Youth job-training grant procedures receive advance approval

Plain-English summary

A private foundation proposed a training and mentoring program for underserved young people who lacked basic job skills and work experience. Participants would receive classroom training, supervised placements within the foundation's sponsoring company, regular mentoring and evaluations, and biweekly grants tied to active participation. Independent nonprofit partners would nominate candidates, while the foundation would select them using academic, financial-need, aptitude, recommendation, interview, background-check, and drug-test criteria. The foundation also committed to monitor the grants, investigate diversions, recover misused funds, and maintain detailed records. The IRS approved the procedures under section 4945(g)(3), so expenditures made under the program as described would not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's procedures qualify for advance approval of grants supporting a youth job-training and mentoring program?
• 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: 201714035
Release Date: 4/7/2017 Employer Identification Number:
Date: January 10, 2017

Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04

X = Company
Y = Location

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 are a tax-exempt private foundation formed and funded by X. You are dedicated to
strengthening the fabric of the Y community by providing support in the areas of
leadership development, education, environment, economic development, diversity, and
human needs. You seek to create a new youth training and mentoring program (the
“Program”). The objectives of the Program are to provide youths with educational training
and mentoring for the purpose of improving and developing their capabilities.

The Program is intended for individuals who could not otherwise be gainfully employed
because they lack the requisite experience and exposure to develop basic job skills. The
skills the Program is expected to provide include, for example: dressing professionally,
showing up to work every day, arriving on time each day, when it is appropriate to make
personal calls, text, or use personal phones, completing a job application, interviewing,
providing necessary documents when requested, alerting the appropriate person if
missing a day of work, answering the telephone professionally, and using basic office
technology.

2

At-risk/under-privileged/under-exposed youth aged 14 through 24 who reside in the
greater Y area are eligible to participate in the Program (“Eligible Participants”).
Employees and relatives of employees of either you or X will not be Eligible Participants.

Eligible Participants will apply to the Program through an application process developed
by you. The application will be made available to Eligible Participants nominated by your
nonprofit recruitment partners (“Nominating Organizations”). Nominating Organizations
will nominate individuals who meet the Selection Standards defined below and are likely
to benefit from participation in the Program. The Nominating Organizations are
independent of and separate from you and X (except for participation with this Program
as a Nominating Organization).

You will select Program Participants from the nominated individuals who complete the
application process. You view the application process as part of the professional training
provided by the Program. You have learned that the simple task of completing a job
application may be overly challenging for many Program Participants. You begin your
educational process at this point as it helps guide the nominated individuals through the
application process.

Selection of Program Participants will be based upon criteria including, but not limited to,
prior academic performance (minimum G.P.A. of 2.0), performance on tests designed to
measure ability and aptitude for higher education, recommendations from instructors or
other individuals not related to the potential participants, financial need, and conclusions
drawn from personal interviews as to motivation and character (“Selection Standards”).
Program Participants must also pass a criminal background test and a drug test.

You will place each Program Participant in an appropriate department at X for job training
and mentoring (“Sponsoring Department”). The Sponsoring Departments will be suitable
placements for training the Program Participants in skills with widespread application
(e.g., management, information technology, human resources, marketing, design,
support, etc.). The priority for determining placements will be based on the Sponsoring
Departments’ ability to provide strong mentors for each Program Participant. You will also
seek to match Program Participants’ interests with their assigned Sponsoring Department
based on information provided with their applications.

Because of the significant amount of oversight needed for training and mentoring the
Program Participants, the Program will be housed in X so you will have sufficient access
to provide such oversight.

Each placement will be for a designated term of either three months in the summer or
eight months during the full school year. Program Participants will be allowed the option
to participate in the Program for a second term provided they successfully complete their
first term. Program Participants who are not students may participate in the Program
during the standard school year.

Letter 4779 (10-2012)
Catalog Number 58222Y

3

You expect anywhere from 10 to 50 Program Participants at any one time. The number of
Program Participants will be based on the availability of strong mentors.

Program Participants will take part in 4-8 hours each week of general professional
training in a centralized, group setting. This training will include, but is not limited to,
training in PowerPoint presentation skills, resume/interview skills, continuous
improvement methodology, and appropriate professional attire and attitude. This training
may be provided by your employees, X employees or unrelated local non-profit
organizations.

Program Participants will be assigned a mentor who will meet with them and provide
feedback at least every two weeks. Program Participants will also receive performance
evaluation feedback on attendance, punctuality, reliability, initiative, accuracy of work,
work speed, job learning and application, attitude towards training, use of work time, care
of work area, attitude towards peers, attitude towards supervisors, safety and appropriate
professional attire.

The program will be publicized to the Nominating Organizations. The application for the
Program will be made available to eligible Participants nominated by your nonprofit
recruitment partners.

The bi-weekly grant amounts will be based on experience and education level of the
Program Participants. To continue to qualify for such grant amounts, the Program
Participants must continue to actively participate in the Program. Because you will be
operating the Program, you will have real-time knowledge of the participation of each
grantee. Program Participants will also be obligated to sign a commitment agreement at
the start of the Program that acknowledges the Program Participants’ obligation to
actively participate in the program.

The selection committee will be made up of up to five of your officers and directors who
volunteer to participate on the committee.

You represent that you will complete the following: (1) arrange to receive and review
grantee reports annually and upon completion of the purpose for which the grant was
awarded, (2) investigate diversion of funds from their intended purposes, and (3) take all
reasonable and appropriate steps to recover the diverted funds, ensure other grant funds
held by a grantee are used for their intended purposes, and (4) withhold further payments
to grantees until you obtain grantees' assurances that future diversions will not occur and
that grantees will take extraordinary precautions to prevent future diversion from
occurring.

You represent that you will maintain the following: (1) all records relating to individual
grants including information obtained to evaluate grantees, (2) identify a grantee is a
disqualified person, (3) establish the amount and purpose of each grant, and (4) establish
that you undertook the supervision and investigation of grants described above.

Letter 4779 (10-2012)
Catalog Number 58222Y

4

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
P.O. Box 2508

Cincinnati, OH 45201

Letter 4779 (10-2012)
Catalog Number 58222Y

5

• 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