IRS approves education and professional-development grants for teachers and school leaders

Plain-English summary

A private foundation proposed grants to help high-performing teachers, school leaders, and other education-focused individuals pursue training, certification, advanced degrees, conferences, or educational projects. Applicants would be screened under published eligibility criteria, reviewed by a panel with no more than one-third foundation employees, and approved by the foundation's board. Recipients could not be disqualified persons or related to the foundation's officers, directors, or substantial contributors. Grant agreements would require periodic reports, verification of scholarship coursework and grades, investigation of possible misuse, recovery of diverted funds, and detailed records. The IRS approved both the scholarship procedures under IRC § 4945(g)(1) and the educational-grant procedures under IRC § 4945(g)(3), so grants made under the approved procedures would not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's procedures for scholarships and other educational grants satisfy IRC § 4945(g)?
• Outcome: Approved
• Key authorities: IRC §§ 74(b), 117, 170(b)(1)(A)(ii), 4945(g), and 4946; 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: 201620017 Employer Identification Number:

Release Date: 5/13/2016
Contact person - ID number:

Contact telephone number:
Date: February 17, 2016

LEGEND UIL: 4945.04-04

M = City

N = State

V= Grant Program
X = Building

Dear

You asked for advance approval of your scholarship grant procedures and
educational grant procedures under Internal Revenue Code section 4945(g). This
approval is required because you are a private foundation that is exempt from
federal income tax. You requested approval of your scholarship program to fund
the education of certain qualifying students.

Our determination

We approved your procedures for awarding scholarships and educational grants.
Based on the information you submitted, and assuming you will conduct your
program as proposed, we determined that your procedures for awarding
scholarships meet the requirements of Code section 4945(g)(1) and 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.

Also, awards made under these procedures are scholarship or fellowship grants and are
not taxable to the recipients if they use them for qualified tuition and related expenses
(subject to the limitations provide in Code section 117(b)).

Description of your request

Your purpose is to focus on educational achievement and entrepreneurial success,
including providing opportunities for individuals to develop entrepreneurial and leadership
skills. You adopted a strategic plan to increase the percentage of students in M reaching
academic and life outcomes that prepare them for postsecondary school success
including through, among other things, supporting the recruitment, development, and


retention of high-performing teachers and educational leaders in M’s metropolitan
schools. You believe that recruiting, developing, and retaining the best teachers is critical
to closing achievement gaps in schools that serve low-income and diverse communities.
Therefore, your V provide funding for programs that attract and retain more talented
teachers and leaders that service the students in these communities in the M area. These
grants are key to your strategic goal of improving the quality of education in M’s
metropolitan schools and doubling the percentage of students scoring advanced or
proficient on the state test.

Your grants will promote the professional and leadership development of teachers and
educational leaders by supporting a wide variety of educational opportunities and training
including teacher or principal certification, enrollment in classes taught by colleges and/or
universities, attendance at or participation in professional or educational conferences,
and support for attainment of advanced degrees. The size of the grants will depend on
the nature of the educational program but could range from grants supporting tuition,
room, and board at a college or university to grants to support attendance at a
conference or grants to support an educational project or course of study that would be of
particular benefit to teachers, leaders, or students.

Information about your grants will be posted publicly on your website and you will provide
information at public information sessions held at X in M, N. The information sessions
and website postings will explain your strategic goals in developing the grant program in
addition to the purpose and objective of the specific grant being awarded, the criteria for
eligibility, and the application process. Information will also be shared with educational
system leaders in the M area.

High-performing teachers, educational leaders, or other individuals who demonstrate a
commitment to education and who will have some or all of the following attributes will be
eligible for your grants:

• Have demonstrated achievement of strong academic results for their students,
such as by demonstrating at least one year of improved results in math, reading,
or science over the course of one school year,

• Have teaching experience or otherwise have demonstrated a commitment to
education,

• Be either currently working or will commit to work in education in M metropolitan
schools,

• Have demonstrated leadership at their current place of employment,

• Are not your employees and are not disqualified persons with respect to you, and

• Are working or will agree to work in schools for which at least 40% of the student
body is eligible for free or reduced lunch under the United States Department of
Agriculture National School Lunch Program.

Eligible individuals must also be legal residents of the United States and must be able to
remain and work in the United States legally as teachers or school administrators for a
period of time following completion of the grant program. Certain grants may also focus

on a specific educational area such as development of math or science teachers and
would therefore have additional eligibility criteria related to the specific focus area.

Individuals who are eligible may apply directly to you or may be nominated by coworkers
or supervisors. Each grant candidate will be required to submit a resume and a cover
letter that describes the proposed use of the grant proceeds as well as how the proposed
use furthers your mission. Candidates will also need to submit data to show that they
meet the eligibility criteria. Grant recipients may not be disqualified persons with respect
to you within the meaning of section 4946 of the Code. Also, grant recipients may not be
related to any of your officers, directors, or substantial contributors and they may not be
persons whose selection would result in private benefit to any of your officers, directors,
or substantial contributors. When awarding grants, you will not take into consideration the
following, and grants will be available without regard to the following: race, color, national
origin, ethnic origin, age, religion, creed, sex, sexual orientation, veteran’s status,
disability, or any other legally recognized classification.

All applications will be submitted to a panel that will review the applications and apply the
grant award criteria to determine the recipients. The panel will consist of three or more
leaders you have selected on the basis of their experience and reputation and they will
represent different sectors with an interest and expertise in education such as non-profit
organizations, colleges and universities, and elementary/secondary schools. A maximum
of one-third of the review panel may be your employees. All grants are subject to final
approval by your Board of Directors.

You expect to provide at least five awards in your first year. The number of grant awards
my change over time depending on your funds and your evaluation of the impact the
grants have on the program’s underlying objectives. You do not anticipate renewing
grants but you may agree to provide additional funds for a grantee to pursue his or her
program under compelling circumstances.

You will have a grant agreement requiring individual grantees or organizations that are
the direct recipients of grant funds earmarked for use by individual grantees to provide
you with periodic written reports no less than annually about the grantee’s activities,
progress, and use of funds. For scholarship grants, the reports will include an account of
course taken during the grant period and grades received. For scholarship reports
provided by individuals rather than educational institutions, the reports will be verified by
the educational institution. For grantees whose study only involves the preparation of
research papers or projects, you shall receive a report on the progress at least once a
year. Upon completion of a grantee’s course of study or undertaking for which a grant
was made, the grantee or educational institution will be required to give you a final report
describing the grantee’s accomplishments and a copy of the completed work product. If
the reports do not account for all grant funds then any unaccounted funds must be
returned to you.

You will promptly investigate any apparent misuse of grant funds or failure to provide
required reports. You will withhold any further payments while a matter is being


investigated until you have determined that no part of a grant was misused or until
missing reports are submitted. If you discover funds have been misused you will take all
reasonable and appropriate steps to secure the repayment of the diverted funds. If such
a diversion occurs and you are making installment payments on a grant you will withhold
any future payments until you have received assurances from the grant recipient that no
future diversion will occur and you will require the individual to take extraordinary
precautions to prevent future diversions.

You represent that you will maintain all records relating to individual grants including
information obtained to evaluate grantees, identify a grantee is a disqualified person,
establish the amount and purpose of each grant, and establish that you undertook the
supervision and investigation of grants described above.

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.

Other conditions that apply to this determination

• This determination only covers 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 a precedent.

• You cannot rely on the conclusions in this letter if the facts you provided have
changed substantially. You must report any significant changes to 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 award 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 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 questions, please contact the person listed at the top of this letter.

Sincerely,

Jeffrey I. Cooper
Director, Exempt Organizations
Rulings and Agreements