Identifying and Navigating Impermissible Private Benefit in Practice

Taxation of Exempts, Sept/Oct 2018, pp. 26-32

8 Pages Posted: 10 Jan 2019

Date Written: September 15, 2018

Abstract

Organizations and people from within the charitable sector are increasingly engaging in historically non-traditional activities and with other than 501(c)(3) organizations in their efforts to generate revenue and investment/donations and to more aggressively pursue their charitable mission objectives. Examples include ventures with or from other than charitable-oriented businesses and investors, combined public-private fund arrangements, pay-for-success, impact investing, opportunity zones, micro-lending for business, and other finance-oriented relationships. These efforts are changing the ways in which 501(c)(3) organizations must identify and manage against impermissible private benefit.

One aspect of many of these activities is intentional awareness that the brand and reputation of many 501(c)(3) organizations can have independent value on which others might want to trade, with or without providing commensurate value. Another area in which private benefit problems arise is within more garden-variety, day-to-day operations. Consider operation-oriented pursuits such as contracting for delivery of goods and services, which might require increased attention to the financial and non-monetary values of data collected and the tools used to collect, store, secure, and analyze that data. Finally, “new” philanthropists and social change actors are engaging in historically non-traditional activities by structuring these activities without regard to (or at least with much less regard for) the incentives of tax deductions and exemptions.

All of these implicate and require thoughtful consideration of and management to protect against impermissible private benefit while still allowing for enthusiastic pursuit of mission objectives.

Keywords: private benefit, tax exempt, charity, private foundation

Suggested Citation

Tyler, John E. and Bounds, Hillary and Diener, Edward, Identifying and Navigating Impermissible Private Benefit in Practice (September 15, 2018). Taxation of Exempts, Sept/Oct 2018, pp. 26-32. Available at SSRN: https://ssrn.com/abstract=3281076

John E. Tyler (Contact Author)

Ewing Marion Kauffman Foundation ( email )

4801 Rockhill Road
Kansas City, MO 64110-2046
United States
816-932-1293 (Phone)

Hillary Bounds

Independent

No Address Available

Edward Diener

Independent

No Address Available

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