Private foundation educational grant procedures are approved

Plain-English summary

A private foundation proposed a grant program giving participants direct experience in affordable housing, historic preservation, or open-space preservation. Applicants must have at least a bachelor's degree and relevant prior interest, and trustees with subject-matter backgrounds select recipients with help from an advisory committee. Recipients work with nonprofit or for-profit organizations, attend monthly seminars, receive mentoring, and submit annual reports about their experiences. The IRS approved the foundation's objective selection, supervision, and reporting procedures under section 4945(g)(3). Grants made under those procedures will not be taxable expenditures if the program is conducted as proposed.

Ruling snapshot

• Question: Do the foundation's procedures qualify for advance approval of its educational grants?
• Outcome: Approved, assuming the program is conducted as proposed.
• 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: 201515040
Release Date: 4/10/2015 Employer Identification Number:
Date: January 15, 2015

Contact person - ID number:

Contact telephone number:

LEGEND

X= program name
y = dollar amount
Z= state

UIL: 4945.04-04

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

You will operate an educational grant program called X to provide direct experience in the
development of affordable housing and/or the preservation of historic buildings or open
spaces.

You will initially offer six grants in the amount of around y dollars per year for two
consecutive years, eventually hoping to expand to at least 24 participants. You send
invitations to representatives of various institutions in Z; currently, there are six
institutions that have been identified. The grant information will be circulated among the
representatives and students attending these institutions.

Any individuals who have at least a bachelor’s degree and have demonstrated an interest
through prior work or academic experience in affordable housing, historic buildings or
open spaces is eligible to apply. Applicants will be required to submit a completed grant

2

application, along with letters of nomination and recommendation, and an official copy of
their transcript.

Grant recipients will be selected after evaluation of all eligible applications by your
trustees who have backgrounds in the area of community preservation, historic
preservation, affordable housing and open space preservation. Your trustees will be
assisted by an advisory committee of accomplished and knowledgeable professionals.
No recipients will be related to the original donor or the trustees or members of the
advisory committee.

Recipients will be selected based on the qualifications that they:

1. Have an interest in affordable housing, historic/open space preservation
2. Possess energy, past achievement, intelligence and understanding of the fields
3. Make a commitment to the duration of the grant program and in attending monthly
   gatherings
4. Have an intention to remain in Z for the future
5. Provide two references from those in the related fields in addition to the nominator
6. Hold an undergrad degree and can furnish a transcript
7. Commit to filing an annual report and assessment of their experience

Recipients could work with a 501(c)(3) organization or a for-profit company that offers the
required project and learning experiences. You arrange monthly seminars where
recipients may share ideas, discuss projects and learn more of the methods and
techniques employed by the field experts. Each recipient will have an experienced
mentor selected to develop and oversee the recipient’s experiences. Each mentor will be
asked on a regular basis to report to you on progress made by the recipient. At the end of
each year, each recipient will be asked to produce a written report on his/her
experiences.

Funds will be distributed to either the affiliated institution of the recipient or the recipient
his/herself and in part will provide living support to recipients while participating in X

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

Letter 4779 (10-2012)
Catalog Number 58222Y

• 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.

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.

Letter 4779 (10-2012)
Catalog Number 58222Y

If you have any questions, please contact the person listed at the top of this letter.

Sincerely,

Director, Exempt Organizations

Enclosure
Notice 437
Redacted letter

Letter 4779 (10-2012)
Catalog Number 58222Y