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Abstract: 

Under IRC §4941, a private foundation is prohibited from making payments to a disqualified person (e.g., substantial contributors, foundation managers, or family members), even if the payments reflect the fair market value of property or services the disqualified person provides to the foundation. However, two limited exceptions to the prohibition are available: one for personal services, and one for cash advances for expenses on behalf of the foundation. In light of the heavy penalties imposed for acts of self-dealing, foundation managers should make sure they understand when these exceptions apply. This article examines the exceptions to the prohibition on payments to disqualified persons, and shows how to ensure that foundations that take advantage of these exceptions do so within the guidelines promulgated by the IRS.

Keywords: Disqualified Person; Personal Services Exception; Madden v. Commissioner; Grant-Making Services Arrangements; Consulting Services Arrangements; Property Management Services Arrangement; Cash Advances

Affiliations:  1: Clark Hill PLC.