Exempt Organizations Technical Guide›TG 62: Excise Taxes on Taxable Expenditures – IRC Section 4945›Table of Contents
D.15. Diversion of Grant by Grantee Organization
Publication 5590 — Exempt Organizations Technical Guide TG 62: Excise Taxes on Taxable Expenditures under IRC 4945 · 2026-10-03 edition · updated 2026-10-04 · United States
(1) The diversion of grant funds by a grantee organization to any use not in
furtherance of a purpose specified in the grant may result in the diverted portion of the grant being a taxable expenditure under Section 4945(d)(4). However, the mere use of grant funds for activities not planned in the original budget is not treated as a diversion. The use of the grant funds must be inconsistent with the original purposes of the grant as described in the grant agreement. See Treas. Reg. 53.4945-5(e)(1).
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Example: The original budget in a grant agreement provides a schedule of estimated expenditures such as salaries, consultant fees, operating expenses, and other similar expenses. If the actual expenditures for salaries, operating expenses, and so on differ from the estimated expenditures, such deviation is not a diversion of grant funds, assuming the use of the grant funds was consistent with the grant purposes.
(2) The actual rules on diversions of grant funds by grantee organizations are
identical to the rules on diversion of individual grants. Read above for a discussion of the diversion rules and see Treas. Reg. 53.4945-5(e)(1).
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