Foundation's unconventional workshop grant procedures approved

Plain-English summary

A private foundation proposed educational grants enabling recipients to attend short, unconventional workshops offered by third parties. The workshops would develop professional, literary, musical, artistic, writing, and self-expression skills, and grants could cover part of tuition, travel, lodging, and per diem. A selection committee with relevant experience would review financial need, workshop details, personal narratives, motivation, character, ability, and growth potential, with a possible preference for young adults in a specified age range. Recipients had to agree to return unused or misused funds and later complete an interview and written report explaining the use and benefit of the grant. The IRS approved the objective selection, supervision, reporting, recovery, and recordkeeping procedures under section 4945(g)(3).

Ruling snapshot

• Question: Do the foundation's proposed grants for unconventional educational workshops satisfy the advance-approval requirements for skill-development grants?
• Outcome: approved, and grants made under the procedures will not be taxable expenditures
• Key authorities: IRC § 4945(g)(3); Treas. Reg. § 53.4945-4(c)(1)

Full text (IRS public release)

Transcriber's note: this document is a scan. Obvious OCR errors in the agency fields, bullet symbols, headings, capitalization, spacing, and a Treasury regulation citation were corrected by comparison with all four page images. Redacted identifying fields, a percentage, and a committee-size value are marked [redacted]. The wording is otherwise preserved verbatim.

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

Release Number: 202004017
Release Date: 1/24/2020 Employer Identification Number: [redacted]
Date: October 28, 2019

Contact person - ID number: [redacted]

Contact telephone number: [redacted]

LEGEND UIL: 4945.04-04

X = Name

Y = Number

Z = Numbers

b dollars = Amounts
c dollars = Amount

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 that you will operate an educational grant program called X.

The purpose of the X is to award grants to increase participation in various types of
unconventional educational workshops. Through X, you hope to develop the recipient’s :

• Professional skills;
• Literary skills, such as emotional and somatic literacy; or
• Musical, artistic, and writing skills, as well as other forms of self-expression.

Under X, you will fund recipients to attend these workshops which will usually last up to a
week and be provided by third parties. You will pay up to [redacted]% of the cost of the workshop
including the cost of tuition, travel, accommodations and per diem. Furthermore, you
anticipate the average grant will be in the range of b dollars and will average c dollars.

2

You will annually determine the number of grants based on the amount of funds available
and in the first year of X, you anticipate that you will award Y grants.

To advertise to the public, you will use your presence on the internet including social
media and print publications to provide pertinent details including the application process.
Although you have yet developed an application, you anticipate that all applicants will be
required to provide contact and biographical information, a statement describing their
financial need, and information about the workshop they wish to attend including the
following:

• Name, date, description, and provider of the workshop;
• Tuition and estimated travel costs;
• A description of the workshop and how it correlates with X’s purpose as well as
yours;
• A narrative explaining their personal story and interest in the workshop;
• An explanation focusing on how the workshop will improve and enhance their
skills.

Recipients of X will be chosen in an objective and nondiscriminatory manner by a [redacted]-
member selection committee of which three will be your board members. Periodically,
the board will review committee membership and may change the number of members.
Criteria for committee membership will include experience working with young adults and
experience regarding unconventional educational programs.

Your selection committee will review the applications and interview the most qualified
applicants so that these applicants can articulate how their attendance at the proposed
workshop will improve their skills. Then the recipients will be chosen based on their
motivations, character, abilities, and potential for improvement and growth within the
context of your mission as derived from the application information and the interview.
Furthermore, your selection committee may give preference to applicants with
demonstrated financial need, and to young adults in the range of Z years of age. To verify
financial need, you may require applicants provide you tax returns as well as other
income and asset information.

Before you release a grant to a recipient and prior to the workshop, you will require the
recipient to affirm through a written agreement that if they do not attend the workshop or
do not use the grant funds for the purposes for which they are granted, then they are
required to return to you any misused or unused funds. Recipients may also apply for
more than one grant to attend different workshops but may not receive a grant to attend
the same workshop twice.

After attending a workshop under X, you will require grant recipients to participate in an
interview and provide a written report detailing how:

• The funds were used;
• They benefited from the workshop;

Letter 4779 (10-2012)
Catalog Number 58222Y

3

• Their experience correlates with and furthers your mission.

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 diversions from
occurring.

You represent that you will maintain the following: (1) all records relating to individual
grants including information to evaluate grantees, (2) identify 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

Letter 4779 (10-2012)
Catalog Number 58222Y

4

• 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.

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