Can a transaction that benefits a family foundation be self-dealing?
Key takeaway
A transaction that benefits a family foundation can still be self-dealing. Federal rules say a transaction between a private foundation and a disqualified person may qualify regardless of whether it helps or harms the foundation. For owners of businesses, real estate, or private investments, the rules address who may be a disqualified person, how control can matter, and a limited exception for certain estate or revocable-trust transactions.
Who may be a disqualified person
A person's control of an organization can matter even below 50 percent voting power. Federal regulations say control may exist when persons can in fact control an organization or veto relevant actions, even if their combined voting power is below 50 percent. The control rule focuses on actual ability and veto power as well as voting power.
How transactions involving property are treated
A below-market loan from a disqualified person to a private foundation is described as self-dealing, while an interest-free loan used exclusively for exempt purposes is described as outside that rule.
A disqualified person may lease property to a private foundation without charge, including when the foundation pays its own maintenance expenses, if payments do not go to the disqualified person. That condition appears in IRS guidance about a no-charge lease.
Estate administration has a limited exception
Certain transactions involving a foundation's interest in estate or revocable-trust property may qualify for an estate-administration exception when the regulation's listed conditions are met. IRS guidance describes qualifying transactions as not indirect self-dealing when those conditions are satisfied. The exception applies to the specified property interests and remains tied to the regulation's conditions.
Advance judicial approval can be relevant to that exception. IRS audit tips identify a lack of necessary advance approval, such as approval from a probate court, as something to examine when a transaction invokes the exception. The audit guidance describes a point for review, while the exception itself depends on the regulation's listed conditions.