Foundation's music education grant procedures approved

Plain-English summary

A private foundation proposed grants for children ages 4 through 17 to study music, take theory classes or lessons, and obtain appropriate instruments. Applicants would submit financial and educational information and could be asked for recommendations, report cards, or auditions. The board would select recipients based on musical potential, financial need, age fit, and ability to commit sufficient time, with payments made to the education provider and progress reviewed every 90 days. The foundation also described annual reporting, renewal, diversion-recovery, and recordkeeping procedures. The IRS approved the program under section 4945(g)(3), so grants made under the approved procedures would not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's music education grant procedures qualify for advance approval under section 4945(g)(3)?
• Outcome: approved, grants following the described procedures will not be taxable expenditures
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), 170(c)(2)(B), and 4945(g); 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: 201942015
Release Date: 10/18/2019 Employer Identification Number:
Date: July 22, 2019

Contact person - ID number:

Contact telephone number:

UIL: 4945.04-04
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. Your purpose in
part is to provide opportunities for talented children of diverse backgrounds to learn about
music and to develop their talents for music.

The purpose your program is to award grants to support children ages 4 to 17 who are
dedicated to music an opportunity for related learning. The grants will allow the recipients
to study under the tutelage of appropriate music instructors at reduced or no cost to the
student. The grants can also be used for instructors, theory classes, fees, lessons, and/or
appropriate instruments.

You will promote your program through purchased ads in theater programs, seminars in
schools, churches and concerts with teacher/student performances. You may also
collaborate with other music organizations such as music camps, and church choirs to
advertise your program.

To be considered for your program, an application with detailed financial information
including supporting documents and a description of the education the grant would fund
must be submitted to you. You may also require a letter of recommendation from a

teacher, neighbor or community leader who is not a family member and a recent report
card for students over eight years old. Applicants may also be required to audition.

Recipients under your program will be selected by your Board of Directors which includes
your founder and individuals who make their living in the music industry. The recipients
will be selected based on their music potential, their demonstrated financial need, age fit,
and their ability to devote quality and sufficient time to their program. The selection
committee will also determine the individual award amounts based on the musical level of
the recipient and their financial need. The parent or guardian may have to pay a
percentage of the cost based on their income level.

Once selected, recipients must agree to be prepared for their classes and attend all
classes on time. Absenteeism or non-preparedness are cause for suspension or
adjustment of terms of the grant. In addition, the parent or guardian must agree to be
available for volunteer assistance for the recipient as well as agree to permit the recipient
to participate in public and private concerts planned or supported by you. The grants are
also not transferable to any other family member or person.

You will award the grants on a one-year duration basis which is determined on the grant
approval date and end on the anniversary date. Furthermore, funds will be disbursed to
the provider of the specific education the grant is funding.

You also anticipate that you will disburse the awards incrementally. For example, if a
student receives an award for a year's worth of training, there would be an evaluation
after three months to see if there was adequate progress and to determine if the recipient
was maintaining suitable academic standing. The recipient's teacher will also be making
progress reports every 90 days for the duration of the award. Furthermore, grants may
be extended on the anniversary date based on the recipient’s performance, and
dedication to the terms and milestones set forth by you. In addition, a renewal application
is required.

You represent that you will arrange to receive and review grantee reports annually and
upon completion of the purpose for which the grant was awarded, investigate diversions
of funds from their intended purposes, and 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 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 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.

Basis for our determination

Letter 4779 (10-2012)
Catalog Number 58222Y

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.

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