University research and public-service grant procedures receive approval

Plain-English summary

A private foundation proposed grants for activities benefiting gay and lesbian students, faculty, staff, and alumni at a university. The grants would cover research and conference travel, classwork or thesis projects, summer public-service fellowships, and some speaker expenses and honoraria. Applicants had to provide a project description, budget, funding sources, connection to the foundation's purposes, and qualified reviewers, and the board would evaluate each request. Recipients also had to submit narrative and financial reports, while the foundation would monitor grants, investigate diversions, recover misused funds, and maintain records. The IRS approved the procedures under section 4945(g)(3), so qualifying expenditures under the program would not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's procedures qualify for advance approval of university research, travel, fellowship, and speaker grants?
• Outcome: approved
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), and 4945(g)(3); 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

Release Number: 201714034
Release Date: 4/7/2017 Employer Identification Number:

Date: January 12, 2017
Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04

B= Name

v= Number

w dollars= Amount
x dollars= Amount
y 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 indicates you will operate a grant making program. Your purpose is to provide
funding for activities at B that benefit gay and lesbian students, faculty, staff, and alumni.
The purpose of your program is to provide funding for:

• Covering research and travel expenses for undergraduates, graduate students
and faculty at B in support of research, classwork projects or thesis preparation.

• Summer fellowships to B undergraduates to support travel, research, and living
expenses while working at public service organizations.

• Travel expenses for B affiliates to present their research at conferences.

2

You anticipate annually awarding approximately v grants to eligible recipients.
Eligible recipients are limited to faculty, staff or students of B or persons speaking at
B events organized by faculty, staff, or students. You may also award more or less
depending on the number of applications received that meet your eligibility standards
and the amount of funds available. The amounts of the grants will vary depending on
the purpose of the grant. For example, grants for undergraduate research expenses
and covering travel, other expenses, or small honoraria for speakers on scholarly,
scientific, or cultural topics will be in the range of w dollars. Grants for graduate or
faculty research expenses will be in the range of x dollars and grants for summer
fellowships will be up to y dollars.

You will promote your grant program on your website. Applicants are encouraged to
discuss their plans with you prior to submitting applications which are submitted by e-
mail. The application should provide the following information:

• In the subject line, there should be a brief title for the funding request.

• Name, address, telephone and email address of group or individual applying and
contact person.

• Detailed description of activities to be funded, a budget, the amount of funding
requested and the amount of funding from other resources, and a statement of
how the proposed activities advance your purposes.

• The names of qualified reviewers, such as thesis advisors, faculty sponsors, or

other knowledgeable people.

• Dates funds are needed.

• To whom the check should be made out and the address to which it should be

sent.

Applications are reviewed by your board of directors. The review process may include
requests for more information or for supporting recommendations from independent
sources. Consideration is given to conformance with the purposes of the grant making
program, recommendations of advisors, and efficient uses of funds.

You do not discriminate in the disbursement of grants based on the applicant's race,
creed, color, national or ethnic origin, gender, or sexual orientation, or any other
characteristics unrelated to the fulfillment of the purpose of the grant.

Each grant recipient will be required to submit final narrative and financial reports shortly
after a grant’s conclusion that detail the recipient's accomplishments with respect to the
grant and account for the funds received.

You represent that you will complete the following: (1) arrange to receive and review
grantee reports annually and upon completion of the purpose for which the grant was
awarded, (2) investigate diversion of funds from their intended purposes, and (3) take all
reasonable and appropriate steps to recover the diverted funds, ensure other grant funds

Letter 4779 (10-2012)
Catalog Number 58222Y

3

held by a grantee are used for their intended purposes, and (4) withhold further payments
to grantees until you obtain grantees’ assurances that future diversions will not occur and
that grantees will take extraordinary precautions to prevent future diversion from
occurring.

You represent that you will maintain the following: (1) all records relating to individual
grants including information obtained to evaluate grantees, (2) identify whether a grantee
is a disqualified person, (3) establish the amount and purpose of each grant, and (4)
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 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.

Letter 4779 (10-2012)
Catalog Number 58222Y

4

• 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