IRS approves a foundation's procedures for sabbatical and summer research grants to scholars

Plain-English summary

A private foundation asked the IRS to approve, in advance, how it will award research
grants to individuals. Private foundations normally owe an excise tax on grants to
individuals for study or similar purposes, but Section 4945(g) exempts such grants if
the IRS approves the foundation's award procedures ahead of time and the grants are
made objectively and nondiscriminatorily. Here the foundation runs a program that
provides salary support during a sabbatical leave or a summer break so scholars can
work full-time on original research and writing, with preference for topics tied to the
foundation's mission (political science, religion, history, economics). Recipients are
chosen on objective criteria such as professional qualifications, publication history,
and the fit and importance of the proposal, and the foundation commits to monitoring
grantees, investigating any misuse of funds, and keeping records. The IRS approved the
procedures under Section 4945(g)(3), so grants made under them will not be taxable
expenditures. The approval covers this program and later programs only if their
standards do not differ significantly.

Ruling snapshot

• Question: Do the foundation's research-grant procedures qualify for advance approval under § 4945(g)(3), so the grants are not taxable expenditures?
• Outcome: Approved
• Key authorities: IRC § 4945(d)(3), (g); Treas. Reg. § 53.4945-4(c)(1); IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii)

Full text (IRS public release)

Transcription note: This determination is a scanned document (Letter 4792). Per
the runbook's OCR proofreading duty, obvious scanning misreads have been corrected
to the letter's standard wording; genuinely unreadable spots are marked [illegible];
blanks where the IRS redacted identifying details are left as gaps. Wording is
otherwise reproduced verbatim.

Department of the Treasury
Internal Revenue Service

Tax Exempt and Government Entities
IRS   P.O. Box 2508
      Cincinnati, OH 45201
                                                     Date: January 11, 2022

Number: 202214016                                    Taxpayer ID number:
Release Date: 4/8/2022
                                                     Person to contact:
                                                       Name:
                                                       ID number:
                                                       Telephone:
                                                     LEGEND:       UIL:
                                                     X = program   4945.04-04

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 IRC Section 4945 provides for the imposition of taxes on each taxable
expenditure of a private foundation. IRC Section 4945(d)(3) provides that the term "taxable expenditure"
includes any amount paid or incurred by a private foundation as a grant to an individual for travel, study, or
similar purposes by the individual, unless the grant satisfies the advance approval requirement of IRC Section
4945(g).

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 you will operate X. X will support original research and writing which furthers your core
mission. Preference shall be given to proposals in the areas of political science, religion, history, economics, and
civilization. X is designed to provide salary support during a sabbatical leave or for summer research.
Successful applicants are expected to devote themselves full-time to the proposed project during the period of the
grant.

It is primarily expected that candidates will be scholars with advanced degrees in their area of specialization,
applying to use the grant to make full-time research and writing possible during a sabbatical leave, or to enable

Letter 4792 (Rev. 4-2021)
Catalog Number 58263T

full-time research and writing during a summer break. While most successful candidates will be employed in
academic institutions of higher education, full-time          , public intellectuals, or experts may also
qualify so long as they have the requisite qualifications and/or experience and are released from their other
obligations to be able to work full-time on their project for a minimum of          months.

Recipients will be selected based upon their professional qualifications, their eligibility for a sabbatical research
leave of absence, prior publication history, the affinity of their proposal to your substantive mission, the
importance of their subject to that mission, and the likelihood that their work product will make a meaningful
contribution to their field or in furthering public understanding.

Funds may be used for salary support and/or for research-specific travel and related expenses directly relevant to
the project. Amounts granted shall be based on the equivalent of salary and benefits during the academic year—
or salary only during the summer—of the applicant.

You represent that you will complete the following:

* Arrange to receive and review grantee reports annually and upon completion of the purpose for which the
  grant was awarded,
* Investigate diversion of funds from their intended purposes,
* Take all reasonable and appropriate steps to recover the diverted funds and 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 diversion from occurring.

You also represent that you will:

* Maintain all records relating to individual grants including information obtained to evaluate grantees,
* Identify whether a grantee is a disqualified person,
* Establish the amount and purpose of each grant, and
* Establish that you undertook the supervision and investigation of grants described above.

Basis for our determination
IRC Section 4945 imposes excise taxes on the taxable expenditures of private foundations. 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 the following requirements of IRC Section 4945(g) is not a taxable expenditure.

* The foundation awards the grants 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 IRC 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

Letter 4792 (Rev. 4-2021)
Catalog Number 58263T

    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 only covers 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.

Please keep a copy of this letter in your records.

If you have questions, you can contact the person shown at the top of this letter.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Letter 4792 (Rev. 4-2021)
Catalog Number 58263T