Architecture travel-research grant procedures receive approval

Plain-English summary

A private foundation proposed an annual, nonrenewable travel and research grant for graduate students in architecture, historic preservation, and urban design. Applicants had to attend one of a specified number of schools and be in the next-to-last year of an accredited master's or doctoral program. A selection committee would review anonymous applications using travel proposals, portfolios, budgets, and faculty recommendations, and relatives of insiders were ineligible. The grant would be paid in two installments, with the final payment depending on a report documenting the research, findings, and conclusions. The foundation also proposed recordkeeping, reporting, recovery, and sanctions-compliance procedures. The IRS approved the procedures under Section 4945(g)(3), so grants made under them would not be taxable expenditures.

Ruling snapshot

• Question: Did the proposed architecture travel-research grant procedures qualify for advance approval under Section 4945(g)?
• Outcome: Approved, assuming the foundation conducts the program as proposed.
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), 170(c)(2)(B), and 4945(g); 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: 201823008
Release Date: 6/8/2018
Date: March 15, 2018

Employer Identification Number:

Contact person - ID number:

Contact telephone number:

LEGEND
X = Name
c dollars = Amount
d dollars = Amount
e dollars = Amount
g = Number

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
Your letter indicates you will operate a grantmaking program called X.

The purpose of X is to provide an annual educational grant to graduate students in
architecture, historic preservation and urban design to expand their knowledge of the
public realm in existing cities through travel and research, and how it might be applied to
contemporary urban needs and design challenges. The public realm involves the
planning, design, restoration and adaptive reuse of public buildings and urban centers.

For the first year you intend to award one grant for c dollars. Future grants will be based
upon availability of funds with the goal of maintaining the annual c dollars amount. This is
a onetime award and is not renewable.

To be eligible to receive a grant under X, the applicants can be any nationality and must
be in their next to last year of an accredited Masters or PhD Degree program in
architecture, historic preservation and urban design at one of g specific schools.

You will advertise X to the potential candidates by providing relevant promotional
materials to each of the g specific schools’ offices of student affairs and financial aid,
career services offices and networks. Each school will notify the relevant faculty directors
and coordinators as well as post information about X on their websites. In addition,
information about X will be posted on your website.

To apply, eligible applicants must submit an electronic copy of their application with the
required supporting documents including the Registration Form, Copyright Release Form,
and Endorsement Form. The Endorsement Form must be completed and signed by the
chair or dean of the applicant’s schools. All applicants must also submit a travel research
proposal with a short narrative, outlining the topic, reasons and locations for the travel, an
itinerary and a budget. Applicants must also provide a portfolio of their work which
illustrates their understanding of the topic of the travel proposal.

All application packages will be reviewed by a selection committee consisting of a jury of
your board, along with invited educators and professionals in relevant professions. They
will evaluate application packages based on the quality of each applicant’s portfolio, their
proposed topic for research, their reasons for the proposed travel itinerary, their budget,
and the faculty recommendations. Furthermore, to insure impartiality in the evaluation
process, all applications are assigned a random identification number and will remain
anonymous to the selection committee members throughout the selection process.

New, additional, or replacement committee members may be appointed by a unanimous
vote of your board. Relatives of members of the selection committee, or of your officers,
directors, or substantial contributors are not eligible for awards made under X.

The award of c dollars will generally be distributed to the recipient in two installments:
You will provide d dollars to the recipient after the itinerary is submitted to you. The
recipient will submit a final report of the travel and research in accordance with their
approved itinerary before receiving their final payment of e dollars. The report must
document the research, findings and conclusions of the travel before receiving the final
payment. All recipients will also be required to present their report to you and, if possible,
to their respective schools. You will provide additional travel funding for this.

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.

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
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 will check the OFAC List of Specially Designated Nationals and Blocked Persons for
names of individuals and entities with whom you are dealing to determine if they are
included on the list. You will comply with all statutes, executive orders, and regulations
that restrict or prohibit persons from engaging in transactions and dealings with
designated countries, entities, or individuals, or otherwise engaging in activities in
violation of economic sanctions administered by OFAC. If necessary, you will acquire
from OFAC the appropriate license and registration where necessary.

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.

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