PORTFOLIO

Private Foundations — Self-Dealing (Section 4941) (Portfolio 879)

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TABLE OF CONTENTS

Detailed Analysis

I. Introduction

Introductory Material

A. Self-Dealing Identification Checklist

1. Specific Acts of Self-Dealing

a. Sale, Exchange or Leasing of Property

b. Loans and Extensions of Credit

c. Furnishing Goods, Services, or Facilities

d. Compensating or Reimbursing a Disqualified Person

e. Transfer or Use of Income or Assets

f. Payment of Money or Other Property to a Government Official

2. Overall Exceptions to Self-Dealing

a. Offer on Same Basis as to Public

b. Compensation for Certain Personal Services

c. Transactions Between Foundation and Corporation

d. Correction

e. Initiation of Disqualified Person Status

f. Certain Indirect Transactions

g. Transitional Rules Under the 1969 Tax Reform Act

3. Imposition of Self-Dealing Excise Taxes and Possible Relief

a. First-Tier Tax

b. Second-Tier Tax

c. Joint and Several Liability

B. History of Self-Dealing Legislation

1. Section 503 - Predecessor to § 4941

2. Inadequacy of Section 503

3. Legislative Progression

C. Effective Dates

II. Acts of Self-Dealing

A. Definitions

1. Disqualified Persons

a. In General

b. Exceptions

2. Substantial Contributors

a. In General

b. Contributions Defined

c. Exceptions

d. Termination of Substantial Contributor Status

3. Foundation Managers

4. Government Officials

a. Specific Classifications

b. Exceptions

5. Amount Involved

6. Taxable Period

B. Acts of Self-Dealing Generally

III. Specific Acts of Self-Dealing

Introductory Material

A. Sales, Exchanges, or Leases of Property

B. Loans and Other Extensions of Credit

1. Loans as Self-Dealing

2. Loans in the Context of Estate Planning

C. Furnishing of Goods, Services or Facilities

D. Payment of Compensation and Reimbursement of Expenses

E. Transfer or Use of the Income or Assets of a Private Foundation

1. Transfer or Use Generally

2. Incidental and Tenuous Benefits

3. Scholarship and Fellowship Benefits

4. Indemnification of Foundation Managers

5. Potentially Abusive Self-Dealing Transactions Involving Private Foundations

a. Income Deferral NIMCRUTs

b. Accelerated Charitable Remainder Trusts

c. A New Variety of Accelerated Charitable Remainder Trusts (Chutzpah Trusts)

d. Charitable Split-Dollar Transactions

e. Charitable Family Limited Partnerships (CharFlips)

F. Payments to Government Officials

G. Exceptions to Self-Dealing

1. Initiation of Disqualified Person Status

2. Indirect Self-Dealing

a. Certain Business Transactions

b. Controlled Organizations

c. Grants to Intermediaries

d. Transactions During the Administration of an Estate or Trust

e. Transactions with Certain Organizations

f. Certain Transactions Involving Limited Amounts

g. Statutory Exceptions to Indirect Self-Dealing

3. Furnishing of Goods, Services or Facilities to a Disqualified Person

4. Payment of Compensation for Certain Personal Services

5. Certain Transactions Between a Private Foundation and a Corporation

a. In General

b. Application to Partnerships

6. Certain Payments to Government Officials

7. Correction as an Exception to Self-Dealing

8. Transitional Rules under the 1969 Tax Reform Act

a. Transactions Involving Securities Acquired by a Foundation Before May 27, 1969

b. Disposition of Certain Excess Business Holdings

c. Leases and Loans Existing on October 9, 1969

d. Sharing of Goods, Services, or Facilities Before 1980

e. Use of Property Acquired Before October 9, 1969

f. Disposition of Leased Property

g. Payments to Government Officials

h. Acts Before July 5, 1971

IV. Taxes on Acts of Self-Dealing

Introductory Material

A. Initial Tax on Self-Dealer

B. Initial Tax on Foundation Managers

C. Knowing

1. In General

2. Advice of Counsel

3. Burden of Proof

D. Inapplicability of Abatement of First-Tier Taxes

E. Second-Tier Tax on Self-Dealers

1. Second-Tier Taxes Generally

2. Second-Tier Tax Correction Act

F. Second-Tier Tax on Foundation Managers

G. Correction

1. In General

2. Sale by a Foundation

3. Sale to a Foundation

4. Use of Private Foundation Property

5. Use of a Disqualified Person's Property

6. Transfer of the Assets of a Private Foundation to a Disqualified Person

7. Payment of Compensation to a Disqualified Person

8. Valuation Errors

9. Correction as a Question of Fact

H. Supplemental Proceedings Concerning Abatement of Second-Tier Taxes

I. Special Rules and Limitations

1. Joint and Several Liability

2. Limits of Management Liability

J. Penalties with Respect to Liability for Tax

K. Termination Tax for Willful Acts

V. Additional Matters

A. Constitutionality

B. Bankruptcy

C. Interest

D. Drafting Considerations

E. Forms, Filing and Tax Payment Requirements

F. Statute of Limitations


WORKING PAPERS

Working Papers

Table of Worksheets

Other Sources

Worksheet 1 Publication 578, Tax Information for Private Foundations and Foundation Managers, Chapter VIII, Taxes on Self-Dealing

Worksheet 2 Internal Revenue Manual, Private Foundations Handbook Chapter 13, Taxes on Self-Dealing

Worksheet 3 The Tax Reform Act of 1969, S. Rep. No. 552, 91st Cong., 1st Sess. 28–34 (1969)

Worksheet 4 Problem Identification Checklist

Worksheet 5 Table of IRS Forms, Filing, and Tax Payment Requirements Pertaining to Private Foundations and Related Persons

Bibliography

OFFICIAL

Statutes:

Treasury Regulations:

Committee Reports:

Public Laws:

Treasury Rulings:

Cases:

UNOFFICIAL

Miscellaneous Publications:

Articles:

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