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Complying with Private Foundation Rules
Caplin & Drysdale
Complying with Private Foundation Rules

Do you want to create your own private foundation? Are you an established private foundation with questions about daily operations? Do you work with a large private foundation that is trying to manage an innovative program or novel legal issue? Caplin & Drysdale has been helping private foundations navigate the rules governing their special tax status since the rules were first written into the law in 1969. Our founding partner, Tom Troyer, was a principal author of the original Treasury study that forms the backbone for all of these rules. He and other Caplin & Drysdale attorneys have been instrumental in the development of these rules over the past thirty years.

Our work on behalf of clients ranges from helping individuals who want to make traditional grants to helping some of the largest and most innovative foundations in the country explore the boundaries of program-related investments, grantmaking abroad, and venture philanthropy. For foundations that are suffering from poor planning, we help restructure their affairs so that they can hold on to critical assets while avoiding excise taxes. If you are looking for skilled representatives to advise you on the myriad of issues that are unique to private foundations, Caplin & Drysdale attorneys have the experience you need.

Representative Engagements

  1. A famous modern photographer willed the majority of his work to his private foundation. Upon his death, the foundation needed a plan for complying with foundation excise taxes and avoiding its Unrelated Business Income Tax (UBIT) on licensing arrangements.

    Result: Caplin & Drysdale advised the foundation on how to structure its activities so that most of its portfolio would be excluded from its asset base for purposes of the payout rules and how to structure licensing agreements to produce royalties that are exempt from UBIT.

  2. An independent filmmaker asked a private foundation for its support of an educational video covering a controversial topic. The project has been rejected repeatedly by commercial sources due to its content. The foundation was eager to support the project but uncomfortable about devoting a large portion of its annual grants budget to a single project.

    Result: Caplin & Drysdale negotiated a low interest loan by the foundation to the filmmaker. The loan terms created the possibility for the foundation to recover its funds when the film was distributed commercially. The loan qualified as a PRI and, thus, as a qualifying distribution under the payout rules.

  3. The newly appointed executive director of a large foundation with complex programmatic and investment activities wanted to ensure that the foundation was, and would remain, in full compliance with the private foundation rules.

    Result: Caplin & Drysdale conducted a comprehensive compliance audit and provided the executive director with a detailed written assessment of the foundation's compliance posture and recommendations for strengthening safeguards to ensure future compliance. Caplin & Drysdale also provided training sessions for key foundation staff.

  4. An individual died and left to his foundation an interest in a partnership that was encumbered by debt. The existence of the debt raised a serious question as to whether successive distributions from the testator's estate would each be an act of self-dealing under the private foundation rules. The executors considered at length the best means for dealing with this issue, however, extensive efforts to negotiate a solution had proven unsuccessful. They turned to Caplin & Drysdale for help.

    Result: Taking advantage of a specific exception in the self-dealing rules for certain types of transactions, Caplin & Drysdale obtained an IRS ruling confirming that all distributions of the partnership interest to the foundation will not be deemed self-dealing.

Our Services

    • Creating and funding a private foundation
    • Planning for gifts of business assets
    • Counseling on grants that may have a connection to legislative advocacy
    • Achieving operating foundation status
    • Analyzing potential jeopardy investments
    • Strategic planning for program-related investments and/or grantmaking abroad
    • Managing required records on grants
    • Preventing acts of self-dealing
    • Planning to make required minimum annual payout
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