Charitable Planning and Philanthropy Flashcards

What is the minimum annual distribution requirement for a private non-operating foundation under IRC Section 4942?

Answer: 5% of the average fair market value of net investment assets

IRC Section 4942 requires private non-operating foundations to distribute at least 5% of the average fair market value of their net investment assets each year for charitable purposes.

Under IRC Section 4941, which transaction between a private foundation and a disqualified person constitutes prohibited self-dealing?

Answer: Selling foundation-owned property to a substantial contributor at fair market value

Under Section 4941, any sale or exchange of property between a private foundation and a disqualified person constitutes prohibited self-dealing, regardless of whether the price reflects fair market value.

A Pooled Income Fund is structurally most similar to which type of investment vehicle?

Answer: A mutual fund that allocates income to investors proportionally based on units held

A Pooled Income Fund maintained by a public charity commingles contributions from multiple donors and pays each donor a proportionate share of the fund's actual net income, similar to how a mutual fund allocates earnings.

Under IRC Section 4943, what percentage limit generally applies to the combined holdings of a private foundation and all its disqualified persons in any business enterprise?

Answer: 20% of voting stock or profits interest in the business enterprise

Section 4943 generally limits the combined business holdings of a private foundation and its disqualified persons to 20% of the voting stock (or profits interest) of any business enterprise.

A 'zeroed-out' Charitable Lead Annuity Trust (CLAT) is primarily designed to accomplish which estate planning objective?

Answer: Transfer appreciation above the Section 7520 hurdle rate to heirs with minimal gift or estate tax

A zeroed-out CLAT is structured so the present value of the annuity payments to charity equals the initial contribution (producing a zero taxable gift), meaning any investment growth above the Section 7520 rate passes to heirs gift-tax free.

Which of the following characteristics distinguishes a public charity from a private foundation under IRC Section 509?

Answer: Receiving broad public support from diverse, independent sources

Public charities receive broad public support from diverse independent sources and satisfy the public support tests under Section 509(a), distinguishing them from private foundations which typically rely on a narrow donor base.

IRC Section 4944 imposes an excise tax on private foundations for 'jeopardizing investments.' What makes an investment jeopardizing?

Answer: An investment that jeopardizes the carrying out of the foundation's exempt charitable purposes

Section 4944 defines a jeopardizing investment as one where the foundation's managers failed to exercise ordinary business care in considering whether the investment jeopardizes the foundation's ability to carry out its exempt charitable purposes.