Transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a private foundation is an act of self-dealing. For example, an act of self-dealing includes payment by a private foundation of any excise tax imposed on a disqualified person for any prohibited transactions. Similarly, payment of premiums for an insurance policy providing liability insurance to a foundation manager for excise taxes on prohibited transactions is an act of self-dealing unless the premiums are treated as compensation to the manager. In addition, the purchase or sale of stock or other securities by a private foundation is an act of self-dealing if the purchase or sale is made in an attempt to manipulate the price of the stock or other securities to the advantage of a disqualified person. Indemnification by the foundation of its managers against reasonable expenses (other than taxes, penalties, and expenses of correction) incurred in an IRS or court proceeding involving the imposition of the excise taxes described in this publication on the foundation manager will not be an act of self-dealing if: The manager is successful in the defense, or the proceeding is ended by settlement, and The manager has not acted willfully and without reasonable cause in the act or failure to act giving rise to liability for the excise taxes. Similarly, indemnification of a foundation manager for reasonable expenses incurred for defense in a judicial or administrative proceeding relating to the mismanagement of funds of a charitable organization is not an act of self-dealing if the applicable preceding conditions are met. Many foundations, however, are able to provide liability insurance to board members because, although this insurance is viewed as compensatory under section 4941, it is, in many cases, not taxable because it is a working condition fringe benefit under section 132. The indemnification of a lender or guarantee of repayment by a private foundation of a loan to a disqualified person is treated as a use for the benefit of a disqualified person of the income or assets of a private foundation. A grant or other payment made by a foundation to satisfy the legal obligation of a disqualified person is an act of self-dealing. Incidental benefits. The fact that a disqualified person receives an incidental or slight benefit from the use by a foundation of its income or assets will not, by itself, make the use an act of self-dealing. Public recognition that a substantial contributor may receive, arising from charitable activities of a private foundation, does not in itself result in an act of self-dealing since generally the benefit is incidental and tenuous. Similarly, a scholarship or fellowship grant to a person other than a disqualified person that is paid or incurred by a private foundation according to a program consistent with: The requirements of the foundation's exempt status as a charitable, educational, etc., organization, The requirements for allowance of deductions for charitable contributions made to the foundation, and The requirements of scholarship and fellowship grants awarded on an objective and nondiscriminatory basis under procedures approved by the Service, will not be an act of self-dealing merely because a disqualified person indirectly receives a benefit from the grant. A scholarship or fellowship grant made by a private foundation under a program to award scholarship or fellowship grants to the children of employees of a substantial contributor will not be an act of self-dealing if these three requirements are satisfied. Return to Life Cycle of a Private Foundation
