Research grant procedures approved under 4945(g)(3)

Plain-English summary

A private foundation asked the IRS to pre-approve the procedures for making research grants to individuals. Under section 4945, a private foundation's grants to individuals for study or research are "taxable expenditures" that trigger an excise tax unless the IRS approves the award procedures in advance under section 4945(g). Unlike a student scholarship (approved under 4945(g)(1)), these grants fund scientific research and are approved under 4945(g)(3), the branch that covers grants meant to achieve a specific objective or enhance a scientific skill. This foundation funds research about a particular subject; it used to grant only to universities but now also funds individual researchers, whom it finds through scientific literature, the internet, and its network of past grantees. The foundation's President makes the final picks based on the researcher's expertise and publications, and insiders' relatives are ineligible. The IRS found the procedures meet section 4945(g)(3) and Treasury Regulation 53.4945-4(c)(1), so grants made under them are not taxable expenditures as long as the program runs as described.

Ruling snapshot

• Question: Do the foundation's individual research-grant procedures satisfy IRC § 4945(g)(3) so the grants are not taxable expenditures?
• Outcome: Approved
• Key authorities: IRC § 4945(g)(3); Treas. Reg. § 53.4945-4(c)(1); IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii)

Full text (IRS public release)

Internal Revenue Service

Department of the Treasury Date: 08/10/2022
Tax Exempt and Government Entities

Taxpayer ID number:

P.O. Box 2508
Cincinnati, OH 45201 Person to contact:
Name:
Number: 202244025 ID number:
Release Date: 11/4/2022 Telephone:
LEGEND UIL: 4945.04-04

B = Structure

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 grant-making program to promote research about B with the ultimate
goal of demonstrating its collective, cooperative, or behaviors.

You previously made grants directly to universities in order to fund projects or research to investigate the
properties of and devices to aid in the study of B, but you will now also provide grants directly to researchers.

The availability of your grants is publicized through the networking of individuals who have previously
received grants and through your efforts at directly contacting potential recipients.

Potential recipients are identified through your research of published scientific literature, information available
on the internet, email correspondence, telephone correspondence, and personal meetings with individuals.

Grants are awarded to individuals who can contribute to the understanding of B, especially to its
behaviors. You make your final selections based on the individual's expertise in related scientific

Letter 4792 (Rev. 1-2022)
Catalog Number 58263T

fields as demonstrated by peer-reviewed publications and access to laboratory facilities required to carry out
experiments and whose interests align with yours.

You supervise the grants by reviewing the progress reports, personal correspondence, and meetings. If the terms
of the award are violated, the grant will be terminated.

Your President is solely responsible for selecting recipients; however, they also receive input from your co-
Vice Presidents. Relatives of the members of selection committee, or of your officers, directors, or substantial
contributors are not eligible for the awards.

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
  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.

Letter 4792 (Rev. 1-2022)
Catalog Number 58263T

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

• 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'll make this determination letter available for public inspection after deleting personally identifiable
information, as required by IRC Section 6110. We've enclosed Letter 437, Notice of Intention to Disclose -
Rulings, and a copy of the letter that shows our proposed deletions.

• If you disagree with our proposed deletions, follow the instructions in the Letter 437 on how to notify us.
• If you agree with our deletions, you don't need to take any further action.

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

Enclosures:
Letter 437

Letter 4792 (Rev. 1-2022)
Catalog Number 58263T