C.3. Grants — Publication 5590 — Exempt Organizations

(1) Private foundations occasionally make grants to other organizations that in turn

award the grants to individuals for educational or similar purposes. These grants will not be considered as grants made to individuals (Section 4945(d)(3) grants) if:

a. Private foundations do not earmark the use of the grants for any named

individuals; and

b. There are no agreements, written or oral, whereby the private foundations

may cause the selection of the individual grantees by the grantee organizations. See Treas. Reg. 53.4945-4(a)(4)(i).

(2) If a grantor private foundation has reason to believe that certain individuals would

derive benefits from its grant to the grantee organization, such grant still would be considered as a grant to the grantee organization (and not to the individuals) so long as the grantee organization:

a. Exercises control over the selection process; and

b. Makes the selection completely independent of the grantor private foundation.

Example: A private foundation provides grants to a high school for use as college scholarships. The high school’s officials evaluate all the student scholarship

applications and advise the private foundation of the selected recipients. The private foundation has always approved the recipients selected even though it retains final authority to select and determine the amounts of grants made to the recipients. Since the private foundation retains such authority, the selections of the recipients for the grants by the school officials are not made completely independent of the private foundation. Therefore, the grants are Section 4945(d)(3) grants, and the private foundation must seek advance approval pursuant to Section 4945(g). Otherwise, the grants would be considered as taxable expenditures.