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 3
1.9 Private Foundation Sanctions 3
1.10 Statistical Profile 12
1.11 Private Foundations and Law 50 Years Later 12
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
3.4 Common Fund Foundations 23
3.8 Split-Interest Trusts 23
3.9 Foreign Private Foundations 23
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 59
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
6.4 Distributable Amount 69
6.5 Qualifying Distributions 70
6.7 Satisfying the Distribution Test 75
7 Excess Business Holdings 77
7.1 General Rules 77
7.2 Permitted and Excess Holdings 79
7.3 Functionally Related Businesses 80
7.7 Excise Taxes on Excess Holdings 80
8 Jeopardizing Investments 81
8.2 Prudent Investments 81
8.3 Program-Related Investments 81
8.4 Investment Frauds 82
8.5 Excise Tax for Jeopardizing Investments 82
9 Taxable Expenditures 83
9.1 Legislative Activities 83
9.2 Political Campaign Activities 84
9.3 Grants to Individuals 84
9.4 Grants to Public Charities 97
9.6 Grants to Foreign Organizations 97
9.7 Expenditure Responsibility 99
9.8 Internet and Private Foundations 100
9.9 Spending for Noncharitable Purposes 100
9.10 Distributions to Certain Supporting Organizations 102
9.10a Distributions to Group Exemption Organizations 102
9.11 Excise Tax for Taxable Expenditures 104
10 Tax on Investment Income 107
10.1 Rate of Tax 107
10.1A Payment of Tax 107
10.2 Reducing Excise Tax 108
10.3 Formula for Taxable Income 109
10.4 Reductions to Gross Investment Income 109
10.5 Foreign Foundations 109
10.6 Exemption from Tax on Investment Income 110
11 Unrelated Business Activity 111
11.1 General Rules 111
11.2 Exceptions 111
11.3 Rules Specifically Applicable to Private Foundations 112
11.4 Unrelated Debt-Financed Income Rules 113
11.5 Calculating and Reporting the Tax 114
12 Tax Compliance and Administrative Issues 121
12.1 Form 990-PF 121
12.2 Form 990-PF Penalties 124
12.3 Automatic Revocation for Non-Filing 128
12.4 Public Disclosure and Inspection of Returns 129
12.5 Reporting and Payment of Excise Taxes 132
13 Termination of Foundation Status 145
13.1 Voluntary Termination 145
13.3 Transfer of Assets to a Public Charity 146
13.4 Operation as a Public Charity 147
13.5 Mergers, Split-Ups, and Transfers Between Foundations 150
13.5A Termination of Trusts Treated as Private Foundations 150
14 Charitable Giving Rules 153
14.1 Concept of Gift 153
14.2 Basic Rules 154
14.3 Gifts of Appreciated Property 155
14.4 Deductibility of Gifts to Foundations 155
14.5 Qualified Appreciated Stock Rule 155
14.6 Deduction Reduction Rules 155
14.7 Special Gift Situations 156
14.8 Planned Giving Revisited 156
14.9 Administrative Considerations 156
15 Private Foundations and Public Charities 163
15.1 Distinctions Between Public and Private Charities 163
15.2 Evolution of Law of Private Foundations 164
15.3 Organizations with Inherently Public Attributes 164
15.4 Publicly Supported Organizations-Donative Entities 166
15.5 Service Provider Organizations 167
15.7 Supporting Organizations 169
15.8 Change of Public Charity Category 169
15.9 Noncharitable Supported Organizations 171
15.14 Termination of Public Charity Status 172
16 Donor-Advised Funds 173
16.1 Basic Definitions 173
16.3 Types of Donor Funds 173
16.7 Public Charity Status of Funds 173
16.8 Interrelationship of Private Foundation Rules 173
16.9 Statutory Criteria 173
16.9A Litigation 174
16.12 Tax Regulations 176
16.13 DAF Statistical Portrait 176
16.14 Criticisms and Commentary 178
16.15 Proposed Legislation 185
17 Corporate Foundations 189
17.2 Reasons for Establishment of a Corporate Foundation 189
17.3 Private Inurement Doctrine 189
17.3A Private Benefit Doctrine 189
17.5 Self-Dealing Rules 190
17.6 Other Private Foundations Rules 191
17.7 Tax on Excess Compensation: Potentially Applicable Exceptions Illustrated 191
Appendix A-Sources of the Law 197
Appendix B-Internal Revenue Code Sections 223
Table of Cases 227
Table of IRS Revenue Rulings and Revenue Procedures 233
Table of IRS Private Determinations Cited in Text 237
Table of IRS Private Letter Rulings, Technical Advice Memoranda, and General Counsel Memoranda 245
About the Authors 263
About the Online Resources 265
Cumulative Index 267
