Foundation's grants for emerging women and LGBTQ filmmakers approved

Plain-English summary

A private foundation proposed one-year production grants for emerging filmmakers in a metropolitan area who identify as female or LGBTQ and are making films or videos about art or artists. Applicants had to show filmmaking training, submit detailed project materials and prior work, and lack the resources and track record of an established director. Staff would screen applications for eligibility, artistic merit, and feasibility, while an experienced selection committee would recommend recipients for final board approval. The foundation would mentor recipients, review work in progress, require a final screening and spending report, and recover unspent funds after violations. The IRS approved the procedures under section 4945(g)(3), so grants following those procedures would not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's film-production grant procedures qualify for advance approval under section 4945(g)(3)?
• Outcome: approved, compliant grants will not be taxable expenditures
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), 170(c)(2)(B), 4945(g), and 4946(a)(1); 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: 201942013
Release Date: 10/18/2019 Employer Identification Number:

Date: July 24, 2019
Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04

B= Name
C= Metropolitan Area
D= Number

x 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 B.

Your purpose consists of developing and producing documentary films that serve to
educate audiences of all ages on the visual and performing arts as well as touch on
social issues.

The purpose of B is to provide grants to up and coming filmmakers in C who identify as
female or LGBTQ and who are actively engaged in producing a film or video project that
focuses on art or artists. The term of the grant is intended to span one year, but a shorter
timeframe is negotiable. In addition to the grants, you will provide consultations and
mentoring opportunities to the recipients, as well as provide opportunities to screen the
recipient's project and participate in a “talk back” with Selection Committee members.

They may also be provided with spotlight features on your website, newsletter, and social
media.

Under B, you will award one or more grants for x dollars which much be spent by the
recipient only on the production of the film project itself as opposed to marketing or
promotion of the project. Furthermore, the number and /or dollar amount of the awards
may vary from time to time based on factors including your available resources and the
number and quality of the submissions. Awards under B will not be renewable. However,
it is possible, though unlikely, that an individual may be selected as a repeat grantee on
the basis of a new application and project.

In order to promote B, you will post information on your website which will include the
eligibility and selection criteria, the application deadlines and other pertinent details
regarding the program. You will also promote B on your various social media platforms
and in your newsletters as well as through word-of-mouth and other means to your vast
network of colleagues and contacts in colleges and university film programs. You further
anticipate that B’s Selection Committee will help promote B through their various
networks, including through organizations that work with or support women or LGBTQ
people in film or the arts.

To be eligible to apply for B, an applicant must be an “up-and-coming” filmmaker, which
means that they are not a well-established director with the resources to produce the
project. Furthermore, applicants must:

• Be a resident of C and at least eighteen years old;

• Identify as female or LGBTQ;

• Have a background and prior training in filmmaking;

• Be actively engaged in producing a film or video project that focuses on art or
artists in some manner.

Interested film makers must submit an application package by a specific deadline
consisting of materials including a director's statement; a “logline” or synopsis for the
project; a longer project description; a description of the current stage of the film; a
description of how they intend to use the grant funds; and samples of their previous
works. Applicants must also describe their prior projects, including prior exhibitions and/or
distribution channels of their work, inclusion of their projects in major film festivals, prior
awards or recognition received, and similar information.

All application packages will be reviewed by your staff in order to narrow the list of
applicants to determine D finalists based on their satisfaction of B’s eligibility
requirements as well as the relevant artistic merit, and feasibility of the project in terms of
scope and completion. Your staff will also determine whether an applicant qualifies as an
“up-and-coming” filmmaker by, among other things, reviewing the applicant's prior
filmmaking accomplishments to determine that the applicant, for example, does not have
multiple feature film projects completed, does not have significant prior partnerships with
producers or distributors, has not previously been included in major film festivals or

Letter 4779 (10-2012)
Catalog Number 58222Y

received similar awards or accolades, has not had broad exhibition or distribution across
multiple platforms, and has not had significant critical or commercial success.

Your staff will then forward the finalists’ application submissions to the Selection
Committee whose members are appointed by your Board of Directors. Members will
consist of one or more filmmakers, artists, curators, or other individuals with relevant
backgrounds and experience. The members will select the recipient based on their
satisfaction of B’s eligibility requirements as well as the relevant artistic merit, and
feasibility of the project in terms of scope and completion. Once selected, they will
forward the name of the recipient to your Board of Directors, who will have final decision-
making authority. In addition, you may, but will not be required to, take into account racial
or ethnic diversity in the selection of grantees; provided, however, that no individual will
be denied consideration or selection because of race, religion, nationality, or ethnic
origin.

In addition to their duties of reviewing applications and recommending grantees for
approval by the Board of Directors, members of the Selection Committee will also be
required to participate in at least one feedback session with grantees.

To monitor the grant, your staff will periodically check-in with the grantees to ensure that
the project is progressing and that the award funds are being appropriately spent. The
grantee will also have at least two opportunities during the term of the award, which
typically will be one year, to screen an in-progress version of the project to the Selection
Committee in order to solicit feedback. In addition, at the end of the grant period, each
recipient must exhibit their project to your staff and the Selection Committee as well as
complete a report detailing how the funds were used.

In the event that the terms of the award are violated (e.g., because award funds were not
used in furtherance of producing the project), you will seek to recoup any unspent award
funds and will terminate its relationship with the recipient.

Your board will obtain all of the records of the Selection Committee, which will include all
of the information used to evaluate nominees. You will retain records identifying the
selected recipients, their contact information, and the amount of each award, and will
confirm that none of the recipients is an individual who is a disqualified person with
respect to you within the meaning of Section 4946(a)(1) of the Code. Members of the
Selection Committee and their family members also will be ineligible to receive an award
under B during the term(s) of their service.

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

Letter 4779 (10-2012)
Catalog Number 58222Y

that grantees will take extraordinary precautions to prevent future diversion from
occurring.

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.

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

Letter 4779 (10-2012)
Catalog Number 58222Y

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 representatives 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