Advance approval of a private foundation's grant procedures for an opera-singer training program

Plain-English summary

A private foundation runs a month-long training and coaching program for young opera singers, providing housing, meals, and coaching from opera-house professionals as they transition from conservatory to professional careers, culminating in a performance at an arts festival. Because a private foundation's grants to individuals for study or similar purposes are "taxable expenditures" (subject to excise tax) unless the IRS approves the grant procedures in advance, the foundation asked for that approval under § 4945(g)(3). The IRS approved the procedures, finding they use an objective and nondiscriminatory selection process (a panel judges live auditions), that recipients will perform the funded activities, and that the foundation will obtain reports and monitor for misuse of funds. As a result, grants made under these procedures will not be taxable expenditures. The approval is limited to the described program, applies only to this foundation, and cannot be cited as precedent. Notably, grants are paid directly to the service providers, not to the singers, and the foundation may not fund insiders or their relatives.

Ruling snapshot

• Question: Do the foundation's procedures for awarding grants to opera singers qualify for advance approval under § 4945(g)(3), so the grants are not taxable expenditures?
• Outcome: Approved (grant procedures meet the § 4945(g)(3) requirements)
• Key authorities: IRC §§ 4945(d)(3), 4945(g)(3), 117(a), 74(b), 170(b)(1)(A)(ii), 170(c)(2)(B); Treas. Reg. § 53.4945-4(c)(1)

Full text (IRS public release)

This document is a scanned image; the text below is from OCR of the official
IRS release. Repeated page furniture (the "Letter 4792 (Rev. 4-2021)" and
"Catalog Number" footers and bare page numbers) was removed and obvious OCR
misreads were corrected. The body wording is reproduced verbatim; genuinely
unreadable spots are left as scanned or marked [illegible].

Department of the Treasury
vA) Internal Revenue Service

Tax Exempt and Government Entities
IRS P.O. Box 2508

Cincinnati, OH 45201

Date: 02/08/2022

Number: 202218027 Taxpayer ID number:
Release Date: 5/6/2022

Person to contact:

ID number:
Telephone:

LEGEND UIL: 4945.04-04
B = Online Application

C = Language

D = Number of Scholarships

E = Age of Participant

F = Age of Participant

g dollars = Grant Amount

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 provide grants to individuals selected to participate in a training and coaching

program that want to enhance their opera singing careers. The purpose is to provide additional training to singers
after they graduate from music conservatories and before they become full-fledged singers in opera houses and
symphony orchestras. You will provide housing, food per diem, and training from various coaching professionals
from opera houses and other music organizations. You will advertise the program in print and online media
widely circulated in the opera industry. Your application is online at B.

Your training will be a month-long program. Your curriculum includes individual coaching and voice sessions in
various standard styles of vocal and modern operatic repertoire, rehearsals and various performances. You will
also include a general introduction and background to performing in C, discussions on career building and
development, and a variety of other related topics focused on advancing in this style of music and performance.

Your training will culminate into a performance at an arts festival, where participants will ultimately be judged on
their performance.

You plan to award up to 1D grants, estimated to be about g dollars per singer. Eligibility requirements for the
applicants are ine who are E years of age or younger of women F years of age or younger by the program start
date. To qualify a panel of opera professionals will listen to a live audition for each potential recipient to
demonstrate their merit and potential. The number of singers accepted into the program will be determined by
the amount of funds available. Participants can be eligible to renew the grant by continuing to participate in the
program.

Your selection committee is made up of your artistic director and other faculty members who are experts in the
opera industry. No funds are paid to the students to provide this training. All grants will be paid directly to the
vendor providing the service.

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 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 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 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.

* This determination applies only to you. It may not be cited as a precedent.

+ You cannot rely on the conclusions in this letter if the facts you provided have changed substantially.
You must report any significant changes to your program to the IRS at:

Internal Revenue Service

Exempt Organizations Determinations
TE/GE Stop 31A Team 105

P.O. Box 12192

Covington, KY 41012-0192

* You can't award 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 further the purposes of your
organization. You cannot award grants for a purpose that is inconsistent with IRC 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'll make this determination letter available for public inspection after deleting personally identifiable

information, as required by IRC Section 6110. We've enclosed Letter 437, Notice of Intention to Disclose -
Rulings, and a copy of the letter that shows our proposed deletions.

» If you disagree with our proposed delctions, follow the instructions in the Letter 437 on how to notify us.

+ If you agree with our deletions, you don’t need to take any further action

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

Enclosures:

Letter 437

cc: