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Abstract: 

Notwithstanding the IRC §4941 prohibition on self-dealing transactions, a private foundation is permitted to indemnify its managers for expenses incurred in any civil judicial or civil administrative proceeding arising out of the manager’s performance of services (or failure to perform services) on behalf of the foundation. This article examines how foundations can indemnify managers, the advantages and disadvantages of doing so, how regulations distinguish between non-compensatory and compensatory indemnification and why the distinction is important, and where compensatory indemnification is provided, how to ensure that it meets the IRC definition “reasonable” so that such payments may be treated as qualifying distributions.

Keywords: Permitted Indemnification of Managers; Noncompensatory Indemnification

Affiliations:  1: Strasburger & Price, LLP.