Self-dealing rules are sometimes confusing. In any event, a small foundation has to determine whether a potential transaction constitutes self-dealing. For this reason, we’ve come up with three straightforward questions that lean funders can apply to any situation.

1. Does the transaction involve a disqualified person?

The Internal Revenue Service defines a disqualified person as one of the following:

  • Officers, directors, trustees, and others with similar authority at the foundation
  • Substantial contributors to the foundation (who have given $5,000 or more, and 2% or more of the foundation’s income over the life of the foundation)
  • Family members of those previously listed, including spouses, ancestors, and descendants and their spouses—but not siblings
  • Entities controlled by disqualified persons (with a share or interest of 35% or more)
  • Certain government officials

2. Is the transaction on the list of self-dealing transactions?

On the whole, this is the list of prohibited self-dealing transactions:

  • Sale, exchange, or lease of property
  • Furnishing goods, services, or facilities for money
  • Lending money or extending credit
  • Payment to, compensation of, or reimbursement of a disqualified person
  • Transfer to or use of the foundation’s income or assets by a disqualified person
  • Payment of money or property to a government official

3. Does an exception apply?

As shown above, the list of prohibited transactions is sweeping. Thus, there are several recognized exceptions:

Read the full article about self-dealing at Exponent Philanthropy.