CAP Regulatory Compliance & Law 3

Question 1

Which IRS revenue ruling established that a private foundation's investment in a program-related investment (PRI) does not jeopardize its exempt status?

Accepted Answer

Rev. Rul. 71-447

Answer

Rev. Rul. 71-447 confirmed that program-related investments furthering charitable purposes do not constitute jeopardizing investments under IRC Section 4944.

Question 2

A private foundation wants to pay reasonable compensation to a disqualified person for personal services. Which exception to the self-dealing rules applies?

Accepted Answer

The personal services exception under IRC Section 4941(d)(2)(E)

Answer

IRC Section 4941(d)(2)(E) allows private foundations to pay reasonable compensation to disqualified persons for personal services that are necessary to carry out the foundation's exempt purpose.

Question 3

Under state law, which legal doctrine requires charitable trustees to diversify investments and avoid speculative risks unless special circumstances apply?

Accepted Answer

The Uniform Prudent Investor Act (UPIA)

Answer

The Uniform Prudent Investor Act requires trustees to diversify investments and adopt a portfolio approach, considering risk and return in the context of the entire trust portfolio.

Question 4

A donor contributes artwork valued at $50,000 to a museum. The museum intends to sell the artwork immediately rather than use it in its exempt function. What is the donor's allowable deduction?

Accepted Answer

Cost basis only

Answer

When a charity's use of donated property is 'unrelated use' (i.e., selling rather than displaying the art), the donor's deduction is limited to cost basis, not fair market value.

Question 5

Under the Uniform Trust Code (UTC), what is the state attorney general's primary role regarding charitable trusts?

Accepted Answer

Enforcing charitable trusts and representing the public interest in charitable assets

Answer

State attorneys general have primary authority to enforce charitable trusts and protect the public interest, including investigating misuse of charitable assets.

(CAP) Certified Philanthropic Advisor Practice Test

(CAP) Certified Philanthropic Advisor Practice Test

CAP Regulatory Compliance & Law 3