Managing Corporate Foundation Risk: What role do in-house tax professionals play in advancing charitable objectives?

Most often, the in-house tax department, from staff-level accountants up to the chief financial officer, is tasked with managing the foundation's accounting and compliance and, in some instances, guiding program decisions based on tax law and regulatory schemes. In-house tax professionals usually find themselves assisting the private foundation with these calculations, which could require preparing or reviewing the annual Form 990-PF (Return of Private Foundation) and, if required, Form 990-T (Exempt Organization Business Income Tax Return). Amounts distributed for charitable purposes are referred to as "qualifying distributions," and for the foundation to meet the minimum requirement, these qualifying distributions include grants paid to government entities and public charities, expenses incurred in direct charitable activities, expenses allocable to charitable purposes,8 the purchase of assets placed in service for charitable purposes,9 and certain grants paid to other foreign or noncharitable entities when expenditure responsibility has been exercised.10 Any qualifying distributions beyond the required amount may be carried over for a five-year period.11 SECTIONS 4943 AND 4944: EXCESS BUSINESS HOLDINGS AND JEOPARDY INVESTMENTS A private foundation may not hold, in total with its disqualified persons, more than twenty percent of the voting stock of a business enterprise.12 Even though this rule typically is irrelevant to publicly traded companies, it is a complicated issue for many closely held companies if their private foundation holds company stock. A private foundation may rely on a safe harbor de minimis rule that permits the private foundation to hold no more than two percent of the voting stock and no more than two percent of the value of all outstanding shares of stock.13 Additionally, a private foundation is not permitted to hold an investment that would jeopardize the carrying out of its exempt purpose.14 In the case of both prohibitions, exceptions exist for certain program-related investments.15 Program-related investments are investments whose primary purpose is to accomplish one or more of the charitable purposes described in IRC Section 170(c)(2)(B) and does not have, as a significant purpose, the production of income or appreciation of property.16 SECTION 4945: TAXABLE EXPENDITURES Private foundations are required to make grants for charitable purposes as defined in Section 170(c)(2)(B).17 Any amounts paid or incurred for the following ot