Can you remind me of the rules governing foundation grants to individuals?

Private foundations may grant to individuals in four permitted ways, with different recordkeeping and Form 990-PF reporting requirements for each. Each way is described below, and you can read more in our publication Legal Essentials for Small Foundations and in these articles:

Grants to individuals for travel, study, or similar purposes via a public charity intermediary, such as a school or university

Issuing a grant to an intermediary is the simplest way to award travel fellowships, scholarships, or research grants. In consultation with the intermediary, the foundation may place restrictions on the eligibility of awardee(s), such as age, income level, and field of study. The foundation may have representatives on a deliberating committee, but the intermediary selects awardee(s) and manages the program.

Grants to individuals for travel, study, or similar purposes via a foundation-operated program

Your foundation must obtain prior written approval from the Internal Revenue Service (IRS) to make these types of grants directly to recipients. Scholarship grants given without IRS approval are considered taxable expenditures, meaning that the foundation will be fined for violating IRS regulations.

Grants to individuals for disaster relief or economic distress

Foundations also may make grants to individuals in economic distress or in need of special assistance due to circumstances such as a natural disaster. These grants differ from the previous ones because there is no required outcome or action in response to the grant. These grants must be made in an objective and nondiscriminatory fashion. They do not require prior approval from the IRS but do require careful recordkeeping. Exponent Philanthropy recommends getting legal assistance before making grants of this kind.

Grants to individuals for artistic achievement

Like grants for economic distress or disaster relief, foundations may award grants for artistic or literary achievement without prior approval from the IRS. Again, careful recordkeeping is essential. Foundations should seek legal counsel before making these grants.

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