Entrepreneurship research grant procedures received advance approval

Plain-English summary

A private foundation proposed grants for research designed to produce practical insights for entrepreneurs, entrepreneurship programs, policy designers, ecosystem leaders, and researchers. A public call would begin a multi-stage review of short papers and full proposals by research staff, with outside technical review when needed and final board approval. Individual grantees would sign written agreements, provide at least annual activity and spending reports, return unaccounted funds, and face suspended payments and recovery efforts for misuse. The IRS approved the objective selection, supervision, renewal, and reporting procedures under section 4945(g)(3), so compliant grants would not be taxable expenditures.

Ruling snapshot

• Question: Did the foundation’s entrepreneurship research grant procedures satisfy the advance-approval requirements?
• Outcome: approved, assuming the program is conducted as proposed
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), and 4945(g)(3); Treas. Reg. §§ 53.4945-4(a)(3)(iii) and 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: 201937018 Employer Identification Number:

Release Date: 9/13/2019
Contact person - ID number:

Date: June 19, 2019 Contact telephone number:
LEGEND UIL: 4945.04-04
X = Name

b = Numbers
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 improve understanding about entrepreneurs and the levers, tools, and
methods that can advance entrepreneurship in the United States.

The purpose of X is to provide grants to further your purpose by funding research
projects, which produce tangible insights for entrepreneurs, entrepreneurship programs,
policy design programs, ecosystem leaders and researchers. Furthermore, the research
should produce important information which can be used immediately by entrepreneurs,
entrepreneurs support interventions (e.g., incubators, mentoring programs, venture
funds), and policy and program designs users. You also hope the research produces
insights and methods that allow you and the public-at-large to examine what happens in
various settings and/or what happens when new approaches such as new data,
technologies or research methods are used that yield practical information that improves
entrepreneurial success. In some instances, you may also arrange for or provide
mentoring professional development and research enhancement opportunities to assist

individual researchers who may be awarded a grant. However, you will not pay tuition or
provide support towards the completion of requirements for a degree program other than
providing grant funding for the proposed research project.

The number of recipients for X will vary depending on your available budget for X.
Currently, you plan to provide in the range of b grants for each cycle of X and as many as
75% of those grants may be made to individual researchers and students. As you
evaluate the success of X, including its feasibility and impact as well as the number of
applications received, the exact number of awards granted may change over time
depending on the availability of your funds. The amount of each grant will also vary,
based upon the proposed scope and needs of the funded research projects.
Furthermore, all grants are subject to final approval by your Board of Directors.

Any credible researcher is eligible to apply for X including researchers at universities and
academic institutions, laboratories, business enterprises (provided expenditure at
universities and academic institutions is undertaken and the research is of broad public
interest), nonprofit organizations (provided expenditure responsibility is undertaken),
charitable organizations, and individuals. Applicants from universities do not have to be
tenure-tracked or tenured professors, and student submissions can come from doctoral
candidates as well as students or student teams at other levels of study. In addition,
eligible individuals must be legal residents in the United States and must be able to
remain and work in the United States as researchers for the duration of the proposed
research project. You may expand and develop these factors as you acquire experience
with the grant program.

Under X, there will be multiple grant cycles and each grant cycle will usually involve a
multiple-step process. Your Director of Research will be responsible for managing the
grant cycles including the process of intake, verification of information, evaluation of the
project (with a specific focus on scientific contribution and practical and practical design
of the research), and communication of final decision.

Generally, on a cyclic basis, your research department intends to identify a specific topic
of interest for X that you believe can improve the environment for entrepreneurship. You
will then conduct a widely circulated public call which will be posted on your website and
widely disseminated through social media, and other professional and social networks.
The call will invite researchers in the first round of the selection process to submit a two
to three-page white paper detailing their research proposal addressing the specific topic.
During the first round in X, the white papers will be reviewed as follows:

• The papers will be initially screened and evaluated by your Director of Research for
the proposal’s strategic fit including its fit with the goals of X, its substance and
feasibility, proposed research questions, the methodology and proposed budget, the
potential beneficiaries of the proposal, and whether there is enough information that it
can be determined if the proposal can be accomplished. Those papers not
immediately declined will be reviewed a second time by your program officers.

Letter 4779 (10-2012)
Catalog Number 58222Y

• Your program officers will then review the papers that your Director of Research
forwarded to them for a further evaluation of the strategic fit, the promise of the
proposed research, potential beneficiaries and solutions, research questions and
methodology, anticipated budget and any additional concerns that may. arise. After
this evaluation, your program officers will identify those applicants’ white papers that
should be considered for invitations to submit a full proposal for the second round of
the process. They will then provide recommendations to your Director of Research
who will review their recommendations and provide final approval for those invited to
submit a full proposal for the second round.

Those invited to participate in the second round must submit a full proposal, detailing
their research project and provide practical workplans. Furthermore, the proposal must
answer specific questions that will establish the specific criteria for evaluation and these
may vary between grant cycles. These criteria may include the demonstrated need for
the research, targeted beneficiaries, the timeline and implementation plan, relevant
qualifications of the researcher, challenges the project will pose, the project budget and
other information requested by your staff.

After the submission of the full research proposals, one of your research team members
will be assigned to review each submitted proposal. The research team will then meet
regularly to discuss each full proposal and will select the final list of projects to be
funded, based on the availability of funding, how well the proposal meets the applicable
criteria, collective fit within the portfolio of other X research projects that have already
been funded, and contributions of the project to your mission. Other criteria that may be
considered also include the applicant's credibility and ability to successfully complete the
proposed research project; whether the project can realistically deliver on the promises
set forth in the proposal, the potential beneficiaries of the research, the methodology
being employed: and the anticipated budget for the research proposal.

In some cases, applicants may be asked to update or provide more information regarding
their full proposals based on feedback of your research team. In other cases, where the
method of research is very unusual or highly technical or if the evaluators have questions
about the researcher's skills to successfully carry out the research project, a full proposal
may be sent to a third-party subject matter expert (with a confidentiality clause in the
review contract) for additional feedback and evaluation of the proposal.

After the recipients are selected, your Director of Research is responsible for
communicating and notifying the recipients that they must complete a written grant
agreement detailing the terms of the grant. Furthermore, individual grant recipients or
organizations which are the direct recipients of grant funds specifically earmarked by use
by individual grantees will be required to provide periodic written reports to you about
grantees’ activities, their progress and use of funds. Such reports must be provided no
less than annually. If such reports do not account for all funds, any unaccounted funds
must be returned to you for use in the furtherance of your charitable purposes.

Letter 4779 (10-2012)
Catalog Number 58222Y


You will promptly investigate any apparent misuse of grants funds or failure to provide
required reports. While a matter is being investigated, you will withhold further payments
to the individual until you have determined that no part of a grant has been misused and
until missing reports have been submitted. If you discover that funds have, in fact, been
misused, you will take all reasonable and appropriate steps to secure the repayment of
the diverted funds. You will withhold any further payments until you have received
assurances from the grant recipient that future diversions will not occur and have
required the individual to take extraordinary precautions to prevent future diversions from
occurring.

Presently, you do not anticipate that it will be necessary to renew grants. Under
compelling circumstances, however, you may agree to provide additional funds for a
grantee to pursue additional research. If a grantee were to demonstrate the need for, or
interest in continued or extended research activities, you could choose to renew the grant
provided that, in accordance with Treas. Reg. 53.4945-4(a)(3)(iii), you have no
information indicating that the original grant was used for any purpose other than that for
which it was made and any reports due pursuant to the terms of the original grant have
been furnished. Any additional criteria and procedures for renewal will be objective and
nondiscriminatory and otherwise consistent with your exempt purposes.

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.

Letter 4779 (10-2012)
Catalog Number 58222Y


• 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 representatives 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