Now in its seventh edition, The Tax Law of Private Foundations by Bruce Hopkins and Shane Hamilton serves as the gold-standard reference for navigating the complex regulations governing private foundations. This comprehensive book is regularly updated to incorporate the latest changes in tax law, providing executives and professionals with valuable clarification, expert insights, and practical instruction.
With every edition supplemented annually, the book remains current and relevant. It offers a clear and concise summary of the regulations governing private foundations, explaining the logic underpinning the rules. The authors provide a range of helpful tools, including checklists, sample documents, and practice forms, to simplify the filing process and ensure compliance with the latest legislation. Readers will also find: - Critical analyses and considerations of existing laws and regulations, avoiding potential confusion arising from future legislation - A collection of practical tools that make it simpler to comply with the regulations governing private foundations - Expert guidance on obtaining or maintaining your foundation's tax-exempt status
An indispensable resource, this latest edition caters to individuals with personal or professional interests in private foundations, offering authoritative guidance and complete explanations in an intricate and sometimes confusing area of the law. Whether navigating the complexities of compliance or seeking deep insights, this book remains the go-to reference for understanding and managing this difficult area of taxation.
Table of Contents
Preface xi
Book Citations xiii
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
(f) Excess Business Holdings Rules 2
(l) Unrelated Business Rules 2
1.7 Organizational Rules 2
1.8 Private Foundation Law Sanctions 3
(b) Self-Dealing Sanctions as Pigouvian Taxes 3
(c) Self-Dealing Sanctions: Taxes or Penalties? 4
(e) Potential of Overlapping Taxes 5
1.9 Statistical Profile 5
2 Starting, Funding, and Governing a Private Foundation 7
2.3 Choice of Organizational Form 7
2.4 Funding a Foundation 7
2.6 Foundations and Planned Giving 7
(b) Charitable Remainder Trusts 7
(d) Interrelationships with Private Foundation Rules 8
2.7 Acquiring Recognition of Tax-Exempt Status 8
(a) Form 1023 8
(b) 27-Month Rule 9
(c) IRS Determination Letters Recognizing Exempt Status 9
(d) Administrative Procedures When Recognition Denied 9
(e) Declaratory Judgment Procedures When Recognition Denied 10
(f) Recognition of Foreign Organizations 10
3 Types of Private Foundations 11
3.1 Private Operating Foundations 11
(d) Income Test 11
(h) Conversion to or from Private Operating Foundation Status 11
3.2 Exempt Operating Foundations 12
3.3 Conduit Foundations 13
3.6 Nonexempt Charitable Trusts 14
3.7 Split-Interest Trusts 15
3.8 Foreign Private Foundations 16
(a) Gross Investment Income Tax 16
(b) Withholding Tax 17
(c) 85 Percent Support Test 18
(d) Return Filing Obligations 19
(e) Establishing Public Charity Status 19
(f) Loss of Exemption (Prohibited Transactions) 20
4 Disqualified Persons 21
4.5 Corporations or Partnerships 21
4.8 Governmental Officials 21
4.9 Termination of Disqualified Person Status 21
5 Self-Dealing 23
5.4 Sale, Exchange, Lease, or Furnishing of Property 23
(e) Furnishing of Goods, Services, or Facilities 23
(g) Coinvestments 24
5.5 Loans and Other Extensions of Credit 24
5.6 Payment of Compensation 24
(e) Excess Executive Compensation Tax 24
(i) Reporting of Compensation 25
5.8 Uses of Income or Assets by Disqualified Persons 25
(c) Payment of Charitable Pledges 25
(e) Incidental or Tenuous Benefits 26
5.9 Sharing Space, People, and Expenses 26
(b) Office Space and Personnel 26
5.10 Payments to Governmental Officials 26
5.11 Indirect Self-Dealing 27
(b) Concept of Control 27
5.12 Estate Administration Exception 27
(a) Concept of the Expectancy 27
(b) Estate Administration Exception - General Rules 27
5.14 Additional Exceptions 28
(b) Transitional Rules (Savings Provisions) 28
6 Mandatory Distributions 29
6.1 Mandatory Distribution Requirement 29
(a) Purpose and Policy 29
6.2 Minimum Investment Return 29
(d) Exempt Function Assets 29
6.3 Determining Fair Market Value 30
(c) Other Assets 30
6.4 Qualifying Distributions 30
(a) General Definitions and Rules 30
(b) Charitable Grants in General 31
(c) Grants to Controlled Organizations and Other Foundations 31
(d) Grantor Reliance Standards 31
(f) Direct Charitable Expenditures 32
(g) Set-Asides 32
6.5 Excise Taxes on Failure to Distribute Income 35
(b) Ordering Rule for Qualifying Distributions 35
(e) Valuation Mistakes 35
7 Excess Business Holdings 37
7.1 Overview 37
7.2 Definitions and Limitations on Business Holdings 38
(a) Definition of Business Enterprise 38
(b) Passive Income Businesses 40
(c) Percentage Limitations 43
(d) Permitted and Excess Holdings 48
(e) Constructive Ownership 48
(f) Disposition Periods 53
(g) History of Excess Business Holdings Rules 55
7.3 Functionally Related Businesses 56
8 Jeopardizing Investments 57
8.1 General Rules 57
(b) Contributed Assets 57
8.2 Prudent Investments 57
(g) Mission-Related Investments 57
8.3 Program-Related Investments 58
9 Taxable Expenditures 61
9.2 Political Campaign Activities 61
(c) Voter Registration Drives 61
9.3 Grants to Individuals 62
(b) Individual Grants for Charitable or Other Permitted Purposes 62
(d) Individual Grants for Travel, Study, or Other Similar Purposes 62
(f) IRS Approval of Grant Procedures 64
(g) Individual Grant Intermediaries and Earmarking 69
9.4 Grants to Public Charities 69
(a) Types of Public Charity Grantees 69
(b) Grantor Reliance Standards 69
(c) Intermediary and Secondary Grantees 70
9.5 Grants to Exempt Operating Foundations 70
9.6 Grants to Foreign Organizations 70
(b) Good Faith (Equivalency) Determinations 70
9.7 Expenditure Responsibility 70
(c) Grant Terms 70
9.8 Spending for Noncharitable Purposes 70
10 Tax on Investment Income 71
10.1 Rate of Tax 71
10.4 Calculating Taxable Net Investment Income 71
(b) Capital Gains and Losses 71
(h) Partnership and S Corporation Income 71
10.5 Reductions to Gross Investment Income 72
(a) Deductions Allowed 72
(b) Deductions Not Allowed 72
10.6 Foreign Private Foundations 72
10.7 Exemption from Tax on Investment Income 72
11 Unrelated Business Activity 73
11.1 General Rules 73
(e) Real Estate Activities 73
11.2 Exceptions 74
11.3 Rules Specifically Applicable to Private Foundations 75
(a) Direct Conduct of Unrelated Activities 75
(b) Ownership Interests in Unrelated Businesses 76
(c) Partnerships and S Corporations 77
(c-1) Specified Payments from Controlled Entities 77
(e) Provision of Technical Assistance 78
11.4 Unrelated Debt-Financed Income Rules 78
(a) Acquisition Indebtedness 78
11.5 Calculating and Reporting the Tax 78
(b) Bucketing Rule 78
(d) Tax Computation and Reporting Rules 79
12 Tax Reporting and Administrative Issues 81
12.1 Form 990-PF 81
(a) Annual Form 990-PF Filing Requirement 81
(c) Reporting Changes on Form 990-PF 82
(d) Other Changes 82
12.2 Form 990-PF Penalties 82
(a) Daily Delinquency Penalty 82
(c) Reasonable Cause 83
12.3 Public Disclosure and Inspection of Returns and Applications 83
(a) Disclosure Obligations of Private Foundations 83
(c) IRS’s Disclosure Obligations 84
12.4 Reporting and Payment of Excise Taxes 84
(b) Additions to Tax and Penalties 84
(d) Form 4720 Statute of Limitations 85
12.5 Determination Letters and Letter Rulings 85
(a) Form 8940 Miscellaneous Determination Requests 85
(b) Letter Rulings 86
(c) Reliance on Determinations and Rulings 86
12.6 IRS Examinations of Private Foundations 87
(a) Types of Examinations 87
(b) General IRS EO Examination Practices and Procedures 87
12.7 Revocation of Tax-Exempt Status 88
(a) Automatic Revocation for Non-Filing 88
(b) Retroactive Revocation 88
(c) IRS Administrative Appeal Procedures 89
(d) Contesting Revocation in Court 89
13 Termination of Foundation Status 91
13.1 Voluntary Termination 91
13.3 Transfer of Assets to a Public Charity 91
(a) General Rules 91
13.4 Operation as a Public Charity 92
(b) Initial Notice 92
(c) Advance Ruling Requests 92
(d) Final Notice 93
13.5 Mergers, Split-Ups, and Transfers Between Foundations 98
(b) Complete Asset Transfers to Controlled Foundations 93
14 Charitable Giving Rules 95
14.1 Concept of Gift 95
14.2 Basic Rules 96
(a) Percentage Limitations 96
14.6 Special Gift Situations 96
(g) Conservation Property 96
15 Public Charities 97
15.3 Public Institution Charities 97
(b) Educational Institutions 97
15.4 Donative Publicly Supported Charities 97
(b) 2 Percent Limitation 98
15.5 Service Provider Publicly Supported Charities 98
(c) Unusual Grants 98
15.6 Supporting Organizations 98
(b) Operational Test 98
(g) Operated in Connection with (Type III) 99
(h) Contributions from Controlling Donors 107
(j) Limitation on Control 108
(n) Applications and Illustrations 109
(o) Loss of Supporting Organization Status 111
15.7 Change of Public Charity Category 112
(b) From § 509(a)(3) to § 509(a)(1) or § 509(a)(2) 112
(d) IRS Recognition of Change in Status 112
15.8 Termination of Public Charity Status 113
16 Donor-Advised Funds 115
16.1 Basic Definitions 116
16.7 Statutory Criteria 116
(a) Definition of Donor-Advised Fund 116
(b) Taxes on Taxable Distributions 125
(c) Taxes on Prohibited Benefits 130
(d) Application of Excess Benefit Rules 130
(e) Application of Excess Business Holdings Rules 131
(f) Limitations on Deductibility of Contributions 131
(g) Reporting and Disclosure Requirements 131
16.8 Studies 131
(a) Treasury Study 131
(b) Congressional Research Service Study 131
16.9 Tax Regulations 132
(a) The Ever-Pending Regulations Project 132
(c) Comments on IRS Notice 132
16.10 Proposed Legislation 132
17 Company Foundations 133
17.4 Private Benefit Doctrine 133
17.5 Disqualified Persons Rules 133
17.6 Self-Dealing Rules 134
(a-1) Satisfying Company Charitable Commitments 134
(c) Provision of Tangible Benefits 135
(d) Grantmaking 135
(e) Incidental and Tenuous Benefits 139
17.7 Other Private Foundations Rules 141
(b) Excess Business Holdings Rules 141
17.8 Excess Executive Compensation Tax Exceptions 141
(a) Limited Hours Exception 141
(b) Nonexempt Funds Exception 141
About the Authors 143
About the Online Resources 145
Appendix A: Sources of the Law 147
Appendix B: Internal Revenue Code Sections 173
Table of Cases 179
Table of IRS Revenue Rulings, Revenue Procedures, and Notices 189
Table of IRS Private Determinations Cited in Text 197
Table of Other IRS Private Determinations 213
Index 227
