Foundation receives approval for martial arts grant procedures

Plain-English summary

A private foundation proposed grants to individuals for martial arts, self-defense, and anti-violence training, travel, competitions, certifications, and educational publications. Applicants would be evaluated by a multi-member committee using stated criteria, and grants could not go to committee members, their families, or other disqualified persons. The foundation also proposed written use restrictions, reporting requirements, recordkeeping, and recovery procedures for diverted funds. The IRS approved the procedures under section 4945(g)(3), so grants made under them would not be taxable expenditures if the program operated as described.

Ruling snapshot

• Question: Did the foundation's procedures for awarding educational and skill-development grants to individuals satisfy section 4945(g)(3)?
• Outcome: Approved for the described grant program.
• Key authorities: IRC §§ 4945(g)(3) and 4946(a); Treas. Reg. § 53.4945-4(c)(1)

Full text (IRS public release)

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


Number: 201610022                                 Employer Identification Number:
Release Date: 3/4/2016
                                                  Contact person - ID number:

                                                  Contact telephone number:


Date: December 7, 2015


                                                  UIL: 4945.04-04



Dear

You asked for advance approval of your educational grant procedures under Internal
Revenue Code section 4945(g)(3). This approval is required because you are a private
foundation that is exempt from federal income tax.

Our determination
We approved your procedures for awarding educational grants. Based on the information
you submitted, and assuming you will conduct your program as proposed, we determined
that your procedures for awarding educational grants meet the requirements of Code
section 4945(g)(3). As a result, expenditures you make under these procedures won't be
taxable.

Description of your request
You were formed to raise, hold, and administer funds to be used to foster national and
international sports competitions under section 501 (c)(3) of the Internal Revenue Code
by supporting and developing TaeKwonDo, martial arts, and anti-violence students,
instructors, educators, and leaders through education, experience, training, and
opportunities. You will operate a grant program for individuals for the purpose of the
development of, travel to, or participation in martial arts, self-defense, and anti-violence
training programs, classes, workshops, seminars, tournaments, demonstrations, or
certification courses on a local, regional, national, and international level, or the
development of informational and instructional publications and other forms of
communication, including but not limited to direct mail and internet based resources.

You will make the availability of grants known to the community through solicitation to
various institutions that work in the martial arts, Tae Kwon Do and anti-violence. In
addition you will promote the availability on social media, your corporate website,
instructional publications, and other forms of communications, including but not limited to
direct mail and internet based resources.
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Grants will be for Tae Kwon Do, martial arts, and anti-violence students, instructors,
educators, and leaders. Applicants will be required to submit an application form and
supporting materials. Criteria for the grants may include, but are not limited to:

    •   Prior performance in TaeKwonDo, marital arts, and anti-violence programs and
        activities
    •   Recommendations from instructors, leaders, or others who have knowledge of the
        applicant's capabilities
    •   Additional information regarding an applicant's interest and relevant experiences
        with TaeKwonDo, martial arts, and anti-violence programs
    •   Financial need
    •   Conclusions which the selection committee may draw as to the applicant's
        motivation, character, ability, or potential

Grant funds must be used for the development of, travel to, or participation in martial arts,
self-defense, and anti-violence training programs, classes, workshops, seminars,
tournaments, demonstrations, or certification courses on a local, regional, national, or
international level, or the development of informational and instructional publications and
other forms of communication such as direct mail and internet based resources. Grants
will not be used to compensate recipients for performing personal services for you. Grant
funds will be distributed directly to the appropriate institution on behalf of the grant
recipient when used to cover fees or equipment related to training programs, classes,
workshops, seminars, tournaments, demonstrations, or certification courses. Funds for
travel expenses associated with those activities will be distributed directly to the recipient.
Grant recipients must agree in writing to use the grant funds for the intended purposes
and must provide you with receipts and other documentation to show that funds for travel
were used for that purpose. Grant recipients must also provide an annual report to you
that includes a summary of the use of the grant funds and you require a final report when
the intended purpose of the grant has been fulfilled. You will take reasonable and
appropriate steps to recover grant funds or ensure restoration of any diverted funds if you
find that grant funds have been used for purposes other than what they were intended
for. Your board may institute legal action to recover diverted funds if you deem that it is
appropriate under the circumstances.

Your selection committee will consist of at least three members and may include
members of your board. The selection committee will select grant recipients from the pool
of applicants on an objective and nondiscriminatory basis. Grants may not be awarded to
any member of the selection committee, any family member of a member of the selection
committee, or any other disqualified person as defined in Section 4946(a) of the Internal
Revenue Code.

You will keep information pertaining to unsuccessful grant applicants along with the
information on successful applicants. You will retain the following records for all of your
grants:



                                                                        Letter 4779 (10-2012)
                                                                        Catalog Number 58222Y
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   •       A list of all applicants (including any relationship of an applicant to you or to one of
           your directors or employees)
   •       All information obtained to evaluate the qualifications of applicants
   •       The purpose and amount of each grant awarded
   •       Reports, receipts, and other documentation provided by grant recipients showing
           the use of the grant funds
   •       Any additional information you obtain in complying with the procedures

Basis for our determination
The law imposes certain excise taxes on the taxable expenditures of private foundations
(Code section 4945). A taxable expenditure is any amount a private foundation pays as a
grant to an individual for travel, study, or other similar purposes. However, a grant that
meets all of the following requirements of Code section 4945(g) is not a taxable
expenditure.

   •       The foundation awards the grant on an objective and nondiscriminatory basis.
   •       The IRS approves in advance the procedure for awarding the grant.
   •       The grant is:
              -   A scholarship or fellowship subject to section 117(a) and is to be used for
                  study at an educational organization described in section 170(b)(1)(A)(ii); or
              -   A prize or award subject to the provisions of section 74(b), if the recipient of
                  the prize or award is selected from the general public; or
              -   To achieve a specific objective; produce a report or similar product; or
                  improve or enhance a literary, artistic, musical, scientific, teaching, or other
                  similar skill or talent of the recipient.
                                                                                            .
To receive approval of its educational grant procedures, Treasury Regulations section
53.4945-4(c)(1) requires that a private foundation show:

       •   The grant procedure includes an objective and nondiscriminatory selection
           process.
       •   The grant procedure results in the recipients performing the activities the grants
           were intended to finance.
       •   The foundation plans to obtain reports to determine whether the recipients have
           performed the activities that the grants were intended to finance.


Other conditions that apply to this determination
   • This determination covers only the grant program described above. This approval
      will apply to succeeding grant programs only if their standards and procedures
      don't differ significantly from those described in your original request.

   •       This determination applies only to you. It may not be cited as precedent.




                                                                             Letter 4779 (10-2012)
                                                                             Catalog Number 58222Y
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   •   You cannot rely on the conclusions in this letter if the facts you provided have
       changed substantially. You must report any significant changes in your program to
       the Cincinnati Office of Exempt Organizations at:

                     Internal Revenue Service
                     Exempt Organizations Determinations
                     P.O. Box 2508
                     Cincinnati, OH 45201

   •   You cannot make grants to your creators, officers, directors, trustees, foundation
       managers, or members of selection committees or their relatives.

   •   All funds distributed to individuals must be made on a charitable basis and must
       further the purposes of your organization. You cannot award grants for a purpose
       that is inconsistent with Code section 170(c)(2)(B).

   •   You should keep adequate records and case histories so that you can substantiate
       your grant distributions with the IRS if necessary.

Please keep a copy of this letter in your records.

If you have any questions, please contact the person listed at the top of this letter.

                                          Sincerely,




                                          Jeffrey I. Cooper
                                          Director, Exempt Organizations
                                          Rulings and Agreements




                                                                        Letter 4779 (10-2012)
                                                                        Catalog Number 58222Y