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Private Foundations: Tax Law and Compliance, 4th Edition

Private Foundations: Tax Law and Compliance, 4th Edition

Bruce R. Hopkins, Jody Blazek

ISBN: 978-1-118-53249-2 June 2014 896 Pages

 E-Book

$240.99

Description

Stay updated on the latest tax regulations with this private foundation tax manual

Knowledge of tax regulations surrounding private foundations isn't enough if you're an executive of such an organization or a professional supporting a tax-exempt foundation. Annual changes to IRS rules and increased scrutiny by regulators mean it's necessary for you to keep abreast of myriad changes that come into existence each year. From authors Bruce R. Hopkins and Jody Blazek comes the definitive guide for those responsible for guiding the financial and tax filing operations of private foundations.

The complexity of tax regulations related to private foundations extends to a level that is out of proportion to the relatively small number of such entities. Nonetheless, recent statutory requirements that apply solely to private foundations can make untangling filing and reporting activities overly burdensome without a developed knowledge of the underlying theory and practice. To navigate this maze of add-on regulations, Hopkins and Blazek provide background knowledge, in-depth explanations of regulatory changes, and real-world examples to bring as much simplicity to the process as possible.

  • Receive guidance from the 2007 Outstanding Nonprofit Lawyer Award recipient
  • Learn about the details of private foundation taxes from leading experts in the field
  • Make use of checklists and sample documents to prepare organizational filings
  • Utilize line-by-line instructions for completing exemption applications and forms

For professionals working closely with private foundations, including accountants, lawyers, and foundation executives, Private Foundations: Tax Law and Compliance, 4th Edition is a welcome resource for keeping your clients or your organization on the right track.

  • Brings clarity, real-world examples, and checklists to help professionals deal with the burdensome process of complying with IRS regulations governing private foundations
  • Clarifies the underlying logic behind statutory tax regulations governing private foundations and the practical implications of maintaining compliance
  • Supplemented annually online to keep subscribers up-to-date on relevant changes in IRS forms requirements, and related tax procedures
  • Includes easy-to-use checklists highlighting such critical concerns as tax-exempt eligibility and tax compliance
  • Offers line-by-line instructions for completing a variety of exemption applications and tax forms<
  • Features sample documents, letters of application, completed forms and practice aids summarizing the differences between public and private charitable organizations

Preface xiii

Book Citations xix

1 Introduction to Private Foundations 1

1.1 Private Foundations: Unique Organizations 1

1.2 Definition of Private Foundation 5

1.3 History and Background 6

1.4 Private Foundation Law Primer 9

1.5 Statistical Profile 16

1.6 Foundations in Overall Exempt Organizations Context 17

1.7 Definition of Charity 18

1.8 Operating for Charitable Purposes 19

1.9 Organizational Rules 24

1.10 Private Foundation Sanctions 26

2 Starting and Funding a Private Foundation 33

2.1 Choice of Organizational Form 33

2.2 Funding a Foundation 36

2.3 Estate Planning Principles 38

2.4 Foundations and Planned Giving 39

2.5 Acquiring Recognition of Tax-Exempt Status 44

2.6 Special Requirements for Charitable Organizations 104

2.7 When to Report Back to the IRS 107

3 Types of Private Foundations 117

3.1 Private Operating Foundations 117

3.2 Conduit Foundations 139

3.3 Common Fund Foundations 141

3.4 Research and Experimentation Funds 142

3.5 Other Types of Foundations 143

3.6 Nonexempt Charitable Trusts 144

3.7 Split-Interest Trusts 147

3.8 Foreign Private Foundations 149

4 Disqualified Persons 153

4.1 Substantial Contributors 153

4.2 Foundation Managers 158

4.3 Certain 20 Percent Owners 159

4.4 Family Members 161

4.5 Corporations or Partnerships 162

4.6 Trusts or Estates 162

4.7 Private Foundations 163

4.8 Governmental Officials 163

4.9 Terminating Disqualified Person Status 166

5 Self-Dealing 169

5.1 Private Inurement Doctrine 171

5.2 Private Benefit Doctrine 174

5.3 Definition of Self-Dealing 180

5.4 Sale, Exchange, Lease, or Furnishing of Property 184

5.5 Loans and Other Extensions of Credit 196

5.6 Payment of Compensation 200

5.7 Indemnification and Insurance 221

5.8 Uses of Income or Assets by Disqualified Persons 227

5.9 Sharing Space, People, and Expenses 238

5.10 Payments to Government Officials 243

5.11 Indirect Self-Dealing 245

5.12 Property Held by Fiduciaries 251

5.13 Early Terminations of Charitable Remainder Trusts 256

5.14 Additional Exceptions 257

5.15 Issues Once Self-Dealing Occurs 260

6 Mandatory Distributions 273

6.1 Distribution Requirements—In General 273

6.2 Assets Used to Calculate Minimum Investment Return 275

6.3 Measuring Fair Market Value 285

6.4 Distributable Amount 294

6.5 Qualifying Distributions 297

6.6 Distributions to Certain Supporting Organizations 319

6.7 Satisfying the Distribution Test 322

6.8 History of the Mandatory Distribution Requirement 329

7 Excess Business Holdings 335

7.1 General Rules 335

7.2 Permitted and Excess Holdings 341

7.3 Functionally Related Businesses 347

7.4 Rules Applicable to Certain Supporting Organizations 350

7.5 Rules Applicable to Donor-Advised Funds 350

7.6 Excise Taxes on Excess Holdings 351

8 Jeopardizing Investments 353

8.1 General Rules 354

8.2 Prudent Investments 359

8.3 Program-Related Investments 373

8.4 Investment Frauds 379

8.5 Excise Taxes for Jeopardizing Investments 382

9 Taxable Expenditures 387

9.1 Legislative Activities 389

9.2 Political Campaign Activities 399

9.3 Grants to Individuals 402

9.4 Grants to Public Charities 424

9.5 Grants to Foreign Organizations 434

9.6 Expenditure Responsibility 440

9.7 Internet and Private Foundations 459

9.8 Spending for Noncharitable Purposes 465

9.9 Distributions to Certain Supporting Organizations 468

9.10 Excise Tax for Taxable Expenditures 468

10 Tax on Investment Income 477

10.1 Rate of Tax 478

10.2 Reducing the Excise Tax 480

10.3 Formula for Taxable Income 488

10.4 Reductions to Gross Investment Income 501

10.5 Foreign Foundations 509

10.6 Exemption from Tax on Investment Income 510

10.7 Legislative Proposal 511

11 Unrelated Business Income 513

11.1 General Rules 514

11.2 Exceptions 525

11.3 Rules Specifically Applicable to Private Foundations 532

11.4 Unrelated Debt-Financed Income 543

11.5 Calculating and Reporting the Tax 547

12 Tax Compliance and Administrative Issues 553

12.1 Successful Preparation of Form 990-PF 558

12.2 Reports Unique to Private Foundations 575

12.3 Compliance Issues 595

13 Termination of Foundation Status 669

13.1 Voluntary Termination 671

13.2 Involuntary Termination 673

13.3 Transfer of Assets to a Public Charity 674

13.4 Operation as a Public Charity 681

13.5 Mergers, Split-Ups, and Transfers between Foundations 683

13.6 Termination Tax 698

13.7 Abatement 699

14 Charitable Giving Rules 701

14.1 General Rules 701

14.2 Gifts of Appreciated Property 704

14.3 Deductibility of Gifts to Foundations 706

14.4 Deduction Reduction Rules 707

14.5 Planned Giving Revisited 710

14.6 Administrative Considerations 710

15 Private Foundations and Public Charities 715

15.1 Distinctions between Public and Private Charities 716

15.2 Evolution of Law of Private Foundations 719

15.3 Organizations with Inherently Public Activity 721

15.4 Publicly Supported Organizations—Donative Entities 727

15.5 Service Provider Organizations 743

15.6 Comparative Analysis of the Two Categories of Publicly Supported Charities 754

15.7 Supporting Organizations 757

15.8 Change of Public Charity Category 784

15.9 Noncharitable Supported Organizations 786

15.10 Relationships Created for Avoidance Purposes 786

15.11 Reliance by Grantors and Contributors 787

15.12 Other Rules 792

15.13 Public Safety Organizations 792

15.14 Termination of Public Charity Status 792

16 Donor-Advised Funds 795

16.1 Basic Definitions 796

16.2 General Concept of a Gift 797

16.3 Types of Donor Funds 799

16.4 IRS Challenges to Donor Funds 802

16.5 Prohibited Material Restrictions 803

16.6 Department of Justice Position 808

16.7 Public Charity Status of Funds 809

16.8 Interrelationship of Private Foundation Rules 810

16.9 Statutory Criteria 812

16.10 Department of Treasury Study 816

16.11 Congressional Research Service Study 816

17 Corporate Foundations 821

17.1 Corporate Foundation Overview 821

17.2 Reasons for Establishment of a Corporate Foundation 822

17.3 Private Inurement Doctrine 823

17.4 Disqualified Persons Rules 824

17.5 Self-Dealing Rules 825

17.6 Other Private Foundations Rules 833

About the Authors 837

About the Online Resources 841

Index 843