Research and language-study grant procedures approved

Plain-English summary

A private foundation proposed two programs supporting study in a foreign country. One was a one-year fellowship for U.S. doctoral students conducting dissertation research, selected for academic performance, research quality, feasibility, and budget. The other was a national high-school essay contest funding a month of intensive language study abroad, with winners selected for content, style, creativity, and grammar. Both programs excluded relatives of insiders, required reports or compliance monitoring, and included procedures to stop payments and recover diverted funds. The IRS approved both programs under section 4945(g)(3), so grants made under the described procedures would not be taxable expenditures.

Ruling snapshot

• Question: Did the proposed graduate-research and high-school language-study programs satisfy the private-foundation rules for grants to individuals?
• Outcome: Approved
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), 170(c)(2)(B), 4945(g); 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: 201533019
Release Date: 8/14/2015 Employer Identification Number:
Date: May 19, 2015

Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04

B = Culture

X= Grant Program
Y= Grant Program
Z= Country

x dollars = Amount
y dollars= Amount
z = Age

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 that you will operate two educational grant programs, one called X
and one called Y. Your overall purpose is to provide financial assistance to students to
study in Z.

X Program

The purpose of X is to support qualified graduate students for research or study in Z so
future educators will teach more effectively about Z. American Ph.D. graduate students
enrolled in B Studies graduate programs in accredited universities are eligible to apply.
The fellowship will support research in Z for up to one year. You will not limit potential
candidates to their discipline, the topic, or the location of the research. You will offer x

2

dollars for one full year of residency and research in Z. You will publicize X through
national online academic sites, a central academic publication for jobs and fellowships,
and email announcements to major universities with B Studies graduate programs. You
will also publicize it on your website.

You will require that X applicants be at the dissertation stage of their graduate work, be
registered at an accredited university in the United States, have research level language
competency, write a proposal for the anticipated research and outcomes, submit letters of
recommendation, and write a budget of how funds will be used in Z.

A complete application for X includes an application form, a statement of study or
research, transcripts, a resume, an autobiographical statement, three letters of
recommendation, an Institutional Certification Form, and a Language Competency
Evaluation Form.

For X, a committee of your board members will review the qualifications of applicants for
a record of excellent academic performance, a clearly thought out, well developed and
feasible research proposal, and a reasonable budget for the research year. Relatives of
the selection committee, officers, directors, or substantial contributors are not eligible.

You will award one X annually. It is not renewable.

The recipient of X will be required to submit progress reports at regular intervals during
the year, with a full report at the end of the year documenting research accomplished,
publications resulting from the research, and the progress toward completion of the
graduation program. X will be paid in two installments. If it appears the terms of the grant
are not being met, you will terminate future payments. You represent that you will
investigate diversions of funds from their intended purposes and take all reasonable
steps to recover diverted funds and ensure other grant funds held are used

for intended purposes.

Y Program

The purpose of Y is to provide funding for a high school student to travel to Z for a month-
long intensive language study. It will be national contest for students to write an essay on
a topic you determine. The scholarship will be valued at y dollars. You will publicize it in
various places online utilized by language students and teachers and you will send
promotional materials to high schools where the language is taught.

The requirements are that the student has studied that language for at least one year
formally by the time the scholarship begins, be at least z years of age by the time the
scholarship begins, have parental permission to travel to Z alone, receive a certification
of medical examination prior to departing to Z, and sign an agreement to the standards of
conduct in Z.

Letter 4779 (10-2012)
Catalog Number 58222Y
Students will submit an application form and an essay of 500 words or less on a topic
selected by you. A committee of your board members and other individuals familiar with Z
and language study, such as former board members, former essay contest winners, and
other experts, will judge essays and will select recipients. Essays will be judged on
content, writing style, creativity, and grammar. Relatives of the selection committee,
officers, directors, or substantial contributors are not eligible.

Y will be awarded once annually. It is not renewable.

The recipient of Y will sign a standards of conduct agreement prior to departure. The
recipient must attend language classes during the scholarship period. If the rules are
violated, the student will receive disciplinary action and possible termination from the
program. You represent that you will investigate diversions of funds from their intended
purposes and take all reasonable steps to recover diverted funds and ensure other grant
funds held are used for intended purposes.

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.

• The foundation plans to obtain reports to determine whether the recipients have
performed the activities that the grants were intended to finance.

Letter 4779 (10-2012)
Catalog Number 58222Y

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.

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