Leadership program grant procedures receive advance approval

Plain-English summary

A private foundation sought approval for a two-phase educational program intended to prepare college students for professional leadership roles in a religious community. The first phase included study abroad, seminars, tours, internships, local educational projects, stipends, and possible need-based aid. Selected participants could later receive graduate fellowships for careers such as clergy, education, social work, or nonprofit management. The program used stated selection criteria, screened out relationships with disqualified persons, monitored spending and project work, and could recover misused funds. The IRS approved the procedures under section 4945(g)(3), so grants made under the approved program would not be taxable expenditures.

Ruling snapshot

• Question: Do the program's selection, supervision, and reporting procedures qualify for advance approval of educational grants to individuals?
• 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

Release Number: 201509057
Release Date: 2/27/2015 Employer Identification Number:

Date: December 4, 2014
Contact person - ID number:

Contact telephone number:

LEGEND: UIL:
B = foundation 4945.04-04
C=LLC

D= project

E= religion

F = country

G = university

h = dollar amount

j = dollar amount

m = dollar amount

n = dollar amount

p = dollar 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
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

B, a foundation and the sole member of C, operates an educational grant program called
D. The purpose of D is to expose participants to leadership and career opportunities,
nurture those skills and encourage participants to consider a career as a professional in
the E community. While B will primarily fund D, B may request that other donors enter
into their original grant agreement with the recipient in providing additional funding. You
plan on operating in connection with B to become an additional donor party to the grant

agreement. In doing so, you will provide grants to the original recipient and funds would
be administered and monitored under the procedures established by B described below.

You initially plan to invite anywhere from 20 to 40 college students who have
demonstrated an affinity towards playing a leadership role in the E community and
anticipate will seriously consider a career as a E communal professional to apply for D.

The first phase of the program will involve recruitment during summer, some distance
learning during the fall semester of the first academic year and a scholarship and other
funding for participants to spend the spring semester at a university in F, currently
anticipated to be G. In addition to being a matriculated student, program participants will
participate in a number of additional educational activities which you expect to provide
exclusively during the spring semester in F which may include:

• Weekly educational seminars which will expose participants to E educational
content, leadership skills, role models and career guidance

• Educational tours (single and multiple day tours) of F consistent with the
educational theme of the program

• Opportunities to intern at educational institutions, not-for-profit organizations or
other social service agencies in F

• Planning sessions for the camp and campus projects

The duration of the first phase of your program will last for approximately two years.
Thereafter, you will commit to funding new participants and the participant number will be
determined after an assessment regarding the success of the program’s first year and
available resources.

It is anticipated that you will recruit a new cohort each year to participate in Phase I of the
program. In connection with the spring semester in F, you will award each participant a
stipend to fully subsidize the cost of the tuition to attend their university. On a financial
needs basis, you may also make scholarship funding available. At the conclusion of
Phase I, you will invite a number of participants who you believe are likely to pursue
careers as E communal professionals, either as a rabbi, educator, social worker or not-
for-profit manager to apply for a fellowship to graduate school. You anticipate awarding a
certain number of fellowships to deserving applicants to attend graduate school. Phase II
will last for the duration of the graduate program in which participants are matriculated
students.

You anticipate focusing your recruiting efforts on the senior staff at certain summer
camps that have substantial E educational programming and inviting such individuals to
identify potential college age staff members who would be appropriate candidates to
apply to your program. Your staff will then send promotional materials and an application
to such senior camp staff and once potential applicants are identified, you will send such
materials directly to such college students. Program staff will also visit certain summer
camps that have substantial E educational programming to recruit potential program
participants and will market the program directly to college age staff at such camps.

Letter 4779 (10-2012)
Catalog Number 58222Y

In the event that your selection process does not yield enough candidates to meet the
participant numbers, you may broaden your process and recruit college students directly
from nominations, recommendations and referrals from other sources either by seeking
individuals who have a track record of service within the E community or by virtue of the
fact that such individuals are already scheduled to spend the spring semester abroad at
an university in F. You will provide such individuals with recruitment materials, and an
application that needs to be completed. Individuals will then interview with your staff.

While the participants are in F for the spring semester, they will receive guidance on the
development of an educational project that they will be responsible for implementing
during the following summer and on their college campus during the following academic
year. You will underwrite the cost and will provide a mentor providing guidance on the
development of this project. You will also underwrite a budget expected on average to
equal approximately j dollars to support implementation costs. Such amount will be
dependent upon a budget the participant will submit for approval. Upon successful
implementation during the summer, you will pay a m dollars honorarium to the participant.
During the second year, participants in good standing would be invited to an in person
multi- day educational conference in the United States. You will underwrite all travel,
lodging and food expenses to enable participants to attend the conference.

Program participants are also expected to implement an educational program on their
college campus or in the local community during the second year of your program. In
connection with such project, you will underwrite the cost of and provide a mentor to
provide guidance on the development of this project, expected on average to equal
approximately h dollars to support implementation costs. Such amount will be dependent
upon a budget that the participant would submit for your approval. Upon successful
completion of this project during the second year of the program, you will pay a j dollars
honorarium to the participant.

Selection for participation in Phase I will be based in connection with the following
parameters:

• The level of engagement in E life of the applicant

• The level of the interest in pursuing a career as a E communal professional
• Aptitudes of the applicant in a career as a communal E professional
• Academic achievements

• Strength of the letter of reference for such applicant

• Interview and interpersonal skills, as determined by your staff

To obtain a fellowship during Phase II of D, the participant must demonstrate to your staff
superior leadership abilities, a passion to serve and work in a professional capacity in a
not-for-profit organization that serves the E community and superb academic capabilities
demonstrated in their coursework at their F university and at their domestic college.
Fellowship recipients are eligible for up to three years of support (or the duration of the
academic program if it is longer than three years). Fellowship recipients must be
accepted into a graduate program and remain in good standing at the academic
institution where they are studying in order to continue to receive your financial support.

Letter 4779 (10-2012)
Catalog Number 58222Y

4

Phase II participants will also participate in certain distance learning and may be asked to
mentor future Phase I participants. Phase II participants may also be invited to an
educational conference held in the United States. Selection for participation in Phase II
will be based on the level of promise and aptitudes that the Phase I participants have
demonstrated towards fulfilling the program objective — pursuing a successful career as
a communal professional either as a rabbi, cantor, educator, social worker or
administrator for a not-for-profit organization. Only individuals who were participants in
Phase I will be considered for Phase II. Staff will consider the criteria referenced above
including the ability and capacity of the participant to plan and implement a quality
program of E content in either a camp or campus setting.

The n dollars tuition subsidy that each participant will receive is intended to match the
tuition cost at their university in F for the spring semester. Additionally, on a needs basis,
participants are eligible to apply for additional scholarship support if they can
demonstrate to you that their families would be unable to afford the costs of attending
your program in F. The amount of such scholarship would directly relate to the
anticipated actual costs of attending spring semester and the demonstrated financial
needs of the participant. Additionally, while in F during the spring semester, you will pay
for the costs of the educational programming and touring that is made available
exclusively to program participants.

You will award certain participants with a fellowship, up to p dollars annually, for up to
three years, to enable fellows to attend graduate school to study to become a rabbi,
cantor, educator, social worker or not-for-profit manager. Such fellowship awards may
cover the costs of tuition, housing and living expenses, and will be subject to your
discretion.

You anticipate staffing an advisory committee to inform, shape and advise the
development and implementation of the program. You will identify knowledgeable
educators with expertise and experience in the subject matter that will be the focus of
your program. Your committee may also be tapped to identify alternative
locations/programs from which you will recruit prospective participants. Committee
members may also have input on the recruitment process and selection criteria.

Your selection committee will be comprised of your staff and an outside expert consultant
knowledgeable in program implementation engaged by you to support the development
and implementation of your program. Selection committee members will be individuals,
with knowledge and expertise in operating educational programs for college students and
may or may not comprise members of the advisory committee. Your selection committee
will also be responsible for identifying any relationships between potential applicants and
disqualified persons ensuring that individuals with any such relationship(s) are not invited
to participate in your program.

During Phase I, officers or other C representatives will regularly communicate with
participants in the program to receive feedback on how the grant monies are being spent.
This will include reports on all aspects of the educational programming in the United

Letter 4779 (10-2012)
Catalog Number 58222Y

States and F as well as the implementation of the two related projects. In connection with
Phase II of the Project, your staff will monitor and remain in regular communication with
fellowship recipients and will monitor how grant monies are being spent in connection
with Phase II of D.

C, in its sole discretion, may take any and all such reasonable and appropriate steps
(including possible legal action) to compel compliance of use of funds for their intended
purpose, including requiring the return of all or any portion of funds remitted and the
withholding of funds not previously remitted in connection with D.

Potential participants who are related to (whether by blood or through marriage) or have
any direct or indirect affiliation with D staff or any of your or C’s directors, officers or
employees will be ineligible to participate. No director, officer or employee of you or C, or
any other person who is involved in the process of selecting applicants, will be in a
position to derive a private benefit, directly or indirectly, if certain participants are selected
over others.

You will pre-screen any and all non-U.S. applicants using the Treasury Department's
Specially Designated Nationals and Blocked Persons List (“SDN”), the FBI’s Most
Wanted Terrorists List, the State Department's Terrorist Exclusion List, the U.S. Bureau
of Industry and Security's Denied Persons List, Unverified List, and Entity List, and similar
lists maintained by the United Nations.

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.

Letter 4779 (10-2012)
Catalog Number 58222Y

• 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.

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

Enclosures
Notice 437
Redacted letter

Letter 4779 (10-2012)
Catalog Number 58222Y