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2023 Study of Foundations
Add your voice to the 11th annual Council on Foundations-Commonfund Study of Foundations (CCSF), our sector’s premier tool for benchmarking investment performance, asset strategies, and return data to ensure philanthropy’s ongoing health!
The CCSF does more good the more good data it gets, and we look forward to including your foundation’s data in this year’s research by the June 5 deadline. If you have questions or need help, contact Allison Kaspriske at Commonfund Institute.
Legal Question of the Month with Ben McDearmon, Director of Legal Resources
Question: Is it permissible for a community foundation to make scholarships available to the children of foundation staff or board members?
Answer: While many community foundations adopt policies that make foundation staff or board members (or their dependents) ineligible to receive scholarships, that’s not necessarily a legal requirement.
Legally, the primary concern with allowing foundation board, staff, or members of their families to receive scholarships is that it could result in an excess benefit transaction under IRC section 4958 if the recipient is a “disqualified person” with respect to the foundation. While all board members are considered disqualified persons, that isn’t the case for all employees—only those who were in a position to exercise “substantial influence over the affairs of the organization” during the preceding 5 year period are considered to be disqualified persons. That means most foundation staff outside of senior leadership positions are likely not disqualified persons and there should be no excess benefit concern.
In addition, the Treasury Regulations at section 53.4958-4(a)(4)(v) suggest that even a disqualified person may receive certain grants from a charitable organization without creating an excess benefit transaction as long as the grants are awarded to the disqualified person solely because they are a member of a charitable class served by that organization. This likely means that a disqualified person who is a member of the charitable class served by a scholarship fund and who meets all of the fund’s other criteria could receive an award without issue.
That being said, it’s essential that no person who participates in the selection process is in a position to benefit from their actions, so staff or board members who serve on a selection committee must recuse themselves from that year’s process if a family member is under consideration. Many community foundations also want to avoid the potential public impression that foundation insiders are receiving preferential treatment. For that reason, it may still make sense to restrict eligibility for board and staff even though it isn’t legally required.
Council members are able to send their questions to our Legal team for expert advice and analysis. You can take advantage of this member benefit by becoming a member today.
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