IRS approves a private foundation's grant procedures for young professional equestrians

Plain-English summary

A private foundation asked the IRS to approve, in advance, how it plans to award
grants to individual athletes. Private foundations normally owe an excise tax on
grants to individuals for study or similar purposes unless the IRS approves the
selection procedures first (IRC Section 4945(g)). This foundation runs a program
that gives one grant per year to an actively competing young professional
equestrian in a particular area, to help cover lessons, clinics, competition fees,
and related travel as the athlete builds an early career. Applicants must meet
objective criteria (age, membership in good standing with the sport's governing
body, U.S. residency, demonstrated financial need), and relatives of the
foundation's insiders are barred. The IRS found the procedures objective and
nondiscriminatory and approved them, so grants made under them will not be taxable
expenditures.

Ruling snapshot

• Question: Do the foundation's grant procedures for young professional equestrians meet the advance-approval requirements of IRC Section 4945(g)(3)?
• Outcome: Approved
• Key authorities: IRC § 4945(g)(3); IRC §§ 117(a), 170(b)(1)(A)(ii), 74(b); Treas. Reg. § 53.4945-4(c)(1)

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
P.O. Box 2508
Cincinnati, OH 45201

Date: 06/20/2023

Taxpayer ID number:

Person to contact:
Name:
ID number:
Telephone:

Number: 202337010
Release Date: 9/15/2023
UIL: 4945.04-04

LEGEND
B = City and State
C = Number
D = Number
E = Name
f dollars = $

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 program in B to provide individual grants to actively competing equestrians between the ages of C. The purpose of your program is to foster, support, and develop B's young professional equestrians as they establish the early stages of their career.

You will award one grant of between f dollars annually. The amount of the grant will be determined prior to the opening of the grant cycle each year and will be based on annual contributions and the earnings of the endowment fund.

You will publicize your grant program on your website and social media. You will submit a press release to local and regional news outlets and to national equestrian media publications. Your estimated pool of eligible applicants is between D annually.

To be eligible for a grant, the applicant must:

• Be an actively competing equestrian between the ages of C by January 31st of the application year
• Be a professional member in good standing with their respective national governing body of equestrian sport
• Be a U.S. citizen or legal resident
• Demonstrate financial need based on the applicant's (not parents') current income sources and prior two-year sources
• Reside in B for a minimum of months per year
• Showcase, through their application and letters of recommendation, a dedication to their equestrian sport
• Convey a sensible budget plan if awarded grant funds
• Possess strong moral fiber and outstanding character as evidenced by their letters of recommendation
• Use funds to pay for lessons, clinics, competition fees, and travel expenses to and from lessons, clinics, or competitions

Grant recipients must maintain an active professional membership, in good standing, with their respective national governing body of equestrian sport, provide quarterly budget and progress reports to the committee.

Your grants are not renewable.

Your selection committee will be asked to review each application on an objective and non-discriminatory basis. Names and personal information not pertinent to the qualities of the applicant will be removed from the application to ensure the integrity of the process and objectivity of the committee. No member of the immediate family or a relative of any of your officers, directors, substantial contributors, or selection committee members shall be eligible for a grant.

The selection committee is comprised of a cross section of equestrian industry professionals, a member of E's family, members of your staff and board of directors. Members will serve three-year terms, with an option to serve an additional term. Members of the selection committee will nominate new committee members one year prior to their term expiration. The committee will continue to represent a cross section of experience and a mix of professionals and amateurs in their respective equestrian industry.

Following the award of grant funds, recipients have one calendar year in which to utilize allocated funds. At the conclusion of the calendar year, recipients must submit to you, a detailed budget, including receipts and proof of payment within 90 days.

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.

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
• 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.

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

Enclosures:
Letter 437

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