Medical research grant procedures receive advance approval

Plain-English summary

A private foundation proposed grants to researchers at universities, hospitals, and research centers for work on heart disease, cancer, AIDS, and similar diseases. The program would be publicized online, applications would be reviewed for scientific merit, feasibility, and budget appropriateness, and trustees would make final selections on an objective and nondiscriminatory basis. Grantee institutions would administer funds, and recipients and institutions would accept reporting, refund, nonduplication, publication, transfer, and recordkeeping conditions. The IRS approved the procedures under section 4945(g)(3), so grants made under the approved program would not be taxable expenditures while the program remained materially as described.

Ruling snapshot

• Question: Do the private foundation's procedures for awarding medical research grants satisfy the advance-approval requirements for grants to individuals?
• Outcome: Approved.
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), and 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: 201604021
Release Date: 1/22/2016 Employer Identification Number:

Contact person - ID number:

Date: October 27, 2015 Contact telephone number:

LEGEND UIL: 4945.04-04

X= Grant Program Name
B= Geographical Location
D= Foundation Name

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 an educational grant program called X.

Your mission includes supplementing higher education scholarships, and enabling
basic medical research in the areas of heart disease, cancer, and AIDS. The purpose
of X is to provide grants to researchers with appointments at universities, hospitals,
and/or research centers for the purpose of studying these diseases and other similar
diseases. The number of research grants that will be awarded each year and the amount
of each grant will vary depending on the amount of funds available to be distributed. You
are required to annually distribute the greater of your net income or the amount that must
be distributed to satisfy Code Section 4942.

Faculty with primary appointments in universities, hospitals and research centers within
the B area may apply. You strongly encourage new or less recognized individuals to
apply for funding and you generally encourage seed funding of unique or high priority


projects. You will not support large general programs or project grants to fund research
centers.

X will be publicized on your website. Applications consisting of several pages, a detailed
research plan and a budget must be submitted from the Institution’s senior official for the
research function to you as well as the Institution’s Form 990. No more than one
application from any Institution will generally be accepted for each grant cycle.
Completed applications will be referred to your Cardiovascular or Cancer/AIDS Research
Review Committee for consideration of scientific merit. These committees function in an
advisory capacity to you. Your grant administrator reviews the grant applications and
ranks the applicants based on scientific merit, feasibility, and appropriateness of budget.
The grant administrator then submits a recommendation to your trustees who make the
final selection and determine the amount awarded. Applicants will be notified in writing
concerning approval or disapproval, funding amounts, and starting dates, within a few
months from the proposal deadline. All grants are awarded on an objective and non-
discriminatory basis. No grants may be awarded to any disqualified person as defined in
Code Section 4946.

Funding requests and project awards will be of one year duration. Applicants receiving
one-year grants may re-apply if their mandatory narrative and financial reports have been
satisfactory and if the renewal protocol is endorsed by their Institution’s senior official for
the research function as the one application for that research field in the appropriate
grant cycle.

The Institutions (universities, hospitals and/or research centers) where the recipient has
the appointment will administer the grant. It is also understood that the Institution
administering this grant is a nonprofit organization with facilities for research.

You will pay the grant proceeds directly to the university, hospital, or research center to
which the recipient has an appointment.

In addition, you provide a letter to each university, hospital, or research center specifying
that the Institution’s acceptance of the funds constitutes its agreement to (i) refund any
unused portion of the grant if the researcher fails to meet any term or condition of the
grant and (ii) notify you if the researcher fails to meet any term or condition of the grant. If
the Institution will not agree to such terms you will obtain the needed reports from the
researcher. The Principal Investigator (recipient) and the Grantee Institution assume an
obligation to expend grant funds for research purposes as set forth in the application, and
affirm that there is no duplicate funding for these purposes. If an alternative application
for support is activated, either fully or partially, the Principal Investigator and the Grantee
Institution will promptly notify you to make the necessary adjustment in funding.

The award based on this application is subject to the following conditions:

a. Every six (6) months, the Principal Investigator will furnish you with a brief
semiannual narrative Progress Report, of work accomplished under the grant.

Letter 4779 (10-2012)
Catalog Number 58222Y


b. The Institution’s Fiscal Officer will submit a Report of Expenditures within 60 days
after completion of each award half-year.

c. You disclaim any economic interest (direct or indirect) in the work product of the
research, including any patent or other rights to which the Investigator or the
Institution may make claim.

d. Results of research may be made available to the public through appropriate
scientific channels. All publications must bear the statement: “THIS WORK WAS
SUPPORTED BY A GRANT FROM D.”

e. The grant will terminate on the date the Investigator ceases to work at the Grantee
Institution, unless advance written permission for a transfer or replacement has
been obtained from you.

f. Unexpended funds will revert to you at the termination of a grant period, unless the
grant period is extended by you in writing in advance of termination.

g. Title to equipment purchased with your funds will remain with the Principal
Investigator until the award (including any authorized extension or renewal)
terminates, at which time title passes to the Institution. If the Principal Investigator
is authorized to transfer his award to another Institution, equipment may not be
transferred. Transfer will only be authorized to other Institutions within your grant-
making geographic area.

Moreover, a terminal progress report discussing research findings must be provided
within sixty days of the termination of the project.

You will maintain such information and documentation until the applicable statute of
limitations period expires.

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:

Letter 4779 (10-2012)
Catalog Number 58222Y


• 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.

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