C.17. Submission of Request for Approval of Grant-Making Information

(1) The request for advance approval of grant-making procedures must fully describe

the private foundation’s grant procedure (such as a system of standards, processing procedures, and so on) for awarding grants and for ascertaining that such grants are used for the proper purposes. The request may be submitted to EO Determinations. See Treas. Reg. 53.4945-4(d)(2) and Rev. Proc. 2024-5, 2024-1 I.R.B. 262 (annually updated).

a. In John Q. Shunk Ass’n. Inc. v. United States, 626 F. Supp. 564 (E.D. Ohio

1985), the court held that advance approval under 4945(g) is a mandatory, substantive requirement. See also German Society of Maryland, Inc. v. Commissioner, 80 T.C. 741 (1983).

b. However, taxes for failure to acquire advance approval of the IRS may be

abated under Section 4962.

(2) The request must contain the following:

a. A statement describing the selection process;

b. A description of the terms and conditions under which the foundation

ordinarily makes such grants, which is sufficient to enable the IRS to determine whether the grants awarded under such procedures would meet the requirements of Section 4945(g)(1), (2), or (3);

c. A detailed description of the private foundation’s procedure for exercising

supervision over grants; and

d. A description of the foundation’s procedures for review of grantee reports, for

investigation where diversion of grant funds from their proper purposes is indicated, and for recovery of diverted grant funds.

37

(3) The approval procedure does not contemplate a series of separate approvals of

particular grant programs. Once a private foundation’s grant procedures are approved by the IRS, such grant-making procedures apply to a new grant program so long as the procedures do not materially change. See Treas. Reg. 53.4945-4(d)(1).

(4) If a private foundation submits a proper request for approval of its grant-making

procedures and the IRS does not notify it within 45 days that the procedures are not acceptable, then the procedures shall be considered as approved from the date of submission until receipt of actual notice that such procedures are not acceptable. Any grants made under those procedures will not be taxable expenditures. If a grant is made to an individual after the IRS notifies the private foundation that its procedures are disapproved, the grant is a taxable expenditure. See Treas. Reg. 53.4945-4(d)(3).

a. In Rev. Rul. 81-46, 1981-1 C.B. 514, a private foundation had not received a

reply to a request for approval of its grant-making procedures within 45 days of its submission and, thereafter, awarded several installment grants. Prior to the completion of grant payments, the IRS notified the private foundation that its grant-making procedures were not approved. Nevertheless, the IRS held that the remaining payments of the installment would not be taxable expenditures since the private foundation was already obligated to make them. However, any renewals of grants awarded during the period would be taxable expenditures since the renewal would be discretionary.

(5) A private foundation may request an approval of its grant procedures with its

submission of Form 1023, Application for Recognition of Exemption under Section 501(c)(3). A full and complete disclosure of its grant-making procedures and information required by Treas. Reg. 53.4945-4(d)(1) must be submitted in conjunction with the application. The IRS has 45 days, as in a separate request situation, to rule on the procedures. Approval of the private foundation’s exemption application does not in itself constitute approval of the organization’s grant procedures unless the exemption letter so provides. A private foundation may also request approval using Form 8940.

a. In Rev. Rul. 86-77, 1986-1 C.B. 334, the 45-day rule was applied, and no

taxable expenditures were found in a situation where the private foundation’s exemption application did not specifically request advance approval but provided a full and complete disclosure of its grant making procedures.