Regenerative-medicine research and surgical training grants receive approval

Plain-English summary

A private foundation developed grant programs supporting regenerative-medicine research and advanced training in oral, cranial, and maxillofacial surgery. Separate research tracks would fund residents or fellows, early-career faculty, and other clinicians or medical researchers, while another program would support senior oral-surgery residents in individualized observerships with experienced practitioners. Scientific committees would review applications and recommend candidates to the board, and insiders and their close relatives were ineligible. The foundation required progress, expenditure, narrative, and budget reports, and it would recover misused funds, stop additional payments, and maintain detailed records. The IRS approved the procedures under section 4945(g)(3), so qualifying grants made under the programs as described would not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's procedures qualify for advance approval of regenerative-medicine research grants and oral-surgery observership grants?
• Outcome: approved
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), and 4945(g)(3); 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

Release Number: 201714033
Release Date: 4/7/2017 Employer Identification Number:
Date: January 10, 2017

Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04

B = Program
C = Program
D = Award
F = Award
G = Award
H = Program
J = Committee
K = Committee
l = number
m = number
n = number
p dollars = dollar amount
q dollars = dollar amount
r dollars = dollar amount
s dollars = dollar amount

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.

2

Description of your request

Your mission is to provide a platform for scientific studies that will shape the future of
regenerative medicine and educate and support the next generation of clinicians. To
achieve this mission, you have developed the B. The first component of the B is the C,
where you award grants to fund innovative research proposals addressing questions
related to the field of hard and soft tissue regeneration in oral, cranial, and maxillofacial
surgery. Such grants will be made through three separate tracks: D, F and G. The
second component of the B is the H, where you provide oral surgery residents and
fellows with an opportunity to participate in an intensive, individualized training program
with leading practitioners in the field.

Information about each grant program will be included on your website and publicized
through various contacts within the medical community and professional groups affiliated
with regenerative medicine and oral, cranial, and maxillofacial surgery. Further, you will
provide information about the B to schools with an Oral and Maxillofacial Surgery (OMS)
Department, conduct meetings with individual department chairs and program directors at
schools with an OMS department, and distribute promotional flyers presenting
information about the B to contacts in the academic community.

The D is available exclusively for individuals who are currently a resident or a fellow in an
OMS program. The F is available exclusively for faculty members who are within the first
five years of the applicant's first faculty appointment at the time they apply. To be eligible
for either of the aforementioned awards, applicants must have a senior mentor
associated with his or her proposed project. The G is available to clinicians and medical
researchers.

To be eligible to receive a grant under the H, each applicant must be admitted to an oral
surgery residency program and must be in his or her last two years of training (i.e., the
third or fourth year of a four year program or the fifth or sixth year of a six year program)
during the time of the observership. A letter of support from the program director is
required, and each applicant must also disclose any disciplinary action he or she may
have been subject to and whether he or she has ever been convicted of a felony.

Your officers, directors, substantial contributors, and the children or close relatives of
such persons are not eligible for grants.

The maximum amount of each grant will be p dollars per year for the D, q dollars per year
for the F, and r dollars per award cycle for the G, which has two award cycles per year.
Grants may be extended for an additional year of funding, for a maximum total of two
years.

Each grant made under the H will be approximately s dollars, depending on the actual
length of the observership, the geographic location of the mentoring clinician’s practice,
and the nature of the expenses required in connection with any given observership
(requisite insurance, licenses, etc.).

Letter 4779 (10-2012)
Catalog Number 58222Y

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There are no restrictions as to the number of times an individual, including past
applicants and grant recipients, may apply for funding under the C. However, such
individuals must continue to meet all applicable requirements and complete the full
application process each time.

An applicant who is not selected to receive a grant under the H may continue to apply
indefinitely, provided he or she continues to meet all of the requirements. However, once
an applicant is selected to receive a grant under such program, he or she may not apply
for any further grants under the H. Selection to receive a grant under the H does not
preclude the recipient from applying for future grants under the C.

A J Committee and a K Committee will review applications and recommend the most
qualified applicants to your Board. Committee members will consist primarily of scientists
who have expertise in relevant scientific disciplines and current research areas. Your
Board appoints members of the selection committees for one two-year term, which is
renewable at the discretion of the Board.

The number and amount of grants to be awarded annually is determined by your Board
and may vary from year to year. Initially, you expect to make approximately l grants under
the C and the number of grants awarded is anticipated to increase over a five year
period. You expect to make m grant under the H in its first year and expand to n grants
each year, starting in the H’s second year.

For grants made under the C, annual reports are required and are a prerequisite for
continuing payments in multi-year projects. Status reports will include an update of the
progress for each portion/aim of the project, funds spent to date, funds remaining at that
time, anticipated timeline for the remaining term of the project and funding required to
complete the project. A final report including an expenditure report will be required at the
end of the project term.

Grantees under the H will be required to submit a narrative report at the end of the
observership to provide you with information about the efficacy of the observership. A
final budget and accounting must be submitted with this report, along with receipts
documenting any expenses associated with the observership that will be reimbursed as
part of the grant, rather than paid directly by you. Your Board will review the report, final
budget, and accounting to ensure appropriate use of the grant funds. You will also ask
the mentoring clinicians to complete a brief survey about the experience in general and
the participating resident in particular.

In the event of a misuse of funds, you will determine if the situation is a mistake and
whether it can be corrected. If you discover that grant funds have been misappropriated,
all reasonable steps will be taken to recover any diverted funds or to ensure that any
unused portion is either returned or used for the intended purpose of the grant. Further, in
any case where you have determined that grant funds have been misused, you will
refrain from making additional disbursements and take further appropriate action as
necessary.

Letter 4779 (10-2012)
Catalog Number 58222Y

4

You will maintain detailed case histories recording the name and address of the applicant
and the amount of the grant. You will maintain complete records regarding the
applications, selection process, expenditures, and reports submitted by the grantees.

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.

• 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

Letter 4779 (10-2012)
Catalog Number 58222Y

5

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.

We've sent a copy of this letter to your representative as indicated in your power of
attorney.

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