A Letter to the Reader xix Preface xxi Book Citations xxvii 1 Introduction to Private Foundations 1 § 1.1 Private Foundations: Unique Organizations 2 § 1.2 Definition of Private Foundation 4 § 1.3 Background 7 § 1.4 Private Foundation Tax Law Primer 10 (a) Introduction 11 (b) General Operational Requirements 11 (c) Disqualified Persons 12 (d) Self- Dealing Rules 12 (e) Mandatory Payout Rules 13 (f) Excess Business Holdings Rules 14 (g) Jeopardizing Investments Rules 14 (h) Taxable Expenditures Rules 15 (i) Tax on Investment Income 16 (j) Termination of Private Foundation Status 16 (k) Charitable Giving Rules 16 (l) Unrelated Business Rules 17 § 1.5 Definition of Charity 17 § 1.6 Operating for Charitable Purposes 19 § 1.7 Organizational Rules 22 § 1.

8 Private Foundation Law Sanctions 24 (a) Sanctions (a Reprise) 25 (b) Self- Dealing Sanctions as Pigouvian Taxes 25 (c) Self- Dealing Sanctions: Taxes or Penalties? 26 (d) Abatement 31 (e) Potential of Overlapping Taxes 31 (f) Influence on Subsequent Law 32 § 1.9 Statistical Profile 33 § 1.10 Private Foundations and Law 50 Years Later 33 2 Starting, Funding, and Governing a Private Foundation 39 § 2.1 Alternatives to Private Foundations 40 § 2.2 Advantages of Private Foundations 42 § 2.3 Choice of Organizational Form 46 § 2.4 Funding a Foundation 47 § 2.5 Estate Planning Principles 49 (a) Decedents'' Estates 50 (b) Estate and Gift Tax Considerations 50 § 2.

6 Foundations and Planned Giving 51 (a) Introduction to Planned Giving 51 (b) Charitable Remainder Trusts 52 (c) Other Planned Giving Vehicles 53 (d) Interrelationships with Private Foundation Rules 54 § 2.7 Acquiring Recognition of Tax- Exempt Status 55 (a) Form 1023 56 (b) 27- Month Rule 59 (c) IRS Determination Letters Recognizing Exempt Status 61 (d) Administrative Procedures Where Recognition Denied 64 (e) Declaratory Judgment Procedures Where Recognition Denied 67 (f) Recognition of Foreign Organizations 70 (g) Exemption for State Purposes 71 § 2.8 Governance 72 (a) IRS Entry into Nonprofit Governance 73 (b) Concept of Nonprofit Governance 74 (c) Nonprofit Governance Standards 76 (d) Early IRS Attempts at Nonprofit Governance Regulation 80 (e) Federal Tax Law as to Board Composition 81 (f) IRS''s Use of Private Benefit Doctrine 82 (g) IRS''s Ruling Policy 84 3 Types of Private Foundations 87 § 3.1 Private Operating Foundations 87 (a) Direct Charitable Distributions 88 (b) Grants 92 (c) Individual Grant Programs 93 (d) Income Test 96 (e) Asset, Endowment, or Support Test 99 (i) Asset Test 99 (ii) Endowment Test 102 (iii) Support Test 103 (f) Compliance Period 104 (g) Advantages and Disadvantages of Private Operating Foundations 106 (h) Conversion to or from Private Operating Foundation Status 107 § 3.2 Exempt Operating Foundations 109 § 3.3 Conduit Foundations 109 § 3.4 Common Fund Foundations 111 § 3.5 Research and Experimentation Funds 112 § 3.

6 Nonexempt Charitable Trusts 114 § 3.7 Split-Interest Trusts 116 § 3.8 Foreign Private Foundations 119 4 Disqualified Persons 123 § 4.1 Substantial Contributors 124 (a) General Rules 124 (b) 2 Percent Test 125 (c) Terminating Substantial Contributor Status 126 § 4.2 Foundation Managers 127 § 4.3 Certain 20 Percent Owners 128 § 4.4 Family Members 130 § 4.5 Corporations or Partnerships 131 § 4.

6 Trusts or Estates 132 § 4.7 Private Foundations 132 § 4.8 Governmental Officials 133 § 4.9 Termination of Disqualified Person Status 135 5 Self-Dealing 137 § 5.1 Private Inurement Doctrine 140 § 5.2 Private Benefit Doctrine 143 § 5.3 General Definition of Self- Dealing 151 § 5.4 Sale, Exchange, Lease, or Furnishing of Property 154 (a) Sales 154 (b) Transactions by Agents 156 (c) Exchanges 157 (d) Leasing of Property 158 (e) Furnishing of Goods, Services, or Facilities 159 (f) Co-Owned Property 162 (g) Coinvestments 166 § 5.

5 Loans and Other Extensions of Credit 168 (a) Gifts of Indebted Property 170 (b) Interest-Free Loans 171 § 5.6 Payment of Compensation 173 (a) Definition of Personal Services 174 (b) Definition of Compensation 177 (c) Definition of Reasonable 180 (d) Finding Salary Statistics 184 (e) Excess Executive Compensation Tax 185 (i) General Rules and Definitions 186 (ii) Compensation from Related Organizations 187 (iii) Exceptions to Covered Employee Status 188 (f) Commissions or Management Fees 190 (g) Expense Advances and Reimbursements 191 (h) Bank Fees 192 § 5.7 Indemnification and Insurance 194 (a) Noncompensatory Indemnification and Insurance 195 (b) Compensatory Indemnification and Insurance 196 (c) Fringe Benefit Rules and Volunteers 197 § 5.8 Uses of Income or Assets by Disqualified Persons 199 (a) Securities Transactions 200 (i) Summary of Law 200 (ii) Representative Case 201 (b) Other Transactions Involving Manipulation 203 (c) Payment of Charitable Pledges 203 (d) For the Benefit of Transactions 204 (e) Incidental or Tenuous Benefits 206 (f) Memberships 212 (g) Benefit Tickets 213 (h) Other Acts 213 § 5.9 Sharing Space, People, and Expenses 214 (a) Determining What the Private Foundation Can Pay 215 (b) Office Space and Personnel 215 (c) Group Insurance 218 (d) Public Facilities 218 § 5.10 Payments to Government Officials 218 § 5.11 Indirect Self- Dealing 220 (a) Transactions with Controlled Entities 221 (b) Concept of Control 222 (c) Transactions and the Control Element 224 (d) Exceptions 225 (e) Fraudulent Investment Schemes 227 § 5.12 Estate Administration Exception 228 (a) Concept of the Expectancy 228 (b) Estate Administration Exception-- General Rules 230 (c) Determining Fair Market Value 233 § 5.

13 Early Terminations of Charitable Remainder Trusts 235 § 5.14 Additional Exceptions 237 (a) Certain Corporate Organizations or Reorganizations 237 (b) Transitional Rules (Savings Provisions) 238 § 5.15 Issues Once Self-Dealing Occurs 239 (a) Self-Dealing Excise Taxes 240 (i) Initial Taxes 240 (ii) Additional Taxes 243 (iii) Termination Tax 243 (iv) Limitation on Abatement 243 (v) Advice of Counsel 244 (b) Amount Involved 244 (i) Use of Money or Other Property 244 (ii) Compensation 245 (iii) Exceptions Predicated on Fair Market Value 246 (c) Date of Valuation 246 (d) Correcting the Transaction 247 (i) Sales by the Foundation 248 (ii) Sales to the Foundation 249 (iii) Loans 250 (iv) Use of Property by Disqualified Person 250 (v) Use of Property by Private Foundation 251 (vi) Unreasonable Compensation 251 (e) Court Jurisdiction as to Tax 251 6 Mandatory Distributions 255 § 6.1 Mandatory Distribution Requirement 256 (a) Purpose and Policy 256 (b) Distributable Amount 257 § 6.2 Minimum Investment Return 258 (a) General Calculation 258 (b) Investment Assets 259 (c) Future Interests or Expectancies 260 (d) Exempt Function Assets 261 (e) Acquisition Indebtedness 265 § 6.3 Determining Fair Market Value 267 (a) Cash 267 (b) Readily Marketable Securities 267 (c) Other Assets 270 (d) Assets Held for Partial Year 272 (e) Investment Frauds 272 § 6.4 Qualifying Distributions 273 (a) General Definition and Rules 273 (b) Charitable Grants in General 275 (c) Grants to Controlled Organizations and Other Foundations 276 (i) Definition of Control 277 (ii) Redistribution Rule 278 (d) Grantor Reliance Standards 279 (i) General Rules 279 (ii) Grants to Certain Supporting Organizations 282 (iii) No IRS Determination Letter 284 (iv) Charities Under a Group Ruling 285 (e) Grants to Foreign Organizations 286 (f) Direct Charitable Expenditures 289 (i) Exempt Function Assets 289 (ii) Administrative Expenses 290 (g) Set-Asides 292 (i) Suitability Test Set-Asides 294 (ii) Cash Distribution Test Set-Asides 296 (iii) Court Order Set-Asides 299 § 6.5 Excise Taxes on Failure to Distribute Income 300 (a) Undistributed Income 300 (b) Ordering Rule for Qualifying Distributions 300 (c) Excess Qualifying Distributions 301 (d) Excise Taxes on Undistributed Income 303 (e) Valuation Mistakes 304 (f) Exception for Certain Accumulations 305 § 6.

6 History of the Mandatory Distribution Requirement 305 7 Excess Business Holdings 311 § 7.1 General Rules 311 (a) Definition of Business Enterprise 312 (b) Passive Income Businesses 313 (c) Certain Investment Partnerships 315 (d) Percentage Limitations 317 § 7.2 Permitted and Excess Holdings 319 (a) General Rules 319 (b) Partnerships, Trusts, and Proprietorships 321 (c) Constructive Ownership 322 (d) Disposition Periods 322 §.