IRS approves multi-year research grants for chemistry and physics faculty

Plain-English summary

A private foundation proposed fellowship and research grants for mid-career tenured chemistry and physics faculty. University nominees would need relevant expertise, a strong record of achievement, curiosity-driven research plans, and a creative approach to new lines of research. A science advisory board would review applications and recommend finalists, and awards could support research staff, graduate stipends, technical staff, equipment, supplies, user fees, and limited administrative costs. The foundation intended to renew grants over multiple years if recipients continued to meet the criteria and use the funds properly. It also committed to annual and final reports, withholding payments until reports were received, investigating diversions, recovering misused funds, and maintaining grant records. The IRS approved the procedures under Section 4945(g)(3), so grants made under them would not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's procedures for research grants to chemistry and physics faculty satisfy the advance-approval rules for educational grants?
• Outcome: Approved.
• 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: 202122014
Release Date: 6/4/2021
Employer Identification Number:

Date: March 9, 2021
Contact person - ID number:

Contact telephone number:

LEGEND:

B = number
C = number
D = number
E = number
f dollars = amount
g dollars = amount

UIL: 4945.04-04

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 provide fellowship or other research grants to qualified individuals to improve or
enhance the scientific, teaching, or other similar capacity or skill of the grantee to
promote your exempt purpose. You expect to award grants to mid-career tenured faculty
members in chemistry and physics departments.

To be eligible for an award the applicant must:

• Have expertise in a field of study that is important to your charitable purposes

• Possess a strong record of academic or professional achievement in their
scientific field of physics or chemistry

• Have clearly articulated curiosity-based research plans and hypothesis

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• Possess a “restless mind” that by its nature seeks out new and creative lines of
research.

The number and amount of grants you award will depend on the philanthropic priorities of
your board of directors and available funds. Initially, B universities will be invited to
participate, with the objective of supporting C awards. As your process is refined, you
expect to increase this to D universities and support E awards. Initially, awards will range
from f to g dollars, depending on the recipient’s work as an experimentalist or theorist,
respectively, to be funded over a number of years. The grants will be awarded on an
objective and non-discriminatory basis.

You intend to renew grants over multiple years, assuming the recipient continues to use
the funds appropriately and for the intended purpose. If a recipient continues to meet the
eligibility criteria, you may allow for an extension or make additional awards to or on
behalf of a recipient.

The funds may be used for any reasonable expense that will fulfill the charitable
purposes of the award, including but not limited to:

• Post-doctoral research staff

• Graduate student stipends

• Non-faculty technical staff compensation

• Supplies and equipment

• User fees and administrative costs up to 10% of the award amount

You will publicize your award program by first targeting universities with strong chemistry
and physics departments. You will invite universities by letter to participate in the program
and nominate individuals for the award.

Your Science Advisory Board will be heavily involved in reviewing applications and
recommending finalists to your board of directors. Your Science Advisory Board is made
up of experts in chemistry, physics, and other basic scientific research fields.

You represent that you will arrange to receive, and review grantee reports annually and
upon completion of the purpose for which the grant was awarded. Payments will not be
made to recipients until the reports are received and found to be valid.

You will investigate diversions of funds from their intended purposes. You will take
reasonable steps to recover the diverted funds. You will maintain all records relating to
individual grants.

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

Letter 4779 (10-2012)
Catalog Number 58222Y

3

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.

Letter 4779 (10-2012)
Catalog Number 58222Y

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• 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

Letter 4779 (10-2012)
Catalog Number 58222Y