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Friday May 17, 2024Private Letter RulingEducational Grant Procedures Approved
GiftLaw Note:
Foundation requested advance approval of its scholarship procedures under Sec. 4945(g)(3). Foundation plans to operate a scholarship program to provide individuals a one-time stipend and access to Foundation's leadership and mentoring program for one year. The purpose of the program is to allow the recipient to develop leadership skills and enhance leadership effectiveness through both participation in an individualized educational program and other leadership developing activities. Foundation's goal is to support local leaders from undeserved communities in professional and career growth. Foundation will promote the scholarship program through its website, social media platforms and through direct contact with other local nonprofits. The scholarship is a one-time grant paid in single or multiple installments within a single year. To be eligible, individuals are required to be residents of State and work for local nonprofits or grass roots organizations in the area of youth or the adjacent areas of youth education, behavioral health, juvenile justice or child welfare. A selection committee will select recipients on an objective and nondiscriminatory basis. Applicants must submit a written application and provide one or more letters of support from their organizational leaders demonstrating the organization's support of the applicant as a candidate. Scholarships are not available to creators, officers, directors, trustees or members of selection committees or their relatives. Under Sec. 4945, there is an excise tax on taxable expenditures of private foundations. A taxable expenditure is any amount paid to an individual for travel, study or other similar purposes. Under Sec. 4945(g), an expenditure is not taxable if it is awarded on an objective and nondiscriminatory basis, the IRS approves the grant procedures in advance, the grant is a scholarship or fellowship subject to Sec. 117(a) and the grant is to be used for study at an educational organization described in Sec. 170(b)(1)(A)(ii). Here, the Service determined that Foundation's scholarship procedures met the requirements of Sec. 4945(g)(3). Thus, the educational scholarship will not be considered a taxable expenditure.
PLR 202309020 Educational Grant Procedures Approved
3/03/2023 (12/07/2022) 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 determinationWe 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 requestYour letter indicates you will operate X, to provide individuals within W a one-time stipend and access to your leadership development/mentoring program for one year. The purpose of X is to allow the recipient to develop leadership skills and enhance leadership effectiveness, through both participation in an individualized educational program coordinated by you, and other leadership developing activities to be chosen by the Fellow. Your goal is to support local leaders originating in underserved communities in professional and career growth and create a cohort of leaders working in the realm of youth * * * and related systems. You will publicize the existence of X through your website, social media platforms on which you participate, and direct contact with other local non-profit organizations. X is a one-time grant of approximately y dollars, paid in single or multiple installment(s) within a single year. The stipend will defray costs that serve as barriers to each Fellow's personal leadership capacity. You expect to provide roughly Z grants annually. X will include both individual and group leadership development components. Fellows will work independently with an expert facilitator, participate in quarterly group sessions, engage in discussions resolving barriers to leadership, and have access to coaching and advises from experienced leaders. To be eligible for X an applicant must reside within W and work for local nonprofits or grass roots organizations in the area of youth * * *, or the adjacent areas of youth education, behavioral health, juvenile justice, or child welfare. Applicants must submit a written application and provide one or more letters of support from their organizational leaders demonstrating the organization's support of the applicant as a candidate. Grants are paid either (1) directly to the grantee, or (2) to the grantee's employer, only if such employer is a Section 501(c)(3) organization that is a "public organization" within the meaning of Section 53.4945-S(a) of the Treasury Regulations. In either case, the grants will be subject to all requirements set forth in the Grantmaking Guidelines adopted by your Board of Trustee on D. You have developed the following selection criteria designed to identify individuals who will most effectively utilize your resources to further their careers. Does the Fellow:
Each recipient shall provide a brief initial development report summarizing the award recipient's progress toward the program and goals set out in the application. Each recipient is also required to submit expense report no later than * * * months after any disbursement of award. The permissible expenses include, but are not limited to, childcare, food, housing, transportation, education, additional coaching, and medical expenses. These reports must be received prior to the disbursement of any unpaid portion of the grant. The recipients must submit final development reports detailing their accomplishments through X and a final expense report explaining how the funds were used. You represent that you will complete the following:
Basis for our determinationIRC 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.
Other conditions that apply to this determination
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 Published March 10, 2023
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