Dear Grant,

I am the chair of the Grants Committee for a community foundation.  We are in the process of implementing several recommendations from Project Streamline, including using information prospective grantees already have.  As part of that, we are no longer requiring proposals for small project grants (less than $2,500) to include a detailed organization-wide budget.  One of our board members has questioned whether asking for different information from some grantees violates an IRS regulation that all grant seekers be treated equally.  Do you know anything about this regulation and how it may apply to the Project Streamline recommendation?

Thank you,
Wary in Washington

Dear Wary in Washington,

The simple answer to your question is “no,” although your board members aren’t alone in thinking there might be such a requirement.  It’s a common myth among grantmakers that grantees must be treated “equally” and that there is a long list of documents that must be collected before a grant can be made.  These due diligence requirements, however, are self-imposed by the foundation, its legal counsel or board of directors, but not required by the IRS (except of course in the case of Expenditure Responsibility – but that’s a discussion for another column).

So what does the IRS require?  As long as the prospective grantee is a 501(c)(3), with a reason for non-private foundation status of 509(a)(1) or 509(a)(2), or 509(a)(3) that is not a Type III non-functionally integrated supporting organization, your foundation may fund the organization with no special contingencies or procedures beyond confirming its tax status.  (Type III non-functionally integrated supporting organizations exist, but we’ll save this for another day.)  That’s right; no other paperwork is technically required – due diligence practices (outside of the previously mentioned examples, such as Expenditure Responsibility) are mostly left up to each grantmaker.  Lucky for you, Project Streamline just came out with a new section on due diligence requirements that goes into great detail about what’s required (www.projectstreamline.org).

Additionally, post-grant reporting isn’t an IRS requirement, BUT, if you determine a policy you need to be consistent with your practices.

Of course, foundations often request information to help ensure that they are making the best investment possible with their grantmaking.  While doing research is good and even prudent, now might be a good time to look at what you require and determine whether or not you actually use all the information you gather to make a grant or whether you collect it because of a misconception that you are required to do so.  Rightsizing these requirements can save you and your grantees time, paperwork, and money.

Your friend,
Grant