John,

My guess is that your colleague has mistakenly interpreted the IRS rule that
combines grants from private foundations with contributions from individuals
into a single category called "contributions, gifts, grants, and similar
amounts" as a rule that forbids private foundations from making grants to
exempt organizations.  Let me explain.

First of all, the IRS regulations governing private foundations clearly
permit them to make grants.  See IRS Regulation 53.4945-5 "[Private
Foundation] Grants to Organizations."  The regulations define "grants" made
by private foundations to include "payments made to other exempt
organizations to be used in furtherance of the recipient's exempt purposes,
whether or not such payments are solicited by the recipient."  This is
IRS-speak for what sponsored research administrators would consider a
typical foundation grant to a research institution for a scientific research
project.

On the receiving end, the IRS requires exempt organizations to split their
revenues into two main categories: "contributions, gifts, grants, and
similar amounts" and "program service revenue."  This distinction is roughly
analogous to the distinction that sponsored research administrators make
between grants and contracts.  "Program service revenue" consists of
payments that primarily benefit the payor.  Examples include student
tuition, charges by hospitals for medical services, and revenue from
contracts with the government to develop products for military or other
governmental purposes.

"Contributions, gifts, grants, and similar amounts" includes both voluntary
contributions from individuals and "grants that are equivalent to
contributions."  This is where things get complicated. A grant is considered
the equivalent to a contribution if it is intended to primarily benefit the
general public rather than the grantor.  The grant may specify the use of
the grant funds and require the grantee to conform to the grantor's policies
without losing its status as equivalent to a contribution.  The classic
example is an NIH grant.  However, the typical grant from a private
foundation would also be considered the equivalent to a contribution.  See
the Form 990 and Form 990 Instructions, available on the IRS website at
http://www.irs.ustreas.gov/forms_pubs for more details. See also IRS
Regulation 1.509(a)-3(g).

Good luck with this!

Jim

Jim Simpson
General Counsel
Public Health Institute
2001 Addison Street, 2nd floor
Berkeley, CA 94704
(510) 644-8200,fax (510) 644-9319
xxxxxx@phi.org

-----Original Message-----
From: Baumann, John [mailto:xxxxxx@UMKC.EDU]
Sent: Thursday, February 28, 2002 11:02 AM
To: xxxxxx@HRINET.ORG
Subject: [RESADM-L] Grants -- Gifts Issue

We are currently in the midst of a grant-gifts controversy with regard to
funds provided by private foundations and/or associations for the
performance of proposed research projects.  One party on our campus, not
Sponsored Programs, has claimed that regardless of the purpose of the funds,
regardless of the awarding process, funds provided by private foundations
and associations are gifts because: they are 501 c.3 organizations and,
according to IRS rules, can only give gifts.
In other words, they are gifts because that is all that they can be.

I have not been able to find anything in the IRS codes that either supports
or specifically counters this position.

We have the NACUBO literature and typology of the characteristics of grants
and gifts.

However, I am wondering if any of you who have previously dealt with this on
your campuses may have additional information, advice, or documentation.
Specifically, anything that shows that the IRS does not automatically
require that funds provided by private foundations and associations be
treated as gifts, as distinct from grants.

Thank you in advance.

John R. Baumann, Ph.D.
Director
Office of Sponsored Programs & Research Support
University of Missouri -- Kansas City
5100 Rockhill Road
Kansas City, MO 64110

816.235.1303 (v)
816.235.6532 (f)
xxxxxx@umkc.edu

location: 5211 Rockhill Road

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