Private Foundations: Tax Law and Compliance, Second Edition 2007 Cumulative Supplement
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More About This Title Private Foundations: Tax Law and Compliance, Second Edition 2007 Cumulative Supplement


The 2007 Cumulative Supplement includes the following updates: The 2006 version of Form 990-PF, filled in to illustrate reporting issues, is included in Chapter 12.The IRS has substantially revised the application for recognition of exemption filed by private foundations (and other charitable organizations), Form 1023. This application is included in supplemental materials for Chapter 2, along with some details about preparation of the form and some traps inherent therein.Discussion of application of self-dealing rules, the personal services exception, the exception for incidental benefits, and foundation-funded disaster relief programs.Summary of the Enactment of the Pension Protection Act of 2006.Discussion of the IRS’s restructuring which has brought–among other units–the Exempt Organizations Compliance Unit, the Data Analysis Unit, and the Review of Operations Unit. The significance of these units is reflected in the recently issued IRS report on its Executive Compensation Compliance Initiative project.


Bruce R. Hopkins is a senior partner with the law firm of Polsinelli Shalton Flanigan Suelthaus PC, in its Kansas City, Missouri, and Washington, D.C. offices. He specializes in the representation of charitable and other nonprofit organizations, including private foundations. His practice ranges over the entirety of legal matters involving nonprofit organizations, with emphasis on legal matters pertaining to private foundations, fundraising law issues, charitable giving (including planned giving), the formation of nonprofit organizations, acquisition of recognition of tax-exempt and public charity status, unrelated business planning, application of intermediate sanctions, use of nonprofit and for-profit subsidiaries, nonprofit organizations’ involvement in joint ventures, and review of annual information returns.
Mr. Hopkins served as chair of the Committee on Exempt Organizations, Tax Section, American Bar Association; chair, Section of Taxation, National Association of College and University Attorneys; and president, Planned Giving Study Group of Greater Washington, D.C. He received the 2007 Vanguard (Lifetime Achievement) Nonprofit Lawyer Award, presented by the Committee on Nonprofit Corporations, Section of Business Law, American Bar Association.
Mr. Hopkins is the series editor of Wiley’s Nonprofit Law, Finance, and Management Series. In addition to Private Foundations: Tax Law and Compliance, Second Edition, he is the author of The Law of Tax-Exempt Organizations, Ninth Edition; Planning Guide for the Law of Tax-Exempt Organizations: Strategies and Commentaries; The Tax Law of Unrelated Business for Nonprofit Organizations; The Tax Law of Associations; The Tax Law of Charitable Giving, Third Edition; The Law of Fundraising, Third Edition; Nonprofit Law Made Easy; Charitable Giving Law Made Easy; 650 Essential Nonprofit Law Questions Answered; The First Legal Answer Book for Fund-Raisers; The Second Legal Answer Book for Fund-Raisers; The Nonprofits’ Guide to Internet Communications Law; The Law of Intermediate Sanctions: A Guide for Nonprofits; The Legal Answer Book for Nonprofit Organizations; The Second Legal Answer Book for Nonprofit Organizations; The Nonprofit Law Dictionary; Starting and Managing a Nonprofit Organization; A Legal Guide, Fourth Edition; and is the co-author, with Jody Blazek, of The Legal Answer Book for Private Foundations; and with Thomas K. Hyatt, of The Law of Tax-Exempt Healthcare Organizations, Second Edition. He also writes Bruce R. Hopkins’ Nonprofit Counsel, a monthly newsletter, published by John Wiley & Sons.

Jody Blazek is a partner in Blazek & Vetterling LLP, a Houston CPA firm focusing on tax and financial services for exempt organizations and the individuals who create, fund, and work with them. BV serves over 300 nonprofit organizations, providing financial reporting, tax compliance, and planning services.
Jody began her professional career at KPMG, then Peat, Marwick, Mitchell &Co. Her concentration on exempt organizations began in 1969 when she studied and advised clients about the Tax Reform Act that completely revamped the taxation of charities and created private foundations. From 1972 to 1981, she gained nonprofit management experience as treasurer of the Menil Interests, where she worked with John and Dominique de Menil to plan the Menil Collection, the Rothko Chapel, and other projects of theMenil Foundation. She reentered public practice in 1981 to found the firm she now serves.
She is the author of six books in the Wiley Nonprofit Series: IRS Form 1023 PreparationGuide (2005); IRS Form 990 Tax PreparationGuide for Nonprofits (2004); Tax Planning and Compliance for Tax-Exempt Organizations, Fourth Edition (2004); Financial Planning for Nonprofit Organizations (1996); and Private Foundations: Tax Law and Compliance, Second Edition (2003) and The Legal Answer Book for Private Foundations (2002), both co-authored with Bruce R. Hopkins.


List of Exhibits.


Chapter One: Introduction to Private Foundations.

§ 1.6 Operating for Charitable Purposes.

Chapter Two: Starting and Funding a Private Foundation.

§ 2.5 Acquiring Tax-Exempt Status.

*(a) Preparing Form 1023.

*§ 2.7 When to Report Back to the IRS.

Chapter Three: Types of Private Foundations.

§ 3.1 Private Operating Foundations.

(a) Direct Charitable Distributions.

§ 3.2 Conduit Foundations.

§ 3.6 Nonexempt Charitable Trusts.

Chapter Four: Disqualified Persons.

§ 4.1 Substantial Contributors.

§ 4.8 Governmental Officials.

Chapter Five: Self-Dealing.

§ 5.2 Private Benefit Doctrine.

§ 5.3 Definition of Self-Dealing.

(c) Exceptions Provided in Regulations.

§ 5.4 Sale, Exchange, Lease, or Furnishing of Property.

(c) Leasing of Property.

(d) Furnishing of Goods, Services, or Facilities.

(e) Co-Owned Property.

§ 5.5 Loans and Other Extensions of Credit.

(b) Interest-Free Loans.

§ 5.6 Payment of Compensation.

(a) Definition of Personal Services (New).

(b) Definition of Compensation (New).

(d) Finding Salary Statistics.

(f) Expense Reimbursements and Advances.

(g) Bank Fees.

*(h) IRS Executive Compensation Study (New).

§ 5.7 Indemnification and Insurance.

*(a) Noncompensatory Indemnification and Insurance.

§ 5.8 Uses of Income or Assets by Disqualified Persons.

*(a) Securities Transactions.

(c) For the Benefit of Transactions (New).

*(d) Incidental or Tenuous Benefits.

(f) Benefit Tickets.

§ 5.9 Sharing Space, People, and Expenses.

(b) Office Space and Personnel.

*§ 5.11 Indirect Self-Dealing.

§ 5.12 Property Held by Fiduciaries.

(a) General Rules.

*§ 5.12A Early Terminations of Charitable Remainder Trusts (New).

§ 5.14 Issues Once Self-Dealing Occurs.

*(a) Undoing the Transaction.

(b) Amount Involved.

(d) Payment of Tax.

(e) Advice of Counsel.

Chapter Six: Mandatory Distributions.

§ 6.2 Assets Used to Calculate Minimum Investment Return.

(c) Exempt Function Assets.

(f) Acquisition Indebtedness.

§ 6.3 Measuring Fair Market Value.

*(d) Readily Marketable Securities.

*(f) Cash and Other Types of Assets.

§ 6.4 Distributable Amount.

(a) Controversial Addition.

§ 6.5 Qualifying Distributions.

*(a) Direct Grants.

(b) Direct Charitable Expenditures.

*(c) Controversial Proposal (New).

(d) Set-Asides.

§ 6.6 Satisfying the Distribution Test.

(b) Planning for Excess Distributions.

(d) Abatement of the Tax.

§ 6.6A Distributions to Certain Supporting Organizations (New).

Chapter Seven: Excess Business Holdings.

§ 7.1 General Rules.

(a) Definition of Business Enterprise.

(d) Percentage Limitations.

§ 7.2 Permitted and Excess Holdings.

(d) Disposition Periods.

*§ 7.3 Functionally Related Businesses.

*§ 7.3A Rules Applicable to Certain Supporting Organizations (New).

*§ 7.3B Rules Applicable to Donor-Advised Funds (New).

§ 7.4 Excise Taxes on Excess Holdings.

Chapter Eight: Jeopardizing Investments.

§ 8.1 General Rules.

*(a) Defining Jeopardy.

§ 8.2 Prudent Investments.

*(b) Facing the Unknown.

§ 8.3 Program-Related Investments.

§ 8.4 Excise Taxes for Jeopardizing Investments.

(b) Reliance on Outside Advisors.

Chapter Nine: Taxable Expenditures.

*§ 9.1 Legislative Activities.

(c) Grants to Charities That Lobby.

§ 9.3 Grants to Individuals.

(a) Grants for Travel, Study, or Other Purposes.

*(b) Other Individual Grants.

(c) Compensatory Payments.

(d) Selection Process.

(e) Employer-Related Programs.

(h) Individual Grant Intermediaries.

§ 9.4 Grants to Public Charities.

(b) Documenting Public Charity Grants.

*(c) The Reliance Problem.

*§ 9.5 Grants to Foreign Organizations.

§ 9.6 Expenditure Responsibility.

*(a) General Rules.

*(e) Reports from Grantees.

*§ 9.8A Distributions to Certain Supporting Organizations (New).

§ 9.9 Excise Tax for Taxable Expenditures.

(b) Paying or Abating the Tax.

Chapter Ten: Tax on Investment Income.

§ 10.2 Reducing the Excise Tax.

*(a) Qualification for Reduced Rate.

§ 10.3 Formula for Taxable Income.

*(a) Gross Investment Income.

*(b) Interest.

(f) Estate or Trust Distributions.

*(h) Partnerships.

§ 10.4 Capital Gains.

(a) Basis.

(b) Nontaxed Gains.

*(c) Questionable Types of Gain.

*§ 10.4A Post-2006 Effort to Expand Tax Base (New).

*§ 10.5 Reductions to Gross Investment Income.

*§ 10.6 Timely Payment of Excise Tax.

Chapter Eleven: Unrelated Business Income.

§ 11.1 General Rules.

*(e) Real Estate Activities.

§ 11.2 Exceptions.

*(d) Nonbusiness Activities.

(e) Revenue Produced on the Internet (New).

§ 11.3 Rules Specifically Applicable to Private Foundations.

*(c) Partnerships and S Corporations.

§ 11.4 Unrelated Debt-Financed Income.

(b) Related-Use Exceptions.

Chapter Twelve: Tax Compliance and Administrative Issues.

§ 12.1 Successful Completion of Form 990-PF.

*(a) Part I, Analysis of Revenue and Expenses.

§ 12.2 Reports Unique to Private Foundations.

(c) Part VII-A, Statements Regarding Activities.

§ 12.3 Compliance Issues.

(c) Where andWhen to File Form 990-PF.

(e) Reporting Violations and Other IRS Issues.

(f) Employment Tax Considerations (New).

(g) Reporting Requirements for Offshore Investments (New).

Chapter Thirteen: Termination of Foundation Status.

§ 13.1 Voluntary Termination.

§ 13.3 Transfer of Assets to a Public Charity.

(a) Eligible Public Charity Recipients.

*§ 13.4 Operation as a Public Charity.

§ 13.5 Mergers, Split-Ups, and Transfers between Foundations.

(c) Unanswered Question.

Chapter Fourteen: Charitable Giving Rules.

§ 14.2 Gifts of Appreciated Property.

§ 14.4 Deduction Reduction Rules.

*(b) Qualified Appreciated Stock Rule.

Chapter Fifteen: Private Foundations and Public Charities.

§ 15.4 Publicly Supported Organizations—Donative Entities.

(b) Support Test.

§ 15.5 Service Provider Organizations.

(a) Investment Income Test.

(c) Unusual Grants.

*§ 15.7 Supporting Organizations.

*(b) Operational Test.

*(g) Operated in Connection with.

*(g.1) Application of Excess Benefit Transactions Rules (New).

*(h) Limitation on Control.

*(h.1) Pension Protection Act–Caused Problem (New).

*(k) Department of Treasury Study (New).

*§ 15.9 Relationships Created for Avoidance Purposes.

Chapter Sixteen: Donor-Advised Funds.

§ 16.2 General Concept of a Gift.

*§ 16.3 Types of Donor Funds.

*§ 16.4 IRS Challenges to Donor Funds.

§ 16.7 Public Charity Status of Funds.

*§ 16.9 Statutory Criteria (New).

Cumulative Table of Cases.

Cumulative Table of IRS Revenue Rulings and Revenue Procedures.

Cumulative Table of IRS Private Determinations Cited in Text.

Cumulative Table of IRS Private Determinations Discussed in Bruce R. Hopkins’ Nonprofit Counsel.

Cumulative Table of IRS Private Letter Rulings, Technical Advice Memoranda, and General Counsel Memoranda.

Cumulative Table of Cases Discussed in Bruce R. Hopkins’ Nonprofit Counsel.

Cumulative Index.

Note: Sections not in the main bound volume, Private Foundations: Tax Law and Compliance Second Edition (9780471444381) are indicated by "(New)" after the title. Material newto or modified in this supplement is indicated by an asterisk (*) in the left margin in the Contents and throughout the supplement.