Any sale or exchange of property between a private foundation and a disqualified person is an act of self-dealing. For example, the sale of incidental supplies by a disqualified person to a private foundation is an act of self-dealing regardless of the amount paid to the disqualified person. Similarly, the sale of stock or other securities by a disqualified person to a private foundation in a bargain sale is an act of self-dealing regardless of the amount paid. However, see exceptions to self-dealing. The transfer of real or personal property by a disqualified person to a private foundation is treated as a sale or exchange if the foundation (1) assumes a mortgage or similar lien, which was placed on the property before the transfer, or (2) takes the property subject to a mortgage or similar lien that a disqualified person placed on the property in the 10–year period ending on the date of transfer. A similar lien includes, but is not limited to, deeds of trust and vendors' liens, but does not include any other lien if it is insignificant in relation to the fair market value of the property transferred. Example: On May 17,1988, the Gray Foundation, a private foundation, received a donation of a life insurance policy from Joe Brown, a disqualified person. The policy, which had a face value of $100,000, was subject to an outstanding loan of $46,000 that was made to Joe by the insurer within the 10–year period ending on the date of the donation. The cash surrender value of the policy was $50,000 on May 17, 1988. Under the terms of the policy, failure to repay the principal or interest on the policy loan reduces the proceeds that are payable to the beneficiary upon voluntary surrender of the policy or upon the death of the insured. The donation is an act of self-dealing. Return to Life cycle of a private foundation
