Foundation's museum internship grants receive advance approval

Plain-English summary

A private operating foundation proposed an internship grant program supporting library, archival, and museum research. Interns could receive transportation reimbursements, housing allowances, or monthly stipends, and each project would produce a report or guide used in the foundation's exempt work. Staff would select recipients using objective criteria, exclude related and disqualified persons, monitor progress, and investigate misuse of 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 educational internship grants qualify for advance approval under IRC § 4945(g)(3)?
• 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:

Date: 10/16/14
Contact person - ID number:

Number: 201502018 Contact telephone number:
Release Date: 1/9/2015

LEGEND UIL: 4945.04-04

U= Name

V= Name

X= City

Y= Region Name

b dollars = Amount

c = Quantity

d = Number

e = Number

f = Number

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 won't be
taxable.

Description of your request

Your letter indicates you will operate a grant program for internships called U. U’s
purpose is to further charitable and educational purposes by supporting library, archival
and museum research and promoting the study of local and regional culture of Y and to
improve and enhance the interns’ education in library, archival, and museum sciences.
You own and preserve V consisting of materials and historical buildings concerning the
history and culture of X and make this material available for interns. These resources will
play a central role in U. Interns will also be encouraged to explore other research and
educational facilities in the greater X area. Your internships will be publicized on your
website and in your magazine, both of which reach a national and international audience.

You expect about c internship applications annually and plan to award in the range of d
internship awards; several of your internships will not result in the payment of any funds
(voluntary service interns). Other internship awards will provide reimbursement for
streetcar, bus fare and/or parking. Internships available to students residing outside the X
metropolitan area may be provided a housing allowance. Also, stipends may be paid to
interns not exceeding b dollars per month for a maximum of e months, provided that the
intern is making satisfactory progress toward completion of the project. Each grant to an
intern will be awarded on an objective and nondiscriminatory basis. Each grant will result
in a tangible report and/or guide that you will use in furthering your exempt functions.

Grantee class – Each program is open to American and international undergraduate and
advance degree candidates from accredited universities, colleges and academic
institutions for whom service as an intern is a graduation requirement within a discipline
related to your mission.

Selection criteria -The selection criteria for the internships will include, but not be limited
to, the ability of you to benefit from the intern’s qualifications and skills coupled with a
project to which you can match such skills. Your committee will further consider which
candidate is more qualified in background and ability such as fluency in a foreign
language when cataloguing non-English collections or training in website development
when assisting with your web initiatives. In addition, your committee will consider whether
the applicant can complete the project in the period of time designated by the applicant's
degree program and which applicants will provide the most substantive potential for
benefit to the recipient as well as you. A recipient cannot be related to a member of the
selection committee or to any “disqualified persons” in relation to you.

Selection committee - The selection committee will be comprised of your staff members,
including the staff member in charge of your program, appropriate department heads, a
supervising staff member with whom the intern will have direct daily contact, and any
other appropriate staff members. Members of the selection committee will not consist of
members of your board of directors. Also, members of the selection committee will not be
in a position to receive any private benefit, directly or indirectly, if certain potential interns
are selected over others.

Progress reports - For internships lasting f months or less, there will be one formal
evaluation at the conclusion of the project. For internships lasting longer than f months,
there will be a mid-point progress report as well as a final evaluation. Progress reports
will be obtained and verified by you on a monthly basis. Interns who receive any funds
from you (reimbursement for streetcar, bus fare and/or parking, housing allowance and
monthly stipends) will be required to submit a report and/or guide upon completion of the
internship.

Report follow-up - If no report is filed by an intern, or if reports indicate that the funds are
not being used in furtherance of internship purposes, a member of your board of directors
will investigate the grant. While conducting this investigation, you will withhold future
payments to the intern and will take reasonable steps to recover grant funds until it has
determined that the funds are being used for their intended exempt purposes.

Recordkeeping - You will retain all records submitted by interns in accordance with your
records retention management policy. You will obtain and maintain in your files evidence
that no recipient is related to you or to any members of the selection committee.

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:

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.

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