… Sounds riveting, doesn’t it? It’s pretty fascinating to me, actually, but you already know that I’m a nerd. 🙂 I’m reading some interesting material about the various factors that come into play when formulating public policy for my summer courses, but I’ve also been busy reading/researching at work.

In addition to many other sections pertaining to corporations and whatnot, the Pension Protection Act of 2006 outlined some specific boundaries and criteria concerning donors and nonprofit organizations. Private foundations have come under a lot of scrutiny in recent years for misusing charitable dollars — whether for private use (“inurement” or “self-dealing”) or making so-called donations that offer kick-backs or other perks (“non-incidental benefits”) to the donor.

This is an especially important issue when an organization, such as a college or university, raises funds for athletics, the arts and other areas where ticketed events take place. Let’s say that a donor wants to buy a table at a fundraising dinner for her favorite charity. For the sake of illustration, let’s say that it only costs $100. The actual food cost of the dinner is $30, and the rest goes to the charity. Guidelines from the PPA of 2006 mandate that the donor cannot pay the $30 out-of-pocket and the other $70 from her family foundation. This  is called bifurcating, or cost-splitting.

Furthermore, that same donor cannot use her family foundation to buy the table and then attend the event … or even give the tickets to her family, friends or neighbors. This is considered self-dealing and is frowned upon by the IRS. The foundation may buy the table and give the seats back to the host charity, to disburse as they choose, and the foundation may receive recognition for their contribution, but they can’t actually attend the event.

It can get pretty sticky, as you can tell. The sad thing is that I don’t think a lot of donors, and even foundations, are aware of some of these stipulations. Many wealthy families create private foundations as a conduit for their philanthropic interests, and unless they have savvy financial advisors who are in the know concerning these issues, then they may find themselves in a pickle.