Approves grants connecting expatriate youth with their country

Plain-English summary

A private foundation proposed an educational grant program for alumni seeking to strengthen ties between a country and young people from that country who lived abroad. Applicants would propose projects benefiting the country, and larger requests required matching funds and spending most of the award there. The foundation described objective selection criteria, conflict recusals, written grant agreements, annual and final reports, site visits, recovery procedures for diverted funds, and detailed recordkeeping. The IRS approved the procedures under section 4945(g)(3). Grants made under the approved program would not be taxable expenditures if the foundation operated it as described.

Ruling snapshot

• Question: Did the foundation's procedures for project grants to individual alumni qualify for advance approval under section 4945(g)(3)?
• Outcome: Approved.
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), 170(c)(2)(B), 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

Release Number: 201814014
Release Date: 4/6/2018
Date: January 11, 2018

Employer Identification Number: [redacted]
Contact person - ID number: [redacted]
Contact telephone number: [redacted]

LEGEND:

X= program name
Y= organization
Z= country
m dollars= amount
n dollars= amount
b percent = percentage
c percent = percentage

UIL:
4945.04-04

Dear [redacted]:

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 educational grant program called X to strengthen ties between the
country of Z and the youth of Z living outside of Z by affording them an opportunity to be
a part of Z’s daily life and contribute to Z’s development through work, study and
volunteer experiences, while developing life-long personal ties and a renewed sense of
identity of Z. Grants for X will range from m dollars to n dollars.

X will be awarded on an objective and nondiscriminatory basis to individual alumni of
your program or to alumni of the Y program. Applicants must submit proposals with the
following elements:

• Executive Summary

• Needs Statement

• Project Outline

• Short-term and Long-term Goals

• Implementation Plan and Timeline of Completion

• Monitoring and Evaluation Plan

• Measurable Quantitative and Qualitative Impacts desired

• Budget narrative and a proposed Budget

All projects should have a direct benefit in Z. All projects submitted for funding over m
dollars must be matched dollar for dollar by other funding sources and you will not fund X
until the match is secured. At least b percent of the grant awarded must be spent in Z
with the remaining c percent eligible to be used for indirect costs such as economic travel
and homestay living options.

You do not intend that any of your foundation managers or substantial contributors, or
any family member described as a disqualified person under Code Section 4946 shall be
eligible to submit a proposal for funding. Family members or household members of the
current X Coordinator and Executive Director who are not disqualified persons can be
eligible and in such case, the proposal reviewers must recuse themselves if a family or
household member is an applicant.

Proposals will be reviewed first by X Coordinator and Executive Director and then by your
Board of Directors. Grants will be evaluated based on the following objective criteria:

• ability to raise matching funds for the grant

• the collaboration of one or more of your alumni on the project

• a realistic implementation plan including clearly defined goals and steps outlined to
accomplished these goals

• the highest expected impact while serving/affecting a large group of beneficiaries

• the majority of grant funds being spent in Z

• whether the project is a one-time activity or be sustainable over time under a
realistic plan

• the involvement of the native community of Z in the proposed plan

• and the likelihood of success in achieving the specific objective proposed

X recipients will be required to execute a grant award letter which will require annual
reports and a final report on progress made toward this specific objective and on the
expenditures of all grant funds. An award letter will allow you to make site visits to
observe the work being funded by X and to recoup grant dollars by reasonable efforts if
terms are breached. You will retain all grant reports, proposals and records.

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, (3) take all
reasonable and appropriate steps to recover the diverted funds, ensure other grant funds
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 diversions from
occurring.

You represent that you will maintain all records related to the following: (1) individual
grants including information to evaluate grantees, (2) grantees which are identified as a
disqualified person, (3) how the amount and purpose of each grant was established, and
(4) how you establish 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.

• 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.

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 any questions, please contact the person listed at the top of this letter.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements