Teacher innovation fellowship grant procedures receive approval

Plain-English summary

A private foundation proposed a competitive fellowship program for educators who developed innovative entrepreneurship and engineering teaching approaches. Recipients would be selected through applications, expert review, and site visits based on their current work and future potential. Each educator would receive funding and participate in a year-long program to develop and share curricula, observe other programs, and host peer visits. Subject-matter experts would evaluate candidates, the board would make final decisions, and the foundation would monitor grants, investigate diversions, and maintain records. The IRS approved the procedures under section 4945(g)(3), so expenditures made under them would not be taxable expenditures.

Ruling snapshot

• Question: Do the proposed educator fellowship procedures satisfy the advance-approval requirements for educational grants?
• Outcome: Approved, grants made under the procedures will not be taxable expenditures.
• Key authorities: IRC §§ 74(b), 117(a), 170(c)(2)(B), 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: 201519038

Release Date: 5/8/2015 Employer Identification Number:
Date: 2/10/2015
UIL Code: 4945.04-04 Contact person - ID number:

Contact telephone number:

LEGEND

M = Name of Grant Program/Grantees’ Designation
x 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 won't be
taxable.

Description of your request
Your letter indicates you will operate a grant program called M. Educators selected as
grant recipients under the program are also called M.

The purpose of the M program is to promote the development of innovative approaches
to education and to spread innovative approaches in education from a single classroom
to classrooms across the country. Currently, you will select educators who have created
innovative teaching approaches or programs in the fields of entrepreneurship and
engineering in their classrooms or schools as grant recipients. Your program goal is to
increase the visibility and the reach of the inspiring educational approaches that have
been designed and are being led by educators selected as M.

While each potential grantee has his/her own unique approach, all grantees will have
developed or launched new curriculum that is a jolt to the traditional education system.
You state that you seek to support teachers in engineering and entrepreneurship as they
provide significant transformational potential for young people and build out a specific,
competitive skillset and mindset.

You will publicize the M program through the internet as well as by direct invitation to
apply based on your internal experts’ identification of potential grantees. Applicants must
submit an application.

You represent that M are chosen through a competitive process where their approaches
and programs are vetted through careful and rigorous evaluation. After receiving
nominations of qualified teachers, you will invite potential recipients identified by your
internal experts to apply. You will evaluate the potential finalists through a site visit to
see their educational approach in action, as well as on-the-ground impact. Recipients
are selected based on both current work and future potential to create life-changing
experiences for students in entrepreneurship and engineering.

You represent the number of grants awarded will depend on the number of eligible
candidates and the pool of allocated resources made each year. Each M will receive $x
in funding. Each M will participate in a year-long fellowship program to grow and share
his/her work in entrepreneurship and engineering education. Recipients are expected to
participate in at least one convening, visit other recipients to observe other programs as
well as welcome others into their programs to observe, share curricula and ideas.

Your selection committee will be comprised of subject matter experts who are able to
objectively evaluate the candidates based upon past performances and future potential.
The final recommendation will be made to your board of directors who will make the final
decisions on all your grant recipients.

You represent that you will investigate diversions of funds from their intended purposes,
take all reasonable and appropriate steps to recover diverted funds, ensure other grant
funds held by a recipient are used for their intended purposes, and withhold further
payments to recipients until you obtain recipients’ assurances that future diversions will
not occur and that recipients will take extraordinary precautions to prevent future
diversions from occurring.

You represent that you will maintain all records relating to individual grants, including
information obtained to evaluate recipients, identify whether a recipient is a disqualified
person, establish the amount and purpose of each grant, and establish that you
undertook the supervision and investigation of 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.
• The IRS approves in advance the procedure for awarding the grant.

Letter 4779 (10-2012)
Catalog Number 58222Y

The grant is:

• Ascholarship 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

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