By Ruth Masterson, ASF

One myth about self-dealing is the idea that identifying a prohibited self-dealing transaction relies on who benefits from the transaction.

Because that’s not the case.

If your private foundation is engaged in a transaction that you think is okay because the foundation benefits, or because the other party doesn’t benefit at all or at least not very much, then you’ll be wrong about self-dealing pretty often. Who benefits is simply not what the IRS looks at when determining whether something is self-dealing.

What is self-dealing, then? What does the IRS look for when imposing penalties?

A transaction is self-dealing if:

• It’s between the foundation and a disqualified person,
• It’s on the list of self-dealing transactions, and
• It’s not on the list of exceptions to those transactions.

The great news is that this is a simple, short list to follow. The less-than-great news is that each of these three points has a whole lot of information behind it.

If you know who your foundation’s disqualified persons are, what the list of self-dealing transactions includes, and what the exceptions are, you’re good to go. You can ditch any notion of “who benefits” and follow the list. Don’t think too hard about it. Just follow the steps, and you can identify self-dealing with confidence.

By the same token, you will also know when a situation is too complicated to figure out yourself. If you have a complex situation, we always encourage you to consult an attorney. After all, the self-dealing rules, along with the other private foundation rules, are known for being tricky and counterintuitive.

Learn more about self-dealing by tapping into ASF’s publicly available resources: a primer on self-dealing; our Professional Directory of Foundation Advisors, a searchable database that you can use to find an attorney to help; or sessions on self-dealing at the 2012 National Conference.

ASF members also can access additional resources on self-dealing, or turn to our Q&A service by calling 888-212-9922 or e-mailing [email protected] for a tailored response from an ASF staff person.