Private Foundations: Making Grants to Individuals
- Private Foundations: Making Grants to Individuals
- March 1, 2002
- From the March 2002 Riker Danzig Tax and Trusts & Estates UPDATE
- Area(s) of Practice:
- Estate Planning & Administration, Tax Law
- PDF File:
- Download / View PDF File (30 KB)
Charitable giving can be most gratifying when the donor sees how the gift benefits the "ultimate consumer." A foundation might therefore decide that it wants to make direct grants to individuals for scholarships, research, etc.
While this is completely permissible, it cannot be undertaken without first establishing a variety of procedures that the foundation must follow in making the grants, and then asking the IRS for advance approval of your grant-making program. The foundation must demonstrate that the grants will be made objectively, that they are calculated to result in the performance of the activities they were intended to finance, and that regular reports will be obtained to follow up on the expenditure of the grant money by the recipient. To confirm this, the foundation should submit a ruling request to the IRS describing:
- The grant recipient's selection process
- The terms and conditions of the grants
- The procedure for supervising the grants
- The procedure for review of the grants
Some foundations may decide that these requirements are too burdensome. Those foundations might instead look to participate in grant-making through public charities. For example, a foundation that wants to give scholarships might donate to a school and restrict the donation to use for scholarships. The school could, in its discretion, allow the foundation trustees to participate in the scholarship award selection process. Thus, with the cooperation of the school, the foundation's practical objectives can be satisfied without the complication of instituting its own grant-making process.
Private foundation grant-making to individuals is possible, but it needs careful consideration, and compliance with IRS procedures, before it is undertaken. In some instances, simpler alternatives may be available by working in cooperation with public charities including local community foundations (such as the Community Foundation of New Jersey).