Lending money or other extension of credit between a private foundation and a disqualified person is an act of self-dealing. However, this does not include lending money by a disqualified person to a private foundation without interest or other charge if the borrower uses the loan proceeds exclusively for purposes specified in section 501(c)(3) of the Code. For these purposes, a loan by a disqualified person to a private foundation at below-market interest rates is treated as an act of self-dealing to the same extent as a loan at market interest rates.

An act of self-dealing occurs when (1) a third party buys property and assumes a mortgage held by a private foundation, and (2) the third party transfers the property to a disqualified person who either assumes liability under the mortgage or takes the property subject to the mortgage. In this transaction the foundation is considered to have made a loan to the disqualified person in the amount of the unpaid indebtedness on the property at the time of the transfer.

Making a promise, pledge, or similar arrangement regarding money or property to a private foundation by a disqualified person, whether by an oral or written agreement, a promissory note, or other instrument of indebtedness, is not an extension of credit before the date of maturity to the extent that it is motivated by charitable intent and is unsupported by consideration.

Performing trust functions and certain general banking services by a bank or trust company, which is a disqualified person, is not an act of self-dealing if the services are reasonable and necessary in carrying out the exempt purposes of the private foundation and the compensation paid to the bank or trust company is not excessive (considering the fair interest rate for the use of the funds by the bank or trust company).

The general banking services that are not self-dealing are:

  1. Checking accounts, as long as the bank does not charge interest on any overdrafts or a service fee greater than the actual cost of processing the amount overdrawn,
  2. Savings accounts, as long as the foundation may withdraw its funds on no more than 30 days notice without subjecting itself to a loss of interest on its money for the time the money was on deposit, and
  3. Safekeeping activities.

The purchase of certificates of deposit that provide a reduced rate of interest if not held to maturity from a banking institution, a disqualified person with respect to the private foundation, does not fall within the scope of the general banking services permitted, and is an act of self-dealing.

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