Preface ix
Book Citations xi
1 Introduction to Private Foundations 1
1.1 Private Foundations: Unique Organizations 1
1.2 Definition of Private Foundation 2
1.4 Private Foundation Law Primer 2
1.5 Foundations in Overall Exempt Organizations Context 2
1.6 Definition of Charity 2
1.7 Operating for Charitable Purposes 2
1.9 Private Foundation Sanctions 3
1.10 Statistical Profile 11
1.11 Private Foundations and Law 50 Years Later 11
2 Starting, Funding, and Governing a Private Foundation 17
2.1 Choice of Organizational Form 17
2.3 Estate Planning Principles 17
2.4 Foundations and Planned Giving 17
2.5 Acquiring Recognition of Tax-Exempt Status 18
2.6 Special Requirements for Charitable Organizations 19
2.7 When to Report Back to the IRS 19
3 Types of Private Foundations 21
3.1 Private Operating Foundations 21
3.3 Conduit Foundations 22
3.8 Split-Interest Trusts 22
3.9 Foreign Private Foundations 22
4 Disqualified Persons 25
4.1 Substantial Contributors 25
4.2 Foundation Managers 25
4.3 Certain 20 Percent Owners 25
4.4 Family Members 26
4.5 Corporations or Partnerships 26
4.6 Trusts or Estates 26
5 Self-Dealing 27
5.1 Private Inurement Doctrine 27
5.2 Private Benefit Doctrine 28
5.3 Definition of Self-Dealing 31
5.3a Excess Compensation Tax 31
5.4 Sale, Exchange, Lease, or Furnishing of Property 37
5.5 Loans and Other Extensions of Credit 37
5.6 Payment of Compensation 38
5.8 Uses of Income or Assets by Disqualified Persons 39
5.11 Indirect Self-Dealing 42
5.12 Property Held by Fiduciaries 50
5.14 Additional Exceptions 58
5.15 Issues Once Self-Dealing Occurs 58
6 Mandatory Distributions 65
6.1 Distribution Requirements-in General 65
6.2 Assets Used to Calculate Minimum Investment Return 66
6.3 Determining Fair Market Value 66
6.5 Qualifying Distributions 69
7 Excess Business Holdings 71
7.1 General Rules 71
7.2 Permitted and Excess Holdings 73
7.3 Functionally Related Businesses 74
7.7 Excise Taxes on Excess Holdings 74
8 Jeopardizing Investments 75
8.2 Prudent Investments 75
8.3 Program-Related Investments 75
9 Taxable Expenditures 77
9.1 Legislative Activities 77
9.2 Political Campaign Activities 78
9.3 Grants to Individuals 78
9.4 Grants to Public Charities 82
9.5a Funding of Employee Hardship Programs 83
9.6 Grants to Foreign Organizations 88
9.8 Internet and Private Foundations 88
9.9 Spending for Noncharitable Purposes 88
9.10a Distributions to Group Exemption Organizations 90
9.11 Excise Tax for Taxable Expenditures 92
10 Tax on Investment Income 93
10.1 Rate of Tax 93
10.3 Formula for Taxable Income 93
10.5 Foreign Foundations 94
11 Unrelated Business Activity 95
11.1 General Rules 95
11.2 Exceptions 95
11.3 Rules Specifically Applicable to Private Foundations 96
11.4 Unrelated Debt-Financed Income Rules 97
11.5 Calculating and Reporting the Tax 98
12 Tax Compliance and Administrative Issues 101
13 Termination of Foundation Status 103
13.1 Voluntary Termination 103
13.3 Transfer of Assets to a Public Charity 104
13.4 Operation as a Public Charity 104
13.6 Termination Tax 106
14 Charitable Giving Rules 107
14.1 Concept of Gift 107
14.2 Basic Rules 108
14.4 Deductibility of Gifts to Foundations 108
14.5 Qualified Appreciated Stock Rule 109
14.8 Planned Giving Revisited 109
14.9 Administrative Considerations 109
15 Private Foundations and Public Charities 115
15.2 Evolution of Law of Private Foundations 115
15.3 Organizations with Inherently Public Attributes 115
15.4 Publicly Supported Organizations-Donative Entities 118
15.5 Service Provider Organizations 119
15.7 Supporting Organizations 120
15.8 Change of Public Charity Category 121
15.9 Noncharitable Supported Organizations 122
16 Donor-Advised Funds 123
16.1 Basic Definitions 123
16.3 Types of Donor Funds 123
16.7 Public Charity Status of Funds 123
16.9 Statutory Criteria 123
16.12 Tax Regulations 124
16.13 DAF Statistical Portrait 124
16.14 Criticisms and Commentary 126
17 Corporate Foundations 135
17.2 Reasons for Establishment of a Corporate Foundation 135
17.3 Private Inurement Doctrine 135
17.3A Private Benefit Doctrine 135
17.5 Self-Dealing Rules 136
17.6 Other Private Foundations Rules 137
17.7 Tax on Excess Compensation: Potentially Applicable Exceptions Illustrated 137
Table of Cases 143
Table of IRS Revenue Rulings and Revenue Procedures 149
Table of IRS Private Determinations Cited in Text 153
Table of IRS Private Letter Rulings, Technical Advice Memoranda, and General Counsel Memoranda 161
About the Author 177
About the Online Resources 179
Cumulative Index 181
