Literary fellowship and retreat grants receive IRS approval

Plain-English summary

A private foundation proposed three grant programs for established and emerging writers connected with an annual literary retreat. One program would support a career author for up to three years, another would fund multiple writers for up to three years, and a third would help former recipients return to the retreat. Literary experts would nominate and review candidates, the foundation's board would approve recipients, and insiders and their relatives could not receive awards. Recipients would have attendance and reporting obligations, and the foundation committed to monitoring, recovery, recordkeeping, and sanctions-compliance procedures. The IRS approved the procedures under Section 4945(g)(3), so grants made as proposed would not be taxable expenditures.

Ruling snapshot

• Question: Did the foundation's procedures for fellowships and literary retreat awards satisfy the advance-approval requirements?
• Outcome: Approved.
• Key authorities: IRC § 4945(g)(3); 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

Number: 202119009
Release Date: 5/14/2021 Employer Identification Number:

Date: February 17, 2021 Contact person - ID number:

                                             Contact telephone number:

LEGEND UIL: 4945.04-04

B = Name
C = Name
D = Name
E = Award Name
F = Award Name
G = Award Name
H = Names
j dollars = Amount
k dollars = Amount
m dollars = Amount

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 is to award grants to organizations exempt under IRC Section 501(c)(3)
and individuals to promote charitable, educational, and scientific endeavors. In the last
several years, you have launched centers that are focused on specific charitable and
educational missions. You are now launching an additional center known as B. The
2

mission of B will be to promote people, culture, history, imagination, and literature
through language, poetry, story, and dialogue. Through B, you will operate a grant
making program to make fellowships and literary awards directly to individual writers.
Specifically, through B you will award three different grants called E, F, and G. Each
recipient of a grant will be required to attend a retreat called C, which will be held
annually in D. Further, the awards are generally opened to established writers who are
citizens or residents of the countries of H. You plan to publicize your educational grant
program through your website, national press releases, limited paid advertising, and word
of mouth. The number of grants may fluctuate based upon shifting budgetary concerns or
based upon the number of invited recipients who accept or decline the grant in a given
year. Moreover, the sums for each grant are fixed amounts for the foreseeable future but
you may consider adjusting the amounts in the future based on B’s budget, but amounts
will not vary by individual. Specifically, for each year, recipients of a given award will
receive the same amount.

E will be:

 Awarded annually to one individual who will receive j dollars annually for up to
three years;
 Awarded to an individual who is a career author with a significant publication
record, has received widespread critical acclaim, and shows the promise of future
achievement.

The funds for E are intended to underwrite the costs associated with the recipients’
attendance at C as well as provide material support to them to free them from other
financial pursuits and obligations so that they can dedicate more time to their art.
Although they are required to attend C during the first year of their grant, they are not
required to attend during their second and third years, although attendance is
encouraged as it provides time and space away from the rigors of their daily life and will
allow them to improve and develop their literary capacity.

F will be:

 Awarded annually to numerous individuals who will receive k dollars annually for
  up to three years;
 Awarded to established writers who have notable publication records and
  significant critical reputations; or,
 Awarded to emerging writers who demonstrate great promise for future
  accomplishments.

The funds awarded for F are intended to offset the costs associated with attending C as
well as offset lost income due to their attendance. In addition, although the years of
funding do not need to be consecutive, recipients must attend C and provide a report by
the end of your fiscal year that the grant is paid along with details explaining their literary
activities for the year as well as their artistic takeaways from C in order to continue to
receive funding for any remaining years of the grant.

                                                                      Letter 4779 (10-2012)
                                                                      Catalog Number 58222Y
                                          3

For both E and F, candidates are nominated by the Director of B from members of the
general public without any action or application on their part in order to be considered for
the grant. After candidates are nominated, their information is forwarded to the
Nominating Committee for review. The Nominating Committee is currently comprised of
volunteers who are literary experts with careers as published authors, literary editors,
literary academics, or administrators of literary nonprofits. In the future, your current
Nominating Committee members will be replaced by former recipients of E and F on a
volunteer basis by invitation from your Board of Directors.

The Nominating Committee, after deliberating over the potential candidates, forwards a
list of finalists and alternates to your Board of Directors who review the list for final
approval of all grant awards. All recipients are selected based on their publication
records, critical acclaim from established literary critics, and the promise of future
accomplishment as demonstrated by academic performance, strong recommendations
by an established author or editor, limited but promising publications in well-regarded
literary journals, and/or conclusions the Nominating Committee may draw based upon
personal interviews and/or review of the potential recipient’s work. No members or
relatives of members of the Nominating Committee or your officers, directors, or
substantial contributors are eligible to receive any awards under your educational grant
program.

G will be:

 Awarded annually to prior F recipients who have already completed their three
years of funding for F;
 Awarded to each recipient for m dollars to help offset the costs associated with
attending C.

Individuals who qualify for G do not have to apply, but can only request the award in a
year they plan to attend C and must complete a report by the end of the fiscal year that
the grant is awarded detailing their artistic takeaways from C in order to qualify to receive
the grant in the future.

You represent that 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, and (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 maintain case histories and document recipients of grants,
including names, addresses, amount of grants, purpose of grants, manner of selection,
and proof that recipients were not related to officers, trustees, or donors.

                                                                    Letter 4779 (10-2012)
                                                                    Catalog Number 58222Y
                                          4

Concerning your program, you will check the OFAC List of Specially Designated
Nationals and Blocked Persons for names of individuals and entities with whom you are
dealing to determine if they are included on the list. You will comply with all statutes,
executive orders, and regulations that restrict or prohibit persons from engaging in
transactions and dealings with designated countries, entities, or individuals, or otherwise
engaging in activities in violation of economic sanctions administered by OFAC. You will
acquire from OFAC the appropriate licenses and registrations where necessary.

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.

                                                                   Letter 4779 (10-2012)
                                                                   Catalog Number 58222Y
                                          5

 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.

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