Beware of Self-Dealing Rules Around Private Foundations & Event Tickets

If a private foundation purchases (or is given) tickets for a charitable event, there’s a potential for self-dealing—depending on who attends and the purpose for being there. Private foundation self-dealing rules prohibit most direct and indirect financial transactions between a foundation and its disqualified persons.

Who are disqualified persons?

Disqualified persons include the creator of the foundation, substantial contributors, trustees, directors and their family members.

Most significant fundraising events typically provide a tangible economic good or service to the attending ticket holder, e.g., dinner, entertainment, receptions, greens fees, etc. A foundation may sometimes be asked to buy tickets to events sponsored by an organization the foundation supports. Invitations to those events typically describe a portion of the cost that’s tax-deductible and a portion that’s not, e.g., an invitation for a charitable fundraising dinner that lists the cost of the dinner itself as nondeductible. If disqualified persons use tickets to foundation-sponsored events, self-dealing rules and penalties may apply.

Can self-dealing be avoided if a disqualified person pays for the value of the goods/services received and the foundation pays the charitable portion?

No. While this may seem like a logical alternative, splitting the cost also is treated as self-dealing. The IRS’s reasoning appears to be that the disqualified person wouldn’t be in a position to pay the value portion if the foundation wasn’t paying the contribution portion. The foundation would be freeing a disqualified person of a financial obligation that he or she (or a corporation) would otherwise incur.

For family foundations, only foundation staff and directors with monitoring and administrative responsibilities for grants should use tickets for fundraisers and other events. Spouses of disqualified persons are not covered by this exception to the self-dealing rules and shouldn’t use foundation-sponsored tickets. If family members want to support and attend a fundraising event, they should contribute out of their own pocket, not the foundation’s.

What qualifies as a necessary and appropriate reason for attending an event on behalf of a foundation?

A disqualified person may attend a ticketed event to monitor grant money use or to evaluate an organization’s programs for potential future funding.

A corporate foundation should establish a policy on whether it will support fundraisers and other events that result in tangible economic benefits. If the foundation decides not to support these events, it can pass on such requests to the direct corporate giving program, since self-dealing rules would no longer apply. If the foundation opts to support these events, it must decide whether it will accept tables and to whom it will distribute tickets. It may be tempting to invite corporate clients or business associates to sit at a foundation table, but this should be avoided.

Who’s considered a disqualified person for a corporate foundation?

Disqualified persons for corporate foundations include those mentioned above as well as the corporation and potentially all of its employees. None of these individuals should use tickets unless they’re attending on the foundation’s behalf in an administrative or monitoring capacity. As with family foundations, spouses are not covered by the exception for grant monitoring and administration.

Can the foundation be listed in the program at the ticketed event?

Yes. The foundation may be listed in the program as a sponsor whether or not it accepts tables.

Bottom line

• Use personal funds or a corporate marketing/giving program to purchase tickets to fundraising events sponsored by not-for-profit organizations.
• If private foundation assets are used to sponsor an event and a disqualified person plans to attend, carefully document the business purpose.
• Clearly communicate your desire to not receive tickets and other benefits from your not-for-profit grantees, e.g., indicate on a contribution form that no tickets are to be sent.
• Disclaim tickets, donate them back to the organization to be used by others (determined by the charity) or donate the tickets to another charitable group that can put them to good use.

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