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More About This Title Private Foundations, 3e: Tax Law and Compliance
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.
Mr. Hopkins is the series editor of Wiley's Nonprofit Law, Finance, and Management Series. In addition to co-author of Private Foundations: Tax Law and Compliance,Third Edition, he is the author of The Law of Tax-Exempt Organizations, Ninth Edition;The Planning Guide for the Law of Tax-Exempt Organizations: Strategies and Commentaries;IRS Audits of Tax-Exempt Organizations: Policies, Practices, and Procedures;The Tax Lawof Charitable Giving, Third Edition; The Law of Fundraising, Third Edition; The Tax Law ofAssociations; The Tax Law of Unrelated Business for Nonprofit Organizations; The Nonprofits'Guide to Internet Communications Law; The Law of Intermediate Sanctions: A Guide forNonprofits;Starting and Managing a Nonprofit Organization: A Legal Guide, Fifth Edition;Nonprofit Law Made Easy; Charitable Giving Law Made Easy;Private Foundation Law MadeEasy; 650Essential Nonprofit Law Questions Answered; The First Legal Answer Book forFund-Raisers; The Second Legal Answer Book for Fund-Raisers; The Legal Answer Book forNonprofit Organizations; The Second Legal Answer Book for Nonprofit Organizations; andThe Nonprofit Law Dictionary; and is the co-author, with Jody Blazek, of The Legal AnswerBook for Private Foundations; with Thomas K. Hyatt, of The Law of Tax-ExemptHealthcare Organizations, Third Edition; with David O. Middlebrook, of Nonprofit Lawfor Religious Organizations: Essential Questions & Answers; and with Douglas K. Anning, Virginia C. Gross, and Thomas J. Schenkelberg, of The New Form 990: Law, Policyand Preparation. He also writes Bruce R. Hopkins' Nonprofit Counsel, a monthly newsletter, published by John Wiley & Sons.
Mr. Hopkins received the 2007 Outstanding Nonprofit Lawyer Award (Vanguard Lifetime Achievement Award) from the American Bar Association, Section of Business Law, Committee on Nonprofit Corporations. He is listed in The Best Lawyers inAmerica, Nonprofit Organizations/Charities Law, 2007-2008.
Mr. Hopkins earned his J.D. and L.L.M. degrees at the George Washington University National Law Center and his B.A. at the University of Michigan. He is a member of the bars of the District of Columbia and the state of Missouri.
JODY BLAZEK is a partner in Blazek & Vetterling LLP, a Houston CPA firm focusing on tax and financial planning for exempt organizations and the individuals who create, fund, and work with them. BV serves over 400 nonprofit organizations providing financial reports and tax compliance and planning services.
Ms. Blazek's accounting career has concentrated on nonprofit organizations for over 38 years. This focus began with KPMG (then Peat Marwick) when she studied and interpreted the Tax Reform Act of 1969 as it related to charitable organizations and the creation of 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 the Menil 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: Nonprofit FinancialPlanning Made Easy(2008);IRS Form 1023 Preparation Guide(2005);IRS Form 990 TaxPreparation Guide for Nonprofits(2004);Tax Planning and Compliance for Tax-Exempt Organizations,Fourth Edition(2004);Private Foundations: Tax Law and Compliance, ThirdEdition(2008);and The Legal Answer Book for Private Foundations(2002), the latter two volumes co-authored with Bruce R. Hopkins. Ms. Blazek serves on the Panel of the Nonprofit Sector, Transparency and Financial AccountabilityWork Group.
Ms. Blazek is past Chair of the Tax-Exempt Organizations Resource Panel and a member of Form 1023 and 999 Revision Task Forces for the American Institute of Certified Public Accountants; she serves on the national editorial board of Tax Analysts'The Exempt Organization Tax Reviewand the AICPA'sThe Tax Advisor; and is an advisor to the Volunteer Service Committee of the Houston Chapter of Certified Public Accountants. She is a founding director of Texas Accountants and Lawyers for the Arts and a member of the board of the Anchorage Foundations, Houston Artists Fund, and the River Pierce Foundation. Ms. Blazek is a frequent speaker at nonprofit symposia, including AICPA Not-for-Profit Industry Conference; University of Texas Law School Nonprofit Organizations Institute; Texas, New York, Arizona, and Washington State CPA Societies' Nonprofit Conferences; conference of Southwest Foundations and Association of Small Foundations; and Resource Center's Nonprofit Legal and Accounting Institute, among others.
Jody Blazek received her BBA from University of Texas at Austin in 1964 and took selected taxation courses at South Texas School of Law. She and her husband, David Crossley, nurture two sons, Austin and Jay Blazek Crossley.
Chapter One: Introduction to Private Foundations.
§ 1.1 Private Foundations: Unique Organizations.
§ 1.2 Definition Of Private Foundation.
§ 1.3 History And Background.
§ 1.4 Foundations In Overall Exempt Organizations Context.
§ 1.5 Definition Of Charity.
§ 1.6 Operating For Charitable Purposes.
§ 1.7 Organizational Rules.
§ 1.8 Private Foundation Sanctions.
Chapter Two: Starting and Funding a Private Foundation.
§ 2.1 Choice Of Organizational Form.
§ 2.2 Funding A Foundation.
§ 2.3 Estate Planning Principles.
(a) Decedents' Estates.
(b) Estate and Gift Tax Considerations.
§ 2.4 Foundations And Planned Giving.
(a) Introduction to Planned Giving.
(b) Charitable Remainder Trusts.
(c) Other Planned Giving Vehicles.
(d) Interrelationships with Private Foundation Rules.
§ 2.5 Acquiring Tax-Exempt Status.
(a) Preparing Form 1023.
(b) The Substantially Completed Application.
(c) Recognition Application Procedure and Issuance of Determination Letters and Rulings.
(d) Application Processing Timeline.
(e) Issues Causing Applications to Be Routed to EO Technical.
(f) User Fees.
§ 2.6 Special Requirements For Charitable Organizations.
§ 2.7 When To Report Back To IRS.
(a) When Should a Ruling Be Requested?
(b) Changes in Tax Methods.
(c) Amended Returns.
(d) Weathering an IRS Examination.
(e) Achieving Positive Results.
Chapter Three: Types of Private Foundations.
§ 3.1 Private Operating Foundations.
(a) Direct Charitable Distributions.
(b) Grants to Other Organizations.
(c) Individual Grant Programs.
(d) Income Test.
(e) Asset, Endowment, or Support Test.
(f) Compliance Period.
(g) Advantages and Disadvantages of Private Operating Foundations.
(h) Conversion to or from Private Operating Foundation Status.
(i) Exempt Operating Foundations.
§ 3.2 Conduit Foundations.
§ 3.3 Common Fund Foundations.
§ 3.4 Research And Experimentation Funds.
§ 3.5 Other Types Of Foundations.
§ 3.6 Nonexempt Charitable Trusts.
§ 3.7 Split-Interest Trusts.
§ 3.8 Foreign Private Foundations.
Chapter Four: Disqualified Persons.
§ 4.1 Substantial Contributors.
§ 4.2 Foundation Managers.
§ 4.3 Certain 20 Percent Owners.
§ 4.4 Family Members.
§ 4.5 Corporations Or Partnerships.
§ 4.6 Trusts Or Estates.
§ 4.7 Private Foundations.
§ 4.8 Governmental Officials.
Chapter Five: Self-Dealing.
§ 5.1 Private Inurement Doctrine.
§ 5.2 Private Benefit Doctrine.
§ 5.3 Definition Of Self-Dealing.
(a) Six Specific Acts.
(b) Statutory Exceptions.
(c) Exceptions Provided in Regulations.
§ 5.4 Sale, Exchange, Lease, Or Furnishing Of Property.
(a) Transactions by Agents.
(c) Leasing of Property.
(d) Furnishing of Goods, Services, or Facilities.
(e) Co-owned Property.
§ 5.5 Loans And Other Extensions Of Credit.
(a) Gifts of Indebted Property.
(b) Interest-Free Loans.
§ 5.6 Payment Of Compensation.
(a) Definition of Personal Services.
(b) Definition of Compensation.
(c) Definition of Reasonable.
(d) Finding Salary Statistics.
(e) Commissions or Management Fees.
(f) Expense Advances and Reimbursement.
(g) Bank Fees.
(h) IRS Executive Compensation Study.
§ 5.7 Indemnification And Insurance.
(a) Noncompensatory Indemnification and Insurance.
(b) Compensatory Indemnification and Insurance.
(c) Fringe Benefit Rules and Volunteers 192
§ 5.8 Uses Of Income Or Assets By Disqualified Persons.
(a) Securities Transactions.
(b) Payment of Charitable Pledges.
(c) For the Benefit of Transactions.
(d) Incidental or Tenuous Benefits.
(f) Benefit Tickets.
(g) Other Acts.
§ 5.9 Sharing Space, People, And Expenses.
(a) Determining What the Private Foundation Can Pay.
(b) Office Space and Personnel.
(c) Group Insurance.
(d) Public Facilities.
§ 5.10 Payments To Government Officials.
§ 5.11 Indirect Self-Dealing.
§ 5.12 Property Held By Fiduciaries.
(a) General Rules.
(b) Control Situations.
§ 5.13 Early Terminations Of Charitable Remainder Trusts.
§ 5.14 Additional Exceptions.
§ 5.15 Issues Once Self-Dealing Occurs.
(a) Undoing the Transaction.
(b) Amount Involved.
(c) Date of Valuation.
(d) Payment of Tax.
(e) Advice of Counsel.
(g) Court Jurisdiction as to the Tax.
§ 5.16 IRS Regulation Project.
Chapter Six Mandatory Distributions.
§ 6.1 Distribution Requirements - In General.
§ 6.2 Assets Used To Calculate Minimum Investment Return.
(a) What Are Investment Assets?
(b) Future Interests or Expectancies.
(c) Exempt Function Assets.
(d) Dual-Use Property.
(e) Assets Held for Future Charitable Use.
(f) Acquisition Indebtedness.
§ 6.3 Measuring Fair Market Value.
(a) Valuation Methods.
(b) Date of Valuation.
(c) Partial Year.
(d) Readily Marketable Securities.
(e) Unique Assets.
(f) Cash and Other Types of Assets.
§ 6.4 Distributable Amount.
(A) Controversial Addition.
(B) Distribution Deadline.
§ 6.5 Qualifying Distributions.
(a) Direct Grants.
(b) Direct Charitable Expenditures.
(c) Controversial Proposal.
(e) Distributions to Foreign Recipients.
§ 6.6 Distributions To Certain Supporting Organizations.
§ 6.7 Satisfying The Distribution Test.
(a) Timing of Distributions.
(b) Planning for Excess Distributions.
(c) Calculating the Tax.
(d) Abatement of the Tax.
(e) Exception for Certain Accumulations.
§ 6.8 History Of The Mandatory Distribution Requirement.
Chapter Seven: Excess Business Holdings.
§ 7.1 General Rules.
(a) Definition of Business Enterprise.
(b) Passive Income Businesses.
(c) Certain Investment Partnerships.
(d) Percentage Limitations.
§ 7.2 Permitted And Excess Holdings.
(a) General Rules.
(b) Partnerships, Trusts, and Proprietorships.
(c) Constructive Ownership.
(d) Disposition Periods.
§ 7.3 Functionally Related Businesses.
§ 7.4 Rules Applicable To Certain Supporting Organizations.
§ 7.5 Rules Applicable To Donor-Advised Funds.
§ 7.6 Excise Taxes On Excess Holdings.
Chapter Eight: Jeopardizing Investments.
§ 8.1 General Rules.
(a) Defining Jeopardy.
(b) Donated Assets.
§ 8.2 Prudent Investments.
(a) Evaluating Investment Alternatives.
(b) Facing the Unknown.
(c) Risk versus Return.
(d) Total Return Investing.
(e) How Income Is Reported.
(f) Measuring Investment Return.
§ 8.3 Program-Related Investments.
§ 8.4 Excise Taxes For Jeopardizing Investments.
(a) When a Manager Knows.
(b) Reliance on Outside Advisors.
(c) Removal from Jeopardy.
Chapter Nine: Taxable Expenditures.
§ 9.1 Legislative Activities.
(a) Law Applicable to Charities Generally.
(b) Law Specifically Applicable to Private Foundations.
(c) Grants to Charities That Lobby.
(d) Nonpartisan Study of Social Issues.
(e) Self-Defense Exception.
§ 9.2 Political Campaign Activities.
(a) Law Applicable to Charities Generally.
(b) Law Specifically Applicable to Private Foundations.
(c) Voter Registration Drives.
§ 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.
(f) Reports and Monitoring.
(g) Seeking Approval.
(h) Individual Grant Intermediaries.
§ 9.4 Grants To Public Charities.
(a) Rationale for Public Charities Grants.
(b) Documenting Public Charity Grants.
(c) The Reliance Problem.
(d) Intermediary Grantees.
§ 9.5 Grants To Foreign Organizations.
§ 9.6 Expenditure Responsibility.
(a) General Rules.
(b) Pre-Grant Inquiry.
(c) Grant Terms.
(d) Monitoring System.
(e) Reports from Grantees.
(f) Grantee's Procedures.
(g) Reliance on Grantee Information.
(h) Reports to IRS.
(i) Retention of Documents.
(j) Grantee Diversions.
§ 9.7 Internet And Private Foundations.
(a) Exempt Status Issues.
(b) Providing Information.
(c) Providing Services.
§ 9.8 Spending For Noncharitable Purposes.
§ 9.9 Distributions To Certain Supporting Organizations.
§ 9.10 Excise Tax For Taxable Expenditures.
(a) Tax on Managers.
(b) Paying or Abating the Tax.
(c) Additional Tax.
(d) Correcting the Expenditure.
Chapter Ten: Tax on Investment Income.
§ 10.1 Rate Of Tax.
§ 10.2 Reducing The Excise Tax.
(a) Qualification for 1 Percent Rate.
(b) Distributing, Rather than Selling, Property.
(C) Another Tax Reduction Possibility.
§ 10.3 Formula For Taxable Income.
(a) Gross Investment Income.
(b) Capital Gains and Losses.
(g) Estate or Trust Distributions.
(i) Questionable Taxable Gains before 2007.
§ 10.4 Reductions To Gross Investment Income.
(a) Deductions Allowed.
(b) Deductions Not Allowed.
§ 10.5 Foreign Foundations.
§ 10.6 Exemption From Tax.
Chapter Eleven: Unrelated Business Income.
§ 11.1 General Rules.
(b) Trade or Business Income.
(c) Substantially Related Activity.
(d) Regularly Carried on.
(e) Real Estate Activities.
§ 11.2 Exceptions.
(d) Nonbusiness Activities.
(e) Revenue Produced on the Internet.
§ 11.3 Rules Specifically Applicable To Private Foundations.
(a) Business Enterprises.
(b) Permitted Businesses.
(c) Partnerships and S Corporations.
§ 11.4 Unrelated Debt-Financed Income.
(a) Acquisition Indebtedness.
(b) Related-Use Exceptions.
(c) Includible Income.
§ 11.5 Calculating And Reporting The Tax.
Chapter Twelve: Tax Compliance and Administrative Issues.
§ 12.1 Successful Completion Of FORM 990-PF.
(a) Part I, Analysis of Revenue and Expenses.
(b) Line-by-Line Instructions.
(c) Expense Allocations.
(d) Part II, Balance Sheets.
(e) Part III, Analysis of Changes in Net Worth or Fund Balances.
(f) Part IV, Capital Gains and Losses for Tax on Investment Income.
§ 12.2 Reports Unique To Private Foundations.
(a) Part V, Qualification for Reduced Tax on Net Investment Income.
(b) Part VI, Excise Tax on Investment Income.
(c) Part VII-A, Statements Regarding Activities.
(d) Part VII-B, Statements Regarding Activities for Which Form 4720 May Be Required.
(e) Part VIII, Information about Officers, Directors, Trustees, Foundation Managers, Highly Paid Employees, and Contractors.
(f) Part IX-A and B, Summary of Charitable Activities.
(g) Part IX-B, Summary of Program-Related Investments.
(h) Part X, Minimum Investment Return.
(i) Part XI, Distributable Amount.
(j) Part XII, Qualifying Distributions.
(k) Part XIII, Undistributed Income.
(l) Part XIV, Private Operating Foundations.
(m) Part XV, Supplementary Information.
(n) Part XVI-A, Analysis of Income-Producing Activity and Part XVI-B, Relationship of Activities.
(o) Part XVII, Information Regarding Transfers to and Transactions and Relationships with Noncharitable Exempt Organizations.
§ 12.3 Compliance Issues.
(a) Historic Public Inspection Requirements.
(b) Document Dissemination Rules.
(c) Where and When to File Form 990-PF.
(d) First-Year Issues.
(e) Reporting Violations and Other IRS Issues.
(f) Employment Tax Considerations.
(g) Reporting Requirements for Offshore Investments.
Chapter Thirteen: Termination of Foundation Status.
§ 13.1 Voluntary Termination.
§ 13.2 Involuntary Termination.
§ 13.3 Transfer Of Assets To A Public Charity.
(a) Terms of Transfer.
(b) Reservation of Rights.
(c) Eligible Public Charity Recipients.
§ 13.4 Operation As A Public Charity.
§ 13.5 Mergers, Split-Ups, And Transfers Between Foundations.
(a) IRS Road Map for Reforming a Foundation.
(b) Questions Answered in Ruling.
(c) Unanswered Question.
§ 13.6 Termination Tax.
§ 13.7 Abatement.
Chapter Fourteen: Charitable Giving Rules.
§ 14.1 General Rules.
(a) Deduction Variables.
(b) Percentage Limitations.
(c) Estate and Gift Tax Deductions.
§ 14.2 Gifts Of Appreciated Property.
§ 14.3 Deductibility Of Gifts To Foundations.
§ 14.4 Deduction Reduction Rules.
(a) Capital Gain Property Deduction Rule.
(b) Qualified Appreciated Stock Rule.
(c) Other Deduction Reduction Rules.
§ 14.5 Planned Giving Revisited.
§ 14.6 Administrative Considerations.
(a) Substantiation Rules.
(b) Disclosure Rules.
(c) Appraisal Rules.
(d) Reporting Requirements.
(e) State Fundraising Regulation.
Chapter Fifteen: Private Foundations and Public Charities.
§ 15.1 Distinctions Between Public And Private Charities.
§ 15.2 Evolution Of Law Of Private Foundations.
§ 15.3 Organizations With Inherently Public Activity.
(b) Educational Institutions.
(c) Hospitals and Other Medical Organizations.
(d) Public College Support Foundations.
(e) Governmental Units.
§ 15.4 Publicly Supported Organizations' Donative Entities.
(a) General Rules.
(b) Support Test.
(c) Facts and Circumstances Test.
(d) Community Foundations.
(e) Community Foundation Compliance Check Project.
§ 15.5 Service Provider Organizations.
(a) Investment Income Test.
(b) Concept of Normally.
(c) Unusual Grants.
(d) Limitations on Support.
§ 15.6 Comparative Analysis Of The Two Categories Of Publicly Supported Charities.
(a) Definition of Support.
(b) Major Gifts and Grants.
(c) Types of Support.
§ 15.7 Supporting Organizations.
(a) Organizational Test.
(b) Operational Test.
(c) Specified Public Charities.
(d) Required Relationships.
(e) Operated, Supervised, or Controlled by (Type I).
(f) Supervised or Controlled in Connection with (Type II).
(g) Operated in Connection with (Type III).
(h) Application of Excess Benefit Transactions Rules.
(i) Limitation on Control.
(j) Hospital and Other Reorganizations.
(k) Use of For-Profit Subsidiaries.
(l) Department of Treasury Study.
§ 15.8 Change Of Public Charity Category.
(a) From § 509(a)(1) to § 509(a)(2) or Vice Versa.
(b) From § 509(a)(3) to § 509(a)(1) or § 509(a)(2.
(c) From a § 509(a)(3) Type III to a § 509(a)(3) Type I or II.
§ 15.9 Noncharitable Supported Organizations.
§ 15.10 Relationships Created For Avoidance Purposes.
§ 15.11 Reliance By Grantors And Contributors.
(a) Verifying an Organizationâ€™s Public Charity Status.
(b) Reliance on Current Determination Letter.
§ 15.12 Other Rules.
§ 15.13 Public Safety Organizations.
§ 15.14 Termination Of Public Charity Status.
Chapter Sixteen: Donor-Advised.
§ 16.1 Basic Definitions.
§ 16.2 General Concept Of A Gift.
§ 16.3 Types Of Donor Funds.
§ 16.4 IRS Challenges To Donor Funds.
§ 16.5 Prohibited Material Restrictions.
§ 16.6 Department Of Justice Position.
§ 16.7 Public Charity Status Of Funds.
§ 16.8 Interrelationship Of Private Foundation Rules.
§ 16.9 Statutory Criteria.
Appendix A: Sources of the Law.
Appendix B: Internal Revenue Code Sections.
Table of Cases.
Table of IRS Revenue Rulings and Revenue Procedures.
Table of IRS Private Determinations Cited in Text.
Table of IRS Private Determinations Discussed in Bruce R. Hopkins' Nonprofit Counsel.
Table of IRS Private Letter Rulings, Technical Advice Memoranda, and General Counsel Memoranda.
"It is written in a clean and direct style, and builds logically from fundamental concepts and explanations to more complex organizational and legal issues. The authors have produced a most impressive offering in this third edition. Its appearance is both timely and welcome. Highly recommended." (Estate Planning, February 2009)