A. Sale or Exchange of Property—IRC §4941(d)(1)(A).

1. Any sale or exchange of property between a Disqualified Person (DP) and a Private Foundation (PF) is self-dealing. The self-dealing rules also apply to Charitable Remainder Trusts and Charitable Lead Trusts under IRC §4947(a)(2).

2. The transfer of property by a DP to a PF is treated as a sale or exchange if the PF assumes a mortgage or takes subject to a mortgage which was placed on the property within the 10-year period ending on the date of the transfer of the property to the PF. Treas. Reg. §4941(d)-2(a)(2).

B. Leasing of Property—IRC §4941(d)(1)(A).

1. In general, any lease of property between a DP and a FP is self-dealing.

2. A lease of property by a DP to a PF without charge is not self-dealing. Treas. Reg. §4941(d)-2(b)(2).

C. Extension of Credit—IRC §4941(d)(1)(B).

1. Generally, an extension of credit between a DP and a PF is self-dealing.

2. A loan without interest by a DP to a PF is not an act of self-dealing if the proceeds of the loan are used exclusively for purposes of the loan used exclusively for purposes described in IRC §501(c)(3). IRC§494(d)(2)(B).

3. An act of self-dealing occurs where a third party purchases property and assumes a mortgage, the mortgagee of which is a PF, and subsequently the third party transfers the property to a DP who either assumes the liability under the mortgage or takes the property subject to the mortgage. Treas. Reg. §4941(d)-2(c)(1).

4. An act of self-dealing occurs where a note, the obligor of which is a DP, is transferred by a third party to a PF which becomes the creditor under the note. Ibid.

D. Furnishing of Goods, Services or Facilities—IRC§4941(d)(1)(C).

1. The general rule is that furnishing of good, services or facilities between a PF and a DP is self-dealing.

2. If the goods, services or facilities are furnished by a DP to the PF, self-dealing will not result if furnished without charge and used exclusively for IRC §501(c)(3) purposes. IRC §4941(d)(2)(C).

3. If these are furnished by the PF to a DP, it would not be self-dealing if furnished on a basis no more favorable than made available to the general public. IRC §4941(d)(2)(D).

E. Payment of Compensation by a Private Foundation to a Disqualified Person—IRC §4941(d)(1)(D).

1. In general, the payment of compensation (or payment or reimbursement of expenses) by a PF to a DP is self-dealing.

2. Except for government officials, payment of compensation by a PF to a DP for personal services which are reasonable and necessary to carry out the exempt purposes of the PF is not self-dealing if the compensation is not excessive. IRC §4941(d)(2)(E).

a. The Regulations take a broad view of what services are reasonable and necessary to carry out the exempt purpose of the PF. For example, favorable examples include investment counseling services and legal services performed for PFs by DPs. Treas. Reg. §4941(d)-3(c)(2).

F. Transfer to, or Use by, a Disqualified Person of the Income or Assets of a Private Foundation—IRC §4941(d)(1)(E).

1. Common Investment Situations.

a. The guarantee by a PF of a loan to a DP is an act of self-dealing. Treas. Reg. §4941(d)-2(f)(1).

b. The purchase or sale of securities by a PF is self-dealing if the purchase or sale is made in an attempt to manipulate the price of the securities to the advantage of a DP. Treas. Reg. §4941(d)-2(f)(1). On the other hand, if the DP owns the same class of securities or partnership interests as that owned by the PF, with the same voting and liquidation rights, this by itself should not be self-dealing. To be on the safe side, it is best if the DP and the PF buy and sell their interests at the same time, to avoid any inference that the transaction by the PF is manipulating price in a way that benefits the DP.


2. Co-Tenancy and Other Forms of Co-Ownership.


PLR 9114025 created concern that ownership by a charitable remainder trust and the donor of partial interests in the same property might be self-dealing, since the private letter ruling implied (but did not rule) that this would be the result. But the formal IRS position remains that the ownership of property as tenants in common by PFs and DPs is not per se self-dealing. GCM 39770 (1988). On the other hand, officials at the Treasury and the national office of the IRS have expressed their view privately that co-ownership of an asset is enough to result in self-dealing under §4941(d)(1)(E). This view, if correct, would have a negative impact on the popular strategy of dealing with a CRT to be funded with encumbered property by having the donor transfer a partial interest in the property to the CRT while retaining a partial interest and indemnifying the CRT against any liability on the debt. To minimize the risk of self-dealing in this situation, the donor should enter into a written co-tenancy agreement with the trustee of the CRT in which the indemnity is documented and in which the donor/DP is prohibited from using the partial interest in the property which is held by the CRT.