Regional artist grant procedures received approval

Plain-English summary

A private foundation proposed grants for adult artists living and working in a specified city region. The program supported projects in media, performing, literary, and visual arts and evaluated artistic merit, feasibility, and creativity. Separate regional selection committees would review each category, while awards would be paid in three installments tied to a grant agreement and six-month and twelve-month progress reports. The foundation committed to monitoring projects, investigating diverted funds, recovering amounts when appropriate, and maintaining detailed records. The IRS approved the procedures under section 4945(g)(3), so compliant grants would not be taxable expenditures.

Ruling snapshot

• Question: Did the foundation's procedures for project grants to regional artists satisfy section 4945(g)(3)?
• Outcome: Approved for the described program, assuming it is conducted as proposed.
• Key authorities: IRC §§ 74(b), 117, 170, and 4945(g)(3); Treas. Reg. § 53.4945-4(c)(1)

Full text (IRS public release)

Transcriber's note: this document is a five-page scan. All page images were checked. Obvious OCR errors in bullet symbols, merged words, and form layout were corrected by comparison with the images. Redacted blank spaces are preserved. Original grammatical and typographical irregularities are preserved. The wording is otherwise verbatim.

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

Release Number: 201926018
Release Date; 6/28/2019 Employer Identification Number:
Date: April 28, 2019

Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04
B = Program

C = City

D = Organization

E = Region

f dollars = Amount
g dollars = Amount
h dollars = Amount

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

Your letter indicates that you will operate an educational grant program called the B.
Under B you will provide grants of up to f dollars to artists living and working in the C
region to support artistic projects.

The specific objectives are to incentive arts to remain, live, work, and grow in the C
region and to improve and enhance the artistic capacities of the grantees. The grants
support the notion of risk-taking (in practice, content, process, and/or outcome) and
equally value artistic integrity, strong ideas, feasibility, and communal meaning. The
program is open to artists at any stage of their career and in all disciplines, and favors
projects that have significant creative work left to accomplish.

Your mission is to improve the quality of life of individuals living and working in C and its
surrounding communities. One of the priority areas of focus in achieving this mission is
arts, culture, and media. For several years you have provided funding to D, a Section
501(c)(3) public charity, to administer B. You now wish to bring the program in-house as
you believe you can leverage the resources you have readily available to make the
program a great success.

You do not provide educational loans.

You will publicize primarily through your webpage, social media, and in person at
events/workshops attended by a manager of your program. During the time your program
was administered by D, they developed a well-established reputation in C’s creative
community, and many applicants learn about the program from previous grantees,
colleagues, and friends.

To be eligible for B the applicant must be:

• A resident of C, or one of five specific surrounding counties at the time of
application and when the grant is awarded
A U.S. Citizen or permanent legal resident
• At least 21 years of age, and

• A practicing artist, who has actively and continually pursued their profession in this
discipline for more than three years (as evidenced on the resume included with the
application).

The following are not eligible for B:
• Organizations
• Fulltime or part time students in a degree-earning program, and
• Your current board members, committee members, staff, or consultants or their
immediate family members.

Your selection committee uses criteria for B, which is based on the following:
• Artistic Merit and Skill - Evaluated using the work represented in the samples
provided by the applicant
• Feasibility of the Project - The likelihood that the project can be realized based on
the budget, timeline, and proposed logistics, and
• Creativity of the Project - Whether the project is an innovative step for the artist or
is a significant deepening of their current artistic practice.

You anticipate allocating g dollars each year to fund up to h dollars of grants in each the
following categories: media arts, performing arts, literary arts, and visual arts. The
number of actual grants is variable and depending on amounts applicants request.
Applicants may request up to f dollars per project, but many request less.

Letter 4779 (10-2012)
Catalog Number 58222Y

You require grant recipients to meet the following:

• The grantee must submit two reports describing progress made on their project:
one 6 months after the grant is awarded and the other 12 months after the grant is
awarded.

• Grantees must permit you to use their name, image, biographical information, and
project information for non-commercial, promotional, marketing, and educational
purposes.

• Grantees must spend all grant money within 12 months of receiving the grant.

• Grantees must acknowledge you by including your logo and a statement of credit
when promoting or publicizing their project.

• Grantees must notify you if changes arise in the project or if they cannot bring their
project to completion as indicated in their application.

Grant recipients will receive their awards in three payments:
• Upon grant notification and return of a signed grant agreement, recipients receive
60 percent of their grant award amount
• After submission of a midterm report 6 months after the grant is awarded,
recipients receive 30 percent of their grant award, and
• After submissions of a final report twelve months after the grant is awarded,
recipients receive the final 10 percent of their grant award amount.

Additionally, your manager will communicate regularly with grantees through monthly
newsletters, quarterly meetings, and at grant related events.

There will be a separate selection committee for each of the four categories of

awards that are offered: media arts, performing arts, literary arts, and visual arts. At least
75 percent of the members of each committee must be based in the E corridor and at
least one member of each committee should be based outside of such region. Each
committee member serves for one grant cycle.

You will select committee members based on recommendations by past committee
members and a review of current news and notable persons in the arts. You may also
invite past B grantees who have completed their grant cycle in good standing to join a
selection committee.

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 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

Letter 4779 (10-2012)
Catalog Number 58222Y

disqualified person, (3) how the amount and purpose of each grant was established, and
(4) how you established supervision and investigation of the 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.

• 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 Regulation 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

Letter 4779 (10-2012)
Catalog Number 58222Y

• 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