Advice of Counsel - Reliance by Private Foundation Manager

If a foundation manager has made full disclosure of the factual situation to legal counsel (including house counsel) and relies on the advice of counsel expressed in a reasoned written legal opinion that an expenditure is not a taxable expenditure and the expenditure is later held to be taxable, the foundation manager's agreement to the expenditure will ordinarily not be considered knowing or willful and will ordinarily be considered due to reasonable cause. Thus, the foundation and the foundation manager will not be liable for excise taxes on the investment.

A written legal opinion will be considered reasoned even if it reaches a conclusion that is later determined to be incorrect as long as the opinion addresses itself to the facts and applicable law.  However, a written legal opinion will not be considered reasoned if it does nothing more than recite the facts and express a conclusion.

The absence of advice of counsel on an expenditure will not, by itself, give rise to any inference that a foundation manager agreed to making the expenditure knowingly, willfully, or without reasonable cause.

 


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