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Friday May 29, 2020

Private Letter Ruling

Foundation's Grant Procedures Approved

GiftLaw Note:
Private Foundation (Foundation) requested advance approval of its educational grant procedures under Sec. 4945(g)(3). Foundation plans to operate an educational grant program to make college more accessible and affordable for high school students, college students and adults, including active duty military, veterans and their families. All grants will be awarded on an objective and non-discriminatory basis. Applicants must submit a grant voucher request form after completion of a course. Foundation’s team will review voucher requests and issue vouchers to individuals with a specified passing rate or higher on quizzes and tests. Grant vouchers are for a specific dollar amount to cover the cost of an exam. Foundation’s team will review reimbursement requests and require an official candidate score report to verify the applicant’s score.

Expenditures from private foundations to individuals for travel, study or other similar purposes are generally taxable expenditures. However, Sec. 4945(g) provides an exception for grants that meet certain requirements. Under Sec. 4945(g), a grant will not be considered a taxable expenditure if the foundation awards the grant on an objective and nondiscriminatory basis; the IRS approves the grant procedure in advance; the grant is a scholarship or fellowship subject to Sec. 117(a) or the grant is 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 as described in Sec. 4945(g)(3). Here, the Service determined that Foundation’s procedures for awarding grants met the requirements of Sec. 4945(g). As such, the grants will not be considered taxable expenditures.
PLR 202010008 Foundation’s Grant Procedures Approved

3/6/2020 (12/11/2019)

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


You will operate a grant program, B, to allow students to earn up * * *. B allows users to benefit from * * * through C. C exams have been offered by G and the exams cover d * * *.

Enrollment in courses are open to all people without age, location, family income, nationality, prior credits or other factors. You make college more accessible and affordable for high school students, college students and adult learners, including active duty military personnel, their families and veterans, by colleges and universities accepting credits through C.

All grants will be awarded on an objective and non-discriminatory basis. Learners are required to submit a C voucher request form, upon completion of all course content. For this reason you do not require reporting on each individual issued a grant.

Your operations team reviews requests and issues vouchers to individuals who answer e percent or more of quiz and test questions correctly. Vouchers are issued for a fixed amount of f dollars, the cost of the C exam. The operations team also reviews test center reimbursement requests. Reimbursements are issued if the learner provides a valid receipt from the testing center, as well as an official candidate score report from the G to verify their score for review.

B is publicized with the help of a public relations firm. Publicity includes speaking engagements at conferences, endorsement on the C website, social media, emails to high school principal and guidance counselors and television interviews.

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 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.
  • 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

Published March 13, 2020

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