How do you avoid self-dealing? The IRS developed self-dealing rules to ensure that foundations use their assets solely for charitable purposes. However, foundation managers not familiar with the law can find themselves violating self-dealing rules without even knowing it, or having any self-serving intent. And, ignorance of the rules or acting without malice will not excuse the offense, or the resulting penalties.
All Foundation Managers Should Read This Primer
Who are foundation managers? They are board members, officers, and key staff with authority to make decisions on policy, finances, or administration. The primer also will benefit legal advisors not immersed in these issues.
This primer will:
- Help you know the self-dealing rules, so you can avoid breaking them.
- Describe who the IRS considers disqualified persons and foundation managers.
- Identify the broad range of transactions that the IRS prohibits.
- List the main exceptions to these prohibitions.
- Offer tips and strategies for avoiding self-dealing.
- Provide guidance on reporting and correcting acts of self-dealing.
- Help you develop your self-dealing radar, so you can safeguard your foundation and yourself.
This primer will not:
- Address every minute detail of the self-dealing prohibitions or exceptions; or
- Be a substitute for expert legal, tax, investment, or other professional advice tailored to your specific circumstances. We strongly encourage you to consult your attorney to determine if a transaction you’re considering qualifies as self-dealing.
Please note that the self-dealing rules only apply to foundations that are classified by the IRS as private foundations. Foundations classified as public charities are subject to a far less strict set of rules, known as the intermediate sanction rules. Although most grantmaking foundations are private foundations, that is not always the case. If you have any question as to your classification, refer to your 501(c)(3) determination letter.
How To Avoid Self-Dealing Table of Contents
II. SELF-DEALING DEFINED
III. COMMON ACTS OF SELF-DEALING
IV. COMMON QUESTIONS RELATED TO SELF-DEALING
V. SAFEGUARDING YOUR FOUNDATION AGAINST ACTS OF SELF-DEALING
VI. RESOURCES APPENDICES
- A. Self-Dealing Checklist
- B. A Graphic Guide to Disqualified Persons