Graduate educational travel grants approved

Plain-English summary

A private foundation proposed expanding an existing graduate fellowship program to fund educational travel in the United States and abroad. Applicants would submit travel plans and educational goals, and independent consultants or a selection committee could assist, but the foundation's board would retain final authority. Awards would be made objectively without discrimination or grants to disqualified persons. Recipients would remain in contact with educational advisers, report on their travel and use of funds, return unused funds, and face recovery efforts for diverted funds. The IRS approved the procedures under IRC § 4945(g)(3), so grants made under the described program would not be taxable expenditures.

Ruling snapshot

• Question: Did the foundation's educational travel grant procedures satisfy IRC § 4945(g)(3)?
• Outcome: Approved
• Key authorities: IRC §§ 74(b), 117(a), 170, 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

Employer Identification Number:
Number: 201550046
Release Date: 12/11/2015 Contact person - ID number:

Contact telephone number:

Date: September 14, 2015

LEGEND UIL: 4945.04-04

B= Name
C= Name
D= College Name

e = Number
f = Number
g dollars = 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 dated April 7, 2015 indicates that you will operate an educational grant
program called B. You were established to help young people of exceptional promise to
reach their full potential and one of your major goals is to identify extraordinary
individuals and help them pursue the kind of formal education your founder was denied.

You have already received advance Internal Revenue Service (the “Service”) approval
under sections 4945(g)(I) and 4945(g)(3) for several grant making programs including a
graduate fellowship program, C, which the Service approved as meeting the
requirements of section 4945(g)(1) of the Code.

2

You plan on expanding C to include B for international travel, which will provide graduate
students a unique educational experience that comes from experiencing the history and
culture of a foreign country first-hand; you believe that travel offers a valuable way for
graduate students to further their studies, acquire new academic experiences, and
broaden their appreciation of foreign cultures. B will initially be available to C participants
who are attending D but will be expanded to cover more qualifying institutions in the
United States and abroad. B will cover expenses such as transportation, room, board,
and any fees needed to visit or participate in locations or events related to the travel’s
educational purpose at both United States and international institutions. The exact
number of awards in a given year will depend on a number of factors including the
number, qualifications and particular needs of the applicants. In the first three years of B
the number of grants awarded may be in the range of f for approximately g dollars.

The primary selection criteria for B shall include, but are not limited to, acceptance into C,
a summary proposal describing the planned travel destination(s), educational purpose of
the travel and planned activities, and motivation for travel. The travel and use of funds
must be completed within e months of the date of the grant.

Educational advisers and your staff will generally make applicants to C aware of B and
solicit applications directly from those selected to participate in C. You may also enter
into agreements with unrelated independent organizations (“scholarship consultants”)
that will assist you in promoting B as part of C, contacting graduate and doctorate
programs with relevant information on B and C, designing and processing the
applications, and evaluating the eligibility of applicants. All such scholarship consultants
will be separate corporate entities that are completely unrelated to you. None of the
employees, officers, or directors of scholarship consultants will be employees, officers, or
directors of yours, or disqualified persons with respect to you. Fixed fees paid to
scholarship consultants for services provided to you will be set in accordance with
standard rates for similar consulting and management services provided to other
organizations. You will be responsible for approving all aspects of program design,
promotion, award selection, and allocation.

As part of the selection process you may enlist either an independent selection
committee composed of individuals with relevant educational expertise or authorize your
staff to review and evaluate all eligible applications for recommendation to your Board of
Directors of award recipients. The scholarship consultants may also identify qualified
individuals to serve as panelists on the selection committee and may provide training
sessions for the panelists. In all cases, your board will make the final selection.

You do not discriminate on the basis of race, religion, creed, color, sex, age, physical or
mental disabilities, sexual orientation, or national origin. All awards are required to be
awarded on an objective and nondiscriminatory basis. No awards will be awarded to your
founder, creator, officers, board members, or staff, or their families, or to any disqualified
person or for a purpose that is inconsistent with the purposes set forth in section
170(c)(2)(B) of the Code.

Letter 4779 (10-2012)
Catalog Number 58222Y

3

You will require each recipient to be in regular contact with an educational adviser
appointed by you. Each recipient must submit a final report after the end of his or her
travels detailing his or her accomplishments, the impact of the award on his or her
academic and professional development, and the use of the funds received.

If a required report is not submitted, if the submitted report is unsatisfactory, or if all or
any part of the awards are being diverted from their intended purposes, you will take all
reasonable and appropriate steps to recover the funds and/or to ensure restoration of the
diverted funds. This would include legal action if deemed appropriate under the
circumstances. Any unused funds will be transferred back to you.

You will retain complete records with respect to all awards, as required by the applicable
regulations. These records will include all information obtained by you to evaluate
applicants, the identification of recipients, the completed application of each applicant,
the amount of each grant, progress reports from recipients or their supervisors, and any
additional information that you or your scholarship consultants, have obtained in the
course of the grant administration process.

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

4

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,

Jeffrey I. Cooper
Director, Exempt Organizations
Rulings and Agreements

Letter 4779 (10-2012)
Catalog Number 58222Y