Policy research grant procedures receive advance approval

Plain-English summary

A private foundation proposed grants for scientists, authors, and researchers to develop original projects addressing domestic and international policy, economic, and social issues. Applicants would submit detailed proposals and resumes, and a committee of trustees and subject-matter experts would select recipients using stated qualifications and project criteria. Insiders and their family members could not apply, and recipients would sign agreements requiring quarterly reports, proper use of funds, completion of the project, and return of unused or misused funds. The foundation also committed to investigate diversions, recover funds, suspend payments when appropriate, and keep detailed records. The IRS approved the procedures under Section 4945(g)(3), so qualifying grants made under the approved program would not be taxable expenditures.

Ruling snapshot

• Question: Did the foundation's procedures for grants supporting policy research and related public projects qualify for advance approval?
• 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

Employer Identification Number:

Release Number: 201820021 Contact person - ID number:
Release Date: 5/18/2018

Date: February 23, 2018 Contact telephone number:
LEGEND UIL: 4945.04-04

b dollars = Dollar Amount
c dollars = Dollar Amount
x = Number

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

You will operate an educational grant for individuals who are scientists, authors, or
researchers for the development of new and original projects that address domestic and
international policy, economic and social issues of concern to the modern society.

You will periodically announce one or more specific topics and will accept proposals for
grants to produce reports, books, films, video presentations, and other projects.

Your grant program will be publicized on the internet, in publications, and through
educational and research institutions.

You will award up to x grants per year, ranging from b dollars to c dollars per grant.

Your general eligibility requirements are the applicants will be authors, scientists or
researchers who specialize in one or more areas relevant to the grant topic. Your

specific selection will be based on the applicant’s level of achievement in their field,
academic credentials, prior publications, feasibility of the proposed project, as well as the
following: (i) completeness and quality of the project proposal; (ii) relevance of the
proposal to the grant topic; (iii) quality of the analysis of and proposed solutions to the
issues involved; and (iv) the ability of the applicant to complete the project within the
required budget and time period.

You require a proposal to be accompanied by the applicant’s resume and a detailed
description of the proposed project, the final product of the project, the relevance of the
applicant’s qualifications to the project, and the reasons the project will have a
meaningful impact on the public discussion of the issues involved.

You will award grants on an objective and nondiscriminatory basis. Your selection
committee will consist of your trustees and one or more leading experts in a particular
grant topic selected by the trustees. Members of the selection committee will not receive
private benefit, directly or indirectly, from the selection of grant recipients. Your trustees,
officers, managers, substantial contributors, and their family members will not be eligible
to apply for a grant.

Your grant recipient will have to submit a written agreement (i) to use the grant funds
solely for the purposes awarded; (ii) to provide you with a detailed quarterly report on the
progress of the project, including an account of the grant funds expended as of the date
of the relevant report; (iii) to complete the final product of the project within the time
prescribed in the grant; (iv) to return the grant funds remaining at the completion of the
project to you; and (v) to return all grant funds to you if the project is not completed.

You will (i) enforce each recipient's obligations described above, (ii) arrange to receive
grantee reports quarterly and upon completion of the project, (iii) promptly review all
reports submitted by the recipients to ensure that the grants are used for the intended
purposes, (iv) investigate any diversions of funds from their intended purposes, (v) take
all reasonable and appropriate steps to recover diverted funds from the grantee, ensure
that any other grant funds held by the grantee are used for their intended purposes, and
withhold further payments to the grantee until you obtain the grantee’s assurance that
future diversions will not occur and that the grantee will take extraordinary precautions to
prevent future diversions from occurring.

You will retain indefinitely its records with respect to all individual grant awards, including
information obtained to evaluate the grantees, to determine whether a grantee is a
“disqualified person” within the meaning of Section 4946 of the Code, to establish the
amount and purpose of each grant, and to establish that you undertook the supervision
and investigation of grants as described above. The retained records will specifically
include the grant proposal and resume for each applicant, as well as the grant agreement
and the quarterly progress and final reports submitted by each grant recipient.

Letter 4779 (10-2012)
Catalog Number 58222Y

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

Letter 4779 (10-2012)
Catalog Number 58222Y

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

Letter 4779 (10-2012)
Catalog Number 58222Y