Internship-completion educational grants receive advance approval

Plain-English summary

A private foundation proposed grants to encourage high school seniors to complete a citywide career-training and internship program. Participants would receive three equal installments as they completed training, reached the program midpoint, and finished the internship, with unpaid installments forfeited for noncompletion or behavioral removal. Students would be selected through a nondiscriminatory scoring process, supported by teacher-coaches, and monitored through employer reports. The IRS approved the procedures under section 4945(g)(3) because the grants pursued a specific educational objective, used an objective selection process, and included supervision and reporting. Payments made under the approved procedures would not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's procedures qualify for advance approval of grants rewarding completion of career training and internships?
• Outcome: approved
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), 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

Number: 201747010
Release Date: 11/24/2017 Employer Identification Number:

Contact person - ID number:

Date: August 29, 2017 Contact telephone number:

LEGEND                    UIL: 4945.04-04

X= NAME OF INTERNSHIP PROGRAM
Y= NAME OF CITY
z dollars = TOTAL AWARD

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
Your letter indicates that you will operate an educational grant program.

Your purpose is to promote education. Your grant program seeks to provide students with
the education necessary to transition from school to the workplace. Your program is part
of a broader internship initiative called X, which is a citywide collaborative effort that
includes the city of Y, schools, businesses and civic organizations.

X exposes, prepares, and connects students to careers in regional high-paying
industries. X provides students with life experience in the workplace and with soft skills
and business etiquette training they cannot obtain through high school classroom
learning.


The grants are inducements for participants to complete the program, payable upon each
phase of completion. Students who complete X’s program will receive a total award
amount of z dollars. You will pay the award in three equal installments, the first one after
the student completes the first set of training hours. Any student who does not complete
this training is ineligible for an award. The second installment will be distributed at
the midway point, and the last one upon completion of X’s internship program. Students
must participate in the entire program to earn the full award. If a student does not show
up for work or leaves the program due to behavioral issues, the remainder of the
internship will not be paid. There is no stipulation that the awards be utilized for any
specified purpose.

You will publicize your program through participating high schools. School leaders will be
provided recruitment fliers to place around campus. You will conduct in-school
recruitment sessions which include a power point presentation, a video and Q&A
sessions. You will also advertise your program through your website.

To be eligible students must be high school seniors attending public high schools
participating in X. They must complete an application process and have interest in
pursuing a career in healthcare, technology or skilled crafts.

Candidates are evaluated on a variety of factors including leadership experience,
demonstrated commitment to the program, oral and verbal communications skills, GPA,
extracurricular involvement and feedback from teachers. The selection committee
endeavors to select a diverse cohort that includes students across a range of
preparedness using a scoring format. It will not discriminate based on race, creed, color,
ethnicity, national origin, religion, sex, sexual orientation, gender expression, age, height,
weight, or physical and mental ability.

The selection committee is comprised of two members of your staff, and two staff
members from the provider of the soft skills training.

You will hire teachers as coaches/case workers for the students. These coaches will help
with the soft skills and business etiquette training and then, once the 90 hour internship
begins, they will act as case managers, staying in touch with both the student and
employer to help resolve any problems that might occur. You will obtain reports from
each employer on the student's performance.

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.

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

Letter 4779 (10-2012)
Catalog Number 58222Y


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

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

Letter 4779 (10-2012)
Catalog Number 58222Y


• 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,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Letter 4779 (10-2012)
Catalog Number 58222Y