Leadership-development grant procedures approved

Plain-English summary

A private foundation proposed educational grants for activists, community leaders, charity workers, students, scholars, and others working toward charitable social change. Grants could fund education, training, research, conferences, collaborations, and leadership development. The foundation would use objective selection factors, require Board approval, exclude disqualified persons and related parties, and require regular reports. It also committed to investigate misuse, recover diverted funds, withhold additional payments when needed, and maintain detailed records. The IRS approved the procedures under section 4945(g)(3), so grants made under those procedures would not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's educational-grant selection, reporting, and oversight procedures satisfy section 4945(g)(3)?
• Outcome: approved
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), 4945(g)(3), and 4946; Treas. Reg. § 53.4945-4(c)(1)

Full text (IRS public release)

Transcriber's note: this document is a five-page scan. Obvious OCR errors in bullets, spacing, and form labels were corrected by comparison with every page image. Redacted identifying fields are marked [redacted]. Original grammatical irregularities are preserved. The wording is otherwise preserved verbatim.

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

Release Number: 202002020
Release Date: 1/10/2020 Employer Identification Number: [redacted]
Date: October 16, 2019

Contact person - ID number: [redacted]

Contact telephone number: [redacted]

UIL: 4945.04-04

Dear [redacted]:

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 which will support
activities that further your exempt purposes. Your grant program will allow you to foster
and strengthen charitable work dedicated to bringing about societal change to address
critical areas such as poverty, inequity, racism and discrimination, access to education,
and protection of human and civil rights, for the broadest possible benefit to the general
public.

The grants will support education and training, professional and leadership development
for emerging grassroots activists, and community leaders who are dedicated to
organizing for societal changes that improve the lives of people in need and support
communities in need, and other charitable work in furtherance of your exempt purposes.

Grants will be designed to support leadership development of individual recipients and/or
particular charitable programs and objectives through continuing education, training,
research, attendance at conferences and workshops, and collaborations with other
activists, charity workers or scholars.

Grants will be awarded based on your intrinsic interest in the proposed project/use of
grant funds, relevance to your exempt purposes, the applicant's prior experience and
contributions to his or her field or demonstrated academic achievement, and his or her
leadership potential in his or her field.

Eligible grant recipients will include activists working for social change or community
organizing to improve lives and communities or achieve other charitable purposes,
charity workers, students and scholars, and other individuals from a variety of disciplines
and backgrounds. They will have specialized skills, experience or knowledge in, and a
commitment to, areas of interest to you, including, without limitation, social change or
community organizing to achieve charitable purposes or related charitable work, and who
demonstrate potential to serve as leaders in their fields.

Grantee application and selection may be a multiple-step process depending on the
purpose of the grant, but all grants will be subject to approval by the Board. In some
cases, the Board may directly review applicant nominations and grant proposals and
select the grantees based on its review. In other cases, the Board may delegate the initial
selection process to your staff members or a selection committee, who will review the
nominees and/or grant applications, perhaps in consultation with experts in the field, and
select finalists for Board consideration.

The process of selection of grantees will include consideration of the following factors:

• the applicant's demonstrated specialized skills, experience or knowledge in and
commitment to areas of interest to you, including without limitation social change or
community organizing for charitable purposes or related charitable work;

• the applicant's demonstrated potential to serve as a leader in his or her charitable
field;

• the applicant's relevant professional, volunteer/activist and/or academic
achievements to date; and

• the proposed grant purposes and the potential for the use of funds to enhance the
applicant's leadership skills and/or particular charitable programs and objectives and
his or her ability contribute to or serve as a leader in fields of interest to you in
furtherance of your charitable purposes.

The number of grant recipients selected and the amount awarded to each recipient will
be determined based the amount and purpose of the applicant's request, the number of
qualified candidates, and your available funding.

You may consider grants of any duration and will evaluate the nature of the proposed
grant objectives within the context of the proposed project time frame. Renewal grants
are contingent upon the grantee meeting the objective and nondiscriminatory criteria
established by you and adequately reporting to you on the use of grant funds and
progress toward grant goals. Renewal grants will only be made if you have no information
indicating that the original grant is being misused.

Letter 4779 (10-2012)
Catalog Number 58222Y

Grant recipients may not be “disqualified persons” with respect to you, within the meaning
of IRC Section 4946. Grant recipients furthermore may not be related to any officer,
director, substantial contributor, or member of a grants selection committee, nor may they
be persons whose selection would result in private benefit to any officer, director,
substantial contributor, or member of a grants selection committee.

Each grantee must submit a written report to you at least annually describing their
accomplishments with respect to the grant and providing an accounting of the grant funds
received, as well as a final report upon conclusion of the grantee's grant-funded work.
For all grants, you may require more frequent (e.g., quarterly) reporting from the grantee
either in writing or by email, telephone, or in-person meeting.

You will promptly investigate any apparent misuse of grant funds or failure to provide
required reports. While a matter is being investigated, you will withhold further grant
payments to the extent possible until you have determined that no part of a grant has
been misused and until missing reports have been submitted.

You represent that you will (1) arrange to receive and review grantee reports annually
and upon completion of the purpose for which the grant was awarded, (2) investigate
diversions of funds from their intended purposes, and (3) 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 related to the following: (1) individual
grants including information to evaluate grantees, (2) grantees which are identified as a
disqualified person, (3) how the amount and purpose of each grant was established, and
(4) how you established supervision and investigation of grants described above.

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

Letter 4779 (10-2012)
Catalog Number 58222Y

- 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.

Letter 4779 (10-2012)
Catalog Number 58222Y

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