Foundation may fund relocation and housing for STEM interns

Plain-English summary

A private foundation proposed stipends helping underserved and underrepresented college students pay relocation and housing costs for STEM internships. Eligible students would be rising sophomores, juniors, or seniors with at least a 2.5 GPA, an accepted internship, demonstrated financial need, and no relocation or housing assistance from the employer. The program would be publicized broadly, exclude insiders' relatives, calculate awards based on the internship city and estimated costs, and sometimes pay housing providers directly. The foundation would review reports, investigate diverted funds, recover misused amounts when appropriate, withhold further payments when necessary, and maintain detailed grant records. The IRS approved the procedures under section 4945(g)(3), so grants made under the program as described will not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's procedures for awarding relocation and housing stipends to STEM interns qualify for advance approval?
• Outcome: approved, expenditures under the described procedures will not be taxable
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), 170(c)(2)(B), and 4945(g)(3); 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: 202019031
Release Date: 5/8/2020

Employer Identification Number:
Date: February 10, 2020
Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04
B = Program
C = City

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

Your letter indicates that you will operate an educational grant program. The purpose of
your grant program is to enable underserved and underrepresented college students to
have access to, and participate in, internships in STEM (science, technology,
engineering, and math) careers.

You have an ongoing internship program called B. Through B, you partner with public
charities to help you reach students and enroll them in an internship program. Your
desire is that no student should have to forgo an internship opportunity due to an inability
to pay relocating or housing costs. As a result, you will offer stipends to participants who
demonstrate financial need and are not receiving assistance from his or her internship
employer. You will provide stipends to students so that the travel and housing expenses
are not an impediment.

Your grant program is designed for rising sophomores, juniors, and seniors with at least a
2.5 GPA from ethnically underrepresented groups. If a student accepts an internship
through the program and needs relocation and housing assistance, then the student is
eligible for your grant program. Students who seek a stipend must send you an email
summary of their accepted internship and his or her need for relocation and housing aid.

To obtain a stipend, a participant must contact you and present information relating to the
internship he or she has been awarded and information about whether the employer is
offering housing or relocation assistance. The student must also present information
regarding his or her financial need. You will review such requests with the assistance of
your governmental and college/university collaboration partners to determine the
applicant's eligibility for receiving a stipend. Stipends are not renewable.

You publicize your program on your website, social media, at career fairs, and through
collaboration with nonprofit business associations. The application for your grant program
is available online and open to any student who wishes to apply. Relatives of members of
the selection committee, or of your officers, directors, or substantial contributors, are not
eligible to apply.

You will determine the number of stipends made each year based on a determination of
which students need assistance. You anticipate awarding stipends to all program
participants who demonstrate financial need. The amount of the stipend is calculated to
provide relocation and housing assistance based on the city in which the internship is
located. For example, in the city of C, stipends are anticipated to be d dollars for the first
year of the operation of your grant-making program.

In instances where local universities or public charities provide the housing, the housing
portion of the stipend will be paid directly to such entities, and the student will receive the
relocation portion. In other instances, the student will receive the full stipend amount and
directly manage and pay the relocation and housing costs. You will supervise the
relocation for the student and help with the planning and will thus be aware of the
estimated cost of relocation and housing. You will use that cost to determine the stipend
amount and will also contact the housing provider to confirm payment before the
internship start date.

You represent 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 grant funds held by a
grantee are used for their intended purposes, and 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: (1) maintain 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
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