PLR 1224039: IRS approves a private foundation's scientific research grant program

Plain-English summary

The IRS approved a private foundation's proposed grants to individuals conducting scientific research into consciousness and related subjects. The foundation planned to select researchers based on qualifications, experience, expertise, and the merits and relevance of their proposals, while excluding disqualified persons and private benefits. It also agreed to use grant agreements, periodic and final reports, records, and recovery procedures to supervise the grants and address misuse. The IRS concluded that awards made under the proposed procedures would not be taxable expenditures under IRC § 4945(d)(3), assuming the procedures and facts did not materially change.

Ruling snapshot

• Question: Could the private foundation receive advance approval for its proposed individual research-grant procedures under IRC § 4945(g)(3)?
• Outcome: Approved
• Key authorities: IRC §§ 4945(a), (b), (d)(3), and (g)(3); Treas. Reg. § 53.4945-4(c)(1); IRC §§ 117(a), 170(c)(2)(B), and 6110

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
P.O. Box 2508
Cincinnati, OH 45201

Employer Identification Number:
Number: 201224039

Release Date: 6/15/2012
Contact Person - ID Number:

Date: March 20, 2012
Contact Telephone Number:

LEGEND
UIL: 4945.04-04

U = individual

x = dollar amount
y = dollar amount

Dear [illegible]:

We have considered your request for advance approval of your grant-making
program under section 4945(g)(3) of the Internal Revenue Code, dated August
31, 2011.

Our records indicate that you were recognized as exempt from federal income
tax under section 501(c)(3) of the Code and that you are classified as a private
foundation as defined in section 509(a).

You will award grants to individuals in furthering your purpose to catalyze, fund,
and disseminate scientific research to further the understanding of those aspects
of consciousness and related subjects, now poorly supported by the mainstream
research community.

Applicants who are eligible to apply for grants are all individuals who have
expertise in, or the aptitude to conduct research in, the field of consciousness
research. They must also have a demonstrated financial need.

Most qualified researchers operate within universities, research institutions, or
other organizations. You estimate that only a handful of individuals operating on
their own are qualified to conduct research that is consistent with your exempt
purpose. Most of these individuals are retired but may maintain a continued
interest in your area of study; namely, the field of consciousness and mind-matter
interaction and its use as an instrument of “subtle energy”.

You anticipate making one to two research grants both this and next year and
one to three grants each year thereafter. The grant amounts will range from x
dollars to y dollars per year of research. You anticipate funds will be used for
equipment and supplies necessary to conduct research.

Grant funds may not be used to compensate recipients for performing personal
services for you. No grant may be awarded to any “disqualified person”, namely,

any founder, director, officer, employee, or substantial contributor to you, nor any
family member of any such person.

2

You will advertise the grants on a website run by you and send solicitations for
applicants to universities and other research institutions. You will also ask
colleagues and associates of the selection committee members to forward
applicant solicitations to candidates who may be interested and qualified. You
expect to eventually form a scientific committee of acknowledged experts in the
field of consciousness research to solicit additional candidates for grants.

Potential recipients are required to submit (i) written research proposals
describing the purpose and significance of the proposed research, and the
specific objectives, methods, work schedules, deliverables, and expenditures
expected in the carrying out of such research; and (ii) a biographical record and
supporting material, and other evidence of the potential recipient’s qualifications
and commitment to conduct the proposed research.

The selection committee will consist of three persons and will be responsible for
identifying candidates and selecting recipients of the grants. Your president, U,
and two other individuals unrelated to U, will make up the committee. U has been
studying the nature of consciousness for the last 20 years. The two other
committee members will be required to have backgrounds and experience, such
as scientific expertise in the field of consciousness, to enable them to evaluate
and select candidates. Potential recipients will be selected only to effectuate the
exempt purpose of the grant and not to benefit particular persons.

You will select recipients based on the criteria related to the purposes of the
grant including the merits of the proposal, credentials of the potential recipient,
the relationship of the proposal to your purpose, and its priority in relation to other
demands on your funds.

The key criteria will be the candidate’s qualifications, experience, and expertise
in the field of consciousness research, and the candidate’s commitment to
conduct further research in this field. You will consider candidates who have
already published valuable research.

You will enter into a grant agreement with each recipient of funds. The
agreement must (i) specify the responsibilities of both you and the recipient, (ii)
obligate the recipient to use the grant funds only for the purposes for which the
grant is made, (iii) provide for periodic reports, at least annually, concerning the
results achieved and the use of the funds, and (iv) require a final written report
with an accounting of how grant funds were used. The agreement must also
authorize you to withhold or recover grant funds in case such funds are misused.

Grants may be renewed if, after a review of reports submitted by the researcher,
you conclude that additional research is warranted and that requirements for you
to make a grant to an individual under your procedures and the grant agreement
are satisfied.

You will obtain from the recipients progress reports, at least annually, and final
reports detailing the research conducted, any accomplishments, and the use of
funds. Your president or his designee has the responsibility to monitor the

3

progress of each individual grant, namely, to review each report submitted by the
recipient, to determine whether the grant purposes are being or have been
fulfilled, and to further investigate any matters that warrant additional scrutiny or
inquiry.

Where reports to you or other information (including failure to submit reports after
a reasonable time has elapsed from their due date) indicates that all or any part
of grant funds are not being used for the purposes of such grant, you will initiate
an investigation. While conducting the investigation, you will withhold further
payments to the extent possible until it has been determined that no part of the
grant has been used for improper purposes, and until any delinquent reports
have been submitted.

If you determine that any part of a grant has been used for improper purposes,
you will take all reasonable and appropriate steps to recover diverted grant funds
or to ensure the restoration of diverted funds and the dedication of other grant
funds held by the recipient to the purposes being financed by the grant. These
steps will include legal action unless such action would in all probability not result
in the satisfaction or execution of a judgment.

If you determine that any part of the grant has been used for improper purposes,
and the recipient has not previously diverted grant funds to any use not in
furtherance of a purpose specified in the grant, you will withhold further payments
on the particular grant until (i) you have received the recipient’s assurances that
future diversions will not occur, (ii) any delinquent reports have been submitted,
and (iii) you have required the recipient to take extraordinary precaution to
prevent future diversions from occurring.

If you determine that any part of the grant has been used for improper purposes,
and the recipient has previously diverted your grant funds, you will withhold
further payment until the three previous conditions are met and the diverted
funds are in fact recovered or restored.

If a grant recipient discontinues or is unable to proceed with a research project,
you expect to: review the status of the research and obtain any appropriate
interim reports on the research to seek assurance that the grant agreement has
otherwise been complied with, particularly as to use of grant funds; obtain any
appropriate accounting of funds used in the research; require the return of the
unused funds; in appropriate circumstances require the return of equipment and
other supplies procured by the grant funds; and in appropriate circumstances
seek another researcher to continue or complete the research, which may
include using the unused funds and making a new grant to the new researcher,
following the procedures for the grant.

Neither U, nor any member of your board of directors or selection committee,
may be in a position to derive a private benefit, directly or indirectly, if certain
potential recipients are selected over others.

You agree to maintain records that include the following:

(i) Information used to evaluate the qualification of potential grantees;

4

(ii) Identification of the grantees (including any relationship of any grantee
to the private foundation);

(iii) The amount and purpose of each grant; and

(iv) All grantee reports and other follow-up data obtained in administering
the private foundation’s grant program.

Sections 4945(a) and (b) of the Code impose certain excise taxes on “taxable
expenditures” made by a private foundation.

Section 4945(d)(3) of the Code provides that the term “taxable expenditure”
means any amount paid or incurred by a private foundation as a grant to an
individual for travel, study, or other similar purposes by such individual, unless
such grant satisfies the requirements of subsection (g).

Section 4945(g) of the Code provides that section 4945(d)(3) shall not apply to
individual grants awarded on an objective and nondiscriminatory basis pursuant
to a procedure approved in advance if it is demonstrated that:

(1) The grant constitutes a scholarship or fellowship grant which is subject
to the provisions of section 117(a) and is to be used for study at an
educational organization described in section 170(b)(1)(A)(ii);

(2) The grant constitutes a prize or award which is subject to the
provisions of section 74(b), if the recipient of such prize or award is
selected from the general public, or

(3) The purpose of the grant is to achieve a specific objective, produce a
report or similar product, or improve or enhance a literary, artistic,
musical, scientific, teaching, or other similar capacity, skill, or talent of
the grantee.

Section 53.4945-4(c)(1) of the Regulations provides that to secure approval, a
private foundation must demonstrate that:

(i) Its grant procedure includes an objective and nondiscriminatory
selection process;

(ii) Such procedure is reasonably calculated to result in performance by
grantees of the activities that the grants are intended to finance; and

(iii) The foundation plans to obtain reports to determine whether the
grantees performed activities that the grants are intended to finance.

Based on the information submitted and assuming your award programs will be
conducted as proposed with a view to provide objectivity and nondiscrimination in
making the awards, we have determined that your procedures for granting the
awards comply with the requirements contained in section 4945(g) of the Code

5

and that awards granted in accordance with such procedures will not constitute
“taxable expenditures” within the meaning of section 4945(d)(3).

This determination is conditioned on the understanding that there will be no
material change in the facts upon which it is based. It is further conditioned on
the premise that no grants will be awarded to foundation managers, or members
of the selection committee, or for a purpose that is inconsistent with the purpose
described in section 170(c)(2)(B) of the Code.

The approval of your award program procedures herein constitutes a one-time
approval of your system standards and procedures designed to result in awards
which meet the requirements of section 4945(g)(3) of the Code. This
determination only covers the grant programs described above. Thus, approval
shall apply to subsequent award programs only as long as the standards and
procedures under which they are conducted do not differ materially from those
described in your request.

Any funds you distribute to individuals must be made on a true charitable basis in
furtherance of the purposes for which you are organized. Therefore, you should
maintain adequate records and case histories so that any or all award
distributions can be substantiated upon request by the Internal Revenue Service.

This determination is directed only to the organization that requested it. Section
6110(k)(3) of the Code provides that it may not be used or cited as a precedent.

You must report any future changes in your grant making procedures. Please
keep a copy of this letter in your permanent records.

We have sent a copy of this letter to your representative as indicated in your
power of attorney.

If you have any questions, please contact the person whose name and telephone
number are shown above.

Sincerely yours,

Lois G. Lerner
Director, Exempt Organizations

Enclosures:
Notice 437
A copy of the redacted letter