IRS approves grants to silent-film accompanists

Plain-English summary

A private foundation proposed grants to qualified musicians who would provide live accompaniment for public presentations of restored silent films. A committee of at least three people would select musicians based on education, experience, prior performance, and recognized qualifications, without geographic, racial, national-origin, or ethnic restrictions. Recipients could receive multiple grants but had to perform for the public and submit a report within one month. The foundation committed to investigate diversions, recover misused funds, withhold further grants, screen recipients against OFAC sanctions lists, and maintain detailed records. 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 proposed procedures for grants to silent-film musicians satisfy the advance-approval rules?
• Outcome: Approved.
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), 4945(g)(3), and 4946(a); 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: 202127046
Release Date: 7/9/2021 Employer Identification Number:

Date: April 13, 2021 Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04

x dollars = Amount
y = Numbers

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 a grant making program.

The purpose of your grant making program is to award grants to qualified musicians to
accompany the live presentation of restored silent films usually by charitable
organizations, in order to promote the restored silent film’s historic, educational and
artistic value. Specifically, you wish to facilitate the presentation of restored silent films to
the public by providing grants to qualified musicians to provide musical accompaniment
as was the case when the films were originally presented. Further, the venues at which
the restored silent films will be featured with live accompaniment are educational
establishments, and include, inter alia, universities and secondary schools, as well as
various silent film festivals, both domestic and international, and museums. The amount
of each grant will vary depending on each grantee’s qualifications and previous
achievements. Based on research and due diligence, you have determined a grant of
approximately x dollars per live accompaniment to be reasonable and appropriate.
Furthermore, this amount is likely under the market rate for many qualified musicians.
Additionally, the number of grants made annually will vary based and likely be in the
range of y grants per year.

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To promote the program, word of mouth, publicity on the internet, and oral
communications with community groups of musicians, silent film restorationists, and
silent film archivists will be employed to locate potential applicants. Furthermore, the
charitable organization responsible for the restoration of the silent film may initially
undertake promotion of the grant.

To apply for the grant, interested musicians must apply directly to the Selection
Committee and provide their qualifications. There is no specific application. For example,
a potential grantee may provide a written resume detailing their educational
accomplishments and relevant experience. Potential grantees may also wish to submit
recordings and/or materials regarding past performances and their unique qualifications.
In a number of cases, the Selection Committee will have heard prior performances by the
musician and so, be personally familiar with their talents and abilities.

All materials for potential grantees will be reviewed by the Selection Committee, which
will at all times consist of at least three members. You will determine Selection
Committee membership based on some or all of the following criteria: (1) educational
accomplishments; (2) previous experience within the community of musicians, silent film
restorationists, and/or silent film archivists; and (3) recognition of unique qualifications
relating to musicians, silent film restorationists, and silent film archivists. In addition, the
members of the Selection Committee will likely consist of:

• Your representative such as a director or an officer;

• A representative of the charitable organization responsible for the restoration of
  the restored silent film for which live accompaniment is sought;

• A representative of a recognized association of silent film specialists, and/or a
  representative of the venue at which the restored silent film(s) will be shown with
  live accompaniment; and

• An independent individual uniquely qualified to assess whether the musicians
  considered are qualified to carry out the charitable purpose that the grants aim to
  achieve.

Further, at no time will there be more than one “Disqualified Person,” as the term is
defined under Section 4946(a), serving on the Selection Committee.

Members of the Selection Committee will review the materials provided by the potential
grantee. Specifically, the Selection Committee will evaluate and consider the
qualifications of each potential grantee based solely on their ability to perform and
enhance and enrich the historical importance of the restored silent films. For example,
the Selection Committee may review a potential grantee’s resume, past performances,
personal website, etc. The Selection Committee may also interview the applicants to
determine their fitness and qualifications to perform and enrich the historical and artistic
importance of the restored silent film.

Letter 4779 (10-2012)
Catalog Number 58222Y

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The Selection Committee will then select individual grantees based on the following
specific criteria: (1) educational accomplishments; (2) previous positions held
(compositions, recorded accompaniment in silent films, public acclaim, etc.); (3) previous
experience providing live accompaniment to silent films or significant experience with a
unique instrument especially suited for silent films; and (4) recognition of unique
qualifications within the musical and silent film community. In no way is eligibility to
receive a grant based on discrimination or limited to a specific geographic location, or
race, color, national origin, or ethnic group.

Following the Selection Committee’s initial selection of a grantee, the same grantee may
be selected to receive additional grants. There is no requirement or condition that you
impose on recipients obtaining multiple grants, other than the requirement that the
grantee must perform live accompaniment of restored silent films where such
accompaniment promotes the restored silent film’s historic, educational and/or artistic
value. Due to the uniqueness of the grant program, it is likely that one or more musicians
will qualify for multiple grants to accompany the same restored silent film at multiple
venues.

As a condition of receiving the grant, each recipient must provide to you a report
regarding the performance to which the grant is related. The report is due no more than
one month following the performance to which the grant related.

If you discover that the recipient failed to provide live accompaniment of a restored silent
film where such accompaniment promotes the restored silent film’s historic, educational
and/or artistic value, or that the performance was limited to a select group of individuals
rather than the public at large, then you will take all reasonable and appropriate steps
(including legal action in some circumstances) to recover the amount of the grant. If this
action occurs, then such grantee will be ineligible to receive future grants unless you
receive adequate assurances that no future violations will occur. These assurances must
be well documented and will be thoroughly reviewed by you.

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, (3) take all
reasonable and appropriate steps to recover the diverted funds, ensure other grant funds
held by the 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 the grants described above.

Letter 4779 (10-2012)
Catalog Number 58222Y

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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 license and registration 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.

• 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

Letter 4779 (10-2012)
Catalog Number 58222Y

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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