Advance approval of a private foundation's procedures for postdoctoral science research fellowships under section 4945(g)(3)

Plain-English summary

A private foundation asked the IRS to approve, in advance, the procedures for a
program that funds three-year fellowships for postdoctoral scientists working in
physical and life sciences, technology, engineering, and math at nonprofit
research institutions. This advance approval matters because grants a private
foundation makes to individuals for study are normally "taxable expenditures"
subject to an excise tax under § 4945, unless the IRS approves the procedures
first. The foundation pays the fellowships directly to the research institutions,
selects up to ten fellows a year through an expert committee based on the novelty
and expected benefit of the research, requires confirmation from principal
investigators that the fellow is actively engaged, and publicizes the openings
broadly. The IRS determined the procedures meet the objective,
nondiscriminatory-selection and reporting requirements of § 4945(g)(3), so grants
made under them will not be taxable expenditures. The approval covers only the
described program and depends on the foundation running it as represented.

Ruling snapshot

• Question: Do the foundation's procedures for its postdoctoral research fellowship program qualify for advance approval under § 4945(g)(3)?
• Outcome: Approved (grants will not be taxable expenditures)
• Key authorities: IRC §§ 4945(g)(3), 117(a), 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

Release Number: 201840009
Release Date: 10/5/2018 Employer Identification Number:
Date: July 13, 2018

Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04

B = State
X = Program

g dollars = $
y dollars = $
z dollars = $

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 fund three-year fellowships for highly creative and dedicated
postdoctoral scientists at not-for-profit research institutions in B to conduct
groundbreaking work in the following fields: physical and life sciences, technology,
engineering and math. The ultimate goal is for their research to benefit the public by
creating new products and services addressing unmet needs. The fellowships will be paid
directly to the institutions. X hopes to select up to ten new fellows annually.

The purpose of X is to issue grants to selected research institutions to fund research
fellowships to outstanding post-doctoral candidates to pursue their research in the fields

Letter 4779 (10-2012)
Catalog Number 58222Y

of physical and life sciences, technology, engineering or math at B universities or non-
profit research institutions. Fellowships will fund the researchers for a three-year term.
The awards paid to the research institutions will support a salary of g dollars first year, y
dollars second year, and z dollars third year, plus benefits awarded by the institution. X
may pay additional amounts to support specific requirements of the candidates’ research
such as purchases of research supplies or equipment or travel to conferences or
symposia.

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.

You stated:
• The offer of the X has been publicized on your website, advertised in scientific

journals, on job posting websites and by notices emailed to senior researchers at
B universities and institutions.

Letter 4779 (10-2012)
Catalog Number 58222Y

Eligible candidates must be qualified to conduct research in the fields of physical
and life sciences, technology, engineering or math. They must be a U.S. citizen
or permanent resident (Green Card holder), and upon commencement of the
Fellowship must have completed a doctorate from an accredited graduate
program.

X aims to bring highly creative and dedicated postdoctoral scientists to research
institutions in B to conduct groundbreaking work in the following fields: physical
and life sciences, technology, engineering and math. Your goal is for their
research to benefit the public by addressing unmet needs. Awardees will be
selected based upon the novelty of their research proposals, expected benefit of
successful research, and demonstrated capability to conduct research.

X expects to award up to 10 new post-doctoral fellowships each year, provided
the selection committee identifies sufficient qualifying candidates.

The amount of the fellowship awards has been determined by surveying post-
doctoral programs at B institutions and by reviewing comparable fellowship
programs outside B.

Fellows will be permitted to transfer their fellowships between institutions, or
research labs within institutions in B. However, Fellows must demonstrate active
engagement in their course of research to continue receiving payments of their
fellowship. X must receive confirmation of the Fellow’s appointment within an
approved discipline (physical and life sciences, technology, engineering or
mathematics) before paying the grant.

X will require confirmation from Principal Investigators at the Fellow’s institution
that the Fellow is satisfactorily engaged in their research. If this term is not met,
X will not continue to pay the grant.

X Postdoctoral Fellows will be chosen by your selection committee, expert in
multiple scientific disciplines and assembling strong research teams. Committee
members were nominated by the selection committee chairman and approved by
the board at your board meeting. Committee members’ terms are not fixed and
will be renewed or revised on an annual basis at the chairman’s
recommendation.

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.

Letter 4779 (10-2012)
Catalog Number 58222Y

• 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.

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