Private foundations can grant money to individuals in four main ways. Each method has different recordkeeping and reporting requirements. Here’s a simplified overview:
Scholarships and Loans Through Intermediaries:
- Grants can be made via public charities, like schools or universities.
- The foundation can set eligibility criteria (e.g., age, income, field of study).
- The intermediary manages the program and selects recipients, possibly with input from the foundation.
Direct Grants Through a Foundation Program:
- The foundation needs prior written approval from the IRS to grant money directly to individuals.
- Grants without IRS approval are considered taxable expenditures, which can lead to fines.
Disaster Relief or Economic Assistance:
- Grants can be made to individuals in economic distress or affected by disasters.
- These grants don’t require a specific outcome and must be awarded fairly and without discrimination.
- No IRS approval is needed, but careful recordkeeping is essential. Legal advice is recommended before proceeding.
Grants for Artistic Achievement:
- Foundations can award grants for artistic or literary accomplishments without prior IRS approval.
- As with disaster relief grants, good recordkeeping is important, and legal counsel is advised.
Additional Resources
For more details, check out our publication, Legal Essentials for Small Foundations, and these articles:
- Giving to Individuals Through Scholarships and Loans: Five Foundations Share Their Strategies
- Setting Up a Scholarship Program
- Disaster Grantmaking Principles and Considerations
Disclaimer: While we pride ourselves on our advice, please realize Exponent Philanthropy is not a law or accounting firm. This information contained in this Q&A is being provided for informational purposes only and not as part of an attorney-client relationship. The information is not a substitute for expert legal, tax or other professional advice tailored to your specific circumstances, and may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code. It is our advice that you seek independent counsel, for any tax, accounting or legal issues you may have, related to matters that are of a material concern to you or your organization.
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