IRS approves scholar and professional fellowship procedures

Plain-English summary

A private foundation proposed a fellowship program for promising or accomplished scholars and professionals in fields including the humanities, education, journalism, the arts, medicine, science, and public affairs. Its staff would nominate and select candidates based on demonstrated ability, achievement, commitment, leadership potential, and other objective criteria. Insiders and disqualified persons would be excluded, and recipients would have reporting requirements backed by review and recovery procedures. The IRS approved the procedures under section 4945(g)(3), so grants made through the program would not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's scholar and professional fellowship procedures satisfy the advance-approval requirements of section 4945(g)(3)?
• Outcome: approved
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), 170(c)(2)(B), 4945(g); Treas. Reg. § 53.4945-4(b)(2), (c)(1)

Full text (IRS public release)

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


Number: 202011009                                     Employer Identification Number:
Release Date: 3/13/2020
                                                      Contact person - ID number:

Date: December 18, 2019                               Contact telephone number:




LEGEND:                                               UIL:
X = number                                             4945.04-04
Y = program
z 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
You will create an educational grant program called Y, a fellowship program, to maintain your
mission of promoting and facilitating the exchange of ideas among leaders in their respective
fields of endeavor. Y will support scholars and professionals who demonstrate promise, talent
and expertise in their fields-particularly the fields of humanities, social sciences, education,
journalism, philanthropy, the arts and culture, medicine, science, and public affairs-by offering
support, guidance, and collaboration. Y will enable scholars to deepen their education,
experience, skills, and creative production in these fields. Y will generally be open to
professionals who are the preeminent experts, or emerging experts, in the fields that you wish to
foster.

The primary criteria for the selection of fellows shall include, but are not limited to, demonstrated
ability, talent, achievement or skill in the fields of in the fields of humanities, social sciences,
education, journalism, philanthropy, the arts and culture, medicine, science, and public affairs;
commitment to these fields; and potential for significant contribution to and/or leadership in these
fields. Individuals' originality or diversity of perspective may also be taken into consideration.
Information regarding Y may be available through a number of outlets, such as your website,
social media, and invitations distributed by electronic and/or regular mail.

As part of the selection process, and in accordance with Treasury Regulation Section 53.4945-
4(b)(2), one or several persons may be selected because they are exceptionally qualified to carry
out the X's purposes or it is otherwise evident that the selection is particularly calculated to
effectuate the grant's charitable purposes rather than to benefit that particular person.

Your staff of distinguished experts shall nominate and select candidates based on the staffs
specialized knowledge of your field of interest and needs. Y does not discriminate on the basis of
race, religion, creed, color, sex, age, physical or mental disabilities, sexual orientation, or national
origin. All grants are required to be awarded on an objective and nondiscriminatory basis.

The exact quantity and amount of grants awarded in a given year will depend on a number of
factors, including the quantity, qualifications, and particular needs of the candidates and will be
determined at your discretion. At this stage, you anticipate you will initially award X grants, for an
estimated total amount of z dollars. Any unused funds will be transferred back to you.

No grants will be awarded to the your founder, creator, officers, board members, or staff, or their
families, or any disqualified person with respect to you, or for a purpose that is inconsistent with
the purposes set forth in IRC Section 170(c)(2)(B).

Y is initially envisioned as a two-week program, but may grow in its length of time. Recipients
participating in the program for one year or less in duration will be required to submit final reports
providing the information described above. Any multi-year recipients will be required to submit
annual and final reports fully accounting for the funds received under the grant and describing
their progress and/or accomplishments with respect to the grant. Your continued support will be
contingent upon at least yearly reviews of such progress.

When a required annual or final report is not submitted, if the submitted report is unsatisfactory,
or if you learn that all or any part of the funds from a grant it has awarded are being diverted from
their intended purposes, you will take all reasonable and appropriate steps to recover the funds
and/or ensure restoration of the diverted funds to the purposes of the program. This would
include legal action if such action is deemed appropriate under the circumstances.

You will retain complete records with respect to all grants awarded, as required by the applicable
Treasury Regulations. These records will include all information obtained by you to evaluate
applicants, the identification of recipients, the completed application of each recipient, the amount
of each grant, periodic reports from recipients, and any additional information that you have
obtained in the course of the grant administration process.

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.

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