IRS approves weekly community solution grants

Plain-English summary

A private foundation proposed weekly grants to individuals or teams for research and solutions benefiting residents of three cities. It would publicly announce each application cycle, require a detailed proposal, timeline, and budget, and screen submissions for completeness and fit. Qualifying applicants would vote on the best community ideas, effectively serving as an independent selection committee, while the foundation retained final review and set the award amount. Recipients would sign agreements, complete their projects within a year, and submit progress and spending reports. Directors, employees, and their relatives were ineligible, and the foundation committed to monitoring, recovery, and recordkeeping procedures. The IRS approved the program under IRC § 4945(g)(3).

Ruling snapshot

• Question: Do the weekly community solution grant procedures satisfy the advance-approval requirements of § 4945(g)(3)?
• Outcome: Approved
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), and 4945(g)(3); Treas. Reg. § 53.4945-4(c)

Full text (IRS public release)

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

Date: October 6, 2020 Employer Identification Number:

Contact person - ID number:
Number: 202053016

Release Date: 12/31/2020 Contact telephone number:
LEGEND UIL: 4945.04-04

C= Name

D= City

E= City

F= City

z 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 C.

The purpose of C is to fund research and solutions connected [redacted]
to benefit the residents of D, E, or F. Specifically under C, you
plan to award a weekly award up to z dollars to the recipients. Your recipients will also
have access to on-call support from you and opportunities to connect with other
recipients.

Each week, you will notify potential applicants that applications may be submitted. These
notifications will take a variety of forms, including public announcements on your
webpages, social media pages, direct emails, and announcements from partner
organizations in the community. All materials will also indicate a deadline for application
submissions.

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To be eligible for a grant under C, an applicant may be either an individual or a team and
must:

• Submit a creative way to support the community during the [redacted];
• Submit a solution focusing on supporting the residents of D, E, or F;
• Submit a solution [redacted].

Further, all applicants must supply a timeline and budget for their proposed solution to
show that the project can be accomplished within a year of the start of their project.

To apply for a grant under C, applicants must submit detailed proposals to your staff.
Specifically, concerning the application and review cycle, you will accept proposals every
Friday through Tuesday. Your staff will determine which applications are complete as well
as determine that the proposal describes a qualifying activity within the scope of C’s
purpose. Then each Wednesday and Thursday, qualifying proposals will be reviewed by
the team applicants who will vote on the best ideas for the community. The teams,
therefore, will effectively function as the independent selection committee

The proposed solution receiving the highest number of votes will then be declared the
winner subject to your review and approval to ensure the winning proposal meets your
criteria. On [redacted], the prize recipient will be announced, and funding will subsequently
be disbursed. Further, you will determine the specific amount awarded based on the
recipient’s proposal and budgets up to z dollars. This amount is discretionary and may be
increased or decreased each week. In addition, the recipients are limited to one award
and it will be paid directly to the recipients.

The recipients will enter into an Award Agreement with you explaining the conditions of
the award. Particularly, recipients must agree to submit periodic reports including but not
limited to, details of the progress of the proposals, and amounts spent since their last
report.

You will maintain and retain records pertaining to all awards. Records will include but not
be limited to all information secured to evaluate the qualifications of potential recipients,
identification of recipients including any relationship of a recipient to your directors,
officers, employees, the amount of each award and information concerning the solution
proposed by each recipient. You will retain these records for a reasonable period of time,
but in no event less than [redacted] after the filing of your tax return for the tax period
covering an application cycle. All information pertaining to unsuccessful applicants will be
retained along with information on successful applicants.

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 grant funds

Letter 4779 (10-2012)
Catalog Number 58222Y

3

held by the 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 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.

Finally, your Board of Directors, employees, and relatives of either, are not eligible to
receive awards and will not be in a position to receive a private benefit, directly or
indirectly from C.

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

Letter 4779 (10-2012)
Catalog Number 58222Y

4

• 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

Letter 4779 (10-2012)
Catalog Number 58222Y