IRS Holds Private Foundation’s Investment in Corporation as Not Self-Dealing Although It is Funded by Disqualified Persons

In a ruling letter, the Internal Revenue Service (“IRS”) held that an otherwise tax exempt organization’s investment in a corporation will not be a self-dealing activity even though the organization is funded by disqualified persons.

Under section 4941(d) of the Internal Revenue Code, self-dealing between a disqualified person and a private foundation creates excise tax on the foundation. In this case, the funders of the private foundation were disqualified persons under the code and they had the ownership interest of the corporation. The private foundation acquired shares of the corporation. However, the IRS held that the activity was not a self-dealing because the corporation was not a disqualified person in respect to the foundation.

See PLR- 201447043 (Nov. 21, 2014)

Posted by Jin Keol Park, Associate Editor, Wealth Strategies Journal

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