IRS approves a private foundation's pharmacy innovation grant procedures

Plain-English summary

A private foundation proposed competitive grants for licensed pharmacists in a specified state or researchers working with innovative pharmacy practice by pharmacists in that state. Applicants had to belong to a business league, submit detailed project and budget plans, and present the proposal to the foundation's board. A six-member review committee would score applications on innovation, objectives, project design, resources, personnel, evaluation strategy, and budget, after which the full board would choose the projects and funding levels. Recipients had to provide interim and final reports showing goals, outcomes, and use of funds, and the foundation would withhold the final 10 percent if grant terms were violated. The IRS approved the procedures under Section 4945(g)(3), so grants made under the described program would not be taxable expenditures if the foundation follows the approved process and stated conditions.

Ruling snapshot

• Question: Do the foundation's procedures for awarding pharmacy innovation grants satisfy the advance-approval rules for grants to individuals?
• Outcome: Approved (expenditures under the described procedures will not be taxable)
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), 170(c)(2)(B), 4945(g); Treas. Reg. § 53.4945-4(c)(1)

Full text (IRS public release)

Proofreader's note (scanned OCR document): the letter text below is reproduced
verbatim with obvious scan misreads corrected, principally bullet characters and
missing spaces. A sentence on the first page contains an IRS-redacted gap, which
remains blank rather than being reconstructed.

Internal Revenue Service Department of the Treasury
P.O. Box 2508
Cincinnati, OH 45201

Release Number: 201850025
Release Date: 12/14/2018 Employer Identification Number:
Date: September 20, 2018

Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04

B = Name of grant

C = State

D dollars = Maximum award
E = Business league

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 B to

development and implementation of the project described in the grant proposal.

The number of grants made annually is dependent upon funding available. The maximum

award for an individual proposal may not exceed D dollars per year. You may issue only
one grant a year or several grants for small budgets, not to exceed the funding available.

B will be publicized to E’s members (pharmacists, pharmacy technicians, student
pharmacists and associates) through E’s publications, including electronic newsletters,
periodicals and its social media accounts.

A qualifying applicant must be a pharmacist currently licensed in C, or a researcher
based in C working with innovative pharmacy practice by C pharmacists. It must be an
active member of E. All applicants are required to complete an application and to present
in person their grant proposal to your Board of Directors.

A proposal must include description of the innovation, its significance to the future
pharmacy practice in C, detailed project objectives, project methodology and outcome
measures, role of grantee and others in completing the project, evaluation strategy to
determine value/outcome of the project, project timetable from implementation to
completion, grant budget, and adequacy of the resources available to complete the
project. Grant budgets must include all costs, any matching funds or in-kind support and
tables referencing budgeted line items, total cost, and any source outside the grant (e.g.
in-kind or other funding).

The review committee, comprised of six of your board members, reviews each submitted
application, completes a scoring rubric while ranking the applications. The top three
applications present their proposals to your Board of Directors meeting. Your full board
votes on which projects they wish to fund and at what level.

Grant application scoring is ranked based on significance of innovation to the future
pharmacy practice in C, clarity of project objectives, project design, adequacy of the
resources available to complete the project, key personnel qualifications, evaluation
strategy to determine value/outcome of the project and budget.

All grant recipients are required to submit an interim and a final report to you. Reports
include goals, objectives, outcomes, and detailed use of funds.

If terms of the grant are violated, the final 10% of funding will not be provided to grantee

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

Letter 4779 (10-2012)
Catalog Number 58222Y

– 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.

Letter 4779 (10-2012)
Catalog Number 58222Y


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