Therapeutic-program grant procedures receive approval

Plain-English summary

A private foundation proposed grants to help families afford private therapeutic programs for children under age eighteen. Families had to show financial need, obtain acceptance from a treatment program, and commit to the family component and completion of treatment. Grants would be awarded first-come, first-served, subject to available funds and a capped percentage of treatment costs. The foundation would pay providers monthly only after receiving proof of enrollment, family participation, the family's tuition payment, and a progress report. An independent committee with relevant clinical, medical, or educational experience would review applications, and the foundation would terminate unsupported grants and seek recovery of misused funds. The IRS approved the procedures under IRC § 4945(g)(3), so expenditures made as described would not be taxable.

Ruling snapshot

• Question: Did the foundation's therapeutic-program grant procedures satisfy the advance-approval rules for avoiding taxable expenditures?
• Outcome: Approved
• Key authorities: IRC § 4945(g)(3); 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: 201451047
Release Date: 12/19/2014 Employer Identification Number:
Date: 9/25/14

Contact person - ID number:

Contact telephone number:

LEGEND:

UIL: 4945.04-04

x = Percentage
y = Percentage
z = Number of days

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
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 won't be
taxable.

Description of your request
Your letter indicates that you will operate an educational grant program.

Your purpose is to create access for families who need to place their children in private
therapeutic environments and are unable to afford the full financial commitment.

You will provide up to x percent of the necessary funds for appropriate treatment for
students who are eligible.

You will publicize via its website, directly reaching out to industry members, professional
referral sources, therapeutic programs, other organizations who assist families with
struggling youth, and through alumni families.

In order to be selected for a grant by your organization, the applicant must meet the
following requirements:

• Student must be under age eighteen;

• Family must have selected its desired treatment program and received acceptance
from such program;

• Family must have demonstrated its financial need;

• Family must commit to family component of the treatment program and program
completion by the recipient.

Once the student has met all other eligibility criteria, grants will be awarded on a first-
come, first-served basis and the number of grants awarded will be determined based on
available funds. You will award y percent of your available funds annually as grants and
the amount of each grant will be based on available funds, a family’s ability to pay, and a
maximum of x percent of the funds for treatment.

You will review individual tax returns and other relevant financial documents to determine
financial need. The review/selection committee will engage appropriate financial advisors
to assess and ensure financial need and eligibility for your educational grants.

In order to maintain the grant, the family of the grant recipient and the treatment plan are
required to provide documentation to you monthly regarding compliance with the
treatment program and the student’s continued enrollment. You will provide payment
directly to the treatment provider on a monthly basis provided the above requirements are
met:

• The student is currently enrolled in the treatment program;

• The family is engaged in treatment;

• The family is paying its portion of tuition; and

• You have received a progress report from the treatment provider.

The treatment provider is required to provide proof of discharge upon program
completion by the grant recipient. If you do not receive the required documentation, the
program and family will be notified that scholarship funds will not be released; the family
then has z days to provide the required documentation of the grant will be terminated. If
you determine that a program has misappropriated grant funds, you will not issue any
additional grants and will take legal action to recover funds that were used incorrectly.

You will use a selection committee that will screen the applications from recipients. The
criteria for selection committee membership consists of clinical, medical and or
educational experience with private-pay treatment programs and schools, a willingness to
provide service pro bono, and no current affiliation with an active treatment program that
would be eligible for scholarship from you. You have an on-going process of recruiting
members for the selection committee. Since their service is uncompensated and
voluntary, the members may serve for an indefinite time period. You will continue to
recruit members, so that their commitment to you has minimal effect on their core
business and/or practice.

The criteria for selection committee membership consists of clinical, medical and or
educational experience with private-pay treatment programs and schools, a willingness to

Letter 4779 (10-2012)
Catalog Number 58222Y

provide service pro bono, and no current affiliation with an active treatment program that
would be eligible for scholarship from you.

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.
• You cannot rely on the conclusions in this letter if the facts you provided have

changed substantially. You must report any significant changes in your program to
the Cincinnati Office of Exempt Organizations at:

Letter 4779 (10-2012)
Catalog Number 58222Y

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