Operational Checklist for Private Foundations

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06.01.2007

Craig G. Dalton Jr.

This checklist may be useful to the layman-manager of a private foundation. It is not intended to be a comprehensive list of all issues a manager may face with regard to the administration of a private foundation. The manager should work closely with an attorney or accountant in administering the foundation.

1) Hold an annual meeting

    a) Elect board of directors and officers

    b) Review proposed charitable contributions and follow-up on contributions previously made

    c) Review foundation investments

    d) Prepare minutes for all meetings

2) Make the required annual minimum charitable distributions

    a) Generally required to distribute five percent (5%) of net asset value each year

    b) Value assets monthly to arrive at an average market value over the year

    c) Have a full tax year after the close of the current tax year in which to make the charitable distributions

3) File Annual Tax Return, the Form 990PF

    a) Return is due the 15th of the fifth month after the close of the taxable year. For calendar year foundations the return is due by May 15.

4) Review grant making procedures

    a) All grants must be made for charitable purposes

    b) Grants made to 501(c)(3) organizations other than private foundations are the simplest way to make distributions. Obtain verification of such status from the organization prior to making a grant.

    c) Grants may be made to individuals for charitable purposes if there is proper oversight by and reporting to the private foundation

    d) Consider the use of a grant application form for prospective donees

        i) Provides a uniform system for making grants

        ii) Communicates foundation’s objectives and limitations on use of monies

        iii) Protects the organization in its compliance efforts by ensuring that it collects the appropriate information on each grantee

    e) Require a grant agreement from donees

        i) The agreement should establish guidelines for the use of funds, establish a schedule for reporting on such use and require the return of unused funds.

        ii) The agreement should require follow-up reports on how project goals are being met, the benchmarks for success and the results achieved to date.

5) Review to make sure no self-dealing rules are being breached. Such a breach could result in penalties and loss of tax-exempt status.

    a) A self-dealing transaction involves a disqualified person

    b) Disqualified persons include directors, substantial contributors, and their family members, among others

    c) A foundation cannot sell or lease property to or from a disqualified person, except that a foundation may lease property from a disqualified person at no cost

    d) A disqualified person and a foundation generally cannot provide goods, services or facilities to each other

6) Be sure the foundation does not hold “jeopardizing investments”

    a) Jeopardizing investments are those that show a lack of reasonable business care and prudence

    b) Types of investments that get special scrutiny include margin trading, commodity futures, oil and gas working interests, options, warrants, and short sales

7) Be sure the foundation does not have “excess business holdings.” If it does, plan to dispose of such interests within appropriate time limits.

    a) In general a foundation and its disqualified person(s) may not hold more than 20 percent (20%) of any business enterprise.

    b) If excess business holdings are acquired from an estate, in general the private foundation has a five-year period to dispose of these excess holdings.

Circular 230 Disclosure

To ensure compliance with requirements imposed by the IRS, unless specifically indicated otherwise, any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of avoiding tax related penalties or promoting, marketing or recommending to another party any tax related matter addressed herein.

Physical Address: 301 Fayetteville Street, Suite 1900, Raleigh, NC 27601

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06.01.2007