[Code of Federal Regulations]
[Title 26, Volume 17]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR53.4941(d)-3]

[Page 58-61]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 53_FOUNDATION AND SIMILAR EXCISE TAXES--Table of Contents
 
                     Subpart B_Taxes on Self-Dealing
 
Sec. 53.4941(d)-3  Exceptions to self-dealing.

    (a) General rule. In general, a transaction described in section 
4941(d)(2) (B), (C), (D), (E), (F), (G), or (H) is not an act of self-
dealing. Section 4941(d)(2) (B), (C), and (H) provide limited exceptions 
to certain specific transactions, as described in paragraphs (b)(2), 
(b)(3), (c)(2), and (d)(3) of Sec. 53.4941(d)-2. Section 4941(d)(2) 
(D), (E), (F), and (G) and paragraphs (b) through (e) of this section 
described certain transactions which are not acts of self-dealing.
    (b) Furnishing of goods, services, or facilities to a disqualified 
person--(1) In general. Under section 4941(d)(2)(D), the furnishing of 
goods, services, or facilities by a private foundation to a disqualified 
person shall not be an act of self-dealing if such goods, services, or 
facilities are made available to the general public on at least as 
favorable a basis as they are made available to the disqualified person. 
This subparagraph shall not apply, however, in the case of goods, 
services, or facilities furnished later than May 16, 1973, unless such 
goods, services, or facilities are functionally related, within the 
meaning of section 4942(j)(5), to the exercise or performance by a 
private foundation of its charitable, educational, or other purpose or 
function constituting the basis for its exemption under section 
501(c)(3).
    (2) General public. For purposes of this paragraph, the term 
``general public'' shall include those persons who, because of the 
particular nature of the activities of the private foundation, would be 
reasonably expected to utilize such goods, services, or facilities. This 
paragraph shall not apply, however, unless there is a substantial number 
of persons other than disqualified persons who are actually utilizing 
such goods, services, or facilities. Thus, a private foundation which 
furnishes recreational or park facilities to the general public may 
furnish such facilities to a disqualified person provided they are 
furnished to him on a basis which is not more favorable than that on 
which they are furnished to the general public. Similarly, the sale of a 
book or magazine by a private foundation to disqualified persons shall 
not be an act of self-dealing if the publication of such book or 
magazine is functionally related to a charitable or educational activity 
of the foundation and the book or magazine is made available to the 
disqualified persons and the general public at the same price. In 
addition, if the terms of the sale require, for example, payment within 
60 days from the date of delivery of the book or magazine, such terms 
are consistent with normal commercial practices, and payment is made 
within the 60-day period, the transaction shall not be treated as a loan 
or other extension of credit under Sec. 53.4941(d)-2(c)(1).
    (c) Payment of compensation for certain personal services--(1) In 
general. Under section 4941(d)(2)(E), except in the case of a Government 
official (as defined in section 4946(c)), the payment of compensation 
(and the payment or reimbursement of expenses, including reasonable 
advances for expenses anticipated in the immediate future) by a private 
foundation to a disqualified person for the performance of personal 
services which are reasonable and necessary to carry out the exempt 
purpose of the private foundation shall not be an act of self-dealing if 
such compensation (or payment or reimbursement) is not excessive. For 
purposes of this subparagraph the term ``personal services'' includes 
the services of a broker serving as agent for the private foundation, 
but not the services of a dealer who

[[Page 59]]

buys from the private foundation as principal and resells to third 
parties. For the determination whether compensation is excessive, see 
Sec. 1.162-7 of this chapter (Income Tax Regulations). This paragraph 
applies without regard to whether the person who receives the 
compensation (or payment or reimbursement) is an individual. The portion 
of any payment which represents payment for property shall not be 
treated as payment of compensation (or payment or reimbursement of 
expenses) for the performance of personal services for purposes of this 
paragraph. For rules with respect to the performance of general banking 
services, see Sec. 53.4941(d)-2(c)(4). Further, the making of a cash 
advance to a foundation manager or employee for expenses on behalf of 
the foundation is not an act of self-dealing, so long as the amount of 
the advance is reasonable in relation to the duties and expense 
requirements of the foundation manager. Except where reasonably 
allowable pursuant to subdivision (iii) of this subparagraph, such 
advances shall not ordinarily exceed $500. For example, if a foundation 
makes an advance to a foundation manager to cover anticipated out-of-
pocket current expenses for a reasonable period (such as a month) and 
the manager accounts to the foundation under a periodic reimbursement 
program for actual expenses incurred, the foundation will not be 
regarded as having engaged in an act of self-dealing:
    (i) When it makes the advance,
    (ii) When it replenishes the funds upon receipt of supporting 
vouchers from the foundation manager, or
    (iii) If it temporarily adds to the advance to cover extraordinary 
expenses anticipated to be incurred in fulfillment of a special 
assignment (such as long distance travel).
    (2) Examples. The provisions of this paragraph may be illustrated by 
the following examples:

    Example (1). M, a partnership, is a firm of 10 lawyers engaged in 
the practice of law. A and B, partners in M, serve as trustees to 
private foundation W and, therefore, are disqualified persons. In 
addition, A and B own more than 35 percent of the profits interest in M, 
thereby making M a disqualified person. M performs various legal 
services for W from time to time as such services are requested. The 
payment of compensation by W to M shall not constitute an act of self-
dealing if the services performed are reasonable and necessary for the 
carrying out of W's exempt purposes and the amount paid by W for such 
services is not excessive.
    Example (2). C, a manager of private foundation X, owns an 
investment counseling business. Acting in his capacity as an investment 
counselor, C manages X's investment portfolio for which he receives an 
amount which is determined to be not excessive. The payment of such 
compensation to C shall not constitute an act of self-dealing.
    Example (3). M, a commercial bank, serves as a trustee for private 
foundation Y. In addition to M's duties as trustee, M maintains Y's 
checking and savings accounts and rents a safety deposit box to Y. The 
use of the funds by M and the payment of compensation by Y to M for such 
general banking services shall be treated as the payment of compensation 
for the performance of personal services which are reasonable and 
necessary to carry out the exempt purposes of Y if such compensation is 
not excessive.
    Example (4). D, a substantial contributor to private foundation Z, 
owns a factory which manufactures microscopes. D contracts with Z to 
manufacture 100 microscopes for Z. Any payment to D under the contract 
shall constitute an act of self-dealing, since such payment does not 
constitute the payment of compensation for the performance of personal 
services.

    (d) Certain transactions between a foundation and a corporation--(1) 
In general. Under section 4941(d)(2)(F), any transaction between a 
private foundation and a corporation which is a disqualified person will 
not be an act of self-dealing if such transaction is engaged in pursuant 
to a liquidation, merger, redemption, recapitalization, or other 
corporate adjustment, organization, or reorganization, so long as all 
the securities of the same class as that held (prior to such 
transaction) by the foundation are subject to the same terms and such 
terms provide for receipt by the foundation of no less than fair market 
value. For purposes of this paragraph, all of the securities are not 
``subject to the same terms unless, pursuant to such transaction,'' The 
corporation makes a bona fide offer on a uniform basis to the foundation 
and every other person who holds such securities. The fact that a 
private foundation receives property, such as debentures, while all 
other persons holding securities of the same class receive cash for 
their interests, will be evidence that such offer was not made on

[[Page 60]]

a uniform basis. This paragraph may apply even if no other person holds 
any securities of the class held by the foundation. In such event, 
however, the consideration received by holders of other classes of 
securities, or the interests retained by holders of such other classes, 
when considered in relation to the consideration received by the 
foundation, must indicate that the foundation received at least as 
favorable treatment in relation to its interests as the holders of any 
other class of securities. In addition, the foundation must receive no 
less than the fair market value of its interests.
    (2) Examples. The provisions of this paragraph may be illustrated by 
the following examples:

    Example (1). Private foundation X owns 50 percent of the class A 
preferred stock of corporation M, which is a disqualified person with 
respect to X. The terms of such securities provide that the stock may be 
called for redemption at any time by M at 105 percent of the face amount 
of the stock. M exercises this right and calls all the class A preferred 
stock by paying 105 percent of the face amount in cash. At the time of 
the redemption of the class A preferred stock, it is determined that the 
fair market value of the preferred stock is equal to its face amount. In 
such case, the redemption by M of the preferred stock of X is not an act 
of self-dealing.
    Example (2). Private foundation Y, which is on a calendar year 
basis, acquires 60 percent of the class A preferred stock of corporation 
N by will on January 10, 1970. N, which is also on a calendar year 
basis, is a disqualified person with respect to Y. In 1971, N offers to 
redeem all of the class A preferred stock for a consideration equal to 
100 percent of the face amount of such stock by the issuance of 
debentures. The offer expires January 2, 1972. Both Y and all other 
holders of the class A preferred stock accept the offer and enter into 
the transaction on January 2, 1972, at which time it is determined that 
the fair market value of the debentures is no less than the fair market 
value of the preferred stock. The transaction on January 2, 1972, shall 
not be treated as an act of self-dealing for 1972. However, because 
under Sec. 53.4941 (e)-1 (e)(1)(i) an act of self dealing occurs on the 
first day of each taxable year or portion of a taxable year that an 
extension of credit from a foundation to a disqualified person goes 
uncorrected, if such debentures are held by Y after December 31, 1972, 
except as provided in Sec. 53.4941(d)-4(c)(4), such extension of credit 
shall not be excepted from the definition of an act of self dealing by 
reason of the January 2, 1972, transaction. See Sec. 53.4941(d)-4(c)(4) 
for rules indicating that under certain circumstances such debentures 
could be held by Y until December 31, 1979.

    (e) Certain payments to government officials. Under section 
4941(d)(2)(G), in the case of a government official, in addition to the 
exceptions provided in section 4941(d)(2) (B), (C), and (D), section 
4941(d)(1) shall not apply to:
    (1) A prize or award which is not includible in gross income under 
section 74(b), if the government official receiving such prize or award 
is selected from the general public;
    (2) A scholarship or a fellowship grant which is excludable from 
gross income under section 117(a) and which is to be utilized for study 
at an educational institution described in section 151(e)(4);
    (3) Any annuity or other payment (forming part of a stock-bonus, 
pension, or profit sharing plan) by a trust which constitutes a 
qualified trust under section 401;
    (4) Any annuity or other payment under a plan which meets the 
requirements of section 404(a)(2);
    (5) Any contribution or gift (other than a contribution or gift of 
money) to, or services or facilities made available to, any government 
official, if the aggregate value of such contributions, gifts, services, 
and facilities does not exceed $25 during any calendar year;
    (6) Any payment made under 5 U.S.C. Chapter 41 (relating to 
government employees' training programs);
    (7) Any payment or reimbursement of traveling expenses (including 
amounts expended for meals and lodging, regardless of whether the 
government official is away from home within the meaning of section 
162(a)(2), and including reasonable advances for such expenses 
anticipated in the immediate future) for travel solely from one point in 
the United States to another in connection with one or more purposes 
described in section 170(c) (1) or (2)(B), but only if such payment or 
reimbursement does not exceed the actual cost of the transportation 
involved plus an amount for all other traveling expenses not in excess 
of 125 percent of the maximum amount payable under 5 U.S.C. 5702(a) for 
like travel by employees of the United States;

[[Page 61]]

    (8) Any agreement to employ or make a grant to a government official 
for any period after the termination of his government service if such 
agreement is entered into within 90 days prior to such termination;
    (9) If a government official attends or participates in a conference 
sponsored by a private foundation, the allocable portion of the cost of 
such conference and other nonmonetary benefits (for example, benefits of 
a professional, intellectual, or psychological nature, or benefits 
resulting from the publication or the distribution to participants of a 
record of the conference), as well as the payment or reimbursement of 
expenses (including reasonable advances for expenses anticipated in 
connection with such a conference in the near future), received by such 
government official as a result of such attendance or participation 
shall not be subject to section 4941(d)(1), so long as the conference is 
in furtherance of the exempt purposes of the foundation; or
    (10) In the case of any government official who was on leave of 
absence without pay on December 31, 1969, pursuant to a commitment 
entered into on or before such date for the purpose of engaging in 
certain activities for which such individual was to be paid by one or 
more private foundations, any payment of compensation (or payment or 
reimbursement of expenses, including reasonable advances for expenses 
anticipated in the immediate future) by such private foundations to such 
individual for any continuous period after December 31, 1969, and prior 
to January 1, 1971, during which such individual remains on leave of 
absence to engage in such activities. A commitment is considered entered 
into on or before December 31, 1969, if on or before such date, the 
amount and nature of the payments to be made and the name of the 
individual receiving such payments were entered on the records of the 
payor, or were otherwise adequately evidenced, or the notice of the 
payment to be received was communicated to the payee orally or in 
writing.

[T.D. 7270, 38 FR 9493, Apr. 17, 1973, as amended by T.D. 7938, 49 FR 
3848, Jan. 31, 1984]