Study-abroad fellowship procedures approved

Plain-English summary

A private foundation proposed a two-week study-abroad fellowship program for undergraduate and graduate students from one country. The program would develop participants' leadership and entrepreneurial skills through lectures, intercultural collaboration, and other activities in a major city. The foundation would select recipients under stated eligibility and evaluation criteria, pay travel and living costs rather than cash grants, supervise the awards, and keep records. The IRS approved the procedures under Section 4945(g)(3), so expenditures made under the program as described would not be taxable expenditures. The approval applies only while later programs use standards and procedures that do not differ significantly from those reviewed.

Ruling snapshot

• Question: Do the foundation's selection, payment, supervision, and recordkeeping procedures qualify for advance approval for grants to individuals?
• Outcome: approved
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), 170(c)(2)(B), 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: 201831017                                Employer Identification Number:
Release Date: 8/3/2018
                                                 Contact person - ID number:

                                                 Contact telephone number:
Date: May 10, 2018

LEGEND                                           UIL: 4945.04-04

X= Program name
Y= Country A
Z= Country B
Q= Major city
U= University names
v = Number of fellowships

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 called X.

Your purpose is to support talented individuals with great potential and high aspirations in
the arts, sciences and social entrepreneurship, with a special emphasis on furthering
international cultural collaboration and ensuring social benefits.

The purpose of X is to encourage social, scientific and artistic innovation and to promote
cultural and personal development. You will implement your program for undergraduate and
graduate students from Z in a two-week study abroad program. You designed your program
to empower the next generation of leaders with the skills and networks they will need to
thrive in an increasingly globalized society. You will provide participants of your program with
opportunities to gain new perspectives directly from leaders at prominent organizations
through a series of lectures given by experts in their respective fields. Your mission is
elaborated by your program by focusing on intercultural collaboration between Y and Z,
encouraging development of an individual’s personal vision, and acknowledging a basic
belief in the power of the individual to make positive societal changes through strong
leadership.

You will award fellowships for the purpose of educating individuals and improving their
entrepreneurial and leadership capabilities and skills. You will determine the number of
fellowships to be provided each year. You expect to award no more than v fellowships per
program, running two or three programs each year. Your fellowship grants will not be
renewable. You will provide grants in the form of accommodation, payment of transportation
expenses, and meals and subsistence during the students’ stay in Q. You do not make any
payment to individual students, other than de minimis out of pocket expense
reimbursements.

You will publicize your program through your website, newsletters, social media, and
emails through the network of partner Universities and organizations. You will require the
following eligibility requirements to qualify for your program:

• Must be at least 18 years of age
• Undergraduate or Graduate Student at U Universities
• Proficient in English: Applicant must show the evidence of English proficiency level by
  providing one of the following test scores:

    - IELTS Score 6.0 or greater
    - TOEFL score 550 or greater
    - iBT score 80 or greater
    - TOEC score 750 or greater
• Expected to participate in all program activities
• Be aware of the demanding schedule.
• Be interested in International Affairs/Development.
• Be interested in the Y-Z Relationship.
• Be able to act responsibly throughout the duration of the program.
• Be inquisitive and proactively engaged.
• Being able to actively take part in Q&A sessions.
• Give a final presentation on experiences in front of invited guests and program staff.
• Be open to experiences outside of his or her academic field.
• Be open to the program that is inter-disciplinary by nature.
• Academic Excellence (an applicant must provide academic transcript).

You will select fellowship recipients based on the following criteria:

• Applicant must meet all eligibility requirements
• Academic Transcript
• Resume/CV
• Past living/study abroad experiences
• Work/Internship Experience
• Extra-Curricular Activities
• Other Skills/Certifications (Includes Awards)
• Long Essay (500-750 words):

    - Describing the applicant’s motivation for applying to your program and future career
    goals.
    - Description of how your program will help the applicant’s personal development.
• Response to Additional Short Questions (applicants to choose 3 questions from those
  that are provided in the application form).

You will choose a selection committee each year that includes experts and stakeholders
from universities, non-profit and for-profit organizations with a strong experience,
interest and involvement with intercultural collaboration, and development of leadership
skills between Y and Z. You will require selection committee candidates to agree to your
Conflict of Interest Policy prior to joining the selection committee.

You will keep permanent records of the application and supporting material, records
of meetings and actions of the selection committee. You will account for all funds, and
disburse the funds. You will investigate if any of the funds are diverted from their
intended purposes. You will take all reasonable and appropriate actions to recover any
funds if they are diverted.

You will check the OFAC list of Specially Designated Nationals and Blocked Persons. You
will comply with all United States statutes, executive orders and regulations that restrict or
prohibit US persons from engaging in transactions and dealings with designated countries,
entities, or individuals or otherwise engaging in activities in violation of economic sanctions
administered by OFAC. You will acquire from OFAC appropriate license and registrations
when necessary.

You represent 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, (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 diversions 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 whether a grantee is a
disqualified person, (3) establish the amount and purposes 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 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.

• 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,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Letter 4779 (10-2012)
Catalog Number 58222Y