Mathieu, Ranum & Allaire, PLLC
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Grant-Making Policies And Procedures For Private Non-Operating Foundations

The purpose of policies and procedures is to provide a process to ensure a Foundation's compliance with US laws regarding grant-making. The goal should be that each grant which the foundation wishes to count toward its required annual distribution amount can be categorized as a qualified distribution and does not give rise to excise taxes on the Foundation and its managers for not complying with the relevant Federal rules and regulations.

A Foundation's policies and procedures should apply to all grants – with special attention paid to grants requiring either an "equivalency determination" Affidavit or "expenditure responsibility" documentation to qualify the grants as distributions that count toward a Foundation's required annual 5% of assets distribution amount.

Regarding grants requiring either 'equivalency determination" or "expenditure responsibility", the law permits a Foundation to comply with its pre-grant inquiry and documentation responsibilities by obtaining an affidavit that the grantee organization is equivalent to a 501(c)(3), or a copy of a previously completed affidavit with a current update, or by following the IRS's expenditure responsibility rules. These rules apply particularly in the area of foreign grant-making.

In addition to these documents, which should be included in the file pertaining to a grant that requires this type of pre-grant inquiry, other important documents to be kept in the files include:

  1. Grantee Application Form
  2. Grantee Affidavit of Non-profit Status (for "Equivalency Determination" Grants)
  3. Grantee Affidavit Update (for "Equivalency Determination" grants where the Foundation is relying on an Affidavit issued for another US charity or for the required annual update while grant is outstanding)
  4. Pre-Grant Inquiry Letter (for "Expenditure Responsibility" Grants)
  5. Grant Agreement Form
  6. Annual Grantee Report Form to be attached to the Foundation's IRS Form 990 for each expenditure responsibility grant

The IRS enforces compliance strictly. For example, in 1989, the Tax Court held that the Hans S. Mannheimer Charitable Trust had made a taxable expenditure, subject to excise taxes, even though the required level of grantee oversight had occurred, because it had not received and maintained proper reports from the grantee. 93 T.C. 35 (1989). Well drafted and respected grant-making policies and procedures should enable a Foundation to meet its burden of proof in any challenge by the IRS to either the qualification of any specific grant or to the policies and procedures as not generally in accordance with Treasury Regulations and the Internal Revenue Code.

The following link provides a summary chart of grant documentation requirements by grantee organization type.

Table of Grant Documentation Requirements

How We Can Help You?

We will work with you to evaluate your grant-making objectives and design with you appropriate policies, procedures and documentation to assist you to comply with US laws and regulations regarding grant-making. We will ask questions that should enable you to prevent undesired consequences. You have worked hard to develop your wealth and set up a process to ensure that you give back to the community.

Please contact us to discuss how we may be of assistance.

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