Musical education grant and instrument-loan procedures approved

Plain-English summary

A private foundation proposed a program supporting young classical-music students with instrument loans, paid instruction, ensemble scholarships, supplies, performance opportunities, and related assistance. Students would be selected based on demonstrated musical talent and financial need, and payments would go directly to service or material providers rather than participants. The foundation planned ongoing monitoring through teacher reports, lesson and rehearsal observation, conferences, and participant meetings, with support ending if a student stopped making satisfactory progress. The IRS approved the grant and loan procedures under section 4945(g)(3), so expenditures made as proposed would not be taxable expenditures. The approval depended on maintaining the described objective selection, supervision, reporting, and recordkeeping procedures.

Ruling snapshot

• Question: Did the musical education grant and instrument-loan program satisfy the private-foundation grant rules?
• Outcome: Approved
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), 4945(g)(3); Treas. Reg. § 53.4945-4(c)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
P.O. Box 2508
Cincinnati, OH 45201

Employer Identification Number:

Number: 201534017
Release Date: 8/21/2015 Contact person - ID number:

Contact telephone number:

Date: May 27, 2015

LEGEND UIL: 4945.04-04

X= Organization Name
Y= Program Name
Z= City, State

Dear

You asked for advance approval of your educational grant/loan 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/loans. Based on the
information you submitted, and assuming you will conduct your program as proposed, we
determined that your procedures for awarding educational grants/loans 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 were formed to advance the arts in the Z area. You operate the X, a library for the
benefit of students studying at institutions of musical and other learning in the fine arts
operating in the Z area. Your grants consist of loans of musical instruments and grants to
support young music students in their musical development.

The purpose of your musical arts program, Y, is to support young classical music
students of orchestral instruments who are residents of Z by making musical instruments
appropriate to their development available for their use and underwriting the costs of
private and group musical instruction and mentoring for promising students who need
such support. The grants to program participants will include:

• Loans of library owned musical instruments
• Grants to pay a private music teacher for a minimum of forty lessons per calendar
year
• Scholarships for youth orchestra and chamber music activities
• Grants for the purchase of supplies including, without limitation, sheet music and
other miscellaneous musical instrument supplies
• Tickets (or grants to subsidize admission) to concerts of great performing groups
of Z

You will also provide program participants with:

• Assistance in applying for grants and prizes, scholarships available from outside
organizations, and other financial aid opportunities
• Personal web profiles on your website to be composed, updated, and maintained
by the program participant
• Performance opportunities as soloists and chamber musicians in semi-annual
recitals and outreach settings such as retirement homes, hospitals, and special
needs schools
• Accompanists
• Support for other creative projects that you believe will add to the program
participant’s knowledge and skill set

Y will be publicized by word of mouth. Your staff and board will establish relationships
with directors of youth music programs in Z and will work with the directors to identify
students who are particularly talented and in need of your support to further their musical
ambitions. You are also in the process of developing a website that will publicize Y and
the activities of the program participants. Your board will select students from Z public,
parochial, and charter schools, as well as home-schooled students who are already
enrolled in extra-curricular music programs and who are residents of Z. You will select
students from the third through twelfth grades (or students of an equivalent age) who are
deemed by your staff and board to most likely benefit from your support. You will
primarily select students who are in the third grade (or students of equivalent age). Those
students identified as potential program participants will be invited to audition and
interview with you. Program participants will be selected on the basis of their
demonstrated musical talent and financial need.

There will be no set number or amount of grants made annually. The size of each grant
will be determined on a case by case basis depending on a program participant’s needs
and resource both from you and from outside sources available to them. You are
committed to every program participant’s musical development, from the time of
acceptance into the program until you deem it appropriate to consider your support
completed, which will normally coincide with the program participant's graduation from
high school. No grant funds will be paid directly to any program participants. All
payments will be made directly to the person or organization providing the services or
materials.

Letter 4779 (10-2012)
Catalog Number 58222Y

Y’s success will be measured by program participants’ musical awareness, skills, and
acceptance into recognized music programs. Success will also be measured by the
acceptance rate of program participants into music programs at institutes of higher
education. You do not anticipate providing financial support for musical education
beyond high school years, but you may on a case by case basis extend the loan of
musical instruments to program participants into their post high school years and even
early professional careers.

Your staff will work closely with each program participant and will monitor each
participant's progress and development as a musician by requiring periodic progress
reports from all private teachers subsidized by your grants, periodically attending the
program participant’s private lessons and rehearsals, regularly conferring with all
professionals subsidized by your grants, and meeting regularly with the program
participants to evaluate their musical development. You will assess each program
participant's development based on attendance at music lessons, participation in
orchestras and /or chamber groups, and attendance at and/or participation in concerts
and recitals. You will monitor the progress and overall musical curriculum of each
program participant on an ongoing basis and the board may terminate a program
participant’s participation in the program if it determines that the participant is not fully
committed to his or her development as a musician. The participant will be required to
return all loaned instruments to you and your support of the program participant’s musical
education will cease immediately.

You represent that 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 such 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.

Letter 4779 (10-2012)
Catalog Number 58222Y

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/loan program described above. This
approval will apply to succeeding grant/loan 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/loans 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/loan 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

Letter 4779 (10-2012)
Catalog Number 58222Y