Top 5 Ways Private Foundations Can Get In Trouble

And How to Avoid Them

For private foundations, most types of “trouble” fall under the category of “self-dealing.” Self-dealing is defined as almost all business and financial transactions between a private foundation and its “disqualified persons,” a broad category of foundation insiders that includes contributors to the foundation, its trustees and managers.

It’s important to understand the rules, because if self-dealing occurs, the money must be returned and the insider is subject to a 10% excise tax—it doesn’t matter if the transaction was favorable to the foundation. Board members and other insiders generally are not permitted to reap any economic benefit from their dealings with the foundation. Unfortunately, it’s not always easy to figure out what the IRS might consider to be a “benefit.” Here are some quick guidelines:

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