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Private Foundations: Qualifying Distributions to Organizations Controlled by Disqualified Persons

An organization is controlled by a foundation or by one or more disqualified persons if any of these persons may, by combining their votes or positions of authority, require the organization to make an expenditure or prevent the organization from making an expenditure, regardless of the method by which control is exercised or exercisable.  Control of a donee organization is determined without regard to any conditions imposed on the donee as part of the distribution or any other restrictions as to how the distribution may be used unless the conditions and restrictions are imposed on a distribution of net assets to terminate private foundation status.

In general, it is the donee, not the distribution, that must be controlled by the distributing private foundation to disqualify an otherwise qualifying distribution.  If a foundation provides support to an organization and imposes budgetary procedures on that organization, this will not, of itself, constitute control of the donee.  Budgetary procedures include expenditure responsibility to require reports from the donee organization on:

  1. The use of the funds,
  2. Compliance with the terms of the grant, and
  3. The progress made by the donee toward achieving the purposes for which the grant was made.

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.


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Page Last Reviewed or Updated: 13-Oct-2016