Source: RSM US LLP. PBMares is a member of RSM US Alliance.
Private foundations generally may not engage in transactions with disqualified persons (DPs), even under terms that are favorable to the private foundation. These restrictions apply to transactions in any amount that either directly or indirectly benefit a DP. Consequences of engaging in a prohibited self-dealing transaction include unwinding the transaction, reporting it to the IRS, and paying an excise tax.
Disqualified persons (DPs): “Insiders” with respect to the private foundation and include:
- Officers, directors, and trustees
- Substantial contributors (i.e., generally persons that have contributed at least 2% of the private foundation’s total support)
- More than 20% owner of a substantial contributor
- Linear family members (i.e., ancestors and descendants), including spouses
- Corporations, partnerships, and trusts or estates owned more than 35% by the above
- DO rent property for free from a disqualified person.
- DO NOT rent property to a disqualified person regardless of amount charged.
Payments to employees of related companies
- DO make grants to employees of a related company for federally declared disaster relief.
- DO NOT make grants to employees of a related company for personal emergencies or hardships encountered.
- DO make and fulfill pledges.
- DO NOT satisfy pledges made by disqualified persons.
- DO borrow money from a disqualified person with zero interest.
- DO NOT lend money to a disqualified person regardless of interest charged.
Payments for services
- DO pay reasonable compensation and reimbursements to disqualified persons for services that require specialized training and are necessary to carrying out the foundation’s charitable purposes (e.g., director fees, officer salaries, investment management fees).
- DO NOT pay disqualified persons for general or overhead expenses (e.g., utilities, allocation of administrative expenses, janitorial fees).
Tickets and Tables
- DO make grants and attend events that are reasonable and necessary to oversee, evaluate, and monitor grantees.
- DO NOT make grants to charities where a disqualified person receives a benefit (e.g., a ticket to the charity’s fundraising gala).
- DO NOT bifurcate payments (e.g., DP pays the ticket fee, and the foundation pays the charitable contribution portion)
This article was written by Alexandra O. Mitchell, Morgan Souza and originally appeared on 2023-08-01.
2022 RSM US LLP. All rights reserved.
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.