Foundation's grants to artists and teachers approved

Plain-English summary

A private foundation requested advance approval for a grant program serving artists and teachers in a metropolitan area. Applicants would be evaluated on financial need, prior achievement, motivation, ability, character, and potential, without discrimination or awards to disqualified persons. Recipients would report on their accomplishments and use of funds, while the foundation would investigate missing reports or misuse and seek recovery when appropriate. The IRS found that the objective selection, reporting, follow-up, and recordkeeping procedures satisfied IRC § 4945(g)(3). It approved the program, so grants made under the described procedures would not be taxable expenditures.

Ruling snapshot

• Question: Did the foundation's procedures for awarding grants to artists and teachers satisfy IRC § 4945(g)(3)?
• Outcome: Approved
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), 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

Number: 201550048 Employer Identification Number:
Release Date: 12/11/2015
Contact person - ID number:

Date: September 14, 2015 Contact telephone number:
LEGEND UIL: 4945.04-04

b= Number

X= City

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

You will operate an artistic and educational grant program to provide grants to emerging
or established fine, visual, literary, performance or musical artists or teachers in those
and other fields to help those artists or teachers improve their skills or talents, or to
produce an artistic or literary work or research report.

You currently plan to award up to b grants annually at the discretion of your Board of
Directors. The amount of each award will depend upon the grantee’s financial need, as
described by the grantee in his or her application materials. You will accept
recommendations and applications on a rolling basis.

The pool of grantees eligible for grants consists of residents of the X metropolitan area as
of the date of application who have demonstrated excellence or achievement in an
artistic, educational, literary, or musical endeavor prior to applying for the grant.

Potential grantees must submit applications including a written statement of financial
need, a short biographical record, a description of the course of study or goals explaining
what the applicant expects to achieve from the grant, and information to ensure that the

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potential grantee meets the eligibility requirements and is not a disqualified person.
Potential grantees must also submit letters of support and at least two additional
references.

Grantees will be selected by your Board of Directors from among those applications on
the basis of the selection criteria, including financial need, prior performance in artistic or
educational endeavors, and the evaluation by your Board of Directors of the applicant's
motivation, ability, character, achievement, and potential as demonstrated in a written
statement or personal interview provided by each potential grantee.

Your Board of Directors will select grant recipients from among eligible recipients without
discriminating on the basis of race, gender, sexual orientation, ethnicity, nationality, or
religion. To avoid any potential for private benefit to disqualified persons, you provide that
disqualified persons (including your directors and officers and their family members) are
not eligible to receive any awards.

You will provide each recipient with an award letter notifying him or her of the grant.
Grants will be paid directly to the grantee. Grant recipients must provide reports
describing their accomplishments toward the grant purposes and accounting for the use
of grant funds within six (6) months of the initial disbursement, and every six (6) months
thereafter, including a final report after all grant funds have been used.

You will investigate if any grant recipient fails to provide the documentation required
under the grant procedures within a reasonable amount of time, and withhold further
grant funds until such documentation has been submitted consistent with the duty of a
private foundation to investigate jeopardized grants under the Treasury Regulations. If
you determine that any grants have been used for improper purposes, you shall take all
reasonable and appropriate steps, up to and including legal action unless such action in
all probability would not result in satisfaction of execution of a judgment, to recover
improperly expended funds and to ensure that any funds held by the recipient will be
used exclusively for the purposes of the grant award.

You will keep the following records with respect to each grantee:

1. All information that you secure to evaluate the qualification of potential grantees;
2. The identity of each grantee, including any information on relationships that would
   cause the recipient to be a disqualified person;
3. The amount and purposes of each grant;
4. A copy of the award letter notifying the recipient of the grant;
5. Any follow-up information obtained as described above; and
6. Any measures taken to investigate the misuse of grant funds or to enforce grant
   terms.

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

Letter 4779 (10-2012)
Catalog Number 58222Y

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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.

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.

Letter 4779 (10-2012)
Catalog Number 58222Y

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• 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,

Jeffrey I. Cooper
Director, Exempt Organizations
Rulings and Agreements

Letter 4779 (10-2012)
Catalog Number 58222Y