Hunton Law

Legal Counsel for Nonprofit & Tax-Exempt Organizations

Legal Counsel for Nonprofits, Foundations & Social Enterprises

Private Foundation Investments

The Internal Revenue Service recently issued guidance (see IRB 2015-39 dated September 28, 2015) that allows private foundations greater flexibility in making investments of foundation capital while avoiding excise taxes on jeopardizing investments.  The Notice addresses questions surrounding whether a private foundation investment whose purpose is the production of income or the appreciation of property (i.e., investments other than program-related investments) would be taxable under Internal Revenue Code section 4944.  The Notice explains that foundation managers may consider the relationship between a particular investment and the foundation’s charitable purposes in deciding whether to make an investment, and offers the following example: “a private foundation will not be subject to tax under section 4944 if foundation managers who have exercised ordinary business care and prudence make an investment that furthers the foundation’s charitable purposes at an expected rate of return that is less than what the foundation might obtain from an investment that is unrelated to its charitable purposes.”  This investment standard is now more consistent with the Uniform Prudent Management of Institutional Funds Act (UPMIFA), adopted by most states.