IRS approves stipends for low-income students in an after-school arts program

Plain-English summary

A private foundation proposed an after-school fine-arts program for high
school juniors and seniors from low-income households. Participants would
study with art professionals, complete individual and group projects, and
learn about careers in curating, exhibitions, and education. The foundation
would pay each student a two-part stipend approximating what the student might
otherwise earn at a part-time job, conditioned on attendance, participation,
and completion of the program. Applicants would be selected from written
materials by the foundation's executive director and educational consultant,
with a goal of forming a diverse cohort of students who otherwise lack access
to arts study. The IRS approved the procedures under IRC § 4945(g)(3), so
grants made under them will not be taxable expenditures.

Ruling snapshot

• Question: Do the proposed stipends and selection procedures qualify for
  advance approval under § 4945(g)(3)?
• Outcome: Approved
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), 170(c)(2)(B),
  4945(g)(3), and 4946(a)(1); 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: 202045013
Release Date: 11/6/2020
Employer Identification Number:
Date: August 11, 2020
Contact person - ID number:

                                            Contact telephone number:



                                            UIL: 4945.04-04

B = Program
C = City

Dear :

You asked for advance approval of your educational grant procedures under Internal
Revenue Code (IRC) 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 IRC
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.

Your purpose is to advance the general public’s knowledge of, interest in and
appreciation for the fine arts and promoting education and scholarly research in the fine
arts.

You will operate B, an after-school program that offers the students in their junior or
senior year of high school learning opportunities through the study of the arts. The
participants in B will engage with a range of art professionals at museum and institutions
in C, develop individual and collaborative projects (including oral presentations, research

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papers and digital projects) and build knowledge of the career opportunities available in
the fields of curations, exhibition making and education. You will award stipends to high-
school students from low-income households for the specific objective as an opportunity
to participate in an after-school program, rather taking a part-time job. Stipends will be
paid directly to participants in two installments. Students will not be eligible to participate
in B more than once.

You will publicize B on your website, social media account and through word of mouth.
Participants in B will be selected based on the quality of their application materials and on
the location of their residents and the school they attend. You will require each applicant
to submit (i) a statement summarizing why he/she wants to join B and (ii) original piece of
academic writing (e.g., essay or article) of which applicant is proud. You will seek to
create a diverse cohort of students from low-income households who do not otherwise
have exposure to the study of the art.

Applicants will be selected for participation by your executive director and your
educational consultant. They will evaluate each applicant by reviewing his or her
application. You will enter into agreement with each participant upon approval of
application. You will set forth the responsibilities and requirements for each party. The
amount of each stipend will be calculated to approximate the amount that each student
could otherwise earn by taking part-tine job. It will vary from time to time and depend on
the length of the program.

Stipends will be paid directly to participants in two installments. The first installment
would be paid to participant upon successful completion of the first half of the program,
and the second installment will be paid upon successful completion of the remainder of
the program. Each participant in B will be awarded stipend if he or she (i) attends all
after-school sessions, (ii) actively participates in those sessions, and (iii) completes all
projects, reading and assignments. Each participant will be permitted up to two absences
for sickness and emergencies.

There will be no stated minimum or maximum number of stipends made in any tax year.
You anticipate approximately to participants in B. You will retain all material
information relating to each stipend, including (i) information relation to selection of
participant, including the participants’ application and confirmation that no such
participant was “ disqualified person” as defined in Code Section 4946(a)(1); (ii) the name
and address of the participant; (iii) the amount of each payment, the recipient of such
payment and the date thereof; ( iv) documentation of the participant’s satisfactory
completion of the program; and (v) any additional material information procured in the
process of administering the program.

Basis for our determination
The law imposes certain excise taxes on the taxable expenditures of private foundations
(IRC 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

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meets all of the following requirements of IRC 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 IRC 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 IRC 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 Regulation 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. It doesn’t
include other similar programs mentioned in your request, because there is no
detailed description is provided. 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




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  •   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 IRC 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

cc:

                                                                     Letter 4779 (10-2012)
                                                                     Catalog Number 58222Y