CTFA Charitable Planning and Philanthropy 2

Question 1

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

Accepted Answer

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

Answer

3% of the fair market value of all foundation assets

Answer

7% of total annual investment income

Answer

10% of total assets including program-related investments

Question 2

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

Accepted Answer

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

Answer

Investing foundation assets in publicly traded index funds

Answer

Making grants to public charities where a disqualified person volunteers

Answer

Hiring an investment advisor recommended by a foundation trustee

Question 3

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

Accepted Answer

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

Answer

A private foundation that makes grants to public charities

Answer

A donor advised fund held by a community foundation

Answer

A charitable remainder annuity trust paying fixed annual amounts

Question 4

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?

Accepted Answer

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

Answer

5% of voting stock or profits interest

Answer

10% of any class of stock

Answer

35% of non-voting preferred stock only

Question 5

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

Accepted Answer

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

Answer

Eliminate all income taxes on trust earnings during the charitable payment term

Answer

Provide the grantor with a guaranteed income stream for the duration of their lifetime

Answer

Ensure the charity receives the maximum possible remainder interest in the trust

Question 6

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

Accepted Answer

Receiving broad public support from diverse, independent sources

Answer

Operating exclusively for religious or educational purposes as defined by state law

Answer

Having a funding base concentrated primarily among a small group of related donors

Answer

Being exempt from the Section 4942 minimum annual distribution requirement

Question 7

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

Accepted Answer

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

Answer

Any investment generating returns below the prevailing market rate of return

Answer

An investment concentrated in a single industry sector exceeding 25% of the portfolio

Answer

Any equity investment not pre-approved by the foundation's board of directors