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Avoiding Self-Dealing: Essential Rules for Private Foundations

ARTICLE | July 24, 2024

Authored by Vasquez + Company


Private foundations must be cautious of self-dealing transactions, which are prohibited by the IRS due to potential conflicts of interest. The article "Why Private Foundations Need to Avoid Self-dealing" provides an overview of what constitutes self-dealing, who is considered a disqualified person, and the severe financial repercussions of violating these rules.

Key Points:

  • Disqualified Persons: Includes substantial contributors, foundation managers, family members of these individuals, and entities in which they hold significant interest.
  • Prohibited Transactions: Includes selling, exchanging, or leasing property, lending money, and providing goods or services to disqualified persons.
  • Penalties: Violations incur a minimum 10% excise tax on the transaction amount for disqualified persons and a 5% tax for foundation managers, officers, directors, or trustees — who knowingly participate in acts of self-dealing. Uncorrected violations can lead to a 200% tax and additional penalties.
  • Exceptions: Reasonable compensation for necessary services may not constitute self-dealing, but relying on exceptions is risky.

Understanding these regulations is crucial to avoid costly penalties and ensure compliance.

For more information, read the full article here.

 


Our firm provides the information for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. This article is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

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