Saturday June 6, 2026

Private Letter Ruling

Art Organization's Grant Procedures Approved

GiftLaw Note:
Foundation plans to operate a grant program for visual artists whose art careers have been delayed due to significant life disruptions such as having a disability or being a caregiver. Artists must have had their careers interrupted for at least two years and have returned to creating art for at least one year. Foundation plans on publicizing their grant program through announcements on its website, partnerships with other nonprofit organizations in the same area and through websites that list similar opportunities to the public. Applicants must apply to the grant program by submitting a completed application, a resume and samples of original artwork created within the past three years. Grant recipients will be primarily selected based on capacity and ability as an artist and may not be based solely on financial need. Foundation’s selection committee will be comprised of at least three art professionals who will be recruited through diverse local networks and input from local nonprofit art executives. Organization’s selection committee will award grants on an objective and nondiscriminatory basis. Foundation requested advance approval of its grant procedures under Sec. 4945(g).

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 educational grant procedures met the requirements of Sec. 4945(g). Thus, the educational grant programs will not be considered a taxable expenditure.

PLR 202427007 Art Organization’s Grant Procedures Approved

7/5/2024 (4/11/2024)

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 giants 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 called the W.

The purpose of the W is to advance the artistic endeavors of visual artists living * * * X area who have experienced significant life disruptions (disability, caregiving, incarceration, etc.) in their art careers of at least two years and have returned to creating art for at least one year. Work in the visual arts includes, but is not limited to:

• Drawing

• Painting

• Mixed media

• Printmaking

• Photography

• Sculpture

You will publicize your grant program through announcements on your website, strategic partnerships with other nonprofit organizations that service the same population, and websites that list similar opportunities for the public. You anticipate thousands of individuals applying annually.

Available funding will affect the total number and amount of your grants, but you anticipate awarding Y annual grants worth z dollars each, paid directly to your grant recipients. Your grants are not renewable, but grantees may reapply in subsequent years.

Eligible applicants who have resumed their artistic pursuits for at least one year may apply to your program by submitting a completed application, a curriculum vitae or resume, and samples of original art created within the past three years. Selection criteria will include demonstrated artistic achievement and an expressed commitment to produce art that is creative, community-centered, and collaborative. The primary selection criteria will be capacity and ability; however, you may also consider extraordinary need in your selection process but will not use financial need as a primary determinant in the process.

Your independent selection committee will consist of at least three individuals with demonstrated knowledge and/or lived experiences as art professionals or working artists. You expect that at least one member of the selection committee will have prior experience with grantmaking. These members will be recruited by spreading word through diverse local networks and input from local nonprofit art executives. Replacement committee members will be chosen in the same manner and through the networks of the remaining committee members.

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:

o 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

o 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

o 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 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

Published July 19, 2024

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