Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 75-42

1975-1 C.B. 359

Sec. 4941

IRS Headnote

Self-dealing; grant by foundation to hospital; two trustees in common. A grant authorized by an exempt private foundation to an exempt hospital for modernization, replacement, and expansion does not constitute an act of self-dealing within the meaning of section 4941 of the Code even though two individuals serve as trustees of both organizations.

Full Text

Rev. Rul. 75-42

Advice has been requested whether an act of self-dealing within the meaning of section 4941 of the Internal Revenue Code of 1954 arises in the situation described below.

Two individuals serve as trustees for both a private foundation and a hospital which is a public charity. The individuals lack voting control in either organization. Both organizations are exempt from Federal income tax under section 501(c)(3) of the Code.

After consultation with outside experts, the private foundation's board of trustees authorized a large grant for the hospital for the purposes of modernization and replacement of equipment, building of two satellite out-patient clinics, and expansion of the hospital's teaching program. The two trustees serving on the two governing boards voted in favor of this grant program.

Section 4941(d)(1)(E) of the Code provides that the term "self-dealing" includes the transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a private foundation. Under section 4946(b), the term "disqualified person" includes a trustee.

Section 53.4941(d)-2(f)(2) of the Foundation Excise Tax Regulations provides that the fact that a disqualified person receives an incidental or tenuous benefit from the use by a foundation of its income or assets will not, by itself, make such use an act of self-dealing. As an example, a grant by a private foundation to a section 509(a)(1), (2) or (3) organization will not be an act of self-dealing merely because one of the section 509(a)(1), (2), or (3) organization's officers, directors, or trustees is also a manager of or a substantial contributor to the foundation.

Since any benefit to disqualified persons (two trustees herein) is incidental, the newly authorized grant program does not constitute self-dealing within the meaning of section 4941 of the Code.