Student internship grant procedures receive advance approval

Plain-English summary

A private foundation proposed an internship program connected to its scholarship program but also open to some students who did not qualify for scholarships. Internships at nonprofits, government agencies, and occasionally appropriate businesses would give students practical experience, mentorship, and exposure to public-service careers. Applicants had to meet education, academic, community involvement, extracurricular, project-description, and interview criteria, while disqualified persons were excluded. Recipients had to report on their work, and supervisors would provide comments and critiques. The IRS approved the procedures under section 4945(g)(3), finding that the program used objective selection, required the funded activities, and included reporting to confirm performance.

Ruling snapshot

• Question: Did the foundation's proposed student internship procedures satisfy the advance-approval rules for grants to individuals?
• Outcome: Approved, assuming the program is conducted as proposed.
• 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: 201521018
Release Date: 5/22/2015 Employer Identification Number:
Date: February 26, 2015
Contact person - ID number:

Contact telephone number:

LEGEND: UIL:
M= state 4945.04-04
W = program name 1
X= program name 2
y= dollar amount
z= 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

In conjunction with your scholarship program, W, you will also operate a program called
X. X will offer internships for those who have received scholarships through W.
Internships will be offered through local nonprofits, government agencies and
occasionally appropriate businesses commencing after the completion of the recipient's
high school education through their college graduation.

The purpose of X is improving and enhancing the capacities, skills and talents of the
recipients by providing opportunities to:

i) gain practical experience and mentorships through the “real-world” of community
participation and involvement in the work place and areas of civic endeavors;

ii) balance the pursuit of academic learning with the opportunity to be immersed in
the utilization of their education to a realization how they can be useful citizens
and members of their community through leadership and vision;

iii) be aware of the worth and opportunities of working in the nonprofit and
government sectors in order to consider this as a viable and vital work/career
option post-college.

Students who do not qualify under your scholarship program because they do not
demonstrate financial need, but will benefit in their growth and development of skills from
participation in X. In addition, there are circumstances students might benefit from X but
not qualify under your scholarship program for reasons other than not demonstrating
financial need.

The amount of an annual grant is contemplated to be in the range of y dollar to z dollars.
You will make the existence of X known by communicating it to school officials, students,
school counselors/teachers/administrators and local nonprofits. You may also publicize
through the internet and social media.

To be eligible to apply, an applicant:

(a) Must have attended (and graduated from) a high school or other secondary school
in the State of M;

(b) Must have been admitted to an accredited and qualifying institution;

(c) Must not be related to any director or manager of or substantial contributor to you,
be employed by any business of which any such person is a significant owner, or
be a descendant of such an employee or to any other person who could be
designated as a disqualified person; and

(d) Must have submitted to you a completed application

Recipients are selected based on the following criteria:

(a) Must be at least a high school senior, on track to graduate, with a minimum
cumulative and current Grade Point Average anticipated to be at least 3.5 or a
student in good standing at an accredited and qualified, degree-granting post-
secondary institution with a minimum cumulative and current Grade Point Average
anticipated to be at least 3.5;

(b) A record of community involvement;

(c) Involved in meaningful participation in extracurricular activities;

(d) Must submitted a completed application along with academic transcripts, letters of
recommendations and student essays;

(e) Provide a detailed description of the planned fellowship project and the results
sought and how the opportunity or experience will benefit the applicant's
educational experience and/or future career plans; and

(f) Personal interview on recipients motivation, character, ability and potential.

X may be renewed for a subsequent year on evidence of satisfactory performance by the
recipient in his or her educational program as well as reviewing past participation in the

Letter 4779 (10-2012)
Catalog Number 58222Y

internship activities, having maintained required commination with your staff and have
submitted all required narrative, financial reports and evaluations.

Each recipient should submit a narrative report at the conclusion of their internship, which
includes an assessment of the experience and accomplishments with discussion
regarding how that end result compares with the initial project description. You will also
obtain the comments and critique from the supervising person of the recipient.

Grants will be paid either to the organizations where the recipients perform the
internships or to the recipients. Any grants made directly to the recipients will require a
report with receipts.

You will take all reasonable steps to recover any funds that the grant recipient has used
for improper purpose.

The Selection Committee will be appointed by you and should consist of two or more
qualified persons. The Selection Committee have the sole authority to award X. The
Selection Committee will vary from year to year and will consist of individuals whose
families are ineligible to receive grants under X. Relatives of members of the Selection
Committee, or your officers, directors or substantial contributors are not eligible for 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.
• 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.

Letter 4779 (10-2012)
Catalog Number 58222Y

• 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.

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