IRS approves dance training grants

Plain-English summary

A private operating foundation asked the IRS to approve grants that help performance artists attend skills-enhancing dance programs. A selection committee evaluates applicants based on factors including talent, skill, work ethic, motivation, potential, character, and financial need or hardship. Grants are paid directly to recipients, are not renewable, and require a final report on the recipient's development and use of funds. The IRS approved the procedures under IRC § 4945(g)(3), so grants made under the approved procedures will not be taxable expenditures. The approval depends on continued monitoring, recordkeeping, and recovery efforts if funds are diverted.

Ruling snapshot

• Question: Do the foundation's dance training grant procedures satisfy IRC § 4945(g)(3)?
• Outcome: Approved.
• Key authorities: IRC §§ 74, 117, 170, 4945(g)(3), 4946; Treas. Reg. § 53.4945-4(c)(1).

Full text (IRS public release)

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

Release Number: 201445021
Release Date: 11/7/2014 Employer Identification Number:
Date: August 11, 2014

Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04

W= Name

X = Name

Y = Place

b = Quantity

c dollars = Amount
d= Amount

Dear :

You asked for advance approval of your educational grant procedures under Internal
Revenue Code section 4945(g)(3). This approval is required because you are a private
operating foundation that is exempt from federal income tax.

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 Code
section 4945(g)(3). As a result, expenditures you make under these procedures will not
be taxable.

Description of your request

Your letter indicates that you will operate W. The purpose of W is to improve the skills
and talents of certain performance artists. In particular, grant recipients will receive funds
to defray the cost of attending a skills-enhancing dance program such as a summer
dance training course at a ballet or dance school or company.

Each year the number of grants will depend on your financial resources and you
anticipate awarding roughly b grants annually totaling c dollars. The amount of each grant
will be based upon the cost of the particular skills-enhancing dance program the recipient

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wishes to attend, as well as the recipient’s overall talent, skill, work ethic, potential, and
financial need. Your board of trustees shall determine the number of fellowships to be
provided each year. You estimate the number of those eligible to apply for a grant is in
the range of d.

Eligible grant recipients primarily include individuals who, at the time of the grant, are
dancers for X which you operate located in Y. Applicants who are disqualified persons
within the meaning of Internal Revenue Code section 4946 or who are related to a
selection committee member are not eligible to receive grants.

Applicants must complete a detailed application; applicants are required to provide
biographical data including details of their education, dance history, and financial need or
hardship as it relates to the grant as well as reasons why they are applying for the grant
and qualifications as well as a description of any special talents, skills, interests, and
work ethic as they apply to the grant.

Your board of directors appoints the selection committee and will consist of individuals
with an interest in dance or your operations. Your board of directors also has the right to
remove and replace any member of the selection committee. Currently your selection
committee consists of your directors.

Your selection committee will publicize the grant program to potential applicants at X and
receive, acknowledge, and process all grant applications. The selection committee will
review the applicant's certification that he or she is not related to any director, officer,
employee, or selection committee member and evaluates each applicant based on the
information supplied on the application. If an application is substantially incomplete, your
selection committee may choose, in its discretion, notto consider the application or
request the missing information from the applicant.

Recipients are selected on the basis of skill, work ethic, motivation, potential, talent,
ability, character, aptitude and, in appropriate cases financial need or hardship. The
committee does not apply any point system and does not weigh any particular factor
more heavily than others but considers each application as whole and ranks the
applicants in accordance with your committee’s evaluations. The committee awards the
grants to the applicants based on the ranking and if a selected applicant does not accept
the grant for any reason, the committee awards the grant to the next ranked applicant.
The selection committee will take into consideration the amount of funds available for
distribution as determined by your board and, will make the final determination of the
number of grant recipients and the amount of each grant. Applicants will be
considered without regard to age, race, color, religion, gender, national origin, sexual
orientation, or physical disability and all grants will be awarded on an objective and
nondiscriminatory basis. All grants are in the form of absolute grants payable directly to
the recipient. Furthermore, your grants will not be renewable, but recipients may reapply
to your grant program each year that they meet the eligibility requirements. Upon
completion of W, grant recipients are required to provide you a report describing the
progress of their development and an accounting for the use of the grant funds.

Letter 4779 (10-2012)
Catalog Number 58222Y

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Your selection committee shall have the responsibility to notify recipients for awards and
non-recipients, confirm enrollment of recipients at an approved program, (1) keep
permanent records of the meetings and actions of their meetings, (2) account for all
funds, (3) disburse the funds on behalf of you, (4) receive and review progress and final
reports received from recipients on their progress and use of grant funds, (5) investigate
any diversions of funds from their intended purpose, and (6) take all reasonable and
appropriate steps to recover diverted funds, if any.

Basis for our determination

The law imposes certain excise taxes on the taxable expenditures of private foundations
(Code section 4945). 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 of the following requirements of Code section 4945(g) is not a taxable
expenditure.

• The foundation awards the grant 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 section 117(a) and is to be used for
  study at an educational organization described in section 170(b)(1)(A)(ii); or

• A prize or award subject to the provisions of 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 Regulations 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 covers only 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 precedent.

Letter 4779 (10-2012)
Catalog Number 58222Y

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• You cannot rely on the conclusions in this letter if the facts you provided have
changed substantially. You may report any significant changes to your program by
completing Form 8940 and sending it to the Cincinnati Office of Exempt
Organizations at:

Internal Revenue Service

Exempt Organizations Determinations
P.O. Box 2508

Cincinnati, OH 45201

• You cannot make 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 must
further the purposes of your organization. You cannot award grants for a purpose
that is inconsistent with Code 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’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 any questions, please contact the person listed at the top of this letter.

Sincerely,

Director, Exempt Organizations

Letter 4779 (10-2012)
Catalog Number 58222Y