10 Rules Every Foundation Should Know About Compliance


Categories: Supporting Your Foundation

Search Topics: Compliance Private Foundations Basics

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Validating the Tax Status of a Charity: A private foundation must validate the IRS exempt status of every 501(c)(3) public charity every time it makes a grant to it.

Making Scholarship Grants: Many foundations mistakenly believe that they can fund a specific student’s scholarship without advance approval from the IRS—as long as the grant is paid directly to the university and not to the student. Not true.

Paying off Pledges: A foundation may make its own charitable pledges, but it may not satisfy the personal obligation of a board member or other foundation “insider.”

Hosting Fundraising Events: Many states require foundations to report fundraising events and register with the attorney general’s office. Also, the IRS requires foundations to ascribe a value to the benefits provided to attend­ees and provide a tax receipt.

Buying Tables at Charitable Events: If a private foundation purchases tickets for a charitable event (or is given tickets), there is the potential for self dealing, depending on who attends and the purpose for being there.

Making Grants to Individuals: Grants to relieve human suffering may be made without advance IRS approval, provided that the foundation makes the grant on an objective and non-discriminatory basis; complies with the record-keeping requirements; and does not require the recipient to spend the funds in a particular way.

Compensating Foundation Insiders: Foundation officers and trustees may be paid, provided the compensation is reasonable. Reasonableness of the compen­sation is judged many factors.

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