Treasury Issues New Examples or Program-Related Investments

Darren B. Moore's Nonprofit and Charitable Organizations Legal Blogs

Licensed for 17 years

Attorney in Fort Worth, TX

Darren B. Moore

Serving Fort Worth, TX

Shareholder at firm Bourland, Wall & Wenzel, P.C.

Serving Fort Worth, TX

Last month the Treasury Department and IRS issues an Advanced
Notice of Proposed Rulemaking which would modify the Treasury
Regulations to provide new examples of program-related investments
(PRIs) for private foundations.  This is a welcome development as these
examples provide further clarity with respect to the breadth of PRIs.

While foundations generally accomplish their charitable purposes (and
satisfy their payout requirement) by making grants to public charities,
the rules are actually much broader and include (among other qualifying
distributions), the making of PRIs.  PRIs are an alternative form of
financing to flow capital to charitable programs, a form that allows for
(and anticipates) repayment thereby enabling reinvestment of that same
capital and other charitable programs.  A program-related investment is
an investment that has a primary purpose of accomplishing one or more
charitable purposes, no significant purpose of producing income or
appreciation of property, and no purpose to accomplish prohibited
political purposes.  The Treasury Regulations have for the past 40 years
provided ten examples of program-related investments.  Because these
examples have not necessarily kept pace with the changes in forms of
financing and opportunities for the making of PRIs, the new examples
were needed.  These additional examples demonstrate the use of PRI’s in
other contexts (including international contexts) and with other forms
of financing (loans, equity investments, credit enhancement, etc.).  The
flexibility of PRIs and their allowance for reinvestment and
recirculation of capital make PRIs an attractive complement to a
foundation’s standard grantmaking activities.

The new examples (which can be relied upon now) can be found at this link.  For a more detailed discussion on the rules related to program-related investments see the Resources and Seminars page www.bwwlaw.com
to download the paper written by Darren B. Moore of BWW’s Nonprofit
Organizations Practice Group presented last August at the State Bar of
Texas’s Governance of Nonprofit Organizations Course.

Mr. Moore can be reached at dmoore@bwwlaw.com or (817) 877-1088.

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