Charging related private foundation for services was not act of self-dealing.

• Author: Kautter, David J.

In Letter Ruling 200238053, the Service ruled that a management company's proposal to charge a related private foundation for personal services the company provides to the foundation will not be an act of self-dealing.

A taxpayer established a Sec. 509 private foundation to help carry out his charitable giving program. He also established a revocable grantor trust that was the sole owner of a privately held management company. The company currently provides personal services to the taxpayer, his family, the private foundation and various other for-profit enterprises in which the taxpayer owns interests. Those services include accounting, bookkeeping, asset management, tax investment, business travel, secretarial and administrative support and coordination with outside advisers (including legal counsel, tax advisers and various consultants and administrative and support services). The taxpayer currently pays the company for the services it provides to his various interests.

The company seeks to change its arrangement and receive payment for the personal services it provides to the private foundation and the taxpayer's other family interests under a cost-sharing service agreement. Under the agreement, each party will pay the company directly for its allocable share of the Company's operating expenses. The company will charge the private foundation only for services performed directly in furtherance of its exempt purposes. Secretarial services that the company previously provided will not be included in the service agreement. The company plans to use an independent consultant experienced in employee benefits and human resources to ensure that its fees are reasonable.

Law and Analysis

Sec: 4941(a) imposes an excise tax on acts of self-dealing between a private foundation and a "disqualified person." Under Sec. 4946(a)(1)(E), the management company is a disqualified person by reason of its relationship to the taxpayer and the...