IRS approves community service educational grants

Plain-English summary

A private foundation proposed educational grants for faculty, staff, and undergraduate students who showed exemplary character and commitment to community service. Grants could fund educational conferences, service and leadership programming, community projects, and existing service ventures. Selection would consider extracurricular and service activities and the merits of each proposal, with financial need used only to distinguish equally qualified candidates. Recipients of renewable project grants had to submit periodic and final reports, account for funds, and return awards if they failed to comply with the program rules. The IRS approved the objective selection, reporting, recordkeeping, and follow-up procedures under Section 4945(g)(3), so grants made under them would not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's procedures for community service educational grants satisfy the advance-approval rules for grants to individuals?
• Outcome: Approved.
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), 170(c)(2)(B), 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: 202124014
Release Date: 6/18/2021 Employer Identification Number:

Date: March 23, 2021 Contact person - ID number:

Contact telephone number:

LEGEND: UIL: 4945.04-04
y dollars = amount 1
z dollars = amount 2

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. You will provide
grants to faculty, staff and/or undergraduate students at qualified educational institutions
who demonstrate a meaningful contribution to and positive impact on the community and
a commitment to service to the community. The purpose of the grants will be to recognize
and assist recipients who demonstrate exemplary personal character and a commitment
to service above self.

Your Selection Committee will consist of no less than three persons with at least one
member of the Board of Trustees on the Committee. A Board member will chair the
Committee and will recommend additional members of the Selection Committee who will
be volunteers. The criteria for membership of the Selection Committee are those who
have experience, knowledge and commitment to academic achievement.

The criteria for a grant will include extracurricular activities and commitment to service-
based activities, as well as the merits of their proposal for the use of the funds. Financial
need is not a criterion for selecting candidates. However, if you receive applications from
two or more equally qualified candidates, you may consider the financial need of each

candidate. The criteria for financial need will include considerations of financial hardship,
the candidates' estimated family contribution, and other sources of financial aid received
by the candidate.

The grants will be used to educate and support students, faculty and staff in the area of
service, leadership, community engagement and social innovation, including the cost of
their attendance for educational conferences or programming, the launch of service-
based projects designed to improve their campus and communities, and commitments to
service-related existing ventures. Such conferences or programming will be for the
purpose of enhancing or improving a particular skill or talent of the individual.

The amount of the financial assistance awarded will vary but it is anticipated that the total
award of grant will be at least y dollars and that no one annual award will exceed z
dollars. The number of grants each year will be based on several factors including the
amount of funds available, the number of eligible recipients, and the anticipated need for
future awards.

Recipients may maintain and renew grants provided to support the launch of service-
based projects by submitting periodic reports detailing the status of the project and the
measurable impact and undergoing evaluations.

Recipients of grants that are renewable will be required to provide a report at least
annually, as well as a final report describing the recipient's accomplishments under the
grant and accounting for the funds received. Recipients of grants for the attendance at
educational conferences and similar programming will be required to submit a final report
describing the benefit of his/her attendance at such conference or program, along with an
accounting for the funds received. If a recipient shall fail to apply funding within the
guidelines, fail to provide reporting, or fail to comply with any other requirements, the
amount of the financial award must be returned. Noncompliance will result in suspension
of future grants until such noncompliance is cured.

You will publicize these grants to prospective recipients by utilizing your network of
partner undergraduate institutions, through email promotions, flyers, magazine, and on
your website and social media platforms.

You will retain records pertaining to all grants awarded under this program, including, the
information obtained to evaluate the qualifications of potential grantees; identification of
grantees (including any relationship that would identify the grantee as a disqualified
person with respect to the Applicant); the amount and purpose of the grant; and follow-up
information concerning the use of grant funds as required and previously described.

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

Letter 4779 (10-2012)
Catalog Number 58222Y

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.

Letter 4779 (10-2012)
Catalog Number 58222Y

• 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