IRS approves nonprofit-board fellowship procedures

Plain-English summary

A private foundation proposed a year-long program of seminars and a retreat to train public-charity board members in governance, fiduciary duties, fundraising, meeting facilitation, leadership, and organizational effectiveness. A qualified selection committee would score applications and interviews using objective, nondiscriminatory criteria, while the foundation’s disregarded entity would pay program costs directly and supervise compliance. The IRS approved the grant procedures under section 4945(g)(3), so expenditures made under the program as described would not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation’s procedures for selecting and supervising fellows in a nonprofit-board development program qualify for advance approval?
• Outcome: approved
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), 170(c)(2)(B), 4945(g)(3); Treas. Reg. § 53.4945-4(c)(1)

Full text (IRS public release)

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

Number: 202011013 Employer Identification Number:
Release Date: 3/13/2020
Contact person - ID number:
Date: December 18, 2019
Contact telephone number:

LEGEND: UIL:
W = religion 4945.04-04
X = program
Y = city
Z = organization
b dollars = amounts
c dollars = amount
d 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 operate an educational grant program called X to provide professional
development and educational seminars through a year-long educational program that will
equip participants ("Fellows") with the knowledge and skills to become effective members
of boards of directors for W not-for-profit organizations in the Y metropolitan area and to
enable them to address issues confronting the W future in those roles.

X will be operated by Z, a single-member Limited Liability Company which is wholly
owned by you and disregarded for federal income tax purposes. You currently anticipate
the program to include -hour educational seminars conducted in the evening at a
prominent University in Y as well as an educational weekend retreat at a hotel or
convention center. During the seminars and weekend retreat, Fellows will participate in
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content-specific coursework and skill-development sessions. Topics covered will include
governance, fiduciary duties, meeting facilitation, fundraising, and W perspectives on
leadership.

X will be publicized by its program director who will seek nominations of not-for-profit
organizations throughout the W community months prior to the first seminar. You
anticipate receiving nominations from various not-for-profit organizations serving all ages
and socioeconomic needs while reflecting a diversity of focus, including organizations
that operate nationally and locally, new emerging organizations, day schools, day camps,
residential camps, and social service organizations. Z and the University will send
marketing materials, including a brochure and online application form, to nominated
organizations asking them to share the information with board members that they believe
would benefit from participation in X so that they may apply. X will then follow up with
interested board members to obtain completed applications.

To qualify for a grant, an applicant must be a board member of a not-for-profit
organization that is exempt under Section 501(c)(3) of the Internal Revenue Code and is
further classified as a public charity with an annual budget between c dollars and d
dollars and serving, or under the auspices of, the W community in the Y metropolitan
area.

A Selection Committee, composed of members of your staff and staff of the University,
who have expertise and experience in governance, leadership, and not-for-profit
organizations and their operations, will evaluate applications and interview applicants.
The Selection Committee will rate each application and interview using a scoring grid
based on objective and non-discriminatory criteria including: Leadership, Values,
, Personal Style & Awareness, Communication Skills, Ability & Willingness to
Commit to X, and Organizational Effectiveness. Upon completion of the interviews, the
Selection Committee will rank applicants based on the scoring grid and narrow the list to
approximately potential Fellows to be submitted to Z to be invited to participate in X
with an additional three applicants to be placed on a waiting list.

Although you may charge Fellows a fee for participating in X, you plan to pay all costs
associated with X which is estimated to be approximately b dollars per Fellow and
comprised of: an honorarium to presenters, staffing costs, catering, lodging, facility rental,
and materials. These costs are expected to be paid directly by Z to the University or
service providers.

The X program director will be responsible for supervising the implementation of the
program as well as development of curricular materials utilized by the program. Either
you or the program director will directly communicate with Fellows to receive feedback
regarding X with respect to how the program expenditures are being spent. Z will take
any and all reasonable and appropriate steps to compel compliance of use of funds for
their intended purposes, including requiring the return of all, or any portion, of funds
remitted and the withholding of funds not previously remitted in connection with X. You

                                                                    Letter 4779 (10-2012)
                                                                    Catalog Number 58222Y

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will also enter into an agreement with each Fellow setting out the terms of X and the
expectation that each Fellow participate in all conferences.

Although you currently plan to conduct X with one cohort of Fellows annually at a
University in Y, in the future you may decide to conduct additional cohorts in the same
year, potentially in another metropolitan area. However, the operation of X, including the
manner in which you select Fellows, will remain the same.

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.

                                                                        Letter 4779 (10-2012)
                                                                        Catalog Number 58222Y

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• 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




                                                                    Letter 4779 (10-2012)
                                                                    Catalog Number 58222Y

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