IRS grants advance approval of a private foundation's procedures for awarding medical research grants

Plain-English summary

A private foundation that wants to make grants to individuals for study or research normally risks an excise tax on those grants unless the IRS approves its grant-making procedures in advance. This foundation runs a research grant program funding work on the prevention, treatment, and cure of a disease, with recipients selected on the basis of their proposal, credentials, and the need for the research. The IRS reviewed the procedures and determined they meet the objective-and-nondiscriminatory standard of IRC § 4945(g)(3) and Treasury Regulation § 53.4945-4(c)(1). As a result, grants made under these procedures will not be treated as taxable expenditures. The approval applies only to this foundation and only so long as it follows the procedures described and its facts do not materially change.

Ruling snapshot

• Question: Do the foundation's procedures for awarding individual research grants qualify for advance approval under IRC § 4945(g)(3)?
• Outcome: Approved
• Key authorities: IRC § 4945(d)(3), (g)(3); Treas. Reg. § 53.4945-4(c)(1)

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities

IRS P.O. Box 2508
Cincinnati, OH 45201

Date: 2/8/2022

Number: 202218029 Taxpayer ID number:
Release Date: 5/6/2022

Person to contact:
Name:
ID number:
Telephone:

Legend:
X = more defined area of research
Y = most defined area of research
Z = broad area of research

UIL: 4945.04-04

Dear

You asked for advance approval of your educational grant procedures under Internal Revenue Code (IRC) Section
4945(g)(3).

This approval is required because IRC Section 4945 provides for the imposition of taxes on each taxable
expenditure of a private foundation. IRC Section 4945(d)(3) provides that the term "taxable expenditure"
includes any amount paid or incurred by a private foundation as a grant to an individual for travel, study, or
similar purposes by the individual, unless the grant satisfies the advance approval requirement of IRC Section
4945(g).

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 IRC Section 4945(g)(3). As a result, expenditures you make under
these procedures won't be taxable.

Description of your request

Your letter indicates you will operate a Research Grant program to fund research on the prevention, treatment,
and cure of X. You intend to focus on advancement of science and the fight against X, by supporting research
relating to health and medicine. You anticipate that you will identify a Y focus area or areas each year for the
grants program. You will publicize the grant program via direct outreach, meetings, newsletter/outreach
materials, and word of mouth.

Letter 4792 (Rev. 4-2021)
Catalog Number 58263T

Scholars, professionals, academics, and scientists will be eligible for Research Grants under the grant program.
Each grant candidate applying for a Research Grant must provide a detailed description of the research, the
rationale for the research, the critical need for the research, and a budget.

Selection criteria for Research Grants will include consideration of the following factors:

• An evaluation of the area of Z research and the need for such research;
• A determination of the potential impact of the research;
• A determination that the grant falls into one of the areas of focus of the Foundation; and
• The applicant's credentials, including degrees, experience, publications, references, and affiliations with
  other research organizations or institutions.

The number of grant recipients selected, and the amount awarded to each recipient will be determined by the
Board based on the number of qualified candidates, the resources and time needed for each project, and your
budget for the grant program.

You may consider grants of any duration and will evaluate the nature of the proposed objectives within the
context of the proposed project time frame for the Research Grants. Each Research Grant is for a single research
project. Any renewal grants will be contingent upon the grant recipient meeting the applicable requirements.

Grants will be awarded based on the specific detail of the proposed project, its relevance to your exempt
purposes and the purposes of the grants program, and the applicant's prior experience and contributions to the
scientific research field.

Eligible individuals will submit their information directly to you. Grant recipient review and selection may be a
multi-step process depending on the purpose of the grants. The Board may directly review grant recipient
proposals and select the grant recipients based on its review or delegate the initial selection process to a selection
body of qualified individuals or qualified Foundation staff. External experts, in areas including those of science
and medicine, may be called upon to review and select finalists. Although not required in all cases, following the
initial review process, individuals may be interviewed or asked to submit additional information.

All grants will be subject to approval by the Board. Grant recipients may not be related to any member of the
Board or any selection committee. Grant recipients may not be "disqualified persons" with respect to you within
the meaning of Code Section 4946. Grant recipients furthermore may not be related to any of your officers,
directors, or substantial contributors.

You indicated that when making grants to individuals in foreign countries, you will comply with applicable laws
for foreign grantmaking, including checking the individuals against the list of Specially Designated Nationals
issued by the Office of Foreign Assets Control.

You represent that you will complete the following:

• Arrange to receive and review grantee reports annually and upon completion of the purpose for which the
  grant was awarded,

• Investigate diversion of funds from their intended purposes,

• Take all reasonable and appropriate steps to recover the diverted funds and 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

Letter 4792 (Rev. 4-2021)
Catalog Number 58263T

occur and that grantees will take extraordinary precautions to prevent future diversion from occurring.

You also represent that you will:

• Maintain all records relating to individual grants including information obtained to evaluate grantees,
• Identify a grantee is a disqualified person,
• Establish the amount and purpose of each grant, and
• Establish that you undertook the supervision and investigation of grants described above.

Basis for our determination

IRC Section 4945 imposes excise taxes on the taxable expenditures of private foundations. 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 the following requirements of IRC Section 4945(g) is not a taxable expenditure.

• The foundation awards the grants 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 IRC Section 117(a) and is to be used for study at an educational
  organization described in IRC Section 170(b)(1)(A)(ii); or
• A prize or award subject to the provisions of IRC 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 Regulation 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 only covers 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 a precedent.

• You cannot rely on the conclusions in this letter if the facts you provided have changed substantially.

• You must report any significant changes to your program to the IRS at:

Internal Revenue Service
Exempt Organizations Determinations
TE/GE Stop 31A Team 105
P.O. Box 12192
Covington, KY 41012-0192

Letter 4792 (Rev. 4-2021)
Catalog Number 58263T

• You can't award 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 further the purposes of your
  organization. You cannot award grants for a purpose that is inconsistent with IRC 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 questions, you can contact the person shown at the top of this letter.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

cc:

Letter 4792 (Rev. 4-2021)
Catalog Number 58263T