Fundraisers such as dinners, galas, and concerts are popular with both donors and charities alike. However, if one chooses to pay for tickets to these types of events through a private foundation, some care is required. Because tickets have an economic value, and there are benefits associated with attendance (food, drinks, entertainment, etc.), improperly using tickets that have been purchased by or given to the foundation can result in self-dealing or even taxable expenditure violations. This paper outlines the legal issues that can arise from the improper use of foundation tickets and offers practical guidance for avoiding them.
Many foundation managers, staff, and board members understand that the self-dealing rules generally prohibit a disqualified person from entering into a financial transaction with the foundation. What is often not well understood is that, with few and narrow exceptions, they forbid the flow of any tangible economic benefits from the foundation to a disqualified person. Specifically, section 4941(d)(1) lists six prohibited acts of self-dealing between a private foundation and its disqualified persons. One of these prohibited acts is the “transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a private foundation” (emphasis added). When a foundation obtains tickets to an event, those tickets become assets of the foundation. Thus, the personal use of those tickets by disqualified persons or their family members will ordinarily constitute an act of self-dealing.
[callout]When a foundation obtains tickets to an event, those tickets become assets of the foundation.[/callout]