IRS pre-approves a foundation's grant program funding under-covered labor journalism

Plain-English summary

A private foundation asked the IRS to approve, in advance, the way it
selects and monitors grants made to individual journalists. The program
funds reporting on under-covered stories about the U.S. workplace and
labor movement, covering costs like travel so that stories that might
otherwise go unreported get written. Private foundations normally face
an excise tax under Code § 4945 on grants to individuals for travel or
study, but § 4945(g)(3) exempts such grants if the IRS approves the
foundation's award procedures in advance. The IRS reviewed the
foundation's objective, nondiscriminatory selection process, its use of
a selection committee, and its commitments to obtain reports and police
misuse of funds, and concluded the procedures meet § 4945(g)(3). As a
result, grants made under the described program will not be taxable
expenditures. This matters to any private foundation that wants to make
grants to individuals without triggering the § 4945 excise tax.

Ruling snapshot

• Question: Do the foundation's procedures for awarding individual
  educational/journalism grants qualify for advance approval under
  § 4945(g)(3)?
• Outcome: Approved
• Key authorities: IRC § 4945(g)(3); Treas. Reg. § 53.4945-4(c)(1);
  IRC §§ 117(a), 74(b), 170(c)(2)(B)

Full text (IRS public release)

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

Date: September 15, 2020

Number: 202050020
Release Date: 12/11/2020

Employer Identification Number:
Contact person - ID number:
Contact telephone number:

LEGEND UIL: 4945.04-04

X = Name
m = Numbers
n dollars = Dollar Amounts

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 in part is to educate men and women regarding the causes of poverty,
unemployment, and other economic ills, as well as to methods for their elimination,
conducting research as to labor problems and their fair and peaceful solution.

The purpose of X is to support ambitious, timely, under-covered stories about the United
States workplace as well as improve coverage of working people, union organizing and
the workplace. Another goal of X is to increase the likelihood that a labor or workplace
story will get reported despite obstacles like geographic location, lack of attention or
resources.

In addition, the grants under X are not intended to simply cover the costs of reporting a
Story for publications that could have covered the costs themselves but are intended to
cover the costs of reporting these stories, such as travel and related expenses. Under X,
you expect to award in the range of m awards annually. Award amounts will be in range
of n dollars.

All professional journalists such as freelancers and those on staff at news organizations
are eligible to apply for X as long as they have secured a media outlet to run the story.
Additionally, you are opened to any medium.

Applicants for a grant under X must submit an electronic application and samples of
past work as well as a proposal consisting of a focused news story of no more than a
few pages. The proposal should explain how the proposal is unique, its significance,
and a timeline for completing the story. Furthermore, the proposal should
demonstrate how it fits in with the U.S workplace or labor movement, any unique
access or documents the applicant has and what the potential impact of the story
may be. The applicant should also provide preliminary findings and documentation to
demonstrate that the story is solid. Furthermore, the applicant must provide which
media outlet is lined up to run the story, including the name and contact information
for the editor.

Applications will be reviewed and evaluated by a Selection Committee consisting of your
Executive Director and at least one highly qualified journalist or editor (or similar
professional) as well as may include one or more of your Directors. Although your
Executive Director will always be on the Selection Committee, your Executive Director
and officers will periodically replace the journalists or editors (or similar professionals) on
the committee, to allow more diverse perspectives.

The criteria used by the Selection Committee in selecting the recipients of X are whether
an applicant has an outlet already attached, whether the applicant has a proven track
record, whether the story would likely be written without your support (your goal being to
support under-covered stories about labor issues), and whether the story, the applicant
intends to work on fits within the your guidelines and charitable purposes. Strong
preference will be given to facilitating stories that otherwise would not get written.

You do not discriminate on the basis of race, religion, creed, color, sex, age, physical or
mental disabilities, sexual orientation, or national origin. All grants will be awarded on an
objective and nondiscriminatory basis. No grants will be made to any disqualified person
with respect to you, nor to any individual who participates in the selection of grant
recipients or who is related to any such individual.

You will send a letter to each recipient explaining with the terms and conditions of the
grant. You will require the recipient to accept these terms in writing. Concerning renewal,
for each case it will be stipulated that a renewal of the grant for any succeeding period
will be contingent upon evidence of adequate performance at the time of review.

You represent you will complete the following: (1) arrange to receive and review grantee
reports annually and upon completion of the purpose for which the grant was awarded,
(2) investigate diversion of funds from their intended purposes, (3) take all reasonable
and appropriate steps to recover the diverted funds, ensure other grant funds held by a
grantee are used for their intended purposes, and (4) 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: (1) maintain all records relating to individual grants including
information obtained to evaluate grantees, (2) identify whether a grantee is a disqualified
person, (3) establish the amount and purposes of each grant, and (4) establish that you
undertook the 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

    - 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.
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