Social-venture fellowship procedures approved

Plain-English summary

A private foundation proposed an eight-month fellowship program to help young social entrepreneurs develop ventures through housing, office space, mentoring, business support, and coaching. Applicants would be screened under published eligibility rules and evaluated by an advisory committee with review by the foundation’s leadership and board. Awards would be limited, nonrenewable, and made from a sufficiently broad group on an objective and nondiscriminatory basis. The foundation also committed to permanent records, supervision, reports, and recovery of diverted funds. The IRS approved the procedures under section 4945(g)(3), so grants made under the described program would not be taxable expenditures.

Ruling snapshot

• Question: Did the foundation’s social-venture fellowship procedures satisfy the advance-approval rules for grants to individuals?
• Outcome: Approved
• 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

Number: 201524025 Employer Identification Number:

Release Date: 6/12/2015
Contact person - ID number:

Date: March 20, 2015 Contact telephone number:

LEGEND UIL: 4945.04-04
X = Location
Y = Location
Z = Number

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 mission is to support talented individuals with great potential and high aspirations in
the arts and sciences. You plan to launch a social investment program as an incubator of
ideas and an accelerator of social impact ventures. You will provide grants for social
innovation as part of an eight month program (4 months residency, 4 months non-
residency) to propel and rapidly accelerate small but successful social enterprises by
combining expert mentorship, business support, and social investment. You will connect
talented and high-aspiring young individuals who are leading thinkers and doers and who
are determined to make social change happen.

You will award fellowships for the purpose of educating individuals and improving their
entrepreneurial and leadership capabilities and skills. Your program helps accomplish
your educational purposes and furthers your mission by promoting social ventures that
have potential to create lasting positive change for the world.

You will provide grants in the form of complimentary accommodation and office space at
X in Y, for the first four months of the program. You will also provide strategic, advisory,

legal, PR training, and executive coaching for the duration of the program. Additionally,
you will help social ventures secure the additional financing they need to grow through
intervention and support early in their formation. This may be through social investment,
government contracts, or grant funding.

You will publicize your program through your website, newsletters, social media, emails,
and through the network of Advisory Committee members, your board of directors, other
existing networks, and partner organizations. Partner organizations will include other
nonprofit organizations and governmental entities.

Eligibility criteria to be selected as a fellow for your program are as follows:

• Applicant must be at least twenty one years of age, or twenty one by the beginning
date of entering the program
• Venture must be the original idea of the applicant or the applicant’s team
• Venture must be in start-up phase. (To be considered start-up, the venture may
not have been organized, or may have been in operation for up to, but no longer
than, to two years.)

• Venture must be independent and autonomous

• Applicant must make a full-time commitment (minimum forty hours per week) to
the organization’s development for the duration of the eight month fellowship

• Partnerships (ventures co-founded and led by two individuals) may apply (Both
partners must meet all eligibility requirements and make a full-time commitment of
no fewer than forty hours per week to the development of the venture.)

• Applicant must have legal status to work in the United States (If applicant is
authorized to work in the United States, but this status is granted through a current
employer and applicant is only authorized to work for that employer, applicant is
not eligible to apply for the program.)

• Applicant must complete the online application form and submit it with all required
documents

• Applicant must be able to demonstrate evidence of good health (physical
examination)

You will select fellowship recipients based upon specific subject matter focus, as
determined each year by you in collaboration with an Advisory Committee. Potential
subject matter may include: healthcare, innovation in government, education, and energy.
Fellows will be young visionaries with deep domain expertise in fields relating to the
specific 21st century challenges addressed by their early-stage social ventures which may
become for-profit businesses or non-profit organizations. In addition to the subject matter
specific criteria, the committee will concentrate its selection on the capabilities of the
founder, the scalability of the model, and the potential impact of the organization on the
world.

Your project manager and his/her designee will conduct an initial screening of each
applicant which will include a review of the application package for completeness,
verifying credentials, and contacting any person who has provided a letter of
recommendation for the application. The project manager will then notify each committee

Letter 4779 (10-2012)
Catalog Number 58222Y

member that the applications are available for review and either provide each member
with electronic access to the applications or transmit the applications to the members by
regular, express, or electronic mail. Committee members will be subject matter experts
and stakeholders from government, academia, non-profit, and for-profit organizations
with a strong interest and involvement with social impact ventures or programs. A “Pitch-
day” will then be scheduled where applicants will pitch their ideas and answer questions
from the committee.

Immediately following the Pitch Day, the committee will meet to select the awardee and
transmit the decision to your project manager via email. Your leadership and board will
be given ten business days to review and confirm the decision of the committee. If your
leadership and board do not object to the selection of any candidate within the ten- day
period, the committee’s decision shall be final. If there is an objection to the selection of
any candidate within the ten-day period, the committee, your leadership, and board shall
cooperate in resolving any disagreement regarding the selection of an applicant. If the
disagreement is not resolved within fifteen business days of the end of the ten-day
period, the decision of the committee shall be final.

Your Board of Directors, upon the advice of the Advisory Committee, will determine the
number of fellowships to be provided each year. Fellowship grants will be awarded on an
objective and nondiscriminatory basis and recipients will be selected from a group that is
sufficiently broad. You will not award more than Z fellowships each year.

Your fellowship grants will not be renewable. To maintain the fellowship, the fellows must
make a full-time commitment (minimum forty hours per week) to the organization's
development for the duration of the eight month fellowship.

Your staff and Board of Directors have the responsibility to keep permanent records of
the meetings and actions of the Advisory Committee, account for all funds, and disburse
the funds on your behalf. Your staff and Board of Directors will also investigate any
diversions of funds from their intended purpose and take all reasonable and appropriate
steps to recover any diverted funds.

You represent you will maintain all records relating to individual grants, including
information obtained to evaluate grantees. You will identify whether a grantee 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.

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