Professional artist grant procedures approved

Plain-English summary

A private foundation proposed grants to support the creative development and career advancement of professional artists who reside in a specified state. Applicants must have a significant body of original work, a minimum period of professional practice, and prior recognition through engagement with public audiences. Two panels of artists and arts-sector professionals will evaluate artistic quality, development goals, proposed activities, action plans, budgets, and feasibility. Recipients must report how they used the funds and achieved their stated goals, and the foundation will investigate missing reports and recover improperly spent funds. The IRS approved the procedures under section 4945(g)(3), so grants made as proposed will not be taxable expenditures.

Ruling snapshot

• Question: Do the foundation's procedures for grants to professional artists satisfy the advance-approval requirements for grants to individuals?
• Outcome: Approved, provided the program operates as described
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), 4945(d)(3), 4945(g)(3); Treas. Reg. § 53.4945-4(c)(1)

Full text (IRS public release)

Department of the Treasury Date: 09/03/2024
Internal Revenue Service
Tax Exempt and Government Entities

Taxpayer ID number:

P.O. Box 2508
Cincinnati, OH 45201 Person to contact:
Name:
ID number:
Release Number: 202448017 Telephone:

Release Date: 11/29/24

LEGEND

B = State

C = Number
D = Number
y dollars =
Amount

UIL: 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 a grant-making program to improve and enhance the development of art
and artists in B. The specific goals of your grant-making program are to support the creative development, and to
create continuous career advancement opportunities for professional artists. You anticipate providing up to C
grants per year, each valued at or below y dollars.

Eligibility criteria includes that an applicant must be a professional artist in any discipline or media, have a
significant body of original works of art, and be a resident of B at the time of application. For this purpose, a
professional artist is defined as an artist with D years of professional practice in an artistic discipline and prior
recognition of their work through engagement with public audiences. A resident of B is a person who files a
resident B income tax return. You will publicize your program through your online resources and those of your
partner organizations, and through prior grant recipients and organizations that serve individual artists.

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

Your program selection process will involve two panels of artists and arts sector professionals. First, a panel of
state or regional artists and arts sector professionals will select a group of finalists. Then, a second panel
comprised of regional or national art experts, will select the grant recipients.

The selection committees will focus on the range and quality of the applicant's work, the artistic and career
development goals that the applicant could achieve with the requested support, the potential of the applicant's
proposed activities to advance the applicant's artistic growth and career, the specificity and relevance of the
applicant's action plan, and the feasibility and appropriateness of the scope, timeline, and budget of the
applicant's proposed activities.

Each grant recipient will provide a final report detailing their uses of the funds and how the goals and objectives
described in the grant application were achieved. You will initiate an investigation if you don't receive the
appropriate reports. You will take all reasonable and appropriate steps to recover the improperly expended funds.
No grants will be renewed.

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.

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