D.2. Grants to Public Charities, Exempt Operating Foundations, and Certain Other…

(1) Generally, grants made by a private foundation to public charities that are

described in Sections 509(a)(1), 509(a)(2), 509(a)(3) (with some exceptions), and exempt operating foundations described in Section 4940(d)(2) do not constitute taxable expenditures, even if the private foundation does not exercise expenditure responsibility over the grants. These entities (referred to as qualifying public charities in Rev. Proc. 2017-53, 2017-40 I.R.B 263) include:

a. Churches, schools, hospitals, medical and agricultural research

organizations, governmental units, certain organizations related to colleges and universities and publicly supported organizations described in Section 170(b)(1)(A) (see Section 509(a)(1));

b. Organizations which normally receive more than one-third of their support

from gifts, membership fees, and the like, and not more than one-third of their support from gross investment income and unrelated business income (see Section 509(a)(2);

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c. Section 509(a)(3) supporting organizations, except for certain supporting

organizations referred to as disqualified supporting organizations in Rev. Proc. 2017-53, namely a non-functionally integrated Type III supporting organization under Treas. Reg. 1.509(a)-4(i), or any other supporting organization if a disqualified person of the private foundation directly or indirectly controls the supporting organization or a supported organization (see Section 4945(d)(4)(A)(ii)); and

d. Exempt operating private foundations that are described in Section

4940(d)(2).

(2) Grants made to certain organizations are treated as grants made to Section

509(a)(1) organizations and, therefore, are not taxable expenditures. These organizations include:

a. Organizations described in Section 170(c)(1), Section 511(a)(2)(B) or Treas.

Reg. 1.509(a)-2(a);

b. Foreign governments, their agencies or instrumentalities, or international

organizations designated as such by Executive Order under 22 U.S.C. 288, even if not described in Section 501(c)(3); and

c. Instrumentalities of a domestic political subdivision of a state. See Rev. Rul.

81-125, 1981-1 C.B. 515.

Note: However, grants made to these organizations must be used for charitable purposes described in Section 170(c)(2)(B). See Treas. Reg. 53.4945-5(a)(4).

(3) Native American tribal governments are treated as state governments and,

therefore, are described in Section 170(c)(1) for purposes of subchapter A of chapter 42, including Section 4945. Section 7871(a)(1)(A) and (7)(B).

(4) Rev. Proc. 2018-32, 2018-23 I.R.B. 739, sets forth the extent to which private

foundation grantors may rely on the listing of an organization’s public charity status in IRS databases, and provides safe harbors for determining that a grantor's grant will not cause the grantor to be considered to be responsible for, or aware of, an act that results in an organization's loss of public charity classification. See also Notice 2006-109, 2006-2 C.B. 1121, as modified by Rev. Proc. 2009-32, 2009-2 I.R.B. 142, and Notice 2014-4, 2014-1 I.R.B. 274, which provide criteria for private foundations to determine the type of a supporting organization that lacks an IRS determination as to type, and Announcement 8588, 1988-25 I.R.B. 21, with respect to exempt operating foundations.