Foundation's music education grants receive advance approval

Plain-English summary

A private foundation expanded its music grant program to pay for private lessons, workshops, and short summer programs for talented middle and high school students with financial need. Independent judges would evaluate finances, application materials, recommendations, and recorded performances, while committee members and their relatives could not receive awards. Payments would go directly to teachers or institutions, recipients would submit progress reports, and the foundation would monitor and recover misused funds. The IRS approved the procedures under IRC § 4945(g)(3). Grants made under the approved procedures would not be taxable expenditures.

Ruling snapshot

• Question: Did the foundation's procedures for music education grants qualify for advance approval?
• Outcome: Approved
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), and 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
Employer Identification Number:

Release Number: 201501024
Release Date: 1/2/2015 Contact Person - ID Number:

Date: October 10, 2014

Contact Telephone:

LEGEND UIL: 4945.04-04

B= Program Name
C = Location name

w = Number

x dollars = Amount
y dollars = Amount
z= Number

Dear

You received advance approval for your grant making program in our letter dated June
30, 2011; under this program you made qualifying distributions under Section 4945(g)(1).
You are expanding your grant-making program and are now requesting advance
approval of your grant making procedures under 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 will not

be taxable.

Description of your request
Your letter indicates that you have operated B and are expanding B to include music
lessons, private workshops and/or summer programs pursuant to Section 4945(g)(3) of

the Code.

Your mission is to inspire and transform lives through innovative, music-based

programming. The purpose of your program is to award grants to middle and high school
students in the C area who demonstrate financial need, exceptional talent, and a passion
to pursue music as a career. Any student with exceptional music talent who is between z

years old and resides in the greater C area may apply for the grants.

Your grants may be applied to lessons with a private teacher, workshops or in certain
cases, short term programs of summer study. Your program does not provide for travel or
living expenses.

You will publicize your program on your website, through print and social media, on the
radio, and email blasts to your supporters as well as emails to middle and high school
music teachers throughout the greater C area.

The amounts of the awards may vary and will be determined on a case-by-case basis.
Typically the award amount will be in the range of x dollars; the total amount awarded
annually will be approximately y dollars depending on the number of students
participating. Your grants are awarded on an annual basis; recipients are allowed to
reapply the following year and compete as a first time applicant.

Applicants must submit an application available on your web site including detailed
financial information, an essay, a performance CD/DVD which is mailed to you or MP3
which is emailed to you and two letters of references concerning musical ability.

Your selection committee is comprised of w independent people who agree to judge the
entries for you. At no time will any member or relative of a member of the selection
committee be eligible for an award.

The committee will consider the applicant’s family finances, the quality of application, the
essay, and recommendation letters as well as the talent assessment which is based on
submitted recordings.

You will submit the award directly to the student's teacher, or in the case of a special
workshop or program, directly to the institution, to ensure that the funds are used for the
designated purposes. The teacher who receives the funds applies the award towards the
student's lessons or to the educational institution towards the recipient's tuition.

You will also require that all recipients report what they are learning in their lessons
and/or workshops by emailing or writing your program director on a monthly basis
throughout their course time with a private teacher or within and after their course of
study for workshops or other programs.

In addition, throughout the year, you will create opportunities for your grant recipients to
appear during your performance season, as well as feature them in your concerts as you
announce the following year’s winners.

You have an experienced Certified Public Accountant with an extensive non-profit
background who works with your program director closely to ensure that funds are used
for the purposes intended. You maintain strong internal controls that all funds disbursed
have been properly used for their designated purpose. You have procedures in place to
require that all recipients must abide by the terms and conditions of the grant and that
any recipient who violates the terms and conditions of the grant may be dismissed from
your program and will be responsible for reimbursing you for the misapplied funds.

Letter 4779 (10-2012)
Catalog Number 58222Y

You agree to continue to maintain records that include: information used to evaluate the
qualifications of potential grantees; identification of the grantees (including any
relationship of any grantee to you), the amount and purpose of each grant; and all
grantee reports and other follow-up data obtained in administering your grant-making
program.

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 may report any significant changes to your program by
completing Form 8940 and sending it 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