An organization is considered controlled by a private foundation if the foundation or one or more of its foundation managers acting only in their capacity as managers, may, only by combining their votes or positions of authority, require the organization to engage in a transaction, which if engaged in with the private foundation would be self-dealing. Similarly, an organization is controlled by a private foundation in the case of such a transaction between the organization and a disqualified person, if the disqualified person together with certain related persons who are disqualified persons may, only by combining their votes or positions of authority with that of the foundation, require the organization to engage in such a transaction.
The controlled organization does not have to be a private foundation. It may be any kind of exempt or nonexempt organization including a school, hospital, operating foundation, or social welfare organization.
An organization will be considered controlled by a private foundation or by a private foundation and disqualified persons if the persons are able, in fact, to control that organization. This control may be present even if their combined voting power is less than 50 percent of the organization's total voting power, or if one or more of the individuals has the right to exercise veto power over the actions of the organization relevant to any potential acts of self-dealing. However, a private foundation will not be regarded as having control over an organization simply because it exercises expenditure responsibility.