Outdoor art installation grant procedures receive advance approval

Plain-English summary

A private foundation proposed a grant program for individuals creating durable and safe outdoor art installations, such as sculptures and murals. Applicants would submit an artwork statement, images, sketches, a requested amount, and plans for transportation and installation. Foundation staff would review the applications, and a committee of board members would select recipients after considering their biographies and prior work. Certain insiders and their relatives could not receive awards, and recipients would provide progress and final reports. The foundation also committed to investigate misuse, recover diverted funds, withhold further payments when appropriate, and maintain detailed grant records. The IRS approved the procedures under Section 4945(g)(3), so grants made under the approved program would not be taxable expenditures.

Ruling snapshot

• Question: Did the foundation's procedures for grants supporting outdoor art installations qualify for advance approval?
• Outcome: Approved.
• 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: 201825034
Release Date: 6/22/2018

Employer Identification Number:

Contact person - ID number:

Contact telephone number:

Date: March 27, 2018

LEGEND UIL: 4945.04-04

B= Name

C= Area Name

D= City

E= Date

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 B. The goal of B is to create a
positive cultural impact on C in the city of D with respect to the Arts. Through B, you will
make grants to any individual who can create an outdoor art installation such as a
sculpture, mural, or other appropriate medium.

You will publicize the application process for B on your website as well as provide
pertinent information to anyone who calls or emails.

To be eligible for consideration under B, an individual must be able to create a sculpture
or other work of art that is original, durable, and safe for public viewing in an
unsupervised outdoor environment.

To apply for B, an applicant must submit to you an artwork statement describing the
proposed project. The statement must also include the title of the proposed work, the
year, the medium, the size of the proposed work, and the amount requested, as well as a
statement on how the proposed work will relate to or expand on current themes in their
own work. Applicants will also need to submit high resolution images of the proposed
artwork, along with sketches and support images. Moreover, applicants are required to
include a plan for the transportation and installation of the proposed work as well as any
details of any grants the applicant has received in the past for other installations.

A Selection Committee composed of your board members will select the recipient after
your staff members have reviewed the application packages. In selecting the recipient,
the selection committee will consider the applicant's biography and other examples of the
applicant’s existing work. Furthermore, relatives of members of the selection committee,
or of your officers, directors, or substantial contributors are not eligible for awards made
under B.

You will base the number of grants upon how much money is available to award within
your budget, considering multi-year grants and your required minimum distribution. You
will determine the grant award amount using the overall budget of B and the amount
requested, as well as how much of your overall budget the grant would comprise.

Recipients are required to submit a progress report at least twice a year generally about
six months apart. In addition, recipients are required to submit a final report on E of the
following year after the grant term to provide pertinent information on B. If a progress or
final report form is not submitted by requested due date, the recipient may not be eligible
to receive future funding.

You represent that you will (1) arrange to receive and review grantee reports annually
and upon completion of the purpose for which the grant was awarded, (2) investigate
diversions of funds from their intended purposes, and (3) take all reasonable and
appropriate steps to recover diverted funds, ensure other grant funds held by a grantee
are used for their intended purposes, and 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 also represent that you will maintain all records relating to individual grants, including
information obtained to evaluate grantees, identify whether a grantee is a disqualified
person, establish the amount and purpose of each grant, and establish that you
undertook appropriate supervision and investigation of grants.

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.

Letter 4779 (10-2012)
Catalog Number 58222Y

• 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).

Letter 4779 (10-2012)
Catalog Number 58222Y

• 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