IRS approves innovative-teaching award procedures

Plain-English summary

A private foundation proposed an award program for full-time teachers who submit experience-based proposals for innovative classroom methods and improved student services. An independent review board would choose a grand-prize proposal and other worthy entries, while the foundation's employees, directors, and their relatives could not participate. The foundation also proposed annual and final reporting, investigation and recovery procedures for diverted funds, and records documenting its selection and supervision of grantees. The IRS approved the procedures under section 4945(g)(3), so expenditures made under the program would not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's procedures for innovative-teaching awards 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(c)(1)

Full text (IRS public release)

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


Number: 202011010                                      Employer Identification Number:
Release Date: 3/13/2020
                                                       Contact person - ID number:
Date: December 19, 2019
                                                       Contact telephone number:




LEGEND                                                 UIL: 4945.04-04

B = Award
d dollars = Amount
e 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. The
purpose of your program is to "incentivize a large array of teachers from different
perspectives to provide their 'genius moment' based on their own day-to-day living
experience."

You will support faculty who desire to improve student services through innovative
classroom methods. Innovation grants can be focused on various areas of improvement,
including:
    • Innovative training and learning strategies
    • Classroom projects
    • Cross-disciplinary projects, and
    • Collaboration with industry partners.

To be eligible to apply for an award, the applicant must be a full-time teacher at the
targeted schools and submit a       -word minimum proposal based on actual experience.
Applicants should also submit an overview of their proposal in       words or less. In
addition, the applicant should submit a project summary that includes the project
description, goals and objectives, and strategies.

Awards will be distributed as follows:
  • Grand prize for the best proposal: d dollars
  • Runner-up prize of e dollars will be given for the entries deemed worthy based on
     independent review board judgement

A       -person independent review board chosen by you will evaluate all entries. All
review board decisions are final. Your employees and directors and their relatives are
prohibited from participating.

You will arrange to receive and review grantee reports annually and upon completion of
the purpose for which the grant was awarded. Payments will not be made to recipients
until the reports are received and found to be valid.

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, (3) take all
reasonable and appropriate steps to recover the diverted funds, ensure other grants
funds held by the 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 all records related to the following: (1) individual
grants including information to evaluate grantees, (2) grantees which are identified as a
disqualified person, (3) how the amount and purpose of each grant was established, and
(4) how you established supervision and investigation of the 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
           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.

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