[Code of Federal Regulations]
[Title 26, Volume 17]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR53.4945-4]

[Page 175-182]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 53_FOUNDATION AND SIMILAR EXCISE TAXES--Table of Contents
 
                 Subpart F_Taxes on Taxable Expenditures
 
Sec. 53.4945-4  Grants to individuals.

    (a) Grants to individuals--(1) In general. Under section 4945(d) (3) 
the term ``taxable expenditure'' includes any amount paid or incurred by 
a private foundation as a grant to an individual for travel, study, or 
other similar purposes by such individual unless the grant satisfies the 
requirements of section 4945(g). Grants to individuals which are not 
taxable expenditures because made in accordance with the requirements of 
section 4945(g) may result in the imposition of excise taxes under other 
provisions of chapter 42.
    (2) ``Grants'' defined. For purposes of section 4945, the term 
``grants'' shall include, but is not limited to, such expenditures as 
scholarships, fellowships, internships, prizes, and awards. Grants shall 
also include loans for purposes described in section 170(c) (2) (B) and 
``program related investments'' (such as investments in small businesses 
in central cities or in businesses which assist in neighborhood 
renovation). Similarly, ``grants'' include such expenditures as payments 
to exempt organizations to be used in furtherance of such recipient 
organizations' exempt purposes whether or not such payments are 
solicited by such recipient organizations. Conversely, ``grants'' do not 
ordinarily include salaries or other compensation to employees. For 
example, ``grants'' do not ordinarily include educational payments to 
employees which are includible in the employees' incomes pursuant to 
section 61. In addition, ``grants'' do not ordinarily include payments 
(including salaries, consultants' fees and reimbursement for travel 
expenses such as transportation, board, and lodging) to persons 
(regardless of whether such persons are individuals) for personal 
services in assisting a foundation in planning, evaluating or developing 
projects or areas of program activity by consulting, advising, or 
participating in conferences organized by the foundation.
    (3) Requirements for individual grants--(i) Grants for other than 
section 4945(d)(3) purposes. A grant to an individual for purposes other 
than those described in section 4945(d) (3) is not a taxable expenditure 
within the meaning of section 4945(d) (3). For example, if a foundation 
makes grants to indigent individuals to enable them to purchase 
furniture, such grants are not taxable expenditures within the meaning 
of section 4945(d) (3) even if the requirements of section 4945(g) are 
not met.
    (ii) Grants for section 4945(d) (3) purposes. Under section 4945(g), 
a grant to an individual for travel, study, or other similar purposes is 
not a ``taxable expenditure'' only if:
    (a) The grant is awarded on an objective and nondiscriminatory basis 
(within the meaning of paragraph (b) of this section);
    (b) The grant is made pursuant to a procedure approved in advance by 
the Commissioner; and
    (c) It is demonstrated to the satisfaction of the Commissioner that:
    (1) The grant constitutes a scholarship or fellowship grant which is 
excluded from gross income under section 117(a) and is to be utilized 
for study at an educational institution described in section 151(e) (4);
    (2) The grant constitutes a prize or award which is excluded from 
gross income under section 74(b), and the recipient of such prize or 
award is selected from the general public (within the meaning of section 
4941(d) (2) (G) (i) and the regulations thereunder); or
    (3) The purpose of the grant is to achieve a specific objective, 
produce a report or other similar product, or improve or enhance a 
literary, artistic, musical, scientific, teaching, or other similar 
capacity, skill, or talent of the grantee.

If a grant is made to an individual for a purpose described in section 
4945(g)

[[Page 176]]

(3) and such grant otherwise meets the requirements of section 4945(g), 
such grant shall not be treated as a taxable expenditure even if it is a 
scholarship or a fellowship grant which is not excludable from income 
under section 117 or if it is a prize or award which is includible in 
income under section 74.
    (iii) Renewals. A renewal of a grant which satisfied the 
requirements of subdivision (ii) of this subparagraph shall not be 
treated as a grant to an individual which is subject to the requirements 
of this section, if:
    (a) The grantor has no information indicating that the original 
grant is being used for any purpose other than that for which it was 
made,
    (b) Any reports due at the time of the renewal decision pursuant to 
the terms of the original grant have been furnished, and
    (c) Any additional criteria and procedures for renewal are objective 
and nondiscriminatory.

For purposes of this section, an extension of the period over which a 
grant is to be paid shall not itself be regarded as a grant or a renewal 
of a grant.
    (4) Certain designated grants--(i) In general. A grant by a private 
foundation to another organization, which the grantee organization uses 
to make payments to an individual for purposes described in section 
4945(d)(3), shall not be regarded as a grant by the private foundation 
to the individual grantee if the foundation does not earmark the use of 
the grant for any named individual and there does not exist an 
agreement, oral or written, whereby such grantor foundation may cause 
the selection of the individual grantee by the grantee organization. For 
purposes of this subparagraph, a grant described herein shall not be 
regarded as a grant by the foundation to an individual grantee even 
though such foundation has reason to believe that certain individuals 
would derive benefits from such grant so long as the grantee 
organization exercises control, in fact, over the selection process and 
actually makes the selection completely independently of the private 
foundation.
    (ii) Certain grants to ``public charities''. A grant by a private 
foundation to an organization described in section 509(a) (1), (2), or 
(3), which the grantee organization uses to make payments to an 
individual for purposes described in section 4945(d)(3), shall not be 
regarded as a grant by the private foundation to the individual grantee 
(regardless of the application of subdivision (i) of this subparagraph) 
if the grant is made for a project which is to be undertaken under the 
supervision of the section 509(a) (1), (2), or (3) organization and such 
grantee organization controls the selection of the individual grantee. 
This subdivision shall apply regardless of whether the name of the 
individual grantee was first proposed by the private foundation, but 
only if there is an objective manifestation of the section 509(a), (1), 
(2), or (3) organization's control over the selection process, although 
the selection need not be made completely independently of the private 
foundation. For purposes of this subdivision, an organization shall be 
considered a section 509(a)(1) organization if it is treated as such 
under subparagraph (4) of Sec. 53.4945-5(a).
    (iii) Grants to governmental agencies. If a private foundation makes 
a grant to an organization described in section 170(c)(1) (regardless of 
whether it is described in section 501(c)(3)) and such grant is 
earmarked for use by an individual for purposes described in section 
4945(d)(3), such grant is not subject to the requirements of section 
4945(d)(3) and (g) and this section (regardless of the application of 
subdivision (i) of this subparagraph) if the section 170(c)(1) 
organization satisfies the Commissioner in advance that its grant-making 
program:
    (a) Is in furtherance of a purpose described in section 
170(c)(2)(B),
    (b) Requires that the individual grantee submit reports to it which 
would satisfy paragraph (c)(3) of this section, and
    (c) Requires that the organization investigate jeopardized grants in 
a manner substantially similar to that described in paragraph (c)(4) of 
this section.
    (iv) Examples. The provisions of this subparagraph may be 
illustrated by the following examples:

    Example (1). M, a university described in section 170(b)(1)(A)(ii), 
requests that P, a private foundation, grant it $100,000 to enable M

[[Page 177]]

to obtain the services of a particular scientist for a research project 
in a special field of biochemistry in which he has exceptional 
qualifications and competence. P, after determining that the project 
deserves support, makes the grant to M to enable it to obtain the 
services of this scientist. M is authorized to keep the funds even if it 
is unsuccessful in attempting to employ the scientist. Under these 
circumstances P will not be treated as having made a grant to the 
individual scientist for purposes of section 4945(d)(3) and (g), since 
the requirements of subdivision (i) of this subparagraph have been 
satisfied. Even if M were not authorized to keep the funds if it is 
unsuccessful in attempting to employ the scientist, P would not be 
treated as having made a grant to the individual scientist for purposes 
of section 4945(d)(3) and (g), since it is clear from the facts and 
circumstances that the selection of the particular scientist was made by 
M and thus the requirements of subdivision (ii) of this subparagraph 
would have been satisfied.
    Example (2). Assume the same facts as Example (1), except that there 
are a number of scientists who are qualified to administer the research 
project, P suggests the name of the particular scientist to be employed 
by M, and M is not authorized to keep the funds if it is unsuccessful in 
attempting to employ the particular scientist. For purposes of section 
4945(d)(3) and (g), P will be treated as having made a grant to the 
individual scientist whose name it suggested, since it is clear from the 
facts and circumstances that selection of the particular scientist was 
made by P.
    Example (3). X, a private foundation, is aware of the exceptional 
research facilities at Y University, an organization described in 
section 170(b)(1)(A)(ii). Officials of X approach officials of Y with an 
offer to give Y a grant of $100,000 if Y will engage an adequately 
qualified physicist to conduct a specific research project. Y's 
officials accept this proposal, and it is agreed that Y will administer 
the funds. After examining the qualifications of several research 
physicists, the officials of Y agree that A, whose name was first 
suggested by officials of X and who first suggested the specific 
research project to X, is uniquely qualified to conduct the project. X's 
grant letter provides that X has the right to renegotiate the terms of 
the grant if there is a substantial deviation from such terms, such as 
breakdown of Y's research facilities or termination of the conduct of 
the project by an adequately qualified physicist. Under these 
circumstances, X will not be treated as having made a grant to A for 
purposes of section 4945(d)(3) and (g), since the requirements of 
subdivision (ii) of this subparagraph have been satisfied.
    Example (4). Professor A, a scholar employed by University Y, an 
organization described in section 170(b)(1)(A)(ii), approaches 
Foundation X to determine the availability of grant funds for a 
particular research project supervised or conducted by Professor A 
relevant to the program interests of Foundation X. After learning that 
Foundation X would be willing to consider the project if University Y 
were to submit the project to X, Professor A submits his proposal to the 
appropriate administrator of University Y. After making a determination 
that it should assume responsibility for the project, that Professor A 
is qualified to conduct the project, and that his participation would be 
consistent with his other faculty duties, University Y formally adopts 
the grant proposal and submits it to Foundation X. The grant is made to 
University Y which, under the terms of the grant, is responsible for the 
expenditure of the grant funds and the grant project. In such a case, 
and even if Foundation X retains the right to renegotiate the terms of 
the grant if the project ceases to be conducted by Professor A, the 
grant shall not be regarded as a grant by Foundation X to Professor A 
since University Y has retained control over the selection process 
within the meaning of subdivision (ii) of this subparagraph.

    (5) Earmarked grants to individuals. A grant by a private foundation 
to an individual, which meets the requirements of section 4945(d)(3) and 
(g), is a taxable expenditure by such foundation under section 4945(d) 
only if:
    (i) The grant is earmarked to be used for any activity described in 
section 4945(d) (1), (2), or (5), or is earmarked to be used in a manner 
which would violate section 4945(d) (3) or (4),
    (ii) There is an agreement, oral or written, whereby such grantor 
foundation may cause the grantee to engage in any such prohibited 
activity and such grant is in fact used in a manner which violates 
section 4945(d), or
    (iii) The grant is made for a purpose other than a purpose described 
in section 170(c)(2)(B).

For purposes of this subparagraph, a grant by a private foundation is 
earmarked if such grant is given pursuant to an agreement, oral or 
written, that the grant will be used for specific purposes.
    (b) Selection of grantees on ``an objective and nondiscriminatory 
basis''--(1) In general. For purposes of this section, in order for a 
foundation to establish that its grants to individuals are made on an 
objective and nondiscriminatory basis, the grants must be awarded in 
accordance with a program which, if it

[[Page 178]]

were a substantial part of the foundation's activities, would be 
consistent with:
    (i) The existence of the foundation's exempt status under section 
501(c)(3);
    (ii) The allowance of deductions to individuals under section 170 
for contributions to the granting foundation; and
    (iii) The requirements of subparagraphs (2), (3), and (4) of this 
paragraph.
    (2) Candidates for grants. Ordinarily, selection of grantees on an 
objective and nondiscriminatory basis requires that the group from which 
grantees are selected be chosen on the basis of criteria reasonably 
related to the purposes of the grant. Furthermore, the group must be 
sufficiently broad so that the giving of grants to members of such group 
would be considered to fulfill a purpose described in section 
170(c)(2)(B). Thus, ordinarily the group must be sufficiently large to 
constitute a charitable class. However, selection from a group is not 
necessary where taking into account the purposes of the grant, one or 
several persons are selected because they are exceptionally qualified to 
carry out these purposes or it is otherwise evident that the selection 
is particularly calculated to effectuate the charitable purpose of the 
grant rather than to benefit particular persons or a particular class of 
persons. Therefore, consistent with the requirements of this 
subparagraph, the foundation may impose reasonable restrictions on the 
group of potential grantees. For example, selection of a qualified 
research scientist to work on a particular project does not violate the 
requirements of section 4945(d)(3) merely because the foundation selects 
him from a group of three scientists who are experts in that field.
    (3) Selection from within group of potential grantees. The criteria 
used in selecting grant recipients from the potential grantees should be 
related to the purpose of the grant. Thus, for example, proper criteria 
for selecting scholarship recipients might include (but are not limited 
to) the following: Prior academic performance; performance on tests 
designed to measure ability and aptitude for college work; 
recommendations from instructors; financial need; and the conclusions 
which the selection committee might draw from a personal interview as to 
the individual's motivation, character, ability, and potential.
    (4) Persons making selections. The person or group of persons who 
select recipients of grants should not be in a position to derive a 
private benefit, directly or indirectly, if certain potential grantees 
are selected over others.
    (5) Examples. The provisions of this paragraph may be illustrated by 
the following examples:

    Example (1). X company employs 100,000 people of whom 1,000 are 
classified by the company as executives. The company has organized the X 
company foundation which, as its sole activity, provides 100 4-year 
college scholarships per year for children of the company's employees. 
Children of all employees (other than disqualified persons with respect 
to the foundation) who have worked for the X company for at least 2 
years are eligible to apply for these scholarships. In previous years, 
the number of children eligible to apply for such scholarships has 
averaged 2,000 per year. Selection of scholarship recipients from among 
the applicants is made by three prominent educators, who have no 
connection (other than as members of the selection committee) with the 
company, the foundation or any of the employees of the company. The 
selections are made on the basis of the applicants' prior academic 
performance, performance on certain tests designed to measure ability 
and aptitude for college work, and financial need. No disproportionate 
number of scholarships has been granted to relatives of executives of X 
company. Under these circumstances, the operation of the scholarship 
program by the X company foundation: (1) Is consistent with the 
existence of the foundation's exempt status under section 501(c) (3) and 
with the allowance of deductions under section 170 for contributions to 
the foundation; (2) utilizes objective and nondiscriminatory criteria in 
selecting scholarship recipients from among the applicants; and (3) 
utilizes a selection committee which appears likely to make objective 
and nondiscriminatory selections of grant recipients.
    Example (2). Assume the same facts as Example (1), except that the 
foundation establishes a program to provide 20 college scholarships per 
year for members of a certain ethnic minority. All members of this 
minority group (other than disqualified persons with respect to the 
foundation) living in

[[Page 179]]

State Z are eligible to apply for these scholarships. It is estimated 
that at least 400 persons will be eligible to apply for these 
scholarships each year. Under these circumstances, the operation of this 
scholarship program by the foundation: (1) Is consistent with the 
existence of the foundation's exempt status under section 501(c)(3) and 
with the allowance of deductions under section 170 for contributions to 
the foundation; (2) utilizes objective and nondiscriminatory criteria in 
selecting scholarship recipients from among the applicants; and (3) 
utilizes a selection committee which appears likely to make objective 
and nondiscriminatory selections of grant recipients.

    (c) Requirements of a proper procedure--(1) In general. Section 
4945(g) requires that grants to individuals must be made pursuant to a 
procedure approved in advance. To secure such approval, a private 
foundation must demonstrate to the satisfaction of the Commissioner 
that:
    (i) Its grant procedure includes an objective and nondiscriminatory 
selection process (as described in paragraph (b) of this section);
    (ii) Such procedure is reasonably calculated to result in 
performance by grantees of the activities that the grants are intended 
to finance; and
    (iii) The foundation plans to obtain reports to determine whether 
the grantees have performed the activities that the grants are intended 
to finance.

No single procedure or set of procedures is required. Procedures may 
vary depending upon such factors as the size of the foundation, the 
amount and purpose of the grants and whether one or more recipients are 
involved.
    (2) Supervision of scholarship and fellowship grants. Except as 
provided in subparagraph (5) of this paragraph, with respect to any 
scholarship or fellowship grants, a private foundation must make 
arrangements to receive a report of the grantee's courses taken (if any) 
and grades received (if any) in each academic period. Such a report must 
be verified by the educational institution attended by the grantee and 
must be obtained at least once a year. In cases of grantees whose study 
at an educational institution does not involve the taking of courses but 
only the preparation of research papers or projects, such as the writing 
of a doctoral thesis, the foundation must receive a brief report on the 
progress of the paper or project at least once a year. Such a report 
must be approved by the faculty member supervising the grantee or by 
another appropriate university official. Upon completion of a grantee's 
study at an educational institution, a final report must also be 
obtained.
    (3) Grants described in section 4945(g)(3). With respect to a grant 
made under section 4945(g)(3), the private foundation shall require 
reports on the use of the funds and the progress made by the grantee 
toward achieving the purposes for which the grant was made. Such reports 
must be made at least once a year. Upon completion of the undertaking 
for which the grant was made, a final report must be made describing the 
grantee's accomplishments with respect to the grant and accounting for 
the funds received under such grant.
    (4) Investigation of jeopardized grants. (i) Where the reports 
submitted under this paragraph or other information (including the 
failure to submit such reports) indicates that all or any part of a 
grant is not being used in furtherance of the purposes of such grant, 
the foundation is under a duty to investigate. While conducting its 
investigation, the foundation must withhold further payments to the 
extent possible until any delinquent reports required by this paragraph 
have been submitted and where required by subdivision (ii) or (iii) of 
this subparagraph.
    (ii) In cases in which the grantor foundation determines that any 
part of a grant has been used for improper purposes and the grantee has 
not previously diverted grant funds to any use not in furtherance of a 
purpose specified in the grant, the foundation will not be treated as 
having made a taxable expenditure solely because of the diversion so 
long as the foundation:
    (a) Is taking all reasonable and appropriate steps either to recover 
the grant funds or to insure the restoration of the diverted funds and 
the dedication (consistent with the requirements of (b) (1) and (2) of 
this subdivision) of other grant funds held by the grantee to the 
purposes being financed by the grant, and

[[Page 180]]

    (b) Withholds any further payments to the grantee after the grantor 
becomes aware that a diversion may have taken place (hereinafter 
referred to as ``further payments'') until it has:
    (1) Received the grantee's assurances that future diversions will 
not occur, and
    (2) Required the grantee to take extraordinary precaution to prevent 
future diversions from occurring.

If a foundation is treated as having made a taxable expenditure under 
this subparagraph in a case to which this subdivision applies, then 
unless the foundation meets the requirements of (a) of this subdivision 
the amount of the taxable expenditure shall be the amount of the 
diversion plus the amount of any further payments to the same grantee. 
However, if the foundation complies with the requirements of (a) of this 
subdivision but not the requirements of (b) of this subdivision, the 
amount of the taxable expenditure shall be the amount of such further 
payments.
    (iii) In cases where a grantee has previously diverted funds 
received from a grantor foundation, and the grantor foundation 
determines that any part of a grant has again been used for improper 
purposes, the foundation will not be treated as having made a taxable 
expenditure solely by reason of such diversion so long as the 
foundation:
    (a) Is taking all reasonable and appropriate steps to recover the 
grant funds or to insure the restoration of the funds and the dedication 
(consistent with the requirements of (b) (2) and (3) of this 
subdivision) of other grant funds held by the grantee to the purposes 
being financed by the grant, and
    (b) Withholds further payments until:
    (1) Such funds are in fact so recovered or restored,
    (2) It has received the grantee's assurances that future diversions 
will not occur, and
    (3) It requires the grantee to take extraordinary precautions to 
prevent future diversions from occurring.

If a foundation is treated as having made a taxable expenditure under 
this subparagraph in a case to which this subdivision applies, then 
unless the foundation meets the requirements of (a) of this subdivision, 
the amount of the taxable expenditure shall be the amount of the 
diversion plus the amount of any further payments to the same grantee. 
However, if the foundation complies with the requirements of (a) of this 
subdivision, but fails to withhold further payments until the 
requirements of (b) of this subdivision are met, the amount of the 
taxable expenditure shall be the amount of such further payments.
    (iv) The phrase ``all reasonable and appropriate steps'' in 
subdivisions (ii) and (iii) of this subparagraph includes legal action 
where appropriate but need not include legal action if such action would 
in all probability not result in the satisfaction of execution on a 
judgment.
    (5) Supervision of certain scholarship and fellowship grants. 
Subparagraphs (2) and (4) of this paragraph shall be considered 
satisfied with respect to scholarship or fellowship grants under the 
following circumstances:
    (i) The scholarship or fellowship grants are described in section 
4945(g) (1);
    (ii) The grantor foundation pays the scholarship or fellowship 
grants to an educational institution described in section 151(e) (4); 
and
    (iii) Such educational institution agrees to use the grant funds to 
defray the recipient's expenses or to pay the funds (or a portion 
thereof) to the recipient only if the recipient is enrolled at such 
educational institution and his standing at such educational institution 
is consistent with the purposes and conditions of the grant.
    (6) Retention of records. A private foundation shall retain records 
pertaining to all grants to individuals for purposes described in 
section 4945(d) (3). Such records shall include:
    (i) All information the foundation secures to evaluate the 
qualification of potential grantees;
    (ii) Identification of grantees (including any relationship of any 
grantee to the foundation sufficient to make such grantee a disqualified 
person of the private foundation within the meaning of section 4946(a) 
(1));
    (iii) Specification of the amount and purpose of each grant; and

[[Page 181]]

    (iv) The follow-up information which the foundation obtains in 
complying with subparagraphs (2), (3), and (4) of this paragraph.
    (7) Example. The provisions of paragraphs (b) and (c) of this 
section may be illustrated by the following example:

    Example. The X foundation grants 10 scholarships each year to 
graduates of high schools in its area to permit the recipients to attend 
college. It makes the availability of its scholarships known by oral or 
written communications each year to the principals of three major high 
schools in the area. The foundation obtains information from each high 
school on the academic qualifications, background, and financial need of 
applicants. It requires that each applicant be recommended by two of his 
teachers or by the principal of his high school. All application forms 
are reviewed by the foundation officer responsible for making the awards 
and scholarships are granted on the basis of the academic qualifications 
and financial need of the grantees. The foundation obtains annual 
reports on the academic performance of the scholarship recipient from 
the college or university which he attends. It maintains a file on each 
scholarship awarded, including the original application, 
recommendations, a record of the action taken on the application, and 
the reports on the recipient from the institution which he attends. The 
described procedures of the X foundation for the making of grants to 
individuals qualify for Internal Revenue Service approval under section 
4945(g). Furthermore, if the X foundation's scholarship program meets 
the requirements of subparagraph (5) of this paragraph, X foundation 
will not have to obtain reports on the academic performance of the 
scholarship recipients.

    (d) Submission of grant procedure--(1) Contents of request for 
approval of grant procedures. A request for advance approval of a 
foundation's grant procedures must fully describe the foundation's 
procedures for awarding grants and for ascertaining that such grants are 
used for the proper purposes. The approval procedure does not 
contemplate specific approval of particular grant programs but instead 
one-time approval of a system of standards, procedures, and follow-up 
designed to result in grants which meet the requirements of section 
4945(g). Thus, such approval shall apply to a subsequent grant program 
as long as the procedures under which it is conducted do not differ 
materially from those described in the request to the Commissioner. The 
request must contain the following items:
    (i) A statement describing the selection process. Such statement 
shall be sufficiently detailed for the Commissioner to determine whether 
the grants are made on an objective and nondiscriminatory basis under 
paragraph (b) of this section.
    (ii) A description of the terms and conditions under which the 
foundation ordinarily makes such grants, which is sufficient to enable 
the Commissioner to determine whether the grants awarded under such 
procedures would meet the requirements of paragraph (1), (2), or (3) of 
section 4945(g).
    (iii) A detailed description of the private foundation's procedure 
for exercising supervision over grants, as described in paragraph (c) 
(2) and (3) of this section.
    (iv) A description of the foundation's procedures for review of 
grantee reports, for investigation where diversion of grant funds from 
their proper purposes is indicated, and for recovery of diverted grant 
funds, as described in paragraph (c) (4) of this section.
    (2) Place of submission. Request for approval of grant procedures 
shall be submitted to the District Director.
    (3) Internal Revenue Service action on request for approval of grant 
procedures. The 45th day after a request for approval of grant 
procedures has been properly submitted to the Internal Revenue Service, 
the organization has not been notified that such procedures are not 
acceptable, such procedures shall be considered as approved from the 
date of submission until receipt of actual notice from the Internal 
Revenue Service that such procedures do not meet the requirements of 
this section. If a grant to an individual for a purpose described in 
section 4945(d) (3) is made after notification to the organization by 
the Internal Revenue Service that the procedures under which the grant 
is made are not acceptable, such grant is a taxable expenditure under 
this section.
    (e) Effective dates--(1) In general. This section shall apply to all 
grants to individuals for travel, study, or other similar purposes which 
are made by

[[Page 182]]

private foundations more than 90 days after October 30, 1972.
    (2) Transitional rules--(i) Grants committed prior to January 1, 
1970. Section 4945(d) (3) and (g) and this section shall not apply to a 
grant for section 170(c) (2) (B) purposes made on or after January 1, 
1970, if the grant was made pursuant to a commitment entered into prior 
to such date, but only if such commitment was made in accordance with 
the foundation's usual practices and is reasonable in amount in light of 
the purposes of the grant. For purposes of this subdivision, a 
commitment will be considered entered into prior to January 1, 1970, if 
prior to such date, the amount and nature of the payments to be made and 
the name of the payee were entered on the records of the payor, or were 
otherwise adequately evidenced, or the notice of the payment to be 
received was communicated to the payee in writing.
    (ii) Grants awarded on or after January 1, 1970. In the case of a 
grant awarded on or after January 1, 1970, but prior to the expiration 
of 90 days after October 30, 1972, and paid within 48 months after the 
award of such grant, the requirements of section 4945(g) that an 
individual grant be awarded on an objective and nondiscriminatory basis 
pursuant to a procedure approved in advance by the Commissioner will be 
deemed satisfied if the grantor utilizes any procedure in good faith in 
awarding a grant to an individual which, in fact, is reasonably 
calculated to provide objectivity and nondiscrimination in the awarding 
of such grant and to result in a grant which complies with the 
conditions of section 4945(g) (1), (2), or (3).