Large foundation grant qualifies as an unusual grant

Plain-English summary

A recently formed public charity supporting law enforcement received a large cash grant from an unrelated foundation for a pilot program involving media, community involvement, training, recognition awards, and police-academy scholarships. The grant's size would otherwise hurt the charity's public-support status. The donor had no prior affiliation, support history, authority, or control over the charity, and imposed no material restrictions beyond charitable status and use of the funds for the proposed program. The IRS concluded that the contribution qualified as an unusual grant under the public-support regulations.

Ruling snapshot

• Question: May the charity exclude the large foundation contribution as an unusual grant when measuring public support?
• Outcome: approved; the contribution is characterized as an unusual grant
• Key authorities: IRC §§ 170(b)(1)(A)(vi), 501(c)(3), 509(a)(1), 4946; Treas. Reg. §§ 1.170A-9(f)(6)(ii), 1.509(a)-3(c)(4)

Full text (IRS public release)

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

Date: October 13, 2016
Employer Identification Number:

Number: 201701023 Person to Contact - ID#:

Release Date: 1/6/2017
Contact Telephone Numbers:

UIL: 501.03-07
LEGEND:

B = Foundation Name
C = State
x dollars = Amount

Dear :

We have considered your October 23, 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 Sections 509(a)(1) and
170(b)(1)(A)(vi). Your mission is to enhance and support the work of law enforcement officers
across the country through educational, direct assistance, and community outreach programs.

You were recently formed in C and have only just begun to attract support from public sources
in and out of your local community. You have been actively engaged in seeking sources of
funding in order to implement your charitable programs. B was informed about your mission
through a mutual acquaintance and shares your interests in education and national security. As
a result, you were invited to apply for a grant from B. B has no prior affiliation with you, did not
create you, and has no one in a position of authority within you or on your Board of Directors.

You subsequently submitted a grant application to B for x dollars for a pilot program designed to
measure and remedy local police perception through media, community involvement and
training. You were awarded the grant which will be in the form of cash, or equivalent, to be used
for community, education, and media outreach, police recognition awards, and scholarships to
attend police academies. B has not imposed any conditions or restrictions on you other than
your application for and continued existence as a Section 501(c)(3) exempt public charity and
the use of grant funds for the purposes set forth in your grant application. Any unused grant
funds must be returned by a certain date unless you request an extension of time from B.

You expect to attract significant and broad public support because your Board of Directors
includes two veteran law enforcement officers with extensive experience and networks of

Letter 4787 (2-2012)
Catalog Number 58230Y

contacts in the law enforcement community, an experienced business executive with strong ties
to business, religious, and political communities that has public sector senior management
experience, and a founder/executive director of a separate public charity that combats global
poverty. In addition, you plan to establish a website to publicize your programs as well as accept
contributions. You also intend to apply for grants from government agencies, public charities,
and private foundations. Furthermore, public outreach and educational initiatives will be a
significant portion of your charitable activities.

None of your directors or officers is a trustee, director, agent, or employee of B nor does B exert
any control, direct or indirect, over you.

You have not previously applied for nor received any grants from B.

Due to its size, the grant will adversely affect your status as normally being publicly supported
under Section 170(b)(1)(A)(vi) for the applicable period.

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:

• 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.

Letter 4787 (2-2012)
Catalog Number 58230Y

• 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:

The grant meets the requirements of Treasury Regulations section 1.170A-9(f)(6)(ii) because it
is from a disinterested party who was attracted by reason of the publicly supported nature of
your organization, is unusual with respect to the amount thereof, and will, by reason of its size,
adversely affect your status as normally being publicly supported.

The grant meets the requirements of Treasury Regulations section 1.509(a)-3(c)(4) based on
the following pertinent facts and circumstances:

• The contribution was made by B, a disinterested party that:

a. Did not create you;

b. Has not previously contributed to you;

c. Does not stand in a position of authority with respect to you;

d. Does not directly or indirectly exercised control over you; and

e. Was not in a relationship described in IRC Section 4946(a)(1)(C) through
4946(a)(1)(G) with someone listed in bullets a, b, c, or d above.

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Catalog Number 58230Y

• The contribution was also in the form of cash, or equivalent, which furthers your
exempt purposes.

• You are a new organization and have been actively engaged in seeking sources of
public support and funding in order to implement your charitable programs.

• You reasonably expect to attract a significant amount of public support after the
grant.

• You have a representative governing body as described in Treasury Regulations
section 1.509(a)-3(d)(3)(i); and

• No material restrictions or conditions within the meaning of Treasury Regulations
section 1.507-2(a)(7) have been imposed by the grantor.

For the forgoing reasons, the grant from B is 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) have been met.

We have sent a copy of this letter to your representatives as indicated in your power of attorney.

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