Private Foundations: Tax Law and Compliance, Third Edition

by Bruce R. Hopkins and Jody Blazek,
John Wiley & Sons Inc., 2008, hardcover, 768 pp.

Only about 75,000 private foundations exist in the U.S. But like the people who create them, they exert an influence far beyond their numbers. Mostly, they do so by their largesse. Including community foundations, they distributed $36.5 billion in 2006, more than 12% of all charitable giving. Also, smaller family foundations have been increasing in number and volume of spending. Or at least they were before the current recession.

Private Foundations, part of Wiley’s Nonprofit Series, is a handy how-to reference for stewards of these charitable arms, bound as they are by the IRS Code and regulations. The book’s dual legal and accounting approach seamlessly reflects the teamwork of lawyer Bruce R. Hopkins, with his expertise representing tax-exempt organizations, and CPA Jody Blazek, with a similar specialty. Blazek has chaired and served on several AICPA committees on tax-exempt organizations. Both have written extensively on nonprofits, both together and separately.

The book is organized with an eye to procedural questions, from organizing and applying for tax-exempt status to managing mandatory distributions, to reporting annually to the IRS, to winding up a foundation’s affairs. Throughout, the authors provide checklists and samples of letters, reports and IRS forms, schedules and attachments. They give tips on navigating such hazards as an IRS examination, correcting a sanctionable error and seeking reasonable-cause abatement of excise taxes. They include a distribution timing plan for minimizing excise tax on investment income and a checklist for establishing reasonability of compensation to disqualified persons, an essential monitoring task if foundations are to avoid self-dealing penalties.

The book also helps readers understand the place of private foundations within the realm of tax-exempt charitable organizations and the historical background for their regulatory regime, comparing them with public charities and—particularly timely—setting forth the currently evolving strictures on donor-advised funds. Beyond helping foundations toe the legal line, the authors advise on administrative considerations as easily overlooked as state disclosure requirements for nonprofit corporations and as novel as how to use the Internet to best advantage. 

As they note in a preface, keeping such a book updated with changes in tax law can be frustrating. If it were only that easy. Investment losses that steepened in October 2008, when the book was released, have no doubt wrought still more momentous change. While guidance on what constitutes proscribed “jeopardizing investments,” for example, remains fairly settled, it’s safe to say that foundations have experienced some jeopardy, and from quarters neither they nor the IRS expected.

By JofA Senior Editor Paul Bonner