Foundation's educational research grant procedures approved

Plain-English summary

A private foundation proposed grants to individuals who would study issues affecting young people in a community and produce reports recommending possible solutions. The foundation planned public outreach, eligibility screening, a community-based selection committee, interviews, installment payments tied to progress, and final reports. It also promised to monitor grantee reports, investigate and recover diverted funds, withhold later payments when needed, and maintain detailed records. The IRS approved the procedures under section 4945(g)(3), finding that the selection and supervision standards met the advance-approval requirements. Grants made under the approved procedures will not be taxable expenditures, assuming the foundation operates the program as described. The approval applies only to this program and materially similar successors, and excludes grants to foundation insiders, selection committee members, and their relatives.

Ruling snapshot

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

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service                                      Date: 07/24/2023
Tax Exempt and Government Entities
IRS P.O. Box 2508                                             Taxpayer ID number:
Cincinnati, OH 45201
                                                              Person to contact:
                                                              Name:
Release Number: 202342019                                     ID number:
Release Date: 10/20/2023                                      Telephone:

LEGEND                                                        UIL: 4945.04-04

W = Program
X = Location
Y = County 1
Z = County 2
b grants = Number of Grants
c dollars = Maximum Grant Amount
d dollars = Grant Amount

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 an educational grant program named the W. The purpose of the grant is to
find solutions and recommend solutions for the youth of X. The contents of the report may be made available to
community partners for potential implementation.

You plan on awarding between b grants annually. The grant amounts are for up to c dollars to individuals to
study an issue or issue(s) affecting the young people of X. The program will be publicized through advertising,
social media, website, and target the youth of X.

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

Once applications are received from the those interested in applying for the grant award, they are reviewed by
your staff for eligibility, prior work and commitment to youth, and application completion. Applications are then
submitted to the selection committee for review. The selection committee or a subset of the committee will
evaluate the proposals that are most likely to positively impact the conditions for the young people of X. The
committee will invite the finalist for an in-person interview and presentation and will make a recommendation for
awarding grant(s) to the President and Board of Trustees.

Eligibility criteria includes:

• People ages will be eligible.

• High school graduates from a high school located in X

• Residents of X who have done work to support young residents of the city, or
educators that work in X.

• Non-profit leaders that work with young people in X.

• Nominee must not hold elective office, or advanced positions in government. Your employees are not
eligible.

The selection committee will be comprised of your staff, non-profit, for-profit and community leaders working
with or committed to supporting young people in X. The selection committee will make recommendations to
your President or Trustees. Your president will have final approval for grants up to d dollars. Your trustees will
have final approval for all grants over d dollars.

Selection criteria used to select recipients will be:
• Demonstrating commitment and/or previous work to support the young people of X.
• Quality of the proposal received.
• Final candidates will be interviewed by the members of the selection committee.

Each award will be paid out in no more than four installments directly to the individual. The progress of the
study will be determined by a report or meeting with a Foundation Program team member. The next installment
will be approved for satisfactory progress.

Recipients must maintain residency within X, Y, or Z. Students attending a college or university are exempt
from the residency requirement during the academic school year.

Although the awards are planned to be a one-time award, if the study requires additional funding to complete
the work, approval of the board of trustees will be required. The Foundation will require a final report from the
grant recipient for the benefit of documenting the proposed solutions for improving the lives of X young people.
The report may be shared with community partners who may choose to implement some of the
recommendations or findings documented in the final report.

Letter 4792 (Rev. 1-2022)

Catalog Number 58263T

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.

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

• 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.
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