation that have been documented by
  television, media, and newspaper coverage. Additionally, as shown in your previous
  financial data, you were able to attract a significant amount of support from the public
  sector and the government in the past.

• Based on the type and scope of the science, technology, and health related programs
  that you will implement with the B funding, and your existing programs and program
  support reflected in the financials submitted, you should be able to continue to attract a
  significant amount of public support after the grant as you have in the past that will allow
  you to continue to meet your mission objectives.

• You have previously met the one-third support test without the exclusion of any unusual
  grants. You have never benefited from the use of the exclusion of unusual grant
  exemption to meet the one-third support test.

• You have a representative governing body. Your Board of Directors includes a school
  superintendent, university level educators, aviation, science and boating professionals,
  the Housing Authority Executive Director, federal and local law enforcement personnel,
  and banking officials.

• B has not imposed any conditions on you that must be satisfied prior to receiving the
  grant other than requesting that you consider the ramifications of a large grant on your
  public charity status.

For all the forgoing reasons, the grant from B should be characterized as an unusual grant as
the criteria set forth in Treasury Regulations sections 1.170A-9(f)(6)(ii) and 1.509(a)-3(c)(4) for
an unusual grant have been met.

Letter 4787 (2-2012)
Catalog Number 58230Y


If you have any questions, please contact the person listed in the heading of this letter.

Sincerely,

Jeffrey I. Cooper
Director, Exempt Organizations
Rulings and Agreements

Letter 4787 (2-2012)
Catalog Number 58230Y