D.17. Grantor Violations of Section 4945(h)

(1) A grant may be a taxable expenditure because the grantor private foundation did

not comply with the requirements of Section 4945(h) in one or more of the following ways:

a. It failed to conduct an appropriate pre-grant inquiry;

b. It failed to obtain the required grant agreement from the grantee; or

c. It failed to file one of the required grantor reports with the IRS. See Treas.

Reg. 53.4945-5(e)(3).

(2) For example, in Rev. Rul. 77-213, 1977-1 C.B. 357, a private foundation failed to

include a grant report with the original annual information return but corrected the omission on an amended return that was filed after its due date. The IRS held that the untimeliness of the amended return precluded it from nullifying the private foundation’s failure to submit the report with the original return. Hence, the private foundation failed to exercise the expenditure responsibility requirements of Section 4945(h)(3). The amended return may have constituted a correction of the

52

failure to make the required report but did not nullify the expenditure responsibility violation. See Treas. Reg. 53.4945-1(d)(2).