Large endowment grant qualifies as an unusual grant

Plain-English summary

A publicly supported charity expected a large grant from an unrelated private foundation to create an endowment supporting fellowships for emerging scholars researching financial history. The donor had not previously provided substantial support, helped form the charity, held authority over it, or exercised control. The charity had met the one-third public-support test without excluding unusual grants, actively solicited public contributions, and expected continued public support. The grant furthered the charity's exempt purposes and carried no material donor restrictions. The IRS concluded that the contribution was unusual in size and could be excluded from the public-support calculation under the unusual-grant rules.

Ruling snapshot

• Question: Could the charity exclude the proposed large endowment contribution as an unusual grant when measuring public support?
• Outcome: approved
• Key authorities: Treas. Reg. §§ 1.170A-9(f)(6)(ii), 1.509(a)-3(c)(4), and 1.507-2(a)(7); IRC § 4946

Full text (IRS public release)

Department of the Treasury                                             Date:
Internal Revenue Service                                              09/07/2022
Tax Exempt and Government Entities                                    Employer ID number:
PO BOX 2508
CINCINNATI, OH 45201                                                   Person to contact:

Number: 202248017
Release Date: 12/2/2022

LEGEND                                                                 UIL: 509.02-01

B = Name
C = Year
D = Year
r dollars = Amount
s dollars = Amount
t dollars = Amounts
u percent = Numbers

Dear          :

We have considered your October 19, 2021 request for recognition of an unusual grant under Treasury
Regulation Section 1.170A-9(f)(6)(ii) and related provisions.

Based on the information provided, we concluded that the proposed grant constitutes an unusual grant under
Treas. Reg. Section 1.170A-9(f)(6)(ii) and related provisions of the regulations. The basis for our conclusion
is discussed below.

Facts:
You are tax exempt under Internal Revenue Code (IRC) Section 501(c)(3). You're currently classified as a
public charity described in Sections 509(a)(1) and 170(b)(1)(A)(vi). You will receive a grant from B, which is
an unrelated private foundation exempt under IRC Section 501(c)(3) for r dollars. B has agreed to pay you s
dollars upon the endorsement of the grant agreement with the remaining portion to be paid within the year of
the agreement. However, upon receipt of the grant from B, your status as a publicly supported organization will
be jeopardized.

B has not provided funds to you prior to this grant. B was not involved in your formation, nor have you ever had
a relationship with B. B also does not directly or indirectly exercise any control over you. You will have
ultimate responsibility for the proper management and administration of the funds from the grant and plan to
use the funds to create an endowment to support fellowships for the purpose of encouraging emerging scholars
to pursue research on topics related to financial history.

You have averaged in the range of t dollars in annual revenues for the years C through D. Your public support
has been in the range of u percent for the past four years. You have met the one-third support test described in
Treas. Reg. Section 1.509(a)-3(a)(2) without the benefit of any exclusions of unusual grants pursuant to Treas.
Reg. Section 1.509-3(c)(3). In addition, you are actively soliciting contributions from the general public and
reasonably expect to attract a significant amount of public support after the particular grant is received.


Law:
Two sections of the Treasury Regulations set forth the criteria for an unusual grant. They are:
Treasury Regulation Section 1.170A-9(f)(6)(ii)
This section states that, for purposes of applying the      limitation to determine whether the         of-support
test is satisfied or the      support limitation is met, one or more contributions may be excluded from both the
numerator and the denominator of the applicable percent-of-support fraction. The exclusion is generally intended
to apply to substantial contributions or bequests from disinterested parties which:
  • are attracted by reason of the publicly supported nature of the organization;
  • are unusual or unexpected with respect to the amount thereof; and
  • would, by reason of their size, adversely affect the status of the organization as normally being publicly
     supported.
Treasury Regulation Section 1.509(a)-3(c)(4)
This section states that all pertinent facts and circumstances will be taken into consideration to determine
whether a particular contribution may be excluded. No single factor will necessarily be determinative. Such
factors may include:
  • Whether the contribution was made by a person who;
     a. created the organization;
     b. previously contributed a substantial part of its support or endowment;
     c. stood in a position of authority with respect to the organization, such as a foundation manager within
        the meaning of Internal Revenue Code (IRC) Section 4946(b);
     d. directly or indirectly exercised control over the organization, or;
     e. was in a relationship described in IRC Section 4946(a)(1)(C) through 4946(a)(1) (G) with someone
        listed in bullets a, b, c, or d above.
A contribution made by a person described in bullets a through e is ordinarily given less favorable consideration
than a contribution made by others not described above.
  • Whether the contribution was a bequest or an inter vivos transfer. A bequest will ordinarily be given more
    favorable consideration than an inter vivos transfer.
  • Whether the contribution was in the form of cash, readily marketable securities, or assets which further the
    exempt purposes of the organization, such as a gift of a painting to a museum.
  • Whether (except in the case of a new organization) prior to the receipt of the particular contribution, the
    organization (a) has carried on an actual program of public solicitation and exempt activities and
    (b) has been able to attract a significant amount of public support.
  • Whether the organization may reasonably be expected to attract a significant amount of public support after
    the particular contribution. Continued reliance on unusual grants to fund an organization's current operating
    expenses (as opposed to providing new endowment funds) may be evidence that the organization cannot
    reasonably be expected to attract future public support.
  • Whether, prior to the year in which the particular contribution was received, the organization met the
    one-third support test described in Treas. Reg. Section 1.509(a)-3(a)(2) without the benefit of any
    exclusions of unusual grants pursuant to Treas. Reg. Section 1.509-3(c)(3);

                                                                                        Letter 4787 (Rev. 11-2021)
                                                                                        Catalog Number 58230Y
• Whether the organization has a representative governing body as described in in Treas. Reg. Section
    1.509(a)-3(d)(3)(i); and
  • Whether material restrictions or conditions within the meaning of Treas. Reg. Section 1.507-2(a)(7) have
    been imposed by the transferor upon the transferee in connection with such transfer.
Application of Law:
Based on the information provided, the proposed grant meets the requirements of Treas. Reg. Section 1.170A-9
(f)(6)(ii) because the grant is from a disinterested party and:

 • The grant was attracted by reason of the publicly supported nature of your organization.

 • The grant is unusual or unexpected with respect to the amount.

 • The grants would by reason of their size adversely affect your organization as normally being publicly
   supported.

The grant meets the requirements of Treas. Reg. Section 1.509(a)-3(c)(4) based on the following facts and
circumstances.

• The grant is not being made by a person who created you.

 • B has not previously contributed a substantial part or endowment to you. B has not
   stood in a position of authority such as a foundation manager within the meaning of IRC Section 4946(b).

 • B does not directly or indirectly exercise control over you nor was is in a relationship
   described in IRC Section 4946(a)(1)(C) through 4946(a)(1)(G)

 • The transfer of assets will further your exempt purpose and be used to fund your programs in the future

 • You carry on a program to solicit funds to support your activities and reasonably expect to attract public
   support after this transfer

 • No material restrictions or conditions within the meaning of Treas. Reg. Section 1.507-2(a)(7) have been
   imposed by the donor
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.




                                                                                            Letter 4787 (Rev. 11-2021)
                                                                                            Catalog Number 58230Y
If you have questions, please contact the person listed at the top of this letter.
                                                           Sincerely,


                                                           Stephan A. Martin
                                                           Director, Exempt Organizations
                                                           Rulings and Agreements
Enclosures:
Redacted Letter 4787
Letter 437




                                                                                       Letter 4787 (Rev. 11-2021)
                                                                                       Catalog Number 58230Y