IRS approves global leadership grants and scholarships for teenagers

Plain-English summary

A private foundation proposed a global competition to identify teenagers with
leadership potential from diverse regions and backgrounds. Winners would
attend a residential leadership program, join a lifelong cohort, and become
eligible for later scholarships and grants to develop their capacity, skills,
or talents. The foundation would use multiple culturally sensitive assessment
rounds designed to reduce testing bias and identify applicants committed to
serving others. Scholarship recipients must provide transcripts or progress
reports, while other grantees must report on their development or the
charitable projects being funded. The foundation would investigate diverted
funds, maintain grant records, and screen international grants under Office of
Foreign Assets Control requirements. The IRS approved both the scholarship
procedures under IRC § 4945(g)(1) and the educational grant procedures under
§ 4945(g)(3).

Ruling snapshot

• Question: Do the global leadership program's scholarship and educational
  grant procedures satisfy the advance-approval requirements of
  §§ 4945(g)(1) and 4945(g)(3)?
• Outcome: Approved
• Key authorities: IRC §§ 74(b), 117, 170(b)(1)(A)(ii), 170(c)(2)(B), and
  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: 202041012
Release Date: 10/9/2020
Employer Identification Number:

Date: July 16, 2020
Contact Person - ID Number:

Contact Telephone Number:

LEGEND
X = Name

Y = Name

Z = Name

n = Numbers

p = Number

q = Number

r = Number

t = Numbers

u dollars = Amount

UIL: 4945.04-04

Dear

You asked for advance approval of your scholarship grant procedures under
Internal Revenue Code Section 4945(g)(1) and 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 scholarship grants under Internal
Revenue Code Section 4945(g)(1). We also determined your procedures for
awarding educational grants meet the requirements of Code Section 4945(g)(3).
Based on the information you submitted, and assuming you will conduct your
program as proposed, we determined that your procedures for awarding
scholarship and educational grants meet the requirements of Code Sections
4945(g)(1) and 4945(g)(3), respectively. As a result, expenditures you make
under these procedures won't be taxable.

Also, awards made under Code Section 4945(g)(1) are not taxable to the
recipients if they use them for qualified tuition and related expenses (subject to
the limitations provided in Code Section 117(b)).

Description of your request

Your letter indicates you are seeking advance approval for grant procedures
which will be initially implemented for a grant program named X.

The goal of X is to increase the opportunity for exceptional young people
worldwide to serve others throughout their lives and to build a diverse and
inclusive cohort that reflects a broad range of experiences, backgrounds,
passions and talents. Specifically, X will identify top leadership talent among
skilled teenagers between the ages of n from around the world through an annual

global competition.

Winners of the competition will become part of Y, which will continue to grow
over time, and is a key component of X. Individuals will be able to learn and
share ideas with others within Y throughout their lives that will allow them to
improve their own skills and talents to help them serve the public. Winners will
also be invited to attend a residential program, the initial component of X, the
summer before their final year of high school.

The curriculum of the residential program will be designed to foster cross-cultural
connections among grantees and to develop each grantee’s individual talents
and skills. The residential program will also provide the grantees with tools to
enable them to effectively serve others, how to become leaders and how to
transition to higher education and careers. Upon successful completion of the
residential program, they will be eligible for future grants toward improving their
capacity, skill, or talent and/or scholarships to attend a qualified educational
institution which will be administered under similar procedures. They may also
receive mentoring, and other assistance tailored to their specific needs and
interests as well as a variety of career services.

To promote X, you will conduct a global campaign to reach academically high-
performing youth to ensure that there is outreach to geographically isolated
individuals, individuals who do not perform well in traditional assessment
settings, and individuals who exhibit vast leadership potential through family or
community involvement. You will also involve teachers, counselors, faith-based
leaders, and youth-based organizations around the world in your campaign.

Further, you will work with your partner, Z, an IRC Section 501(c)(3) public
charity, and Y to identify individuals around the world to encourage them to apply
to X. You will also send individuals to visit a number of geographies to personally
meet with local leaders who will help spread the word as well as issue press
releases, editorials, and other public notices concerning X. Your aim in these
promotional efforts is to achieve p applicants

You will require applications for your programs. These will require applicants to
provide pertinent information related to the particular program’s purposes. To

select recipients of X, a committee composed of your representatives and partner
programs, as well as community leaders from diverse backgrounds and
disciplines will select recipients of X using objective, culturally sensitive
evaluation methods that account for differences in available resources to identify
the applicants with highest potential. Because the program is aimed at improving
the applicant's skills in a variety of different disciplines, you plan to focus on
assessments that test intelligence broadly, and not only on quantitative skills or
on particular areas of study. In addition to selecting candidates on a
nondiscriminatory basis, you plan to combat other biases that impact leadership
opportunities, such as testing bias. In order to reduce testing bias, you plan to
use multiple qualifying tests and allow applicants to submit any or all of them as
an assessment score.

Specifically for X, you plan to use multiple rounds of assessment to identify raw
talent in various disciplines, and leadership skills that indicate a lifetime
commitment of support and service to others. The first round of evaluation will
involve an assessment process by testing and/or essays. Out of the initial round,
you plan to select q applicants for the next round of the assessment, which will
be composed of an initial interview or activity that will identify candidates with the
targeted qualitative attributes for X such as persistence, vision, and interest in
serving others. You plan to use peer or group interviews, and/or a team which
will conduct a task-based assessment to evaluate the teamwork capabilities of
the applicants.

You also plan to conduct a final round evaluating approximately r of the
applicants based on in-person interviews, with a panel interview and an
observable test component. The final potential grantees will represent
geographic diversity with a conscious effort to select awardees from globally
underrepresented regions with a need for the leadership training that X provides
in the initial grant, and later opportunities that the grantees will apply for under
similar procedures. For X, you will require each recipient, or the recipient's legal
guardian if required under law, to sign a grant agreement before any funds are
disbursed.

You hope to award in the range of t annual grants for X, while the amount of any
individual grant for X will be whatever the costs are for the grantee to fully
participate in the residential program for their respective year. Additionally, the
total grant funds used for X is estimated to be approximately u dollars per year
initially, with the expectation that the amount of grant funds will grow in future
years.

You will assess the grantee's participation in the residential program. Such
assessment may include a report or interview that assesses the grantee's
advancement towards improving their capacity, skill, or talent. Any future grants
to participants of X will have a similar annual report required that, depending on
the purpose of the future grant, assesses either (a) the participant's advancement

towards improving their capacity, skill, or talent or (b) the charitable nature of an
individual's project being funded.

With respect to any scholarship or fellowship grants that are awarded to the
participants of the residential program, you will require the grantee to provide a
transcript from the academic institution listing the courses taken (if any) and
grades received (if any) during each academic period for the year in which the
grant was made. If the grant is provided for multiple years of study, then the
grantee will be required to provide such transcripts at least once per year. If the
grantee's course of study does not involve coursework, but only the preparation
of research papers or projects, such as the writing of a doctoral thesis, you will
require the grantee to submit a report on the progress of the paper or project at
least once per year and submit a final report upon completion of the grantee's

studies.

You will follow the progress of the individual grants, including reviewing each
report and making a determination as to whether the grant purposes are being or
have been fulfilled, and to look into any questions requiring further scrutiny or
investigation.

Where reports or other information (including failure to submit reports after a
reasonable time has elapsed from their due date) indicates that all or any part of
grant funds are not being used for their intended purposes, you will investigate.
While conducting the investigation, you will withhold further payments to the
extent possible until it has been determined that no part of the grant has been
used for improper purposes, and until any delinquent reports have been
submitted.

In addition, if you determine that any part of the grant has been used for improper
purposes and the grantee has not previously diverted grant funds to any use not
in furtherance of a purpose specified in the grant, you will withhold further
payments for the particular grant until (1) you have received the grantee's
assurances that future diversions will not occur, (2) any delinquent reports have
been submitted, and (3) you have required the grantee to take extraordinary
precaution to prevent future diversions from occurring. If you determine that any
part of the grant has been used for improper purposes and the grantee has
previously diverted your grant funds, you will withhold further payment until the
three conditions of the preceding sentence are met and the diverted funds are in
fact recovered or restored.

You will maintain case histories and document recipients of grants, including
names, addresses, amounts and number of grants, purpose of grants, manner of
selection and proof that they were not related to officers, trustees or donors.

In making any grants internationally, you will take the following steps to comply
with the rules and regulations issued by the United States Treasury Department’s
Office of Foreign Assets Control (OFAC):

• Check the OFAC List of Specially Designated Nationals and Blocked Persons
and avoid dealing with individuals, organizations, and entities on the list;

• Specifically prohibit diversion of charitable assets to support terrorism or other
noncharitable purposes in grant agreements with grantees;

• Not make grants to individuals if doubts exist that the grantee will use the funds
for the charitable purposes described in the grant agreement;

• Comply with all United States statutes, executive orders, and regulations that
restrict or prohibit U.S. persons from engaging in transactions and dealings with
designated countries, entities, or individuals, or otherwise engaging in activities in
violation of economic sanctions administered by OFAC.

• Acquire from OFAC the appropriate license and registration where necessary.

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 representatives 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