IRS approves international entrepreneur and artist grant programs

Plain-English summary

A private foundation requested advance approval for two educational grant programs serving individuals from a foreign country. One program would support entrepreneurs, including women in STEM, who proposed technology solutions with social impact. The other would support artists working with charitable, educational, or museum organizations to create and exhibit work with social impact. Applicants would undergo due diligence and objective selection, insiders and their relatives were ineligible, and recipients had to provide progress and final reports. The foundation also described recordkeeping, misuse-of-funds, foreign-sanctions, and monitoring procedures. The IRS approved both programs under Section 4945(g)(3), so grants made under the approved procedures would not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's procedures for its entrepreneur and artist grant programs satisfy the advance-approval rules for grants to individuals?
• Outcome: Approved.
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), 170(c)(2)(B), 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: 202124015
Release Date: 6/18/2021

Employer Identification Number:
Date: March 23, 2021

Contact person - ID number:

Contact telephone number:

LEGEND UIL: 4945.04-04

B = Grant Program
C = Grant Program
D = Country
E = number
y dollars = amount
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 intend to make grants to individuals in programs called B
and C. You plan to award up to E grants, ranging in amount from y dollars to z dollars.
Specific amounts will vary based on the need and situation of a particular grantee.

The purpose of B is to bring out the best in entrepreneurs from the developing world. You
are particularly interested in funding within your focus areas which are women in STEM
(Science, Technology, Engineering, and Mathematics) and individuals working and living
in D in need of an educational opportunity to make a global social impact. The applicant
pool will consist of young, brilliant entrepreneurs with innovative ideas to make the world
a better place and verifiable experience with creating a technology solution for a social

problem they have identified. All grantees will be required to participate in group activities
with their fellowship cohort and to produce something meaningful in their STEM discipline
in support of your charitable goals.

The purpose of C is to support artists from D working with charitable organizations,
educational institutions, and museums around the world. The goal is to promote the
cultural perspectives of D through artistic expression aimed at making a genuine social
impact. The applicant pool will consist of young, brilliant artists with innovative ideas to
make the world a better place and verifiable experience with creating and successfully
exhibiting their work through a regional or national venue. All grantees will be required to
share a portfolio of their supported work with you and to demonstrate that they
successfully exhibited their work in connection with an artistic, educational, or charitable
institution.

You will use the following general procedures and requirements for both programs:

• Require applicant to submit a letter of intent;

• Conduct an initial review of the applicant’s professional history to determine if their
work is consistent with the goals of the program;

• Require the applicant to complete a grant application that includes a description of
their career goals or artistic project, along with a budget and description of how
grant funds will be used;

• Conduct a pre-grant inquiry involving standard due diligence;
• Require at least one informal or formal progress report detailing the use of grant
funds, and may require multiple reports for a multi-year grant;

• Require the grantee to submit a final report at the end of the grant term sharing the
output of their efforts in the program with additional detail to demonstrate the
impact they have made towards your charitable goals.

You will publicize the programs via your website, your volunteers, recommendations from
prior grantees, and word-of-mouth. You will select applicants based on an objective and
nondiscriminatory basis. Selection criteria will include strength of the application,
outcome of the grant procedures described above, and overall potential to make an
impact in one of your philanthropic focus areas. Your officers, directors, and substantial
contributors, and the children or close relatives of such persons will not be eligible to
receive grants. All grant awards will be documented in a grant agreement and have a
timeframe for expenditure.

You are currently gathering your selection committee and anticipate it will consist of 2-3
members and will vary based on availability. You will seek to appoint those with adequate
education and professional backgrounds in philanthropy, business, finance, technology,
the arts or the sciences. Your founder will be a constant member and can add or remove
other members. Selection committee members and their children or close relatives will
not be eligible to receive grants.

Letter 4779 (10-2012)
Catalog Number 58222Y

In order to maintain the grant, individuals must provide progress reports and periodic
information, continue to meet the terms represented in the initial grant application,
satisfactorily pass any site visits, virtual interviews, or other data requests, and submit
updated financial, program, management, and organizational information on an annual
basis. Grants can be renewed if the previous grant met your reporting requirements and
demonstrated advancement of your philanthropic goals. The renewal grant will be subject
to the same qualification requirements.

In the event of a suspected misuse of funds, you will investigate to determine if the
situation is a mistake that can be corrected and will take appropriate action following your
investigation. Where there has been a misuse of grant funds, you may withhold future
payments to the grant recipient, work with the grant recipient to correct the misuse, and
seek the return of some or all grant funds. You represent that you will 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 will maintain complete records regarding the applications, selection process,
expenditures, and reports submitted by the grantees to allow you to continuously re-
evaluate and improve the grant program. You will maintain detailed case histories
recording the name and address of the applicant and the amount of the grant. Also
included will be application forms, reports and documents submitted by
applicants/grantees, confirmation that the applicant bears no relationship to the officers,
directors, and/or substantial contributors to you or members of the selection committee,
and any reasonable efforts related to due diligence on applicants. You represent that you
will maintain the following: (1) all records relating to individual grants including information
to evaluate grantees, (2) if a grantee is a disqualified person, (3) the amount and purpose
of each grant, and (4) information to establish that you undertook supervision and
investigation of grants.

For prospective foreign grantees, you will operate in compliance with all statutes,
executive orders and regulations restricting or prohibiting US persons from engaging in
transactions and dealings with terrorist designated countries, entities, individuals, or in
violation of economic sanctions administered by the Office of Foreign Assets Control
(OFAC). You will check the OFAC list of specially designated nationals and blocked
persons. You will acquire from OFAC appropriate licenses and registrations where
necessary. You will conduct periodic reporting, annual accounting, site visits, and
community accountability through relationships with partner organizations. You have also
engaged consultants with extensive experience with international grant-making
procedures to support your efforts.

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

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

• 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