A.12. Grants to Public Charities

(1) A general support grant awarded by a private foundation to a public charity

described in Sections 509(a)(1), (2), or (3) will not constitute a taxable expenditure described in Section 4945(d)(1), whether or not the public charity has made a Section 501(h) election, if the award is not earmarked for use to attempt to influence legislation. A grant is earmarked if the grant is given pursuant to an oral or written agreement that it will be used for specific purposes. See Treas. Reg. 53.4945-2(a)(5)(i) and (6)(i). The following example illustrates this provision.

Example: A private foundation, W, makes a general support grant to Z, a public charity described in Section 509(a)(1). Z informs W that, as an insubstantial portion of its activities, it attempts to lobby the State legislature concerning changes in the mental health laws. W has not earmarked the grant to be used to attempt to influence any legislation. Even if Z subsequently uses the grant for legislative activities, the grant is not a taxable expenditure under Section 4945(d)(1). For additional examples, see Treas. Reg. 53.4945-2(a)(7)(ii).

(2) A specific project grant awarded by a private foundation to fund a specific project

of a public charity is not a taxable expenditure if the:

a. Grant is not earmarked for use to attempt to influence legislation; and

b. Amount of such grant, together with other grants by the same foundation for

the same project for the same year, is less than or equal to the amount budgeted by the grantee organization for nonlobbying expenditures within the special project budget. See Treas. Reg. 53.4945-2(a)(6)(ii).

(3) If the grant is for more than one year, the aforementioned provision applies to

each year of the grant with the amount of the grant measured by the amount actually disbursed by the private foundation in each year or divided equally between years, at the option of the grantor private foundation. The same method of measuring the annual amount must be used in all years of a grant.

Example: A private foundation, M, makes a specific project grant of $150,000 to P, a public charity described in Section 509(a)(1). In the grant application, P stated that the total budgeted cost of the project is $200,000, and that of this amount $20,000 is allocated to attempts to influence legislation related to the project. M relies on the budget figures provided by P in determining the amount P will spend on influencing legislation, and M has no reason to doubt the accuracy

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or reliability of P’s budget figures. In making the grant, M did not earmark any of the funds from the grant to be used for attempts to influence legislation. M’s grant of $150,000 to P will not constitute a taxable expenditure under Section 4945(d)(1) because M did not earmark any of the funds for attempts to influence legislation and because the amount of its grant ($150,000) does not exceed the amount allocated to specific project activities that are not attempts to influence legislation ($200,000 – $20,000 = $180,000). For additional examples, see Treas. Reg. 53.4945-2(a)(7)(ii).

(4) If a public charity loses its Section 501(c)(3) status because of its attempts to

influence legislation, a grant that has been made by a private foundation to that public charity will not be a taxable expenditure if certain conditions are satisfied.

a. The grant is a general support or specific project grant;

b. The recipient organization had received a ruling or determination letter, or an

advance ruling or determination letter that it is described in Section 501(c)(3) and Section 509(a);

c. The private foundation has no knowledge that the IRS has revoked the public

charity’s Section 501(c)(3) status; and

d. The private foundation does not control that public charity directly or

indirectly. See Treas. Reg. 53.4945-2(a)(7). (See Treas. Reg. 53.49452(a)(7)(ii) for examples.)