Unexpected scholarship gift qualifies as an unusual grant

Plain-English summary

A publicly supported charity that provided professional scholarships expected to receive a cash gift far larger than its annual budget and normal grants. The donor had not created or controlled the charity, shared no board members with it, and imposed no material restrictions beyond using the funds for the charity's scholarship purpose. The charity had consistently met the public-support test, maintained a large representative board, and planned to continue broader fundraising. The IRS concluded that the unexpected gift qualified as an unusual grant. That treatment allowed the contribution to be excluded when applying the public-support fraction so its size would not by itself jeopardize the charity's public status.

Ruling snapshot

• Question: Could the unusually large, unexpected cash gift be excluded as an unusual grant for public-support testing?
• Outcome: approved
• Key authorities: Treas. Reg. §§ 1.170A-9(f)(6)(ii), 1.509(a)-3(c)(4)

Full text (IRS public release)

Transcriber's note: this document is a scan. Obvious OCR errors in the UIL label, bullet symbols, spacing, and one regulation citation were corrected by comparison with all four page images. The wording is otherwise reproduced verbatim.

Internal Revenue Service Department of the Treasury
P. O. Box 2508
Cincinnati, OH 45201

Number: 201733019

Release Date: 8/18/2017 Employer Identification Number:

Person to Contact - ID#:

Date: May 24, 2017
Contact Telephone Numbers:

LEGEND: UIL:

B = State 509.02-01
C = Year

D = Name

E = Name

x dollars= Amount

Dear

We have considered your July 12, 2016, request for recognition of an unusual grant under
Treasury Regulations section 1.170A-9(f)(6)(ii) and related provisions.

Based on the information provided, we have concluded that the proposed grant constitutes an
unusual grant under section 1.170A-9(f)(6)(ii) and related provisions of the regulations. The
basis for our conclusion is set forth below.

Facts:

You were formed in the state of B in C. You are a nonprofit corporation exempt from taxation
under Section 501(c)(3) of the Internal Revenue Code and classified as a public charity under
Sections 509(a)(1) and 170(b)(1)(A)(vi) of the Code. You primarily provide scholarships to
professionals in the D industry for pursuing additional training and education, obtaining
professional credentials and certifications as well as for attending various regional and national
programs.

You are asking for approval of an unusual grant in the amount of x dollars. The grant will come
from E and be in the form of cash. The grant is to be used for the purpose of funding your
scholarship programs.

The grant is unusual in relation to the donations that you normally receive because it greatly
surpasses your annual budget and the size of grants you normally receive. This grant was not
expected. There will be no restrictions placed on the use of the grant, other than it is to be used
for your stated purpose.

Letter 4787 (2-2012)
Catalog Number 58230Y


E is not a creator of your organization and E does not stand in a position of authority over you.
In addition, you have a large board of directors and do not share any board members with E.
You are also operated by volunteers.

You are supported by donations, membership, and proceeds from events such as raffles, and
dinners and you have consistently met the public support test. Your current officers and
directors plan to strengthen your fundraising efforts to build new scholarship funds resulting in
awarding more scholarships.

Law:

Treasury Regulations sections 1.170A-9(f)(6)(ii) and 1.509(a)-3(c)(4) set forth the criteria for an
unusual grant.

Treasury Regulations section 1.170A-9(f)(6)(ii) states that, for purposes of applying the 2-percent
limitation to determine whether the 33 1/3 percent-of-support test is satisfied, one or more
contributions may be excluded from both the numerator and the denominator of the applicable
percent-of-support fraction. The exclusion is generally intended to apply to substantial contributions
or bequests from disinterested parties which:

• are attracted by reason of the publicly supported nature of the organization;
• are unusual or unexpected with respect to the amount thereof; and

• would, by reason of their size, adversely affect the status of the organization as
normally being publicly supported.

Treasury Regulations section 1.509(a)-3(c)(4) states that all pertinent facts and circumstances
will be taken into consideration to determine whether a particular contribution may be excluded.
No single factor will necessarily be determinative. Such factors may include:

• Whether the contribution was made by a person who

a. created the organization

b. previously contributed a substantial part of its support or endowment

c. stood in a position of authority with respect to the organization, such as a
foundation manager within the meaning of section 4946(b)

d. directly or indirectly exercised control over the organization, or

e. was in a relationship described in Internal Revenue Code section 4946(a)(1)(C)
through 4946(a)(1)(G) with someone listed in bullets a, b, c, or d above.

A contribution made by a person described in a. - e. is ordinarily
given less favorable consideration than a contribution made by
others not described above.

• Whether the contribution was a bequest or an inter vivos transfer. A bequest will
ordinarily be given more favorable consideration than an inter vivos transfer.

• Whether the contribution was in the form of cash, readily marketable securities, or
assets which further the exempt purposes of the organization, such as a gift of a
painting to a museum.

Letter 4787 (2-2012)
Catalog Number 58230Y


• Whether (except in the case of a new organization) prior to the receipt of the
particular contribution, the organization (a) has carried on an actual program of
public solicitation and exempt activities and (b) has been able to attract a significant
amount of public support.

• Whether the organization may reasonably be expected to attract a significant amount
of public support after the particular contribution. Continued reliance on unusual
grants to fund an organization's current operating expenses (as opposed to providing
new endowment funds) may be evidence that the organization cannot reasonably be
expected to attract future public support.

• Whether, prior to the year in which the particular contribution was received, the
organization met the one-third support test described in section 1.509(a)-3(a)(2)
without the benefit of any exclusions of unusual grants pursuant to section 1.509-
3(c)(3);

• Whether the organization has a representative governing body as described in
Treasury Regulations section 1.509(a)-3(d)(3)(i); and

• Whether material restrictions or conditions within the meaning of Treasury
Regulations section 1.507-2(a)(7) have been imposed by the transferor upon the
transferee in connection with such transfer.

Application of Law:

The grant meets the requirements of Treasury Regulations section 1.170A-9(f)(6)(ii) because
the grant is from a disinterested party, and:

• The grant was attracted by reason of your publicly supported nature,

• The grant is unusual or unexpected with respect to the amount,

• The grant will adversely affect your status as normally being publicly supported.

The grant meets the requirements of Treasury Regulations section 1.509(a)-3(c)(4) based on
the following facts and circumstances:

a) The grant was not made by a person who created you or who previously contributed
a substantial amount of your support. The grantor also does not stand in a position
of authority with respect to you and does not exercise control over you.

b) The grant is in the form of cash.

c) You have carried on an actual program of public solicitation, have exempt activities,
and have attracted a significant amount of public support over the years.

d) You have met the public support test in past years.

e) Because you have relied on public support in the past, it can be assumed that you
will be able to maintain that level of public support in the future.

f) You have a large representative governing body.

Letter 4787 (2-2012)
Catalog Number 58230Y


In addition, no material restrictions or conditions within the meaning of Treasury Regulations
section 1.507-2(a)(7) have been imposed by the transferor upon the transferee in connection
with such transfer.

For all the forgoing reasons, the grant should be characterized as an unusual grant within the
meaning of Treasury Regulations section 1.509(a)-3(c)(4).

If you have any questions, please contact the person listed in the heading of this letter.
Sincerely,
Stephen A. Martin

Director, Exempt Organizations
Rulings and Agreements

Letter 4787 (2-2012)
Catalog Number 58230Y