IRS approves a foundation's post-doctoral fellowship grant procedures under § 4945(g)(3)

Plain-English summary

A private foundation asked the IRS to approve, in advance, the procedures for a
post-doctoral research fellowship program it will run. Private foundations normally owe
an excise tax on grants to individuals for study, but Section 4945(g) exempts such grants
when the IRS approves the award procedures beforehand and the grants are made
objectively and nondiscriminatorily. This program awards in-residence fellowships to
recent PhD recipients in a specialized classical field so they can revise their
dissertations for publication or start a new post-dissertation project while hosted by a
U.S. university or research institution, where the fellow must teach a course and give at
least one lecture each year. Each fellowship carries an annual stipend plus a research
fund, runs up to two years subject to a satisfactory first-year progress report, and is
awarded by a selection committee with conflict-of-interest safeguards that bars the
foundation's insiders and their relatives. The IRS approved the procedures under Section
4945(g)(3), so the grants will not be taxable expenditures for the foundation.

Ruling snapshot

• Question: Do the foundation's post-doctoral fellowship grant procedures qualify for advance approval under § 4945(g)(3)?
• Outcome: Approved
• Key authorities: IRC § 4945(g); §§ 117(a), 74(b), 170(b)(1)(A)(ii); Treas. Reg. § 53.4945-4(c)(1)

Full text (IRS public release)

Transcription note: This determination is a scanned document (Letter 4779). 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, and the letter's LEGEND
placeholders (B, C, D, E, F, G, H, v dollars, w dollars) are kept as released. Wording
is otherwise reproduced verbatim.

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

                                      Employer Identification Number:
Date: January 11, 2022

Number: 202214020                     Contact person - ID number:
Release Date: 4/8/2022

                                      Contact telephone number:

                                      LEGEND       UIL: 4945.04-04
                                      B = Name
                                      C = Subject
                                      D = Date
                                      E = Organization
                                      F = Organization
                                      G = Date
                                      H = Date
                                      v dollars = Amount
                                      w 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 B.

The purpose of B is to award post-doctoral research fellowships to recent recipients of
the PhD degree working in classical C. The fellowship is intended to provide grantees
with an opportunity to revise their dissertations and prepare them in publishable form,
and/or to undertake a new, post-dissertation research project with an accredited college
or university or museum research department. Specifically, B is an in-residence grant,
meaning that a grantee must be affiliated with an appropriate program at a U.S. university
or other U.S. institution of higher learning and/or research, and must demonstrate that
program's willingness to act as host. Normally, the institution would be other than the one
from which the applicant received their PhD degree. The grantee will also be required to
independently teach one course and to present at least one lecture in an appropriate
forum at the host institution during each year of their fellowship. Those who would be
hosted by non-teaching institutions such as independent research centers or museums
must submit a tentative program of lectures and seminars. In no circumstance should the
post-doctoral fellowship be conceived by the host institution as leave replacement,
course relief, or succession of a faculty member. Potential grantees are not permitted to
be hosted by an institution in which they have previously served in a faculty capacity.

You will administer B. Specifically, you will survey potential grantees, award grants,
administer grants, review required reports from grantees, oversee implementation of the
grants and distribute funds directly to grantees. Your fellowships will be awarded on an
objective and nondiscriminatory basis. You will promote B on your website as well as the
websites of E and F. You also make announcements to the heads of departments in each
of the leading programs at American universities.

The fellowship period for B will typically begin at the commencement of the academic
year of the host institution and will continue for the two following years. In the case when
the host institutions are not an academic institution, you will coordinate the specifics of
the fellowship with both the recipient and host institution. Additionally, each fellowship will
carry an annual stipend of v dollars plus a research fund of up to w dollars and will be
payable to the grantee. Amounts will be reviewed biannually. In addition, when
applicable, on the condition that the host institution will give the grantee access to their
faculty health care program at the regular faculty subsidized rate during the entire grant
period, you will reimburse the cost of the coverage, as well as other related expenses, to
the host institution up to a maximum of 20% of the grant's annual stipend.

To be eligible for B, the applicant must have completed a doctoral degree or equivalent in
a relevant field of Classical C at an accredited university in any country within four years
before the beginning of the date of the fellowship. They must also be affiliated with an
appropriate program at a qualified university or other United States institution of higher
learning and/or research as well as have completed all requirements for their PhD degree
no later than D of the year in which the fellowship will begin.

To apply for B, applicants must complete and submit an application form by D along with
a one-page curriculum vitae, and a project proposal of no more than one thousand words
describing the research to be undertaken during the fellowship. They must also provide a
description of the nature and content of the research they will undertake during the
fellowship and a description of how this relates to their dissertation and to the importance
of the field of C. In addition, applicants must include a description of their dissertation and
any subsequent research in C as well provide the name of a faculty member at the
proposed host institution who would serve as their mentor. Applicants must also submit
two letters of support from academic persons familiar with their work, plus a letter from an
appropriate authority at the proposed host institution indicating the institution's willingness
to host them.

Letter 4779 (10-2012)
Catalog Number 58222Y

You will review all application packages for completeness. Complete packages will then
be evaluated by the Fellowship Selection Committee, which will consist of your President
and Vice President as well as other members annually appointed at the beginning of
each grant cycle by you. Each member of the Selection Committee is obligated to
disclose the existence of a relationship that they have with any potential grantee under
consideration. A Selection Committee member will refrain from participation in the award
process if such member could derive, directly or indirectly, a tangible private benefit from
any potential grantees' selection over that of other potential grantees. Your officers,
directors, substantial contributors, Selection Committee members, and their children or
close relatives are not eligible for grants made under B.

Those selected will be notified by early spring and must agree to the terms of the grant.
Specifically, the grantees must agree to independently teach one course and to present
at least one lecture in an appropriate forum at the host institution during each year of their
fellowship. Continuation of the fellowship for the second year will be conditional on:

a. The grantee's submission of a report documenting satisfactory progress during the
first year, and

b. A letter from an appropriate officer of the host institution indicating their willingness
to continue hosting the grantee for a second year.

Grantees are required to submit progress reports to the board of directors bi-annually on
G and H of the years during the grant is in effect to determine if the grantees have
performed the activities the grants are intended to finance. A more detailed report, up to
four pages in length, is to be submitted to you within one month after the end of the grant
period. Awardees are also expected to provide you copies of any scholarly publications
resulting from research conducted during the grant period, regardless of their date of final
publication. Failure to submit reports promptly may result in suspension or revocation of
the fellowship.

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
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.

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

Letter 4779 (10-2012)
Catalog Number 58222Y

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

- 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

Enclosure-Letter 437

Letter 4779 (10-2012)
Catalog Number 58222Y