CONTENTS

Cover

Update Service

Title Page

Copyright

Preface

Book Citations

Chapter Two: Starting and Funding a Private Foundation

§ 2.5 Acquiring Recognition of Tax-Exempt Status

§ 2.7 When to Report Back to the IRS

Chapter Three: Types of Private Foundations

§ 3.1 Private Operating Foundations

Chapter Four: Disqualified Persons

§ 4.4 Family Members

Chapter Five: Self-Dealing

§ 5.3 Definition of Self-Dealing

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

§ 5.6 Payment of Compensation

§ 5.8 Uses of Income or Assets by Disqualified Persons

§ 5.11 Indirect Self-Dealing

§ 5.12 Property Held by Fiduciary

Chapter Six: Mandatory Distributions

§ 6.2 Assets used to Calculate Minimum Investment Return

§ 6.5 Qualifying Distributions

§ 6.7 Satisfying the Distribution Test

Chapter Seven: Excess Business Holdings

§ 7.1 General Rules

§ 7.2 Permitted and Excess Holdings

§ 7.6 Excise Taxes on Excess Holdings

Chapter Eight: Jeopardizing Investments

§ 8.1 General Rules

§ 8.3 Program-Related Investments

Chapter Nine: Taxable Expenditures

§ 9.2 Political Campaign Activities

§ 9.3 Grants to Individuals

§ 9.4 Grants to Public Charities

§ 9.10 Excise Tax for Taxable Expenditures

Chapter Ten: Tax on Investment Income

§ 10.3 Formula for Taxable Income

Chapter Eleven: Unrelated Business Income

§ 11.1 General Rules

§ 11.5 Calculating and Reporting the Tax

Chapter Twelve: Tax Compliance and Administrative Issues

§ 12.1 Successful Preparation of Form 990-PF

§ 12.3 Compliance Issues

Where to File

How Much Will It Cost?

Chapter Thirteen: Termination of Foundation Status

§ 13.4 Operation as a Public Charity

§ 13.5 Mergers, Split-UPS, and Transfers Between Foundations

Chapter Fifteen: Private Foundations and Public Charities

§ 15.5 Service Provider Organizations

§ 15.7 Supporting Organizations

Chapter Seventeen: Corporate Foundations

§ 17.3 Private Inurement Doctrine

§ 17.5 Self-Dealing Rules

Chapter Eighteen: Nonprofit Governance and Private Foundations (New)

§ 18.1 State Law Overview

§ 18.2 Board of Directors Basics

§ 18.3 Principles of Fiduciary Responsibility

§ 18.4 Duties of Directors

§ 18.5 Board Composition and Federal Tax Law

§ 18.6 Sources of Nonprofit Governance Principles

§ 18.7 Relevant Nonprofit Governance Issues

§ 18.8 Nonprofit Governance Policies

§ 18.9 Role of IRS in Nonprofit Governance

§ 18.10 Governance Principles and Private Foundations

Table of Private Foundation Law Tax Reform Proposals

About the Authors

About the Online Resources

Index

End User License Agreement

List of Illustrations

Exhibit 13.1

Guide

Cover

Table of Contents

Begin Reading

Chapter 1

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Private Foundations

Tax Law and Compliance

Fourth Edition
2015 Cumulative Supplement

Bruce R. Hopkins

Jody Blazek

Cover image: ©iStock.com/phleum

Cover design: Wiley

Copyright © 2016 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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ISBN 978-1-118-53247-8 (main edition)

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Preface

This is the first supplement to accompany the fourth edition of Private Foundations: Tax Law and Compliance. The book attempts to capture developments through the close of 2013. As noted in the preface to the book, matters in recent months have been relatively quiet on the private foundation tax law and compliance front. This is due to the good behavior of foundations in recent times and the reluctance at the Department of the Treasury and the IRS to initiate much in the realm of tax-exempt organizations as the IRS tries to recover from the management and regulatory chaos caused by the brouhaha over the processing of certain applications for recognition of exemption.

We have reported on a variety of private letter rulings issued in the foundation context. These range from various interpretations of the self-dealing and excess business holdings rules, to technical advice memoranda on abatements or refusals to abate private foundation excise taxes, to a flurry of favorable private rulings concerning unusual grants. Also, we have updated the chapter (17) on the application of the foundation rules specifically in the corporate foundation context.

In addition, we have brought back our chapter on governance, updated, with emphasis (of course) on this body of law as it specifically relates to private foundations. The IRS has yet to apply its unique views, as to how charitable organizations should be governed and what the IRS's role ought to be in regulating that governance, but the agency eventually will. The chapter is there to provide guidance to foundations that may be intrigued by this matter of governance or those that want to get a head start on the IRS.

We appreciate the assistance we have received from John Wiley & Sons in the preparation of this supplement. Thanks are extended particularly to our editors in connection with this project, namely, Matthew Davis and Judy Howarth.

Bruce R. Hopkins
Jody Blazek

Book Citations

Throughout this book, 12 books by the authors (in some instances, as co-author), all published by John Wiley & Sons, are referenced in this way:

Hopkins, IRS Audits of Tax-Exempt Organizations: Policies, Practices, and Procedures (2008): IRS Audits.

Blazek, IRS Form 1023 Tax Preparation Guide (2005): IRS Form 1023 Tax Preparation Guide.

Hopkins, The Law of Fundraising, Fifth Edition (2013): Fundraising.

Hopkins, The Law of Intermediate Sanctions: A Guide for Nonproﬁts (2003): Intermediate Sanctions.

Hopkins, The Law of Tax-Exempt Organizations, Eleventh Edition (2011): Tax-Exempt Organizations.

Hopkins, Nonproﬁt Governance: Law, Practices & Trends (2009): Nonproﬁt Governance.

Blazek, Nonproﬁt Financial Planning Made Easy (2008): Nonproﬁt Financial Planning Made Easy.

Hopkins, Nonproﬁt Law for Colleges and Universities: Essential Questions and Answers for Ofﬁcers, Directors, and Advisors (2011): Colleges and Universities.

Hopkins, Planning Guide for the Law of Tax-Exempt Organizations: Strategies and Commentaries (2004): Planning Guide.

Hopkins, The Tax Law of Charitable Giving, Fifth Edition (2014): Charitable Giving.

Hopkins, The Tax Law of Unrelated Business for Nonproﬁt Organizations (2005): Unrelated Business.

Blazek, Tax Planning and Compliance for Tax-Exempt Organizations, Fourth Edition (2004): Tax Planning and Compliance.

The third, fifth, tenth, and twelfth editions of these books are annually supplemented. Also, updates on all of the foregoing law subjects (plus private foundations law) are available in Bruce R. Hopkins' Nonprofit Counsel, a monthly newsletter also published by Wiley.

Chapter Two
Starting and Funding a Private Foundation

§ 2.5 Acquiring Recognition of Tax-Exempt Status

(a) Preparing Form 1023

(e) Application Processing Timeline

§ 2.7 When to Report Back to the IRS

(a) When Should a Ruling Be Requested

§ 2.5 Acquiring Recognition of Tax-Exempt Status

(a) Preparing Form 1023

p. 45. Add after third paragraph:

Extraordinary turmoil racked the IRS determination process in the recent past, though several changes have improved the work flow. Because the tax code provision that provides an organization's tax exemption is automatically revoked if the entity fails to file a required Form 990 for three consecutive years effective as of the filing due date of the third year, more than 500,000 organizations were revoked, including many private foundations. The Cincinnati office that processes applications for recognition of tax exemption was inundated with applications for reinstatement beginning in 2010 as the number of applications significantly increased. Concurrently, that office enhanced their scrutiny of applicants for exemption as social welfare organizations to look for potential participation in promoting the election of persons to public office. They developed a “BOLO” (be on the lookout list) to identify applicants that could not satisfy the “exclusively operated for social welfare purposes standard” needed to qualify for exemption. The standard applied was that the activity aimed at influencing an election could not be the entity's primary activity, though there was no numerical definition of the word primary. Applicants with names that implied political involvement, including Tea Party or Democrat, were given enhanced scrutiny. As a result of pressure from Congress, the media, and the organizations themselves, the system was abandoned and officials in the exempt organization division were relieved of their duties. Regulations were proposed to clarify the rules, but they have been withdrawn.

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