Thursday, April 19, 2012

IRS Issues Proposed Regulations on Program-Related Investments

As reported by the Daily Tax Report, the Internal Revenue Service issued proposed regulations on private foundations' program-related investments (PRIs).  Under the proposed rules, more private foundations' investments will qualify as PRIs, thus avoiding the §4944 excise tax.  Under §4944, a private foundation's investments may trigger the excise tax if they jeopardize the foundation's ability to implement its exempt purposes.  Accordingly, the proposed regulations provide a broader range of investments that would not be considered as jeopardizing.  The proposed regulations do not amend or modify the existing §53.4944-3(b) regulations, but add nine new examples that "illustrate that a wider range of investments qualify as PRIs."   

In the explanation of the new rules, the IRS states the following:

[A] PRI may accomplish a variety of charitable purposes, such as advancing science, combatting environmental deterioration, and promoting the arts.  Several examples also demonstrate that an investment that funds activities in one or more foreign countries, including investments that alleviate the impact of a natural disaster or that fund educational programs for poor individuals, may further the accomplishment of charitable purposes and qualify as a PRI.  One example illustrates that the existence of a high potential rate of return on an investment does not, by itself, prevent the investment from qualifying as a PRI.  Another example illustrates that a private foundation's acceptance of an equity position in conjunction with making a loan does not necessarily prevent the investment from qualifying as a PRI, and two examples illustrate that a private foundation's provision of credit enhancement can qualify as a PRI.

The proposed regulations appeared in the Federal Register on April 19.  Comments and requests for a public hearing must be received by the IRS by July 18, 2012.



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