United States

IRS issues guidance to private foundations on program-related investments

TAX ALERT  | 

Final regulations were issued on April 25, 2016, that provide guidance to private foundations related to the types of investment activities that will be considered program-related investments (PRIs) and not jeopardizing investments. Examples 11 through 19 in Reg. section 53.4944-3 illustrate the types of investments that should not subject a private foundation to excise taxes.

The IRS plans on posting to its website the tax principles that are addressed in these examples, which provide clarity to private foundation investment managers as to what kinds of investment activities may be considered program-related.

The underlying tax principles presented in these final regulations include:

  • A foundation activity conducted in a foreign country furthers an exempt purpose if the same activity would further a foundation-exempt purpose if conducted in the United States
  • The foundation-exempt purposes served by a PRI are not limited to situations involving economically disadvantaged individuals and deteriorated urban areas
  • The recipients of PRIs need not be within a charitable class if they are the instruments for furthering an exempt purpose of the foundation
  • A potentially high rate of return to the foundation does not automatically prevent an investment from qualifying as a PRI
  • PRIs can be achieved through a variety of investments, including loans to individuals, tax-exempt organizations and for-profit organizations and equity investments in for-profit organizations
  • A foundation entering into a credit enhancement arrangement may qualify as a PRI
  • A foundation’s acceptance of an equity position in conjunction with making a loan does not necessarily prevent the investment from qualifying as a PRI

To review the examples housed in T.D. 9762, please click here.

 

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