Privately Held Stock within a Private Foundation

Considerations When Investing in or Funding a Foundation with Privately Held Stock

One of the most appealing qualities of a private foundation is the tremendous degree of flexibility it provides to its board for making investment decisions. This quality is greatly prized by savvy investors and entrepreneurs who have developed the knack for making shrewd and lucrative investments to benefit their foundations.

Often, a sophisticated investor’s strategy includes investments in privately held stock. Following is a brief synopsis of key points to bear in mind when a foundation’s portfolio includes investments in such stock.

Excise tax: Upon a foundation’s sale of privately held stock that had been donated, it will pay a nominal excise tax on the realized capital gain, as determined by reference to the donor’s basis in such stock. The foundation’s excise tax liability will be calculated using a 1.39% tax rate.

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