Advance approval of a private foundation's procedures for two artist grant programs under section 4945(g)(3)

Plain-English summary

A private foundation that funds the arts asked the IRS to approve, in advance, the
procedures for two educational grant programs supporting individual artists. This
advance approval matters because grants a private foundation makes to individuals
for study or similar purposes are normally "taxable expenditures" that trigger an
excise tax under § 4945, unless the IRS approves the grant-making procedures
ahead of time. The two programs award fellowships and stipends (plus studio space,
a solo exhibition, and public engagement components) to artists selected by
outside expert juries through a blind, objective process, with conflict-of-interest
bars on staff, board, and their relatives. The foundation also committed to
supervising grantees, requiring reports and check-ins, and investigating any
misuse of funds. The IRS determined the procedures meet the requirements of
§ 4945(g)(3) and the related regulations, so grants made under them will not be
taxable expenditures. The approval applies only to the described programs and
depends on the foundation carrying them out as represented.

Ruling snapshot

• Question: Do the foundation's procedures for its two artist grant programs qualify for advance approval under § 4945(g)(3)?
• Outcome: Approved (grants will not be taxable expenditures)
• Key authorities: IRC §§ 4945(g)(3), 117(a), 74(b), 170(b)(1)(A)(ii); 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

Employer Identification Number:

Number: 201839016
Release Date: 9/28/2018 Contact person - ID number:

Contact telephone number:
Date: July 3, 2018

LEGEND: UIL:

B = award 1 4945.04-04
C = award 2

D = state

E = center

F = city/state

G = center

h dollars = amount
j dollars = amount
k dollars = amount
m dollars= amount

Dear

You asked for advance approval of your two 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 the two 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 will operate two educational grant programs; B and C. The purpose of B and C are to
provide resources to an artist demonstrating artistic excellence and to promote
innovation, experimentation and creative risk taking. Grants under B and C are awarded
based on the artistic excellence of work previously created by the applicant. The awards
are to support the growth of the artist moving forward, allowing experimentation, the
ability to change scale, media, etc., much like an incubation award. The intent is to allow
the artist the creative time to advance their aesthetic inquiry.

The number of grants to be made annually will be determined from time to time by the
board of directors based on funds available, the amount of time available for staff to
supervise the grantees and the perceived demand from the art community.

The amount of each grant to be made annually will be determined from time to time by
the board of directors based on funds available and the board’s evaluation of the amount
needed to accomplish the goals of the program and attract good applicants.

Under B you are offering an h dollars fellowship to a D artist working in the visual arts in
recognition of exceptional original work which adds to D’s renowned cultural lexicon. H
will be paid out in two parts. The first part will be j dollars upon the announcement of the
award. In addition, the awardee will be granted a solo exhibition at the E in F at the end
of the year of the award period. The artist will also be invited to present one public
lecture. Once the solo exhibition and public lecture have been completed, the remaining k
dollars will be paid. The solo exhibition must be the work they produced during the award
year.

C will award up to four stipends of m dollars each, furnish individual studio space for six
months located at G in F, and provide a public engagement project of the artist's choice.
A portion of the m dollars will be withheld until after the public engagement project has
been completed.

To be eligible for B applicants must:

be at least 18 years old

have resided in the state of D for at least one year prior to submission

maintain their residency in D during the award year

currently be producing work in the visual arts, which includes painting, sculpture,
printmaking, media arts, social practice.

To be eligible for C applicants must:

1) be at least 18 years old

2) be a full-time resident of D

3) be an artist of any type of discipline

4) be required to take part in C within a set time frame

5) be willing to take part in a component of public engagement of their choice, for
example a lecture, exhibition, performance, public art, intervention, collaboration etc.; and
6) be willing to participate in events hosted by you.

Under both B and C, your board members, staff, and their immediate family members
may not apply, nor may those artists who enjoy a personal or financial relationship that
would create a conflict of interest with any of your staff or board members.

Both B and C will be publicized on your website, through social and print media, and
through you and your cultural partner’s mailing lists.

Letter 4779 (10-2012)
Catalog Number 58222Y


Applications for the grants under B and C are submitted electronically. For B, the
applicant must submit a resume and ten images and/or videos. For C, the applicant must
submit a resume and ten jpegs of their work. Images should be current - no more than
two years old. Performing artists should submit work samples in currently popular, cross-
platform, video formats. They should indicate preferred studio space with alternate
choices.

The committee for B will be selected by your Executive Director and the Executive
Director of the E. Members will be from out of state and selected from a pool of respected
individuals of the art community. The review will be a “blind” review which means the
applications will not reveal the name of the artist to eliminate bias. For C, the juror(s) will
be selected by your Executive Director. In both cases the selection committee will change
with each grant round to bring different points of view or aesthetic preference to the
process, thereby eliminating bias.

Selection criteria under B and C programs will be based on artistic excellence.
Applications will be evaluated by a panel of experts in the field and applicants will be
notified by email of acceptance into residency. The jurors will be respected curators and
museum professionals who understand fully the formal principals applied to make a work
of fine art but also the current thinking on the intra genres, social practice and media.

Compliance with conditions and requirements will be determined at the time of the grant
and monitored by you throughout the grant period in accordance with the grant terms.
Awardees will be required to have periodic “check ins” with the executive director: 1)
under B, they must check in monthly and 2) under C, they must check in weekly.
Photographs of progress will be shared with the public on your website and social media
pages. A final report will be required from all awardees: 1) under B they will have a final
report and exit interview and 2) under C, they will have an exit interview. If the terms of
the grant are violated the final payments will not be issued and recipients will not be
eligible to apply for any future awards. No grant renewals are anticipated. They can apply
for another grant, however under B, they may only receive one grant award every ten
years.

You represented that you will: (1) investigate diversions of funds from their intended
purposes, (2) take all reasonable and appropriate steps to recover diverted funds, ensure
other grant funds held by a grantee are used for their intended purposes, and (3) 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 represented that you will maintain all records relating to individual grants, including
information obtained to evaluate grantees, identify whether a grantee is a disqualified
person, establish the amount and purpose of each grant, and establish that you
undertook the supervision and investigation of grants.

Letter 4779 (10-2012)
Catalog Number 58222Y


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


• 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.

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