Revised artistic research grant procedures receive approval

Plain-English summary

A private operating foundation sought advance approval for revisions to an artistic and cultural research grant program whose procedures the IRS had previously approved. The program would fund international travel and research by curators, critics, writers, producers, artists acting as curators, and other people organizing contemporary arts projects. Recipients would be chosen on an objective and nondiscriminatory basis, and insiders, disqualified persons, selection committee members, and their families would be excluded. Written grant terms, annual reports, investigations of possible diversions, recovery procedures, and four-year record retention would help ensure that funds served the approved purposes. The IRS concluded that the revised procedures satisfied IRC § 4945(g)(3), so expenditures made under them would not be taxable expenditures if the program operated as proposed.

Ruling snapshot

• Question: Did the foundation's revised procedures for artistic research grants satisfy the advance-approval requirements of IRC § 4945(g)(3)?
• Outcome: Approved
• Key authorities: IRC §§ 74, 117, 170, and 4945(g); 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

Number: 201504018 Employer Identification Number:

Release Date: 1/23/2015
Contact person - ID number:

Date: 10/29/14 Contact telephone number:

LEGEND UIL: 4945.04-04

X=Program name
b=Number
c=Number
d dollars=Amount

Dear

You have previously received approval for your grant procedures under Section
4945(g)(3) of the Internal Revenue Code in our letter dated June 9, 2004. You are
making revisions to these grant procedures and are now requesting advance approval of
the revised grant procedures. 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 that you operate an educational grant program called X.

Your purpose is to promote arts, cultural and educational programs by supporting the
creation, development, production and presentation of projects and by commissioning
new works for presentation at other cultural and educational institutions.

The purpose of X is to enable curators, critics, writers, producers of an artist’s work, an
artist acting as a curator or any individuals who are involved in organizing creative
projects relating to contemporary arts and culture to travel and pursue artistic and cultural
research around the world. The specific purpose of each grant will be to improve and
enhance an artistic or other similar capacity, skill, or talent of the grant recipient by
providing resources to expand his or her knowledge and understanding of developments
in contemporary arts and culture throughout the world. Information about X is on your
website.

Approximately b grants recipients will be selected approximately c times per year based
on the selection criteria, the number of eligible recipients, and the availability of funds for
X. The amount of each grant will be determined by your selection committee, which
consists of your directors and is currently expected to be d dollars.

Recipients will be selected from among those individuals who satisfy the following
eligibility criteria:

• The individual must be a curator, critic, writer, producer of an artist's work, an artist
  acting as a curator or otherwise involved in organizing creative projects relating to
  contemporary art and culture;

• The individual must not have an established and consistent means to specifically
  travel and conduct research in the contemporary arts; and

• The individual must demonstrate an interest in new innovative, or experimental
  projects and a desire to work with emerging or under recognized creative and
  artistic talents.

Grant recipients may be of any nationality and may be based in the United States or
abroad and will be selected from eligible individuals who:

• Either submit an on-line application through your website detailing their
  background in and possible future creative projects involving contemporary arts
  and culture; or

• Are nominated to you by any art professional.

The selection committee will select the recipients based on the individual's past, current
and future involvement and interest in creative projects relating to contemporary arts and
culture with a view toward selecting individuals from a diversity of backgrounds,
experience, ethnicity, gender, and geographical distribution. A professional staff member
of yours in consultation with members of your selection committee will conduct additional
due diligence on and request additional information from potential grant recipients as
applicable.

All grant recipients will be selected on an objective and non-discriminatory basis. No
member of the selection committee will be in a position to derive a private benefit, directly
or indirectly if potential grant recipients are selected over others. No grants will be made
to your contributors, to members of your board of directors, to your officers, to any
disqualified persons with respect to you, to any member of your selection committee or to
family members of any persons listed above or for a purpose that is inconsistent with
your charitable, literary, scientific and educational purposes.

Letter 4779 (10-2012)
Catalog Number 58222Y

The terms and conditions of each grant to an individual will be contained in a letter sent
to the grant recipient; prior to receiving the grant, the grant recipient will be required to
sign a copy of the letter and return it to you to confirm acceptance of the terms and
conditions of the grant. Terms and conditions of the grants will include:

i. A description of the specific purpose of the grant; its duration, the total amount of
the grant; and.

ii. The requirements for reports including due dates for the reports.

Payment of the grant funds will be made directly to the individual grant recipient. Grant
recipients will be required to submit a written report within one year from the grant date
detailing the use of the grant funds and the accomplishments the grant recipient made in
achieving the purposes for which the grant was awarded as well as a financial report
accounting for the funds that have been sent during that year. A professional staff
member of yours will have the responsibility to follow each individual grant recipient and
will review each report submitted by the grant recipient to make a determination as to
whether the grant’s purposes are being or have been fulfilled and to look into any
questions requiring further scrutiny or investigation.

Where the reports received by you or other information (including the failure of a recipient
to submit reports after a reasonable time has elapsed since their due date) indicate that
all or any part of the grant funds has been used for improper purposes, you will initiate an
investigation. If you determine any part of the grant has been used for improper
purposes, you will take all reasonable and appropriate steps to recover diverted grant
funds or to insure the restoration of diverted funds and the dedication of other grant funds
held by the grant recipient to the purposes being financed by the grant; these steps will
include legal action unless such action would not result in the satisfaction of execution on
a judgment.

You will retain records (in written or electronic form, as applicable) relating to all grants
for a period of four years after each grant is awarded or declined. Such records will
include (i) all grant applications and any other information used by you to evaluate the
grant recipients; (ii) a list showing the name and address of each grant recipient and the
amount and purpose of each grant, as well as identifying if applicable any relationship the
grant recipient has with you; (iii) a record of the name and address of each applicant who
did not receive a grant; and (iv) all reports and other information obtained by you in
administering the grants.

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.

Letter 4779 (10-2012)
Catalog Number 58222Y

• 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:

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.

Letter 4779 (10-2012)
Catalog Number 58222Y

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