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IRS Follows Up on Interim Due Diligence Guidance Required in Grantmaking to Other Nonprofits

Private foundations and donor advised funds face excise taxes for grants made to other non-profit organizations that turn out to be merely supporting organizations for other charities.  The Pension Protection Act of 2006 subjects payments made by private foundations and donor advised funds to excise taxes under IRC sections 4942, 4945, and 4966, if grants are made to supporting organizations.

After a period of interim guidance,  the IRS has issued a Revenue Procedure that provides some comfort to grantor organizations regarding their due-diligence efforts.  So that private foundations can assure themselves that grants are not subject to these taxes, the IRS has issued Revenue Procedure 2009-32, allowing for them to rely on documentation of an organization’s status.  The new Revenue Procedure supercedes the IRS’ earlier interim guidance in Notice 2006-109, 2006-2 C.B. 1121.

The Revenue Procedure states that, “In determining whether a public charity is classified under 509(a)(1), (2), or (3) of the Code, a private foundation or a sponsoring organization that maintains a donor advised fund, acting in good faith, may rely on either: (1) the grantee’s current IRS letter recognizing the grantee as exempt from federal income tax and indicating the grantee’s public charity classification under § 509(a)(1), (2), or (3); or (2) information from the BMF [IRS Business Master File].”

The new Revenue Procedure continues to provide for allowance on third-party maintained BMF information meeting the IRS’ standards.

For the complete Revenue Procedure, click here.


Brian Shetler, Berliner Cohen trust and estate partner, focuses his practice on tax and estate administration issues.  Mr. Shetler works with corporate fiduciaries as well as families and individuals in establishing and carrying out plans to preserve and build legacies for generations.


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