Avoiding Self-Dealing, Excess Business Holdings & Taxable Expenditures

Foundations are heavily regulated to avoid corrupt activity or operations that are not in line with the charitable purpose of the organization. At Gammon & Grange, P.C., we assist foundation managers in avoiding penalties and dealing with any issues or disputes that may arise.

Helping Your Foundation Avoid Penalties For Self-Dealing And Transactions With Disqualified Individuals

A foundation cannot engage in certain types of transactions with disqualified individuals. These are substantial contributors to the foundation, managers of the foundation, corporations or entities with more than a 35 percent interest in the foundation, family members of contributors or members with signification interest, and government officials.

If a disqualified individual is found making a direct transaction with the foundation, both the individual and the fund manager will receive a harsh tax penalty. Such transactions include:

  • Sale, exchange or leasing of property
  • Lending of money or an alternate line of credit
  • Furnishing of goods, services or facilities
  • Payments of compensation or reimbursement
  • Other transfers or use of income or assets of a private foundation
  • Payments to government officials

Taxable Expenditures And Your Foundation

Foundations are required to distribute cash or services each year for charitable purposes. How these distributions are executed is highly regulated. Certain expenditures or distributions that are not in line with the foundation's charitable goals are known as taxable expenditures and are prohibited as part of the foundation's required annual distribution. This includes:

  • Grants to organizations or individuals
  • Expenditures for noncharitable purposes
  • Expenditures used to influence government officials or legislation
  • Expenditures used to influence voting
  • Penalties for tax expenditures

Our team will assist your foundation in keeping all distributions in compliance with IRS foundation requirements, avoiding tax penalties.

Excess Business Holdings

The IRS also has strict guidelines regarding how much interest a foundation can hold in a corporation or business enterprise. The rules are complex, but our firm offers clear and definitive guidance to foundation managers regarding how these holdings should be structured.

For more information about the guidance and legal representation Gammon & Grange, P.C., provides foundations and nonprofit organizations, please contact our firm today at 703-873-7349 or toll free at 866-896-7682.