II

104TH CONGRESS

2D SESSION S. 1886

To amend the Internal Revenue Code of 1986 to clarify the treatment of

educational grants by private foundations, and for other purposes.

IN THE SENATE OF THE UNITED STATES

JUNE 19, 1996

Mr. FRIST introduced the following bill; which was read twice and referred

to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to clarify

the treatment of educational grants by private foundations, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. TAXABLE EXPENDITURES OF PRIVATE FOUN4 DATIONS NOT TO INCLUDE CERTAIN EDU5 CATION GRANTS AND LOANS.

6 (a) IN GENERAL.—Section 4945 of the Internal Rev7 enue Code of 1986 is amended by redesignating subsection

8 (i) as subsection (j) and by adding after subsection (h)

9 the following new subsection:
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1 ‘‘(i) QUALIFIED EMPLOYER-RELATED GRANT PRO2 GRAMS.—

3 ‘‘(1) IN GENERAL.—An individual grant shall

4 be treated as made on an objective and nondiscrim5 inatory basis for purposes of subsection (g)(1) if it

6 is demonstrated to the satisfaction of the Secretary

7 that it was made pursuant to a qualified employer8 related grant program.

9 ‘‘(2) QUALIFIED EMPLOYER-RELATED GRANT

10 PROGRAM.—For purposes of this subsection, the

11 term ‘qualified employer-related grant program’

12 means any employer-related grant program which—

13 ‘‘(A) is not used to recruit employees of

14 the employer, or to induce employees to con15 tinue their employment with the employer or

16 otherwise follow a course of action sought by

17 the employer,

18 ‘‘(B) selects grantees by a committee con19 sisting entirely of individuals who are not—

20 ‘‘(i) in a position to directly or indi21 rectly derive a private benefit if certain ap22 plicants are selected, or

23 ‘‘(ii) current or former directors, offi24 cers, or employees of the employer or dis-
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1 qualified persons with respect to the pri2 vate foundation,

3 ‘‘(C) limits potential grantees to those who

4 meet the minimum standards for admission to

5 an educational institution (within the meaning

6 of section 170(b)(1)(A)(ii)),

7 ‘‘(D) selects grantees based upon objective

8 criteria which are—

9 ‘‘(i) related to enabling grantees to

10 obtain an education solely for their per11 sonal benefit, and

12 ‘‘(ii) not related (aside from the initial

13 qualification of the group of potential

14 grantees) to the employment of the grant15 ees or employees whose spouses or children

16 are grantees or to the employer’s line of

17 business,

18 ‘‘(E) does not fail to make grants, or does

19 not terminate or decline to renew grants pre20 viously made, solely because of the failure of—

21 ‘‘(i) employees who are grantees, or

22 employees whose spouses or children are

23 grantees, to remain employed by the em24 ployer for any length of time, or
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1 ‘‘(ii) grantees to agree to become em2 ployed by the employer at any time,

3 ‘‘(F) does not limit the courses of study

4 for which the grants are available,

5 ‘‘(G) is not established pursuant to an

6 agreement which the Secretary of Labor finds

7 to be a collective bargaining agreement between

8 employee representatives and the employer, if

9 there is evidence that the program was the sub10 ject of good faith bargaining between such em11 ployee representatives and such employer, and

12 ‘‘(H) excludes from among the potential

13 grantees—

14 ‘‘(i) disqualified persons with respect

15 to the private foundation, and

16 ‘‘(ii) highly compensated employees or

17 spouses or children of highly compensated

18 employees.

19 ‘‘(3) DEFINITIONS.—For purposes of this sub20 section—

21 ‘‘(A) EMPLOYER-RELATED GRANT PRO22 GRAM.—The term ‘employer-related grant pro23 gram’ means any program of making grants

24 conducted by a private foundation that—
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1 ‘‘(i) treats employees (or spouses or

2 children of employees) of an employer as a

3 group from which grantees of all or a por4 tion of the grants will be selected,

5 ‘‘(ii) limits the potential grantees of

6 all or a portion of the grants to employees

7 (or spouses or children of employees) of an

8 employer, or

9 ‘‘(iii) otherwise gives employees (or

10 spouses or children of employees) of an

11 employer a preference or priority over

12 other individuals in being selected as

13 grantees of such grants.

14 ‘‘(B) HIGHLY COMPENSATED EM15 PLOYEE.—The term ‘highly compensated em16 ployee’ means a highly compensated employee

17 under subparagraph (A) or (B) of section

18 414(q)(1), except that the $75,000 amount

19 under subparagraph (B) shall be adjusted at

20 the same time and in the same manner as

21 under section 415(d).’’

22 (b) EFFECTIVE DATE.—The amendments made by

23 this section shall apply to grants or loans made after the

24 date of enactment of this Act.

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