Alumni educational-project grant procedures approved

Plain-English summary

A private foundation proposed one-time grants to alumni of three schools for innovative educational projects benefiting children, families, and communities. Applicants would submit a project description, learning objectives, timeline, expected results, and budget. The board would select recipients based on originality, community benefit, and alignment with the foundation's mission. Recipients would report project results and use of funds, and the foundation could recover funds if award terms were violated. The IRS approved the procedures under Section 4945(g)(3), so grants made as proposed would not be taxable expenditures. The approval depends on objective selection, performance of the funded activities, reporting, supervision, and recordkeeping.

Ruling snapshot

• Question: Do the foundation's procedures for alumni educational-project grants satisfy the advance-approval rules for grants to individuals?
• Outcome: approved, subject to the described selection, reporting, supervision, and recordkeeping requirements
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), 170(c)(2)(B), 4945(d)(3), 4945(g)(3), 6110; Treas. Reg. § 53.4945-4(c)(1)

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
P.O. Box 2508
Cincinnati, OH 45201

Date: 04/03/2023

Taxpayer ID number:

Person to contact:
Name:
ID number:
Telephone:

Number: 202326023
Release Date: 6/30/2023

LEGEND

B = School 1
C = School 2
D = School 3
E = State
y dollars = $
z = Number

UIL: 4945.04-04

Dear [redacted]:

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 a grant program to support innovative, creative, and unique educational
efforts that will improve the lives of children, families and their communities. Alumni of B, the C and the D, are
eligible to apply for funds to accomplish projects related to your purpose.

Your program will be publicized to alumni through online and print communications (websites, email, social
media, alumni magazines etc.) from you and E University. Approximately z grants per year up to y dollars each
will be awarded. You may increase this amount gradually over time based on experience with grantee projects
and to keep pace with inflation. Grants are made on a one-time basis.

Letter 4792 (Rev. 1-2022)
Catalog Number 58263T

Each individual seeking a grant will be required to complete an application describing the proposed project and
its intended participants or beneficiaries, learning objectives, timeline, and anticipated outcome or results. Each
applicant will also be required to submit a project budget. Proposed projects will be evaluated based on their
innovation, creativity, and originality, the degree to which they will improve the lives of children, families and
their communities, and their alignment with your mission.

Grant recipients are required to report final results of their project describing their accomplishments and
accounting for the funds received. The final report is expected to be provided within one year after the grant is
made. If a grant recipient's final report is not submitted within a year, the grantee will be required to report at
least once per year on the use of grant funds and progress made. You will reserve the right to recoup funds from
the recipient if they violate the terms of the award.

Your board of directors will serve as the selection committee. Relatives of members of the selection committee,
or of your officers, directors, or substantial contributors are not eligible for awards made under your program.

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 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
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.

Letter 4792 (Rev. 1-2022)
Catalog Number 58263T

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 deletions, 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.

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 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

Letter 4792 (Rev. 1-2022)
Catalog Number 58263T